Kate Spade & Co (KATE) 10-Q 2013 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended	September 28, 2013
or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to

Commission file number:   1-10689 

     FIFTH & PACIFIC COMPANIES, INC.     

(Exact name of registrant as specified in its charter)

Delaware		13-2842791
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1441 Broadway, New York, New York		10018
(Address of principal executive offices)		(Zip Code)
	(212) 354-4900
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x  Accelerated filer o  Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No x

The number of shares of the Company’s Common Stock, par value $1.00 per share, outstanding at October 25, 2013 was 122,743,809.

FIFTH & PACIFIC COMPANIES, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

September 28, 2013

(Unaudited)

		PAGE NUMBER
PART I -	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of September 28, 2013, December 29, 2012 and September 29, 2012	4
	Condensed Consolidated Statements of Operations for the Nine and Three Month Periods Ended September 28, 2013 and September 29, 2012	5
	Condensed Consolidated Statements of Comprehensive Loss for the Nine and Three Month Periods Ended September 28, 2013 and September 29, 2012	6
	Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 28, 2013 and September 29, 2012	7
	Notes to Condensed Consolidated Financial Statements	8 – 42
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43 – 61
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61 – 62
Item 4.	Controls and Procedures	62
PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings	62 – 63
Item 1A.	Risk Factors	63 – 66
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66 - 67
Item 5.	Other Information	67
Item 6.	Exhibits	67
SIGNATURES		68

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in, or incorporated by reference into, this Form 10-Q, future filings by us with the Securities and Exchange Commission, our press releases, and oral statements made by, or with the approval of, our authorized personnel, that relate to our future performance or future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Such statements are indicated by words or phrases such as “intend,” “anticipate,” “plan,” “estimate,” “target,” “aim,” “forecast,” “project,” “expect,” “believe,” “we are optimistic that we can,” “current visibility indicates that we forecast,” “contemplation” or “currently envisions” and similar phrases.

Although we believe that the expectations reflected in these forward-looking statements are reasonable, these expectations may not prove to be correct or we may not achieve the financial results, savings or other benefits anticipated in the forward-looking statements. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, some of which may be beyond our control, that could cause actual results to differ materially from those suggested by the forward-looking statements, including, without limitation:

· our ability to continue to have the necessary liquidity, through cash flows from operations and availability under our amended and restated revolving credit facility, may be adversely impacted by a number of factors, including the level of our operating cash flows, our ability to maintain established levels of availability under, and to comply with the financial and other covenants included in, our amended and restated revolving credit facility and the borrowing base requirement in our amended and restated revolving credit facility that limits the amount of borrowings we may make based on a formula of, among other things, eligible cash, accounts receivable and inventory and the minimum availability covenant in our amended and restated revolving credit facility that requires us to maintain availability in excess of an agreed upon level;

· general economic conditions in the United States, Asia, Europe and other parts of the world, including the impact of income tax changes and debt reduction efforts in the United States;

· levels of consumer confidence, consumer spending and purchases of discretionary items, including fashion apparel and related products, such as ours;

· restrictions in the credit and capital markets, which would impair our ability to access additional sources of liquidity, if needed;

· changes in the cost of raw materials, labor, advertising and transportation, which could impact prices of our products;

· our ability to successfully implement our long-term strategic plans, including the continued growth of our KATE SPADE brand, our ability to sustain the recent improved performance in our LUCKY BRAND business and our ability to expand into markets outside of the US such as China, Japan and Brazil and the risks associated with such expansion;

· risks associated with the sale of the JUICY COUTURE intellectual property to Authentic Brands Group, including our ability to complete and implement the transition plan for the JUICY COUTURE business in a satisfactory manner and to manage the associated transition costs, the impact of the transition plan on our relationships with our employees, our major customers, vendors and landlords and unanticipated expenses and charges that may occur as a result of the transition plan, such as litigation risks, including litigation regarding employment and workers’ compensation;

· our dependence on a limited number of large US department store customers, and the risk of consolidations, restructurings, bankruptcies and other ownership changes in the retail industry and financial difficulties at our larger department store customers;

· whether we will be successful operating the KATE SPADE business in Japan and the risks associated with such operation;

· our ability to anticipate and respond to constantly changing consumer demands and tastes and fashion trends, across multiple brands, product lines, shopping channels and geographies;

· our ability to attract and retain talented, highly qualified executives, and maintain satisfactory relationships with our employees;

· our ability to adequately establish, defend and protect our trademarks and other proprietary rights;

· our ability to successfully develop or acquire new product lines, such as the KATE SPADE SATURDAY line, or enter new markets, such as China, Japan and Brazil or product categories, and risks related to such new lines, markets or categories;

· risks associated with the dependence of our ADELINGTON DESIGN GROUP business on third party arrangements and partners;

· the impact of the highly competitive nature of the markets within which we operate, both within the US and abroad;

· our reliance on independent foreign manufacturers, including the risk of their failure to comply with safety standards or our policies regarding labor practices;

· risks associated with our buying/sourcing agreement with Li & Fung Limited, which results in a single third party foreign buying/sourcing agent for a significant portion of our products;

· risks associated with our arrangement to continue to operate the Ohio distribution facility with a third party operations and labor management company that provides distribution operations services, including risks related to increased operating expenses, systems capabilities and operating under a third party arrangement;

· a variety of legal, regulatory, political and economic risks, including risks related to the importation and exportation of product, tariffs and other trade barriers;

· our ability to adapt to and compete effectively in the current quota environment in which general quota has expired on apparel products, but political activity seeking to re-impose quota has been initiated or threatened;

· our exposure to currency fluctuations;

· risks associated with material disruptions in our information technology systems, both owned and licensed, and with our third party e-commerce platforms and operations;

· risks associated with privacy breaches;

· risks associated with credit card fraud and identity theft;

· risks associated with third party service providers, both domestic and overseas, including service providers in the area of e-commerce;

· limitations on our ability to utilize all or a portion of our US deferred tax assets if we experience an “ownership change”; and

· the outcome of current and future litigation and other proceedings in which we are involved.

The list of factors above is illustrative, but by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All subsequent written and oral forward-looking statements concerning the matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are qualified by these cautionary statements.

Forward-looking statements are based on current expectations only and are not guarantees of future performance, and are subject to certain risks, uncertainties and assumptions, including those described in “Item 1A – Risk Factors” in this report as well as in our 2012 Annual Report on Form 10-K. We may change our intentions, beliefs or expectations at any time and without notice, based upon any change in our assumptions or otherwise. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. In addition, some factors are beyond our control. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIFTH & PACIFIC COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

		September 28, 2013			December 29, 2012			September 29, 2012
Assets
Current Assets:
Cash and cash equivalents	$	6,832		$	59,402		$	31,221
Accounts receivable - trade, net		121,833			121,591			126,655
Inventories, net		310,638			220,538			245,578
Deferred income taxes		806			1,259			170
Other current assets		58,846			49,466			47,917
Total current assets		498,955			452,256			451,541
Property and Equipment, Net		244,471			219,963			224,587
Goodwill		52,679			60,223			1,574
Intangibles, Net		122,602			131,350			116,623
Deferred Income Taxes		64			65			--
Other Assets		38,241			38,666			49,027
Total Assets	$	957,012		$	902,523		$	843,352
Liabilities and Stockholders’ Deficit
Current Liabilities:
Short-term borrowings	$	137,440		$	4,345		$	4,681
Convertible Senior Notes		--			18,287			28,687
Accounts payable		217,754			174,705			168,849
Accrued expenses		209,370			217,464			215,001
Income taxes payable		1,326			932			794
Deferred income taxes		--			116			16
Total current liabilities		565,890			415,849			418,028
Long-Term Debt		391,279			383,662			384,841
Other Non-Current Liabilities		198,878			208,916			216,957
Deferred Income Taxes		21,680			21,026			15,724
Commitments and Contingencies (Note 11)
Stockholders’ Deficit:
Preferred stock, $0.01 par value, authorized shares – 50,000,000, issued shares – none		--			--			--
Common stock, $1.00 par value, authorized shares – 250,000,000, issued shares – 176,437,234		176,437			176,437			176,437
Capital in excess of par value		151,572			147,018			147,137
Retained earnings		838,027			1,071,551			1,094,421
Accumulated other comprehensive loss		(17,201	)		(10,074	)		(5,854	)
		1,148,835			1,384,932			1,412,141
Common stock in treasury, at cost – 53,750,374, 59,851,190 and 63,237,133 shares		(1,369,550	)		(1,511,862	)		(1,604,339	)
Total stockholders’ deficit		(220,715	)		(126,930	)		(192,198	)
Total Liabilities and Stockholders’ Deficit	$	957,012		$	902,523		$	843,352

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

5

FIFTH & PACIFIC COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Nine Months Ended						Three Months Ended
	September 28, 2013 (39 Weeks)			September 29, 2012 (39 Weeks)			September 28, 2013 (13 Weeks)			September 29, 2012 (13 Weeks)
Net Sales	$	1,184,367		$	1,018,561		$	430,604		$	364,556
Cost of goods sold	521,357			445,620			187,460			161,439
Gross Profit	663,010			572,941			243,144			203,117
Selling, general & administrative expenses	701,289			643,707			242,167			203,398
Impairment of intangible asset	3,300			--			3,300			--
Operating Loss	(41,579		)	(70,766		)	(2,323		)	(281		)
Other (expense) income, net	(1,462		)	1,479			1,361			(1,038		)
Impairment of cost investment	(6,109		)	--			--			--
Loss on extinguishment of debt	(1,707		)	(8,669		)	(599		)	(3,023		)
Interest expense, net	(36,062		)	(37,836		)	(12,087		)	(13,228		)
Loss Before Provision for Income Taxes	(86,919		)	(115,792		)	(13,648		)	(17,570		)
Provision for income taxes	3,862			4,882			1,253			1,823
Loss from Continuing Operations	(90,781		)	(120,674		)	(14,901		)	(19,393		)
Discontinued operations, net of income taxes	(21,396		)	(10,865		)	(1,965		)	592
Net Loss	$	(112,177	)	$	(131,539	)	$	(16,866	)	$	(18,801	)
Earnings per Share:
Basic and Diluted
Loss from Continuing Operations	$	(0.75	)	$	(1.12	)	$	(0.12	)	$	(0.17	)
Net Loss	$	(0.93	)	$	(1.22	)	$	(0.14	)	$	(0.17	)
Weighted Average Shares, Basic and Diluted	120,480			107,692			122,396			113,109

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

6

FIFTH & PACIFIC COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	Nine Months Ended						Three Months Ended
	September 28, 2013 (39 Weeks)			September 29, 2012 (39 Weeks)			September 28, 2013 (13 Weeks)			September 29, 2012 (13 Weeks)
Net Loss	$	(112,177	)	$	(131,539	)	$	(16,866	)	$	(18,801	)
Other Comprehensive (Loss) Income, Net of Income Taxes:
Cumulative translation adjustment	(7,671		)	229			257			247
Unrealized losses on available-for-sale securities, net of income taxes of $0	--			(159		)	--			(114		)
Change in fair value of cash flow hedges, net of income tax expense (benefit) of $333, $0, $(288) and $0, respectively	544			--			(469		)	--
Comprehensive Loss	$	(119,304	)	$	(131,469	)	$	(17,078	)	$	(18,668	)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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FIFTH & PACIFIC COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended
	September 28, 2013 (39 Weeks)			September 29, 2012 (39 Weeks)
Cash Flows from Operating Activities:
Net loss	$	(112,177	)	$	(131,539	)
Adjustments to arrive at loss from continuing operations	21,396			10,865
Loss from continuing operations	(90,781		)	(120,674		)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities:
Depreciation and amortization	52,295			54,783
Impairment of intangible asset	3,300			--
Loss on asset disposals and impairments, including streamlining initiatives, net	9,392			31,378
Share-based compensation	5,206			7,157
Loss on extinguishment of debt	1,707			8,669
Foreign currency losses (gains), net	6,870			(174		)
Other, net	1,051			112
Changes in assets and liabilities:
Increase in accounts receivable – trade, net	(1,290		)	(6,851		)
Increase in inventories, net	(92,665		)	(51,950		)
(Increase) decrease in other current and non-current assets	(12,918		)	5,187
Increase in accounts payable	44,812			26,944
Decrease in accrued expenses and other non-current liabilities	(27,070		)	(29,933		)
Net change in income tax assets and liabilities	2,982			3,844
Net cash used in operating activities of discontinued operations	(25,065		)	(15,773		)
Net cash used in operating activities	(122,174		)	(87,281		)
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment	20,264			--
Purchases of property and equipment	(77,787		)	(55,180		)
Payments for in-store merchandise shops	(2,479		)	(1,767		)
Investments in and advances to equity investees	(5,500		)	(5,000		)
Net proceeds from disposition	4,000			--
Other, net	101			236
Net cash used in investing activities of discontinued operations	(2,234		)	--
Net cash used in investing activities	(63,635		)	(61,711		)
Cash Flows from Financing Activities:
Proceeds from borrowings under revolving credit agreement	495,696			113,389
Repayment of borrowings under revolving credit agreement	(359,543		)	(113,389		)
Proceeds from issuance of Senior Secured Notes	--			164,540
Repayment of Euro Notes	--			(158,027		)
Proceeds from capital lease	8,673			--
Principal payments under capital lease obligations	(3,747		)	(3,331		)
Proceeds from exercise of stock options	2,326			6,049
Payment of deferred financing fees	(5,271		)	(6,064		)
Net cash provided by financing activities	138,134			3,167
Effect of Exchange Rate Changes on Cash and Cash Equivalents	(4,895		)	(2,890		)
Net Change in Cash and Cash Equivalents	(52,570		)	(148,715		)
Cash and Cash Equivalents at Beginning of Period	59,402			179,936
Cash and Cash Equivalents at End of Period	$	6,832		$	31,221

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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FIFTH & PACIFIC COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise noted, all amounts are in thousands, except per share amounts)

(Unaudited)

1.    BASIS OF PRESENTATION

The Condensed Consolidated Financial Statements of Fifth & Pacific Companies, Inc. and its wholly-owned and majority-owned subsidiaries (the “Company”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted from this report, as is permitted by such rules and regulations; however, the Company believes that its disclosures are adequate to make the information presented not misleading. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2012 Annual Report on Form 10-K. Information presented as of December 29, 2012 is derived from audited financial statements.

The Company’s segment reporting structure reflects a brand-focused approach, designed to optimize the operational coordination and resource allocation of the Company’s businesses across multiple functional areas including specialty retail, retail outlets, concessions, wholesale apparel, wholesale non-apparel, e-commerce and licensing. The four reportable segments described below represent the Company’s brand-based activities for which separate financial information is available and which is utilized on a regular basis by the Company’s chief operating decision maker (“CODM”) to evaluate performance and allocate resources. In identifying the Company’s reportable segments, the Company considered economic characteristics, as well as products, customers, sales growth potential and long-term profitability. As such, the Company reports its operations in four reportable segments, as follows:

·JUICY COUTURE segment – consists of the specialty retail, outlet, concession, wholesale apparel, wholesale non-apparel (including accessories, jewelry and handbags), e-commerce and licensing operations of the JUICY COUTURE brand.

·KATE SPADE segment – consists of the specialty retail, outlet, concession, wholesale apparel, wholesale non-apparel, e-commerce and licensing operations of the KATE SPADE, KATE SPADE SATURDAY and JACK SPADE brands.

·LUCKY BRAND segment – consists of the specialty retail, outlet, wholesale apparel, wholesale non-apparel, e-commerce and licensing operations of LUCKY BRAND.

·Adelington Design Group segment(*) – consists of: (i) exclusive arrangements to supply jewelry for the LIZ CLAIBORNE and MONET brands; (ii) the wholesale non-apparel operations of the TRIFARI brand and licensed KENSIE brand; (iii) the wholesale apparel and wholesale non-apparel operations of the licensed LIZWEAR brand and other brands; and (iv) the licensed LIZ CLAIBORNE NEW YORK brand.

(*) The Company’s agreement to supply DANA BUCHMAN branded jewelry to Kohl’s Corporation (“Kohl’s”) expired on October 11, 2013.

The operations of the Company’s former licensed DKNY ® Jeans family of brands concluded in January 2012 and were included in the results of the Adelington Design Group segment.

The activities of the Company’s former global Mexx business, its KENSIE, KENSIE GIRL and MAC & JAC brands, closed LIZ CLAIBORNE concessions in Europe and closed MONET concessions in Europe have been segregated and reported as discontinued operations for all periods presented. The Company continues activities with the LIZ CLAIBORNE family of brands, MONET brand and DANA BUCHMAN brand until the expiration of the supply agreement with Kohl’s on October 11, 2013 and therefore the activities of those brands have not been presented as discontinued operations.

Summarized financial data for the aforementioned brands that are classified as discontinued operations are provided in Note 3 – Discontinued Operations.

9

On October 31, 2012, the Company acquired the 51.0% interest (“KSJ Buyout”) held by Sanei International Co., Ltd (“Sanei”) in Kate Spade Japan Co., Ltd. (“KSJ”). KSJ was a joint venture that was formed between Sanei and KATE SPADE in August 2009. KSJ operated the KATE SPADE, KATE SPADE SATURDAY and JACK SPADE businesses in Japan, and KATE SPADE will continue to operate such businesses in Japan through its Japanese subsidiary. The purchase price for the KSJ Buyout was $41.0 million, net of $0.4 million of cash acquired (see Note 2 – Acquisition).

In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal recurring nature, necessary for a fair presentation of the results for the reported interim periods. Results of operations for interim periods are not necessarily indicative of results for the full year. Management has evaluated events or transactions that have occurred from the balance sheet date through the date the Company issued these financial statements (see Note 21 – Subsequent Events).

NATURE OF OPERATIONS

Fifth & Pacific Companies, Inc. is engaged primarily in the design and marketing of a broad range of apparel and accessories. The Company’s fiscal year ends on the Saturday closest to December 31. The 2013 fiscal year, ending December 28, 2013, reflects a 52-week period, resulting in a 13-week, three-month period and a 39-week, nine-month period for the third quarter. The 2012 fiscal year, ending December 29, 2012, reflects a 52-week period, resulting in a 13-week, three-month period and a 39-week, nine-month period for the third quarter.

PRINCIPLES OF CONSOLIDATION

The Condensed Consolidated Financial Statements include the accounts of the Company. All inter-company balances and transactions have been eliminated in consolidation.

USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES

The Company’s critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations in conformity with US GAAP. These critical accounting policies are applied in a consistent manner. The Company’s critical accounting policies are summarized in Note 1 of Notes to Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

The application of critical accounting policies requires that the Company make estimates and assumptions about future events and apply judgments that affect the reported amounts of revenues and expenses. Estimates by their nature are based on judgments and available information. Therefore, actual results could materially differ from those estimates under different assumptions and conditions. The Company continues to monitor the critical accounting policies to ensure proper application of current rules and regulations. During the third quarter of 2013, there were no significant changes in the critical accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

On December 30, 2012, the first day of the Company’s 2013 fiscal year, the Company adopted new accounting guidance on testing indefinite-lived intangible assets for impairment, which provides an entity the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. The adoption of the new accounting guidance did not affect the Company’s financial position, results of operations or cash flows.

On December 30, 2012, the Company adopted new accounting guidance on comprehensive income, which requires an entity to prospectively provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. The adoption of the new accounting guidance

10

did not affect the Company’s financial position, results of operations or cash flows, but required additional disclosure (see Note 4 – Stockholders’ Deficit).

2.    ACQUISITION

On October 31, 2012, a subsidiary of the Company acquired the remaining 51.0% interest in KSJ held by Sanei. KSJ was a joint venture that was formed between Sanei and KATE SPADE in August 2009. KSJ operated the KATE SPADE, KATE SPADE SATURDAY and JACK SPADE businesses in Japan, and the Company continues to operate such businesses in Japan through its Japanese subsidiary.

The purchase price for KSJ, including post-closing adjustments was 3.308 billion yen or $41.4 million.

Prior to obtaining control on October 31, 2012, the Company accounted for the investment in KSJ under the equity method. Upon obtaining control, the transaction was accounted for as an “acquisition achieved in stages,” in accordance with US GAAP. Accordingly, the Company re-measured the previously held equity interest in KSJ and adjusted it to fair value utilizing an income approach based on expected future after tax cash flows of KSJ discounted to reflect risk associated with those cash flows and a market approach based on earnings and revenue multiples that other purchasers in the market would have paid for that business. The fair value of the Company’s equity interest at the acquisition date was $47.2 million. The difference between the fair value of the Company’s ownership in KSJ and the Company’s carrying value of its investment of $7.1 million resulted in the recognition of a gain of $40.1 million in the fourth quarter of 2012. The results of operations for KSJ have been included in the Company’s consolidated results since October 31, 2012. KSJ generated $72.4 million of net sales and $2.2 million of net loss for the nine months ended September 28, 2013 and $24.9 million of net sales and $0.7 million of net loss for the three months ended September 28, 2013. KSJ also generated $5.2 million and $3.0 million of incremental Adjusted EBITDA for the nine and three months ended September 28, 2013. Adjusted EBITDA is the Company’s measure of segment profitability, as discussed in Note 15 – Segment Reporting.

The allocation of the purchase price to the assets acquired and liabilities assumed was based upon the estimated fair values at the date of acquisition. The excess of the purchase price over the net tangible and identifiable intangible assets is reflected as goodwill. Accordingly, the Company recorded $63.4 million of goodwill, which is reflected in the KATE SPADE reportable segment. None of the recorded goodwill is deductible for income tax purposes.

The following unaudited pro forma financial information for the nine and three months ended September 29, 2012 reflects the results of continuing operations of the Company as if the KSJ Buyout had been completed on January 1, 2012. Pro forma adjustments have been made for changes in depreciation and amortization expenses related to the valuation of the acquired tangible and intangible assets at fair value, the elimination of non-recurring items and the addition of incremental costs related to debt used to finance the acquisition.

	Nine Months Ended		Three Months Ended
In thousands, except per share amounts	September 29, 2012 (39 Weeks)		September 29, 2012 (13 Weeks)
Net sales	$ 1,084,329		$ 387,086
Gross profit	616,541		217,865
Operating (loss) income	(67,284	)	56
Loss before provision for income taxes	(112,723	)	(17,350	)
Loss from continuing operations	(119,016	)	(19,236	)
Diluted loss per share from continuing operations	(1.11	)	(0.17	)

The unaudited pro forma financial information is presented for information purposes only. It is not necessarily indicative of what the Company’s financial position or results of operations actually would have been if the Company completed the acquisition at the dates indicated, nor does it purport to project the Company’s future financial position or operating results.

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3.    DISCONTINUED OPERATIONS

The Company has completed various disposal transactions including: (i) the closure of the LIZ CLAIBORNE concessions in Europe in the first quarter of 2011; (ii) the closure of the MONET concessions in Europe in December 2011; (iii) the sale of an 81.25% interest in the former global Mexx business in October 2011; and (iv) the sale of the KENSIE, KENSIE GIRL and MAC & JAC trademarks in October 2011.

The Company recorded pretax charges (income) of $19.2 million and $7.9 million during the nine months ended September 28, 2013 and September 29, 2012, respectively, and $1.5 million and $(1.0) million during the three months ended September 28, 2013 and September 29, 2012, respectively, to reflect the estimated difference between the carrying value of the net assets disposed and their estimated fair value, less costs to dispose, including transaction costs.

Summarized results of discontinued operations are as follows:

	Nine Months Ended						Three Months Ended
	September 28, 2013 (39 Weeks)			September 29, 2012 (39 Weeks)			September 28, 2013 (13 Weeks)			September 29, 2012 (13 Weeks)
In thousands
Net sales	$	(23	)	$	1,615		$	(1	)	$	(159	)
Loss before (benefit) provision for income taxes	$	(2,275	)	$	(4,837	)	$	(443	)	$	(364	)
(Benefit) provision for income taxes	(128		)	(1,867		)	14			20
Loss from discontinued operations, net of income taxes	$	(2,147	)	$	(2,970	)	$	(457	)	$	(384	)
(Loss) income on disposal of discontinued operations, net of income taxes	$	(19,249	)	$	(7,895	)	$	(1,508	)	$	976

For the nine months ended September 28, 2013 and September 29, 2012, the Company recorded charges of $0.5 million and $5.1 million, respectively, and $0.4 million for the three months ended September 28, 2013, related to its streamlining initiatives within Discontinued operations, net of income taxes.

4.    STOCKHOLDERS’ DEFICIT

Activity for the nine months ended September 28, 2013 in the Capital in excess of par value, Retained earnings and Common stock in treasury, at cost accounts was as follows:

In thousands	Capital in Excess of Par Value			Retained Earnings			Common Stock in Treasury, at Cost
Balance as of December 29, 2012	$	147,018		$	1,071,551		$	(1,511,862	)
Net loss	--			(112,177		)	--
Exercise of stock options	--			(3,773		)	6,099
Restricted shares issued, net of cancellations and shares withheld for taxes	--			(5,344		)	3,212
Share-based compensation	5,206			--			--
Exchanges of Convertible Senior Notes, net	(652		)	(112,230		)	133,001
Balance as of September 28, 2013	$	151,572		$	838,027		$	(1,369,550	)

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Activity for the nine months ended September 29, 2012 in the Capital in excess of par value, Retained earnings and Common stock in treasury, at cost accounts was as follows:

In thousands	Capital in Excess of Par Value			Retained Earnings			Common Stock in Treasury, at Cost
Balance as of December 31, 2011	$	302,330		$	1,246,063		$	(1,827,892	)
Net loss	--			(131,539		)	--
Exercise of stock options	(10,642		)	(2,197		)	18,888
Restricted shares issued, net of cancellations and shares withheld for taxes	(3,951		)	(142		)	2,772
Share-based compensation	7,157			--			--
Dividend equivalent units vested	--			(2		)	2
Exchange of Convertible Senior Notes, net	(147,757		)	(17,762		)	201,891
Balance as of September 29, 2012	$	147,137		$	1,094,421		$	(1,604,339	)

Accumulated other comprehensive (loss) income consisted of the following:

In thousands	September 28, 2013			December 29, 2012			September 29, 2012
Cumulative translation adjustment	$	(17,745	)	$	(10,074	)	$	(5,855	)
Unrealized gains on cash flow hedging derivatives, net of income tax expense of $333	544			--			--
Unrealized gains on available-for-sale securities, net of income taxes of $0	--			--			1
Accumulated other comprehensive loss, net of income taxes	$	(17,201	)	$	(10,074	)	$	(5,854	)

The following table presents the change in each component of Accumulated other comprehensive (loss) income, net of income taxes for the nine months ended September 28, 2013:

In thousands	Cumulative Translation Adjustment				Unrealized Gains on Cash Flow Hedging Derivatives
Balance as of December 29, 2012		$	(10,074	)		$	--
Other comprehensive (loss) income before reclassification		(7,671		)		1,099
Amounts reclassified from accumulated other comprehensive income		--				(555		)
Net current-period other comprehensive (loss) income		(7,671		)		544
Balance as of September 28, 2013		$	(17,745	)		$	544

The following table presents the change in each component of Accumulated other comprehensive (loss) income, net of income taxes for the three months ended September 28, 2013:

In thousands	Cumulative Translation Adjustment				Unrealized Gains on Cash Flow Hedging Derivatives
Balance as of June 29, 2013		$	(18,002	)		$	1,013
Other comprehensive income (loss) before reclassification		257				(101		)
Amounts reclassified from accumulated other comprehensive income		--				(368		)
Net current-period other comprehensive (loss) income		257				(469		)
Balance as of September 28, 2013		$	(17,745	)		$	544

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5.    INVENTORIES, NET

Inventories, net consisted of the following:

In thousands	September 28, 2013			December 29, 2012			September 29, 2012
Raw materials and work in process		$	1,999		$	299		$	195
Finished goods		308,639			220,239			245,383
Total inventories, net		$	310,638		$	220,538		$	245,578

6.    PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

In thousands	September 28, 2013			December 29, 2012			September 29, 2012
Land and buildings (a)		$	9,300		$	45,988		$	48,893
Machinery and equipment		209,196			233,742			229,686
Furniture and fixtures		142,707			131,181			137,839
Leasehold improvements		269,515			258,527			257,969
		630,718			669,438			674,387
Less: Accumulated depreciation and amortization		386,247			449,475			449,800
Total property and equipment, net		$	244,471		$	219,963		$	224,587

(a)The decrease in the balance compared to September 29, 2012 reflected the sale and leaseback of the Company’s North Bergen, NJ office and West Chester, OH distribution center (the “Ohio Facility”).

Depreciation and amortization expense on property and equipment for the nine months ended September 28, 2013 and September 29, 2012 was $42.7 million and $42.9 million, respectively, which included depreciation for property and equipment under capital leases of $1.7 million and $2.2 million, respectively. Depreciation and amortization expense on property and equipment for the three months ended September 28, 2013 and September 29, 2012 was $14.4 million and $13.2 million, respectively, which included depreciation for property and equipment under capital leases of $0.7 million and $0.7 million, respectively. Property and equipment under capital leases was $31.9 million as of September 28, 2013 and $22.6 million as of December 29, 2012 and September 29, 2012.

During the third quarter of 2013, the Company sold the Ohio Facility for net proceeds of $20.3 million and entered into a sale-leaseback arrangement with the buyer for a 10-year term, which was classified as an operating lease. The Company realized a gain of $9.5 million associated with the sale-leaseback, which has been deferred and will be recognized as a reduction to Selling, general & administrative expenses (“SG&A”) over the lease term.

During the second quarter of 2013, the Company sold its North Bergen, NJ office for net proceeds of $8.7 million. The Company entered into a sale-leaseback arrangement with the buyer for a 12-year term with two five-year renewal options, which was classified as a capital lease (see Note 11 – Commitments and Contingencies).

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7.     GOODWILL AND INTANGIBLES, NET

The following tables disclose the carrying value of all intangible assets:

In thousands	Weighted Average Amortization Period	September 28, 2013			December 29, 2012			September 29, 2012
Amortized intangible assets:
Gross carrying amount:
Owned trademarks (a)	5 years	$	3,479		$	1,479		$	1,479
Customer relationships	12 years	7,335			7,457			6,439
Merchandising rights	4 years	17,188			19,174			17,578
Reacquired rights (b)	3 years	12,131			13,797			--
Other	4 years	2,322			2,322			2,322
Subtotal		42,455			44,229			27,818
Accumulated amortization:
Owned trademarks		(1,475		)	(1,356		)	(1,316		)
Customer relationships		(3,843		)	(3,138		)	(2,927		)
Merchandising rights		(10,974		)	(13,131		)	(12,548		)
Reacquired rights		(3,707		)	(812		)	--
Other		(2,054		)	(1,942		)	(1,904		)
Subtotal		(22,053		)	(20,379		)	(18,695		)
Net:
Owned trademarks		2,004			123			163
Customer relationships		3,492			4,319			3,512
Merchandising rights		6,214			6,043			5,030
Reacquired rights		8,424			12,985			--
Other		268			380			418
Total amortized intangible assets, net		20,402			23,850			9,123
Unamortized intangible assets:
Owned trademarks (c)		102,200			107,500			107,500
Total intangible assets		$	122,602		$	131,350		$	116,623
Goodwill (b)		$	52,679		$	60,223		$	1,574

(a)	The increase in the balance compared to September 29, 2012 reflected the reclassification of the fair value of the TRIFARI trademark, which was classified as an unamortized intangible asset prior to September 28, 2013.
(b)	The increase in the balance compared to September 29, 2012 reflected the KSJ Buyout (see Note 2 – Acquisition).
(c)	The decrease in the balance compared to September 29, 2012 reflected a non-cash impairment charge of $3.3 million in the Company’s Adelington Design Group segment related to the TRIFARI trademark and the reclassification of the remaining carrying value of such trademark to an amortized intangible asset as of September 28, 2013.

Amortization expense of intangible assets was $5.7 million and $2.4 million for the nine months ended September 28, 2013 and September 29, 2012, respectively, and $1.9 million and $0.7 million for the three months ended September 28, 2013 and September 29, 2012, respectively.

The estimated amortization expense for intangible assets for the next five fiscal years is as follows:

Fiscal Year	Amortization Expense
(In millions)
2013	$         6.2
2014	6.4
2015	5.2
2016	1.9
2017	1.1

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The changes in carrying amount of goodwill for the nine months ended September 28, 2013 were as follows:

In thousands	KATE SPADE				Adelington Design Group				Total
Balance as of December 29, 2012		$	58,669			$	1,554			$	60,223
Translation adjustment		(7,493		)		(51		)		(7,544		)
Balance as of September 28, 2013		$	51,176			$	1,503			$	52,679

The changes in carrying amount of goodwill for the nine months ended September 29, 2012 were as follows:

In thousands	Adelington Design Group			Total
Balance as of December 31, 2011		$	1,519		$	1,519
Translation adjustment		55			55
Balance as of September 29, 2012		$	1,574		$	1,574

The Company completed its annual goodwill impairment tests as of the first day of the third quarter of 2013. No impairment was recognized as of that date.

8.    INCOME TAXES

During 2013 and 2012, the Company continued to record a full valuation allowance on deferred tax assets in most jurisdictions due to the combination of its history of pretax losses and its inability to carry back tax losses or credits.

The Company’s provision for income taxes for the nine and three months ended September 28, 2013 and September 29, 2012 primarily represented increases in deferred tax liabilities for indefinite-lived intangible assets, current tax on operations in certain jurisdictions and an increase in the accrual for interest related to uncertain tax positions.

The number of years with open tax audits varies depending upon the tax jurisdiction. The major tax jurisdictions include the US, Japan, Canada and the United Kingdom. The Company is no longer subject to US Federal examination by the Internal Revenue Service (“IRS”) for the years before 2006 and, with a few exceptions, this applies to tax examinations by state authorities for the years before 2009. As a result of a US Federal tax law change extending the carryback period from two to five years and the Company’s carryback of its 2009 tax loss to 2004 and 2005, the IRS has the ability to re-open its past examinations of 2004 and 2005.

The Company expects a reduction in the liability for unrecognized tax benefits by an amount between $1.2 million and $2.6 million within the next 12 months due to the expiration of the statute of limitations and various potential tax settlements. As of September 28, 2013, uncertain tax positions of $84.9 million exist, which would provide an effective rate impact in the future, if subsequently recognized.

9.    DEBT AND LINES OF CREDIT

Long-term debt consisted of the following:

In thousands	September 28, 2013			December 29, 2012			September 29, 2012
6.0% Convertible Senior Notes, due June 2014 (a)		$	--		$	18,287		$	28,687
10.5% Senior Secured Notes, due April 2019		382,588			383,662			384,033
Revolving credit facility		136,233			--			--
Capital lease obligations (b)		9,898			4,345			5,489
Total debt		528,719			406,294			418,209
Less: Short-term borrowings (c)		137,440			4,345			4,681
Convertible Notes (d)		--			18,287			28,687
Long-term debt		$	391,279		$	383,662		$	384,841

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(a)	The decrease in the balance compared to September 29, 2012 reflected the exchange of the remaining aggregate principal amount of the $90.0 million Convertible Senior Notes (the “Convertible Notes”) during the last 12 months. The balance at December 29, 2012 and September 29, 2012 represented principal of $19.9 million and $31.6 million, respectively and an unamortized debt discount of $1.6 million and $2.9 million, respectively.
(b)	The increase in the balance compared to September 29, 2012 primarily reflected the sale-leaseback for the office building in North Bergen, NJ during the second quarter of 2013.
(c)	At September 28, 2013, the balance consisted of outstanding borrowings under the Company’s amended and restated revolving credit facility (as amended to date, the “Amended Facility”) and obligations under capital leases. At December 29, 2012 and September 29, 2012, the balance consisted of obligations under capital leases.
(d)	The Convertible Notes were reflected as a current liability since they were convertible at December 29, 2012 and September 29, 2012.

Euro Notes

On July 6, 2006, the Company completed the issuance of the 350.0 million euro (or $446.9 million based on the exchange rate in effect on such date) 5.0% Notes due July 2013 (the “Euro Notes”), of which the Company repurchased 228.5 million euro aggregate principal amount of such notes prior to December 31, 2011.

In the first quarter of 2012, in a privately-negotiated transaction, the Company repurchased 40.0 million euro aggregate principal amount of the Euro Notes for total consideration of 40.6 million euro, plus accrued interest. The Company recognized a $0.8 million pretax loss on the extinguishment of debt in the first quarter of 2012.

On June 6, 2012, in a privately-negotiated transaction, the Company repurchased 28.6 million euro aggregate principal amount of the Euro Notes for total consideration of 29.6 million euro, plus accrued interest. The Company recognized a $1.3 million pretax loss on the extinguishment of debt in the second quarter of 2012.

On July 12, 2012, the Company completed the optional redemption of the remaining 52.9 million euro aggregate principal amount of Euro Notes for 55.4 million euro, plus accrued interest. The redemption was funded by a portion of the net proceeds from the Company’s issuance of $152.0 million aggregate principal amount of 10.5% Senior Secured Notes (the “Additional Notes”) in June 2012. The Company recognized a $3.0 million pretax loss on the extinguishment of debt in the third quarter of 2012.

Convertible Notes

On June 24, 2009, the Company issued the Convertible Notes. The Convertible Notes bore interest at a rate of 6.0% per year and were scheduled to mature on June 15, 2014. The Company used the net proceeds from this offering to repay $86.6 million of outstanding borrowings under the Amended Facility.

The Convertible Notes were convertible at an initial conversion rate of 279.6421 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes (representing an initial conversion price of $3.576 per share of common stock), subject to adjustment in certain circumstances.

The Company separately accounted for the liability and equity components of the Convertible Notes in a manner that reflected the Company’s nonconvertible debt borrowing rate when interest was recognized in subsequent periods. The Company allocated $20.6 million of the $90.0 million principal amount of the Convertible Notes to the equity component and to debt discount. The debt discount was amortized into interest expense using the effective interest method. The Company’s effective interest rate on the Convertible Notes was 12.25%. Interest expense associated with the semi-annual interest payment and non-cash amortization of the debt discount was $0.6 million and $3.9 million for the nine months ended September 28, 2013 and September 29, 2012, respectively, and was $0.9 million for the three months ended September 29, 2012.

In 2012, holders of $49.4 million aggregate principal amount of the Convertible Notes entered agreements with the Company to convert all such outstanding Convertible Notes into 14,197,106 shares of the Company’s common stock. The Company paid accrued interest on the holders’ Convertible Notes through the settlement date in cash. The Company allocated $48.2 million of the aggregate consideration to the liability component and $6.2 million to the equity component.

On January 22, 2013, a holder of $11.2 million aggregate principal amount of the Convertible Notes converted all of such outstanding Convertible Notes into 3,171,670 shares of the Company’s common stock. The Company paid accrued interest on the holder’s Convertible Notes through the settlement date in cash. The Company allocated $11.3 million of the consideration to the liability component and $0.7 million to the equity component.

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In July 2013, holders of the remaining $8.8 million aggregate principal amount of the Convertible Notes converted all of such outstanding Convertible Notes into 2,462,509 shares of the Company’s common stock. The Company paid accrued interest on the holders’ Convertible Notes through the settlement date in cash. The Company allocated $8.8 million of the consideration to the liability component and $0.3 million to the equity component. As of September 28, 2013, all of such Convertible Notes were converted into shares of the Company’s common stock and no Convertible Notes remained outstanding.

The Company recognized $1.7 million and $3.6 million pretax losses on the extinguishment of debt related to the Convertible Notes for the nine months ended September 28, 2013 and September 29, 2012, respectively, and a $0.6 million pretax loss on the extinguishment of debt related to the Convertible Notes for the three months ended  September 28, 2013.

Senior Notes

On April 7, 2011, the Company completed an offering of $220.0 million principal amount of 10.5% Senior Secured Notes (the “Original Notes,” together with the Additional Notes, the “Senior Notes”). The Company used the net proceeds of $212.9 million from such issuance of the Original Notes primarily to fund a tender offer of 128.5 million euro aggregate principal amount of Euro Notes on April 8, 2011. The remaining proceeds were used for general corporate purposes. On June 8, 2012, the Company completed the offering of the Additional Notes, at 108.25% of par value. The Company used a portion of the net proceeds of $160.6 million from the offering of the Additional Notes to repay outstanding borrowings under its Amended Facility and to fund the redemption of 52.9 million euro aggregate principal amount of Euro Notes on July 12, 2012. The Company used the remaining proceeds to fund a portion of the KSJ Buyout.

The Senior Notes mature on April 15, 2019 and are guaranteed on a senior secured basis by certain of the Company’s current and future domestic subsidiaries. The Senior Notes and the guarantees are secured on a first-priority basis by a lien on certain of the Company’s trademarks and on a second-priority basis by the other assets of the Company and of the guarantors that secure the Company’s Amended Facility.

The indenture governing the Senior Notes contains provisions that may require the Company to offer to repurchase the Senior Notes at 101% of their aggregate principal amount upon certain defined “Change of Control” events. In addition, the indenture may require that the proceeds from sales of the Company’s assets (subject to various exceptions and the ability of the Company to apply the proceeds to repay indebtedness or reinvest in its business) be used to offer to repurchase the Senior Notes at 100% of their aggregate principal amount. The indenture also contains other standard high-yield debt covenants, which limit the Company’s ability to incur additional indebtedness, incur additional liens, make asset sales, make dividend payments and investments, make payments and other transfers between itself and its subsidiaries, enter into affiliate transactions and merge or consolidate with other entities.

Pursuant to a registration rights agreement executed as part of the offering of Original Notes, the Company agreed, on or before April 7, 2012, (i) to use reasonable best efforts to consummate an offer to issue new Senior Notes (having terms substantially identical to those of the Original Notes) whose issuance is registered with the SEC in exchange for the Original Notes (the “Original Notes Exchange Offer”); and (ii) if required, to have a shelf registration statement declared effective with respect to resales of the Original Notes.

The Company filed and had declared effective a registration statement on Form S-4 (the “Form S-4 Registration Statement”) registering the Original Notes Exchange Offer and on February 13, 2013 commenced the Original Notes Exchange Offer, which expired on March 15, 2013. Nevertheless, as a result of not having complied with the above-described registration requirements, pursuant to the terms of the registration rights agreement relating to the Original Notes, the Company was required to pay additional interest on the Original Notes until the Original Notes Exchange Offer was completed on March 20, 2013. Additional interest on the Original Notes began accruing on April 10, 2012 at a rate of 0.25% per annum, then increased by an incremental 0.25% per annum every 90 days thereafter, up to the maximum of 1.00% per annum and ceased accruing on March 20, 2013, when the Original Notes Exchange Offer was completed. All accrued and unpaid additional interest was paid on the Senior Notes issued in the Original Notes Exchange Offer on April 15, 2013 to holders of record on April 1, 2013.

Pursuant to a registration rights agreement executed as part of the offering of Additional Notes, the Company agreed, on or before October 15, 2012, (i) to use reasonable best efforts to consummate an offer to issue new Senior Notes (having terms substantially identical to those of the Additional Notes) whose issuance is registered with the SEC in exchange for the Additional Notes (the “Additional Notes Exchange Offer”); (ii) if required, to have a shelf

18

registration statement declared effective with respect to resales of the Additional Notes; and (iii) complete the Original Notes Exchange Offer.

The Form S-4 Registration Statement also covered the Additional Notes Exchange Offer, which commenced on February 13, 2013 and expired on March 15, 2013. Nevertheless, as a result of not having complied with the above-described registration requirements, pursuant to the terms of the registration rights agreement relating to Additional Notes, the Company was required to pay additional interest on the Additional Notes until the Original Notes Exchange Offer and the Additional Notes Exchange Offer were completed. Additional interest on the Additional Notes began accruing on October 16, 2012 at a rate of 0.25% per annum and continued to accrue at that rate, then increased to 0.50% per annum after 90 days until the Additional Notes Exchange Offer was completed on March 20, 2013. All accrued and unpaid additional interest was paid on the Senior Notes issued in the Additional Notes Exchange Offer on April 15, 2013 to holders of record on April 1, 2013.

Amended Facility

In April 2013, the Company completed a third amendment to and restatement of the Amended Facility, which extended the maturity date from August 2014 to April 2018. Availability under the Amended Facility shall be the lesser of $350.0 million and a borrowing base that is computed monthly and comprised of the Company’s eligible cash, accounts receivable and inventory. The Amended Facility also includes a swingline subfacility of $55.0 million, a multicurrency subfacility of $100.0 million and the option to expand the facility by up to $100.0 million under certain specified conditions. A portion of the facility provided under the Amended Facility of up to $200.0 million is available for the issuance of letters of credit, and standby letters of credit may not exceed $65.0 million in the aggregate. The Amended Facility allows two borrowing options: one borrowing option with interest rates based on euro currency rates and a second borrowing option with interest rates based on the alternate base rate, as defined in the Amended Facility, with a spread based on the aggregate availability under the Amended Facility.

The Amended Facility is guaranteed by substantially all of the Company’s domestic subsidiaries and certain of the Company’s foreign subsidiaries and secured by a first priority lien on substantially all of the assets of the Company and the other borrowers and guarantors (other than certain trademark collateral in which the holders of the Company’s Senior Notes have a first priority lien, which trademark collateral secures the obligations under the Amended Facility on a second priority lien basis).

The Amended Facility restricts the Company’s ability to, among other things, incur indebtedness, grant liens, issue cash dividends, enter into mergers, consolidations, liquidations and dissolutions, change lines of business, make investments and acquisitions and sell assets, in each case subject to certain designated exceptions. In addition, the amended terms and conditions: (i) provide for a decrease in fees and interest rates (including eurocurrency spreads of 1.75% to 2.25% over LIBOR, depending on the level of availability); (ii) provide improved advance rates on eligible inventory; (iii) require the Company to maintain pro forma compliance with a fixed charge coverage ratio of 1.0:1.0 on a trailing 12 month basis if minimum aggregate borrowing availability falls below $35.0 million, or 10.0% of the commitments then in effect; (iv) require the Company to apply substantially all cash collections to reduce outstanding borrowings under the Amended Facility when availability under such facility falls below the greater of $40.0 million and 12.5% of the lesser of the borrowing base and aggregate commitments; (v) permit the acquisition of certain joint venture interests and certain distribution territories; (vi) decrease specified aggregate availability conditions to making certain other investments; and (vii) permit certain other acquisitions, investments, restricted payments, debt prepayments and incurrence of unsecured indebtedness if the Company is able to satisfy specified payment conditions.

The funds available under the Amended Facility may be used for working capital and for general corporate purposes, including refinancing, repayment, repurchase and cash settlement of certain existing indebtedness. Acquisitions and other investments are permitted, subject to certain payment conditions. The Amended Facility contains customary events of default clauses and cross-default provisions with respect to the Company’s other outstanding indebtedness, including the Senior Notes.

The Company currently believes that the financial institutions under the Amended Facility are able to fulfill their commitments, although such ability to fulfill commitments will depend on the financial condition of the Company’s lenders at the time of borrowing.

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As of September 28, 2013, availability under the Company’s Amended Facility was as follows:

In thousands	Total Facility (a)	Borrowing Base (a)	Outstanding Borrowings	Letters of Credit Issued	Available Capacity	Excess Capacity (b)
Revolving credit facility (a)	$350,000	$341,329	$136,233	$19,513	$185,583	$150,583

(a)	Availability under the Amended Facility is the lesser of $350.0 million or a borrowing base comprised primarily of eligible cash, accounts receivable and inventory.
(b)	Excess capacity represents available capacity reduced by the minimum required aggregate borrowing availability under the Amended Facility of $35.0 million.

Capital Lease Obligations

In the second quarter of 2013, the Company entered into a sale-leaseback agreement for its office building in North Bergen, NJ, which included a sale price of $8.7 million and total lease payments of $26.9 million over a 12-year lease term. As of September 28, 2013, the Company’s capital lease obligations of $9.9 million included $1.2 million of short-term debt.

10.     FAIR VALUE MEASUREMENTS

The Company utilizes the following three level hierarchy that defines the assumptions used to measure certain assets and liabilities at fair value:

Level 1 –	Quoted market prices in active markets for identical assets or liabilities;
Level 2 –	Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 –	Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use.

The following table presents the financial assets and liabilities the Company measured at fair value on a recurring basis, based on the fair value hierarchy:

	Level 2
In thousands	September 28, 2013				December 29, 2012
Financial Assets:
Derivatives		$	525			$	1,037
Financial Liabilities:
Derivatives		$	(373	)		$	--

The fair values of the Company’s Level 2 derivative instruments were primarily based on observable forward exchange rates. Unobservable quantitative inputs used in the valuation of the Company’s derivative instruments included volatilities, discount rates and estimated credit losses.

The following table presents the non-financial assets the Company measured at fair value on a non-recurring basis in 2013, based on such fair value hierarchy:

									Total Losses
	Net Carrying Value as of September 28, 2013		Fair Value Measured and Recorded at Reporting Date Using:						Nine Months Ended September 28, 2013		Three Months Ended September 28, 2013
In thousands			Level 1		Level 2		Level 3
Property and equipment	$	--	$	--	$	--	$	--	$	667	$	--
Intangibles, net		2,000		--		--		2,000		3,300		3,300
Other assets		--		--		--		--		6,109		--

As a result of a decision to revise the Company’s plan to outsource its distribution function (see Note 12 - Streamlining Initiatives), an impairment analysis was performed on certain property and equipment. The Company determined that a portion of the assets exceeded their fair values, resulting in an impairment charge, which was recorded in SG&A on the accompanying Condensed Consolidated Statement of Operations.

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In the third quarter of 2013, the Company recorded a non-cash impairment charge of $3.3 million, which reflects the difference in the estimated fair value and carrying value of the TRIFARI trademark. The Company estimated the fair value of the trademark using the income-based relief-from-royalty valuation method which assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use a comparable asset. The Company assumed a market royalty rate of 3.5%, a discount rate of 14.0% and a long term growth rate of 2.0%.

Subsequent to the sale of its former global Mexx business, the Company retained a noncontrolling ownership interest in such business and accounted for its investment at cost included within other assets (see Note 14 – Additional Financial Information and Note 18 – Legal Proceedings). In the second quarter of 2013, the Company performed an impairment test based on market multiples of comparable transactions and determined that the carrying value of the investment exceeded its fair value, resulting in an impairment charge, which was recorded in Impairment of cost investment on the accompanying Condensed Consolidated Statement of Operations.

The following table presents the non-financial assets the Company measured at fair value on a non-recurring basis in 2012, based on the fair value hierarchy:

							Total Losses
	Net Carrying Value as of		Fair Value Measured and Recorded at Reporting Date Using:				Nine Months Ended		Three Months Ended
In thousands	September 29, 2012		Level 1	Level 2	Level 3		September 29, 2012		September 29, 2012
Property and equipment	$	23,687	$   --	$   --	$	23,687	$	27,905	$   --

In connection with a change in the pattern of use and then likely disposal of the Company’s New Jersey corporate office, an impairment analysis was performed on the associated property and equipment. As a result of a decline in the estimated fair value of the Ohio Facility, as well as the decisions to exit certain retail locations of JUICY COUTURE and LUCKY BRAND, impairment analyses were performed on the associated property and equipment. The Company determined that a portion of the assets exceeded their fair values, resulting in impairment charges, which were recorded in SG&A on the accompanying Condensed Consolidated Statements of Operations.

The fair values of the Company’s Level 3 Property and equipment and Intangibles, net are based on either a market approach or an income approach using the Company’s forecasted cash flows over the estimated useful lives of such assets, as appropriate.

The fair values and carrying values of the Company’s debt instruments are detailed as follows:

	September 28, 2013				December 29, 2012				September 29, 2012
In thousands	Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value
6.0% Convertible Senior Notes, due June 2014 (a)	$	--	$	--	$	69,088	$	18,287	$	115,374	$	28,687
10.5% Senior Secured Notes, due April 2019 (a)	405,480		382,588		410,828		383,662		420,128		384,033
Revolving credit facility (b)	136,233		136,233		--		--		--		--

(a)Carrying values include unamortized debt discount or premium.

(b)Borrowings under the Amended Facility bear interest based on market rate; accordingly, its fair value approximates its carrying value.

The fair values of the Company’s debt instruments were estimated using market observable inputs, including quoted prices in active markets, market indices and interest rate measurements. Within the hierarchy of fair value measurements, these are Level 2 fair values. The fair values of cash and cash equivalents, receivables and accounts payable approximate their carrying values due to the short-term nature of these instruments.

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11.    COMMITMENTS AND CONTINGENCIES

Buying/Sourcing

During the first quarter of 2009, the Company entered into an agreement with Hong Kong-based, global consumer goods exporter Li & Fung Limited (“Li & Fung”), whereby Li & Fung was appointed as the Company’s buying/sourcing agent for all of the Company’s brands and products (other than jewelry) and the Company received a payment of $75.0 million at closing and an additional payment of $8.0 million in the second quarter of 2009 to offset specific, incremental, identifiable expenses associated with the transaction. The Company’s agreement with Li & Fung provides for a refund of a portion of the closing payment in certain limited circumstances, including a change of control of the Company, the divestiture of any current brand, or certain termination events. The Company is also obligated to use Li & Fung as its buying/sourcing agent for a minimum value of inventory purchases each year through the termination of the agreement in 2019. The 2009 licensing arrangements with J.C. Penney Corporation, Inc. (“JCPenney”) in the US and Puerto Rico and QVC, Inc. (“QVC”) resulted in the removal of buying/sourcing for a number of LIZ CLAIBORNE branded products sold under these licenses from the Li & Fung buying/sourcing arrangement. As a result, under its agreement with Li & Fung, the Company refunded $24.3 million of the closing payment received from Li & Fung in the second quarter of 2010. The 2011 sales of the KENSIE, KENSIE GIRL and MAC & JAC trademarks resulted in the removal of buying/sourcing for such products sold from the Li & Fung buying/sourcing arrangement. As a result, under its agreement with Li & Fung, the Company refunded $1.8 million of the closing payment received from Li & Fung in the second quarter of 2012. In addition, the Company’s agreement with Li & Fung is not exclusive; however, the Company is required to source a specified percentage of product purchases from Li & Fung.

Leases

In connection with the disposition of the LIZ CLAIBORNE Canada retail stores, the LIZ CLAIBORNE branded outlet stores in the US and Puerto Rico and certain Mexx Canada retail stores, an aggregate of 153 store leases were assigned to third parties, for which the Company remains secondarily liable for the remaining obligations on 119 such leases. As of September 28, 2013, the future aggregate payments under these leases amounted to $156.6 million and extended to various dates through 2025.

During the second quarter of 2013, the Company entered into a sale-leaseback agreement for its North Bergen, NJ office with a 12-year term and two five-year renewal options. This leaseback was classified as a capital lease and recorded at fair value. As of September 28, 2013, the estimated future minimum lease payments under the noncancelable capital lease were as follows:

In millions
2013	$	0.6
2014	2.0
2015	2.0
2016	2.1
2017	2.1
Thereafter	17.5
Total	26.3
Less: Amounts representing interest and executory costs	(17.2		)
Net present values	9.1
Less: Capital lease obligations included in short-term debt	(0.4		)
Long-term capital lease obligations	$	8.7

Other

In the second quarter of 2011, the Company initiated actions to close its Ohio Facility, which was expected to result in the termination of all or a significant portion of its union employees (see Note 12 – Streamlining Initiatives). During the third quarter of 2011, the Company ceased contributing to a union-sponsored multi-employer defined benefit pension plan (the “Fund”), which is regulated by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Under ERISA, cessation of employer contributions to a multi-employer defined benefit pension plan is likely to trigger an obligation by such employer for a “withdrawal liability” to such plan, with the amount of such withdrawal liability representing the portion of the plan’s underfunding allocable to the withdrawing employer. The Company incurred such a liability in the second quarter of 2011 and recorded a $17.6 million charge to SG&A related to its estimate of the withdrawal liability. In February 2012, the Company was notified by the Fund that the Fund calculated the total withdrawal liability to be $19.1 million, a difference of approximately $1.5 million,

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and that 17 quarterly payments of $1.2 million would commence on March 1, 2012, and continue for four years, with a final payment of $1.0 million on June 1, 2016.  As of September 28, 2013, the accrued withdrawal liability was $11.1 million, which was included in Accrued expenses and Other non-current liabilities on the accompanying Condensed Consolidated Balance Sheet.

In June 2011, the Company entered into an agreement with Globalluxe Kate Spade HK Limited (“Globalluxe”) to, among other things, reacquire the existing KATE SPADE businesses in Southeast Asia from Globalluxe (see Note 14 – Additional Financial Information).

12.    STREAMLINING INITIATIVES

2012 Actions

In the third quarter of 2012, the Company initiated actions to reduce staff at JUICY COUTURE. These actions resulted in charges related to severance and concluded in the fourth quarter of 2012.

2011 Actions

In the fourth quarter of 2011, the Company commenced additional streamlining initiatives that impacted all of its reportable segments and included rationalization of office space, which were completed in the first quarter of 2013 and staff reductions, which were completed by the end of 2012. In connection with this initiative, in the second quarter of 2012, the Company commenced a reduction of the workforce in its corporate centers in New Jersey and New York, which was completed in the fourth quarter of 2012.

In the fourth quarter of 2011, the Company agreed to terminate its agreement with an affiliate of Donna Karan International, Inc. (“DKI”), which ended the exclusive license agreement for the DKNY® Jeans and DKNY® Active brands. These actions included contract terminations and staff reductions and concluded in the first quarter of 2012.

In the second quarter of 2011, the Company initiated actions to close its Ohio Facility, which were expected to be completed in the fourth quarter of 2012. In August 2012, the Company encountered systems and operational issues that delayed the planned migration of the Company’s product distribution function out of the Ohio Facility. Subsequently, the Company determined that it would continue to use the Ohio Facility and discontinue the migration of the product distribution function to Li & Fung, and the Company mutually agreed with Li & Fung to allow the distribution agreement with Li & Fung to expire as of January 31, 2013. On February 5, 2013, the Company entered into a contract with a third-party distribution center operations and labor management company to provide distribution operations services at the Ohio Facility. These actions resulted in charges related to contract terminations, severance, asset impairments and other charges and were substantially completed in the second quarter of 2013.

For the nine months ended September 28, 2013, the Company recorded pretax charges totaling $5.3 million related to these initiatives. The Company expects to pay approximately $6.3 million of accrued streamlining costs in the next 12 months. For the nine months ended September 29, 2012, the Company recorded pretax charges of $43.2 million related to these initiatives, including $2.7 million of contract termination costs, $24.6 million of asset write-downs and disposals, $12.1 million of payroll and related costs and $3.8 million of other costs. Approximately $1.5 million and $24.6 million of these charges were non-cash during the nine months ended September 28, 2013 and September 29, 2012, respectively.

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For the nine and three months ended September 28, 2013 and September 29, 2012, expenses (adjustments to previously recorded estimates) associated with the Company’s streamlining actions were primarily recorded in SG&A on the accompanying Condensed Consolidated Statements of Operations and impacted reportable segments and Corporate as follows:

	Nine Months Ended				Three Months Ended
In thousands		September 28, 2013 (39 Weeks)		September 29, 2012 (39 Weeks)		September 28, 2013 (13 Weeks)			September 29, 2012 (13 Weeks)
JUICY COUTURE	$	2,354	$	6,333	$	(513	)	$	2,193
LUCKY BRAND		750		2,758		(587	)		183
KATE SPADE		528		2,384		(383	)		110
Adelington Design Group		163		3,026		(227	)		297
Corporate		1,544		28,656		662			3,046
Total	$	5,339	$	43,157	$	(1,048)		$	5,829

A summary rollforward of the liability for streamlining initiatives is as follows:

In thousands	Payroll and Related Costs				Contract Termination Costs			Asset Write-Downs			Other Costs			Total
Balance at December 29, 2012	$	5,468			$	4,248		$	--		$	15,930		$	25,646
2013 provision (a)	2,002				(84		)	1,502			1,919			5,339
2013 asset write-downs	--				--			(1,502		)	--			(1,502		)
Translation difference	(18			)	7			--			4			(7		)
2013 spending	(6,941			)	(1,666		)	--			(5,588		)	(14,195		)
Balance at September 28, 2013	$		511		$	2,505		$	--		$	12,265		$	15,281

(a)Payroll and related costs and contract termination costs include changes to previously recorded estimates.

13.    EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per common share (“EPS”).

	Nine Months Ended						Three Months Ended
In thousands	September 28, 2013 (39 Weeks)			September 29, 2012 (39 Weeks)			September 28, 2013 (13 Weeks)			September 29, 2012 (13 Weeks)
Loss from continuing operations	$	(90,781	)	$	(120,674	)	$	(14,901	)	$	(19,393	)
(Loss) income from discontinued operations, net of income taxes	(21,396		)	(10,865		)	(1,965		)	592
Net loss	$	(112,177	)	$	(131,539	)	$	(16,866	)	$	(18,801	)
Basic weighted average shares outstanding	120,480			107,692			122,396			113,109
Stock options and nonvested shares (a)(b)	--			--			--			--
Convertible Notes (c)	--			--			--			--
Diluted weighted average shares outstanding (a)(b)(c)	120,480			107,692			122,396			113,109
Loss per share:
Basic and diluted
Loss from continuing operations	$	(0.75	)	$	(1.12	)	$	(0.12	)	$	(0.17	)
(Loss) income from discontinued operations	$	(0.18	)	$	(0.10	)	$	(0.02	)	$	--
Net loss	$	(0.93	)	$	(1.22	)	$	(0.14	)	$	(0.17	)

(a)Because the Company incurred a loss from continuing operations for the nine and three months ended September 28, 2013 and September 29, 2012, all outstanding stock options and nonvested shares are antidilutive for such periods. Accordingly, for the nine and three months ended September 28, 2013 and September 29, 2012, approximately 5.7 million and 5.9 million

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outstanding stock options, respectively, and approximately 0.6 million and 0.5 million outstanding nonvested shares, respectively, were excluded from the computation of diluted loss per share.

(b)Excludes approximately 0.5 million nonvested shares for the nine and three months ended September 28, 2013 and 1.2 million nonvested shares for the nine and three months ended September 29, 2012, for which the performance criteria have not yet been achieved.

(c)Because the Company incurred a loss from continuing operations for the nine and three months ended September 28, 2013 and September 29, 2012, approximately 2.0 million and 13.7 million potentially dilutive shares issuable upon conversion of the Convertible Notes, respectively and approximately 0.3 million and 8.9 million potentially dilutive shares issuable upon conversion of the Convertible Notes, respectively, were considered antidilutive for such periods, and were excluded from the computation of diluted loss per share.

14.    ADDITIONAL FINANCIAL INFORMATION

Licensing-Related Transactions

In connection with the sale of the global trademark rights for the LIZ CLAIBORNE family of brands and the trademark rights in the United States and Puerto Rico for the MONET brand to JCPenney, the sale of the DANA BUCHMAN trademark to Kohl’s and the sale of the KENSIE, KENSIE GIRL and MAC & JAC trademarks to an affiliate of Bluestar, the Company maintains: (i) an exclusive supplier arrangement to provide JCPenney with LIZ CLAIBORNE and MONET branded jewelry; (ii) a royalty free license through July 2020 for the LIZ CLAIBORNE NEW YORK brand, which is sold exclusively at QVC through the 2009 previously existing license between the Company and QVC; (iii) a royalty-free license through July 2020 to use the LIZWEAR brand to design, manufacture and distribute LIZWEAR-branded products to the club store channel; (iv) an exclusive supplier arrangement to provide Kohl’s with DANA BUCHMAN-branded jewelry through October 11, 2013 and (v) an exclusive license to produce and sell jewelry under the KENSIE brand name.

In November 2011, in connection with the Company’s sale of its LIZ CLAIBORNE brand and certain rights to its MONET brand to JCPenney, the Company entered into an agreement with JCPenney to develop exclusive brands for JCPenney, which included payment to the Company of a $20.0 million refundable advance. The agreement terminated by its terms without being exercised on February 1, 2013, and the $20.0 million advance was refunded to JCPenney on February 8, 2013, pursuant to the terms of the agreement.

The Company had an exclusive license agreement with an affiliate of DKI to design, produce, market and sell men’s and women’s jeanswear and activewear and women’s sportswear products in the Western Hemisphere under the “DKNY® Jeans” and “DKNY® Active” marks and logos. On October 11, 2011, the Company agreed to an early termination of the DKNY® Jeans and DKNY® Active license with DKI in exchange for a fee of $8.5 million, including $3.7 million due to DKI in connection with the previously terminated DKNY® Mens Sportswear license. The DKNY® Jeans and DKNY® Active license terminated on January 3, 2012, one year ahead of the scheduled license maturity.

Condensed Consolidated Statements of Cash Flows Supplementary Disclosures

During the nine months ended September 28, 2013 and September 29, 2012 net income tax refunds (payments) were not significant. During the nine months ended September 28, 2013 and September 29, 2012, the Company made interest payments of $22.8 million and $17.9 million, respectively. As of September 28, 2013, December 29, 2012 and September 29, 2012, the Company accrued capital expenditures totaling $10.7 million, $7.7 million and $12.4 million, respectively.

Depreciation and amortization expense for the nine months ended September 28, 2013 and September 29, 2012 included $4.6 million and $8.2 million, respectively, related to amortization of deferred financing costs.

During the nine months ended September 28, 2013, holders of $19.9 million aggregate principal amount of the Convertible Notes converted all of such outstanding Convertible Notes into 5,634,179 shares of the Company’s common stock.

During the nine months ended September 29, 2012, holders of $37.6 million aggregate principal amount of the Convertible Notes converted all such outstanding Convertible Notes into 10,839,520 shares of the Company’s common stock.

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During the first quarter of 2013, the Company refunded the $20.0 million advance to JCPenney, which was included within Decrease in accrued expenses and other non-current liabilities on the accompanying Condensed Consolidated Statements of Cash Flows.

Related Party Transactions

In June 2011, the Company established a joint venture in China with E-Land Fashion China Holdings, Limited. The joint venture is a Hong Kong limited liability company and its purpose is to market and distribute small leather goods and other fashion products and accessories in China under the KATE SPADE brand. The joint venture operates under the name of KS China Co., Limited (“KSC”) for an initial 10 year period and commenced operations in the fourth quarter of 2011. The Company accounts for its 40.0% interest in KSC under the equity method of accounting. The Company made capital contributions to KSC of $5.5 million and $5.0 million during the first nine months of 2013 and 2012, respectively.

Additionally, the Company agreed that it or one of its affiliates will reacquire existing KATE SPADE businesses in Southeast Asia in January 2014 from Globalluxe, with the purchase price based upon a multiple of Globalluxe’s earnings, subject to a cap of $30.0 million.

On November 20, 2009, the Company and Sanei established a joint venture under the name of KSJ. During the fourth quarter of 2012, the Company acquired the remaining 51.0% interest in KSJ (see Note 2 – Acquisition).

The Company’s equity in losses of its equity investees was $1.0 million and $0.5 million for the nine months ended September 28, 2013 and September 29, 2012, respectively, and $0.4 million and $1.5 million for the three months ended September 28, 2013 and September 29, 2012, respectively, which was included in Other (expense) income, net on the accompanying Condensed Consolidated Statements of Operations. As of September 28, 2013, December 29, 2012 and September 29, 2012, the Company recorded $9.6 million, $5.1 million and $23.3 million, respectively, related to its investments in equity investees, which was included in Other assets on the accompanying Condensed Consolidated Balance Sheets.

Subsequent to the sale of its former global Mexx business, the Company retained a noncontrolling ownership interest in such business and accounted for its investment at cost (see Note 18 – Legal Proceedings). The Company’s cost investment was valued at $10.0 million as of December 29, 2012 and September 29, 2012 and was included in Other assets on the accompanying Condensed Consolidated Balance Sheets.

15.    SEGMENT REPORTING

The Company’s segment reporting structure reflects a brand-focused approach, designed to optimize the operational coordination and resource allocation of the Company’s businesses across multiple functional areas including specialty retail, retail outlets, concessions, wholesale apparel, wholesale non-apparel, e-commerce and licensing. The four reportable segments described below represent the Company’s brand-based activities for which separate financial information is available and which is utilized on a regular basis by the Company’s CODM to evaluate performance and allocate resources. In identifying the Company’s reportable segments, the Company considers economic characteristics, as well as products, customers, sales growth potential and long-term profitability. As such, the Company configured its operations into the following four reportable segments, each reflecting the different financial missions, cultural profiles and focal points appropriate for these four reportable segments:

·JUICY COUTURE segment – consists of the specialty retail, outlet, concession, wholesale apparel, wholesale non-apparel (including accessories, jewelry and handbags), e-commerce and licensing operations of the JUICY COUTURE brand.

·KATE SPADE segment – consists of the specialty retail, outlet, concession, wholesale apparel, wholesale non-apparel, e-commerce and licensing operations of the KATE SPADE, KATE SPADE SATURDAY and JACK SPADE brands.

·LUCKY BRAND segment – consists of the specialty retail, outlet, wholesale apparel, wholesale non-apparel, e-commerce and licensing operations of LUCKY BRAND.

·Adelington Design Group segment (*) – consists of: (i) exclusive arrangements to supply jewelry for the LIZ  CLAIBORNE and MONET brands; (ii) the wholesale non-apparel operations of the TRIFARI brand and licensed KENSIE brand; (iii) the wholesale apparel and wholesale non-apparel operations of the licensed LIZWEAR brand and other brands; and (iv) the licensed LIZ CLAIBORNE NEW YORK brand.

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(*) The Company’s agreement to supply DANA BUCHMAN branded jewelry to Kohl’s expired on October 11, 2013.

The Company’s Chief Executive Officer has been identified as the CODM. During the fourth quarter of 2012, the Company determined that its measure of segment profitability is Adjusted EBITDA of each reportable segment. Accordingly, the CODM evaluates performance and allocates resources based primarily on Segment Adjusted EBITDA. Segment Adjusted EBITDA is also a key metric utilized in the Company’s annual bonus and long-term incentive plans. Segment Adjusted EBITDA excludes: (i) depreciation and amortization; (ii) charges due to streamlining initiatives, brand-exiting activities and acquisition related costs; and (iii) losses on asset disposals and impairments. Unallocated Corporate costs also exclude non-cash share-based compensation expense. In addition, Segment Adjusted EBITDA does not include Corporate expenses associated with the following functions: corporate finance, investor relations, communications, legal, human resources and information technology shared services and costs of executive offices and corporate facilities, which are included in Unallocated Corporate costs. The Company does not allocate amounts reported below Operating loss to its reportable segments, other than equity income (loss) in equity method investees. The Company’s definition of Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

The accounting policies of the Company’s reportable segments are the same as those described in Note 1 – Basis of Presentation. There are no inter-segment sales or transfers. The Company also presents its results on a geographic basis based on selling location, between Domestic (wholesale customers, Company-owned specialty retail and outlet stores located in the United States and e-commerce sites) and International (wholesale customers and Company-owned specialty retail, outlet and concession stores located outside of the United States and e-commerce sites). The Company, as licensor, also licenses to third parties the right to produce and market products bearing certain Company-owned trademarks; the resulting royalty income is included within the results of the associated segment.

Dollars in thousands	Net Sales		% to Total	Adjusted EBITDA			% of Sales
Nine Months Ended September 28, 2013 (39 weeks)
Reportable Segments:
JUICY COUTURE	$	310,049	26.2 %	$	(5,351	)	(1.7)	%
LUCKY BRAND	346,376		29.2 %	14,252			4.1	%
KATE SPADE	487,485		41.2 %	66,350			13.6	%
Adelington Design Group	40,457		3.4 %	9,691			24.0	%
Corporate	--		-- %	(49,516		)	--	%
Totals	$	1,184,367	100.0 %
Nine Months Ended September 29, 2012 (39 weeks)
Reportable Segments:
JUICY COUTURE	$	344,984	33.9 %	$	12,604		3.7	%
LUCKY BRAND	324,245		31.8 %	13,488			4.2	%
KATE SPADE	289,216		28.4 %	51,578			17.8	%
Adelington Design Group	60,116		5.9 %	14,032			23.3	%
Corporate	--		-- %	(56,573		)	--	%
Totals	$	1,018,561	100.0 %

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Dollars in thousands	Net Sales		% to Total	Adjusted EBITDA			% of Sales
Three Months Ended September 28, 2013 (13 weeks)
Reportable Segments:
JUICY COUTURE	$	117,991	27.4 %	$	6,924		5.9	%
LUCKY BRAND	120,001		27.9 %	4,907			4.1	%
KATE SPADE	179,727		41.7 %	23,510			13.1	%
Adelington Design Group	12,885		3.0 %	3,947			30.6	%
Corporate	--		-- %	(14,859		)	--	%
Totals	$	430,604	100.0 %
Three Months Ended September 29, 2012 (13 weeks)
Reportable Segments:
JUICY COUTURE	$	129,837	35.6 %	$	6,511		5.0	%
LUCKY BRAND	111,797		30.7 %	6,736			6.0	%
KATE SPADE	101,880		27.9 %	15,721			15.4	%
Adelington Design Group	21,042		5.8 %	7,308			34.7	%
Corporate	--		-- %	(15,521		)	--	%
Totals	$	364,556	100.0 %

The following tables provide a reconciliation to Loss from continuing operations:

	Nine Months Ended							Three Months Ended
		September 28, 2013 (39 Weeks)			September 29, 2012 (39 Weeks)				September 28, 2013 (13 Weeks)			September 29, 2012 (13 Weeks)
In thousands
Reportable Segments Adjusted EBITDA:
JUICY COUTURE		$	(5,351	)	$	12,604			$	6,924		$	6,511
LUCKY BRAND		14,252			13,488				4,907			6,736
KATE SPADE (a)		66,350			51,578				23,510			15,721
Adelington Design Group		9,691			14,032				3,947			7,308
Total Reportable Segments Adjusted EBITDA		84,942			91,702				39,288			36,276
Unallocated Corporate Costs		(49,516		)	(56,573		)		(14,859		)	(15,521		)
Depreciation and amortization, net (b)		(49,482		)	(46,796		)		(16,533		)	(14,282		)
Impairment of intangible asset		(3,300		)	--				(3,300		)	--
Charges due to streamlining initiatives, brand-exiting activities, acquisition related costs and loss on asset disposals and impairments, net (c)		(20,000		)	(52,416		)		(5,635		)	(6,721		)
Share-based compensation		(5,206		)	(7,157		)		(1,705		)	(1,561		)
Equity loss included in Reportable Segments Adjusted EBITDA		983			474				421			1,528
Operating Loss		(41,579		)	(70,766		)		(2,323		)	(281		)
Other (expense) income, net(a)		(1,462		)	1,479				1,361			(1,038		)
Impairment of cost investment		(6,109		)	--				--			--
Loss on extinguishment of debt		(1,707		)	(8,669		)		(599		)	(3,023		)
Interest expense, net		(36,062		)	(37,836		)		(12,087		)	(13,228		)
Provision for income taxes		3,862			4,882				1,253			1,823
Loss from Continuing Operations		$	(90,781	)	$	(120,674	)		$	(14,901	)	$	(19,393	)

(a)Amounts include equity in the losses of equity method investees of $1.0 million and $0.5 million for the nine months ended September 28, 2013 and September 29, 2012, respectively and $0.4 million and $1.5 million for the three months ended September 28, 2013 and September 29, 2012, respectively.

(b)Excludes amortization included in Interest expense, net.

28

(c)See Note 10 – Fair Value Measurements for a discussion of impairment charges and Note 12 – Streamlining Initiatives for a discussion of streamlining charges.

GEOGRAPHIC DATA:

Dollars in thousands	Net Sales		% to Total
Nine Months Ended September 28, 2013 (39 weeks)
Domestic	$	1,051,365	88.8	%
International	133,002		11.2	%
Totals	$	1,184,367	100.0	%
Nine Months Ended September 29, 2012 (39 weeks)
Domestic	$	972,921	95.5	%
International	45,640		4.5	%
Totals	$	1,018,561	100.0	%
Dollars in thousands	Net Sales		% to Total
Three Months Ended September 28, 2013 (13 weeks)
Domestic	$	380,799	88.4	%
International	49,805		11.6	%
Totals	$	430,604	100.0	%
Three Months Ended September 29, 2012 (13 weeks)
Domestic	$	344,147	94.4	%
International	20,409		5.6	%
Totals	$	364,556	100.0	%

There were no significant changes in segment assets during the nine months ended September 28, 2013.

16.    DERIVATIVE INSTRUMENTS

In order to reduce exposures related to changes in foreign currency exchange rates, the Company utilizes foreign currency collars, forward contracts and swap contracts for the purpose of hedging the specific exposure to variability in forecasted cash flows associated primarily with inventory purchases by KSJ. As of September 28, 2013, the Company had forward contracts maturing through December 2014 to sell 3.1 billion yen for $31.5 million.

The Company uses foreign currency forward contracts outside the cash flow hedging program to manage currency risk associated with intercompany loans. As of September 28, 2013, the Company had forward contracts to sell 4.0 billion yen for $40.5 million maturing through December 2013. Transaction gains (losses) of $5.8 million and $(0.4) million related to these derivative instruments were reflected within Other (expense) income, net for the nine and three months ended September 28, 2013, respectively.

The following table summarizes the fair value and presentation in the Condensed Consolidated Financial Statements for derivatives designated as hedging instruments and derivatives not designated as hedging instruments:

	Foreign Currency Contracts Designated as Hedging Instruments
In thousands	Asset Derivatives					Liability Derivatives
Period	Balance Sheet Location	Notional Amount		Fair Value		Balance Sheet Location	Notional Amount		Fair Value
September 28, 2013	Other current assets	$	10,148	$	525	Accrued expenses	$	21,400	$	132

29

	Foreign Currency Contracts Not Designated as Hedging Instruments
In thousands	Asset Derivatives					Liability Derivatives
Period	Balance Sheet Location	Notional Amount		Fair Value		Balance Sheet Location	Notional Amount		Fair Value
September 28, 2013	Other current assets	$	--	$	--	Accrued expenses	$	40,454	$	241
December 29, 2012	Other current assets		47,486		1,037	Accrued expenses		--		--

The following table summarizes the effect of foreign currency exchange contracts on the Condensed Consolidated Financial Statements:

In thousands	Amount of Loss Recognized in Accumulated OCI on Derivative (Effective Portion)			Location of Gain or (Loss) Reclassified from Accumulated OCI into Operations (Effective and Ineffective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Operations (Effective Portion)		Amount of Loss Recognized in Operations on Derivative (Ineffective Portion)
Nine months ended September 28, 2013	$	1,772		Cost of goods sold	$	895	$	--
Three months ended September 28, 2013	(164		)	Cost of goods sold	593		--

17.    SHARE-BASED COMPENSATION

The Company recognizes the cost of all employee share-based awards on a straight-line attribution basis over their respective vesting periods, net of estimated forfeitures.

The Company issues stock options and restricted shares as well as shares with performance features to employees under share-based compensation plans. Stock options are issued at the current market price, have a three-year vesting period and a contractual term of 7-10 years. In March 2012, the Company’s Compensation Committee approved the accelerated vesting of a former executive officer’s unvested 2010 and 2011 semiannual option grants, as well as his sign-on restricted stock and special retention stock awards, upon his separation from the Company.

Compensation expense for restricted shares, including shares with performance features, is measured at fair value on the date of grant based on the number of shares granted and the quoted market price of the Company’s common stock. Such value is recognized as expense over the vesting period of the award, net of estimated forfeitures.

Compensation expense for restricted share units with performance features and a market condition is measured at fair value, subject to the market condition on the date of grant and based on the number of shares expected to vest subject to the performance condition. Such value is recognized as expense over the vesting period of the award, net of estimated forfeitures.

Compensation expense related to the Company’s share-based payment awards totaled $5.2 million and $7.2 million for the nine months ended September 28, 2013 and September 29, 2012, respectively, and $1.7 million and $1.6 million for the three months ended September 28, 2013 and September 29, 2012, respectively.

Stock Options

The Company utilizes the Binomial lattice pricing model to estimate the fair value of options granted. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates and to allow for actual exercise behavior of option holders.

30

	Nine Months Ended
Valuation Assumptions:	September 28, 2013	September 29, 2012
Weighted-average fair value of options granted	$10.32	$5.99
Expected volatility	59.5%	63.3%
Weighted-average volatility	59.5%	63.3%
Expected term (in years)	4.9	5.1
Dividend yield	—	—
Risk-free rate	0.1% to 3.9%	0.2% to 3.8%
Expected annual forfeiture	12.4%	13.5%

Expected volatilities are based on a term structure of implied volatility, which assumes changes in volatility over the life of an option. The Company utilizes historical optionee behavioral data to estimate the option exercise and termination rates that are used in the valuation model. The expected term represents an estimate of the period of time options are expected to remain outstanding. The expected term provided in the above table represents an option weighted-average expected term based on the estimated behavior of distinct groups of employees who received options in 2013 and 2012. The range of risk-free rates is based on a forward curve of interest rates at the time of option grant.

A summary of award activity under stock option plans as of September 28, 2013 and changes therein during the nine month period then ended are as follows:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (In thousands)
Outstanding at December 29, 2012	5,846,975		$	12.21	4.0	$	27,218
Granted	322,500		20.99
Exercised	(305,800	)	7.61			4,168
Cancelled/expired	(210,550	)	20.15
Outstanding at September 28, 2013	5,653,125		$	12.67	3.5	$	82,364
Vested or expected to vest at September 28, 2013	5,446,505		$	12.67	3.4	$	79,721
Exercisable at September 28, 2013	4,270,625		$	13.24	2.8	$	62,506

As of September 28, 2013, there were approximately 1.4 million nonvested stock options. The weighted average grant date fair value per award for nonvested stock options was $5.60.

As of September 28, 2013, there was $6.0 million of total unrecognized compensation cost related to nonvested stock options granted under the Company’s stock option plans. That expense is expected to be recognized over a weighted average period of 1.4 years. The total fair value of shares vested during the nine months ended September 28, 2013 and September 29, 2012 was $4.3 million and $4.0 million, respectively.

Restricted Stock

In 2010, the Company granted 855,000 performance shares to a group of key executives. The performance criteria included certain earnings metrics for consecutive periods through July 2013 with the number of shares to be earned ranging from 0 to 100% of the target amount. Based on the performance criteria, these shares were deemed unearned and cancelled during the third quarter of 2013.

In 2012, the Company granted 535,000 performance share units with a two year performance period and a three year service period, subject to a market condition adjustment, to a group of key executives. The performance criteria include certain earnings metrics for consecutive periods through December 2013 with the number of shares to be earned ranging from 0 to 150% of the target amount. At December 31, 2014, the total units earned, if any, will be adjusted by applying a modifier, ranging from 50%-150%. The amount of such modifier will be determined by comparing the Company’s total shareholder return (“TSR”) to the relative TSR of the S&P SmallCap 600 companies over the three year period, where the Company’s TSR is based on the change in its stock price.

31

A summary of award activity under restricted stock plans as of September 28, 2013 and changes therein during the nine month period then ended are as follows:

	Shares		Weighted Average Grant Date Fair Value
Nonvested stock at December 29, 2012 (a)	1,678,350			$	8.40
Granted	350,000			21.38
Vested	(260,600	)		5.68
Cancelled (b)	(677,500	)		6.45
Nonvested stock at September 28, 2013 (a)	1,090,250			$	14.43
Expected to vest as of September 28, 2013	501,135			$	16.43

(a)	Includes performance shares granted to a group of key executives with certain performance conditions measured through December 2013 and a market and service condition through December 2014.
(b)	Includes performance shares granted to a group of key executives with certain performance conditions measured through July 2013. Based on the performance criteria, these shares were deemed unearned and cancelled.

As of September 28, 2013, there was $6.1 million of total unrecognized compensation cost related to nonvested stock awards granted under restricted stock plans. That expense is expected to be recognized over a weighted average period of 2.8 years. The total fair value of shares vested during the nine months ended September 28, 2013 and September 29, 2012 was $1.5 million and $2.3 million, respectively.

18.    LEGAL PROCEEDINGS

On July 29, 2013, the Company and its subsidiaries, Fifth & Pacific Foreign Holdings, Inc. and Liz Foreign B.V., entered into a Settlement Agreement with Gores Malibu Holdings (Luxembourg) S.a.r.l. (“Gores”) and Mexx Europe International B.V. (“MEI” and, together with Gores, the “Plaintiffs”) pursuant to which the Company paid the Plaintiffs $22.0 million to settle all claims arising under the complaint filed by Gores on January 25, 2013 (the “Complaint”) in which Gores claimed $25.0 million in damages arising from alleged breaches of the merger agreement related to the sale of the Company’s former global Mexx business (the “Merger Agreement”), including breaches of tax and tax-related covenants, breaches of interim operating covenants, breaches of reimbursement obligations related to employee bonuses and working capital adjustments. The Complaint also included a demand for payment of previously disclosed dispute resolution proceedings with respect to working capital adjustments that were required to be made under the Merger Agreement, which concluded that the Company owed approximately $5.0 million to Gores. In conjunction with that settlement, the Company also sold its noncontrolling interest in Mexx Lifestyle B.V. to Gores for $4.0 million.

The Company is a party to several other pending legal proceedings and claims. Although the outcome of any such actions cannot be determined with certainty, management is of the opinion that the final outcome of any of these actions should not have a material adverse effect on the Company’s financial position, results of operations, liquidity or cash flows.

19.    RECENT ACCOUNTING PRONOUNCEMENTS

In July 2013, new accounting guidance on the presentation of unrecognized tax benefits was issued, which requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows: to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or that the tax law of the applicable jurisdiction does not require the entity to use; and the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This guidance is effective for interim and annual periods beginning after December 15,

32

2013. The adoption of the new guidance will not affect the Company’s financial position, results of operations and cash flows.

20.    SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

On April 7, 2011 and June 8, 2012, the Company completed its offerings of Senior Notes. The Senior Notes are jointly and severally, fully and unconditionally guaranteed on a senior secured basis by certain of the Company’s current and future domestic subsidiaries, each of which is 100% owned by Fifth & Pacific Companies, Inc. (the “Parent Company Issuer”). The Senior Notes and the guarantees are secured on a first-priority basis by a lien on certain of the Company’s trademarks and on a second-priority basis by the other assets of the Company and of the guarantors, which secure the Company’s Amended Facility on a first-priority basis.

The following tables present the Condensed Consolidating Balance Sheets, the Condensed Consolidating Statements of Operations, the Condensed Consolidating Statements of Comprehensive Loss and the Condensed Consolidating Statements of Cash Flows, in each instance for the Parent Company Issuer, its guarantor subsidiaries and its non-guarantor subsidiaries.

The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 and Article 10. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the Parent Company Issuer, guarantor or non-guarantor subsidiaries operated as independent entities.

33

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Balance Sheets

September 28, 2013

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations				Fifth & Pacific Companies, Inc.
Assets
Current Assets:
Cash and cash equivalents		$	--			$	2,770		$	16,124		$	(12,062	)		$	6,832
Accounts receivable – trade, net		--				107,609			14,224			--				121,833
Inventories, net		147				279,088			31,403			--				310,638
Deferred income taxes		--				--			806			--				806
Intercompany receivable		--				10,447			--			(10,447		)		--
Other current assets		15,442				34,476			8,928			--				58,846
Total current assets		15,589				434,390			71,485			(22,509		)		498,955
Property and Equipment, Net		26,386				187,993			30,092			--				244,471
Goodwill		--				--			52,679			--				52,679
Intangibles, Net		174				112,225			10,203			--				122,602
Deferred Income Taxes		--				--			64			--				64
Investments in Consolidated Subsidiaries		412,873				120,165			--			(533,038		)		--
Intercompany Receivable		1,895				40,754			--			(42,649		)		--
Other Assets		13,785				916			23,540			--				38,241
Total Assets		$	470,702			$	896,443		$	188,063		$	(598,196	)		$	957,012
Liabilities and Stockholders’ (Deficit) Equity
Current Liabilities:
Short-term borrowings		$	135,456			$	--		$	1,984		$	--			$	137,440
Accounts payable		35,288				187,176			7,352			(12,062		)		217,754
Intercompany payable		8,221				--			56,535			(64,756		)		--
Accrued expenses		72,008				127,907			9,455			--				209,370
Income taxes payable		--				--			1,326			--				1,326
Total current liabilities		250,973				315,083			76,652			(76,818		)		565,890
Long-Term Debt		391,279				--			--			--				391,279
Intercompany Payable		--				--			57,116			(57,116		)		--
Other Non-Current Liabilities		49,165				138,366			11,347			--				198,878
Deferred Income Taxes		--				18,201			3,479			--				21,680
Commitments and Contingencies
Total Stockholders’ (Deficit) Equity		(220,715		)		424,793			39,469			(464,262		)		(220,715		)
Total Liabilities and Stockholders’ (Deficit) Equity		$	470,702			$	896,443		$	188,063		$	(598,196	)		$	957,012

34

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Balance Sheets

December 29, 2012

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations				Fifth & Pacific Companies, Inc.
Assets
Current Assets:
Cash and cash equivalents		$	30,840			$	4,827		$	26,074		$	(2,339	)		$	59,402
Accounts receivable – trade, net		3,155				110,584			13,605			(5,753		)		121,591
Inventories, net		340				188,853			31,345			--				220,538
Deferred income taxes		180				--			1,079			--				1,259
Intercompany receivable		--				3,889			--			(3,889		)		--
Other current assets		15,903				28,986			4,577			--				49,466
Total current assets		50,418				337,139			76,680			(11,981		)		452,256
Property and Equipment, Net		7,331				186,694			25,938			--				219,963
Goodwill		--				--			60,223			--				60,223
Intangibles, Net		217				116,044			15,089			--				131,350
Deferred Income Taxes		--				--			65			--				65
Investments in Consolidated Subsidiaries		357,656				122,568			--			(480,224		)		--
Intercompany Receivable		2,084				46,348			--			(48,432		)		--
Other Assets		10,552				939			27,175			--				38,666
Total Assets		$	428,258			$	809,732		$	205,170		$	(540,637	)		$	902,523
Liabilities and Stockholders’ (Deficit) Equity
Current Liabilities:
Short-term borrowings		$	4,345			$	--		$	--		$	--			$	4,345
Convertible Senior Notes		18,287				--			--			--				18,287
Accounts payable		16,734				146,707			19,420			(8,156		)		174,705
Intercompany payable		7,643				--			52,603			(60,246		)		--
Accrued expenses		77,273				124,918			15,273			--				217,464
Income taxes payable		--				--			932			--				932
Deferred income taxes		--				--			116			--				116
Total current liabilities		124,282				271,625			88,344			(68,402		)		415,849
Long-Term Debt		383,662				--			--			--				383,662
Intercompany Payable		--				--			63,386			(63,386		)		--
Other Non-Current Liabilities		47,244				148,091			13,581			--				208,916
Deferred Income Taxes		--				15,664			5,362			--				21,026
Commitments and Contingencies
Total Stockholders’ (Deficit) Equity		(126,930		)		374,352			34,497			(408,849		)		(126,930		)
Total Liabilities and Stockholders’ (Deficit) Equity		$	428,258			$	809,732		$	205,170		$	(540,637	)		$	902,523

35

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Balance Sheets

September 29, 2012

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries			Non-Guarantor Subsidiaries				Eliminations				Fifth & Pacific Companies, Inc.
Assets
Current Assets:
Cash and cash equivalents		$	18,035			$	2,086		$	11,170			$	(70	)		$	31,221
Accounts receivable – trade, net		3,704				113,814			9,137				--				126,655
Inventories, net		807				232,406			12,365				--				245,578
Deferred income taxes		--				--			170				--				170
Intercompany receivable		--				3,953			--				(3,953		)		--
Other current assets		17,879				22,839			7,199				--				47,917
Total current assets		40,425				375,098			40,041				(4,023		)		451,541
Property and Equipment, Net		13,916				191,106			19,565				--				224,587
Goodwill		--				--			1,574				--				1,574
Intangibles, Net		--				115,674			949				--				116,623
Investments in Consolidated Subsidiaries		323,404				27,983			--				(351,387		)		--
Intercompany Receivable		2,106				--			--				(2,106		)		--
Other Assets		11,755				18,317			18,955				--				49,027
Total Assets		$	391,606			$	728,178		$	81,084			$	(357,516	)		$	843,352
Liabilities and Stockholders’ (Deficit) Equity
Current Liabilities:
Short-term borrowings		$	4,681			$	--		$	--			$	--			$	4,681
Convertible Senior Notes		28,687				--			--				--				28,687
Accounts payable		10,127				152,018			6,774				(70		)		168,849
Intercompany payable		9,457				--			99,270				(108,727		)		--
Accrued expenses		95,339				113,847			5,815				--				215,001
Income taxes payable		--				--			794				--				794
Deferred income taxes		--				--			16				--				16
Total current liabilities		148,291				265,865			112,669				(108,797		)		418,028
Long-Term Debt		384,841				--			--				--				384,841
Intercompany Payable		--				--			17,262				(17,262		)		--
Other Non-Current Liabilities		50,672				153,849			12,436				--				216,957
Deferred Income Taxes		--				15,260			464				--				15,724
Commitments and Contingencies
Total Stockholders’ (Deficit) Equity		(192,198		)		293,204			(61,747		)		(231,457		)		(192,198		)
Total Liabilities and Stockholders’ (Deficit) Equity		$	391,606			$	728,178		$	81,084			$	(357,516	)		$	843,352

36

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Statements of Operations

Nine Months Ended September 28, 2013

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations			Fifth & Pacific Companies, Inc.
Net Sales		$	6,599			$	1,044,766			$	133,002			$	--		$	1,184,367
Cost of goods sold		4,510				463,283				53,564				--			521,357
Gross Profit		2,089				581,483				79,438				--			663,010
Selling, general & administrative expenses		3,995				611,658				85,636				--			701,289
Impairment of intangible asset		--				3,300				--				--			3,300
Operating Loss		(1,906		)		(33,475		)		(6,198		)		--			(41,579		)
Other (expense) income, net		(1,707		)		70				175				--			(1,462		)
Impairment of cost investment		--				--				(6,109		)		--			(6,109		)
Equity in (losses) earnings of consolidated subsidiaries – continuing operations		(50,191		)		(46,118		)		--				96,309			--
Loss on extinguishment of debt		(1,707		)		--				--				--			(1,707		)
Interest (expense) income, net		(35,270		)		1,300				(2,092		)		--			(36,062		)
(Loss) Income Before Provision (Benefit) for Income Taxes		(90,781		)		(78,223		)		(14,224		)		96,309			(86,919		)
Provision (benefit) for income taxes		--				5,417				(1,555		)		--			3,862
(Loss) Income from Continuing Operations		(90,781		)		(83,640		)		(12,669		)		96,309			(90,781		)
Discontinued operations, net of income taxes		(3,844		)		(856		)		(16,696		)		--			(21,396		)
Equity in (losses) earnings of consolidated subsidiaries – discontinued operations, net of income taxes		(17,552		)		(19,650		)		--				37,202			--
Net (Loss) Income		$	(112,177	)		$	(104,146	)		$	(29,365	)		$	133,511		$	(112,177	)

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Statements of Comprehensive Loss

Nine Months Ended September 28, 2013

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations			Fifth & Pacific Companies, Inc.
Net (Loss) Income		$	(112,177	)		$	(104,146	)		$	(29,365	)		$	133,511		$	(112,177	)
Other Comprehensive (Loss) Income, Net of Income Taxes		(7,127		)		(7,064		)		(6,832		)		13,896			(7,127		)
Comprehensive (Loss) Income		$	(119,304	)		$	(111,210	)		$	(36,197	)		$	147,407		$	(119,304	)

37

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Statements of Operations

Nine Months Ended September 29, 2012

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations			Fifth & Pacific Companies, Inc.
Net Sales		$	18,401			$	954,520			$	45,640			$	--		$	1,018,561
Cost of goods sold		12,379				412,685				20,556				--			445,620
Gross Profit		6,022				541,835				25,084				--			572,941
Selling, general & administrative expenses		2,971				605,084				35,652				--			643,707
Operating Income (Loss)		3,051				(63,249		)		(10,568		)		--			(70,766		)
Other income, net		943				117				419				--			1,479
Equity in (losses) earnings of consolidated subsidiaries – continuing operations		(78,616		)		(7,865		)		--				86,481			--
Loss on extinguishment of debt		(8,669		)		--				--				--			(8,669		)
Interest expense, net		(37,362		)		(72		)		(402		)		--			(37,836		)
(Loss) Income Before Provision for Income Taxes		(120,653		)		(71,069		)		(10,551		)		86,481			(115,792		)
Provision for income taxes		21				4,167				694				--			4,882
(Loss) Income from Continuing Operations		(120,674		)		(75,236		)		(11,245		)		86,481			(120,674		)
Discontinued operations, net of income taxes		705				(6,093		)		(5,477		)		--			(10,865		)
Equity in (losses) earnings of consolidated subsidiaries – discontinued operations, net of income taxes		(11,570		)		2,737				--				8,833			--
Net (Loss) Income		$	(131,539	)		$	(78,592	)		$	(16,722	)		$	95,314		$	(131,539	)

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Statements of Comprehensive Loss

Nine Months Ended September 29, 2012

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations			Fifth & Pacific Companies, Inc.
Net (Loss) Income		$	(131,539	)		$	(78,592	)		$	(16,722	)		$	95,314		$	(131,539	)
Other Comprehensive Income (Loss), Net of Income Taxes		70				(367		)		(47		)		414			70
Comprehensive (Loss) Income		$	(131,469	)		$	(78,959	)		$	(16,769	)		$	95,728		$	(131,469	)

38

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Statements of Operations

Three Months Ended September 28, 2013

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations			Fifth & Pacific Companies, Inc.
Net Sales		$	201			$	380,598			$	49,805			$	--		$	430,604
Cost of goods sold		127				167,408				19,925				--			187,460
Gross Profit		74				213,190				29,880				--			243,144
Selling, general & administrative expenses		1,243				210,795				30,129				--			242,167
Impairment of intangible asset		--				3,300				--				--			3,300
Operating Loss		(1,169		)		(905		)		(249		)		--			(2,323		)
Other (expense) income, net		(85		)		62				1,384				--			1,361
Equity in (losses) earnings of consolidated subsidiaries – continuing operations		(1,110		)		(28,058		)		--				29,168			--
Loss on extinguishment of debt		(599		)		--				--				--			(599		)
Interest (expense) income, net		(11,938		)		470				(619		)		--			(12,087		)
(Loss) Income Before Provision (Benefit) for Income Taxes		(14,901		)		(28,431		)		516				29,168			(13,648		)
Provision (benefit) for income taxes		--				2,371				(1,118		)		--			1,253
(Loss) Income from Continuing Operations		(14,901		)		(30,802		)		1,634				29,168			(14,901		)
Discontinued operations, net of income taxes		(759		)		(463		)		(743		)		--			(1,965		)
Equity in (losses) earnings of consolidated subsidiaries – discontinued operations, net of income taxes		(1,206		)		333				--				873			--
Net (Loss) Income		$	(16,866	)		$	(30,932	)		$	891			$	30,041		$	(16,866	)

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Statements of Comprehensive Loss

Three Months Ended September 28, 2013

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations			Fifth & Pacific Companies, Inc.
Net (Loss) Income		$	(16,866	)		$	(30,932	)		$	891			$	30,041		$	(16,866	)
Other Comprehensive Income (Loss), Net of Income Taxes		(212		)		(20		)		(227		)		247			(212		)
Comprehensive (Loss) Income		$	(17,078	)		$	(30,952	)		$	664			$	30,288		$	(17,078	)

39

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Statements of Operations

Three Months Ended September 29, 2012

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Fifth & Pacific Companies, Inc.
Net Sales		$	8,423			$	335,724			$	20,409			$	--			$	364,556
Cost of goods sold		4,818				147,005				9,616				--				161,439
Gross Profit		3,605				188,719				10,793				--				203,117
Selling, general & administrative expenses		1,088				191,215				11,095				--				203,398
Operating Income (Loss)		2,517				(2,496		)		(302		)		--				(281		)
Other expense, net		(126		)		(433		)		(479		)		--				(1,038		)
Equity in (losses) earnings of consolidated subsidiaries – continuing operations		(5,674		)		(2,458		)		--				8,132				--
Loss on extinguishment of debt		(3,023		)		--				--				--				(3,023		)
Interest (expense) income, net		(13,132		)		33				(129		)		--				(13,228		)
(Loss) Income Before (Benefit) Provision for Income Taxes		(19,438		)		(5,354		)		(910		)		8,132				(17,570		)
(Benefit) provision for income taxes		(45		)		1,627				241				--				1,823
(Loss) Income from Continuing Operations		(19,393		)		(6,981		)		(1,151		)		8,132				(19,393		)
Discontinued operations, net of income taxes		972				56				(436		)		--				592
Equity in (losses) earnings of consolidated subsidiaries – discontinued operations, net of income taxes		(380		)		2,926				--				(2,546		)		--
Net (Loss) Income		$	(18,801	)		$	(3,999	)		$	(1,587	)		$	5,586			$	(18,801	)

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Statements of Comprehensive Loss

Three Months Ended September 29, 2012

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries				Non-Guarantor Subsidiaries				Eliminations				Fifth & Pacific Companies, Inc.
Net (Loss) Income		$	(18,801	)		$	(3,999	)		$	(1,587	)		$	5,586			$	(18,801	)
Other Comprehensive Income (Loss), Net of Income Taxes		133				315				338				(653		)		133
Comprehensive (Loss) Income		$	(18,668	)		$	(3,684	)		$	(1,249	)		$	4,933			$	(18,668	)

40

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Statements of Cash Flows

Nine Months Ended September 28, 2013

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Eliminations				Fifth & Pacific Companies, Inc.
Net cash used in operating activities		$	(58,460	)		$	(49,517	)		$	(4,474	)		$	(9,723	)		$	(122,174	)
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment		20,264				--				--				--				20,264
Purchases of property and equipment		(5,757		)		(62,644		)		(9,386		)		--				(77,787		)
Payments for in-store merchandise shops		--				(1,822		)		(657		)		--				(2,479		)
Investments in and advances to equity investees		--				--				(5,500		)		--				(5,500		)
Net proceeds from disposition		--				--				4,000				--				4,000
(Increase) decrease in investments in and advances to consolidated subsidiaries		(105,406		)		117,930				(12,524		)		--				--
Other, net		(303		)		334				70				--				101
Net cash used in investing activities of discontinued operations		--				--				(2,234		)		--				(2,234		)
Net cash (used in) provided by investing activities		(91,202		)		53,798				(26,231		)		--				(63,635		)
Cash Flows from Financing Activities:
Proceeds from borrowings under revolving credit agreement		493,527				--				2,169				--				495,696
Repayment of borrowings under revolving credit agreement		(359,277		)		--				(266		)		--				(359,543		)
Increase (decrease) in intercompany loans		767				(964		)		197				--				--
Proceeds from capital lease		--				8,673				--				--				8,673
Principal payments under capital lease obligations		(3,747		)		--				--				--				(3,747		)
Proceeds from exercise of stock options		2,326				--				--				--				2,326
Payment of deferred financing fees		(5,033		)		--				(238		)		--				(5,271		)
Net cash provided by financing activities		128,563				7,709				1,862				--				138,134
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(9,741		)		(14,047		)		18,893				--				(4,895		)
Net Change in Cash and Cash Equivalents		(30,840		)		(2,057		)		(9,950		)		(9,723		)		(52,570		)
Cash and Cash Equivalents at Beginning of Period		30,840				4,827				26,074				(2,339		)		59,402
Cash and Cash Equivalents at End of Period		$	--			$	2,770			$	16,124			$	(12,062	)		$	6,832

41

Fifth & Pacific Companies, Inc. and Subsidiaries

Condensed Consolidating Statements of Cash Flows

Nine Months Ended September 29, 2012

(In thousands)

	Parent Company Issuer				Guarantor Subsidiaries				Non- Guarantor Subsidiaries				Eliminations				Fifth & Pacific Companies, Inc.
Net cash (used in) provided by operating activities		$	(8,735	)		$	(51,286	)		$	(27,355	)		$	95			$	(87,281	)
Cash Flows from Investing Activities:
Purchases of property and equipment		(3,080		)		(45,042		)		(7,058		)		--				(55,180		)
Payments for in-store merchandise shops		--				(1,477		)		(290		)		--				(1,767		)
Investments in and advances to equity investees		--				--				(5,000		)		--				(5,000		)
(Increase) decrease in investments in and advances to consolidated subsidiaries		(96,691		)		82,501				14,190				--				--
Other, net		(483		)		557				162				--				236
Net cash (used in) provided by investing activities		(100,254		)		36,539				2,004				--				(61,711		)
Cash Flows from Financing Activities:
Proceeds from borrowings under revolving credit agreement		113,389				--				--				--				113,389
Repayment of borrowings under revolving credit agreement		(113,389		)		--				--				--				(113,389		)
Proceeds from issuance of Senior Secured Notes		164,540				--				--				--				164,540
(Decrease) increase in intercompany loans		(17,766		)		(3,331		)		21,097				--				--
Repayment of Euro Notes		(158,027		)		--				--				--				(158,027		)
Principal payments under capital lease obligations		(3,331		)		--				--				--				(3,331		)
Proceeds from exercise of stock options		6,049				--				--				--				6,049
Payment of deferred financing fees		(6,064		)		--				--				--				(6,064		)
Net cash (used in) provided by financing activities		(14,599		)		(3,331		)		21,097				--				3,167
Effect of Exchange Rate Changes on Cash and Cash Equivalents		(3,160		)		(138		)		408				--				(2,890		)
Net Change in Cash and Cash Equivalents		(126,748		)		(18,216		)		(3,846		)		95				(148,715		)
Cash and Cash Equivalents at Beginning of Period		144,783				20,302				15,016				(165		)		179,936
Cash and Cash Equivalents at End of Period		$	18,035			$	2,086			$	11,170			$	(70	)		$	31,221

42

21.    SUBSEQUENT EVENTS

On October 7, 2013, the Company entered into a definitive agreement (the “Agreement”) to sell its JUICY COUTURE brandname and related intellectual property assets of Juicy Couture, Inc., a wholly-owned subsidiary of the Company (“Juicy Couture”) and certain of the Company’s other subsidiaries (the “Juicy Couture IP”), to ABG-Juicy LLC (“ABG”) for a total purchase price of $195.0 million (the “Transaction”). The Transaction closed on November 6, 2013. An additional payment may be payable to the Company in an amount of up to $10.0 million if certain conditions regarding future performance are achieved. The Juicy Couture IP is licensed back to Juicy Couture until December 31, 2014 to accommodate the wind-down of operations. Juicy Couture will pay guaranteed minimum royalties to ABG of $10.0 million during the term of the wind-down license. As a result of the Transaction, the Company expects to incur estimated cash restructuring and other cash transition charges (including estimated contract termination, employee related and other costs) of $50.0 - 60.0 million. The Company also expects transaction costs, including professional fees, to approximate $10.0 million and expects to incur non-cash asset impairment charges of $30.0 - $40.0 million. The resulting net proceeds of this transaction are estimated at $125.0 - $135.0 million. The Company expects to use the net cash proceeds from the sale to make an offer to holders of the Senior Notes to purchase their Senior Notes at par plus accrued and unpaid interest, in accordance with the indenture governing the Senior Notes. To the extent holders of Senior Notes do not accept the offer, the Company expects to use any remaining net cash proceeds to reduce its outstanding debt and for general corporate purposes.

Effective November 6, 2013, the Company entered into an amendment to its Amended Facility to permit the Transaction and permit the Company to add back to Adjusted EBITDA such cash restructuring and transition charges associated with the Transaction in the calculation of certain covenants included in the Company’s debt and credit facilities.

43

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Business Segments

Our segment reporting structure reflects a brand-focused approach, designed to optimize the operational coordination and resource allocation of our businesses across multiple functional areas including specialty retail, retail outlets, concessions, wholesale apparel, wholesale non-apparel, e-commerce and licensing. The four reportable segments described below represent our brand-based activities for which separate financial information is available and which is utilized on a regular basis by our chief operating decision maker (“CODM”) to evaluate performance and allocate resources. In identifying our reportable segments, we consider economic characteristics, as well as products, customers, sales growth potential and long-term profitability. As such, we report our operations in four reportable segments:

·JUICY COUTURE segment – consists of the specialty retail, outlet, concession, wholesale apparel, wholesale non-apparel (including accessories, jewelry and handbags), e-commerce and licensing operations of our JUICY COUTURE brand.

·KATE SPADE segment – consists of the specialty retail, outlet, concession, wholesale apparel, wholesale non-apparel, e-commerce and licensing operations of our KATE SPADE, KATE SPADE SATURDAY and JACK SPADE brands.

·LUCKY BRAND segment – consists of the specialty retail, outlet, wholesale apparel, wholesale non-apparel, e-commerce and licensing operations of LUCKY BRAND.

·Adelington Design Group segment(*) – consists of: (i) exclusive arrangements to supply jewelry for the LIZ CLAIBORNE and MONET brands; (ii) the wholesale non-apparel operations of the TRIFARI brand and licensed KENSIE brand; (iii) the wholesale apparel and wholesale non-apparel operations of the licensed LIZWEAR brand and other brands; and (iv) the licensed LIZ CLAIBORNE NEW YORK brand.

(*) Our agreement to supply DANA BUCHMAN branded jewelry to Kohl’s expired on October 11, 2013.

The operations associated with our former licensed DKNY® Jeans family of brands concluded in January 2012 and were included in the results of the Adelington Design Group segment.

We, as licensor, also license to third parties the right to produce and market products bearing certain Company-owned trademarks; the resulting royalty income is included within the results of the associated segment.

Market Environment

The industries in which we operate have historically been subject to cyclical variations, including recessions in the general economy. Our results are dependent on a number of factors impacting consumer spending, including but not limited to, general economic and business conditions; consumer confidence; wages and employment levels; the housing market; levels of perceived and actual consumer wealth; consumer debt levels; availability of consumer credit; credit and interest rates; fluctuations in foreign currency exchange rates; fuel and energy costs; energy shortages; the performance of the financial equity and credit markets; tariffs and other trade barriers; taxes; general political conditions, both domestic and abroad; and the level of customer traffic within department stores, malls and other shopping and selling environments.

Macroeconomic challenges and uncertainty continue to dampen consumer spending, unemployment levels remain high, consumer retail traffic remains inconsistent and the retail environment remains promotional. In addition, economic conditions in international markets in which we operate, including Europe and Asia, remain uncertain and volatile. We continue to focus on the execution of our strategic plans and improvements in productivity, with a primary focus on operating cash flow generation, retail execution and international expansion. We will also continue to carefully manage liquidity and spending.

44

Competitive Profile

We operate in global fashion markets that are intensely competitive and subject to, among other things, macroeconomic conditions and consumer demands, tastes and discretionary spending habits. As we anticipate that the global economic uncertainty will continue into the foreseeable future, we will continue to carefully manage spending.

In summary, the measure of our success in the future will depend on our ability to continue to navigate through an uncertain macroeconomic environment with challenging market conditions and to execute on our strategic vision, including attracting and retaining the management talent necessary for such execution, designing and delivering products that are acceptable to the marketplaces that we serve, sourcing the manufacture and distribution of our products on a competitive and efficient basis, continuing to drive profitable growth at KATE SPADE and sustaining recent improved performance in our LUCKY BRAND business.

Reference is also made to the other economic, competitive, governmental and technological factors affecting our operations, markets, products, services and prices as set forth in this report, including, without limitation, under “Statement Regarding Forward-Looking Statements” and “Item 1A – Risk Factors” in this Form 10-Q and in our 2012 Annual Report on Form 10-K.

Recent Developments and Operational Initiatives

We continue to pursue transactions and initiatives with a significant impact on our portfolio of brands and which improve our operations or liquidity.

On November 6, 2013, we sold the JUICY COUTURE brandname and related intellectual property assets of Juicy Couture, Inc., a wholly-owned subsidiary of the Company (“Juicy Couture”) and certain of the Company’s other subsidiaries (the “Juicy Couture IP”), to ABG-Juicy LLC (“ABG”) for a total purchase price of $195.0 million (the “Transaction”). An additional payment may be payable to us in an amount up to $10.0 million if certain conditions regarding future performance are achieved. The Juicy Couture IP is licensed back to Juicy Couture until December 31, 2014 to accommodate the wind-down of operations. Juicy Couture will pay guaranteed minimum royalties to ABG of $10.0 million during the term of the wind-down license. As a result of the Transaction, we expect to incur estimated cash restructuring and other cash transition charges (including estimated contract termination, employee related and other costs) of $50.0 - $60.0 million. We also expect transaction costs, including professional fees, to approximate $10.0 million and expect to incur non-cash asset impairment charges of $30.0 - $40.0 million. The resulting net proceeds of this transaction are estimated at $125.0 - $135.0 million. In connection with the Transaction, we anticipate converting some of the JUICY COUTURE stores to KATE SPADE and LUCKY BRAND formats. We expect to transition or wind-down a substantial portion of the business through the first half of 2014 and complete all actions by December 31, 2014.

During the first quarter of 2013, we launched the KATE SPADE SATURDAY brand in Japan and the US.

On October 31, 2012, our wholly-owned subsidiary Kate Spade, LLC, through its own wholly-owned Japanese subsidiary KSJ Co., Ltd. (“KSJ”), a Japanese kabushiki kaisha, acquired the 51.0% interest (the “KSJ Buyout”) in KSJ that was previously held by Sanei International Co., LTD, (“Sanei”). KSJ was a joint venture that was formed between Sanei and KATE SPADE in August 2009. KSJ operated the KATE SPADE, KATE SPADE SATURDAY and JACK SPADE businesses in Japan, and KATE SPADE will continue to operate such businesses in Japan through its Japanese subsidiary. The purchase price for the KSJ Buyout was $41.0 million, net of $0.4 million of cash acquired.

In the second quarter of 2011, we initiated actions to close our Ohio distribution center (the “Ohio Facility”), which was previously expected to be completed in the fourth quarter of 2012. In August 2011, we entered into an agreement with Li & Fung Limited (“Li & Fung”) for distribution services in the United States for our Company-owned retail stores, as well as for our wholesale business. In August 2012, we encountered systems and operational issues that delayed the migration of our product distribution function out of the Ohio Facility, resulting in increased operating costs during the second half of 2012. Subsequently, we determined that it would be advisable to discontinue the migration of the product distribution function to Li & Fung, and we mutually agreed with Li & Fung to allow the distribution agreement with Li & Fung to expire as of January 31, 2013. In connection with such expiration, we discontinued the migration of our distribution function to Li & Fung and continue to utilize the Ohio Facility for such function. On February 5, 2013, we entered into a contract with a third-party facility operations and

45

labor management company to provide distribution operations services at the Ohio Facility under a variable cost structure.

In July 2013, we completed a sale-leaseback agreement for the Ohio Facility. We received net proceeds of $20.3 million, and we entered into a sale-leaseback arrangement with the buyer for a 10-year term. The agreement does not affect our contract with the third-party facility operations and labor management company to provide distribution operations services at the Ohio Facility.

We are evolving our direct-to-consumer marketing and distribution activities by enhancing our omni-channel capabilities. We anticipate this will create a seamless consumer buying experience across direct-to-consumer sub-channels by allowing fulfillment of e-commerce orders from substantially all retail stores and fulfillment of retail store sales with e-commerce inventory when the merchandise is not initially available in the respective sub-channel.  Consumers will also have the ability to place e-commerce orders through point of sale kiosks located within our retail stores.

Debt and Liquidity Enhancements

We expect to use the net cash proceeds from the sale of the Juicy Couture IP to make an offer to holders of our 10.5% Senior Secured Notes due April 2019 (the “Senior Notes”) to purchase their Senior Notes at par plus accrued and unpaid interest, in accordance with the indenture governing the Senior Notes. To the extent holders of Senior Notes do not accept the offer, we expect to use any remaining net cash proceeds to reduce our outstanding debt and for general corporate purposes.

In July 2013, holders of the remaining $8.8 million aggregate principal amount of our 6.0% Convertible Senior Notes due June 2014 (the “Convertible Notes”) converted all of such outstanding Convertible Notes into 2.5 million shares of our common stock. After the transaction closed, no Convertible Notes remained outstanding. On January 22, 2013, a holder of $11.2 million aggregate principal amount of our Convertible Notes converted all of such outstanding Convertible Notes into 3.2 million shares of our common stock.

On April 18, 2013, we completed the third amendment to and restatement of our revolving credit facility (as amended to date, the “Amended Facility”), which extended the maturity date from August 2014 to April 2018. Availability under the Amended Facility is the lesser of $350.0 million and a borrowing base that is computed monthly and comprised of our eligible cash, accounts receivable and inventory. See “Financial Position, Liquidity and Capital Resources.”

Our cost reduction efforts have included tighter controls surrounding discretionary spending and streamlining initiatives that have included rationalization of distribution centers and office space, store closures and staff reductions, including consolidation of certain support and production functions and outsourcing certain corporate functions. We have also engaged more extensively in direct shipping and other arrangements. We expect that our streamlining initiatives will provide long-term cost savings. We will also continue to closely manage spending, with 2013 capital expenditures expected to be approximately $115.0 million, compared to $85.8 million in 2012.

For a discussion of certain risks relating to our recent initiatives, see “Item 1A – Risk Factors” in this Form 10-Q and in our 2012 Annual Report on Form 10-K.

Discontinued Operations

We have completed various disposal transactions including: (i) the closure of our LIZ CLAIBORNE concessions in Europe in the first quarter of 2011; (ii) the closure of our MONET concessions in Europe in December 2011; (iii) the sale of an 81.25% interest in the global Mexx business in October 2011; and (iv) the sale of the KENSIE, KENSIE GIRL and MAC & JAC trademarks in October 2011.

The activities of the former global Mexx business, our KENSIE, KENSIE GIRL and MAC & JAC brands, our closed LIZ CLAIBORNE concessions in Europe and closed MONET concessions in Europe have been segregated and reported as discontinued operations for all periods presented.

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Overall Results for the Nine Months Ended September 28, 2013

Net Sales

Net sales for the first nine months of 2013 were $1.184 billion, an increase of $165.8 million, or 16.3%, compared to net sales for the first nine months of 2012. Net sales increased in our KATE SPADE and LUCKY BRAND segments, partially offset by declines in net sales within our JUICY COUTURE and Adelington Design Group segments. Net sales for the first nine months of 2013 included $72.4 million of KSJ net sales in our consolidated results.

Gross Profit and Loss from Continuing Operations

Gross profit in the first nine months of 2013 was $663.0 million, an increase of $90.1 million compared to the first nine months of 2012, which was primarily due to increased net sales in our KATE SPADE and LUCKY BRAND segments, partially offset by decreased net sales in our JUICY COUTURE segment. Our gross profit rate decreased from 56.3% in 2012 to 56.0% in 2013 due to increased promotion activity at JUICY COUTURE, partially offset by increased gross profit in our KATE SPADE segment, which runs at a higher gross profit rate than the Company average.

We recorded a loss from continuing operations of $90.8 million in the first nine months of 2013, as compared to a loss from continuing operations of $120.7 million in the first nine months of 2012. The period-over-period change primarily reflected: (i) an increase in gross profit; (ii) a loss on extinguishment of debt of $1.7 million in the first nine months of 2013 compared to $8.7 million in the first nine months of 2012; (iii) an increase in Selling, general & administrative expenses (“SG&A”); (iv) aggregate non-cash impairment charges of $9.4 million in the first nine months of 2013 related to the Mexx cost investment and TRIFARI trademark; and (v) Other (expense) income, net of $(1.5) million in the first nine months of 2013, compared to $1.5 million in the first nine months of 2012.

Balance Sheet

We ended the first nine months of 2013 with a net debt position (total debt less cash and marketable securities) of $521.9 million as compared to $386.0 million at the end of the first nine months of 2012. The $135.9 million increase in our net debt primarily reflected: (i) the funding of $109.2 million of capital and in-store shop expenditures over the last 12 months; (ii) the payment of $41.0 million for the KSJ Buyout; (iii) the conversion of $31.6 million aggregate principal amount of our Convertible Notes into 9.0 million shares of our common stock; (iv) the receipt of aggregate net proceeds of $28.9 million from the sale-leaseback of our Ohio Facility and North Bergen, NJ office; and (v) the use of $22.5 million in cash from discontinued operations over the past 12 months. We also used $1.0 million in cash from continuing operations over the past 12 months, which included a $20.0 million advance refunded to J.C. Penney Corporation, Inc. (“JCPenney”) on February 8, 2013.

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RESULTS OF OPERATIONS

As discussed above, we present our results based on four reportable segments.

NINE MONTHS ENDED SEPTEMBER 28, 2013 COMPARED TO NINE MONTHS ENDED SEPTEMBER 29, 2012

The following table sets forth our operating results for the nine months ended September 28, 2013 (comprised of 39 weeks) compared to the nine months ended September 29, 2012 (comprised of 39 weeks):

	Nine Months Ended						Variance
Dollars in millions	September 28, 2013 (39 Weeks)			September 29, 2012 (39 Weeks)			$			%
Net Sales	$	1,184.4		$	1,018.6		$	165.8		16.3	%
Gross Profit	663.0			572.9			90.1			15.7	%
Selling, general & administrative expenses	701.3			643.7			(57.6		)	(8.9	)%
Impairment of intangible asset	3.3			--			(3.3		)	*
Operating Loss	(41.6		)	(70.8		)	29.2			41.2	%
Other (expense) income, net	(1.5		)	1.5			(3.0		)	*
Impairment of cost investment	(6.1		)	--			(6.1		)	*
Loss on extinguishment of debt	(1.7		)	(8.7		)	7.0			80.3	%
Interest expense, net	(36.1		)	(37.8		)	1.7			4.7	%
Provision for income taxes	3.8			4.9			1.1			20.9	%
Loss from Continuing Operations	(90.8		)	(120.7		)	29.9			24.8	%
Discontinued operations, net of income taxes	(21.4		)	(10.8		)	(10.6		)	(96.9	)%
Net Loss	$	(112.2	)	$	(131.5	)	$	19.3		14.7	%

*   Not meaningful.

Net Sales

Net sales for the first nine months of 2013 were $1.184 billion, an increase of $165.8 million, or 16.3%, compared to the first nine months of 2012.

Net sales results for our reportable segments are provided below:

· JUICY COUTURE net sales were $310.0 million, a 10.1% decrease compared to 2012, which primarily reflected decreases in our wholesale non-apparel, wholesale apparel and specialty retail operations, partially offset by increases in our outlet and e-commerce operations.   We ended the first nine months of 2013 with 74 specialty retail stores, 52 outlet stores and 2 concessions, reflecting the net closure over the last 12 months of 4 specialty retail stores and 1 outlet store. Key operating metrics for our JUICY COUTURE retail operations included the following: —  Average retail square footage in the first nine months of 2013 was approximately 414 thousand square feet, a 3.7% decrease compared to 2012;

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	—  Sales productivity was $432 per average square foot as compared to $423 for the first nine months of 2012; and —  Comparable direct-to-consumer net sales, including e-commerce and concessions, decreased 2.8% in the first nine months of 2013; excluding e-commerce net sales, comparable direct-to-consumer net sales decreased by 4.7%.
·	LUCKY BRAND net sales were $346.4 million, a 6.8% increase compared to 2012, reflecting increases in our wholesale apparel, outlet and e-commerce operations, partially offset by a decrease in our wholesale non-apparel operations. We ended the first nine months of 2013 with 174 specialty retail stores and 65 outlet stores, reflecting the net addition over the last 12 months of 21 outlet stores. Key operating metrics for our LUCKY BRAND retail operations included the following: —  Average retail square footage in the first nine months of 2013 was approximately 575 thousand square feet, a 3.6% increase compared to 2012; —  Sales productivity was $314 per average square foot as compared to $313 for the first nine months of 2012; and —  Comparable direct-to-consumer net sales, including e-commerce, increased by 1.2% in the first nine months of 2013; excluding e-commerce net sales, comparable direct-to-consumer net sales increased by 0.5%.
·	KATE SPADE net sales were $487.5 million, a 68.6% increase compared to 2012, reflecting increases across all operations in the segment. Net sales for the first nine months of 2013 included $72.4 million of KSJ net sales. We ended the first nine months of 2013 with 107 specialty retail stores, 48 outlet stores and 41 concessions, reflecting the net addition over the last 12 months of 23 specialty retail stores, 18 outlet stores and 9 concessions and the acquisition of 21 specialty retail stores and 32 concessions resulting from the KSJ Buyout. Key operating metrics for our KATE SPADE retail operations included the following: —  Average retail square footage in the first nine months of 2013 was approximately 255 thousand square feet, a 56.0% increase compared to 2012; —  Sales productivity was $819 per average square foot as compared to $737 for the first nine months of 2012; and —  Comparable direct-to-consumer net sales, including e-commerce, increased by 27.0% in the first nine months of 2013; excluding e-commerce net sales, comparable direct-to-consumer net sales increased by 19.6%.
·	Adelington Design Group net sales were $40.5 million, a decrease of $19.7 million, or 32.7%, compared to 2012, reflecting the following: —  A net $13.0 million decrease primarily related to the licensed LIZ CLAIBORNE brands, including LIZWEAR and LIZ CLAIBORNE NEW YORK; —  A $3.8 million decrease in net sales primarily related to our former licensed DKNY® Jeans brand and other brands that have been licensed or exited; and
	—  A $2.9 million decrease in the wholesale non-apparel operations of our private label jewelry business, our TRIFARI brand and our licensed MONET brand.

Comparable direct-to-consumer net sales are calculated as follows:

·New stores become comparable after 14 full fiscal months of operations (on the first day of the 15th full fiscal month);

·Except in unusual circumstances, closing stores become non-comparable one full fiscal month prior to the scheduled closing date;

·A remodeled store will be changed to non-comparable when there is a 20.0% or more increase/decrease in its selling square footage (effective at the start of the fiscal month when construction begins). The store becomes comparable again after 14 full fiscal months from the re-open date;

·A store that relocates becomes non-comparable when the new location is materially different from the original location (in respect to selling square footage and/or traffic patterns);

·Stores that are acquired are not comparable until they have been reflected in our results for a period of 12 months; and

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·E-commerce sales are comparable after 12 full fiscal months from the website launch date (on the first day of the 13th full month).

We evaluate sales productivity based on net sales per average square foot, which is defined as net sales divided by the average of beginning and end of period gross square feet and excludes e-commerce net sales.

Gross Profit

Gross profit in the first nine months of 2013 was $663.0 million (56.0% of net sales), compared to $572.9 million (56.3% of net sales) in the first nine months of 2012. The increase in gross profit was primarily due to increased net sales in our KATE SPADE and LUCKY BRAND segments, partially offset by decreased net sales in our JUICY COUTURE segment. Our gross profit rate decreased from 56.3% in 2012 to 56.0% in 2013 due to increased promotion activity at JUICY COUTURE partially offset by increased gross profit in our KATE SPADE segment, which runs at a higher gross profit rate than the Company average.

Expenses related to warehousing activities, including receiving, storing, picking, packing and general warehousing charges are included in SG&A; accordingly, our gross profit may not be directly comparable to others who may include these expenses as a component of cost of goods sold.

Selling, General & Administrative Expenses

SG&A increased $57.6 million, or 8.9%, to $701.3 million in the first nine months of 2013 compared to the first nine months of 2012. The increase in SG&A reflected the following:

·A $114.7 million increase in SG&A in our KATE SPADE and LUCKY BRAND segments, primarily related to direct-to-consumer expansion reflecting: (i) increased e-commerce fees and advertising expenses; (ii) increased compensation related expenses; and (iii) increased rent and other store operating expenses. The increase also included incremental SG&A associated with KSJ and the launch of KATE SPADE SATURDAY.

·A $31.1 million decrease associated with reduced costs at Corporate and in our JUICY COUTURE and Adelington Design Group segments; and

·A $26.0 million decrease in expenses associated with our streamlining initiatives, brand-exiting activities and acquisition related costs.

SG&A as a percentage of net sales was 59.2%, compared to 63.2% in 2012, primarily reflecting reduced SG&A in our JUICY COUTURE and Adelington Design Group segments and Corporate.

Impairment of Intangible Asset

We recorded a $3.3 million non-cash impairment charge in our Adelington Design Group segment related to our trademark for the TRIFARI brand in the third quarter of 2013.

Operating Loss

Operating loss for the first nine months of 2013 was $41.6 million ((3.5)% of net sales) compared to an operating loss of $70.8 million ((6.9)% of net sales) in 2012.

Other (Expense) Income, Net

Other (expense) income, net amounted to $(1.5) million and $1.5 million in the nine months ended September 28, 2013 and September 29, 2012, respectively. Other (expense) income, net consisted primarily of (i) foreign currency transaction gains and losses and (ii) equity in the (losses) earnings of our equity method investees.

Impairment of Cost Investment

We recorded a $6.1 million impairment charge in our Adelington Design Group segment related to our investment in the Mexx business in the second quarter of 2013.

Loss on Extinguishment of Debt

During the first nine months of 2013, we recorded a $1.7 million loss on the extinguishment of debt in connection with the conversion of $19.9 million of our Convertible Notes into 5.6 million shares of our common stock. During the first nine months of 2012, we recorded an $8.7 million loss on the extinguishment of debt in connection with the conversion of $37.6 million of our Convertible Notes into 10.8 million shares of our common stock and the repurchase of 121.5 million euro aggregate principal amount of our 5.0% Euro Notes, due July 2013 (the “Euro Notes”).

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Interest Expense, Net

Interest expense, net was $36.1 million for the nine months ended September 28, 2013, as compared to $37.8 million for the nine months ended September 29, 2012, primarily reflecting a decrease of $6.2 million in interest expense on the Euro Notes and Convertible Notes and a $3.1 million decrease related to the amortization of deferred financing fees, partially offset by a $7.2 million increase in interest expense on the Senior Notes and Amended Facility.

Provision for Income Taxes

The income tax provision of $3.8 million and $4.9 million for the nine months ended September 28, 2013 and September 29, 2012, respectively, primarily represented increases in deferred tax liabilities for indefinite-lived intangible assets, an increase in the accrual for interest related to uncertain tax positions and current tax on operations in certain jurisdictions.

Loss from Continuing Operations

Loss from continuing operations in the first nine months of 2013 decreased to $90.8 million, or (7.7)% of net sales, from $120.7 million in the first nine months of 2012, or (11.8)% of net sales. Earnings per share, Basic and Diluted (“EPS”) from continuing operations was $(0.75) in 2013 and $(1.12) in 2012.

Discontinued Operations, Net of Income Taxes

Loss from discontinued operations in the first nine months of 2013 was $21.4 million, reflecting a loss on disposal of discontinued operations of $19.3 million and a $2.1 million loss from discontinued operations. Loss from discontinued operations in the first nine months of 2012 was $10.8 million, reflecting a loss on disposal of discontinued operations of $7.9 million and a $2.9 million loss from discontinued operations. EPS from discontinued operations was $(0.18) in 2013 and $(0.10) in 2012.

Net Loss

Net loss in the first nine months of 2013 decreased to $112.2 million from $131.5 million in the first nine months of 2012. EPS was $(0.93) in 2013 and $(1.22) in 2012.

Segment Adjusted EBITDA

Our Chief Executive Officer has been identified as the CODM. During the fourth quarter of 2012, we determined that our measure of segment profitability is Adjusted EBITDA of each reportable segment. Accordingly, the CODM evaluates performance and allocates resources based primarily on Segment Adjusted EBITDA. Segment Adjusted EBITDA is also a key metric utilized in our annual bonus and long-term incentive plans. Segment Adjusted EBITDA excludes: (i) depreciation and amortization; (ii) charges due to streamlining initiatives, brand-exiting activities and acquisition related costs; and (iii) losses on asset disposals and impairments. Unallocated Corporate costs also exclude non-cash share-based compensation expense. In addition, Segment Adjusted EBITDA does not include Corporate expenses associated with the following functions: corporate finance, investor relations, communications, legal, human resources and information technology shared services and costs of executive offices and corporate facilities, which are included in Unallocated Corporate costs. We do not allocate amounts reported below Operating loss to our reportable segments, other than equity income (loss) in equity method investees. Our definition of Segment Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

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Segment Adjusted EBITDA for our reportable segments and Unallocated Corporate costs are provided below.

	Nine Months Ended								Variance
Dollars in thousands	September 28, 2013 (39 Weeks)				September 29, 2012 (39 Weeks)				$			%
Reportable Segments Adjusted EBITDA:
JUICY COUTURE	$	(5,351		)	$		12,604		$	(17,955	)	*
LUCKY BRAND	14,252				13,488				764			5.7	%
KATE SPADE (a)	66,350				51,578				14,772			28.6	%
Adelington Design Group			9,691		14,032				(4,341		)	(30.9	) %
Total Reportable Segments Adjusted EBITDA	84,942				91,702
Unallocated Corporate Costs	(49,516			)	(56,573			)
Depreciation and amortization, net (b)	(49,482			)	(46,796			)
Impairment of intangible asset	(3,300			)	--
Charges due to streamlining initiatives, brand-exiting activities, acquisition related costs and loss on asset disposals and impairments, net (c)	(20,000			)	(52,416			)
Share-based compensation	(5,206			)	(7,157			)
Equity loss included in Reportable Segments Adjusted EBITDA			983		474
Operating Loss	(41,579			)	(70,766			)
Other (expense) income, net(a)	(1,462			)	1,479
Impairment of cost investment	(6,109			)	--
Loss on extinguishment of debt	(1,707			)	(8,669			)
Interest expense, net	(36,062			)	(37,836			)
Provision for income taxes	3,862				4,882
Loss from Continuing Operations	$	(90,781		)	$	(120,674		)

*Not meaningful.

(a)Amounts include equity in the losses of equity method investees of $1.0 million and $0.5 million for the nine months ended September 28, 2013 and September 29, 2012, respectively.

(b)Excludes amortization included in Interest expense, net.

(c)See Note 10 of Notes to Condensed Consolidated Financial Statements for a discussion of impairment charges and Note 12 of Notes to Condensed Consolidated Financial Statements for a discussion of streamlining charges.

A discussion of Segment Adjusted EBITDA of our reportable segments and Unallocated Corporate costs for the nine months ended September 28, 2013 and September 29, 2012 follows:

·JUICY COUTURE Adjusted EBITDA for the first nine months of 2013 was $(5.4) million ((1.7)% of net sales), compared to Adjusted EBITDA of $12.6 million (3.7% of net sales) in 2012. The period-over-period change reflected decreased gross profit, partially offset by reduced SG&A associated with a decrease in compensation and advertising related expenses.

·LUCKY BRAND Adjusted EBITDA for the first nine months of 2013 was $14.3 million (4.1% of net sales), compared to Adjusted EBITDA of $13.5 million (4.2% of net sales) in 2012. The period-over-period change reflected increased gross profit, partially offset by an increase in SG&A related to increased rent and other store operating expenses, professional fees and compensation related expenses.

·KATE SPADE Adjusted EBITDA for the first nine months of 2013 was $66.4 million (13.6% of net sales), compared to $51.6 million (17.8% of net sales) in 2012. The period-over-period increase reflected an increase in gross profit, as discussed above, partially offset by an increase in SG&A related to direct-to-consumer expansion, including an increase in payroll related expenses, advertising expenses, rent and other store operating expenses and e-commerce fees. The increase also included incremental SG&A associated with KSJ, the launch of KATE SPADE SATURDAY and the impact of costs associated with defending the KATE SPADE SATURDAY trademark. The decrease in the Adjusted EBITDA margin resulted from the reporting impact of the KSJ acquisition, the launch of KATE SPADE SATURDAY and the expansion of JACK SPADE. KATE SPADE Adjusted EBITDA for 2013 included $5.2 million of incremental Adjusted EBITDA from KSJ.

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·Adelington Design Group Adjusted EBITDA for the first nine months of 2013 was $9.7 million (24.0% of net sales), compared to Adjusted EBITDA of $14.0 million (23.3% of net sales) in 2012. The decrease in Adjusted EBITDA reflected decreased gross profit, partially offset by reduced SG&A.

Unallocated Corporate costs include costs for corporate finance, investor relations, communications, legal, human resources and information technology shared services and costs of executive offices and corporate facilities.  Unallocated Corporate costs decreased to $49.5 million for the nine months ended September 28, 2013 compared to $56.6 million for the nine months ended September 29, 2012 primarily due to reduced payroll and related expenses. The decrease in those expenses resulted principally from corporate streamlining actions executed in 2012, which included reductions in staff. We also decreased discretionary spending.

THREE MONTHS ENDED SEPTEMBER 28, 2013 COMPARED TO THREE MONTHS ENDED SEPTEMBER 29, 2012

The following table sets forth our operating results for the three months ended September 28, 2013 (comprised of 13 weeks) compared to the three months ended September 29, 2012 (comprised of 13 weeks):

	Three Months Ended						Variance
Dollars in millions	September 28, 2013(13 Weeks)			September 29, 2012(13 Weeks)			$			%
Net Sales	$	430.6		$	364.6		$	66.0		18.1	%
Gross Profit	243.1			203.1			40.0			19.7	%
Selling, general & administrative expenses	242.1			203.4			(38.7		)	(19.0	)%
Impairment of intangible asset	3.3			--			(3.3		)	*
Operating Loss	(2.3		)	(0.3		)	(2.0		)	*
Other income (expense), net	1.3			(1.1		)	2.4			*
Loss on extinguishment of debt	(0.6		)	(3.0		)	2.4			80.2	%
Interest expense, net	(12.1		)	(13.2		)	1.1			8.6	%
Provision for income taxes	1.2			1.8			0.6			31.2	%
Loss from Continuing Operations	(14.9		)	(19.4		)	4.5			23.2	%
Discontinued operations, net of income taxes	(2.0		)	0.6			(2.6		)	*
Net Loss	$	(16.9	)	$	(18.8	)	$	1.9		10.3	%

*Not meaningful.

Net Sales

Net sales for the third quarter of 2013 were $430.6 million, an increase of $66.0 million, or 18.1%, compared to the third quarter of 2012. Net sales increased in our KATE SPADE and LUCKY BRAND segments, partially offset by declines in net sales within our JUICY COUTURE and Adelington Design Group segments. Net sales for the third quarter of 2013 included $24.9 million of KSJ net sales in our consolidated results.

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Net sales results for our reportable segments are provided below:

·	JUICY COUTURE net sales were $118.0 million, a 9.1% decrease compared to 2012, which primarily reflected decreases in our wholesale non-apparel, specialty retail and wholesale apparel operations, partially offset by increases in our e-commerce and outlet operations. Key operating metrics for our JUICY COUTURE retail operations included the following: —  Average retail square footage in the third quarter of 2013 was approximately 407 thousand square feet, a 3.0% decrease compared to 2012; —  Sales productivity was $162 per average square foot as compared to $164 for the third quarter of 2012; and
	—  Comparable direct-to-consumer net sales, including e-commerce and concessions, decreased 2.7% in the third quarter of 2013; excluding e-commerce net sales, comparable direct-to-consumer net sales decreased by 5.7%.
·	LUCKY BRAND net sales were $120.0 million, a 7.3% increase compared to 2012, reflecting increases in our wholesale apparel and outlet operations, partially offset by a decrease in our wholesale non-apparel operations. Key operating metrics for our LUCKY BRAND retail operations included the following: —  Average retail square footage in the third quarter of 2013 was approximately 571 thousand square feet, a 3.7% increase compared to 2012; —  Sales productivity was $106 per average square foot as compared to $104 for the third quarter of 2012; and —  Comparable direct-to-consumer net sales, including e-commerce, increased by 0.1% in the third quarter of 2013; excluding e-commerce net sales, comparable direct-to-consumer net sales decreased by 0.4%.
·	KATE SPADE net sales were $179.7 million, a 76.4% increase compared to 2012, reflecting increases across all operations in the segment. Net sales for the third quarter of 2013 included $24.9 million of KSJ net sales. Key operating metrics for our KATE SPADE retail operations included the following: —  Average retail square footage in the third quarter of 2013 was approximately 273 thousand square feet, a 66.0% increase compared to 2012; —  Sales productivity was $300 per average square foot as compared to $268 for the third quarter of 2012; and —  Comparable direct-to-consumer net sales, including e-commerce, increased by 31.1% in the third quarter of 2013; excluding e-commerce net sales, comparable direct-to-consumer net sales increased by 22.5%.
·	Adelington Design Group net sales were $12.9 million, a decrease of $8.2 million, or 38.8%, compared to 2012, reflecting the following: —  A net $10.6 million decrease primarily related to the licensed LIZ CLAIBORNE brands, including LIZWEAR and LIZ CLAIBORNE NEW YORK; and
	—  A $2.4 million increase in the wholesale non-apparel operations of our licensed Monet brand and our TRIFARI brand.

Gross Profit

Gross profit in the third quarter of 2013 was $243.1 million (56.5% of net sales), compared to $203.1 million (55.7% of net sales) in the third quarter of 2012. The increase in gross profit is primarily due to increased net sales in our KATE SPADE and LUCKY BRAND segments, partially offset by decreased net sales in our JUICY COUTURE and Adelington Design Group segments. Our gross profit rate increased from 55.7% in 2012 to 56.5% in 2013 due to increased gross profit rates in our JUICY COUTURE specialty retail and wholesale apparel operations and Adelington Design Group segment and increased gross profit in our KATE SPADE segment, which runs at a higher gross profit rate than the Company average.

Selling, General & Administrative Expenses

SG&A increased $38.7 million, or 19.0%, to $242.1 million in the third quarter of 2013 compared to the third quarter of 2012. The increase in SG&A reflected the following:

·A $42.7 million increase in SG&A in our KATE SPADE and LUCKY BRAND segments, primarily related to direct-to-consumer expansion reflecting: (i) increased e-commerce fees and advertising expenses; (ii) increased compensation related expenses; and (iii) increased rent and other store operating expenses. The increase also included incremental SG&A associated with KSJ and the launch of KATE SPADE SATURDAY;

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·A $3.5 million decrease in costs in Corporate and our JUICY COUTURE and Adelington Design Group segments, primarily related to decreased compensation related expenses; and

·A $0.5 million decrease in expenses associated with our streamlining initiatives, brand-exiting activities and acquisition related costs.

SG&A as a percentage of net sales was 56.2%, compared to 55.8% in 2012.

Impairment of Intangible Asset

We recorded a $3.3 million non-cash impairment charge in our Adelington Design Group segment related to our TRIFARI trademark in the third quarter of 2013.

Operating Loss

Operating loss for the third quarter of 2013 was $2.3 million ((0.5)% of net sales) compared to an operating loss of $0.3 million ((0.1)% of net sales) in 2012.

Other Income (Expense), Net

Other income (expense), net amounted to $1.3 million and $(1.1) million in the three months ended September 28, 2013 and September 29, 2012, respectively. Other income (expense), net consisted primarily of (i) foreign currency transaction gains and losses; and (ii) equity in the (losses) earnings of our equity method investees.

Loss on Extinguishment of Debt

During the third quarter of 2013, we recorded a $0.6 million loss on the extinguishment of debt in connection with the conversion of the remaining $8.8 million aggregate principal amount of our Convertible Notes into 2.5 million shares of our common stock. During the third quarter of 2012, we recorded a $3.0 million loss on the extinguishment of debt in connection with the redemption of the remaining 52.9 million euro aggregate principal amount of our Euro Notes.

Interest Expense, Net

Interest expense, net was $12.1 million for the three months ended September 28, 2013, as compared to $13.2 million for the three months ended September 29, 2012, primarily reflecting a decrease of $1.0 million related to the amortization of deferred financing fees and a $0.9 million decrease in interest expense related to the Euro Notes and Convertible Notes, partially offset by a $0.7 million increase in interest expense on outstanding borrowings under our Amended Facility.

Provision for Income Taxes

The income tax provision of $1.2 million and $1.8 million for the three months ended September 28, 2013 and September 29, 2012, respectively, primarily represented increases in deferred tax liabilities for indefinite-lived intangible assets, current tax on operations in certain jurisdictions and an increase in the accrual for interest related to uncertain tax positions.

Loss from Continuing Operations

Loss from continuing operations in the third quarter of 2013 decreased to $14.9 million, or (3.5)% of net sales, from $19.4 million in the third quarter of 2012, or (5.3)% of net sales. EPS from continuing operations was $(0.12) in 2013 and $(0.17) in 2012.

Discontinued Operations, Net of Income Taxes

Loss from discontinued operations in the third quarter of 2013 was $(2.0) million, reflecting a loss on disposal of discontinued operations of $(1.5) million and a $(0.5) million loss from discontinued operations. Income from discontinued operations in the third quarter of 2012 was $0.6 million, reflecting income on disposal of discontinued operations of $1.0 million and a $(0.4) million of loss from discontinued operations. EPS from discontinued operations was $(0.02) in 2013 and zero in 2012.

Net Loss

Net loss in the third quarter of 2013 decreased to $16.9 million from $18.8 million in the third quarter of 2012. EPS was $(0.14) in 2013 and $(0.17) in 2012.

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Segment Adjusted EBITDA

Segment Adjusted EBITDA for our reportable segments and Unallocated Corporate costs are provided below.

	Three Months Ended						Variance
Dollars in thousands	September 28, 2013(13 Weeks)			September 29, 2012(13 Weeks)			$			%
Reportable Segments Adjusted EBITDA:
JUICY COUTURE	$	6,924		$	6,511		$	413		6.3	%
LUCKY BRAND	4,907			6,736			(1,829		)	(27.2	)%
KATE SPADE (a)	23,510			15,721			7,789			49.5	%
Adelington Design Group	3,947			7,308			(3,361		)	(46.0	)%
Total Reportable Segments Adjusted EBITDA	39,288			36,276
Unallocated Corporate Costs	(14,859		)	(15,521		)
Depreciation and amortization, net (b)	(16,533		)	(14,282		)
Impairment of intangible asset	(3,300		)	--
Charges due to streamlining initiatives, brand-exiting activities, acquisition related costs and loss on asset disposals and impairments, net (c)	(5,635		)	(6,721		)
Share-based compensation	(1,705		)	(1,561		)
Equity loss included in Reportable Segments Adjusted EBITDA	421			1,528
Operating Loss	(2,323		)	(281		)
Other (expense) income, net (a)	1,361			(1,038		)
Loss on extinguishment of debt	(599		)	(3,023		)
Interest expense, net	(12,087		)	(13,228		)
Provision for income taxes	1,253			1,823
Loss from Continuing Operations	$	(14,901	)	$	(19,393	)

(a)Amounts include equity in the losses of equity method investees of $0.4 million and $1.5 million for the three months ended September 28, 2013 and September 29, 2012, respectively.

(b)Excludes amortization included in Interest expense, net.

(c)See Note 10 of Notes to Condensed Consolidated Financial Statements for a discussion of impairment charges and Note 12 of Notes to Condensed Consolidated Financial Statements for a discussion of streamlining charges.

A discussion of Segment Adjusted EBITDA of our reportable segments and Unallocated Corporate costs for the three months ended September 28, 2013 and September 29, 2012 follows:

·JUICY COUTURE Adjusted EBITDA for the third quarter of 2013 was $6.9 million (5.9% of net sales), compared to Adjusted EBITDA of $6.5 million (5.0% of net sales) in 2012. The period-over-period change reflected reduced SG&A, partially offset by decreased gross profit.

·LUCKY BRAND Adjusted EBITDA for the third quarter of 2013 was $4.9 million (4.1% of net sales), compared to Adjusted EBITDA of $6.7 million (6.0% of net sales) in 2012. The period-over-period change reflected increased SG&A related to increased rent, other store operating expenses and professional fees, partially offset by increased gross profit.

·KATE SPADE Adjusted EBITDA for the third quarter of 2013 was $23.5 million (13.1% of net sales), compared to $15.7 million (15.4% of net sales) in 2012. The period-over-period increase reflected an increase in gross profit, as discussed above, partially offset by an increase in SG&A related to direct-to-consumer expansion, including an increase in advertising expenses, payroll related expenses, rent and other store operating expenses and e-commerce fees. The increase also included incremental SG&A associated with KSJ and the launch of KATE SPADE SATURDAY. The decrease in the Adjusted EBITDA margin resulted from the reporting impact of the KSJ acquisition, the launch of KATE SPADE SATURDAY and the expansion of JACK SPADE. KATE SPADE Adjusted EBITDA for 2013 included $3.0 million of incremental Adjusted EBITDA from KSJ.

·Adelington Design Group Adjusted EBITDA for the third quarter of 2013 was $3.9 million (30.6% of net sales), compared to Adjusted EBITDA of $7.3 million (34.7% of net sales) in 2012. The decrease in Adjusted EBITDA was substantially driven by decreased gross profit.

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Unallocated Corporate costs decreased to $14.9 million for the three months ended September 28, 2013 compared to $15.5 million for the three months ended September 29, 2012 due to reduced payroll and related expenses. The decrease in those expenses resulted principally from corporate streamlining actions executed in 2012, which included reductions in staff. We also decreased discretionary spending.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Requirements

Our primary ongoing cash requirements are to: (i) fund seasonal working capital needs (primarily accounts receivable and inventory); (ii) fund capital expenditures related to the opening and refurbishing of our specialty retail and outlet stores and normal maintenance activities; (iii) fund remaining efforts associated with our streamlining initiatives, including contract termination costs, employee related costs and other costs associated with the sale of the Juicy Couture IP; (iv) invest in our information systems; (v) fund operational and contractual obligations, including the reacquisition of the existing KATE SPADE businesses in Southeast Asia expected to occur early in the first quarter of 2014; and (vi) potentially repurchase or retire debt obligations. We expect that our streamlining initiatives will provide long-term cost savings.

As of September 28, 2013, we had $185.6 million of borrowing availability and $155.7 million of outstanding borrowings and letters of credit under the Amended Facility. As a result of the sale of the JUICY COUTURE brandname and related intellectual property assets, as discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments and Operational Initiatives,” we received approximately $195.0 million of gross cash proceeds related to the Transaction. We expect to use the net cash proceeds from the sale of $125.0 - $135.0 million to make an offer to holders of the Senior Notes to purchase their Senior Notes at par plus accrued and unpaid interest, in accordance with the indenture governing the Senior Notes. To the extent holders of Senior Notes do not accept the offer, we expect to use any remaining net cash proceeds to reduce our outstanding debt.

Sources and Uses of Cash

Our historical sources of liquidity to fund ongoing cash requirements include cash flows from operations, cash and cash equivalents, as well as borrowings through our lines of credit.

10.5% Senior Secured Notes. We used the net proceeds of $212.9 million from the April 7, 2011 issuance of 10.5% Senior Secured Notes due April 15, 2019 (the “Original Notes,” together with the June 8, 2012 issuance of $152.0 million aggregate principal amount of Senior Secured Notes (the “Additional Notes”), the “Senior Notes”) primarily to fund a tender offer to repurchase 128.5 million euro aggregate principal amount of our then-outstanding Euro Notes. The remaining proceeds were used for general corporate purposes. On June 8, 2012, we completed the offering of the Additional Notes. We used a portion of the net proceeds of the offering of the Additional Notes to repay outstanding borrowings under our Amended Facility and to fund the redemption of 52.9 million euro aggregate principal of Euro Notes on July 12, 2012. We used the remaining proceeds to fund a portion of the KSJ Buyout and for general corporate purposes.

The Senior Notes mature on April 15, 2019 and are guaranteed on a senior secured basis by certain of our current and future domestic subsidiaries. The Senior Notes and the guarantees are secured on a first-priority basis by a lien on certain of our trademarks and on a second-priority basis by the other assets of the Company and of the guarantors that secure the Amended Facility.

The indenture governing the Senior Notes contains provisions that may require us to offer to repurchase the Senior Notes at 101% of their aggregate principal amount upon certain defined “Change of Control” events. In addition, the indenture may require that the proceeds from sales of our assets (subject to various exceptions and the ability to apply the proceeds to repay indebtedness or reinvest in our business) be used to offer to repurchase the Senior Notes at 100% of their aggregate principal amount. The indenture also contains other standard high-yield debt covenants, which limit our ability to incur additional indebtedness, incur additional liens, make asset sales, make dividend payments and investments, make payments and other transfers between itself and its subsidiaries, enter into affiliate transactions and merge or consolidate with other entities.

Pursuant to registration rights agreements executed as part of the offering of Original Notes and the Additional Notes, we were required to complete SEC-registered offers to issue new Senior Notes (with substantially the same

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terms and principal amount) in exchange for the Original Notes and the Additional Notes. We were required to pay additional interest on the Senior Notes through the completion of the exchange offers on March 20, 2013. All accrued and unpaid additional interest was paid (together with regular interest on the Senior Notes) on April 15, 2013.

Amended Facility. Effective November 6, 2013, we entered into an amendment to our Amended Facility to permit the Transaction and permit the Company to add back to Adjusted EBITDA such cash restructuring and transition charges associated with the Transaction in the calculation of certain covenants included in our debt and credit facilities. On April 18, 2013, we completed a third amendment to the Amended Facility, which extended the maturity date from August 2014 to April 2018. Under the Amended Facility, availability is the lesser of $350.0 million and a borrowing base that is computed monthly and comprised of our eligible cash, accounts receivable and inventory. The Amended Facility also includes a swingline subfacility of $55.0 million, a multicurrency subfacility of $100.0 million and the option to expand the facility by up to $100.0 million under certain specified conditions. A portion of the facility provided under the Amended Facility of up to $200.0 million is available for the issuance of letters of credit, and standby letters of credit may not exceed $65.0 million in the aggregate. The Amended Facility allows two borrowing options: one borrowing option with interest rates based on euro currency rates and a second borrowing option with interest rates based on the alternate base rate, as defined in the Amended Facility, with a spread based on the aggregate availability under the Amended Facility.

The Amended Facility restricts our ability to, among other things, incur indebtedness, grant liens, issue cash dividends, enter into mergers, consolidations, liquidations and dissolutions, change lines of business, make investments and acquisitions and sell assets, in each case subject to certain designated exceptions. In addition, the amended terms and conditions: (i) provide for a decrease in fees and interest rates (including eurocurrency spreads of 1.75% to 2.25% over LIBOR, depending on the level of availability); (ii) provide improved advance rates on eligible inventory; (iii) require us to maintain pro forma compliance with a fixed charge coverage ratio of 1.0:1.0 on a trailing 12 month basis if minimum aggregate borrowing availability falls below $35.0 million, or 10.0% of the commitments then in effect; (iv) require us to apply substantially all cash collections to reduce outstanding borrowings under the Amended Facility when availability under such facility falls below the greater of $40.0 million and 12.5% of the lesser of the borrowing base and aggregate commitments; (v) permit the acquisition of certain joint venture interests and certain distribution territories; (vi) decrease specified aggregate availability conditions to making certain other investments; and (vii) permit certain other acquisitions, investments, restricted payments, debt prepayments and incurrence of unsecured indebtedness if we are able to satisfy specified payment conditions.

Based on our forecast of borrowing availability under the Amended Facility, we anticipate that cash flows from operations and the projected borrowing availability under our Amended Facility will be sufficient to fund our liquidity requirements for at least the next 12 months.

There can be no certainty that availability under the Amended Facility will be sufficient to fund our liquidity needs. Should we be unable to comply with the requirements in the Amended Facility, we would be unable to borrow under such agreement and any amounts outstanding would become immediately due and payable, unless we were able to secure a waiver or an amendment under the Amended Facility. Should we be unable to borrow under the Amended Facility, or if outstanding borrowings thereunder become immediately due and payable, our liquidity would be significantly impaired, which would have a material adverse effect on our business, financial condition and results of operations. In addition, an acceleration of amounts outstanding under the Amended Facility would likely cause cross-defaults under our other outstanding indebtedness, including the Senior Notes.

The sufficiency and availability of our projected sources of liquidity may be adversely affected by a variety of factors, including, without limitation: (i) the level of our operating cash flows, which will be impacted by retailer and consumer acceptance of our products, general economic conditions and the level of consumer discretionary spending; (ii) the status of, and any adverse changes in, our credit ratings; (iii) our ability to maintain required levels of borrowing availability under the Amended Facility and to comply with other covenants included in our debt and credit facilities; (iv) the financial wherewithal of our larger department store and specialty retail store customers; and (v) interest rate and exchange rate fluctuations.

Because of the continuing uncertainty and risks relating to future economic conditions, we may, from time to time, explore various initiatives to improve our liquidity, including issuance of debt securities, sales of various assets, additional cost reductions and other measures. In addition, where conditions permit, we may also, from time to time, seek to retire, exchange or purchase our outstanding debt in privately-negotiated transactions or otherwise. We may not be able to successfully complete any such actions.

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Cash and Debt Balances. We ended the first nine months of 2013 with $6.8 million in cash and marketable securities, compared to $32.2 million at the end of the first nine months of 2012 and with $528.7 million of debt outstanding at the end of the first nine months of 2013, compared to $418.2 million at the end of the first nine months of 2012. The $135.9 million increase in our net debt position over the last twelve months primarily reflected: (i) the funding of $109.2 million of capital and in-store shop expenditures over the last 12 months; (ii) the payment of $41.0 million for the KSJ Buyout; (iii) the conversion of $31.6 million aggregate principal amount of our Convertible Notes into 9.0 million shares of our common stock; (iv) the receipt of aggregate net proceeds of $28.9 million from the sale-leaseback of our Ohio Facility and North Bergen, NJ office; and (v) the use of $22.5 million in cash from discontinued operations over the past 12 months. We also used $1.0 million in cash from continuing operations over the past 12 months, which included a $20.0 million advance refunded to JCPenney on February 8, 2013.

Accounts Receivable decreased $4.8 million, or 3.8%, at September 28, 2013 compared to September 29, 2012, primarily due to decreased wholesale sales in our JUICY COUTURE and Adelington Design Group segments, partially offset by increased wholesale sales in our KATE SPADE and LUCKY BRAND segments and, to a lesser extent, the impact of the KSJ Buyout. Accounts receivable was flat compared to December 29, 2012, primarily reflecting timing of wholesale shipments.

Inventories increased $65.1 million, or 26.5% at September 28, 2013 compared to September 29, 2012, primarily due to an increase in KATE SPADE inventory to support growth initiatives, an increase in LUCKY BRAND inventory and the impact of the KSJ Buyout. Inventories increased $90.1 million, or 40.9%, compared to December 29, 2012, primarily due to an increase in KATE SPADE inventory to support growth initiatives, including the launch of KATE SPADE SATURDAY and an increase in LUCKY BRAND inventory.

Borrowings under our Amended Facility peaked at $145.4 million during the first nine months of 2013, compared to a peak of $51.2 million during the first nine months of 2012. Outstanding borrowings were $136.2 million at September 28, 2013, compared to no outstanding borrowings under this facility at September 29, 2012.

Net cash used in operating activities of our continuing operations was $97.1 million in the first nine months of 2013, compared to $71.5 million in the first nine months of 2012. This $25.6 million period-over-period change was primarily due to a $32.5 million decrease in working capital items including a $20.0 million refund paid to JCPenney during the first quarter of 2013, partially offset by reduced losses in 2013 compared to 2012 (excluding depreciation and amortization, foreign currency gains and losses, impairment charges and other non-cash items). The operating activities of our discontinued operations used $25.1 million and $15.8 million of cash in the nine months ended September 28, 2013 and September 29, 2012, respectively.

Net cash used in investing activities of our continuing operations was $61.4 million in the first nine months of 2013, compared to $61.7 million in the first nine months of 2012. Net cash used in investing activities in the nine months ended September 28, 2013 primarily reflected: (i) the use of $80.3 million for capital and in-store shop expenditures; (ii) the use of $5.5 million for investments in and advances to KS China Co., Limited (“KSC”), our equity investee; (iii) net proceeds from the sale of property and equipment of $20.3 million; and (iv) proceeds of $4.0 million from the disposition of our investment in Mexx Lifestyle, B.V. Net cash used in investing activities in the nine months ended September 29, 2012 primarily reflected the use of $56.9 million for capital and in-store shop expenditures and $5.0 million for investments in and advances to KSC. The investing activities of our discontinued operations used $2.2 million in the nine months ended September 28, 2013.

Net cash provided by financing activities was $138.1 million in the first nine months of 2013, compared to $3.2 million in the first nine months of 2012. The $134.9 million period-over-period change primarily reflected an increase in net cash provided by borrowing activities under our Amended Facility of $136.2 million and the receipt of net proceeds of $8.7 from the sale-leaseback of our North Bergen, NJ office building, partially offset by the absence of net proceeds from the issuance and repayment of long term debt in 2012, which provided $6.5 million, and a decrease in proceeds from the exercise of stock options of $3.7 million.

Commitments and Capital Expenditures

During the first quarter of 2009, we entered into an agreement with Hong Kong-based, global consumer goods exporter Li & Fung, whereby Li & Fung was appointed as our buying/sourcing agent for all of our brands and products (other than jewelry) and we received a payment of $75.0 million at closing and an additional payment of $8.0 million in the second quarter of 2009 to offset specific, incremental, identifiable expenses associated with the transaction. Our agreement with Li & Fung provides for a refund of a portion of the closing payment in certain

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limited circumstances, including a change of control of the Company, the divestiture of any current brand, or certain termination events. We are also obligated to use Li & Fung as our buying/sourcing agent for a minimum value of inventory purchases each year through the termination of the agreement in 2019. The 2009 licensing arrangements with JCPenney in the US and Puerto Rico and QVC, Inc. (“QVC”) resulted in the removal of buying/sourcing for a number of LIZ CLAIBORNE branded products sold under these licenses from the Li & Fung buying/sourcing arrangement. As a result, under our agreement with Li & Fung, we refunded $24.3 million of the closing payment received from Li & Fung in the second quarter of 2010. The 2011 sales of the KENSIE, KENSIE GIRL and MAC & JAC trademarks resulted in the removal of buying/sourcing for such products sold from the Li & Fung buying/sourcing arrangement. As a result, under our agreement with Li & Fung, we refunded $1.8 million of the closing payment received from Li & Fung in the second quarter of 2012. In addition, our agreement with Li & Fung is not exclusive; however, we are required to source a specified percentage of product purchases from Li & Fung.

In connection with the disposition of the LIZ CLAIBORNE Canada retail stores, the LIZ CLAIBORNE branded outlet stores in the US and Puerto Rico and certain Mexx Canada retail stores, an aggregate of 153 store leases were assigned to third parties, for which we remain secondarily liable for the remaining obligations on 119 such leases. As of September 28, 2013, the future aggregate payments under these leases amounted to $156.6 million and extended to various dates through 2025.

During the third quarter of 2013, we sold our Ohio Facility for net proceeds of $20.3 million and entered into a sale-leaseback arrangement with the buyer for a 10-year term, which was classified as an operating lease. We realized a gain of $9.5 million associated with the sale-leaseback, which has been deferred and will be recognized as a reduction to SG&A over the lease term.

During the second quarter of 2013, we sold our North Bergen, NJ office for net proceeds of $8.7 million. We entered into a sale-leaseback arrangement with the buyer for a 12-year term with two five-year renewal options. This transaction was classified as a capital lease and recorded at fair value. As of September 28, 2013, the future minimum lease payments under the noncancelable capital lease were $26.3 million.

In the second quarter of 2011, we initiated actions to close our Ohio distribution center, which was expected to result in the termination of all or a significant portion of our union employees (see Note 12 of Notes to Condensed Consolidated Financial Statements). During the third quarter of 2011, we ceased contributing to a union-sponsored multi-employer defined benefit pension plan (the “Fund”), which is regulated by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Under ERISA, cessation of employer contributions to a multi-employer defined benefit pension plan is likely to trigger an obligation by such employer for a “withdrawal liability” to such plan, with the amount of such withdrawal liability representing the portion of the plan’s underfunding allocable to the withdrawing employer. We incurred such a liability in the second quarter of 2011 and recorded a $17.6 million charge to SG&A related to our estimate of the withdrawal liability. In February 2012, we were notified by the Fund that the Fund calculated our total withdrawal liability to be $19.1 million, a difference of approximately $1.5 million, and that 17 quarterly payments of $1.2 million would commence on March 1, 2012, and continue for four years, with a final payment of $1.0 million on June 1, 2016. As of September 28, 2013, the accrued withdrawal liability was $11.1 million, which was included in Accrued expenses and Other non-current liabilities on the accompanying Condensed Consolidated Balance Sheet.

We established KSC in June 2011. Additionally, in June 2011, we agreed that we or one of our affiliates will reacquire the existing KATE SPADE businesses in Southeast Asia in January 2014 from Globalluxe Kate Spade HK Limited (“Globalluxe”), with the purchase price based upon a multiple of Globalluxe’s earnings, subject to a cap of $30.0 million.

On July 29, 2013, we and our subsidiaries, Fifth & Pacific Foreign Holdings, Inc. and Liz Foreign B.V., entered into a Settlement Agreement with Gores Malibu Holdings (Luxembourg) S.a.r.l. (“Gores”) and Mexx Europe International B.V. (“MEI” and, together with Gores, the “Plaintiffs”) pursuant to which we paid the Plaintiffs $22.0 million to settle all claims arising under the complaint filed by Gores on January 25, 2013 (the “Complaint”) in which Gores claimed $25.0 million in damages arising from alleged breaches of the merger agreement related to the sale of the Company’s global Mexx business (the “Merger Agreement”), including breaches of tax and tax-related covenants, breaches of interim operating covenants, breaches of reimbursement obligations related to employee bonuses and working capital adjustments. The Complaint also included a demand for payment of previously disclosed dispute resolution proceedings with respect to working capital adjustments that were required to be made under the Merger Agreement, which concluded that we owed approximately $5.0 million to Gores. In conjunction with that settlement, we also sold our noncontrolling interest in Mexx Lifestyle B.V. to Gores for $4.0 million.

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Our 2013 capital expenditures are expected to be approximately $115.0 million, compared to $85.8 million in 2012. These expenditures primarily relate to our plan to open 80 – 85 Company-owned retail stores globally, the continued technological upgrading of our management information systems and costs associated with the refurbishment of selected specialty retail and outlet stores. We expect capital expenditures and working capital cash needs to be financed with cash provided by operating activities and our Amended Facility.

Debt consisted of the following:

In thousands	September 28, 2013		December 29, 2012		September 29, 2012
6.0% Convertible Senior Notes (a)	$	--	$	18,287	$	28,687
10.5% Senior Secured Notes	382,588		383,662		384,033
Revolving credit facility	136,233		--		--
Capital lease obligations	9,898		4,345		5,489
Total debt	$	528,719	$	406,294	$	418,209

(e)The decrease in the balance compared to September 29, 2012 reflected the exchange of the remaining aggregate principal amount of the Convertible Senior Notes during the last 12 months. The balance at December 29, 2012 and September 29, 2012 represented principal of $19.9 million and $31.6 million, respectively and an unamortized debt discount of $1.6 million and $2.9 million, respectively.

For information regarding our debt and credit instruments, refer to Note 9 of Notes to Condensed Consolidated Financial Statements.

Availability under the Amended Facility is the lesser of $350.0 million and a borrowing base that is computed monthly and comprised of our eligible cash, accounts receivable and inventory. The Amended Facility also includes a swingline subfacility of $55.0 million, a multicurrency subfacility of $100.0 million and the option to expand the facility by up to $100.0 million under certain specified conditions. A portion of the facility provided under the Amended Facility of up to $200.0 million is available for the issuance of letters of credit, and standby letters of credit may not exceed $65.0 million in the aggregate.

As of September 28, 2013, availability under our Amended Facility was as follows:

In thousands	Total Facility (a)	Borrowing Base (a)	Outstanding Borrowings	Letters of Credit Issued	Available Capacity	Excess Capacity (b)
Revolving credit facility (a)	$350,000	$341,329	$136,233	$19,513	$185,583	$150,583

(a)Availability under the Amended Facility is the lesser of $350.0 million or a borrowing base comprised primarily of eligible accounts receivable and inventory.

(b)Excess capacity represents available capacity reduced by the minimum required aggregate borrowing availability under the Amended Facility of $35.0 million.

Off-Balance Sheet Arrangements

As of September 28, 2013, we had not entered into any off-balance sheet arrangements.

Hedging Activities

Our operations are exposed to risks associated with fluctuations in foreign currency exchange rates. In order to reduce exposures related to changes in foreign currency exchange rates, we use foreign currency collars, forward contracts and swap contracts for the purpose of hedging the specific exposure to variability in forecasted cash flows associated primarily with inventory purchases by our KATE SPADE business in Japan.  As of September 28, 2013, we had forward contracts maturing through December 2014 to sell 3.1 billion yen for $31.5 million (see Note 16 of Notes to Condensed Consolidated Financial Statements).

We use foreign currency forward contracts outside the cash flow hedging program to manage currency risk associated with intercompany loans. As of September 28, 2013, we had forward contracts to sell 4.0 billion yen for $40.5 million maturing through December 2013. Transaction gains (losses) of $5.8 million and $(0.4) million related

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to these derivative instruments were reflected within Other (expense) income, net for the nine and three months ended September 28, 2013, respectively. See Note 16 of Notes to Condensed Consolidated Financial Statements.

USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements. These estimates and assumptions also affect the reported amounts of revenues and expenses.

Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our most critical accounting policies are summarized in Note 1 of Notes to Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7, each included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2012. There were no significant changes in our critical accounting policies during the nine months ended September 28, 2013. In applying such policies, management must use some amounts that are based upon its informed judgments and best estimates. Due to the uncertainty inherent in these estimates, actual results could differ from estimates used in applying the critical accounting policies. Changes in such estimates, based on more accurate future information, may affect amounts reported in future periods.

Estimates by their nature are based on judgments and available information. The estimates that we make are based upon historical factors, current circumstances and the experience and judgment of our management. We evaluate our assumptions and estimates on an ongoing basis and may employ outside experts to assist in our evaluations. Therefore, actual results could materially differ from those estimates under different assumptions and conditions.

ACCOUNTING PRONOUNCEMENTS

For a discussion of recently adopted accounting pronouncements, see Note 1 of Notes to Condensed Consolidated Financial Statements. For a discussion of recently issued accounting pronouncements, see Note 19 of Notes to Condensed Consolidated Financial Statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We finance our capital needs through available cash and cash equivalents, operating cash flows, letters of credit and our Amended Facility. Our floating rate Amended Facility exposes us to market risk for changes in interest rates. Loans thereunder bear interest at rates that vary with changes in prevailing market rates.

We do not speculate on the future direction of interest rates. As of December 29, 2012 and September 29, 2012, we did not have exposure to changing market rates as there were no amounts outstanding under our Amended Facility. As of September 28, 2013, our exposure to changing market rates was as follows:

Dollars in millions	September 28, 2013
Variable rate debt	$136.2
Average interest rate	2.57	%

A ten percent change in the average rate would have minimal impact to interest expense during the nine months ended September 28, 2013.

As of September 28, 2013, we have not employed interest rate hedging to mitigate such risks with respect to our floating rate facility. We believe that our Senior Notes, which are fixed rate obligations, partially mitigate the risks with respect to our variable rate financing.

We transact business in multiple currencies, resulting in exposure to exchange rate fluctuations. We mitigate the risks associated with changes in foreign currency exchange rates through the use of foreign exchange forward contracts and collars to hedge transactions denominated in foreign currencies for periods of generally less than one year. Gains and losses on contracts which hedge specific foreign currency denominated commitments are recognized in the period in which the underlying hedged item affects earnings.

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As of September 28, 2013, we had forward contracts with net notional amounts of $72.0 million. Unrealized gains (losses) for outstanding foreign currency forward contracts were $0.9 million. A sensitivity analysis to changes in foreign currency exchange rates indicated that if the yen weakened by 10.0% against the US dollar, the fair value of these instruments would increase by $6.5 million at September 28, 2013. Conversely, if the yen strengthened by 10.0% against the US dollar, the fair value of these instruments would decrease by $8.0 million at September 28, 2013. Any resulting changes in the fair value of the instruments would be partially offset by changes in the underlying balance sheet positions. We do not hedge all transactions denominated in foreign currency.

We are exposed to credit related losses if the counterparties to our derivative instruments fail to perform their obligations. We systemically measure and assess such risk as it relates to the credit ratings of these counterparties, all of which currently have satisfactory credit ratings and therefore we do not expect to realize losses associated with counterparty default.

ITEM 4. CONTROLS AND PROCEDURES

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated our disclosure controls and procedures at the end of our third fiscal quarter. Our Chief Executive Officer and Chief Financial Officer concluded that, as of September 28, 2013, our disclosure controls and procedures were effective to ensure that all information required to be disclosed is recorded, processed, summarized and reported within the time periods specified, and that information required to be filed in the reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure. There were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 28, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On July 29, 2013, we and our subsidiaries, Fifth & Pacific Foreign Holdings, Inc. and Liz Foreign B.V., entered into a Settlement Agreement with Gores and MEI and, together with Gores, the Plaintiffs pursuant to which we paid the Plaintiffs $22.0 million to settle all claims arising under the Complaint in which Gores claimed $25.0 million in damages arising from alleged breaches of the Merger Agreement, including breaches of tax and tax-related covenants, breaches of interim operating covenants, breaches of reimbursement obligations related to employee bonuses and working capital adjustments. The Complaint also included a demand for payment of previously disclosed dispute resolution proceedings with respect to working capital adjustments that were required to be made under the Merger Agreement, which concluded that we owed approximately $5.0 million to Gores. In conjunction with that settlement, we also sold our noncontrolling interest in Mexx Lifestyle B.V. to Gores for $4.0 million.

On November 27, 2012, Kate Spade LLC received a demand letter from Saturdays Surf LLC, a company that sells surfboards, wetsuits, and men’s apparel, alleging that the name of KATE SPADE’s new global women’s lifestyle brand, “KATE SPADE SATURDAY,” infringes the trademark rights of Saturdays Surf LLC. On December 19, 2012, Kate Spade LLC filed a complaint in the United States District Court for the Southern District of New York seeking a declaration that its KATE SPADE SATURDAY trademark does not infringe the trademark rights of Saturdays Surf LLC. Saturdays Surf LLC filed an answer and counterclaims on February 7, 2013. On February 13, 2013, Saturdays Surf LLC filed a motion for a temporary restraining order and preliminary injunction to block us from launching KATE SPADE SATURDAY. On the same day, the District Court denied the motion for a temporary restraining order, allowing the launch to go forward as planned, and set a schedule for expedited briefing, discovery, and hearing on the preliminary injunction motion. The Court subsequently combined the preliminary injunction hearing with a full trial on the merits, which was heard May 28-30 and June 10-11, 2013. That trial solely considered prospective injunctive relief; Saturdays Surf LLC dropped all of its claims for damages. On June 17, 2013, the Court ruled in favor of Kate Spade LLC and held that the KATE SPADE SATURDAY trademark does not infringe the Saturdays Surf trademarks.

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The Company is a party to several other pending legal proceedings and claims. Although the outcome of any such actions cannot be determined with certainty, management is of the opinion that the final outcome of any of these actions should not have a material adverse effect on the Company’s financial position, results of operations, liquidity or cash flows.

ITEM 1A. RISK FACTORS

You should carefully consider the risk factors included in our Annual Report on Form 10-K for the year ended December 29, 2012, in addition to other information included in this Quarterly Report on Form 10-Q, including under the section entitled, “Statement Regarding Forward-Looking Statements,” and in other documents we file with the SEC, in evaluating the Company and its business. If any of the risks occur, our business, financial condition, liquidity and results of operations could be materially adversely affected. We caution the reader that these risk factors may not be exhaustive. We operate in a continually changing business environment and new risks emerge from time to time. Management cannot predict such new risk factors, nor can we assess the impact, if any, of such new risk factors on our business or the extent to which any factor or combination of factors may impact our business.

There have not been any material changes during the quarter ended September 28, 2013 from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 29, 2012, other than the following:

There are risks associated with the sale of the JUICY COUTURE brand name and related intellectual property assets to ABG, including our ability to complete and implement the transition plan for the JUICY COUTURE business in a satisfactory manner and to manage the associated restructuring and transition costs, the impact of the transition plan on our relationships with our employees, our major customers and vendors and unanticipated expenses and charges that may be incurred as a result of the restructuring and transition plan, such as litigation risks, including litigation regarding employment and workers’ compensation.

On November 6, 2013, we completed the sale of the JUICY COUTURE brand name and related intellectual property assets to ABG. Under our agreement we are required to unwind our current JUICY COUTURE business, including our retail stores. To accommodate the wind-down, certain JUICY COUTURE intellectual property was licensed back to us from ABG until December 31, 2014. The contemplated wind-down will include the continued operation of our JUICY COUTURE retail stores and the continued operation of our JUICY COUTURE wholesale business, including with our international distributors, ending with the spring and summer 2014 collections. As a result of the Transaction, we expect to incur estimated cash restructuring and other cash transition charges (including estimated contract termination, employee related and other costs) of $50.0 - $60.0 million. We also expect transaction costs, including professional fees, to approximate $10.0 million and expect that we will incur non-cash asset impairment charges of $30.0 - $40.0 million. In developing such estimates, we have assumed that certain of the current JUICY COUTURE retail locations will be converted to a KATE SPADE or LUCKY BRAND format. In addition, such estimates do not reflect any potential transactions relating to our JUICY COUTURE retail lease at 650 Fifth Avenue in New York City or any other transactions with our contractual counterparties to mitigate the charges. Actual restructuring and transition charges and impairment charges may materially exceed our estimates due to various factors, many of which are outside of our control, including, without limitation, the actual outcomes of discussions and negotiations (a number of which are currently ongoing) with the counterparties to the contracts we intend to terminate or modify. There can be no assurance that we will be able to complete and implement our transition plan with respect to the JUICY COUTURE business in a satisfactory manner and that the costs incurred in connection with such transition will be within the range we have estimated. If the actual restructuring and transition charges or impairment charges exceed our estimates, our business, results of operations and financial condition could be materially and adversely affected.

Furthermore, because of the transition of the JUICY COUTURE brand and because of other factors that ordinarily influence consumer acceptance of our products (many of which are outside our control), we may not be able to sell our JUICY COUTURE spring and summer 2014 products at prices that will generate a profit. If we incur losses relating to the sales of such products, our business, financial condition and results of operations may be adversely affected.

Moreover, during the term of the wind-down license, we will no longer own the trademarks, patents, copyrights, domain names and certain related assets that are essential to the operation of the JUICY COUTURE business and to the wind-down process of that business in a manner that is currently planned. If for any reason the wind-down license is terminated, we would no longer be able to operate the JUICY COUTURE business or implement the wind-down process as envisioned. Such disruption in the wind-down process could increase costs associated with the wind-down activities, lengthen the wind-down period and materially and negatively impact our business, financial condition and results of operations.

In addition, the wind-down activities involve numerous risks, including but not limited to:

· The inability of the JUICY COUTURE business to attract and retain qualified personnel necessary for the wind-down during the wind-down period;

· Potential disruption of the operations of the rest of our brands and businesses and diversion of management attention on such businesses and operations;

· Exposure to unknown, contingent or other liabilities, including litigation arising in connection with the Transaction or the wind-down license;

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· Negative impact on our business relationships, including relationships with our customers, suppliers, vendors, lessors, licensees and employees; and

· Unintended negative consequences from changes to our business profile.

If any of these or other factors impair our ability to successfully implement the wind-down, we may not be able to realize other business opportunities as we may be required to spend additional time and incur additional expense relating to the wind-down that otherwise would be used on the development and expansion of our other businesses.

Our ability to continue to have the necessary liquidity through cash flows from operations and availability under our Amended Facility may be adversely impacted by a number of factors. These factors include the level of our operating cash flows, our ability to maintain established levels of availability under, and to comply with the financial and other covenants included in, our Amended Facility and the borrowing base requirement in our Amended Facility that limits the amount of borrowings we may make based on a formula of, among other things, eligible accounts receivable and inventory and the minimum availability covenant in our Amended Facility that requires us to maintain availability in excess of an agreed upon level.

Our primary ongoing cash requirements are to: (i) fund seasonal working capital needs (primarily accounts receivable and inventory); (ii) fund capital expenditures related to the opening and refurbishing of our specialty retail and outlet stores and normal maintenance activities; (iii)  fund remaining efforts associated with our streamlining initiatives, including contract termination costs, employee-related costs and other costs associated with the sale of the Juicy Couture IP as discussed above; (iv) invest in our information systems; (v) fund general operational and contractual obligations, including the reacquisition of the existing KATE SPADE businesses in Southeast Asia expected to occur early in the first quarter of 2014; and (vi) potentially repurchase or retire debt obligations.

As of September 28, 2013, we had $185.6 million of borrowing availability and $155.7 million of outstanding borrowings and letters of credit under the Amended Facility. As a result of the sale of the Juicy Couture IP, as discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments and Operational Initiatives,” we received approximately $195.0 million of gross cash proceeds related to the Transaction, and for purposes of the indenture governing our Senior Notes, our “Net Proceeds” from the Transaction (which reflect the netting of direct costs and reserves or payments in respect of retained liabilities) are estimated to be $125.0 - $135.0 million.  We expect to use such Net Proceeds to make an offer to holders of the Senior Notes to purchase their Senior Notes at par plus accrued and unpaid interest, in accordance with the indenture governing the Senior Notes. Following the completion of the offer, we will use any Net Proceeds remaining in any manner permitted under the indenture, including, without limitation, the temporary or permanent reduction of our debt or for general corporate purposes.

Effective November 6, 2013, we entered into an amendment to our Amended Facility to permit the Transaction and permit the Company to add back to Adjusted EBITDA such cash restructuring and transition charges associated with the Transaction in the calculation of certain covenants included in our debt and credit facilities. On April 18, 2013, we completed the third amendment to and restatement of the Amended Facility, which extended the maturity date from August 2014 to April 2018. Availability under the Amended Facility shall be the lesser of $350.0 million and a borrowing base that is computed monthly and comprised of our eligible cash, accounts receivable and inventory. The Amended Facility also includes a swingline subfacility of $55.0 million, a multicurrency subfacility of $100.0 million and the option to expand the facility by up to $100.0 million under certain specified conditions. A portion of the facility provided under the Amended Facility of up to $200.0 million is available for the issuance of letters of credit, and standby letters of credit may not exceed $65.0 million in the aggregate. The Amended Facility allows two borrowing options: one borrowing option with interest rates based on euro currency rates and a second borrowing option with interest rates based on the alternate base rate, as defined in the Amended Facility, with a spread based on the aggregate availability under the Amended Facility.

The Amended Facility restricts our ability to, among other things, incur indebtedness, grant liens, issue cash dividends, enter into mergers, consolidations, liquidations and dissolutions, changes in lines of business, make investments and acquisitions and sell assets, in each case subject to certain designated exceptions. In addition, the amended terms and conditions: (i) provide for a decrease in fees and interest rates (including eurocurrency spreads

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of 1.75% to 2.25% over LIBOR, depending on the level of availability); (ii) provide improved advance rates on eligible inventory; (iii) require us to maintain pro forma compliance with a fixed charge coverage ratio of 1.0:1.0 on a trailing 12 month basis if minimum aggregate borrowing availability falls below $35.0 million, or 10.0% of the commitments then in effect; (iv) require us to apply substantially all cash collections to reduce outstanding borrowings under the Amended Facility when availability under such facility falls below the greater of $40.0 million and 12.5% of the lesser of the borrowing base and aggregate commitments; (v) permit the acquisition of certain joint venture interests and certain distribution territories; (vi) decrease specified aggregate availability conditions to making certain other investments; and (vii) permit certain other acquisitions, investments, restricted payments, debt prepayments and incurrence of unsecured indebtedness if we are able to satisfy specified payment conditions.

We are subject to various covenants and other requirements, such as financial requirements, reporting requirements and negative covenants. If we do not have a sufficient borrowing base at any given time, borrowing availability under our Amended Facility may trigger the requirement to apply substantially all cash collections to reduce outstanding borrowings or default and also may not be sufficient to support our liquidity needs. Insufficient borrowing availability under our Amended Facility would likely have a material adverse effect on our business, financial condition, liquidity and results of operations. We currently believe that the financial institutions under the Amended Facility are able to fulfill their commitments, although such ability to fulfill commitments will depend on the financial condition of our lenders at the time of borrowing.

While there can be no certainty that availability under the Amended Facility plus cash on hand will be sufficient to fund our liquidity needs, based upon our current projections, we currently anticipate that our borrowing availability will be sufficient for at least the next 12 months. Over recent years, the economic environment has resulted in significantly lower employment levels, disposable income and actual and/or perceived wealth, lower consumer confidence and reduced retail sales. Further reductions in consumer spending, as well as a failure of consumer spending levels to rise to previous levels, or a worsening of current economic conditions would adversely impact our net sales and operating cash flows. In addition, the sufficiency and availability of our sources of liquidity may be affected by a variety of other factors, including, without limitation: (i) factors affecting the level of our operating cash flows, such as retailer and consumer acceptance of our products; (ii) the status of, and any adverse changes in, our credit ratings; (iii) our ability to maintain required levels of borrowing availability and other covenants included in our debt and credit facilities; (iv) the financial wherewithal of our larger department store and specialty retail store customers; and (v) interest rate and exchange rate fluctuations. Also, our agreement with Li & Fung provides for a refund of a portion of the $75.0 million closing payment in certain limited circumstances, including a change in control of our Company, the divestiture of any of our current brands, or certain termination events. The 2009 licensing arrangements with JCPenney and QVC resulted in the removal of buying/sourcing for a number of LIZ CLAIBORNE branded products sold under these licenses from the Li & Fung buying/sourcing arrangement. As a result, under our agreement with Li & Fung, we refunded $24.3 million of the closing payment during the second quarter of 2010. The 2011 sales of the KENSIE, KENSIE GIRL and MAC & JAC trademarks resulted in the removal of buying/sourcing for such products sold from the Li & Fung buying/sourcing arrangement. As a result, under our agreement with Li & Fung, we refunded $1.8 million of the closing payment received from Li & Fung in the second quarter of 2012. The recent sale of the JUICY COUTURE brandname and related intellectual property assets will result in the termination of our buying and sourcing for JUICY COUTURE products under the Li& Fung sourcing arrangement. As a result, we expect that we will be required to refund a portion of the closing payment received from Li & Fung at some point in 2014; we currently estimate such refund will be approximately $6.4 million. Our agreement with Li & Fung is not exclusive; however, we are required to source a minimum value and a specified percentage of product purchases from Li & Fung.

Should we be unable to comply with the requirements in the Amended Facility, we would be unable to borrow under such agreement, and any amounts outstanding would become immediately due and payable unless we were able to secure a waiver or an amendment under the Amended Facility. Should we be unable to borrow under the Amended Facility, or if outstanding borrowings thereunder become immediately due and payable, our liquidity may be significantly impaired, which could have a material adverse effect on our business, financial condition and results of operations. In addition, an acceleration of amounts outstanding under the Amended Facility would likely cause cross-defaults under our other outstanding indebtedness, including the Senior Notes.

In 2010, we received $171.5 million of net income tax refunds on previously paid taxes primarily due to a Federal law change in 2009 allowing our 2008 or 2009 domestic losses to be carried back for five years, with the fifth year

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limited to 50.0% of taxable income. We repaid amounts outstanding under our Amended Facility with the amount of such refunds. As a result of the US Federal tax law change extending the carryback period from two to five years and our carryback of our 2009 tax loss to 2004 and 2005, the IRS has the ability to re-open its past examinations of 2004 and 2005.

The outcome of current and future litigations and other proceedings in which we are involved may have a material adverse effect on our results of operations, liquidity or cash flows.

On November 27, 2012, Kate Spade LLC received a demand letter from Saturdays Surf LLC, a company that sells surfboards, wetsuits, and men’s apparel, alleging that the name of KATE SPADE’s new global women’s lifestyle brand, “KATE SPADE SATURDAY,” infringes the trademark rights of Saturdays Surf LLC. On December 19, 2012, Kate Spade LLC filed a complaint in the United States District Court for the Southern District of New York seeking a declaration that its KATE SPADE SATURDAY trademark does not infringe the trademark rights of Saturdays Surf LLC. Saturdays Surf LLC filed an answer and counterclaims on February 7, 2013. On February 13, 2013, Saturdays Surf LLC filed a motion for a temporary restraining order and preliminary injunction to block us from launching KATE SPADE SATURDAY. On the same day, the District Court denied the motion for a temporary restraining order, allowing the launch to go forward as planned, and set a schedule for expedited briefing, discovery, and hearing on the preliminary injunction motion. The Court subsequently combined the preliminary injunction hearing with a full trial on the merits, which was heard May 28-30 and June 10-11, 2013. That trial solely considered prospective injunctive relief; Saturdays Surf LLC dropped all of its claims for damages. On June 17, 2013, the Court ruled in favor of Kate Spade LLC and held that the KATE SPADE SATURDAY trademark does not infringe the Saturdays Surf trademarks.

We are a party to several litigations and other proceedings and claims which, if determined unfavorably to us, could have a material adverse effect on our results of operations, liquidity or cash flows. We may in the future become party to other claims and legal actions which, either individually or in the aggregate, could have a material adverse effect on our results of operations, liquidity or cash flows. In addition, any of the current or possible future legal proceedings in which we may be involved could require significant management and financial resources, which could otherwise be devoted to the operation of our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In July 2013, holders of the remaining $8.8 million aggregate principal amount of the Convertible Notes converted all such outstanding Convertible Notes into 2,462,509 shares of our common stock. We paid accrued interest on the holders’ Convertible Notes through the settlement date in cash. The issuance of the shares of our common stock was exempt from any registration requirements under the Securities Act of 1933, as amended, pursuant to Section 3(a)(9) of the Securities Act.

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The following table summarizes information about purchases by the Company during the three months ended September 28, 2013 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:

Period	Total Number of Shares Purchased (In thousands) (a)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (In thousands)	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (In thousands) (b)
June 30, 2013 - July 27, 2013	--	$	--	--	$	28,749
July 28, 2013 - August 31, 2013	--	--		--	28,749
September 1, 2013 - September 28, 2013	--	--		--	28,749
Total - 13 Weeks Ended September 28, 2013	--	$	--	--	$	28,749

(a)Includes shares withheld to cover tax-withholding requirements relating to the vesting of restricted stock issued to employees pursuant to the Company’s shareholder-approved stock incentive plans.

(b)The Company initially announced the authorization of a share buyback program in December 1989. Since its inception, the Company’s Board of Directors has authorized the purchase under the program of an aggregate of $2.275 billion of the Company’s stock. The Amended Facility currently restricts the Company’s ability to repurchase stock.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

10.1	Purchase agreement dated as of October 7, 2013, by and among ABG-Juicy LLC, as Buyer, Fifth & Pacific Companies, Inc, as Seller and Juicy Couture, Inc.
10.2	Amendment Agreement, dated as of November 6, 2013, by and among ABG-Juicy LLC, Fifth & Pacific Companies, Inc., and Juicy Couture, Inc.

31(a)	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32(a)*	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32(b)*	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	Taxonomy Extension Presentation Linkbase Document.

*A signed original of the written statement required by Section 906 has been provided to the Company and will be retained by the Company and forwarded to the SEC or its staff upon request.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATE:                   November 7, 2013

FIFTH & PACIFIC COMPANIES, INC.		FIFTH & PACIFIC COMPANIES, INC.
By:	/s/ George M. Carrara	By:	/s/ Michael Rinaldo
	GEORGE M. CARRARA		MICHAEL RINALDO
	Chief Financial Officer (Principal financial officer)		Vice President - Corporate Controller and Chief Accounting Officer (Principal accounting officer)