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TABLE OF CONTENTS
FIFTH & PACIFIC COMPANIES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) | ||
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 28, 2013 |
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or |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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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 (State or other jurisdiction of incorporation or organization) |
13-2842791 (I.R.S. Employer Identification Number) |
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1441 Broadway, New York, New York (Address of principal executive offices) |
10018 (Zip Code) |
Registrant's telephone number, including area code: 212-354-4900
Securities registered pursuant to Section 12(b) of the Act:
Title of class
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Name of each exchange on which registered
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Common Stock, par value $1.00 per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the "Act"). Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
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 þ | 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 Act). Yes o No þ
Based upon the closing sale price on the New York Stock Exchange on June 28, 2013, the last business day of the registrant's most recently completed second fiscal quarter, which quarter ended June 29, 2013, the aggregate market value of the registrant's Common Stock, par value $1.00 per share, held by non-affiliates of the registrant on such date was approximately $2,659,941,000. For purposes of this calculation, only executive officers and directors are deemed to be the affiliates of the registrant.
Number of shares of the registrant's Common Stock, par value $1.00 per share, outstanding as of February 14, 2014: 123,398,368 shares.
Documents Incorporated by Reference:
Registrant's Proxy Statement relating to its Annual Meeting of Stockholders to be held on May 21, 2014-Part III.
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STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in, or incorporated by reference into, this Annual Report on Form 10-K, future filings by us with the Securities and Exchange Commission ("SEC"), 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:
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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 Annual Report on Form 10-K 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 this Annual Report on Form 10-K in "Item 1A Risk Factors." 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.
WEBSITE ACCESS TO COMPANY REPORTS
Our investor website can currently be accessed at www.fifthandpacific.com under "Investor Relations." On or about February 26, 2014, our investor website will become www.katespadeandcompany.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Registration Reports on Forms S-3 and S-4, Current Reports on Form 8-K and amendments to those reports filed or furnished to the SEC pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our investor website under the caption "Financial Reports SEC Filings" promptly after we electronically file such materials with, or furnish such materials to, the SEC. No information contained on any of our websites is intended to be included as part of, or incorporated by reference into, this Annual Report on Form 10-K. Information relating to corporate governance at our Company, including our Corporate Governance Guidelines, our Code of Ethics and Business Practices for all directors, officers, and employees, and information concerning our directors, Committees of the Board, including Committee charters, and transactions in Company securities by directors and executive officers, is available at our investor website under the captions "Corporate Governance" and "Financial Reports SEC Filings." Paper copies of these filings and corporate governance documents are available to stockholders free of charge by written request to Investor Relations, Fifth & Pacific Companies, Inc., 1441 Broadway, New York, New York 10018. Documents filed with the SEC are also available on the SEC's website at www.sec.gov.
We were incorporated in January 1976 under the laws of the State of Delaware. In this Annual Report on Form 10-K, unless the context requires otherwise, references to "Fifth & Pacific," "our," "us," "we" and "the Company" mean Fifth & Pacific Companies, Inc. and its consolidated subsidiaries. Our fiscal year ends on the Saturday closest to January 1. All references to "2013" represent the 52 week fiscal year ended December 28, 2013. All references to "2012" represent the 52 week fiscal year ended December 29, 2012. All references to "2011" represent the 52 week fiscal year ended December 31, 2011.
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OVERVIEW AND NARRATIVE DESCRIPTION OF BUSINESS
General
Fifth & Pacific Companies, Inc. owns the KATE SPADE family of brands, which includes kate spade new york, KATE SPADE SATURDAY and JACK SPADE. In addition, the Adelington Design Group, a private brand jewelry design and development group, markets brands through department stores and serves J.C. Penney Corporation, Inc. ("JCPenney") via exclusive supplier agreements for the LIZ CLAIBORNE and MONET jewelry lines. In November 2013, we completed the sale of the JUICY COUTURE brandname and related intellectual property assets of Juicy Couture, Inc. (the "Juicy Couture IP") to ABG-Juicy LLC ("ABG") and we are working under a license from ABG as we transition and wind down the JUICY COUTURE business through 2014. We also have licenses for the LIZ CLAIBORNE NEW YORK brand, available at QVC, Inc. ("QVC") and LIZWEAR, which is distributed through the club store channel.
We are changing the name of the Company to "Kate Spade & Company" to reflect the Company's mono-brand focus following the sales of the LUCKY BRAND business and the JUICY COUTURE IP. The change is expected to be effective on or about February 26, 2014, at which time we expect our stock will begin trading on the New York Stock Exchange as Kate Spade & Company under the symbol KATE.
Recent Initiatives and Business Strategy
We have pursued transactions and initiatives with a focus on becoming a multi-national, mono-brand business and which improve our operations or liquidity. During 2013 and early 2014, we:
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Our debt and liquidity profile was further enhanced through the following transactions:
We ended 2013 with a net debt position (total debt less cash and marketable securities) of $264.0 million.
Our ongoing business is organized in a mono-brand, streamlined operating model, with a focus on achieving a competitive cost structure. Nevertheless, macroeconomic challenges and uncertainty continue to dampen consumer spending, and unemployment levels remain high. Therefore, we continue to focus on the careful execution of our strategic plans and seek opportunities to improve our productivity and profitability.
We have established our operating and financial goals for KATE SPADE based on the following strategies:
We remain focused on driving operating cash flow generation, managing liquidity and the efficient use of working capital.
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, e-commerce, concessions, wholesale apparel, wholesale non-apparel and licensing. The three 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 to evaluate performance and allocate resources. In identifying our reportable segments, we consider
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economic characteristics, as well as products, customers, sales growth potential and long-term profitability. As such, we report our operations in three reportable segments:
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.
See Notes 1 and 18 of Notes to Consolidated Financial Statements and "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations."
KATE SPADE
Our KATE SPADE family of brands offers fashion products (accessories, apparel and jewelry) for women under the kate spade new york and KATE SPADE SATURDAY trademarks and for men under the JACK SPADE trademarks. These products are sold primarily: (i) in the US through wholly-owned specialty retail and outlet stores and select specialty retail and upscale department stores; (ii) through our operations in Japan, Brazil, the United Kingdom, France and Southeast Asia; (iii) through our kate spade new york, KATE SPADE SATURDAY and JACK SPADE e-commerce websites; (iv) through a joint venture in China; and (v) through a network of distributors in Mexico, Turkey, Singapore, Malaysia, Thailand and the Middle East. The following product lines are included in each brand:
ADELINGTON DESIGN GROUP
The operations within our Adelington Design Group segment consist principally of:
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JUICY COUTURE
As discussed above, we sold the Juicy Couture IP to ABG, which has been licensed back to us to accommodate the wind-down of operations. The wind-down of operations of our licensed JUICY COUTURE brand consist of specialty retail, outlet, concession, wholesale apparel, wholesale non-apparel and e-commerce operations and are expected to be substantially complete by the end of the second quarter of 2014.
SALES AND MARKETING
Domestic direct-to-consumer sales are made through our own retail and outlet stores and e-commerce websites. Our domestic wholesale sales are made primarily to department store chains and specialty retail store customers. Wholesale sales are also made to international customers, military exchanges and to other channels of distribution.
In Japan, KATE SPADE distributes its products mainly through 62 points of sale including department store concessions, retail stores and e-commerce. In Southeast Asia, we recently reacquired the KATE SPADE businesses from Globalluxe and operate our own specialty retail and outlet stores in Hong Kong, Macau and Taiwan and have wholesale distribution agreements in Singapore, Malaysia and Thailand. In Europe, direct-to-consumer sales are made through our own specialty retail and outlet stores and concession stores within department store locations. In Canada, direct-to-consumer sales are made through our own specialty retail and outlet stores. In other international markets, including the remainder of Asia, the Middle East and Central and South America, we operate principally through third party distributors, virtually all of which purchase products from us for re-sale at freestanding retail stores and dedicated department store shops they operate. We also have an international presence through distribution agreements and a joint venture in China for our KATE SPADE family of brands.
We continually monitor retail sales in order to directly assess consumer response to our products. During 2013, we continued our domestic in-store sales, marketing and merchandising programs designed to encourage multiple item regular price sales, build one-on-one relationships with consumers and maintain our merchandise presentation standards. These programs train sales associates on suggested selling techniques, product, merchandise presentation and client development strategies. In addition, we completed the implementation of a new point of sale system to further enhance our omni-channel capabilities. Our retail stores reflect the distinct personalities of each brand, offering a unique shopping experience and exclusive merchandise. We plan to use more targeted communication to customers and evolve the customer shopping experience via: (i) our improved CRM capabilities; (ii) the roll out of a "gold service" selling and service program to certain retail stores; and (iii) expansion of our e-commerce site to include customization and additional merchandise collections.
Specialty Retail Stores, Outlet Stores and Concessions:
As of December 28, 2013, we operated specialty retail stores under various Company-owned and licensed trademarks, consisting of retail stores within the US and outside of the US (primarily in Japan, Europe and Canada). We also operated outlet stores under various Company-owned and licensed trademarks, consisting of outlet stores within the US and outside of the US. Outside of North America (primarily in
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Japan and Europe), we operate concession stores in select retail stores, which are either owned or leased by a third party department store or specialty store retailer.
The following tables set forth select information, as of December 28, 2013, with respect to our specialty retail stores, outlet stores and concessions:
kate spade new york
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Number of Stores |
Approximate Average Store Size (Square Feet) |
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US Specialty Retail Stores |
76 | 2,000 | |||||
Foreign Specialty Retail Stores |
22 | 1,300 | |||||
US Outlet Stores |
42 | 2,200 | |||||
Foreign Outlet Stores |
9 | 1,600 | |||||
Concessions |
42 | N/A |
KATE SPADE SATURDAY
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Number of Stores |
Approximate Average Store Size (Square Feet) |
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US Specialty Retail Stores |
3 | 1,600 | |||||
Foreign Specialty Retail Stores |
6 | 1,300 |
JACK SPADE
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Number of Stores |
Approximate Average Store Size (Square Feet) |
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US Specialty Retail Stores |
9 | 1,300 | |||||
Foreign Specialty Retail Stores |
2 | 1,500 | |||||
Concession |
1 | N/A |
JUICY COUTURE(a)
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Number of Stores |
Approximate Average Store Size (Square Feet) |
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US Specialty Retail Stores |
71 | 3,400 | |||||
Foreign Specialty Retail Stores |
3 | 2,400 | |||||
US Outlet Stores |
50 | 3,000 | |||||
Foreign Outlet Stores |
3 | 2,200 |
E-commerce:
Our products are sold on a number of branded websites. E-commerce continued to be an important business driver in 2013. We also operate several websites that provide information about our merchandise
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but do not sell directly to customers. The following table sets forth select information concerning our branded websites:
Website
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Information Only | Information and Direct to Consumer Sales |
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www.fifthandpacific.com(a) |
X | ||||||
www.jackspade.com |
X | ||||||
www.katespade.com |
X | ||||||
www.katespadeandcompany.com(b) |
X | ||||||
www.katespade.jp |
X | ||||||
www.saturday.com |
X | ||||||
www.saturday.jp |
X |
We also continue direct-to-consumer e-commerce sales under the JUICY COUTURE brand on the juicycouture.com website, pursuant to the wind-down license with ABG, discussed above.
We are evolving our direct-to-consumer marketing and distribution activities by enhancing our omni-channel capabilities. Our goal is to 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. During 2013, we also strengthened our e-commerce presence through a partnership with eBay Enterprise and mobile-enabled webstores using the DemandWare platform.
Wholesale:
No single customer accounted for more than 10.0% of net sales for 2013. Many major department store groups make centralized buying decisions; accordingly, any material change in our relationship with any such group could have an adverse effect on our operations. Sales to our domestic department and specialty retail store customers are made primarily through our New York City showroom. Internationally, sales to our department and specialty retail store customers are made through showrooms in the United Kingdom.
Orders from our wholesale customers generally precede the related shipping periods by several months. Our largest customers discuss with us retail trends and their plans regarding their anticipated levels of total purchases of our products for future seasons. These discussions are intended to assist us in planning the production and timely delivery of our products.
We utilize in-stock reorder programs in several divisions to enable customers to reorder certain items through electronic means for quick delivery, as discussed below in the section entitled "Buying/Sourcing." Many of our wholesale customers participate in our in-stock reorder programs through their own internal replenishment systems.
Licensing:
We license many of our products under the KATE SPADE family of brands to third parties with expertise in certain specialized products and/or market segments, thereby extending each licensed brand's market presence. As of December 28, 2013, we had 8 license arrangements, pursuant to which third party licensees produce merchandise using Company-owned trademarks in accordance with designs furnished or approved
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by us, the present terms of which (not including renewal terms) expire at various dates through 2018. In addition, as of December 28, 2013, the Adelington Design Group had 4 licensing arrangements to produce products for third parties. Our licenses cover a broad range of lifestyle product categories, including but not limited to, cosmetics and fragrances, tech accessories, footwear, stationery and paper goods, hosiery, optics and sunglasses and tabletop products. Such licenses earn revenue based on a percentage of the licensee's sales of the licensed products against a guaranteed minimum royalty, which generally increases over the term of the agreement. Income from our licensing operations is included in net sales for the segment under which the license resides.
As discussed above, we sold the Juicy Couture IP to ABG. The Juicy Couture IP has been licensed back to us until December 31, 2014 to accommodate the wind-down of operations, and we are required to pay a guaranteed minimum royalty to ABG of $10.0 million during the term of the wind-down license.
In October 2009, we entered into a multi-year license agreement with JCPenney, which granted JCPenney an exclusive right and license (subject to pre-existing licenses and certain limited exceptions) to use the LIZ CLAIBORNE, LIZ & CO., CLAIBORNE and CONCEPTS BY CLAIBORNE trademarks with respect to covered product categories and included the worldwide manufacturing of the licensed products and the sale, marketing, merchandising, advertising and promotion of the licensed products in the US and Puerto Rico. In November 2011, we sold the global trademark rights for the LIZ CLAIBORNE family of brands and the trademark rights in the US and Puerto Rico for the MONET brand to JCPenney for $267.5 million. The LIZ CLAIBORNE NEW YORK and LIZWEAR trademarks are licensed back to us on a royalty-free basis through July 2020. In addition, certain other trademarks within the LIZ CLAIBORNE family of brands are licensed back to us on a royalty-free basis for sublicense to our pre-existing third party licensees of such trademarks.
In October 2009, we also entered into a multi-year license agreement with QVC, granting rights (subject to pre-existing licenses) to certain trademarks and other intellectual property rights. QVC has the rights to use the LIZ CLAIBORNE NEW YORK brand with Isaac Mizrahi as creative director on any apparel, accessories, or home categories in the US and certain international markets. QVC merchandises and sources the product and we provide brand management oversight. The agreement provides for the payment to us of a royalty based on net sales of licensed products by QVC. Pursuant to the November 2011 sale transaction discussed above, we have a royalty-free license from JCPenney to continue to maintain the license with QVC for the LIZ CLAIBORNE NEW YORK trademark through July 2020.
Marketing:
Marketing for our brands is focused on reinforcing brand relevance, increasing awareness, engaging consumers and guiding them to our retail stores and e-commerce sites. We use a variety of marketing strategies to enhance our brand equity and promote our brands. These initiatives include direct mail, in-store events and internet marketing, including the use of social media. We incurred expenses of $59.3 million, $44.0 million and $36.7 million for advertising, marketing and promotion for all brands in 2013, 2012 and 2011, respectively.
In 2013, we continued our domestic in-store shop and fixture programs, which are designed to enhance the presentation of our products on department store selling floors generally through the use of proprietary fixturing, merchandise presentations and graphics. In-store shops operate under the following brand names: JACK SPADE, JUICY COUTURE and kate spade new york. Our accessories operations also offer an in-store shop and fixture program. In 2013, we installed an aggregate of 15 in-store shops. We plan to install an aggregate of approximately 35 additional in-store shops in 2014 under the kate spade new york and JACK SPADE brand names.
For further information concerning our domestic and international sales, see Note 18 of Notes to Consolidated Financial Statements.
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BUYING/SOURCING
Pursuant to a buying/sourcing agency agreement, Li & Fung Limited ("Li & Fung") acts as the primary global apparel and accessories buying/sourcing agent for all brands in our portfolio, with the exception of our jewelry product lines. We pay to Li & Fung an agency commission based on the cost of product purchases using Li & Fung as our buying/sourcing agent. Our agreement with Li & Fung provides for a refund of a portion of the 2009 closing payment in certain limited circumstances, including a change of control of the Company, the divestiture or discontinuation 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. Since 2009 we have completed various disposition transactions, including the licensing arrangements with JCPenney in the US and Puerto Rico and with QVC, the sales of the KENSIE, KENSIE GIRL and MAC & JAC trademarks and the sale of the Juicy Couture IP, which have resulted in the removal of buying/sourcing for such products sold from the Li & Fung buying/sourcing arrangement. As a result, we refunded a portion of the closing payment received from Li & Fung of $24.3 million in the second quarter of 2010, $1.8 million in the second quarter of 2012 and settled $6.0 million in the fourth quarter of 2013. We are not required to make any payments to Li & Fung as a result of the sale of LUCKY BRAND. 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.
Products produced in Asia represent a substantial majority of our purchases. We also source product in the US and other regions. During 2013, approximately 230 suppliers located in 17 countries manufactured our products, with the largest finished goods supplier accounting for less than 6.0% of the total of finished goods we purchased. Purchases from our suppliers are processed utilizing individual purchase orders specifying the price and quantity of the items to be produced.
Most of our products are purchased as completed product "packages" from our manufacturing contractors, where the contractor purchases all necessary raw materials and other product components, according to our specifications. When we do not purchase "packages," we obtain fabrics, trimmings and other raw materials in bulk from various foreign and domestic suppliers, which are delivered to our manufacturing contractors for use in our products. We do not have any long-term, formal arrangements with any supplier of raw materials. To date, we have experienced little difficulty in satisfying our raw material requirements and consider our sources of supply adequate.
We operate under substantial time constraints in producing each of our collections. In order to deliver, in a timely manner, merchandise which reflects current tastes, we attempt to schedule a substantial portion of our materials and manufacturing commitments relatively late in the production cycle, thereby favoring suppliers able to make quick adjustments in response to changing production needs and in time to take advantage of favorable (cost effective) shipping alternatives. However, in order to secure necessary materials and to schedule production time at manufacturing facilities, we must make substantial advance commitments prior to the receipt of firm orders from customers for the items to be produced. These advance commitments may have lead times in excess of five months. We continue to seek to reduce the time required to move products from design to the customer.
If we misjudge our ability to sell our products, we could be faced with substantial outstanding fabric and/or manufacturing commitments, resulting in excess inventories. See "Item 1A Risk Factors."
Our buying/sourcing arrangements with Li & Fung and with our foreign suppliers are subject to the risks of doing business abroad, including currency fluctuations and revaluations, restrictions on the transfer of funds, terrorist activities, pandemic disease and, in certain parts of the world, political, economic and currency instability. Our operations have not been materially affected by any such factors to date. However, due to the very substantial portion of our products that are produced abroad, any substantial disruption of our relationships with our foreign suppliers could adversely affect our operations. In addition, as Li & Fung is the buying/sourcing agent for a significant portion of our products, we are subject
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to the risk of having to rebuild such buying/sourcing capacity or find another agent or agents to replace Li & Fung in the event the agreement with Li & Fung terminates, or if Li & Fung is unable to fulfill its obligations under the agreement.
In addition, as we rely on independent manufacturers, a manufacturer's failure to ship product to us in a timely manner, or to meet quality or safety standards, could cause us to miss delivery dates to our retail stores or our wholesale customers. Failure to make deliveries on time could cause our retail customers to expect more promotions and our wholesale customers to seek reduced prices, cancel orders or refuse deliveries, all of which could have a material adverse effect on us. We maintain internal staff responsible for overseeing product safety compliance, irrespective of our agency agreement with Li & Fung.
Additionally, we are a certified and validated member of the United States Customs and Border Protection's Customs-Trade Partnership Against Terrorism ("C-TPAT") program and expect all of our suppliers shipping to the United States to adhere to our C-TPAT requirements, including standards relating to facility security, procedural security, personnel security, cargo security and the overall protection of the supply chain. In the event a supplier does not comply with our C-TPAT requirements, or if we determine that the supplier will be unable to correct a deficiency, we may terminate our business relationship with the supplier.
IMPORTS AND IMPORT RESTRICTIONS
Virtually all of our merchandise imported into the United States, Asia, Canada, Europe and South America is subject to duties. The United States may unilaterally impose additional duties in response to a particular product being imported (from China or other countries) in such increased quantities as to cause (or threaten) serious damage to the relevant domestic industry (generally known as "anti-dumping" actions). Furthermore, additional duties, generally known as countervailing duties, can also be imposed by the US Government to offset subsidies provided by a foreign government to foreign manufacturers if the importation of such subsidized merchandise injures or threatens to injure a US industry. Legislative proposals have been put forward which, if adopted, would treat a manipulation by China of the value of its currency as actionable under the antidumping or countervailing duty laws.
We are also subject to other international trade agreements and regulations, such as the North American Free Trade Agreement, the Central American Free Trade Agreement and the Caribbean Basin Initiative and other "special trade programs." Each of the countries in which our products are sold has laws and regulations covering imports. Because the US and the other countries into which our products are imported and sold may, from time to time, impose new duties, tariffs, surcharges or other import controls or restrictions, including the imposition of "safeguard provisions," "safeguard duties," or adjust presently prevailing duty or tariff rates or levels on products being imported from other countries, we monitor import restrictions and opportunities. We strive to reduce our potential exposure to import related risks through, among other things, adjustments in product design and fabrication and shifts of production among countries and manufacturers.
In light of the substantial portion of our products that is manufactured by foreign suppliers, the enactment of new legislation or the administration of current international trade regulations, executive action affecting textile agreements, or changes in buying/sourcing patterns or quota provisions, could adversely affect our operations. The implementation of any "safeguard provisions," "countervailing duties," any "anti-dumping" actions or any other actions impacting international trade can result in cost increases for certain categories of products and in disruption of the supply chain for certain product categories. See "Item 1A Risk Factors."
Apparel and other products sold by us are also subject to regulation in the US and other countries by other governmental agencies, including, in the US, the Federal Trade Commission, US Fish and Wildlife Service and the Consumer Products Safety Commission. These regulations relate principally to product labeling, content and safety requirements, licensing requirements and flammability testing. We believe that we are
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in substantial compliance with those regulations, as well as applicable federal, state, local, and foreign regulations relating to the discharge of materials hazardous to the environment. We do not estimate any significant capital expenditures for environmental control matters either in the current year or in the near future. Our licensed products, licensing partners and buying/sourcing agents are also subject to regulation. Our agreements require our licensing partners and buying/sourcing agents to operate in compliance with all laws and regulations and we are not aware of any violations which could reasonably be expected to have a material adverse effect on our business or financial position, results of operations, liquidity or cash flows.
Although we have not suffered any material inhibition from doing business in desirable markets in the past, we cannot assure that significant impediments will not arise in the future as we expand product offerings and introduce trademarks to new markets.
DISTRIBUTION
We distribute our products through leased facilities. In August 2011, we entered into an agreement with Li & Fung for the provision of distribution services in the United States and at that time we planned to migrate from the Ohio Facility to the Li & Fung facility. In August 2012, we encountered systems and operational issues that delayed our planned migration of our product distribution function out of the Ohio Facility, resulting in increased operating costs during the second half of 2012. Subsequently, in light of the complexities of our distribution function, and the timing and expense issues encountered, 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. Our current buying/selling arrangements with Li & Fung are unaffected by the expiration of the distribution agreement. 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 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. See "Item 1A Risk Factors."
BACKLOG
On February 7, 2014, our order book reflected unfilled customer orders for approximately $104.1 million of merchandise, as compared to approximately $184.1 million at February 1, 2013. These orders represent our order backlog. The amounts indicated include both confirmed and unconfirmed orders, which we believe, based on industry practice and our past experience, will be confirmed. We expect that substantially all such orders will be filled within the 2014 fiscal year. We note that the amount of order backlog at any given date is materially affected by a number of factors, including seasonality, the mix of product, the timing of the receipt and processing of customer orders and scheduling of the manufacture and shipping of the product, which in some instances is dependent on the desires of the customer. Accordingly, order book data should not be taken as providing meaningful period-to-period comparisons. However, the decline in the value of unfilled customer orders primarily reflects the sale of the LUCKY BRAND business and the wind-down of JUICY COUTURE operations.
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TRADEMARKS
The following table summarizes the principal trademarks we own and/or use in connection with our businesses and products:
Company Owned Trademarks
AXCESS | MARVELLA | |
JACK SPADE | MONET(a) | |
KATE SPADE | TRIFARI | |
KATE SPADE SATURDAY |
Third Party Owned Trademarks
COUTURE COUTURE(b) | LIZ CLAIBORNE NEW YORK(e)(f) | |
JUICY COUTURE(b) | LIZWEAR(f) | |
KENSIE(c) | MONET(d)(g) | |
LIZ CLAIBORNE(d) |
In addition, we own and/or use many other logos and secondary trademarks associated with the above mentioned trademarks.
We have registered, or applied for registration of, a multitude of trademarks throughout the world, including those referenced above, for use on a variety of apparel and apparel-related products, including accessories, home furnishings, cosmetics and jewelry, as well as for retail services. We regard our trademarks and other proprietary rights as valuable assets and believe that they have significant value in the marketing of our products. We vigorously protect our trademarks and other intellectual property rights against infringement.
In general, trademarks remain valid and enforceable as long as the marks are used in connection with the related products and services and the required registration renewals are filed. We regard the license to use the trademarks and our other proprietary rights in and to the trademarks as valuable assets in marketing our products and, on a worldwide basis, vigorously seek to protect them against infringement. As a result of the appeal of our brands, our products have from time to time been the object of counterfeiting. We have implemented an enforcement program, which we believe has been generally effective in controlling the sale of counterfeit products in the US and in major markets abroad.
In markets outside of the US, our rights to some or all of our trademarks may not be clearly established. In the course of our international expansion, we have experienced conflicts with various third parties who have acquired ownership rights in certain trademarks, which would impede our use and registration of some of our principal trademarks. While such conflicts are common and may arise again from time to time as we continue our international expansion, we have generally successfully resolved such conflicts in the
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past through both legal action and negotiated settlements with third party owners of the conflicting marks. Although we have not in the past suffered any material restraints or restrictions on doing business in desirable markets or in new product categories, we cannot assure that significant impediments will not arise in the future as we expand product offerings and introduce new and additional brands, such as KATE SPADE SATURDAY, both in the US and in other markets.
COMPETITION
We are subject to intense competition as the apparel and accessories related product markets are highly competitive, both within the US and abroad. We compete with numerous retailers, designers and manufacturers of apparel and accessories, both domestic and foreign. We compete primarily on the basis of fashion, quality and price. Our ability to compete successfully depends upon a variety of factors, including, among other things, our ability to:
See "Item 1A Risk Factors."
Our principal competitors vary by brand and for kate spade new york include Burberry, Coach, Diane von Furstenberg, Marc by Marc Jacobs, Michael Kors and Tory Burch.
EMPLOYEES
At December 28, 2013, we had approximately 6,800 full-time employees worldwide, as compared to approximately 5,800 full-time employees at December 29, 2012.
We were bound by a collective bargaining agreement dated April 24, 2013, with Metropolitan Distribution and Trucking Joint Board, Local 99, covering 16 employees at our North Bergen, NJ office that extended through September 2014. The collective bargaining agreement set forth terms and conditions pursuant to which our North Bergen, NJ building would be sold on or about May 31, 2013 (see Note 5 of Notes to Consolidated Financial Statements), which resulted in the permanent layoff of all union employees on June 7, 2013. We no longer have any remaining union agreements; however, we continue to have an obligation to the National Retirement Fund due to our cessation of contributions to a multi-employer defined benefit pension fund pursuant to a collective bargaining agreement covering former union employees, which is regulated by the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). See "Item 1A Risk Factors," and Note 9 of Notes to Consolidated Financial Statements.
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Our relations with our employees are satisfactory and to date we have not experienced any interruption of our operations due to employee issues.
CORPORATE SOCIAL RESPONSIBILITY
We are committed to responsible corporate citizenship and giving back to our communities through a variety of avenues. We have several programs in place that support this commitment.
Monitoring Global Working Conditions
We are committed to taking the actions we believe are necessary to ensure that our products are made in contracted factories with fair and decent working conditions. We continue this commitment as we operate under our buying/sourcing arrangement with Li & Fung, collaborating with Li & Fung to develop mutually acceptable audit documents and processes, training the Li & Fung audit staff on our compliance program and communicating our standards to Li & Fung suppliers and their workers.
The major components of our compliance program are: (i) communicating our standards of engagement to workers, suppliers and associates; (ii) auditing and monitoring against those standards; (iii) providing workers with a confidential reporting channel; (iv) working with non-governmental organizations; and, (v) working closely with factory management to develop sustainable compliance programs. Suppliers are required to post our standards of engagement in the workers' native language at all factories where our merchandise is being made. We have used various methods to educate workers regarding our standards and their rights, including development of booklets to better illustrate those standards and involving non-governmental organizations to train workers. The standards of engagement, along with detailed explanations of each standard, are included on our suppliers' websites. All new suppliers must acknowledge our standards and agree to our monitoring requirements.
We have been a participating company in the Fair Labor Association ("FLA") since its inception. The FLA is a collaborative effort comprised of socially responsible companies, colleges and universities and civil society organizations whose collective purpose is to improve working conditions at factories around the world. The FLA has developed a Workplace Code of Conduct, based on International Labor Organization standards and has created benchmarks to monitor adherence to those standards, or to perform remediation. Its monitoring program is a brand accountability system that places responsibility on companies to voluntarily achieve desired workplace standards in factories manufacturing their goods.
In December 2013, we advised the Fair Labor Association that we will no longer participate in their monitoring program due to the size and structure of our organization. Rather, we will continue to audit factories using both internal and independent monitors, provide capacity building for suppliers and look for ways to develop direct communication channels with workers to ensure that they are aware of their rightsvery much in the FLA model. We plan to publish our first Corporate Social Responsibility report in mid-2014. More information about our monitoring program is available on our website.
As of December 28, 2013, we had approximately 235 active factories on our roster of which 218 were audited by our internal compliance team, Li & Fung auditors or third party auditors. Additionally, there were 179 follow up audits. In many cases, we rely on our agents' audit reports. As such, we continue to conduct shadow audits to confirm that audit protocols and findings are consistent between the two companies.
We are aware that auditing only confirms compliance at the time of the audit, and we continue to look for ways to improve our monitoring program and work with suppliers to create sustainable compliance at their factories. Creating workers' awareness and establishing a channel of communication for reporting issues of non-compliance are two important strategies. We encourage all factories to establish internal grievance procedures and give workers the opportunity to report their concerns directly to the Company. This year,
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with the help of Li & Fung, we have provided supplier training covering best practices in Health and Safety and Human Resources in China and in India.
Philanthropic Programs
We have a number of philanthropic programs that support the nonprofit sector in our major operating communities.
Environmental Initiatives
We are committed to a long-term sustainable approach to caring for and safeguarding the environment. As such, we endeavor to balance environmental considerations and social responsibility with our business goals by evolving and implementing our corporate environmental policy, in addition to complying with environmental laws and regulations. Our current sustainability policy focuses on three major components reducing waste, reusing and recycling to help minimize our impact on the environment.
You should carefully consider the following risk factors, in addition to other information included in this Annual Report on Form 10-K and in other documents we file with the SEC, in evaluating us and our business. If any of the following 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
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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.
Our business strategy is centered on the KATE SPADE family of brands. We cannot assure the successful implementation and results of our long-term strategic plans, including our ability to operate as a mono-brand company.
Our ability to execute our long-term growth plan and achieve our projected results is subject to a variety of risks, including the following:
We may not be successful in implementing our long-term growth plan, and our inability to successfully expand our retail business could have a material adverse effect on our business, financial condition, liquidity and results of operations.
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General economic conditions in the US, Asia, Europe and other parts of the world, including a continued weakening or instability of such economies, restricted credit markets and lower levels of consumer spending, can affect consumer confidence and consumer purchases of discretionary items, including fashion apparel and related products, such as ours.
The economies of the US, Asia, Europe and other parts of the world in which we operate weakened significantly as a result of the global economic crisis that began in the second half of 2008 and which has for the most part persisted since then, with recent signs of modest improvement in the US. Our results are dependent on a number of factors impacting consumer spending, including, but not limited to: (i) general economic and business conditions both in the US and abroad; (ii) consumer confidence; (iii) wages and current and expected employment levels; (iv) the housing market; (v) consumer debt levels; (vi) availability of consumer credit; (vii) credit and interest rates; (viii) fluctuations in foreign currency exchange rates; (ix) fuel and energy costs; (x) energy shortages; (xi) the performance of the financial, equity and credit markets; (xii) taxes; (xiii) general political conditions, both domestic and abroad; and (xiv) the level of customer traffic within department stores, malls and other shopping and selling environments.
Global economic conditions over the past few years have included significant recessionary pressures and declines in employment levels, disposable income and actual and/or perceived wealth and declines in consumer confidence and economic growth. The current unstable economic environment has been characterized by a dramatic decline in consumer discretionary spending and has disproportionately affected retailers and sellers of consumer goods, particularly those whose goods represent discretionary purchases, including fashion apparel and related products such as ours. While the decline in consumer spending has recently moderated, these economic conditions could still lead to continued declines in consumer spending over the foreseeable future and may have resulted in a resetting of consumer spending habits that makes it unlikely that such spending will return to prior levels for the foreseeable future. A number of our markets continue to suffer particularly severe downturns, and we have experienced significant declines in revenues.
While we have seen intermittent signs of stabilization in North America, there continues to be volatility in the European markets and there are no assurances that the global economy will continue to recover. If the global economy continues to be weak or deteriorates further, there will likely be a negative effect on our revenues, operating margins and earnings across all of our segments.
Economic conditions have also led to a highly promotional environment and strong discounting pressure from both our wholesale and retail customers, which have had a negative effect on our revenues and profitability. This promotional environment may likely continue even after economic growth returns, as we expect that consumer spending trends are likely to remain at historically depressed levels for the foreseeable future. The domestic and international political situation also affects consumer confidence. The threat, outbreak or escalation of terrorism, military conflicts or other hostilities could lead to further decreases in consumer spending. The recent downturn and uncertain outlook in the global economy will likely continue to have a material adverse impact on our business, financial condition, liquidity and results of operations.
Fluctuations in the price, availability and quality of the fabrics or other raw materials used to manufacture our products, as well as the price for labor, marketing and transportation, could have a material adverse effect on our cost of sales or our ability to meet our customers' demands. The prices for such fabrics depend largely on the market prices for the raw materials used to produce them. Such factors may be exacerbated by legislation and regulations associated with global climate change. The price and availability of such raw materials may fluctuate significantly, depending on many factors. In the future, we may not be able to pass all or a portion of such higher prices on to our customers.
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Our current level of debt could adversely affect our business, financial condition or results of operations and prevent us from fulfilling our debt-related obligations.
As of December 28, 2013, the total principal amount of our 10.5% Senior Secured Notes due April 2019 (the "Senior Notes") was $372.0 million. Our current level of debt could have important consequences for the holders of our common stock, including:
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us through capital markets financings or under our Amended Facility or otherwise in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, on or before its maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. In addition, we may incur additional indebtedness in order to finance our operations or to repay existing indebtedness. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional debt or equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all, or on terms that would be advantageous to our stockholders or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements.
Restrictive covenants in our Amended Facility and the indenture governing our Senior Notes and other indebtedness may restrict our ability to pursue our business strategies.
The indentures governing our Senior Notes and the agreement governing our Amended Facility limit our ability, and the terms of any future indebtedness may limit our ability, among other things, to:
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In addition, the agreement governing our Amended Facility requires 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 and requires 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.
The restrictions contained in the indentures governing our Senior Notes and the agreement governing our Amended Facility could also limit our ability to plan for or react to market conditions, meet capital needs or make acquisitions or otherwise restrict our activities or business plans.
We may require additional capital in the future and may not be able to secure adequate funds on terms acceptable to us.
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 and LUCKY BRAND as discussed above; (iv) invest in our information systems; (v) fund general operational and contractual obligations; and (vi) potentially repurchase or retire debt obligations. The expansion and development of our business may also require significant capital, which we may be unable to obtain, to fund our capital expenditures and operating expenses, including working capital needs.
Our Amended Facility matures in 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.
During the next 12 months, we otherwise expect to meet our cash requirements with existing cash and cash equivalents, cash flow from operations and borrowings under our Amended Facility. We may fail to generate sufficient cash flow from such sources to meet our cash requirements. Further, our capital requirements may vary materially from those currently planned if, for example, our revenues do not reach expected levels or we have to incur unforeseen capital expenditures and make investments to maintain our competitive position. If this is the case, we may require additional financing sooner than anticipated or we may have to delay or abandon some or all of our development and expansion plans or otherwise forego market opportunities.
To a large extent, our cash flow generation ability is subject to general economic, financial, competitive, legislative and regulatory factors and other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations in an amount sufficient to enable us to fund our liquidity needs. As a result, we may need to refinance all or a portion of our indebtedness, on or before its maturity, or obtain additional equity or debt financing. We cannot assure you that we will be able to do so on commercially reasonable terms, if at all. Any inability to generate sufficient cash flow, refinance our indebtedness or incur additional indebtedness on commercially reasonable terms could adversely affect our financial condition and could cause us to be unable to service our debt and may delay or prevent the expansion of our business.
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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 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.
Our success will depend on our ability to successfully develop or acquire new product lines and enter new markets or product categories.
We have in the past, and may, from time to time, acquire or develop new product lines, enter new markets or product categories, including through licensing arrangements, and/or implement new business models (such as the KATE SPADE SATURDAY line). Such activities are accompanied by a variety of risks inherent in any such new business venture, including the following:
There are risks associated with the sale of the LUCKY BRAND business, including our ability to collect the full amount of principal and interest due and owing pursuant to a three year note issued by Lucky Brand Dungarees, LLC to us as partial consideration for the sale of the LUCKY BRAND business and our ability to comply with our transition service requirements.
As part of the consideration for the sale of the LUCKY BRAND business, we have received a Senior Secured Note due 2017 (the "Lucky Brand Note") in an aggregate initial principal amount of $85.0 million issued by Lucky Brand Dungarees, LLC ("Lucky Brand LLC") and guaranteed by substantially all of its
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subsidiaries. The Lucky Brand Note is secured by a second-priority lien on all accounts receivable and inventory of Lucky Brand LLC and the guarantor subsidiaries and a first-priority lien on all other collateral of Lucky Brand LLC and the guarantors. The accounts receivable and inventory secure Lucky Brand LLC's asset-based revolving loan facility on a first-priority basis, and the other collateral secures that loan facility on a second-priority basis. The principal amount of the Lucky Brand Note increases by $5.0 million per year, in equal monthly increments, and bears cash interest of $8.0 million per year, payable semiannually in arrears. The Lucky Brand Note is prepayable at any time by Lucky Brand LLC without a prepayment premium, subject to certain restrictions as to the minimum amount that may be prepaid without our consent. To the extent that the business, financial condition and results of operations of Lucky Brand LLC are adversely affected, Lucky Brand LLC's ability to service the Lucky Brand Note or to repay or refinance the Lucky Brand Note could be materially and adversely affected. As a result, our ability to receive payments on the Lucky Brand Note is dependent on such factors, and we may not receive timely payments or be paid the amounts due under the Lucky Brand Note at all.
Under a transition services agreement with Lucky Brand LLC, we are required to provide Lucky Brand LLC with certain transitional services, such as IT support, accounting services, tax services and other services that were provided at the corporate level while LUCKY BRAND was owned by us. The services will be provided at cost for up to a maximum of two years from the closing date, subject to earlier termination of the various services by Lucky Brand LLC. The provision of these services may cause disruption of the operations of the rest of our brands and businesses and diversion of management attention from such businesses and operations.
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, our ability to complete the termination of the lease for our JUICY COUTURE flagship store in New York City, the impact of the transition plan and the announced future plans for the JUICY COUTURE brand on our relationships with our employees, our major customers, vendors and landlords 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 requirement to wind down JUICY COUTURE operations, we expect to close offices and retail locations that will not be converted to KATE SPADE stores. We estimate we will recognize a net restructuring credit (including estimated contract termination, employee related and other costs, net of expected proceeds of $51.0 million from the surrender of the JUICY COUTURE flagship store on Fifth Ave in New York) of $0 - $10.0 million. Although we expect to consummate the lease termination transaction, there can be no assurance such termination fee will be realized by us and in the instance such termination fee is not realized by us, we expect to incur cash restructuring charges of $40.0 - $50.0 million, which could impact our liquidity. In developing such estimates, we have assumed that certain of the current JUICY COUTURE retail locations will be converted to a KATE SPADE format. In addition, such estimates do not reflect 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. Because of uncertainties with respect to
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our transition plan (including those described above), we may not be able to complete and implement our transition plan with respect to the JUICY COUTURE business as we expect or in a satisfactory manner, and the costs incurred in connection with such transition may exceed our estimates. If the actual restructuring and transition charges or impairment charges exceed our estimates or if our transition plan is not implemented as expected, 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:
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 wholesale businesses are dependent to a significant degree on sales to a limited number of large US department store customers, and our business could suffer as a result of consolidations, restructurings, bankruptcies, other ownership changes in the retail industry or financial difficulties at our large department store customers.
Many major department store groups make centralized buying decisions. Accordingly, any material change in our relationship with any such group could have a material adverse effect on our operations. We expect that our largest customers will continue to account for a significant percentage of our wholesale sales.
Our continued partial dependence on sales to a limited number of large US department store customers is subject to our ability to respond effectively to, among other things: (i) these customers' buying patterns, including their purchase and retail floor space commitments for apparel in general (compared with other product categories they sell) and our products specifically (compared with products offered by our competitors, including with respect to customer and consumer acceptance, pricing and new product introductions); (ii) these customers' strategic and operational initiatives, including their continued focus on
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further development of their "private label" initiatives; (iii) these customers' desire to have us provide them with exclusive and/or differentiated designs and product mixes; (iv) these customers' requirements for vendor margin support; (v) any credit risks presented by these customers, especially given the significant proportion of our accounts receivable they represent; and (vi) the effect of any potential consolidation among these larger customers.
We do not enter into long-term agreements with any of our wholesale customers. Instead, we enter into a number of purchase order commitments with our customers for each of our lines every season. A decision by the controlling owner of a group of stores or any other significant customer, whether motivated by competitive conditions, financial difficulties or otherwise, to decrease or eliminate the amount of merchandise purchased from us or to change their manner of doing business with us could have a material adverse effect on our business, financial condition, liquidity and results of operations. As a result of the recent unfavorable economic environment, we have experienced a softening of demand from a number of wholesale customers, such as large department stores, who have been highly promotional and have aggressively marked down all of their merchandise, including our products. Any promotional pricing or discounting in response to softening demand may also have a negative effect on brand image and prestige, which may be difficult to counteract once the economy improves. Furthermore, this promotional activity may lead to requests from those customers for increased markdown allowances at the end of the season. Promotional activity at our wholesale customers will also often result in promotional activity at our retail stores, further eroding revenues and profitability.
We sell our wholesale merchandise primarily to major department stores across the US and extend credit based on an evaluation of each customer's financial condition, usually without requiring collateral. However, the financial difficulties of a customer could cause us to curtail or eliminate business with that customer. We may also assume more credit risk relating to our receivables from that customer. Our inability to collect on our trade accounts receivable from any of our largest customers could have a material adverse effect on our business, financial condition, liquidity and results of operations. Moreover, the difficult macroeconomic conditions and uncertainties in the global credit markets could negatively impact our customers and consumers which, in turn, could have an adverse impact on our business, financial condition, liquidity and results of operations.
The success of our business depends on 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.
The apparel and accessories industries have historically been subject to rapidly changing consumer demands and tastes and fashion trends and to levels of discretionary spending, especially for fashion apparel and related products, which levels are currently weak. These industries are also subject to being able to expand business to growing markets worldwide. We believe that our success is largely dependent on our ability to effectively anticipate, gauge and respond to changing consumer demands and tastes across multiple product lines, shopping channels and geographies, in the design, pricing, styling and production of our products and in the merchandising and pricing of products in our retail stores, and in the business model employed, and partners we select to work with, in new and growing markets worldwide. Our brands and products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to constant change. Also, we must maintain and enhance favorable brand recognition, which may be affected by consumer attitudes towards the desirability of fashion products bearing a "mega brand" label and which are widely available at a broad range of retail stores. Our success is also dependent on our ability to successfully extend our businesses into new territories and markets, such as India, Russia, Asia and South America.
We attempt to schedule a substantial portion of our materials and manufacturing commitments relatively late in the production cycle. However, in order to secure necessary materials and ensure availability of manufacturing facilities, we must make substantial advance commitments, which may be up to five months or longer, prior to the receipt of firm orders from customers for the items to be produced. We need to
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translate market trends into appropriate, saleable product offerings relatively far in advance, while minimizing excess inventory positions, and correctly balance the level of our fabric and/or merchandise commitments with actual customer orders. We cannot assure that we will be able to continue to develop appealing styles and brands or successfully meet changing customer and consumer demands in the future. In addition, we cannot assure that any new products or brands that we introduce will be successfully received and supported by our wholesale customers or consumers. Our failure to gauge consumer needs and fashion trends by brand and respond appropriately, and to appropriately forecast our ability to sell products, could adversely affect retail and consumer acceptance of our products and leave us with substantial outstanding fabric and/or manufacturing commitments, resulting in increases in unsold inventory or missed opportunities. If that occurs, we may need to employ markdowns or promotional sales to dispose of excess inventory, which may harm our business and results. At the same time, our focus on inventory management may result, from time to time, in our not having a sufficient supply of products to meet demand and cause us to lose potential sales.
We cannot assure that we can attract and retain talented highly qualified executives, or maintain satisfactory relationships with our employees.
Our success depends, to a significant extent, both upon the continued services of our executive management team, including brand-level executives, as well as our ability to attract, hire, motivate and retain additional talented and highly qualified management in the future, including the areas of design, merchandising, sales, supply chain, marketing, production and systems, as well as our ability to hire and train qualified retail management and associates. In addition, we will need to provide for the succession of senior management, including brand-level executives. The loss of key members of management and our failure to successfully plan for succession could disrupt our operations and our ability to successfully operate our business and execute our strategic plan.
Our business could suffer if we cannot adequately establish, defend and protect our trademarks and other proprietary rights.
We believe that our trademarks and other proprietary rights are significantly important to our success and competitive position. Accordingly, we devote substantial resources to the establishment and protection of our trademarks and anti-counterfeiting activities. Counterfeiting of our products, particularly our kate spade new york brand, continues, however, and in the course of our international expansion we have experienced conflicts with various third parties that have acquired or claimed ownership rights in some of our trademarks or otherwise have contested our rights to our trademarks. We have, in the past, resolved certain of these conflicts through both legal action and negotiated settlements, none of which, we believe, has had a material impact on our financial condition, liquidity or results of operations. However, the actions taken to establish and protect our trademarks and other proprietary rights might not be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as a violation of their trademarks and proprietary rights. Moreover, in certain countries others may assert rights in, or ownership of, our trademarks and other proprietary rights or we may not be able to successfully resolve such conflicts, or resolving such conflicts may require us to make significant monetary payments. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent as do the laws of the US. The loss of such trademarks and other proprietary rights, or the loss of the exclusive use of such trademarks and other proprietary rights, could have a material adverse effect on us. Any litigation regarding our trademarks or other proprietary rights could be time consuming and costly.
The markets in which we operate are highly competitive, both within the US and abroad.
We face intense competitive challenges from other domestic and foreign fashion apparel and accessories producers and retailers. Competition is based on a number of factors, including the following:
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In addition, some of our competitors may be significantly larger and more diversified than us and may have significantly greater financial, technological, manufacturing, sales, marketing and distribution resources than we do. Their greater capabilities in these areas may enable them to better withstand periodic downturns in the accessories, footwear and apparel industries, compete more effectively on the basis of price and production and more quickly develop new products. The general availability of manufacturing contractors and agents also allows new entrants easy access to the markets in which we compete, which may increase the number of our competitors and adversely affect our competitive position and our business.
Any increased competition, or our failure to adequately address these competitive factors, could result in reduced sales or prices, or both, which could have a material adverse effect on us. We also believe there is an increasing focus by the department stores to concentrate an increasing portion of their product assortments within their own private label products. These private label lines compete directly with our product lines and may receive prominent positioning on the retail floor by department stores. Finally, in the current economic environment, which is characterized by softening demand for discretionary items, such as apparel and related products, there has been a consistently increased level of promotional activity, both at our retail stores and at department stores, which has had an adverse effect on our revenues and profitability.
Our reliance on independent foreign manufacturers could cause delay and loss and damage our reputation and customer relationships. Also, there are risks associated with our agreement with Li & Fung, which results in a single foreign buying/sourcing agent for a significant portion of our products.
We do not own any product manufacturing facilities; all of our products are manufactured in accordance with our specifications through arrangements with independent suppliers. Products produced in Asia represent a substantial majority of our sales. We also source product in the US and other regions, including approximately 230 suppliers manufacturing our products. At the end of 2013, such suppliers were located in 17 countries, with the largest finished goods supplier at such time accounting for less than 6.0% of the total of finished goods we purchased in 2013. A supplier's failure to manufacture and deliver products to us in a timely manner or to meet our quality standards could cause us to miss the delivery date requirements of our customers for those items. The failure to make timely deliveries may drive customers to cancel orders, refuse to accept deliveries or demand reduced prices, any of which could have a material adverse effect on us and our reputation in the marketplace. Also, a manufacturer's failure to comply with safety and content regulations and standards, including with respect to children's product and fashion jewelry, could result in substantial liability and damage to our reputation. While we provide our manufacturers with standards, and we employ independent testing for safety and content issues, we might not be able to prevent or detect all failures of our manufacturers to comply with such standards and regulations.
29
Additionally, we require our independent manufacturers (as well as our licensees) to operate in compliance with applicable laws and regulations. While we believe that our internal and vendor operating guidelines promote ethical business practices and our staff periodically visits and monitors the operations of our independent manufacturers, we do not control these manufacturers or their labor practices. The violation of labor or other laws by an independent manufacturer used by us (or any of our licensees), or the divergence of an independent manufacturer's (or licensee's) labor practices from those generally accepted as ethical in the US, could interrupt, or otherwise disrupt the shipment of finished products to us or damage our reputation. Any of these, in turn, could have a material adverse effect on our business, financial condition, liquidity and results of operations.
On February 23, 2009, we entered into a long-term, buying/sourcing agency agreement with Li & Fung, pursuant to which Li & Fung acts as the primary global apparel and accessories buying/sourcing agent for all brands in our portfolio, with the exception of our jewelry product lines. Pursuant to the agreement, we received at closing on March 31, 2009 a payment of $75.0 million and an additional payment of $8.0 million to offset specific, identifiable, incremental expenses associated with the transaction. We pay to Li & Fung an agency commission based on the cost of our product purchases through Li & Fung. Our agreement with Li & Fung provides for a refund of a portion of the 2009 closing payment in certain limited circumstances, including a change of control of the Company, the divestiture or discontinuation 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. Since 2009 we have completed various disposition transactions, including the licensing arrangements with JCPenney in the US and Puerto Rico and with QVC, the sales of the KENSIE, KENSIE GIRL and MAC & JAC trademarks and the sale of the Juicy Couture IP, which have resulted in the removal of buying/sourcing for such products sold from the Li & Fung buying/sourcing arrangement. As a result, we refunded a portion of the closing payment received from Li & Fung of $24.3 million in the second quarter of 2010, $1.8 million in the second quarter of 2012 and settled $6.0 million in the fourth quarter of 2013. We are not required to make any payments to Li & Fung as a result of the sale of LUCKY BRAND. 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.
Our arrangements with foreign suppliers and with our foreign buying/sourcing agents are subject generally to the risks of doing business abroad, including currency fluctuations and revaluations, restrictions on the transfer of funds, terrorist activities, pandemic disease and, in certain parts of the world, political, economic and currency instability. Our operations have not been materially affected by any such factors to date. However, due to the very substantial portion of our products that are produced abroad, any substantial disruption of our relationships with our foreign suppliers could adversely affect our operations. Moreover, difficult macroeconomic conditions and uncertainties in the global credit markets could negatively impact our suppliers, which in turn, could have an adverse impact on our business, financial position, liquidity and results of operations.
Costs related to withdrawal from a multi-employer pension fund could negatively affect our results of operations and cash flow.
In the second quarter of 2011, we initiated actions to close our Ohio Facility, which was expected to result in the termination of all or a significant portion of our union employees. In the third quarter of 2011, we ceased contributing to a multi-employer defined benefit pension plan (the "Fund"), which is regulated by the ERISA. Under ERISA, cessation of employer contributions triggers 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 Selling, general & administrative expenses ("SG&A"), related to our estimate of the withdrawal liability. Under applicable statutory rules, this withdrawal liability is payable over a period of time, and we previously estimated that we would pay such
30
liability in equal quarterly installments over a period of eight to 12 years, with payments anticipated to commence in 2012. 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. In light of the Fund's notice, we recorded an additional charge to SG&A in 2011. As of December 28, 2013, the accrued withdrawal liability was $12.0 million, which was included in Accrued expenses and Other non-current liabilities on the accompanying Consolidated Balance Sheet. We do not believe that this withdrawal liability amount or the schedule of payments will have a material adverse impact on our financial position, results of operations or cash flows.
There are 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.
In connection with our streamlining initiatives, in July 2011, we announced our plan to close our Ohio Facility in the second half of 2012 and migrate the distribution function to a third party service provider, and that we had entered into a Memorandum of Agreement (the "Agreement") between us and the Chicago and Midwest Regional Joint Board of Workers United (the "Union"), which was ratified by the Union. The Agreement set forth the terms and conditions pursuant to which we had planned to effectuate orderly layoffs of our employees at the Ohio Facility, in connection with the anticipated closure and sale of the Ohio Facility in the fourth quarter of 2012. The Agreement provided, among other things, that the terms and conditions of the collective bargaining agreement between the Company and the Union, effective June 17, 2008 to June 16, 2011, as previously extended to July 16, 2011 by the parties (the "CBA"), were to remain in effect during the expected shutdown of the Ohio Facility, except as such terms are amended by the Agreement. In August 2011, we entered into an agreement with Li & Fung for the provision of distribution services in the United States and at that time we planned to migrate from our Ohio Facility to the Li & Fung facility.
In August 2012, we encountered systems and operational issues that delayed the planned migration of our product distribution function out of the Ohio Facility. Subsequently, we determined that we would continue to use the Ohio Facility and 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 decided that, given the complex distribution needs of our businesses, we should continue to use the Ohio Facility, and on February 5, 2013, we 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.
In addition, we notified the employees covered by the Agreement of the completion of layoffs on March 31, 2013, at which time the Agreement and CBA terminated. The third-party distribution center operations company employs our prior employees, including union employees, at the Ohio Facility. There are a number of risks associated with continuing to operate the Ohio Facility, including increased operating expenses, risks related to systems capabilities at the Ohio Facility and risks related to the ability of the third-party distribution center operations company to appropriately staff the Ohio Facility with both union and non-union employees on reasonable and appropriate terms. We also have limited ability to control our third-party distribution center operations company, and such company may take actions with respect to its employees without our approval and may not maintain good relations with its employees and unions. Issues that arise in connection with the operation of our Ohio Facility could cause supply disruptions and other logistical issues and could therefore have a material, adverse effect on our business, financial condition, liquidity and results of operations.
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Our international sourcing operations are subject to a variety of legal, regulatory, political and economic risks, including risks relating to the importation and exportation of product.
We source most of our products outside the US through arrangements with independent suppliers in 17 countries as of December 28, 2013. There are a number of risks associated with importing our products, including but not limited to the following:
Any one of these or similar factors could have a material adverse effect on our business, financial condition, liquidity, results of operations and current business practices.
We face risks associated with operating in international markets.
Approximately 9.8% of the revenues of our KATE SPADE segment were generated by operations outside the U.S. during the 2013 fiscal year. Our ability to operate and be successful in new international markets and to operate and maintain the current level of sales in our existing international markets, including with respect to the KATE SPADE family of brands in Japan, China and Brazil, is subject to risks associated with international operations. These include complying with a variety of foreign laws and regulations, adapting to local customs and culture, unexpected changes in regulatory requirements, new tariffs or other barriers in some international markets, political instability and terrorist attacks, changes in diplomatic and trade relationships, currency risks and general economic conditions in specific countries and markets. Any one of these or similar factors could have a material adverse effect on our business, financial condition, liquidity, results of operations and current business practices.
Our business and balance sheets are exposed to domestic and foreign currency fluctuations.
While we generally purchase our products in US dollars, we source most of our products overseas. As a result, the cost of these products may be affected by changes in the value of the relevant currencies,
32
including currency devaluations. Changes in currency exchange rates may also affect the US dollar value of the foreign currency denominated prices at which our international businesses sell products. Our international sales, as well as our international businesses' inventory and accounts receivable levels, could be affected by currency fluctuations. In addition, with expected international expansion in our KATE SPADE family of brands, we may increase our exposure to such fluctuations.
Although we from time to time hedge a portion of our exposures to changes in foreign currency exchange rates arising in the ordinary course of business, we cannot assure that foreign currency fluctuations will not have a material adverse impact on our business, financial condition, liquidity or results of operations.
A material disruption in our information technology systems and e-commerce operations could adversely affect our business or results of operations.
We rely extensively on our information technology ("IT") systems to track inventory, manage our supply chain, record and process transactions, summarize results and manage our business. The failure of IT systems to operate effectively, problems with transitioning to upgraded or replacement systems or difficulty in integrating new systems could adversely impact our business. In addition, our IT systems are subject to damage or interruption from power outages, computer, network and telecommunications failures, computer viruses, security breaches and usage errors by our employees. If our IT systems are damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may suffer loss of critical data and interruptions or delays in our operations in the interim. Any material disruption in our IT systems could adversely affect our business or results of operations, as well as our ability to effect the transitions of the recently sold businesses.
Privacy breaches and liability for online content could negatively affect our reputation, credibility and business.
We rely on third party computer hardware, software and fulfillment operations for our e-commerce operations and for the various social media tools and websites we use as part of our marketing strategy. There is a growing concern over the security of personal information transmitted over the internet, consumer identity theft and user privacy. Despite the implementation of reasonable security measures by us and our third party providers, these sites and systems may be susceptible to electronic or physical computer break-ins and security breaches. Any perceived or actual unauthorized disclosure of personally-identifiable information regarding our customers or website visitors could harm our reputation and credibility, reduce our e-commerce net sales, impair our ability to attract website visitors and reduce our ability to attract and retain customers. Additionally, as the number of users of forums and social media features on our websites increases, we could be exposed to liability in connection with material posted on our websites by users and other third parties. Finally, we could incur significant costs in complying with the multitude of state, federal and foreign laws regarding unauthorized disclosure of personal information and, if we fail to implement appropriate safeguards or to detect and provide prompt notice of unauthorized access as required by some of these laws, we could be subject to potential claims for damages and other remedies.
We may be exposed to risks and costs associated with credit card fraud and identity theft.
A growing portion of our customer orders are placed through our e-commerce websites. In addition, a significant portion of our direct-to-consumer sales require us and other parties involved in processing transactions to collect and to securely transmit certain customer data, such as credit card information, over public networks. Third parties may have the ability to breach the security of customer transaction data. Although we take the security of our systems and the privacy of our customers' confidential information seriously, there can be no assurances that our security measures will effectively prevent others from obtaining unauthorized access to our information and our customers' information. Any security breach could cause consumers to lose confidence in the security of our website or stores and choose not to
33
purchase from us. Any security breach could also expose us to risks of data loss, litigation and liability and could seriously disrupt our operations and harm our reputation, any of which could harm our business.
We rely on third parties to provide us with services in connection with the administration of certain aspects of our business.
We have entered into agreements with third party service providers, both domestic and overseas, to provide processing and administrative functions over a broad range of areas, and we may continue to do so in the future. These areas include finance and accounting, information technology, human resources, buying/sourcing, distribution functions, and e-commerce. Services provided by third parties could be interrupted as a result of many factors, including contract disputes. Any failure by third parties to provide us with these services on a timely basis or within our service level expectations and performance standards could result in a disruption of our operations and could have a material adverse effect on our business, financial condition, liquidity and results of operations. In addition, to the extent we are unable to maintain these arrangements, we would incur substantial costs, including costs associated with hiring new employees, in order to return these services in-house or to transition the services to other third parties.
Our ability to utilize all or a portion of our US deferred tax assets may be limited significantly if we experience an "ownership change."
As of December 28, 2013, we had US federal deferred tax assets of approximately $503.3 million, which include net operating loss ("NOL") carryforwards and other items which could be considered net unrealized built in losses ("NUBIL"). Among other factors, our ability to utilize our NOL and/or our NUBIL items to offset future taxable income may be limited significantly if we experience an "ownership change" as defined in section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change will occur if there is a cumulative increase in ownership of our stock by "5-percent shareholders" (as defined in the Code) that exceeds 50 percentage points over a rolling three-year period. The limitation arising from an "ownership change" under section 382 of the Code on our ability to utilize our US deferred tax assets depends on the value of our stock at the time of the ownership change. We continue to monitor changes in our ownership and do not believe we have a change in control as of December 28, 2013. If all or a portion of our deferred tax assets are subject to limitation because we experience an ownership change, depending on the value of our stock at the time of the ownership change, our future cash flows could be adversely impacted due to increased tax liability. As of December 28, 2013, substantially all tax benefit of the US deferred tax assets has been offset with a full valuation allowance that was recognized in our financial statements.
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.
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.
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Item 1B. Unresolved Staff Comments.
None.
Our distribution and administrative functions are conducted in leased facilities. We also lease space for our specialty retail and outlet stores. We believe that our existing facilities are well maintained, in good operating condition and are adequate for our present level of operations, although from time to time we use unaffiliated third parties to provide distribution services to meet our distribution requirements.
Our principal executive offices, as well as certain sales, merchandising and design staffs, are located at 1441 Broadway, New York, NY, where we lease approximately 51,000 square feet. We expect our principal executive offices will be relocated to 2 Park Avenue, New York, NY on or about February 26, 2014. We also lease approximately 106,000 square feet in an office building in North Bergen, New Jersey, which houses operational staff.
The following table sets forth information with respect to our key leased properties:
Location(a)
|
Primary Use
|
Approximate Square Footage Occupied |
||||
---|---|---|---|---|---|---|
West Chester, OH(b) |
Apparel Distribution Center | 601,000 | ||||
2 Park Avenue, New York, NY |
Offices | 135,000 | ||||
North Bergen, NJ(c) |
Offices | 106,000 | ||||
1440 Broadway, New York, NY |
Offices | 67,000 | ||||
Arleta, CA |
Offices | 64,000 | ||||
1441 Broadway, New York, NY |
Offices | 51,000 |
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 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
35
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. The time to appeal has expired, and this matter is now considered closed.
The Company is a party to several other pending legal and other 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 (see Notes 1, 9 and 22 of Notes to Consolidated Financial Statements).
Executive Officers of the Registrant.
Information as to the executive officers of the Company, as of December 28, 2013 is set forth below:
Name
|
Age | Position(s)
|
|||
---|---|---|---|---|---|
William L. McComb(a) |
51 | Chief Executive Officer | |||
George M. Carrara(b) |
45 | Executive Vice President Chief Financial Officer and Chief Operating Officer | |||
Nicholas Rubino(c) |
52 | Senior Vice President Chief Legal Officer, General Counsel and Secretary | |||
Robert Vill |
57 | Senior Vice President Finance and Treasurer | |||
Linda Yanussi |
52 | Senior Vice President Information Technology and Global Operations |
Executive officers serve at the discretion of the Board of Directors.
Mr. McComb joined the Company as Chief Executive Officer and a member of the Board of Directors on November 6, 2006. Prior to joining the Company, Mr. McComb was a company group chairman at Johnson & Johnson. During his 14-year tenure with Johnson & Johnson, Mr. McComb oversaw some of the company's largest consumer product businesses and brands, including Tylenol, Motrin and Clean & Clear. He also led the team that repositioned and restored growth to the Tylenol brand and oversaw the growth of J&J's McNeil Consumer business with key brand licenses such as St. Joseph aspirin, where he implemented a strategy to grow the brand beyond the over-the-counter market by adding pediatric prescription drugs. Mr. McComb serves on the Boards of the American Apparel & Footwear Association and the National Retail Federation, and is a trustee of The Pennington School. He is a member of Kilts Center for Marketing's steering committee at The University of Chicago Booth School of Business. He is also a member of the Business Roundtable.
Mr. Carrara joined the Company in April 2012 as Executive Vice President, Chief Financial Officer and Chief Operating Officer. Prior to that, he had held numerous finance positions at Tommy Hilfiger over the prior 12 years, including Chief Financial Officer for the Jeans division from 1999 to 2003; Chief Operating Officer and Chief Financial Officer of wholesale operations from 2003 to 2004; Executive Vice President of US Operations Wholesale and Retail from 2004 to 2005 and Chief Operating Officer from 2006 to 2011.
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Mr. Rubino joined the Company in May 1994 as an Associate General Counsel. In May 1996, he was appointed Deputy General Counsel and in March 1998 became Vice President, Deputy General Counsel. He was appointed Corporate Secretary in July 2001. Mr. Rubino was promoted to General Counsel in June 2007 and assumed his current position in October 2008. Prior to joining the Company, he was a Corporate Associate at Kramer Levin Naftalis & Frankel, LLP.
Mr. Vill joined the company as Vice President, Treasury and Investor Relations in April 1999 and has held various financial positions since. From 2005 through 2007, he also had responsibility for divisional finance and in March 2012, served as Interim Chief Financial Officer. In his current position, Mr. Vill serves as Corporate Treasurer and head of Investor Relations and has joint responsibility for the Corporate FP&A, Accounting and Tax Departments. Prior to joining the Company, Mr. Vill was Vice President, Finance for Hanover Direct in 1998. Prior to that, he held numerous positions during his seven year tenure at Saks Fifth Avenue, leading up to his role as Vice President-Treasurer.
Ms. Yanussi joined the Company in April 2012 as Vice President of Information Technology and assumed her current position in January 2013. Prior to joining the Company, she held various positions at Tommy Hilfiger over a period of eleven years, most recently as Senior Vice President of Operations and Logistics, North America for over four years and as Vice President of Operations prior to that.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
MARKET INFORMATION
Our common stock trades on the NYSE under the symbol FNP. On or about February 26, 2014, we anticipate that our common stock will trade under the symbol KATE. The table below sets forth the high and low closing sale prices of our common stock for the periods indicated.
Fiscal Period
|
High | Low | |||||
---|---|---|---|---|---|---|---|
2013: |
|||||||
1st Quarter |
$ | 19.23 | $ | 12.45 | |||
2nd Quarter |
22.84 | 18.44 | |||||
3rd Quarter |
26.01 | 22.58 | |||||
4th Quarter |
33.59 | 24.32 | |||||
2012: |
|||||||
1st Quarter |
$ | 13.36 | $ | 8.61 | |||
2nd Quarter |
13.88 | 10.13 | |||||
3rd Quarter |
13.83 | 9.25 | |||||
4th Quarter |
12.78 | 10.05 |
HOLDERS
On February 14, 2014, the closing sale price of our common stock was $30.92. As of February 14, 2014, the approximate number of record holders of common stock was 4,291.
DIVIDENDS
We did not pay any dividends during 2013 or 2012.
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PERFORMANCE GRAPH
Comparison of Cumulative Five Year Return
|
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Fifth & Pacific Companies, Inc. |
$ | 100.00 | $ | 170.09 | $ | 216.31 | $ | 260.73 | $ | 366.47 | $ | 958.01 | |||||||||||||||||||||
|
S&P 500 Index |
100.00 | 126.46 | 145.51 | 148.59 | 172.37 | 228.19 | |||||||||||||||||||||||||||
|
S&P SmallCap 600 |
100.00 | 125.57 | 158.60 | 160.22 | 186.37 | 263.37 | |||||||||||||||||||||||||||
|
Benchmarking Group |
100.00 | 186.48 | 237.51 | 222.91 | 249.36 | 283.22 |
The line graph above compares the cumulative total stockholder return on the Company's Common Stock over a 5-year period with the return on (i) the Standard & Poor's 500 Stock Index ("S&P 500") (which the Company's shares ceased to be a part of as of the close of business on December 1, 2008); (ii) the Standard & Poor's SmallCap 600 Stock Index ("S&P SmallCap 600") (which the Company's shares became a part of on December 2, 2008); and (iii) an index comprised of the Company and the following 16 competitors comprising the peer group for which executive compensation practices are compared (the "Benchmarking Group"): Abercrombie & Fitch Co.; Aeropostale, Inc.; American Apparel, Inc.; American Eagle Outfitters, Inc.; Ann, Inc.; Bebe Stores, Inc.; Chico's FAS, Inc.; Coach, Inc.; Express, Inc.; Guess?, Inc.; Michael Kors Holdings Limited; New York & Company, Inc.; Pacific Sunwear of California, Inc.; Tumi Holdings Inc.; Urban Outfitters, Inc. and Wet Seal, Inc.
In accordance with SEC disclosure rules, the measurements are indexed to a value of $100 at January 2, 2009 (the last trading day before the beginning of our 2009 fiscal year) and assume that all dividends were reinvested.
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ISSUER PURCHASES OF EQUITY SECURITIES
The following table summarizes information about our purchases during the quarter ended December 28, 2013, of equity securities that are registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934:
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) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
September 29, 2013 October 26, 2013 |
| $ | | | $ | 28,749 | |||||||
October 27, 2013 November 30, 2013 |
| | | 28,749 | |||||||||
December 1, 2013 December 28, 2013 |
| | | 28,749 | |||||||||
| | | | | | | | | | | | | |
Total 13 Weeks Ended December 28, 2013 |
| $ | | | $ | 28,749 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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Item 6. Selected Financial Data.
The following table sets forth certain information regarding our results of operations and financial position and is qualified in its entirety by the Consolidated Financial Statements and notes thereto, which appear elsewhere herein.
|
2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Amounts in thousands, except per common share data) |
||||||||||||||||
Net sales |
$ | 1,264,935 | $ | 1,043,403 | $ | 1,100,508 | $ | 1,236,300 | $ | 1,489,171 | ||||||
Gross profit |
725,581 | 599,169 | 598,331 | 602,875 | 622,240 | |||||||||||
Operating loss |
(45,513 | ) | (52,528 | ) | (102,772 | ) | (42,832 | ) | (169,630 | ) | ||||||
Income (loss) from continuing operations(a) |
73,924 | (70,221 | ) | 138,206 | (81,048 | ) | (125,372 | ) | ||||||||
Net income (loss) |
72,995 | (74,505 | ) | (171,687 | ) | (251,467 | ) | (305,767 | ) | |||||||
Net income (loss) attributable to Fifth & Pacific Companies, Inc. |
72,995 | (74,505 | ) | (171,687 | ) | (251,467 | ) | (305,729 | ) | |||||||
Working capital |
206,473 | 36,407 | 124,772 | 39,043 | 244,379 | |||||||||||
Total assets |
977,511 | 902,523 | 950,004 | 1,257,659 | 1,605,903 | |||||||||||
Total debt |
394,201 | 406,294 | 446,315 | 577,812 | 658,151 | |||||||||||
Total Fifth & Pacific Companies, Inc. stockholders' (deficit) equity |
(32,482 | ) | (126,930 | ) | (108,986 | ) | (24,170 | ) | 216,548 | |||||||
Per common share data: |
||||||||||||||||
Basic |
||||||||||||||||
Income (loss) from continuing operations] |
0.61 | (0.64 | ) | 1.46 | (0.86 | ) | (1.34 | ) | ||||||||
Net income (loss) attributable to Fifth & Pacific Companies, Inc. |
0.60 | (0.68 | ) | (1.81 | ) | (2.67 | ) | (3.26 | ) | |||||||
Diluted |
||||||||||||||||
Income (loss) income from continuing operations |
0.60 | (0.64 | ) | 1.22 | (0.86 | ) | (1.34 | ) | ||||||||
Net income (loss) attributable to Fifth & Pacific Companies, Inc. |
0.59 | (0.68 | ) | (1.35 | ) | (2.67 | ) | (3.26 | ) | |||||||
Weighted average shares outstanding, basic |
121,057 | 109,292 | 94,664 | 94,243 | 93,880 | |||||||||||
Weighted average shares outstanding, diluted(b) |
124,832 | 109,292 | 120,692 | 94,243 | 93,880 |
40
41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In January 2014, we announced that we will change our name to "Kate Spade & Company" to reflect our mono-brand focus following the sales of the LUCKY BRAND business and 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 our other subsidiaries (the "Juicy Couture IP"). The change is expected to be effective on or about February 26, 2014, at which time we expect our stock will begin trading on the New York Stock Exchange as Kate Spade & Company under the symbol KATE.
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, e-commerce, concessions, wholesale apparel, wholesale non-apparel and licensing. The three 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 three reportable segments:
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.
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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 Asia and Europe, 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.
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, 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, and continuing to drive profitable growth at KATE SPADE. Our operating and financial goals for our KATE SPADE brand are based on the following strategies: (i) fueling top line growth by opening new retail locations in North America, Japan, Brazil, the United Kingdom and Southeast Asia, evolving price points to create access for new customers and to aspirational categories, focusing on expansion of certain product categories with broad distribution opportunities and high branding relevance, including watches, jewelry, sunglasses and fragrance and launching e-commerce platforms in Europe; (ii) evolving our customer experience with a channel agnostic approach including improved CRM capability, expanding selling and service programs at selected retail stores and enhancing the e-commerce experience; (iii) expanding our use of partnerships for margin expansion; (iv) strengthening the foundation of KATE SPADE SATURDAY; and (v) increased investments in marketing that leverage CRM capability and focus on acquiring new full price customers.
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 Annual Report on Form 10-K, including, without limitation, under "Statement Regarding Forward Looking Statements" and "Item 1A Risk Factors."
Recent Developments and Operational Initiatives
During 2013 and early 2014, we pursued transactions and initiatives with a focus on becoming a multi-national, mono-brand business and which improve our operations or liquidity.
On February 3, 2014, we sold 100.0% of the capital stock of Lucky Brand Dungarees, Inc. to LBD Acquisition Company, LLC ("LBD Acquisition"), a Delaware limited liability company and affiliate of Leonard Green & Partners, L.P., for aggregate consideration of $225.0 million, comprised of $140.0 million cash consideration and a three-year $85.0 million note (the "Lucky Brand Note") issued by Lucky Brand Dungarees, LLC ("Lucky Brand LLC").
The Lucky Brand Note matures in February 2017 and is guaranteed by substantially all of Lucky Brand LLC's subsidiaries. The Lucky Brand Note is secured by a second-priority lien on all accounts receivable and inventory of Lucky Brand LLC and the guarantor subsidiaries and a first-priority lien on all other collateral of Lucky Brand LLC and the guarantors. The accounts receivable and inventory secure Lucky Brand LLC's asset-based revolving loan facility on a first-priority basis, and the other collateral secures that loan facility on a second-priority basis. The principal amount of the Lucky Brand Note increases by $5.0 million per year in equal monthly increments and bears cash interest of $8.0 million per year, payable semiannually in arrears. The Lucky Brand Note is prepayable at any time by Lucky
43
Brand LLC without a prepayment premium, subject to certain restrictions as to the minimum amount that may be prepaid without our consent. Under a transition services agreement with Lucky Brand LLC, we are required to provide Lucky Brand LLC with certain transitional services, such as IT support, accounting services, tax services and other services that were provided at the corporate level while LUCKY BRAND was owned by us. The services will be provided at cost for up to a maximum of two years from the closing date, subject to earlier termination of the various services by Lucky Brand LLC.
In the first quarter of 2014, we reacquired the existing KATE SPADE businesses in Southeast Asia from Globalluxe Kate Spade HK Limited ("Globalluxe") for $32.0 million, including $2.0 million for working capital and other previously agreed adjustments, with the payment to occur in the first quarter of 2014 (see Note 25 of Notes to Consolidated Financial Statements).
On November 6, 2013, we sold the Juicy Couture IP to ABG for a total purchase price of $195.0 million (an additional payment may be payable to us 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 us until December 31, 2014 to accommodate the wind-down of operations. We will pay guaranteed minimum royalties to ABG of $10.0 million during the term of the wind-down license.
On November 19, 2013, we entered into an agreement to terminate the lease of our JUICY COUTURE flagship store on Fifth Avenue in New York City in exchange for $51.0 million, which is expected to be completed in the first half of 2014.
In connection with the sale of the Juicy Couture IP, we initiated actions to reduce staff at JUICY COUTURE during the fourth quarter of 2013. As a result of the requirement to wind down the JUICY COUTURE operations, we expect to close JUICY COUTURE offices and retail locations that will not be converted to KATE SPADE stores. We estimate we will recognize a net restructuring credit in 2014 of $0 - $10.0 million related to the sale of the Juicy Couture IP, including costs for severance, contract termination (net of expected credits, including a credit of $51.0 million for the termination of the lease for the JUICY COUTURE flagship store on Fifth Avenue in New York) and other costs. Although we expect to consummate that lease termination transaction, there can be no assurance the termination fee will be realized by us and in the instance such termination fee is not realized, we expect to incur cash restructuring and transition charges of $40.0 - $50.0 million in 2014 related to the sale of the Juicy Couture IP. These actions are expected to be substantially completed by the end of the second quarter of 2014.
During the third quarter of 2013, we sold the West Chester, Ohio distribution center (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.
During the second quarter of 2013, we sold the North Bergen, NJ office for net proceeds of $8.7 million and entered into a sale-leaseback arrangement with the buyer for a 12-year term with two five-year renewal options.
We also launched the KATE SPADE SATURDAY brand in the US during the first quarter of 2013.
Debt and Liquidity Enhancements
During 2013, we completed the conversion of the remaining $19.9 million aggregate principal amount of our 6.0% Convertible Senior Notes due June 2014 (the "Convertible Notes") into 5.6 million shares of our common stock.
During 2013, we also completed the third amendment to and restatement of our revolving credit facility (as amended to date, the "Amended Facility"), which included: (i) an extension of the maturity date to April 2018; (ii) a decrease in fees and interest rates; (iii) improved advance rates on eligible inventory; and (iv) required compliance with a fixed charge coverage ratio if availability under the facility falls below $35.0 million, or 10% of the commitments then in effect.
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We ended 2013 with a net debt position (total debt less cash and marketable securities) of $264.0 million.
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 2014 capital expenditures expected to be approximately $100.0 million, compared to $81.0 million in 2013.
For a discussion of certain risks relating to our recent initiatives, see "Item 1A Risk Factors."
Discontinued Operations
We have 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 activities of our LUCKY BRAND business, our 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. We continue activities with the JUICY COUTURE brand, the LIZ CLAIBORNE family of brands and MONET brand and therefore the activities of those brands have not been presented as discontinued operations.
2013 Overall Results
Our 2013 results reflected:
During 2013, we recorded the following pretax items:
Our 2012 results reflected:
45
(ii) AXCESS wholesale sales; and (iii) licensing revenues related to the LIZ CLAIBORNE family of brands and the Dana Buchman brand, due to the sales of the trademark rights for such brands in the fourth quarter of 2011; and
During 2012, we recorded the following pretax items:
Net Sales
Net sales in 2013 were $1.265 billion, an increase of $221.5 million or 21.2%, compared to 2012 net sales of $1.043 billion. Net sales increased in our KATE SPADE segment, partially offset by declines in net sales within our JUICY COUTURE and Adelington Design Group segments. The acquisition of KSJ resulted in a $79.3 million increase in net sales in 2013 compared to 2012.
Gross Profit and Income (Loss) from Continuing Operations
Gross profit in 2013 was $725.6 million, an increase of $126.4 million compared to 2012, primarily due to increased net sales in our KATE SPADE segment, partially offset by decreased net sales in our JUICY COUTURE and Adelington Design Group segments. Our gross profit rate remained flat at 57.4% in 2013 compared to 2012, reflecting an increased proportion of sales from direct-to-consumer operations in our KATE SPADE segment, offset by increased promotional activity at JUICY COUTURE in 2013.
We recorded income from continuing operations of $73.9 million in 2013, as compared to a loss from continuing operations of $70.2 million in 2012. The year-over-year change primarily reflected: (i) a $173.1 million gain on the 2013 sale of the Juicy Couture IP, as discussed above; (ii) an increase in gross profit; (iii) a loss on extinguishment of debt of $1.7 million in 2013 compared to $9.8 million in 2012; (iv) an increase in Selling, general & administrative expenses ("SG&A"), including charges related to streamlining initiatives and brand-exiting alternatives; (v) a $40.1 million gain in 2012 related to the KSJ Buyout; and (vi) aggregate non-cash impairment charges of $9.4 million in 2013 related to the Mexx cost investment and TRIFARI trademark.
Balance Sheet
We ended 2013 with a net debt position (total debt less cash and cash equivalents and marketable securities) of $264.0 million as compared to $346.8 million at year-end 2012. The $82.8 million decrease in our net debt primarily reflected: (i) the receipt of net proceeds of $192.9 million from the dispositions of the Juicy Couture IP and our former investment in Mexx; (ii) the funding of $81.0 million of capital and in-store shop expenditures over the last 12 months; (iii) the use of $51.7 million in cash from discontinued operations over the past 12 months; (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 conversion of $19.9 million aggregate principal amount of our Convertible Notes into 5.6 million shares of our common stock. We also used $5.1 million or cash in the operating activities of our 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 three reportable segments.
2013 vs. 2012
The following table sets forth our operating results for the year ended December 28, 2013 (52 weeks), compared to the year ended December 29, 2012 (52 weeks):
|
Fiscal Years Ended | |
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Variance | ||||||||||||
|
December 28, 2013 |
December 29, 2012 |
|||||||||||
|
$ | % | |||||||||||
Dollars in millions |
|
|
|
|
|||||||||
Net Sales |
$ | 1,264.9 | $ | 1,043.4 | $ | 221.5 | 21.2 | % | |||||
Gross Profit |
725.6 | 599.2 | 126.4 | 21.1 | % | ||||||||
Selling, general & administrative expenses |
766.1 | 651.7 | (114.4 | ) | (17.6 | )% | |||||||
Impairment of intangible assets |
5.0 | | (5.0 | ) | * | ||||||||
| | | | | | | | | | | | | |
Operating Loss |
(45.5 | ) | (52.5 | ) | 7.0 | 13.4 | % | ||||||
Other expense, net |
(1.7 | ) | (0.2 | ) | (1.5 | ) | * | ||||||
Impairment of cost investment |
(6.1 | ) | | (6.1 | ) | * | |||||||
Gain on acquisition of subsidiary |
| 40.1 | (40.1 | ) | * | ||||||||
Gain on sales of trademarks, net |
173.1 | | 173.1 | * | |||||||||
Loss on extinguishment of debt, net |
(1.7 | ) | (9.8 | ) | 8.1 | 82.5 | % | ||||||
Interest expense, net |
(47.2 | ) | (51.6 | ) | 4.4 | 8.5 | % | ||||||
Benefit for income taxes |
(3.0 | ) | (3.8 | ) | (0.8 | ) | (20.0 | )% | |||||
| | | | | | | | | | | | | |
Income (Loss) from Continuing Operations |
73.9 | (70.2 | ) | 144.1 | * | ||||||||
Discontinued operations, net of income taxes |
(0.9 | ) | (4.3 | ) | 3.4 | 78.3 | % | ||||||
| | | | | | | | | | | | | |
Net Income (Loss) |
$ | 73.0 | $ | (74.5 | ) | $ | 147.5 | * | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net Sales
Net sales for 2013 were $1.265 billion, an increase of $221.5 million or 21.2%, as compared to 2012 net sales of $1.043 billion. Excluding the impact of a $43.6 million decline in net sales related to brands that have been licensed or exited, net sales increased $265.1 million, or 25.4%. The decrease in net sales due to brands that have been licensed or exited, related principally to the licensed JUICY COUTURE brand, our former licensed DKNY® Jeans brand and the Dana Buchman brand. Net sales increased in our KATE SPADE segment, partially offset by a decline in net sales within our Adelington Design Group and JUICY COUTURE segments.
Net sales results for our segments are provided below:
We ended 2013 with 118 specialty retail stores, 51 outlet stores and 43 concessions, reflecting the net addition over the last 12 months of 37 specialty retail stores, 11 outlet stores and 11 concessions. Key operating metrics for our KATE SPADE direct-to-consumer operations included the following:
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We ended 2013 with 74 specialty retail stores and 53 outlet stores, reflecting the net closure over the last 12 months of 4 specialty retail stores, 2 concessions and 1 outlet store. Key operating metrics for our JUICY COUTURE direct-to-consumer operations included the following:
Comparable direct-to-consumer net sales are calculated as follows:
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.
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Gross Profit
Gross profit in 2013 was $725.6 million (57.4% of net sales), compared to $599.2 million (57.4% of net sales) in 2012. The increase in gross profit is primarily due to increased net sales in our KATE SPADE segment, partially offset by decreased net sales in our Adelington Design Group and JUICY COUTURE segments. Our gross profit rate remained flat at 57.4% in 2013 and 2012 due to an increased proportion of sales from direct-to-consumer operations in our KATE SPADE segment, partially offset by increased promotional activity at JUICY COUTURE.
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 $114.4 million, or 17.6%, to $766.1 million in 2013 compared to 2012. The change in SG&A reflected the following:
SG&A as a percentage of net sales was 60.6%, compared to 62.5% in 2012.
Impairment of Intangible Assets
In 2013, we recorded a $3.3 million non-cash impairment charge in our Adelington Design Group segment related to the TRIFARI trademark and a $1.7 million non-cash impairment charge in our JUICY COUTURE segment related to the decreased use of merchandising rights for such brand.
Operating Loss
Operating loss for 2013 was $45.5 million ((3.6)% of net sales), compared to an operating loss of $52.5 million ((5.0)% of net sales) in 2012.
Other Expense, Net
Other expense, net amounted to $1.7 million in 2013 and $0.2 million in 2012. Other expense, net consists primarily of (i) foreign currency transaction gains and losses, including the impact of the partial dedesignation of the hedge of our investment in certain euro-denominated functional currency subsidiaries, which resulted in the recognition of foreign currency translation gains and losses on our Euro Notes within earnings in 2012; and (ii) equity in the earnings of our equity investees.
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Impairment of Cost Investment
In 2013, we recorded a $6.1 million impairment charge related to our former investment in the Mexx business.
Gain on Sales of Trademarks, Net
In 2013, we recorded a $173.1 million gain on the sale of the Juicy Couture IP, as discussed above.
Gain on Acquisition of Subsidiary
In 2012, we recorded a $40.1 million gain on the KSJ Buyout, resulting from the adjustment of our pre-existing 49.0% interest in KSJ to estimated fair value.
Loss on Extinguishment of Debt, Net
In 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. In 2012, we recorded a $9.8 million loss on the extinguishment of debt in connection with the conversion of $49.4 million of our Convertible Notes into 14.2 million shares of our common stock and the repurchase or redemption of 121.5 million euro aggregate principal amount of our Euro Notes.
Interest Expense, Net
Interest expense, net decreased to $47.2 million in 2013 from $51.6 million in 2012, primarily reflecting a decrease of $7.0 million in interest expense on the Euro Notes and Convertible Notes and a $4.2 million decrease related to the amortization of deferred financing fees, partially offset by an increase of $6.7 million in interest expense related to the Senior Notes and Amended Facility.
Benefit for Income Taxes
In 2013 and 2012, we recorded a benefit for income taxes of $3.0 million and $3.8 million, respectively. The income tax benefit primarily represented refunds from certain tax jurisdictions and a reduction in the reserve for uncertain tax positions, partially offset by 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. We did not record income tax benefits for substantially all losses incurred during 2013 and 2012, as it is not more likely than not that we will utilize such benefits due to the combination of our history of pretax losses and our ability to carry forward or carry back tax losses or credits.
Income (Loss) from Continuing Operations
Income (loss) from continuing operations in 2013 was $73.9 million, or 5.8% of net sales, compared to $(70.2) million in 2012, or (6.7)% of net sales. Earnings per share ("EPS"), basic from continuing operations was $0.61 in 2013 and $(0.64) in 2012. EPS, diluted from continuing operations was $0.60 in 2013 and $(0.64) in 2012.
Discontinued Operations, Net of Income Taxes
Loss from discontinued operations in 2013 was $(0.9) million, compared to $(4.3) million in 2012, reflecting income of $28.8 million from discontinued operations in 2013 and a loss on disposal of discontinued operations of $(29.7) million, as compared to income of $7.9 million from discontinued operations and a loss on disposal of discontinued operations of $(12.2) million in 2012. EPS, basic and diluted, from discontinued operations was $(0.01) in 2013 and $(0.04) in 2012.
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Net Income (Loss)
Net income (loss) in 2013 was $73.0 million, compared to $(74.5) million in 2012. EPS, basic was $0.60 in 2013 and $(0.68) in 2012. EPS, diluted was $0.59 in 2013 and $(0.68) in 2012.
Segment Adjusted EBITDA
Our Chief Executive Officer has been identified as the CODM. 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 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.
Segment Adjusted EBITDA for our reportable segments and Unallocated Corporate costs are provided below.
|
Fiscal Years Ended | Variance | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 28, 2013 |
December 29, 2012 |
$ | % | |||||||||
In thousands |
|
|
|
|
|||||||||
Reportable Segments Adjusted EBITDA: |
|||||||||||||
KATE SPADE(a) |
$ | 130,497 | $ | 94,994 | $ | 35,503 | 37.4 | % | |||||
Adelington Design Group |
15,084 | 21,009 | (5,925 | ) | (28.2 | )% | |||||||
JUICY COUTURE |
4,722 | 24,554 | (19,832 | ) | (80.8 | )% | |||||||
LUCKY BRAND |
(2,047 | ) | (1,884 | ) | (163 | ) | (8.7 | )% | |||||
| | | | | | | | | | | | | |
Total Reportable Segments Adjusted EBITDA |
148,256 | 138,673 | |||||||||||
Unallocated Corporate Costs |
(64,136 | ) | (69,468 | ) | |||||||||
Depreciation and amortization, net(b) |
(52,408 | ) | (49,401 | ) | |||||||||
Charges due to streamlining initiatives, brand-exiting activities, acquisition related costs, impairment of intangible assets and loss on asset disposals and impairments, net(c) |
(69,958 | ) | (66,382 | ) | |||||||||
Share-based compensation(d) |
(8,446 | ) | (7,195 | ) | |||||||||
Equity loss included in Reportable Segments Adjusted EBITDA |
1,179 | 1,245 | |||||||||||
| | | | | | | | | | | | | |
Operating Loss |
(45,513 | ) | (52,528 | ) | |||||||||
Other expense, net(a) |
(1,674 | ) | (187 | ) | |||||||||
Impairment of cost investment |
(6,109 | ) | | ||||||||||
Gain on acquisition of subsidiary |
| 40,065 | |||||||||||
Gain on sales of trademarks, net |
173,133 | | |||||||||||
Loss on extinguishment of debt, net |
(1,707 | ) | (9,754 | ) | |||||||||
Interest expense, net |
(47,241 | ) | (51,612 | ) | |||||||||
Benefit for income taxes |
(3,035 | ) | (3,795 | ) | |||||||||
| | | | | | | | | | | | | |
Income (Loss) from Continuing Operations |
$ | 73,924 | $ | (70,221 | ) | ||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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A discussion of Segment Adjusted EBITDA of our reportable segments and Unallocated Corporate costs for 2013 and 2012 follows:
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 $64.1 million in 2013 from $69.5 million in 2012 due to reduced payroll and related expenses and occupancy costs.
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2012 vs. 2011
The following table sets forth our operating results for the year ended December 29, 2012 (52 weeks), compared to the year ended December 31, 2011 (52 weeks):
|
Fiscal Years Ended | Variance | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 29, 2012 |
December 31, 2011 |
$ | % | |||||||||
Dollars in millions |
|
|
|
|
|||||||||
Net Sales |
$ | 1,043.4 | $ | 1,100.5 | $ | (57.1 | ) | (5.2 | )% | ||||
Gross Profit |
599.2 | 598.3 | 0.9 | 0.1 | % | ||||||||
Selling, general & administrative expenses |
651.7 | 700.1 | 48.4 | 6.9 | % | ||||||||
Impairment of intangible assets |
| 1.0 | 1.0 | * | |||||||||
| | | | | | | | | | | | | |
Operating Loss |
(52.5 | ) | (102.8 | ) | 50.3 | 48.9 | % | ||||||
Other (expense) income, net |
(0.2 | ) | 0.2 | (0.4 | ) | * | |||||||
Gain on acquisition of subsidiary |
40.1 | | 40.1 | * | |||||||||
Gain on sales of trademarks, net |
| 287.0 | (287.0 | ) | * | ||||||||
(Loss) gain on extinguishment of debt, net |
(9.8 | ) | 5.2 | (15.0 | ) | * | |||||||
Interest expense, net |
(51.6 | ) | (57.2 | ) | 5.6 | 9.7 | % | ||||||
Benefit for income taxes |
(3.8 | ) | (5.8 | ) | (2.0 | ) | (34.5 | )% | |||||
| | | | | | | | | | | | | |
(Loss) Income from Continuing Operations |
(70.2 | ) | 138.2 | (208.4 | ) | * | |||||||
Discontinued operations, net of income taxes |
(4.3 | ) | (309.9 | ) | 305.6 | 98.6 | % | ||||||
| | | | | | | | | | | | | |
Net Loss |
$ | (74.5 | ) | $ | (171.7 | ) | $ | 97.2 | 56.6 | % | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net Sales
Net sales for 2012 were $1.043 billion, a decrease of $57.1 million or 5.2%, as compared to net sales for 2011 of $1.101 billion. Excluding the impact of a $175.2 million decline in net sales related to brands that have been licensed or exited, net sales increased $118.1 million, or 10.7%. The decrease in net sales due to brands that have been exited related principally to: (i) wholesale sales for the former licensed DKNY® Jeans family of brands; (ii) AXCESS wholesale sales; and (iii) licensing revenues related to the LIZ CLAIBORNE family of brands and the Dana Buchman brand due to the sales of the trademark rights for such brands in the fourth quarter of 2011. Net sales increased in our KATE SPADE segment, partially offset by a decline in net sales within our JUICY COUTURE segment.
Net sales results for our segments are provided below:
We ended 2012 with 81 specialty retail stores, 40 outlet stores and 32 concessions, reflecting the net addition over the last 12 months of 18 specialty retail stores and 3 outlet stores and the acquisition of 21 specialty retail stores and 32 concessions. Key operating metrics for our KATE SPADE retail operations included the following:
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We ended 2012 with 78 specialty retail stores, 54 outlet stores and 2 concessions, reflecting the net addition over the last 12 months of 3 outlet stores and the net closure of 3 concessions. Key operating metrics for our JUICY COUTURE retail operations included the following:
Gross Profit
Gross profit in 2012 was $599.2 million (57.4% of net sales), compared to $598.3 million (54.4% of net sales) in 2011. The increase in gross profit is primarily due to increased net sales and gross profit rate in our KATE SPADE segment, partially offset by decreased net sales in our Adelington Design Group and JUICY COUTURE segments. The improvement in the gross profit rate was primarily driven by our KATE SPADE segment, partially offset by greater than planned promotional activity at JUICY COUTURE.
Selling, General & Administrative Expenses
SG&A decreased $48.4 million, or 6.9%, to $651.7 million in 2012 compared to 2011. The change in SG&A reflected the following:
SG&A as a percentage of net sales was 62.5%, compared to 63.6% in 2011, primarily reflecting increased net sales in our KATE SPADE segment, which exceeded the proportionate increase in SG&A in the segment.
Impairment of Intangible Assets
In 2011, we recorded aggregate non-cash impairment charges of $1.0 million within our Adelington Design Group segment, primarily related to the merchandising rights of our MONET and former licensed DKNY® Jeans brands due to decreased use of such intangible assets.
Operating Loss
Operating loss for 2012 was $52.5 million ((5.0)% of net sales), compared to an operating loss of $102.8 million ((9.3)% of net sales) in 2011.
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Other (Expense) Income, Net
Other (expense) income, net amounted to $(0.2) million in 2012 and $0.2 million in 2011. Other income, net consists primarily of (i) foreign currency transaction gains and losses, including the impact of the partial dedesignation of the hedge of our investment in certain euro-denominated functional currency subsidiaries, which resulted in the recognition of foreign currency translation gains and losses on our Euro Notes within earnings in 2012 and 2011; and (ii) equity in the earnings of our equity investees.
Gain on Acquisition of Subsidiary
In 2012, we recorded a $40.1 million gain on the KSJ Buyout, resulting from the adjustment of our pre-existing 49.0% interest in KSJ to estimated fair value.
Gain on Sales of Trademarks, Net
In 2011, we recorded a $287.0 million gain on the sale of: (i) the global trademark rights for the LIZ CLAIBORNE family of brands; (ii) the trademark rights in the US and Puerto Rico for MONET; (iii) the Dana Buchman trademark; and (iv) the trademark rights related to our former Curve brand and selected other smaller fragrance brands.
(Loss) Gain on Extinguishment of Debt, Net
In 2012, we recorded a $(9.8) million loss on the extinguishment of debt in connection with the conversion of $49.4 million of our Convertible Notes into 14.2 million shares of our common stock and the repurchase or redemption of 121.5 million euro aggregate principal amount of our Euro Notes. In 2011, we recorded a $5.2 million net gain on the extinguishment of debt in connection with the repurchase of 228.5 million euro aggregate principal amount of our Euro Notes and the conversion of $20.8 million of our Convertible Notes into 6.2 million shares of our common stock.
Interest Expense, Net
Interest expense, net decreased to $51.6 million in 2012 from $57.2 million in 2011, primarily reflecting a decrease of $14.3 million due to the redemptions and repurchases of the Euro Notes discussed above, a $4.5 million decrease due to a reduction in the principal amount of our Convertible Notes and a $3.1 million decrease in interest expense related to reduced borrowings under our Amended Facility, partially offset by an increase of $15.6 million in interest expense related to the Senior Notes.
Benefit for Income Taxes
In 2012 and 2011, we recorded a benefit for income taxes of $3.8 million and $5.8 million, respectively. The 2012 income tax benefit includes $(7.2) million of income tax benefits recorded in continuing operations that are fully offset with $7.2 million of income tax expense recorded in discontinued operations. The 2012 income tax provision, excluding the tax benefits previously noted, 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. We did not record income tax benefits for substantially all losses incurred during 2012 and 2011, as it is not more likely than not that we will utilize such benefits due to the combination of our history of pretax losses and our ability to carry forward or carry back tax losses or credits.
(Loss) Income from Continuing Operations
(Loss) income from continuing operations in 2012 was $(70.2) million, or (6.7)% of net sales, compared to $138.2 million in 2011, or 12.6% of net sales. EPS, basic from continuing operations was $(0.64) in 2012 and $1.46 in 2011. EPS, diluted from continuing operations was $(0.64) in 2012 and $1.22 in 2011.
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Discontinued Operations, Net of Income Taxes
Loss from discontinued operations in 2012 was $4.3 million, compared to $309.9 million in 2011, reflecting income of $7.9 million from discontinued operations in 2012 and a loss on disposal of discontinued operations of $(12.2) million, as compared to a loss on disposal of discontinued operations of $(222.2) million and a $(87.7) million loss from discontinued operations in 2011. EPS, Basic from discontinued operations was $(0.04) in 2012 and $(3.27) in 2011. EPS, diluted from discontinued operations was $(0.04) in 2012 and $(2.57) in 2011.
Net Loss
Net loss in 2012 decreased to $74.5 million from $171.7 million in 2011. EPS, Basic was $(0.68) in 2012 and $(1.81) in 2011. EPS, Diluted was $(0.68) in 2012 and $(1.35) in 2011.
Segment Adjusted EBITDA
Segment Adjusted EBITDA for our reportable segments and Unallocated Corporate costs are provided below.
|
Fiscal Years Ended | Variance | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 29, 2012 |
December 31, 2011 |
$ | % | |||||||||
In thousands |
|
|
|
|
|||||||||
Reportable Segments Adjusted EBITDA: |
|||||||||||||
KATE SPADE(a) |
$ | 94,994 | $ | 57,370 | $ | 37,624 | 65.6 | % | |||||
Adelington Design Group |
21,009 | 38,868 | (17,859 | ) | (45.9 | )% | |||||||
JUICY COUTURE |
24,554 | 64,237 | (39,683 | ) | (61.8 | )% | |||||||
LUCKY BRAND |
(1,884 | ) | (1,957 | ) | 73 | 3.7 | % | ||||||
| | | | | | | | | | | | | |
Total Reportable Segments Adjusted EBITDA |
138,673 | 158,518 | |||||||||||
Unallocated Corporate Costs |
(69,468 | ) | (89,150 | ) | |||||||||
Depreciation and amortization, net(b) |
(49,401 | ) | (56,701 | ) | |||||||||
Charges due to streamlining initiatives, brand-exiting activities, acquisition related costs, impairment of intangible assets and loss on asset disposals and impairments, net(c) |
(66,382 | ) | (108,600 | ) | |||||||||
Share-based compensation(d) |
(7,195 | ) | (5,187 | ) | |||||||||
Equity loss (income) included in Reportable Segments Adjusted EBITDA |
1,245 | (1,652 | ) | ||||||||||
| | | | | | | | | | | | | |
Operating Loss |
(52,528 | ) | (102,772 | ) | |||||||||
Other (expense) income, net(a) |
(187 | ) | 228 | ||||||||||
Gain on acquisition of subsidiary |
40,065 | | |||||||||||
Gain on sales of trademarks, net |
| 286,979 | |||||||||||
(Loss) gain on extinguishment of debt, net |
(9,754 | ) | 5,157 | ||||||||||
Interest expense, net |
(51,612 | ) | (57,180 | ) | |||||||||
Benefit for income taxes |
(3,795 | ) | (5,794 | ) | |||||||||
| | | | | | | | | | | | | |
(Loss) Income from Continuing Operations |
$ | (70,221 | ) | $ | 138,206 | ||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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A discussion of Segment Adjusted EBITDA of our reportable segments and Unallocated Corporate costs for 2012 and 2011 follows:
Unallocated Corporate costs decreased to $69.5 million in 2012 from $89.2 million in 2011 due to reduced payroll and related expenses, occupancy costs and professional fees. The decrease in those expenses resulted principally from corporate streamlining actions executed throughout 2011 and 2012, which included reductions in staff and rationalization of office space. 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 and LUCKY BRAND; (iv) invest in our information systems; (v) fund operational and contractual obligations; and (vi) potentially repurchase or retire debt obligations. We expect that our streamlining initiatives will provide long-term cost savings.
Sources and Uses of Cash
Our historical sources of liquidity to fund ongoing cash requirements include cash flows from operations and 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 $225.0 million aggregate principal amount 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 (the "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
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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. As of December 28, 2013, there was $372.0 million aggregate principal amount of Senior Notes outstanding.
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. No Senior Notes were tendered into our offer to purchase Senior Notes in respect of the receipt of the $125.0 million of "Net Proceeds" (as defined in the Senior Notes indenture) from the sale of the Juicy Couture IP, and as a result, the entire Net Proceeds from the sale of the Juicy Couture IP could be used for any purposes not prohibited by the Senior Notes indenture. An offer to purchase the Senior Notes with the $75.0 million of Net Proceeds from the sale of the LUCKY BRAND business is currently underway. To the extent holders of the Senior Notes do not accept the offer, we expect to use any remaining net cash proceeds for the payment of various transaction and transition costs incurred, with the remainder to be used for general corporate purposes, including debt reduction. 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 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 February 3, 2014, we entered into an amendment to our Amended Facility to permit the sale of the LUCKY BRAND business. Effective November 6, 2013, we entered into an amendment to our Amended Facility to permit the sale of the Juicy Couture IP and permit us to add back to Adjusted EBITDA such cash restructuring and transition charges associated with that 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
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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.
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.
Cash and Debt Balances. We ended 2013 with $130.2 million in cash and cash equivalents and marketable securities, compared to $59.5 million at the end of 2012 and with $394.2 million of debt outstanding, compared to $406.3 million at the end of 2012. The $82.8 million decrease in our net debt primarily reflected: (i) the receipt of net proceeds of $192.9 million from the dispositions of the Juicy Couture IP and our former investment in Mexx; (ii) the funding of $81.0 million of capital and in-store shop expenditures over the last 12 months; (iii) the use of $51.7 million in cash from discontinued operations over the past 12 months; (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 conversion of $19.9 million aggregate principal amount of our Convertible Notes into 5.6 million shares of our common stock. We also used $5.1 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 $32.0 million, or 26.3%, at year-end 2013 compared to year-end 2012, primarily due to the presentation of LUCKY BRAND accounts receivable as held for sale at December 28, 2013 and decreased wholesale sales in our JUICY COUTURE and Adelington Design Group segments, partially offset by increased wholesale sales in our KATE SPADE segment.
Inventories decreased $35.9 million, or 16.3% at year-end 2013 compared to year-end 2012, primarily due to the presentation of LUCKY BRAND inventory as held for sale at December 28, 2013 and a decrease in JUICY COUTURE inventory, partially offset by an increase in KATE SPADE inventory, to support growth initiatives.
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Borrowings under our Amended Facility peaked at $193.4 million during 2013, compared to a peak of $65.5 million in 2012. Outstanding borrowings were $3.0 million at December 28, 2013, and there were no outstanding borrowings under this facility at December 29, 2012.
Net cash used in operating activities of our continuing operations was $5.1 million in 2013, compared to $37.5 million in 2012. This $31.9 million period-over-period change was primarily due to improved earnings 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 $19.0 million of cash and provided $48.9 million of cash in the fiscal years ended December 28, 2013 and December 29, 2012, respectively.
Net cash provided by (used in) investing activities of our continuing operations was $126.8 million in 2013, compared to $(109.5) million in 2012. Net cash provided by investing activities in 2013 primarily reflected: (i) the receipt of net proceeds of $192.9 million from the sales of the Juicy Couture IP and our former investment in Mexx; (ii) the receipt of net proceeds from the sale of property and equipment of $20.3 million; (iii) the use of $81.0 million for capital and in-store shop expenditures; and (iv) the use of $5.5 million for investments in and advances to KS China Co., Limited ("KSC"), our equity investee. Net cash used in investing activities in 2012 primarily reflected the use of $64.3 million for capital and in-store shop expenditures, $41.0 million for the KSJ Buyout and $5.0 million for investments in and advances to KSC. The investing activities of our discontinued operations used $32.7 million and $21.6 million during the fiscal years ended December 28, 2013 and December 29, 2012, respectively.
Net cash provided by financing activities was $6.1 million in 2013, compared to $1.1 million in 2012. The $5.0 million period-over-period change primarily reflected the receipt of net proceeds of $8.7 million from the sale-leaseback of our North Bergen, NJ office building, an increase in net cash provided by borrowing activities under our Amended Facility of $2.9 million and a decrease of $1.5 million related to payments of deferred financing fees, 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 $1.4 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 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. Since 2009, we have completed various disposition transactions, including the licensing arrangements with JCPenney in the US and Puerto Rico and with QVC, the sales of the KENSIE, KENSIE GIRL and MAC & JAC trademarks and the sale of the Juicy Couture IP, which resulted in the removal of buying/sourcing for such products sold from the Li & Fung buying/sourcing arrangement. As a result, we refunded $24.3 million of the closing payment in the second quarter of 2010 and $1.8 million in the second quarter of 2012 and settled $6.0 million in the fourth quarter of 2013. We are not required to make any payments to Li & Fung as a result of the sale of LUCKY BRAND. 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
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obligations on 117 such leases. As of December 28, 2013, the future aggregate payments under these leases amounted to $140.9 million and extended to various dates through 2025.
On November 19, 2013, we entered into an agreement to terminate the lease of our JUICY COUTURE flagship store on Fifth Avenue in New York City in exchange for $51.0 million, which is expected to be completed in the first half of 2014.
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 December 28, 2013, the future minimum lease payments under the noncancelable capital lease were $25.8 million.
In the second quarter of 2011, we initiated actions to close our Ohio Facility, which was expected to result in the termination of all or a significant portion of our union employees (see Note 13 of Notes to Consolidated Financial Statements). During the third quarter of 2011, we ceased contributing to a multi-employer defined benefit pension plan (the "Fund"), which is regulated by 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 December 28, 2013, the accrued withdrawal liability was $12.0 million, which was included in Accrued expenses and Other non-current liabilities on the accompanying Consolidated Balance Sheet.
We established KSC in June 2011. In the first quarter of 2014, we reacquired existing KATE SPADE businesses in Southeast Asia from Globalluxe for $32.0 million, including $2.0 million for working capital and other previously agreed adjustments, with the payment to Globalluxe expected to occur in the first quarter of 2014 (see Note 25 of Notes to Consolidated Financial Statements);
Our 2014 capital expenditures are expected to be approximately $100.0 million, compared to $81.3 million in 2013. These expenditures primarily relate to our plan to open 65 - 70 retail stores globally in 2014, 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.
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The following table summarizes as of December 28, 2013 our contractual cash obligations by future period (see Notes 1, 9 and 10 of Notes to Consolidated Financial Statements):
|
Payments Due by Period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual cash obligations *
|
Less than 1 year |
1-3 years | 4-5 years | After 5 years |
Total | |||||||||||
(In millions) |
|
|
|
|
|
|||||||||||
Operating lease commitments |
$ | 88.0 | $ | 166.0 | $ | 131.7 | $ | 186.1 | $ | 571.8 | ||||||
Capital lease obligations |
2.0 | 4.1 | 4.3 | 15.4 | 25.8 | |||||||||||
Inventory purchase commitments |
116.9 | | | | 116.9 | |||||||||||
10.5% Senior Secured Notes |
| | | 372.0 | 372.0 | |||||||||||
Interest on 10.5% Senior Secured Notes(a) |
39.1 | 78.1 | 78.1 | 14.8 | 210.1 | |||||||||||
KATE SPADE Southeast Asia acquisition |
32.0 | | | | 32.0 | |||||||||||
Pension withdrawal liability(b) |
4.9 | 7.1 | | | 12.0 | |||||||||||
Licensing royalty |
9.0 | | | | 9.0 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
$ | 291.9 | $ | 255.3 | $ | 214.1 | $ | 588.3 | $ | 1,349.6 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Debt consisted of the following:
In thousands |
December 28, 2013 |
December 29, 2012 |
|||||
---|---|---|---|---|---|---|---|
6.0% Convertible Senior Notes(a) |
$ | | $ | 18,287 | |||
10.5% Senior Secured Notes |
382,209 | 383,662 | |||||
Revolving credit facility |
2,997 | | |||||
Capital lease obligations(b) |
8,995 | 4,345 | |||||
| | | | | | | |
Total debt |
$ | 394,201 | $ | 406,294 | |||
| | | | | | | |
| | | | | | | |
For information regarding our debt and credit instruments, refer to Note 10 of Notes to 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.
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As of December 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) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amended Facility(a) |
$ | 350,000 | $ | 298,701 | $ | 2,997 | $ | 19,051 | $ | 276,653 | $ | 241,653 |
Off-Balance Sheet Arrangements
We have 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 to hedge specific exposure to variability in forecasted cash flows associated with inventory purchases by our KATE SPADE business in Japan. As of December 28, 2013 we had forward contracts maturing through December 2014 to sell 2.1 billion yen for 21.1 million. (see Note 12 of Notes to 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 December 28, 2013, we had forward contracts to sell 4.0 billion yen for $38.4 million maturing through March 2014. Transaction gains of $8.5 and $1.0 million related to these derivative instruments for the years ended December 28, 2013 and December 29, 2012, respectively, were reflected within Other (expense) income, net.
In prior years, we hedged our net investment position in certain euro-denominated functional currency subsidiaries by designating a portion of the outstanding Euro Notes as the hedging instrument in a net investment hedge. To the extent the hedge was effective, related foreign currency translation gains and losses were recorded within Other comprehensive loss. Translation gains and losses related to the ineffective portion of the hedge were recognized in current operations within Other (expense) income, net.
In connection with the sale of an 81.25% interest in the former global Mexx business on October 31, 2011, we dedesignated the remaining amount of the Euro Notes that had been previously designated as a hedge of the Company's net investment in certain euro-denominated functional currency subsidiaries. Accordingly, all foreign currency transaction gains or losses related to the remaining Euro Notes were recorded in earnings beginning on November 1, 2011 until the Euro Notes were fully retired in the third quarter of 2012.
We recognized the following foreign currency translation (losses) gains related to the net investment hedge:
In thousands |
Fiscal Year Ended December 31, 2011 |
|||
---|---|---|---|---|
Effective portion recognized within Accumulated OCI |
$ | (10,216 | ) | |
Ineffective portion recognized within Other (expense) income, net |
4,954 |
Also, as a result of the sale of the interest in the former global Mexx business, our net investment in certain euro-denominated functional currency subsidiaries was substantially liquidated, and the cumulative translation adjustment recognized on our Euro Notes through October 31, 2011 was written off and included within Loss on disposal of discontinued operations, net of income taxes on the accompanying Consolidated Statement of Operations.
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We occasionally use short-term foreign currency forward contracts outside the cash flow hedging program to manage currency risk associated with certain expected transactions. In order to mitigate the exposure related to the Tender Offer, we entered into forward contracts to sell $182.0 million for 128.0 million euro, which settled in the second quarter of 2011. During the second quarter of 2011, we entered into forward contracts designated as non-hedging derivative instruments maturing in July 2011 to sell $15.7 million for 11.0 million euro. The transaction gains of $2.5 million related to these derivative instruments were reflected within Other (expense) income, net for the year ended December 31, 2011.
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 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, discussed below, pertain to revenue recognition, income taxes, accounts receivable trade, inventories, intangible assets, accrued expenses and share-based compensation. 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.
For accounts receivable, we estimate the net collectibility, considering both historical and anticipated trends as well as an evaluation of economic conditions and the financial positions of our customers. For inventory, we review the aging and salability of our inventory and estimate the amount of inventory that we will not be able to sell in the normal course of business. This distressed inventory is written down to the expected recovery value to be realized through off-price channels. If we incorrectly anticipate these trends or unexpected events occur, our results of operations could be materially affected. We utilize various valuation methods to determine the fair value of acquired tangible and intangible assets. For inventory, the method uses the expected selling prices of finished goods. Intangible assets acquired are valued using a discounted cash flow model. Should any of the assumptions used in these projections differ significantly from actual results, material impairment losses could result where the estimated fair values of these assets become less than their carrying amounts. For accrued expenses related to items such as employee insurance, workers' compensation and similar items, accruals are assessed based on outstanding obligations, claims experience and statistical trends; should these trends change significantly, actual results would likely be impacted. Changes in such estimates, based on more accurate information, may affect amounts reported in future periods. We are not aware of any reasonably likely events or circumstances, which would result in different amounts being reported that would materially affect our financial condition or results of operations.
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Revenue Recognition
Revenue is recognized from our wholesale, retail and licensing operations. Revenue within our wholesale operations is recognized at the time title passes and risk of loss is transferred to customers. Wholesale revenue is recorded net of returns, discounts and allowances. Returns and allowances require pre-approval from management. Discounts are based on trade terms. Estimates for end-of-season allowances are based on historical trends, seasonal results, an evaluation of current economic conditions and retailer performance. We review and refine these estimates on a monthly basis based on current experience, trends and retailer performance. Our historical estimates of these costs have not differed materially from actual results. Retail store and e-commerce revenues are recognized net of estimated returns at the time of sale to consumers. Sales tax collected from customers is excluded from revenue. Proceeds received from the sale of gift cards are recorded as a liability and recognized as sales when redeemed by the holder. We do not recognize revenue for estimated gift card breakage. Licensing revenues are recorded based upon contractually guaranteed minimum levels and adjusted as actual sales data is received from licensees.
Income Taxes
Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as measured by enacted tax rates that are expected to be in effect in the periods when the deferred tax assets and liabilities are expected to be realized or settled. We also assess the likelihood of the realization of deferred tax assets and adjust the carrying amount of these deferred tax assets by a valuation allowance to the extent we believe it more likely than not that all or a portion of the deferred tax assets will not be realized. We consider many factors when assessing the likelihood of future realization of deferred tax assets, including recent earnings results within taxing jurisdictions, expectations of future taxable income, the carryforward periods available and other relevant factors. Changes in the required valuation allowance are recorded in income in the period such determination is made. Significant judgment is required in determining the worldwide provision for income taxes. Changes in estimates may create volatility in our effective tax rate in future periods for various reasons including changes in tax laws or rates, changes in forecasted amounts and mix of pretax income (loss), settlements with various tax authorities, either favorable or unfavorable, the expiration of the statute of limitations on some tax positions and obtaining new information about particular tax positions that may cause management to change its estimates. In the ordinary course of a global business, the ultimate tax outcome is uncertain for many transactions. It is our policy to recognize the impact of an uncertain income tax position on our income tax return at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50.0% likelihood of being sustained. The tax provisions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments to those provisions. We record interest expense and penalties payable to relevant tax authorities as income tax expense.
Accounts Receivable Trade, Net
In the normal course of business, we extend credit to customers that satisfy pre-defined credit criteria. Accounts receivable trade, net, as shown on the Consolidated Balance Sheets, is net of allowances and anticipated discounts. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectibility based on an evaluation of historical and anticipated trends, the financial condition of our customers and an evaluation of the impact of economic conditions. An allowance for discounts is based on those discounts relating to open invoices where trade discounts have been extended to customers. Costs associated with potential returns of products as well as allowable customer markdowns and operational charge backs, net of expected recoveries, are included as a reduction to sales and are part of the provision for allowances included in Accounts receivable trade, net. These provisions result from seasonal negotiations with our
65
customers as well as historical deduction trends, net of expected recoveries, and the evaluation of current market conditions. Should circumstances change or economic or distribution channel conditions deteriorate significantly, we may need to increase our provisions. Our historical estimates of these costs have not differed materially from actual results.
Inventories, Net
Inventories for seasonal, replenishment and on-going merchandise are recorded at the lower of actual average cost or market value. We continually evaluate the composition of our inventories by assessing slow-turning, ongoing product as well as prior seasons' fashion product. Market value of distressed inventory is estimated based on historical sales trends for this category of inventory of our individual product lines, the impact of market trends and economic conditions and the value of current orders in-house relating to the future sales of this type of inventory. Estimates may differ from actual results due to quantity, quality and mix of products in inventory, consumer and retailer preferences and market conditions. We review our inventory position on a monthly basis and adjust our estimates based on revised projections and current market conditions. If economic conditions worsen, we incorrectly anticipate trends or unexpected events occur, our estimates could be proven overly optimistic and required adjustments could materially adversely affect future results of operations. Our historical estimates of these costs and our provisions have not differed materially from actual results.
Intangibles, Net
Intangible assets with indefinite lives are not amortized, but rather tested for impairment at least annually. Our annual impairment test is performed as of the first day of the third fiscal quarter.
We 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, we conclude that it is not more likely than not that an indefinite-lived intangible asset is impaired, then we are not required to take further action. However, if we conclude otherwise, then we are 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. We estimate the fair value of these intangible assets based on an income approach using the relief-from-royalty method. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets. This approach is dependent on a number of factors, including estimates of future growth and trends, royalty rates in the category of intellectual property, discount rates and other variables. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We recognize an impairment loss when the estimated fair value of the intangible asset is less than the carrying value.
The recoverability of the carrying values of all intangible assets with finite lives is re-evaluated when events or changes in circumstances indicate an asset's value may be impaired. Impairment testing is based on a review of forecasted operating cash flows and the profitability of the related brand. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value through a charge to our Consolidated Statement of Operations.
Intangible assets with finite lives are amortized over their respective lives to their estimated residual values. Trademarks with finite lives are amortized over their estimated useful lives. Merchandising rights are amortized over a period of 3 to 4 years. Customer relationships are amortized assuming gradual attrition over periods ranging from 12 to 14 years.
In the third quarter of 2013, we recorded a non-cash impairment charge of $3.3 million, which reflected the difference in the estimated fair value and carrying value of the TRIFARI trademark (see Note 11 of Notes to Consolidated Financial Statements).
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As a result of the impairment analysis performed in connection with our purchased trademarks with indefinite lives, no impairment charges were recorded during 2012 or 2011.
During 2013, we recorded non-cash impairment charges of $1.7 million within our JUICY COUTURE segment related to that brand's merchandising rights due to decreased use of such intangible assets.
During 2011, we recorded non-cash impairment charges of $1.0 million primarily within our Adelington Design Group segment principally related to merchandising rights of our MONET and former licensed DKNY® Jeans brands due to decreased use of such intangible assets.
Goodwill
Goodwill is not amortized but rather tested for impairment at least annually. Our annual impairment test is performed as of the first day of the third fiscal quarter.
We assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that goodwill is impaired. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that goodwill is impaired, then we are not required to take further action. However, if we concluded otherwise, then we are required to determine the fair value of goodwill and perform the quantitative impairment test by comparing the fair value with the carrying amount. A two-step impairment test is then performed on goodwill. In the first step, we compare the fair value of each reporting unit to its carrying value. We determine the fair value of our reporting units using the market approach, as is typically used for companies providing products where the value of such a company is more dependent on the ability to generate earnings than the value of the assets used in the production process. Under this approach, we estimate fair value based on market multiples of revenues and earnings for comparable companies. We also use discounted future cash flow analyses to corroborate these fair value estimates. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired, and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step in order to determine the implied fair value of the reporting unit's goodwill and compare it to the carrying value of the reporting unit's goodwill. The activities in the second step include valuing the tangible and intangible assets of the impaired reporting unit based on their fair value and determining the fair value of the impaired reporting unit's goodwill based upon the residual of the summed identified tangible and intangible assets.
As a result of the impairment analysis performed in connection with our goodwill, no impairment charges were recorded during 2013, 2012 or 2011.
During 2012, we recorded additional goodwill as a result of the KSJ acquisition (see Note 2 of Notes to Consolidated Financial Statements).
Accrued Expenses
Accrued expenses for employee insurance, workers' compensation, contracted advertising and other outstanding obligations are assessed based on claims experience and statistical trends, open contractual obligations and estimates based on projections and current requirements. If these trends change significantly, then actual results would likely be impacted.
Share-Based Compensation
We recognize compensation expense based on the fair value of employee share-based awards, including stock options and restricted stock, net of estimated forfeitures. Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility and the expected dividends. Judgment is required in estimating
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the amount of share-based awards expected to be forfeited prior to vesting. If actual forfeitures differ significantly from these estimates, share-based compensation expense could be materially impacted.
Inflation
The rate of inflation over the past few years has not had a significant impact on our sales or profitability.
ACCOUNTING PRONOUNCEMENTS
For a discussion of recently adopted and recent accounting pronouncements, see Notes 1 and 21 of Notes to Consolidated Financial Statements.
ITEM 7A. 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 28, 2013, our exposure to changing market rates was as follows:
Dollars in millions |
December 28, 2013 | |||
---|---|---|---|---|
Variable rate debt |
$ | 3.0 | ||
Average interest rate |
3.06 | % |
As of December 29, 2012, we did not have exposure to changing market rates as there were no amounts outstanding under our Amended Facility.
A ten percent change in the average rate would have minimal impact to interest expense during the year ended December 28, 2013.
As of December 28, 2013, we have not employed interest rate hedging to mitigate such risks with respect to our floating rate facility.
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.
As of December 28, 2013, we had forward contracts with net notional amounts of $59.5 million. Unrealized gains 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% against the US dollar, the fair value of these instruments would increase by $5.2 million at December 28, 2013. Conversely, if the yen strengthened by 10% against the US dollar, the fair value of these instruments would decrease by $6.4 million at December 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.
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Item 8. Financial Statements and Supplementary Data.
See the "Index to Consolidated Financial Statements and Schedule" appearing at the end of this Annual Report on Form 10-K for information required under this Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. 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 each of our fiscal quarters. Our Chief Executive Officer and Chief Financial Officer concluded that, as of December 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 December 28, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
See "Index to Consolidated Financial Statements and Schedule" appearing at the end of this Annual Report on Form 10-K for Management's Report on Internal Control Over Financial Reporting.
None.
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Item 10. Directors, Executive Officers and Corporate Governance.
With respect to our Executive Officers, see "Executive Officers of the Registrant" in Part I of this Annual Report on Form 10-K.
Information regarding Section 16(a) compliance, the Audit Committee (including membership and Audit Committee Financial Experts but excluding the "Audit Committee Report"), our code of ethics and background of our Directors appearing under the captions "Section 16(a) Beneficial Ownership Reporting Compliance," "Corporate Governance," "Additional Information-Company Code of Ethics and Business Practices" and "Election of Directors" in our Proxy Statement for the 2014 Annual Meeting of Shareholders (the "2014 Proxy Statement") is hereby incorporated by reference.
Item 11. Executive Compensation.
Information called for by this Item 11 is incorporated by reference to the information set forth under the headings "Compensation Discussion and Analysis" and "Executive Compensation" (other than the Board Compensation Committee Report) in the 2014 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
EQUITY COMPENSATION
The following table summarizes information about the stockholder approved Fifth & Pacific Companies, Inc. Outside Directors' 1991 Stock Ownership Plan (the "Outside Directors' Plan"); Fifth & Pacific Companies, Inc. 1992 Stock Incentive Plan; Fifth & Pacific Companies, Inc. 2000 Stock Incentive Plan (the "2000 Plan"); Fifth & Pacific Companies, Inc. 2002 Stock Incentive Plan (the "2002 Plan"); Fifth & Pacific Companies, Inc. 2005 Stock Incentive Plan (the "2005 Plan"); Fifth & Pacific Companies, Inc. 2011 Stock Incentive Plan (the "2011 Plan"); and Fifth & Pacific Companies, Inc. 2013 Stock Incentive Plan (the "2013 Plan"), which together comprise all of our existing equity compensation plans, as of December 28, 2013. In January 2006, we adopted the Fifth & Pacific Companies, Inc. Outside Directors' Deferral Plan, which amended and restated the Outside Directors' Plan by eliminating equity grants under the Outside Directors' Plan, including the annual grant of shares of Common Stock. The last grant under the Outside Directors' Plan was made on January 10, 2006. All subsequent Director stock grants have been made under the remaining shareholder approved plans.
Plan Category
|
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights |
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity Compensation Plans Approved by Stockholders |
6,430,798 | (a) | $ | 11.26 | (b) | 9,848,387 | (c) | |||
Equity Compensation Plans Not Approved by Stockholders |
| N/A | | |||||||
| | | | | | | | | | |
Total |
6,430,798 | (a) | $ | 11.26 | (b) | 9,848,387 | (c) | |||
| | | | | | | | | | |
| | | | | | | | | | |
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Security ownership information of certain beneficial owners and management as called for by this Item 12 is incorporated by reference to the information set forth under the heading "Security Ownership of Certain Beneficial Owners and Management" in the 2014 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information called for by this Item 13 is incorporated by reference to the information set forth under the headings "Certain Relationships and Related Transactions" in the 2014 Proxy Statement.
Item 14. Principal Accounting Fees and Services.
Information called for by this Item 14 is incorporated by reference to the information set forth under the heading "Ratification of the Appointment of the Independent Registered Public Accounting Firm" in the 2014 Proxy Statement.
Item 15. Exhibits and Financial Statement Schedules.
(a) | 1. Financial Statements | Refer to Index to Consolidated Financial Statements on Page F-1 |
|||
(a) |
2. Schedule |
||||
SCHEDULE II Valuation and Qualifying Accounts |
F-68 |
NOTE: Schedules other than those referred to above and parent company financial statements have been omitted as inapplicable or not required under the instructions contained in Regulation S-X or the information is included elsewhere in the financial statements or the notes thereto.
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(a) | 3. Exhibits |
Exhibit No.
|
Description
|
|||
---|---|---|---|---|
2(a) | | Merger Agreement, dated as of September 1, 2011, by and among Registrant and Liz Claiborne Foreign Holdings, Inc. and Gores Malibu Holdings (Luxembourg) S.a.r.l., EuCo B.V. (incorporated herein by reference to Exhibit 2.1 to Registrant's Current Report on Form 8-K dated September 6, 2011). | ||
2(b) | | Asset Purchase Agreement, dated as of September 1, 2011, by and among Registrant and Liz Claiborne Canada Inc. and Gores Malibu Holdings (Luxembourg) S.a.r.l., 3256890 Nova Scotia Limited (incorporated herein by reference to Exhibit 2.2 to Registrant's Current Report on Form 8-K dated September 6, 2011). | ||
3(a) | | Restated Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit 3(a) to Registrant's Current Report on Form 8-K dated May 28, 2009). | ||
3(b) | | Amendment to the Restated Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit 3(a) to Registrant's Current Report on Form 8-K dated June 3, 2010). | ||
3(c) | | Amendment to the Restated Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit 3.1 to Registrant's Current Report on Form 8-K dated May 18, 2012). | ||
3(d) | | Amendment to the Restated Certificate of Incorporation of Registrant (incorporated herein by reference to Exhibit 3(a) to Registrant's Current Report on Form 8-K dated May 17, 2013). | ||
3(e) | | By-Laws of Registrant, as amended through May 27, 2010 (incorporated herein by reference to Exhibit 3(b) to Registrant's Current Report on Form 8-K dated June 3, 2010). | ||
3(f) | | Amendment to By-Laws of Registrant (incorporated herein by reference to Exhibit 3(b) to Registrant's Current Report on Form 8-K dated May 17, 2013). | ||
4(a) | | Specimen certificate for Registrant's Common Stock, par value $1.00 per share (incorporated herein by reference to Exhibit 4(a) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 26, 1992). | ||
4(b) | | Registration Rights Agreement, dated as of June 8, 2012, by and among Fifth & Pacific Companies, Inc., the Guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several Initial Purchasers (incorporated herein by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q filed on July 26, 2012). | ||
4(c) | | Registration Rights Agreement, dated as of April 7, 2011, between Registrant and its Guarantors and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated herein by reference to Exhibit 4.2 to Registrant's Quarterly Report on Form 10-Q for the period ended April 2, 2011). | ||
4(d) | | Indenture, dated as of April 7, 2011 among Fifth & Pacific Companies, Inc., the Guarantors party thereto and U.S. Bank National Association as Trustee and Collateral Agent (incorporated herein by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q filed on April 28, 2011). | ||
4(d)(i) | | Form of Exchange Notes (included in Exhibit 4(d)). | ||
4(e) | | First Supplemental Indenture, dated September 21, 2011, among Fifth & Pacific Companies, Inc., the Guarantors party thereto and U.S. Bank National Association as Trustee and Collateral Agent (incorporated herein by reference to Exhibit 4.2 to Registrant's Form S-4 dated January 18, 2013). |
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Exhibit No.
|
Description
|
|||
---|---|---|---|---|
4(f) | | Second Supplemental Indenture, dated October 7, 2011, among Fifth & Pacific Companies, Inc., the Guarantorsparty thereto and U.S. Bank National Association as Trustee and Collateral Agent (incorporated herein byreference to Exhibit 4.3 to Registrant's Form S-4 dated January 18, 2013). | ||
4(g) | | Third Supplemental Indenture, dated December 27, 2012, among Fifth & Pacific Companies, Inc., the Guarantorsparty thereto and U.S. Bank National Association as Trustee and Collateral Agent (incorporated herein byreference to Exhibit 4.4 to Registrant's Form S-4 dated January 18, 2013). | ||
4(h)* | | Fourth Supplemental Indenture, dated October 25, 2013, among Fifth & Pacific Companies, Inc., ABG Juicy Couture, LLC, the Guarantors party and U.S. Bank National Association as Trustee and Collateral Agent. | ||
4(i)* | | Fifth Supplemental Indenture, dated January 23, 2014, among Fifth & Pacific Companies, Inc., the Guarantors Party thereto, Lucky PR, LLC, and U.S. Bank National Association as Trustee and Collateral Agent. | ||
4(j) | | Pledge and Security Agreement, dated as of April 7, 2011, by and among Fifth & Pacific Companies, Inc., the other Grantors listed on the signature pages thereof and U.S. Bank National Association, as Collateral Agent (incorporated herein by reference to Exhibit 4.4 to Registrant's Quarterly Report on Form 10-Q filed on April 28, 2011). | ||
4(k) | | Intercreditor Agreement, dated as of April 7, 2011, by and between JPMorgan Chase Bank, N.A., as U.S. Collateral Agent under the Credit Agreement, and U.S. Bank National Association, as trustee and Collateral Agent under the Indenture, acknowledged by Fifth & Pacific Companies and its domestic subsidiaries listed on the signature pages thereof (incorporated herein by reference to Exhibit 4.3 to Registrant's Quarterly Report on Form 10-Q filed on April 28, 2011). | ||
10(a)*+ | | Description of Fifth & Pacific Companies, Inc. 2013 Employee Incentive Plan. | ||
10(b)+ | | The Fifth & Pacific Companies 401(k) Savings and Profit Sharing Plan, as amended and restated (incorporated herein by reference to Exhibit 10(g) to Registrant's 2002 Annual Report). | ||
10(b)(i)+ | | First Amendment to the Fifth & Pacific Companies 401(k) Savings and Profit Sharing Plan (incorporated herein by reference to Exhibit 10(e)(i) to the 2003 Annual Report). | ||
10(b)(ii)+ | | Second Amendment to the Fifth & Pacific Companies 401(k) Savings and Profit Sharing Plan (incorporated herein by reference to Exhibit 10(e)(ii) to the 2003 Annual Report). | ||
10(b)(iii)+ | | Third Amendment to the Fifth & Pacific Companies 401(k) Savings and Profit Sharing Plan (incorporated herein by reference to Exhibit 10(e)(iii) to the 2003 Annual Report). | ||
10(b)(iv)+ | | Trust Agreement (the "401(k) Trust Agreement") dated as of October 1, 2003 between Registrant and Fidelity Management Trust Company (incorporated herein by reference to Exhibit 10(e)(iv) to the 2003 Annual Report). | ||
10(b)(v)+ | | First Amendment to the 401(k) Trust Agreement (incorporated herein by reference to Exhibit 10(e)(v) to Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 2005 (the "2004 Annual Report"). | ||
10(b)(vi)+ | | Second Amendment to the 401(k) Trust Agreement (incorporated herein by reference to Exhibit 10(e)(vi) to the 2004 Annual Report). | ||
10(c)+ | | Liz Claiborne, Inc. Amended and Restated Outside Directors' 1991 Stock Ownership Plan (the "Outside Directors' 1991 Plan") (incorporated herein by reference to Exhibit 10(m) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995). | ||
10(c)(i)+ | | Amendment to the Outside Directors' 1991 Plan, effective as of December 18, 2003 (incorporated herein by reference to Exhibit 10(f)(i) to the 2003 Annual Report). |
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Exhibit No.
|
Description
|
|||
---|---|---|---|---|
10(c)(ii)+ | | Form of Option Agreement under the Outside Directors' 1991 Plan (incorporated herein by reference to Exhibit 10(m)(i) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1996). | ||
10(c)(iii)+ | | Liz Claiborne, Inc. Outside Directors' Deferral Plan (incorporated herein by reference to Exhibit 10(f)(iii) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (the "2005 Annual Report")). | ||
10(d)+ | | Liz Claiborne, Inc. 2000 Stock Incentive Plan (the "2000 Plan") (incorporated herein by reference to Exhibit 4(e) to Registrant's Form S-8 dated as of January 25, 2001). | ||
10(d)(i)+ | | Amendment No. 1 to the 2000 Plan (incorporated herein by reference to Exhibit 10(h)(i) to the 2003 Annual Report). | ||
10(d)(ii)+ | | Form of Option Grant Certificate under the 2000 Plan (incorporated herein by reference to Exhibit 10(z)(i) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 2000 (the "2000 Annual Report")). | ||
10(d)(iii)+ | | Form of 2006 Special Performance-Based Restricted Stock Confirmation under the 2000 Plan (incorporated herein by reference to Exhibit 10(h)(v) to the 2005 Annual Report). | ||
10(d)(iv)+ | | Form of Executive Severance Agreement (incorporated herein by reference to Exhibit 99.1 to Registrant's Current Report on Form 8-K dated January 28, 2011). | ||
10(d)(v) | | Form of Special Retention Award Agreement under the Company's 2011 Stock Incentive Plan (incorporated herein by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-K dated June 17, 2011) | ||
10(e)+ | | Liz Claiborne, Inc. 2002 Stock Incentive Plan (the "2002 Plan") (incorporated herein by reference to Exhibit 10(y)(i) to Registrant's Quarterly Report on Form 10-Q for the period ended June 29, 2002 (the "2nd Quarter 2002 10-Q")). | ||
10(e)(i)+ | | Amendment No. 1 to the 2002 Plan (incorporated herein by reference to Exhibit 10(y)(iii) to the 2nd Quarter 2002 10-Q). | ||
10(e)(ii)+ | | Amendment No. 2 to the 2002 Plan (incorporated herein by reference to Exhibit 10(i)(ii) to the 2003 Annual Report). | ||
10(e)(iii)+ | | Amendment No. 3 to the 2002 Plan (incorporated herein by reference to Exhibit 10(i)(iii) to the 2003 Annual Report). | ||
10(e)(iv)+ | | Form of Option Grant Certificate under the 2002 Plan (incorporated herein by reference to Exhibit 10(y)(ii) to the 2nd Quarter 2002 10-Q). | ||
10(e)(v)+ | | Form of Restricted Share Agreement for Registrant's "Growth Shares" program under the 2002 Plan (incorporated herein by reference to Exhibit 10(i)(v) to the 2003 Annual Report). | ||
10(f)+ | | Description of Supplemental Life Insurance Plans (incorporated herein by reference to Exhibit 10(q) to the 2000 Annual Report). | ||
10(g)+ | | Liz Claiborne, Inc. Supplemental Executive Retirement Plan effective as of January 1, 2002, constituting an amendment, restatement and consolidation of the Liz Claiborne, Inc. Supplemental Executive Retirement Plan and the Liz Claiborne, Inc. Bonus Deferral Plan (incorporated herein by reference to Exhibit 10(t)(i) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 2001). | ||
10(g)(i)+ | | Liz Claiborne, Inc. 2005 Supplemental Executive Retirement Plan effective as of January 1, 2005, including amendments through December 31, 2008 (incorporated herein by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated December 31, 2008). | ||
10(g)(ii)+ | | Trust Agreement, dated as of January 1, 2002, between Registrant and Wilmington Trust Company (incorporated herein by reference to Exhibit 10(t)(i) to the 2002 Annual Report). |
74
Exhibit No.
|
Description
|
|||
---|---|---|---|---|
10(h)+ | | Liz Claiborne Inc. 2005 Stock Incentive Plan (the "2005 Plan") (incorporated herein by reference to Exhibit 10.1(b) to Registrant's Current Report on Form 8-K dated May 26, 2005). | ||
10(h)(i)+ | | Amendment No. 1 to the 2005 Plan (incorporated herein by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated July 12, 2005). | ||
10(h)(ii)+ | | Form of Restricted Stock Grant Certificate under the 2005 Plan (incorporated herein by reference to Exhibit 10(a) to Registrant's Quarterly Report on Form 10-Q for the period ended April 2, 2005). | ||
10(h)(iii)+ | | Form of Option Grant Confirmation under the 2005 Plan (incorporated herein by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-K dated December 4, 2008). | ||
10(i)+ | | Liz Claiborne, Inc. 2011 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated May 23, 2011 which incorporates by reference Exhibit A to Definitive Proxy Statement for the 2011 Annual Meeting of the Registrant, filing April 7, 2011). | ||
10(i)(i) | | Form of Restricted Stock Unit Grant Certificate under the 2011 Plan (incorporated herein by reference to Exhibit 10.47 to Registrant's Form S-4 dated January 18, 2013). | ||
10(i)(ii) | | Form of Option Grant Certificate under the 2011 Plan (incorporated herein by reference to Exhibit 10.46 to Registrant's Form S-4 dated January 18, 2013). | ||
10(j) | | Fifth & Pacific Companies, Inc. 2013 Incentive Plan (the "2013 Plan") (incorporated herein by reference to Appendix B to Definitive Proxy Statement for the 2013 Annual Meeting of the Registrant filed April 3, 2013). | ||
10(j)(i)* | | Form of Market Share Unit Award Notice of Grant under the 2013 Plan. | ||
10(j)(ii)* | | Form of Performance Share Award Notice of Grant under the 2013 Plan. | ||
10(j)(iii)* | | Form of Staking Market Share Unit Award Grant Certificate under the 2013 Plan. | ||
10(k)+ | | Liz Claiborne, Inc. Section 162(m) Long Term Performance Plan (incorporated herein by reference to Exhibit 10.1(a) to Registrant's Current Report on Form 8-K dated May 26, 2005). | ||
10(k)(i)+ | | Form of Section 162(m) Long Term Performance Plan Selective Performance Award (incorporated herein by reference to Exhibit 10 to Registrant's Quarterly Report on Form 10-Q for the period ended October 1, 2005). | ||
10(k)(ii)+ | | 2010 Section 162(m) Long Term Performance Plan (incorporated herein by reference to Exhibit D to Definitive Proxy Statement filed April 13, 2010). | ||
10(k)(iii) | | Form of Award for Liz Claiborne, Inc. 2010 Profitability Incentive Awards (incorporated herein by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the period ended October 2, 2010). | ||
10(l)+ | | Form of Executive Severance Agreement (incorporated herein by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated April 3, 2012). | ||
10(m)+ | | Employment Agreement, by and between Registrant and William L. McComb, dated October 13, 2006 (incorporated herein by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-K dated October 18, 2006). | ||
10(m)(i)+ | | Amended and Restated Employment Agreement, by and between Registrant and William L. McComb, dated December 24, 2008 (incorporated herein by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated December 24, 2008). | ||
10(m)(ii) | | Severance Benefit Agreement, by and between Registrant and William L. McComb, dated July 14, 2009 (incorporated herein by reference to Exhibit 10.4 to Registrant's Current Report on Form 8-K dated July 15, 2009). |
75
Exhibit No.
|
Description
|
|||
---|---|---|---|---|
10(n)+ | | Executive Terminations Benefits Agreement, by and between Registrant and William L. McComb, dated as of October 13, 2006 (incorporated herein by reference to Exhibit 10.3 to Registrant's Current Report on Form 8-K dated October 18, 2006). | ||
10(n)(i)+ | | Amended and Restated Executive Termination Benefits Agreement, by and between Registrant and William L. McComb, dated as of December 24, 2008 (incorporated herein by reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K dated December 24, 2008). | ||
10(n)(ii) | | Executive Termination Benefits Agreement, by and between Registrant and William L. McComb, dated as of July 14, 2009 (incorporated herein by reference to Exhibit 10.3 to Registrant's Current Report on Form 8-K dated July 15, 2009). | ||
10(o)* | | Employment Agreement by and between Registrant and Craig Leavitt, dated January 7, 2014. | ||
10(p)* | | Employment Agreement by and between Registrant and Deborah Lloyd, dated January 7, 2014. | ||
10(q) | | Purchase Agreement, dated June 18, 2009, for Registrant's 6.0% Convertible Senior Notes due June 2014, by and among Registrant and J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Representatives of Several Initial Purchasers (incorporated herein by reference to Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the period ended July 4, 2009). | ||
10(q)(i) | | Purchase Agreement, dated April 1, 2011, for Registrant's 10.50% Senior Secured Notes due 2019, by and among Registrant and Merrill Lynch, Pierce, Fenner & Smith Incorporated to Registrant's issuance and sale of $205.0 million of Notes (incorporated herein by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the period ended April 2, 2011). | ||
10(q)(ii) | | Purchase Agreement, dated April 5, 2011, for Registrant's 10.50% Senior Secured Notes due 2019, by and among Registrant, the Guarantors and the Initial Purchasers relating to Registrant's issuance and sale of $15.0 million of additional Notes. (incorporated herein by reference to Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the period ended April 2, 2011). | ||
10(q)(iii) | | Purchase Agreement, dated June 6, 2012, by and among Registrant and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Representative of the several Initial Purchasers (incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed for the period ended June 30, 2012). | ||
10(r) | Dealer Management Agreement, dated March 8, 2011, for Registrant's 5.0% Notes due 2013, by and among Registrant, Merrill Lynch International and J.P. Morgan Securities Ltd. relating to Registrant's offer to purchase up to €155.0 million of its outstanding €350.00 million 5.0% Notes for cash (incorporated herein by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the period ended April 2, 2011). | |||
10(s)D | | License Agreement, dated as of October 7, 2009, between Registrant, J.C. Penney Corporation, Inc. and J.C. Penney Company, Inc. (incorporated herein by reference to Exhibit 10(y) to Registrant's Annual Report on Form 10-K/A for the fiscal year ended January 2, 2010). | ||
10(t) | | Purchase Agreement, dated October 12, 2011, between Registrant, J.C. Penney Corporation, Inc. and J.C. Penney Company, Inc. (incorporated herein by reference to Exhibit 10(y) to Registrant's Annual Report on Form 10-K for the year ended December 31, 2011). |
76
Exhibit No.
|
Description
|
|||
---|---|---|---|---|
10(u) | | Amended and Restated Credit Agreement, dated January 12, 2009, among the Company, Mexx Europe B.V., and Liz Claiborne Canada Inc., as Borrowers, the several subsidiary guarantors party thereto, the several lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and U.S. Collateral Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Collateral Agent, J.P. Morgan Europe Limited, as European Administrative Agent and European Collateral Agent, Bank of America, N.A. and Suntrust Bank, as Syndication Agents, Wachovia Bank, National Association as Documentation Agent, J.P. Morgan Securities Inc. and Banc of America Securities LLC, as Joint Lead Arrangers, and J.P. Morgan Securities Inc., Banc of America Securities LLC, and Wachovia Capital Markets, LLC, as Joint Bookrunners (incorporated herein by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated January 14, 2009). | ||
10(u)(i) | | Second Amended and Restated Credit Agreement, dated May 6, 2010, among the Company, Mexx Europe B.V., Juicy Couture Europe Limited, and Liz Claiborne Canada Inc., as Borrowers, the several subsidiary guarantors party thereto, the several lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and U.S. Collateral Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Collateral Agent, J.P. Morgan Europe Limited, as European Administrative Agent and European Collateral Agent, Bank of America, N.A., as Syndication Agent, General Electric Capital Corporation, as Documentation Agent, and J.P. Morgan Securities Inc., Banc of America Securities LLC, Wells Fargo Capital Finance, LLC and SunTrust Robinson Humphrey, Inc., as Joint Lead Arrangers and Joint Bookrunners (incorporated herein by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated May 6, 2010). | ||
10(u)(ii) | | The First Amendment and Consent to the Second Amended and Restated Credit Agreement and Second Amendment to the US Pledge and Security Agreement, dated as of March 25, 2011, among Registrant, Liz Claiborne Canada, Inc., Mexx Europe B.V. and Juicy Couture Europe Limited, as Borrowers, the several lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and U.S. Collateral Agent, J.P. Morgan Europe Limited, as European Administrative Agent and European Collateral Agent, and JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Collateral Agent (incorporated herein by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the period ended April 2, 2011). | ||
10(u)(iii) | | Third Amendment and Consent, dated as of September 21, 2011, to the Second Amendment and Restated Credit Agreement, among Registrant, Mexx Europe B.V., Liz Claiborne Canada Inc., Juicy Couture Europe Limited, the several lenders thereto, JPMorgan Chase bank N.A., as Administrative Agent and US Collateral Agent, J.P. Morgan Europe Limited, as European Administrative Agent and European Collateral Agent, JPMorgan Chase bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Collateral Agent. (incorporated herein by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the period ended October 1, 2011). |
77
Exhibit No.
|
Description
|
|||
---|---|---|---|---|
10(u)(iv) | | Fourth Amendment to the Second Amended and Restated Credit Agreement, dated May 6, 2010, among the Company, the guarantors party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and U.S. Collateral Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Collateral Agent, J.P. Morgan Europe Limited, as European Administrative Agent and European Collateral Agent, Bank of America, N.A., as Syndication Agent, General Electric Capital Corporation, as Documentation Agent, and J.P. Morgan Securities Inc., Banc of America Securities LLC, Wells Fargo Capital Finance, LLC and SunTrust Bank, as Documentation Agents (incorporated herein by reference to Exhibit 10(z)(iv) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2011). | ||
10(u)(v) | | Fifth Amendment and Consent to the Second Amended and Restated Credit Agreement and Second Amendment to the US Pledge and Security Agreement, dated as of June 5, 2012, among Registrant, the Guarantors party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and US Collateral Agent, J.P. Morgan Europe Limited, as European Administrative Agent and European Collateral Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Collateral Agent, Bank of America, N.A., as Syndication Agent, and Wells Fargo Capital Finance, LLC, SunTrust Bank and General Electric Capital Corporation, as Documentation Agents (incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed for the period ended June 30, 2012). | ||
10(u)(vi) | | Third Amended and Restated Credit Agreement, dated April 18, 2013, among Fifth & Pacific Companies, inc., Kate Spade UK Limited and Kate Spade Canada Inc., as borrowers, the guarantors party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and US Collateral Agent, JPMorgan Chase bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Collateral Agent, Bank of America, N.A., as Syndication Agent, and Wells Fargo Capital Finance, LLC and SunTrust Bank, as Documentation Agents and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Capital Finance, LLC and SunTrust Robinson Humphrey, Inc., as Joint Lead Arrangers and Joint Bookrunners (incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed for the period ended June 29, 2013). | ||
10(u)(vii)* | | First Amendment and Waiver to the Third Amended and Restated Credit Agreement, dated as of November 6, 2013, among Registrant, Kate Spade UK Limited and Kate Spade Canada Inc., the Guarantors party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and US Collateral Agent, J.P. Morgan Europe Limited, as European Administrative Agent and European Collateral Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Collateral Agent, Bank of America, N.A., as Syndication Agent, and Wells Fargo Capital Finance, LLC and SunTrust Bank, as Documentation Agents. | ||
10(u)(viii)* | | Second Amendment and Waiver to the Third Amended and Restated Credit Agreement, dated as of January 27, 2014, among Registrant, Kate Spade UK Limited and Kate Spade Canada Inc., the Guarantors party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and US Collateral Agent, J.P. Morgan Europe Limited, as European Administrative Agent and European Collateral Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Collateral Agent, Bank of America, N.A., as Syndication Agent, and Wells Fargo Capital Finance, LLC and SunTrust Bank, as Documentation Agents. |
78
Exhibit No.
|
Description
|
|||
---|---|---|---|---|
10(v) | | 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. (incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed for the period ended September 28, 2013). | ||
10(v)(i) | | Amendment Agreement, dated as of November 6, 2013, by and among ABG-Juicy LLC, Fifth & Pacific Companies, Inc., and Juicy Couture, Inc. (incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed for the period ended September 28, 2013). | ||
10(v)(ii) | | Purchase Agreement, dated as of December 10, 2013, by and among LBD Acquisition Company, LLC, as Buyer, Fifth & Pacific Companies, Inc., as Seller, and Lucky Brand Dungarees, Inc. (incorporated herein by reference to Registrant's Current Report on Form 8-K filed December 10, 2013). | ||
12* | | Statement Regarding Computation of Ratio of Earnings to Fixed Charges. | ||
21* | | List of Registrant's Subsidiaries. | ||
23* | | Consent of Independent Registered Public Accounting Firm. | ||
31(a)* | | Rule 13a-14(a) Certification of Chief Executive Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31(b)* | | Rule 13a-14(a) Certification of Chief Financial Officer of the Company in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32(a)*# | | Certification of Chief Executive Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32(b)*# | | Certification of Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002. | ||
99* | | Undertakings. | ||
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. |
79
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on February 25, 2014.
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) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on February 25, 2014.
Signature
|
Title
|
|
---|---|---|
/s/ William L. McComb William L. McComb |
Chief Executive Officer and Director (principal executive officer) |
|
/s/ Bernard W. Aronson Bernard W. Aronson |
Director |
|
/s/ Lawrence Benjamin Lawrence Benjamin |
Director |
|
/s/ Raul J. Fernandez Raul J. Fernandez |
Director |
|
/s/ Kenneth B. Gilman Kenneth B. Gilman |
Director |
|
/s/ Nancy J. Karch Nancy J. Karch |
Director and Chairman of the Board |
|
/s/ Kenneth P. Kopelman Kenneth P. Kopelman |
Director |
|
/s/ Kay Koplovitz Kay Koplovitz |
Director |
|
/s/ Arthur C. Martinez Arthur C. Martinez |
Director |
|
/s/ Doreen A. Toben Doreen A. Toben |
Director |
80
FIFTH & PACIFIC COMPANIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
F-1
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Securities and Exchange Act of 1934. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company's system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
Management has evaluated the effectiveness of the Company's internal control over financial reporting as of December 28, 2013 based upon criteria for effective internal control over financial reporting described in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in 1992. Based on our evaluation, management determined that the Company's internal control over financial reporting was effective as of December 28, 2013 based on the criteria in Internal Control Integrated Framework issued by COSO.
The Company's internal control over financial reporting as of December 28, 2013 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report which appears herein.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Fifth & Pacific Companies, Inc. is responsible for the preparation, objectivity and integrity of the consolidated financial statements and other information contained in this Annual Report. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include some amounts that are based on management's informed judgments and best estimates.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited these consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and has expressed herein their unqualified opinion on those financial statements.
The Audit Committee of the Board of Directors, which oversees all of the Company's financial reporting process on behalf of the Board of Directors, consists solely of independent directors, meets with the independent registered public accounting firm, internal auditors and management periodically to review their respective activities and the discharge of their respective responsibilities. Both the independent registered public accounting firm and the internal auditors have unrestricted access to the Audit Committee, with or without management, to discuss the scope and results of their audits and any recommendations regarding the system of internal controls.
February 25,
2014
/s/ William L. McComb |
/s/ George M. Carrara
|
|
William L. McComb | George M. Carrara | |
Chief Executive Officer | Chief Financial Officer |
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Fifth & Pacific Companies, Inc.
We have audited the internal control over financial reporting of Fifth & Pacific Companies, Inc. and subsidiaries (the "Company") as of December 28, 2013, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 28, 2013, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 28, 2013 of the Company and our report dated February 25, 2014 expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
New
York, New York
February 25, 2014
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Fifth & Pacific Companies, Inc.
We have audited the accompanying consolidated balance sheets of Fifth & Pacific Companies, Inc. and subsidiaries (the "Company") as of December 28, 2013 and December 29, 2012, and the related consolidated statements of operations, statements of comprehensive loss, statements of retained earnings, accumulated comprehensive loss and changes in capital accounts, and cash flows for each of the three fiscal years in the period ended December 28, 2013. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Fifth & Pacific Companies, Inc. and subsidiaries as of December 28, 2013 and December 29, 2012, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 28, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 28, 2013, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2014 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
New
York, New York
February 25, 2014
F-4
Fifth & Pacific Companies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
In thousands, except share data |
December 28, 2013 | December 29, 2012 | |||||
---|---|---|---|---|---|---|---|
Assets |
|||||||
Current Assets: |
|||||||
Cash and cash equivalents |
$ | 130,222 | $ | 59,402 | |||
Accounts receivable trade, net |
89,554 | 121,591 | |||||
Inventories, net |
184,634 | 220,538 | |||||
Deferred income taxes |
218 | 1,259 | |||||
Other current assets |
45,031 | 49,466 | |||||
Assets held for sale |
202,054 | | |||||
| | | | | | | |
Total current assets |
651,713 | 452,256 | |||||
Property and Equipment, Net |
149,071 | 219,963 | |||||
Goodwill |
49,111 | 60,223 | |||||
Intangibles, Net |
90,678 | 131,350 | |||||
Deferred Income Taxes |
57 | 65 | |||||
Other Assets |
36,881 | 38,666 | |||||
| | | | | | | |
Total Assets |
$ | 977,511 | $ | 902,523 | |||
| | | | | | | |
| | | | | | | |
Liabilities and Stockholders' Deficit |
|||||||
Current Liabilities: |
|||||||
Short-term borrowings |
$ | 3,407 | $ | 4,345 | |||
Convertible Senior Notes |
| 18,287 | |||||
Accounts payable |
142,654 | 174,705 | |||||
Accrued expenses |
200,178 | 217,464 | |||||
Income taxes payable |
2,631 | 932 | |||||
Deferred income taxes |
| 116 | |||||
Liabilities held for sale |
96,370 | | |||||
| | | | | | | |
Total current liabilities |
445,240 | 415,849 | |||||
Long-Term Debt |
390,794 | 383,662 | |||||
Other Non-Current Liabilities |
157,335 | 208,916 | |||||
Deferred Income Taxes |
16,624 | 21,026 | |||||
Commitments and Contingencies (Note 9) 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 | |||||
Capital in excess of par value |
155,984 | 147,018 | |||||
Retained earnings |
1,020,633 | 1,071,551 | |||||
Accumulated other comprehensive loss |
(20,879 | ) | (10,074 | ) | |||
| | | | | | | |
|
1,332,175 | 1,384,932 | |||||
Common stock in treasury, at cost 53,501,234 and 59,851,190 shares |
(1,364,657 | ) | (1,511,862 | ) | |||
| | | | | | | |
Total stockholders' deficit |
(32,482 | ) | (126,930 | ) | |||
| | | | | | | |
Total Liabilities and Stockholders' Deficit |
$ | 977,511 | $ | 902,523 | |||
| | | | | | | |
| | | | | | | |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F-5
Fifth & Pacific Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Fiscal Years Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 28, 2013 | December 29, 2012 | December 31, 2011 | |||||||
In thousands, except per common share data |
|
|
|
|||||||
Net Sales |
$ | 1,264,935 | $ | 1,043,403 | $ | 1,100,508 | ||||
Cost of goods sold |
539,354 | 444,234 | 502,177 | |||||||
| | | | | | | | | | |
Gross Profit |
725,581 | 599,169 | 598,331 | |||||||
Selling, general & administrative expenses |
766,103 | 651,697 | 700,079 | |||||||
Impairment of intangible assets |
4,991 | | 1,024 | |||||||
| | | | | | | | | | |
Operating Loss |
(45,513 | ) | (52,528 | ) | (102,772 | ) | ||||
Other (expense) income, net |
(1,674 | ) | (187 | ) | 228 | |||||
Impairment of cost investment |
(6,109 | ) | | | ||||||
Gain on acquisition of subsidiary |
| 40,065 | | |||||||
Gain on sales of trademarks, net |
173,133 | | 286,979 | |||||||
(Loss) gain on extinguishment of debt, net |
(1,707 | ) | (9,754 | ) | 5,157 | |||||
Interest expense, net |
(47,241 | ) | (51,612 | ) | (57,180 | ) | ||||
| | | | | | | | | | |
Income (Loss) Before Benefit for Income Taxes |
70,889 | (74,016 | ) | 132,412 | ||||||
Benefit for income taxes |
(3,035 | ) | (3,795 | ) | (5,794 | ) | ||||
| | | | | | | | | | |
Income (Loss) from Continuing Operations |
73,924 | (70,221 | ) | 138,206 | ||||||
Discontinued operations, net of income taxes |
(929 | ) | (4,284 | ) | (309,893 | ) | ||||
| | | | | | | | | | |
Net Income (Loss) |
$ | 72,995 | $ | (74,505 | ) | $ | (171,687 | ) | ||
| | | | | | | | | | |
| | | | | | | | | | |
Earnings per Share, Basic: |
||||||||||
Income (Loss) from Continuing Operations |
$ | 0.61 | $ | (0.64 | ) | $ | 1.46 | |||
| | | | | | | | | | |
| | | | | | | | | | |
Net Income (Loss) |
$ | 0.60 | $ | (0.68 | ) | $ | (1.81 | ) | ||
| | | | | | | | | | |
| | | | | | | | | | |
Earnings per Share, Diluted: |
||||||||||
Income (Loss) from Continuing Operations |
$ | 0.60 | $ | (0.64 | ) | $ | 1.22 | |||
| | | | | | | | | | |
| | | | | | | | | | |
Net Income (Loss) |
$ | 0.59 | $ | (0.68 | ) | $ | (1.35 | ) | ||
| | | | | | | | | | |
| | | | | | | | | | |
Weighted Average Shares, Basic |
121,057 | 109,292 | 94,664 | |||||||
Weighted Average Shares, Diluted |
124,832 | 109,292 | 120,692 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F-6
Fifth & Pacific Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
Fiscal Years Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 28, 2013 | December 29, 2012 | December 31, 2011 | |||||||
In thousands |
|
|
|
|||||||
Net Income (Loss) |
$ | 72,995 | $ | (74,505 | ) | $ | (171,687 | ) | ||
Other Comprehensive (Loss) Income, Net of Income Taxes: |
||||||||||
Translation adjustment, including Euro Notes in 2011 and other instruments, net of income taxes of $0, $0 and $905, respectively |
(11,788 | ) | (3,990 | ) | (4,279 | ) | ||||
Write-off of translation adjustment in connection with liquidation of foreign subsidiaries |
| | 62,166 | |||||||
Unrealized losses on available-for-sale securities, net of income taxes of $0 |
| (160 | ) | (126 | ) | |||||
Change in fair value of cash flow hedging derivatives, net of income taxes of $602, $0 and $(491), respectively |
983 | | 2,617 | |||||||
| | | | | | | | | | |
Comprehensive Income (Loss) |
$ | 62,190 | $ | (78,655 | ) | $ | (111,309 | ) | ||
| | | | | | | | | | |
| | | | | | | | | | |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F-7
Fifth & Pacific Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, ACCUMULATED COMPREHENSIVE LOSS AND
CHANGES IN CAPITAL ACCOUNTS
|
Common Stock | |
|
|
Treasury Shares | |
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Accumulated Other Comprehensive Loss |
|
|
|||||||||||||||||||||||
|
Number of Shares |
Amount | Capital in Excess of Par Value |
Retained Earnings |
Number of Shares |
Amount | Noncontrolling Interest |
Total | ||||||||||||||||||||
In thousands, except share data |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
BALANCE, JANUARY 1, 2011 |
176,437,234 | $ | 176,437 | $ | 331,808 | $ | 1,417,785 | $ | (66,302 | ) | 81,892,589 | $ | (1,883,898 | ) | $ | 2,489 | $ | (21,681 | ) | |||||||||
Net loss |
| | | (171,687 | ) | | | | | (171,687 | ) | |||||||||||||||||
Other comprehensive income, net of income taxes |
| | | | 60,378 | | | | 60,378 | |||||||||||||||||||
Exercise of stock options |
| | (211 | ) | | | (61,375 | ) | 515 | | 304 | |||||||||||||||||
Restricted shares issued, net of cancellations and shares withheld for taxes |
| | 185 | | | (75,120 | ) | (280 | ) | | (95 | ) | ||||||||||||||||
Amortization share-based compensation |
| | 5,811 | | | | | | 5,811 | |||||||||||||||||||
Dividend equivalent units vested |
| | (1,240 | ) | (35 | ) | | 26 | 950 | | (325 | ) | ||||||||||||||||
Exchange of Convertible Senior Notes, net |
| | (36,512 | ) | | | (6,163,221 | ) | 54,821 | | 18,309 | |||||||||||||||||
Tendered subsidiary shares for noncontrolling interest |
| | 2,489 | | | | | (2,489 | ) | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, DECEMBER 31, 2011 |
176,437,234 | 176,437 | 302,330 | 1,246,063 | (5,924 | ) | 75,592,899 | (1,827,892 | ) | | (108,986 | ) | ||||||||||||||||
Net loss |
| | | (74,505 | ) | | | | | (74,505 | ) | |||||||||||||||||
Other comprehensive loss, net of income taxes |
| | | | (4,150 | ) | | | | (4,150 | ) | |||||||||||||||||
Exercise of stock options |
| | (10,642 | ) | (2,929 | ) | | (1,340,325 | ) | 19,776 | | 6,205 | ||||||||||||||||
Restricted shares issued, net of cancellations and shares withheld for taxes |
| | (3,791 | ) | (195 | ) | | (204,278 | ) | 2,619 | | (1,367 | ) | |||||||||||||||
Amortization share-based compensation |
| | 7,779 | | | | | | 7,779 | |||||||||||||||||||
Exchanges of Convertible Senior Notes, net |
| | (148,658 | ) | (96,883 | ) | | (14,197,106 | ) | 293,635 | | 48,094 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, DECEMBER 29, 2012 |
176,437,234 | 176,437 | 147,018 | 1,071,551 | (10,074 | ) | 59,851,190 | (1,511,862 | ) | | (126,930 | ) | ||||||||||||||||
Net income |
| | | 72,995 | | | | | 72,995 | |||||||||||||||||||
Other comprehensive loss, net of income taxes |
| | | | (10,805 | ) | | | | (10,805 | ) | |||||||||||||||||
Exercise of stock options |
| | | (5,959 | ) | | (544,200 | ) | 10,782 | | 4,823 | |||||||||||||||||
Restricted shares issued, net of cancellations and shares withheld for taxes |
| | | (5,724 | ) | | (171,577 | ) | 3,422 | | (2,302 | ) | ||||||||||||||||
Amortization share-based compensation |
| | 9,618 | | | | | | 9,618 | |||||||||||||||||||
Exchanges of Convertible Senior Notes, net |
| | (652 | ) | (112,230 | ) | | (5,634,179 | ) | 133,001 | | 20,119 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE, DECEMBER 28, 2013 |
176,437,234 | $ | 176,437 | $ | 155,984 | $ | 1,020,633 | $ | (20,879 | ) | 53,501,234 | $ | (1,364,657 | ) | $ | | $ | (32,482 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F-8
Fifth & Pacific Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Fiscal Years Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands |
December 28, 2013 | December 29, 2012 | December 31, 2011 | |||||||
Cash Flows from Operating Activities: |
||||||||||
Net income (loss) |
$ | 72,995 | $ | (74,505 | ) | $ | (171,687 | ) | ||
Adjustments to arrive at income (loss) from continuing operations |
929 | 4,284 | 309,893 | |||||||
| | | | | | | | | | |
Income (loss) from continuing operations |
73,924 | (70,221 | ) | 138,206 | ||||||
Adjustments to reconcile income (loss) from continuing operations to net cash (used in) provided by operating activities: |
||||||||||
Depreciation and amortization |
59,932 | 59,130 | 70,348 | |||||||
Impairment of intangible assets |
4,991 | | 1,024 | |||||||
Loss on asset disposals and impairments, including streamlining initiatives, net |
47,200 | 44,458 | 31,225 | |||||||
Deferred income taxes |
(4,195 | ) | (5,676 | ) | (6,171 | ) | ||||
Share-based compensation |
8,446 | 7,195 | 5,187 | |||||||
Foreign currency transaction losses, net |
9,328 | 1,532 | 3,565 | |||||||
Gain on acquisition of subsidiary |
| (40,065 | ) | | ||||||
Gain on sales of trademarks, net |
(173,133 | ) | | (286,979 | ) | |||||
Loss (gain) on extinguishment of debt, net |
1,707 | 9,754 | (5,157 | ) | ||||||
Other, net |
1,250 | 1,207 | (1,563 | ) | ||||||
Changes in assets and liabilities: |
||||||||||
Decrease (increase) in accounts receivable trade, net |
236 | (3,817 | ) | 57,169 | ||||||
(Increase) decrease in inventories, net |
(37,599 | ) | (10,175 | ) | 22,985 | |||||
(Increase) decrease in other current and non-current assets |
(8,085 | ) | (188 | ) | 2,292 | |||||
Increase in accounts payable |
20,745 | 11,903 | 7,727 | |||||||
(Decrease) increase in accrued expenses and other non-current liabilities |
(13,390 | ) | (43,450 | ) | 59,751 | |||||
Decrease in income taxes receivable |
3,577 | 801 | 1,769 | |||||||
Net cash (used in) provided by operating activities of discontinued operations |
(18,965 | ) | 48,970 | (118,406 | ) | |||||
| | | | | | | | | | |
Net cash (used in) provided by operating activities |
(24,031 | ) | 11,358 | (17,028 | ) | |||||
| | | | | | | | | | |
Cash Flows from Investing Activities: |
||||||||||
Proceeds from sales of property and equipment |
20,264 | | | |||||||
Purchases of property and equipment |
(78,114 | ) | (61,861 | ) | (61,561 | ) | ||||
Net proceeds from dispositions |
192,938 | | 309,717 | |||||||
Payments for purchases of businesses |
| (41,027 | ) | | ||||||
Payments for in-store merchandise shops |
(2,894 | ) | (2,433 | ) | (2,610 | ) | ||||
Investments in and advances to equity investees |
(5,500 | ) | (5,000 | ) | (2,506 | ) | ||||
Other, net |
127 | 825 | 1,012 | |||||||
Net cash (used in) provided by investing activities of discontinued operations |
(32,705 | ) | (21,599 | ) | 63,901 | |||||
| | | | | | | | | | |
Net cash provided by (used in) investing activities |
94,116 | (131,095 | ) | 307,953 | ||||||
| | | | | | | | | | |
Cash Flows from Financing Activities: |
||||||||||
Proceeds from borrowings under revolving credit agreement |
650,553 | 247,097 | 651,507 | |||||||
Repayment of borrowings under revolving credit agreement |
(647,706 | ) | (247,097 | ) | (671,907 | ) | ||||
Proceeds from issuance of Senior Secured Notes |
| 164,540 | 220,094 | |||||||
Repayment of Euro Notes |
| (158,027 | ) | (309,159 | ) | |||||
Proceeds from capital lease |
8,673 | | | |||||||
Principal payments under capital lease obligations |
(4,651 | ) | (4,476 | ) | (4,216 | ) | ||||
Proceeds from exercise of stock options |
4,823 | 6,205 | 304 | |||||||
Payment of deferred financing fees |
(5,597 | ) | (7,140 | ) | (11,168 | ) | ||||
Other, net |
| | (805 | ) | ||||||
Net cash used in financing activities of discontinued operations |
| | (2,663 | ) | ||||||
| | | | | | | | | | |
Net cash provided by (used in) financing activities |
6,095 | 1,102 | (128,013 | ) | ||||||
| | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
(5,197 |
) |
(1,899 |
) |
(5,690 |
) |
||||
Net Change in Cash and Cash Equivalents |
70,983 |
(120,534 |
) |
157,222 |
||||||
Cash and Cash Equivalents at Beginning of Year |
59,402 | 179,936 | 22,714 | |||||||
| | | | | | | | | | |
Cash and Cash Equivalents at End of Year |
130,385 | 59,402 | 179,936 | |||||||
Less: Cash and Cash Equivalents Held for Sale |
163 | | | |||||||
| | | | | | | | | | |
Cash and Cash Equivalents |
$ | 130,222 | $ | 59,402 | $ | 179,936 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F-9
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Fifth & Pacific Companies, Inc. and its wholly-owned and majority-owned subsidiaries (the "Company") are engaged primarily in the design and marketing of a broad range of apparel and accessories. 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, e-commerce, concessions, wholesale apparel, wholesale non-apparel and licensing. The three 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 three reportable segments, as follows:
On December 10, 2013, the Company entered into a definitive agreement to sell 100% of the capital stock of Lucky Brand Dungarees, Inc. ("Lucky Brand"), at the time a wholly-owned subsidiary of the Company that owned the operations of the LUCKY BRAND business, to LBD Acquisition Company, LLC ("LBD Acquisition"), a Delaware limited liability company and affiliate of Leonard Green & Partners, L.P. ("Leonard Green"), for an aggregate payment of $225.0 million, comprised of $140.0 million cash consideration and a three-year $85.0 million note (the "Lucky Brand Note") issued by Lucky Brand Dungarees, LLC ("Lucky Brand LLC") at the closing of the stock purchase (the "Closing"), subject to working capital and other adjustments (the "Lucky Brand Transaction"). The Lucky Brand Transaction closed on February 3, 2014. The assets and liabilities of the LUCKY BRAND business have been segregated and reported as held for sale as of December 28, 2013 (see Note 3 Discontinued Operations). The Lucky Brand Note matures in February 2017 and is guaranteed by substantially all of Lucky Brand LLC's subsidiaries. The Lucky Brand Note is secured by second-priority lien on all accounts receivable and inventory of Lucky Brand LLC and the guarantor subsidiaries and a first-priority lien on all other collateral of Lucky Brand LLC and the guarantors. The accounts receivable and inventory secure Lucky Brand LLC's asset-based revolving loan facility on a first-priority basis, and the other collateral secures that loan facility on a second-priority basis. The principal amount of the Lucky Brand Note increases by $5.0 million per year in equal monthly increments and bears cash interest of $8.0 million per year, payable semiannually in arrears. The Lucky Brand Note is prepayable at any time by Lucky Brand LLC without a prepayment premium, subject to certain restrictions as to the minimum amount that may be prepaid without the Company's consent.
F-10
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On November 6, 2013, the Company completed the sale of its JUICY COUTURE and related intellectual property assets of JUICY COUTURE (the "Juicy Couture IP") to ABG for a total purchase price of $195.0 million. 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 the Company 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.
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 (see Note 17 Additional Financial Information).
On November 2, 2011, the Company sold the global trademark rights for the LIZ CLAIBORNE family of brands and the trademark rights in the US and Puerto Rico for the MONET brand to J.C. Penney Corporation, Inc. ("JCPenney") for $267.5 million. The transaction provided for the sale of domestic and international trademark rights for LIZ CLAIBORNE, CLAIBORNE, LIZ, LIZ & CO., CONCEPTS BY CLAIBORNE, LC, ELISABETH, LIZGOLF, LIZSPORT, LIZ CLAIBORNE NEW YORK and LIZWEAR and the sale of the trademark rights in the US and Puerto Rico for MONET. The LIZ CLAIBORNE NEW YORK and LIZWEAR trademarks are licensed back royalty-free to the Company until July 2020. Further, the Company serves as the exclusive supplier of jewelry to JCPenney for the LIZ CLAIBORNE and MONET brands. In connection with this transaction, the Company entered into an agreement with JCPenney to develop exclusive brands for JCPenney, pursuant to which JCPenney paid the Company a $20.0 million refundable advance. The agreement terminated by its terms 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.
On October 31, 2011, the Company completed a transaction (the "MEXX Transaction") with affiliates of The Gores Group, LLC ("Gores"), pursuant to which the Company sold its former global Mexx business to a company ("NewCo") in which the Company indirectly held an 18.75% interest and affiliates of Gores held an 81.25% interest, for cash consideration, subject to working capital adjustments, of $85.0 million, including revolving credit facility debt that was assumed by NewCo.
On October 24, 2011, the Company sold its KENSIE, KENSIE GIRL and MAC & JAC trademarks to an affiliate of Bluestar Alliance LLC ("Bluestar"). On October 11, 2011, the Company sold its Dana Buchman trademark to Kohl's Corporation ("Kohls"). The aggregate cash proceeds of these two transactions were $39.8 million. The Company served as the exclusive supplier of jewelry to Kohl's for its former Dana Buchman brand through October 11, 2013. The Company also entered an exclusive license agreement to produce and sell jewelry under the KENSIE brand name.
The activities of the Company's LUCKY BRAND business, its 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 JUICY COUTURE, the LIZ CLAIBORNE family of brands and MONET brand 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.
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 new york, KATE
F-11
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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).
PRINCIPLES OF CONSOLIDATION
The 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 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 Consolidated Financial Statements. These estimates and assumptions also 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.
Critical accounting policies are those that are most important to the portrayal of the Company's 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. The Company's most critical accounting policies, discussed below, pertain to revenue recognition, income taxes, accounts receivable trade, inventories, intangible assets, accrued expenses and share-based compensation. 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.
Revenue Recognition
The Company recognizes revenue from its wholesale, direct-to-consumer and licensing operations. Revenue within the Company's wholesale operations is recognized at the time title passes and risk of loss is transferred to customers. Wholesale revenue is recorded net of returns, discounts and allowances. Returns and allowances require pre-approval from management. Discounts are based on trade terms. Estimates for end-of-season allowances are based on historical trends, seasonal results, an evaluation of current economic conditions and retailer performance. The Company reviews and refines these estimates on a monthly basis based on current experience, trends and retailer performance. The Company's historical estimates of these costs have not differed materially from actual results. Retail store and e-commerce revenues are recognized net of estimated returns at the time of sale to consumers. Sales tax collected from customers is excluded from revenue. Proceeds received from the sale of gift cards are recorded as a liability and recognized as sales when redeemed by the holder. The Company does not recognize revenue for estimated gift card breakage. Licensing revenues, which amounted to $32.1 million, $37.9 million and $75.0 million during 2013, 2012 and 2011, respectively, are recorded based upon contractually guaranteed minimum levels and adjusted as actual sales data is received from licensees.
Income Taxes
Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
F-12
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
respective tax bases, as measured by enacted tax rates that are expected to be in effect in the periods when the deferred tax assets and liabilities are expected to be realized or settled. The Company also assesses the likelihood of the realization of deferred tax assets and adjusts the carrying amount of these deferred tax assets by a valuation allowance to the extent the Company believes it more likely than not that all or a portion of the deferred tax assets will not be realized. Many factors are considered when assessing the likelihood of future realization of deferred tax assets, including recent earnings results within taxing jurisdictions, expectations of future taxable income, the carryforward periods available and other relevant factors. Changes in the required valuation allowance are recorded in income in the period such determination is made. Significant judgment is required in determining the worldwide provision for income taxes. Changes in estimates may create volatility in the Company's effective tax rate in future periods for various reasons including changes in tax laws or rates, changes in forecasted amounts and mix of pretax income (loss), settlements with various tax authorities, either favorable or unfavorable, the expiration of the statute of limitations on some tax positions and obtaining new information about particular tax positions that may cause management to change its estimates. In the ordinary course of a global business, the ultimate tax outcome is uncertain for many transactions. It is the Company's policy to recognize the impact of an uncertain income tax position on its income tax return at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50.0% likelihood of being sustained. The tax provisions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments to those provisions. The Company records interest expense and penalties payable to relevant tax authorities as income tax expense.
Accounts Receivable Trade, Net
In the normal course of business, the Company extends credit to customers that satisfy pre-defined credit criteria. Accounts receivable trade, net, as shown on the Consolidated Balance Sheets, is net of allowances and anticipated discounts. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectibility based on an evaluation of historical and anticipated trends, the financial condition of the Company's customers and an evaluation of the impact of economic conditions. An allowance for discounts is based on those discounts relating to open invoices where trade discounts have been extended to customers. Costs associated with potential returns of products as well as allowable customer markdowns and operational charge backs, net of expected recoveries, are included as a reduction to sales and are part of the provision for allowances included in Accounts receivable trade, net. These provisions result from seasonal negotiations with the Company's customers as well as historical deduction trends, net of expected recoveries, and the evaluation of current market conditions. The Company's historical estimates of these costs have not differed materially from actual results.
Inventories, Net
Inventories for seasonal, replenishment and on-going merchandise are recorded at the lower of actual average cost or market value. The Company continually evaluates the composition of its inventories by assessing slow-turning, ongoing product as well as prior seasons' fashion product. Market value of distressed inventory is estimated based on historical sales trends for this category of inventory of the Company's individual product lines, the impact of market trends and economic conditions and the value of current orders in-house relating to the future sales of this type of inventory. Estimates may differ from actual results due to quantity, quality and mix of products in inventory, consumer and retailer preferences and market conditions. The Company's historical estimates of these costs and its provisions have not differed materially from actual results.
F-13
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the first quarter of 2009, the Company entered into a ten-year, buying/sourcing agency agreement with Li & Fung Limited ("Li & Fung") (see Note 9 Commitments and Contingencies). Pursuant to the agreement, the Company received a payment of $75.0 million at closing, which was recorded within Accrued expenses and Other non-current liabilities on the accompanying Consolidated Balance Sheets. Under the terms of the buying/sourcing agency agreement, the Company is subject to minimum purchase requirements based on the value of inventory purchased each year under the agreement. Since 2009, the Company has completed various disposition transactions, including the licensing arrangements with JCPenney in the US and Puerto Rico and with QVC, Inc. ("QVC"), the sales of the KENSIE, KENSIE GIRL and MAC & JAC trademarks and the sale of the Juicy Couture IP, which resulted in the removal of buying/sourcing for such products sold from the Li & Fung buying/sourcing arrangement. As a result, the Company refunded $24.3 million of the closing payment in the second quarter of 2010 and $1.8 million in the second quarter of 2012 and settled $6.0 million in the fourth quarter of 2013. The Company is not required to make any payments to Li & Fung as a result of the sale of LUCKY BRAND. The Company will reclassify up to $4.3 million per contract year of the $42.9 million net payment as a reduction of inventory cost as inventory is purchased using the buying/sourcing agent, up to the minimum requirement for the initial term of the agreement and subsequently reflect a reduction of Cost of goods sold as the inventory is sold.
Intangibles, Net
Intangible assets with indefinite lives are not amortized, but rather tested for impairment at least annually. The Company's annual impairment test is performed as of the first day of the third fiscal quarter.
The Company assesses 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, the Company concludes that it is not more likely than not that an indefinite-lived intangible asset is impaired, then the Company is not required to take further action. However, if the Company 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 Company estimates the fair value of these intangible assets based on an income approach using the relief-from-royalty method. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets. This approach is dependent on a number of factors, including estimates of future growth and trends, royalty rates in the category of intellectual property, discount rates and other variables. The Company bases its fair value estimates on assumptions it believes to be reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates. The Company recognizes an impairment loss when the estimated fair value of the intangible asset is less than the carrying value.
The recoverability of the carrying values of all intangible assets with finite lives is re-evaluated when events or changes in circumstances indicate an asset's value may be impaired. Impairment testing is based on a review of forecasted operating cash flows. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of such assets is reduced to fair value through a charge to the Consolidated Statement of Operations.
Intangible assets with finite lives are amortized over their respective lives to their estimated residual values. Trademarks with finite lives are amortized over their estimated useful lives. Intangible merchandising rights are amortized over a period of 3 to 4 years. Customer relationships are amortized assuming gradual attrition over periods ranging from 12 to 14 years.
F-14
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In the third quarter of 2013, the Company recorded a non-cash impairment charge of $3.3 million, which reflected the difference in the estimated fair value and carrying value of the TRIFARI trademark (see Note 11 Fair Value Measurements).
As a result of the impairment analysis performed in connection with the Company's purchased trademarks with indefinite lives, no impairment charges were recorded during 2012 or 2011.
During 2013, the Company recorded non-cash impairment changes of $1.7 million within its JUICY COUTURE segment related to that brand's merchandising rights due to decreased use of such intangible assets.
During 2011, the Company recorded non-cash impairment charges of $1.0 million primarily within its Adelington Design Group segment principally related to merchandising rights of its MONET and former licensed DKNY® Jeans brands due to decreased use of such intangible assets.
Goodwill
Goodwill is not amortized but rather tested for impairment at least annually. The Company's annual impairment test is performed as of the first day of the third fiscal quarter.
The Company assesses qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that goodwill is impaired. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that goodwill is impaired, then the Company is not required to take further action. However, if the Company concludes otherwise, then it is required to determine the fair value of goodwill and perform the quantitative impairment test by comparing the fair value with the carrying amount. A two-step impairment test is then performed on goodwill. In the first step, the Company compares the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using the market approach, as is typically used for companies providing products where the value of such a company is more dependent on the ability to generate earnings than the value of the assets used in the production process. Under this approach, the Company estimates fair value based on market multiples of revenues and earnings for comparable companies. The Company also uses discounted future cash flow analyses to corroborate these fair value estimates. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired, and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step in order to determine the implied fair value of the reporting unit's goodwill and compare it to the carrying value of the reporting unit's goodwill. The activities in the second step include valuing the tangible and intangible assets of the impaired reporting unit based on their fair value and determining the fair value of the impaired reporting unit's goodwill based upon the residual of the summed identified tangible and intangible assets.
As a result of the impairment analysis performed in connection with the Company's goodwill, no impairment charges were recorded during 2013, 2012 or 2011.
During 2012, the Company recorded additional goodwill as a result of the KSJ acquisition (see Note 2 Acquisition).
Accrued Expenses
Accrued expenses for employee insurance, workers' compensation, contracted advertising and other outstanding obligations are assessed based on claims experience and statistical trends, open contractual
F-15
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
obligations and estimates based on projections and current requirements. If these trends change significantly, then actual results would likely be impacted.
Share-Based Compensation
The Company recognizes compensation expense based on the fair value of employee share-based awards, including stock options and restricted stock, net of estimated forfeitures. Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility and the expected dividends. Judgment is required in estimating the amount of share-based awards expected to be forfeited prior to vesting. If actual forfeitures differ significantly from these estimates, share-based compensation expense could be materially impacted.
OTHER SIGNIFICANT ACCOUNTING POLICIES
Fair Value Measurements
The Company applies the relevant accounting guidance on fair value measurements to (i) all financial instruments that are being measured and reported on a fair value basis; (ii) non-financial assets and liabilities measured and reported at fair value on a non-recurring basis; and (iii) disclosures of fair value of certain financial assets and liabilities.
The following fair value hierarchy is used in selecting inputs for those instruments measured at fair value that distinguishes between assumptions based on market data (observable) and the Company's assumptions (unobservable inputs). The hierarchy consists of three levels.
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 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.
Fair value measurement for the Company's assets assumes the highest and best use (the use that generates the highest returns individually or as a group) for the asset by market participants, considering the use of the asset that is physically possible, legally permissible, and financially feasible at the measurement date. This applies even if the intended use of the asset by the Company is different.
Fair value measurement for the Company's liabilities assumes that the liability is transferred to a market participant at the measurement date and that the nonperformance risk relating to the liability is the same before and after the transaction. Nonperformance risk refers to the risk that the obligation will not be fulfilled and includes the Company's own credit risk.
The Company has chosen not to elect the fair value measurement option for any instruments not required to be measured at fair value on a recurring basis.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or less at the date of purchase are classified as cash equivalents.
F-16
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property and Equipment, Net
Property and equipment is stated at cost less accumulated depreciation and amortization. Buildings and building improvements are depreciated using the straight-line method over their estimated useful lives of 20 to 39 years. Machinery and equipment and furniture and fixtures are depreciated using the straight-line method over their estimated useful lives of three to seven years. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful lives of the assets. Improvements are capitalized and depreciated in accordance with the Company's policies; costs for maintenance and repairs are expensed as incurred. Leased property meeting certain capital lease criteria is capitalized and the present value of the related lease payments is recorded as a liability. Amortization of capitalized leased assets is recorded on the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The Company recognizes a liability for the fair value of an asset retirement obligation ("ARO") if the fair value can be reasonably estimated. The Company's ARO's are primarily associated with the removal and disposal of leasehold improvements at the end of a lease term when the Company is contractually obligated to restore a facility to a condition specified in the lease agreement. Amortization of ARO's is recorded on a straight-line basis over the lease term.
The Company capitalizes the costs of software developed or obtained for internal use. Capitalization of software developed or obtained for internal use commences during the development phase of the project. The Company amortizes software developed or obtained for internal use on a straight-line basis over five years, when such software is substantially ready for use.
The Company evaluates the recoverability of property and equipment if circumstances indicate an impairment may have occurred. This analysis is performed by comparing the respective carrying values of the assets to the current and expected future cash flows to be generated from such assets, on an undiscounted basis. If such analysis indicates that the carrying value of these assets is not recoverable, the carrying value of the impaired assets is reduced to fair value through a charge to the Company's Consolidated Statement of Operations.
The Company recorded pretax charges of $37.2 million in 2013, $39.3 million in 2012 and $24.3 million in 2011 to reduce the carrying values of certain property and equipment to their estimated fair values (see Note 11 Fair Value Measurements).
Operating Leases
The Company leases office space, retail stores and distribution facilities. Many of these operating leases provide for tenant improvement allowances, rent increases and/or contingent rent provisions. Rental expense is recognized on a straight-line basis commencing with the possession date of the property, which is the earlier of the lease commencement date or the date when the Company takes possession of the property. Certain store leases include contingent rents that are based on a percentage of retail sales over stated thresholds. Tenant allowances are amortized on a straight-line basis over the life of the lease as a reduction of rent expense and are included in Selling, general & administrative expenses ("SG&A").
The Company leases retail stores under leases with terms that are typically five or ten years. The Company amortizes rental abatements, construction allowances and other rental concessions classified as deferred rent on a straight-line basis over the initial term of the lease. The initial lease term can include one renewal under limited circumstances if the renewal is reasonably assured, based on consideration of all of the following factors: (i) a written renewal at the Company's option or an automatic renewal; (ii) there is no minimum sales requirement that could impair the Company's ability to renew; (iii) failure to renew would subject the Company to a substantial penalty; and (iv) there is an established history of renewals in the format or location.
F-17
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Derivative Instruments
The Company's derivative instruments are recorded in the Consolidated Balance Sheets as either an asset or liability and measured at their fair value. The changes in a derivative's fair value are recognized either currently in earnings or Accumulated other comprehensive loss, depending on whether the derivative qualifies for hedge accounting treatment. The Company tests each derivative for effectiveness at inception of each hedge and at the end of each reporting period.
The Company uses foreign currency forward contracts, collars, options and swap contracts for the purpose of hedging the specific exposure to variability in forecasted cash flows associated primarily with inventory purchases by KSJ. These instruments are designated as cash flow hedges. To the extent the hedges are highly effective, the effective portion of the changes in fair value are included in Accumulated other comprehensive loss, net of income taxes, with the corresponding asset or liability recorded in the Consolidated Balance Sheet. The ineffective portion of the cash flow hedge is recognized primarily as a component of Cost of goods sold in current period earnings. Amounts recorded in Accumulated other comprehensive loss are reflected in current period earnings when the hedged transaction affects earnings. If fluctuations in the relative value of the currencies involved in the hedging activities were to move dramatically, such movement could impact the Company's results of operations.
Occasionally, the Company purchases short-term foreign currency contracts to neutralize balance sheet and other expected exposures, including intercompany loans. These derivative instruments do not qualify as cash flow hedges and are recorded at fair value with all gains or losses recognized as a component of SG&A or Other (expense) income, net in current period earnings (see Note 12 Derivative Instruments).
Foreign Currency Translation
Assets and liabilities of non-US subsidiaries are translated at period-end exchange rates. Revenues and expenses for each month are translated using that month's average exchange rate and then are combined for the period totals. Resulting translation adjustments are included in Accumulated other comprehensive loss. Gains and losses on translation of intercompany loans with foreign subsidiaries of a long-term investment nature are also included in this component of Stockholders' deficit.
Foreign Currency Transactions
Outstanding balances in foreign currencies are translated at the end of period exchange rates. The resulting exchange differences are recorded in the Consolidated Statements of Operations or Accumulated other comprehensive loss, as appropriate.
Cost of Goods Sold
Cost of goods sold for wholesale operations includes the expenses incurred to acquire and produce inventory for sale, including product costs, freight-in, import costs, third party inspection activities, buying/sourcing agent commissions and provisions for shrinkage. For retail operations, in-bound freight from the Company's warehouse to its own retail stores is also included. Warehousing activities including receiving, storing, picking, packing and general warehousing charges are included in SG&A and, as such, the Company's gross profit may not be comparable to others who may include these expenses as a component of Cost of goods sold.
F-18
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Advertising, Promotion and Marketing
All costs associated with advertising, promoting and marketing of Company products are expensed during the periods when the activities take place. Costs associated with cooperative advertising programs involving agreements with customers, whereby customers are required to provide documentary evidence of specific performance and when the amount of consideration paid by the Company for these services is at or below fair value, are charged to SG&A. Costs associated with customer cooperative advertising allowances without specific performance guidelines are recorded as a reduction of sales. The Company incurred expenses of $59.3 million, $44.0 million and $36.7 million for advertising, marketing & promotion for all brands in 2013, 2012 and 2011, respectively.
Shipping and Handling Costs
Shipping and handling costs, which are mostly comprised of warehousing activities, are included as a component of SG&A in the Consolidated Statements of Operations. In fiscal years 2013, 2012 and 2011, shipping and handling costs were $42.6 million, $22.5 million and $35.3 million, respectively.
Investments in Unconsolidated Subsidiaries
The Company uses the equity method of accounting for its investments in and its proportionate share in earnings of affiliates that it does not control, but over which it exerts significant influence (see Note 20 Related Party Transactions). The Company considers whether the fair value of its equity method investments has declined below carrying value whenever adverse events or changes in circumstances indicate the recorded value may not be recoverable.
The Company uses the cost method of accounting for its investment in an affiliate that it does not control and over which the Company does not exert significant influence (see Note 20 Related Party Transactions). The Company evaluates such investment for other-than-temporary impairment due to changes in circumstances and if such changes are likely to have a significant adverse effect which may indicate an impairment of the investment. If an impairment indicator is present, the Company estimates the fair value of the cost method investment to determine whether the investment is actually impaired. If the investment is impaired, the Company determines whether the impairment is considered other-than-temporary.
Cash Dividends and Common Stock Repurchases
On December 16, 2008, the Board of Directors announced the suspension of the Company's quarterly cash dividend indefinitely.
The Company's amended and restated revolving credit agreement currently restricts its ability to pay dividends and repurchase stock (see Note 10 Debt and Lines of Credit).
Fiscal Year
The Company's fiscal year ends on the Saturday closest to December 31. The 2013, 2012 and 2011 fiscal years, which ended on December 28, 2013, December 29, 2012 and December 31, 2011, respectively, reflected 52-week periods.
Subsequent Events
The Company's policy is to evaluate all events or transactions that occur from the balance sheet date through the date of the issuance of its financial statements. The Company has evaluated events or
F-19
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
transactions that occurred from the balance sheet date through the date the Company issued these financial statements (see Note 25 Subsequent Events).
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 did not affect the Company's financial position, results of operations or cash flows, but required additional disclosure (see Note 19 Accumulated Other Comprehensive Loss).
NOTE 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 the 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 used 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 2012, which was included on the accompanying Consolidated Statement of Operations as Gain on acquisition of subsidiary. The results of operations for KSJ have been included in the Company's consolidated results since October 31, 2012. KSJ generated $98.3 million and $16.0 million of net sales and $(1.8) million of net loss and $0.7 million of net income for the years ended December 28, 2013 and December 29, 2012, respectively. KSJ also generated $5.7 million and $0.5 million of incremental Adjusted EBITDA for the years ended December 28, 2013 and December 29, 2012, respectively. Adjusted EBITDA is the Company's
F-20
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
measure of segment profitability, as discussed in Note 18 Segment Reporting. Transaction costs related to the acquisition were not significant.
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 table summarizes the estimated fair values of the assets acquired and the liabilities assumed as of the acquisition date:
In thousands |
|
|||
---|---|---|---|---|
Assets acquired: |
||||
Current assets |
$ | 23,721 | ||
Property and equipment, net |
5,608 | |||
Goodwill and intangibles, net |
79,374 | |||
Other assets |
6,776 | |||
| | | | |
Total assets acquired |
$ | 115,479 | ||
| | | | |
| | | | |
Liabilities assumed: |
||||
Current liabilities |
$ | 8,834 | ||
Non-current liabilities |
17,629 | |||
| | | | |
Total liabilities assumed |
$ | 26,463 | ||
| | | | |
| | | | |
The following table presents details of the acquired intangible assets:
In thousands |
Useful Life | Estimated Fair Value | ||||
---|---|---|---|---|---|---|
Reacquired distribution rights |
3 years | $ | 14,900 | |||
Retail customer list |
3 years | 1,100 |
The following unaudited pro forma financial information for the years ended December 29, 2012 and December 31, 2011 reflects the results of continuing operations of the Company as if the KSJ Buyout had been completed on January 1, 2012 and January 2, 2011, respectively. 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.
|
Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
In thousands, except per share amounts |
December 29, 2012 | December 31, 2011 | |||||
Net sales |
$ | 1,115,772 | $ | 1,178,365 | |||
Gross profit |
647,427 | 651,225 | |||||
Operating loss |
(48,693 | ) | (94,227 | ) | |||
(Loss) income before provision (benefit) for income taxes |
(70,619 | ) | 140,803 | ||||
(Loss) income from continuing operations |
(68,370 | ) | 142,877 | ||||
Diluted (loss) income per share from continuing operations(a) |
(0.63 | ) | 1.26 |
F-21
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
NOTE 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.
As discussed above, on December 10, 2013, the Company entered into a definitive agreement with LBD Acquisition to sell 100.0% of the capital stock of Lucky Brand Dungarees, Inc., which closed on February 3, 2014.
The components of Assets held for sale and Liabilities held for sale were as follows:
In thousands |
December 28, 2013 | |||
---|---|---|---|---|
Assets held for sale: |
||||
Cash and cash equivalents |
$ | 163 | ||
Accounts receivable trade, net |
41,709 | |||
Inventories, net |
80,503 | |||
Property and Equipment, net |
68,533 | |||
Other assets |
11,146 | |||
| | | | |
Assets held for sale |
$ | 202,054 | ||
| | | | |
| | | | |
Liabilities held for sale: |
||||
Accounts payable |
$ | 52,977 | ||
Accrued expenses |
27,773 | |||
Other liabilities |
15,620 | |||
| | | | |
Liabilities held for sale |
$ | 96,370 | ||
| | | | |
| | | | |
The Company recorded pretax charges of $29.8 million, $12.2 million and $236.1 million ($29.8 million, $12.2 million and $222.2 million, after tax) in 2013, 2012 and 2011, 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.
F-22
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized results of discontinued operations are as follows:
|
Fiscal Years Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands |
December 28, 2013 | December 29, 2012 | December 31, 2011 | |||||||
Net sales |
$ | 518,925 | $ | 463,313 | $ | 1,110,471 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
Income (loss) before provision (benefit) for income taxes |
$ | 29,133 | $ | 13,313 | $ | (84,206 | ) | |||
Provision (benefit) for income taxes |
292 | 5,407 | 3,441 | |||||||
| | | | | | | | | | |
Income (loss) from discontinued operations, net of income taxes |
$ | 28,841 | $ | 7,906 | $ | (87,647 | ) | |||
| | | | | | | | | | |
| | | | | | | | | | |
Loss on disposal of discontinued operations, net of income taxes |
$ | (29,770 | ) | $ | (12,190 | ) | $ | (222,246 | ) | |
| | | | | | | | | | |
| | | | | | | | | | |
For the years ended December 28, 2013, December 29, 2012 and December 31, 2011, the Company recorded charges of $1.0 million, $5.4 million and $43.8 million, respectively, related to its streamlining initiatives within Discontinued operations, net of income taxes.
NOTE 4: INVENTORIES, NET
Inventories, net consisted of the following:
In thousands |
December 28, 2013 | December 29, 2012 | |||||
---|---|---|---|---|---|---|---|
Raw materials and work in process |
$ | 1,028 | $ | 299 | |||
Finished goods |
183,606 | 220,239 | |||||
| | | | | | | |
Total(a) |
$ | 184,634 | $ | 220,538 | |||
| | | | | | | |
| | | | | | | |
NOTE 5: PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
In thousands |
December 28, 2013 | December 29, 2012 | |||||
---|---|---|---|---|---|---|---|
Land and buildings(a) |
$ | 9,300 | $ | 45,988 | |||
Machinery and equipment(b) |
171,811 | 233,742 | |||||
Furniture and fixtures(b) |
83,753 | 131,181 | |||||
Leasehold improvements(b) |
173,207 | 258,527 | |||||
| | | | | | | |
|
438,071 | 669,438 | |||||
Less: Accumulated depreciation and amortization(b) |
289,000 | 449,475 | |||||
| | | | | | | |
Total property and equipment, net |
$ | 149,071 | $ | 219,963 | |||
| | | | | | | |
| | | | | | | |
F-23
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Depreciation and amortization expense on property and equipment for the years ended December 28, 2013, December 29, 2012 and December 31, 2011, was $47.7 million, $44.2 million and $51.4 million, respectively, which included depreciation for property and equipment under capital leases of $1.9 million, $2.9 million and $3.8 million, respectively. Machinery and equipment under capital leases was $9.3 million and $22.6 million as of December 28, 2013 and December 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 9 Commitments and Contingencies).
F-24
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6: GOODWILL AND INTANGIBLES, NET
The following tables disclose the carrying value of all intangible assets:
In thousands |
Weighted Average Amortization Period |
December 28, 2013 | December 29, 2012 | ||||||
---|---|---|---|---|---|---|---|---|---|
Amortized intangible assets: |
|||||||||
Gross carrying amount: |
|||||||||
Owned trademarks(a) |
5 years | $ | 2,000 | $ | 1,479 | ||||
Customer relationships |
12 years | 7,273 | 7,457 | ||||||
Merchandising rights(b) |
4 years | 6,087 | 19,174 | ||||||
Reacquired rights |
3 years | 11,299 | 13,797 | ||||||
Other |
4 years | 2,322 | 2,322 | ||||||
| | | | | | | | | |
Subtotal |
28,981 | 44,229 | |||||||
| | | | | | | | | |
Accumulated amortization: |
|||||||||
Owned trademarks |
(100 | ) | (1,356 | ) | |||||
Customer relationships |
(4,022 | ) | (3,138 | ) | |||||
Merchandising rights |
(2,595 | ) | (13,131 | ) | |||||
Reacquired rights |
(4,394 | ) | (812 | ) | |||||
Other |
(2,092 | ) | (1,942 | ) | |||||
| | | | | | | | | |
Subtotal |
(13,203 | ) | (20,379 | ) | |||||
| | | | | | | | | |
Net: |
|||||||||
Owned trademarks |
1,900 | 123 | |||||||
Customer relationships |
3,251 | 4,319 | |||||||
Merchandising rights |
3,492 | 6,043 | |||||||
Reacquired rights |
6,905 | 12,985 | |||||||
Other |
230 | 380 | |||||||
| | | | | | | | | |
Total amortized intangible assets, net |
15,778 | 23,850 | |||||||
| | | | | | | | | |
Unamortized intangible assets: |
|||||||||
Owned trademarks(c) |
74,900 | 107,500 | |||||||
| | | | | | | | | |
Total intangible assets |
$ | 90,678 | $ | 131,350 | |||||
| | | | | | | | | |
| | | | | | | | | |
Goodwill |
$ | 49,111 | $ | 60,223 | |||||
| | | | | | | | | |
| | | | | | | | | |
F-25
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amortization expense of intangible assets was $6.6 million, $3.3 million and $3.4 million for the years ended December 28, 2013, December 29, 2012 and December 31, 2011, respectively.
The estimated amortization expense of intangible assets for the next five years is as follows:
Fiscal Year
|
Amortization Expense (In millions) |
|||
---|---|---|---|---|
2014 |
$ | 6.2 | ||
2015 |
5.2 | |||
2016 |
1.6 | |||
2017 |
1.2 | |||
2018 |
0.8 |
The changes in carrying amount of goodwill for the years ended December 28, 2013 and December 29, 2012 were as follows:
In thousands |
Adelington Design Group |
KATE SPADE | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance as of December 31, 2011 |
$ | 1,519 | $ | | $ | 1,519 | ||||
KSJ Buyout |
| 63,371 | 63,371 | |||||||
Translation adjustment |
35 | (4,702 | ) | (4,667 | ) | |||||
| | | | | | | | | | |
Balance as of December 29, 2012 |
1,554 | 58,669 | 60,223 | |||||||
Translation adjustment |
(107 | ) | (11,005 | ) | (11,112 | ) | ||||
| | | | | | | | | | |
Balance as of December 28, 2013 |
$ | 1,447 | $ | 47,664 | $ | 49,111 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
NOTE 7: ACCRUED EXPENSES
Accrued expenses consisted of the following:
In thousands |
December 28, 2013 | December 29, 2012 | |||||
---|---|---|---|---|---|---|---|
Payroll, bonuses and other employment related obligations |
$ | 45,971 | $ | 31,481 | |||
Lease obligations |
34,142 | 38,984 | |||||
Streamlining initiatives |
17,829 | 20,050 | |||||
Taxes, other than taxes on income |
13,762 | 19,313 | |||||
Accrued disposition costs |
10,179 | | |||||
Advertising |
9,883 | 10,971 | |||||
Interest |
8,375 | 10,242 | |||||
Employee benefits |
8,134 | 9,617 | |||||
Insurance related |
7,739 | 9,565 | |||||
Deferred income |
6,322 | 9,970 | |||||
Refund to JCPenney |
| 20,000 | |||||
Other |
37,842 | 37,271 | |||||
| | | | | | | |
Total(a) |
$ | 200,178 | $ | 217,464 | |||
| | | | | | | |
| | | | | | | |
F-26
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8: INCOME TAXES
Income (loss) before benefit for income taxes consisted of the following:
|
Fiscal Years Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands |
December 28, 2013 | December 29, 2012 | December 31, 2011 | |||||||
United States |
$ | 88,368 | $ | (68,892 | ) | $ | 132,698 | |||
International |
(17,479 | ) | (5,124 | ) | (286 | ) | ||||
| | | | | | | | | | |
Total |
$ | 70,889 | $ | (74,016 | ) | $ | 132,412 | |||
| | | | | | | | | | |
| | | | | | | | | | |
The provision (benefit) for income taxes was as follows:
|
Fiscal Years Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands |
December 28, 2013 | December 29, 2012 | December 31, 2011 | |||||||
Current: |
||||||||||
Federal |
$ | 686 | $ | 3,462 | $ | 1,981 | ||||
Foreign |
2,312 | 1,255 | 1,473 | |||||||
State and local |
(1,838 | ) | (2,836 | ) | (3,077 | ) | ||||
| | | | | | | | | | |
Total Current |
1,160 | 1,881 | 377 | |||||||
Deferred: |
||||||||||
Federal |
(1,333 | ) | (3,984 | ) | (4,107 | ) | ||||
Foreign |
(2,425 | ) | (691 | ) | (1,634 | ) | ||||
State and local |
(437 | ) | (1,001 | ) | (430 | ) | ||||
| | | | | | | | | | |
Total Deferred |
(4,195 | ) | (5,676 | ) | (6,171 | ) | ||||
| | | | | | | | | | |
|
$ | (3,035 | ) | $ | (3,795 | ) | $ | (5,794 | ) | |
| | | | | | | | | | |
| | | | | | | | | | |
Fifth & Pacific Companies, Inc. and its US subsidiaries file a consolidated federal income tax return. Deferred income tax assets and liabilities represent the tax effects of revenues, costs and expenses, which are recognized for tax purposes in different periods from those used for financial statement purposes.
F-27
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The effective income tax rate differed from the statutory federal income tax rate as follows:
|
Fiscal Years Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 28, 2013 | December 29, 2012 | December 31, 2011 | |||||||
Federal tax at statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||
State and local income taxes, net of federal benefit |
(3.2 | ) | 5.3 | (2.6 | ) | |||||
Impairments of intangible and other assets |
| | (46.1 | ) | ||||||
Sales of interest in subsidiaries and other assets |
| | (54.5 | ) | ||||||
Change in valuation allowance |
(45.3 | ) | (39.7 | ) | 58.7 | |||||
Tax on unrecognized tax benefits |
1.0 | (4.4 | ) | 1.5 | ||||||
Rate differential on foreign income |
8.5 | (4.0 | ) | 1.1 | ||||||
Gain on acquisition of subsidiary |
| 19.0 | | |||||||
Conversion of debt to equity |
0.8 | (2.2 | ) | | ||||||
Indefinite-lived intangibles |
(2.5 | ) | (3.2 | ) | | |||||
Other, net |
1.4 | (0.7 | ) | 2.5 | ||||||
| | | | | | | | | | |
|
(4.3 | )% | 5.1 | % | (4.4 | )% | ||||
| | | | | | | | | | |
| | | | | | | | | | |
The components of net deferred taxes arising from temporary differences were as follows:
In thousands |
December 28, 2013 | December 29, 2012 | |||||
---|---|---|---|---|---|---|---|
Deferred tax assets: |
|||||||
Inventory valuation |
$ | 6,088 | $ | 3,920 | |||
Streamlining initiatives |
10,003 | 14,189 | |||||
Deferred compensation |
3,009 | 11,183 | |||||
Nondeductible accruals |
83,661 | 72,908 | |||||
Share-based compensation |
7,322 | 7,235 | |||||
Net operating loss carryforward |
249,399 | 266,774 | |||||
Tax credit carryforward |
53,495 | 53,507 | |||||
Goodwill |
6,885 | 46,935 | |||||
Capital loss carryforward |
72,788 | | |||||
Noncontrolling interest |
| 73,659 | |||||
Other |
19,339 | 24,695 | |||||
| | | | | | | |
Total deferred tax assets |
511,989 | 575,005 | |||||
| | | | | | | |
Deferred tax liabilities: |
|||||||
Unrealized gains |
| (1,667 | ) | ||||
Trademarks and other intangibles |
(16,636 | ) | (24,141 | ) | |||
Property and equipment |
(12,633 | ) | (21,778 | ) | |||
Other |
(1,584 | ) | (1,672 | ) | |||
| | | | | | | |
Total deferred tax liabilities |
(30,853 | ) | (49,258 | ) | |||
| | | | | | | |
Less: Valuation allowance |
(497,485 | ) | (545,565 | ) | |||
| | | | | | | |
Net deferred tax liability |
$ | (16,349 | ) | $ | (19,818 | ) | |
| | | | | | | |
| | | | | | | |
F-28
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 28, 2013, the Company and its domestic subsidiaries had net operating loss and foreign tax credit carryforwards of $554.3 million (federal tax effected amount of $193.9 million) and $53.5 million, respectively, for federal income tax purposes that may be used to reduce future federal taxable income. The net operating loss and foreign tax credit carryforwards for federal income tax purposes will begin to expire in 2029 and 2016, respectively.
As of December 28, 2013, the Company and certain of its domestic subsidiaries recorded a $50.7 million deferred tax asset related to net operating loss carryforwards for state income tax purposes that may be used to reduce future state taxable income. The net operating loss carryforwards for state income tax purposes begin to expire in 2014.
As of December 28, 2013, certain of the Company's foreign subsidiaries recorded a $4.8 million deferred tax asset related to net operating loss carryforwards for foreign income tax purposes that may be used to reduce future foreign taxable income. The net operating loss carryforwards for foreign income tax purposes begin to expire in 2015.
As of December 28, 2013, the Company had total deferred tax assets related to net operating loss carryforwards of $249.4 million, of which $193.9 million, $50.7 million and $4.8 million were attributable to federal, domestic state and local, and foreign subsidiaries, respectively.
As of December 28, 2013, the Company and its subsidiaries recorded valuation allowances in the amount of $(497.5) million against its net operating loss and other deferred tax assets due to of its history of pretax losses and inability to carry back tax losses or credits for refunds. This represents a total decrease in the valuation allowance of $48.1 million compared to the balance at December 29, 2012.
The Company has not provided for deferred taxes on the outside basis difference in its investments in foreign subsidiaries that are essentially permanent in duration. As of December 28, 2013, there were no unremitted earnings. It is not practicable to determine the amount of income taxes that would be payable in the event such outside basis differences reverse or unremitted earnings are repatriated.
The Company has not provided deferred taxes on the outside basis difference in its investment in Lucky Brand Dungarees, Inc. The Company's outside basis difference would result in the recording of a deferred tax asset with an offsetting valuation allowance. Due to the terms of the stock purchase agreement for the purchase of Lucky Brand Dungarees, Inc. shares, the buyer can cause the Company to treat the transaction as a deemed sale of assets, and as a result, the deferred tax asset would not be recognizable.
F-29
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Changes in the amounts of unrecognized tax benefits are summarized as follows:
|
Fiscal Years Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 28, 2013 | December 29, 2012 | December 31, 2011 | |||||||
In thousands |
||||||||||
Balance as of beginning of period |
$ | 85,999 | $ | 103,982 | $ | 107,932 | ||||
Increases from prior period positions |
1,436 | 535 | 565 | |||||||
Decreases from prior period positions |
(4,348 | ) | (630 | ) | (5,458 | ) | ||||
Increases from current period positions |
2,000 | 37 | 973 | |||||||
Decreases relating to settlements with taxing authorities |
(153 | ) | (17,765 | ) | | |||||
Reduction due to the lapse of the applicable statute of limitations |
(826 | ) | (160 | ) | (30 | ) | ||||
| | | | | | | | | | |
Balance as of end of period(a) |
$ | 84,108 | $ | 85,999 | $ | 103,982 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. For the year ended December 28, 2013, the Company increased its accruals for interest and penalties by $2.5 million and $0.1 million, respectively. For the year ended December 29, 2012, the Company increased its accrual for interest and penalties by $3.3 million and $0.2 million, respectively. For the year ended December 31, 2011, the Company increased its accruals for interest by $1.2 million and decreased its accrual for penalties by $0.1 million. At December 28, 2013 and December 29, 2012, the accrual for interest was $12.4 million and $9.9 million, respectively and the accrual for penalties was $2.7 million and $2.6 million, respectively.
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $84.1 million. The Company expects to reduce the liability for unrecognized tax benefits by an amount between $71.7 million and $73.8 million within the next 12 months due to either settlement or the expiration of the statute of limitations.
The Company files tax returns in the US Federal jurisdiction and various state and foreign jurisdictions. A number of years may elapse before an uncertain tax position, for which the Company has unrecognized tax benefits, is audited and finally resolved. While it is difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes that the unrecognized tax benefits reflect the most likely outcome. These unrecognized tax benefits, as well as the related interest, are adjusted in light of changing facts and circumstances. Favorable resolution would be recognized as a reduction to the effective tax rate in the period of resolution.
The number of years with open tax audits varies depending upon the tax jurisdiction. The major tax jurisdictions include the US, Japan, United Kingdom, Canada and Brazil. The Company is no longer subject to US Federal examination by the Internal Revenue Service ("IRS") for the years before 2006 and, with few exceptions, this applies to tax examinations by state authorities for the years before 2009. As a result of a 2009 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. In addition, the IRS and other taxing authorities can also subject the
F-30
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company's net operating loss carryforwards to further review when such net operation loss carryforwards are utilized.
NOTE 9: COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office, showroom, warehouse/distribution, retail space and computers and other equipment under various non-cancelable operating lease agreements, which extend through 2025. Rental expense for 2013, 2012 and 2011 was $108.8 million, $85.2 million and $80.5 million, respectively, excluding certain costs such as real estate taxes and common area maintenance.
At December 28, 2013, minimum aggregate rental commitments under non-cancelable operating and capital leases were as follows:
Fiscal Year
|
2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In millions |
||||||||||||||||||||||
Operating leases |
$ | 88.0 | $ | 86.7 | $ | 79.3 | $ | 70.8 | $ | 60.8 | $ | 186.2 | $ | 571.8 | ||||||||
Capital leases |
2.0 | 2.0 | 2.1 | 2.1 | 2.2 | 15.4 | 25.8 |
Certain rental commitments have renewal options extending through the fiscal year 2025. Some of these renewals are subject to adjustments in future periods. Many of the leases call for additional charges, some of which are based upon various escalations, and, in the case of retail leases, the gross sales of the individual stores above base levels. Future rental commitments for leases have not been reduced by minimum non-cancelable sublease rentals aggregating $10.3 million.
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.
On November 19, 2013, the Company entered into an agreement to terminate the lease of our JUICY COUTURE flagship store on Fifth Avenue in New York City in exchange for $51.0 million, which is expected to be completed in the first half of 2014.
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 (see Note 3 Discontinued Operations), an aggregate of 153 store leases were assigned to third parties, for which the Company remains secondarily liable for the remaining obligations on 117 such leases. As of December 28, 2013, the future aggregate payments under these leases amounted to $140.9 million and extended to various dates through 2025.
Buying/Sourcing
During the first quarter of 2009, the Company entered into an agreement with Hong Kong-based, global consumer goods exporter 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.
F-31
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Since 2009, the Company has completed various disposition transactions, including the licensing arrangements with JCPenney in the US and Puerto Rico and with QVC, the sales of the KENSIE, KENSIE GIRL and MAC & JAC trademarks and the sale of the Juicy Couture IP, which resulted in the removal of buying/sourcing for such products sold from the Li & Fung buying/sourcing arrangement. As a result, the Company refunded $24.3 million of the closing payment in the second quarter of 2010 and $1.8 million in the second quarter of 2012 and settled $6.0 million in the fourth quarter of 2013. The Company is not required to make any payments to Li & Fung as a result of the sale of LUCKY BRAND. 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.
Licensing
The Company has a license agreement with ABG to accommodate the wind-down of operations related to the sale of the Juicy Couture IP. The term of the license agreement runs through December 31, 2014. As of December 28, 2013, the Company is required to pay a guaranteed royalty to ABG of $9.0 million during the term of the wind-down license.
Other
No single customer accounted for 10.0% of net sales in 2013. As of December 28, 2013, Nordstrom Inc. and Lane Crawford International Ltd. each accounted for greater than 10.0% of total accounts receivable, with a combined total of 29.6%.
In the second quarter of 2011, the Company initiated actions to close its Ohio distribution center, which was expected to result in the termination of all or a significant portion of its union employees (see Note 13 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. Under applicable statutory rules, this withdrawal liability is payable over a period of time, and the Company previously estimated that it would pay such liability in equal quarterly installments over a period of eight to 12 years, with payments commencing in 2012. 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, 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 December 28, 2013, the accrued withdrawal liability was $12.0 million, which was included in Accrued expenses and Other non-current liabilities on the accompanying 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 20 Related Party Transactions and Note 25 Subsequent Events).
At December 28, 2013, the Company had entered into short-term commitments for the purchase of raw materials and for the production of finished goods totaling $116.9 million.
The Company is a party to several 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
F-32
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
any of these actions should not have a material adverse effect on the Company's financial position, results of operations, liquidity or cash flows (see Note 22 Legal Proceedings).
NOTE 10: DEBT AND LINES OF CREDIT
Long-term debt consisted of the following:
|
December 28, 2013 | December 29, 2012 | |||||
---|---|---|---|---|---|---|---|
In thousands |
|||||||
6.0% Convertible Senior Notes, due June 2014(a) |
$ | | $ | 18,287 | |||
10.5% Senior Secured Notes, due April 2019 |
382,209 | 383,662 | |||||
Revolving credit facility |
2,997 | | |||||
Capital lease obligations(b) |
8,995 | 4,345 | |||||
| | | | | | | |
Total debt |
394,201 | 406,294 | |||||
Less: Short-term borrowings(c) |
3,407 | 4,345 | |||||
Convertible Notes(d) |
| 18,287 | |||||
| | | | | | | |
Long-term debt |
$ | 390,794 | $ | 383,662 | |||
| | | | | | | |
| | | | | | | |
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 2012, through a combination of privately-negotiated transactions and an optional redemption, the Company repurchased the remaining 121.5 million euro aggregate principal amount of the Euro Notes for total consideration of 125.6 million euro, plus accrued interest. The Company recognized a $5.1 million pretax loss on the extinguishment of debt in 2012 related to these redemptions.
The optional 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.
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.
F-33
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, $4.7 million and $9.2 million for the years ended December 28, 2013, December 29, 2012 and December 31, 2011, respectively.
In 2011, a holder of $20.8 million aggregate principal amount of the Convertible Notes converted all of such outstanding Convertible Notes into 6,163,221 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 $18.3 million of the consideration to the liability component and $5.2 million to the equity component.
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.
In 2013, holders of the remaining $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. The Company paid accrued interest on the holders' Convertible Notes through the settlement date in cash. The Company allocated $20.1 million of the aggregate consideration to the liability component and $1.0 million to the equity component. As of December 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 pretax losses on the extinguishment of debt related to the Convertible Notes of $1.7 million, $4.6 million and $0.5 million for the years ended December 28, 2013, December 29, 2012 and December 31, 2011, respectively.
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
F-34
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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.
F-35
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Effective November 6, 2013, the Company entered into an amendment to the Amended Facility to permit the sale of the Juicy Couture IP and permit the Company to add back to Adjusted EBITDA such cash restructuring and transition charges associated with that transaction in the calculation of certain covenants included in the Company's debt and credit facilities.
Effective February 3, 2014, the Company entered into an amendment to the Amended Facility to permit the sale of the LUCKY BRAND business.
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.
F-36
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
As of December 28, 2013, availability under the Company's Amended Facility was as follows:
|
Total Facility(a) |
Borrowing Base(a) |
Outstanding Borrowings |
Letters of Credit Issued |
Available Capacity |
Excess Capacity(b) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands |
|||||||||||||||||||
Amended Facility(a) |
$ | 350,000 | $ | 298,701 | $ | 2,997 | $ | 19,051 | $ | 276,653 | $ | 241,653 |
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 December 28, 2013, the Company's capital lease obligations of $9.0 million included $0.4 million within Short-term borrowings on the accompanying Consolidated Balance Sheet.
NOTE 11: FAIR VALUE MEASUREMENTS
As discussed in Note 1 Basis of Presentation and Significant Accounting Policies, the Company utilizes a three level hierarchy that defines the assumptions used to measure certain assets and liabilities at fair value.
The following table presents the financial assets and liabilities the Company measures at fair value on a recurring basis, based on such fair value hierarchy:
|
Level 2 | ||||||
---|---|---|---|---|---|---|---|
|
December 28, 2013 | December 29, 2012 | |||||
In thousands |
|||||||
Financial Assets: |
|||||||
Derivatives |
$ | 1,701 | $ | 1,037 | |||
Financial Liabilities: |
|||||||
Derivatives |
$ | | $ | |
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.
F-37
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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:
|
|
Fair Value Measured and Recorded at Reporting Date Using: |
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net Carrying Value as of December 28, 2013 |
Total Losses Year Ended December 28, 2013 |
||||||||||||||
|
Level 1 | Level 2 | Level 3 | |||||||||||||
In thousands |
||||||||||||||||
Property and equipment |
$ | 15,706 | $ | | $ | | $ | 15,706 | $ | 37,173 | ||||||
Intangibles, net |
1,900 | | | 1,900 | 4,991 | |||||||||||
Other assets |
| | | | 6,109 |
The Company performed impairment analyses on certain property and equipment as a result of (i) the sale of the Juicy Couture IP and the resulting requirement to wind-down JUICY COUTURE operations; (ii) a decline in the respective future anticipated cash flows of certain retail locations of JACK SPADE; and (iii) the decision to revise the Company's plan to outsource its distribution function (see Note 13 Streamlining Initiatives). 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 Consolidated Statement of Operations.
In the third quarter of 2013, the Company recorded a non-cash impairment charge of $3.3 million, which reflected 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%.
During 2013, the Company recorded non-cash impairment charges of $1.7 million related to JUICY COUTURE merchandising rights due to decreased use of such intangible assets.
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 within Other assets on the accompanying Consolidated Balance Sheet (see Note 17 Additional Financial Information and Note 22 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 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 such fair value hierarchy:
|
|
Fair Value Measured and Recorded at Reporting Date Using: |
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net Carrying Value as of December 29, 2012 |
Total Losses Year Ended December 29, 2012 |
||||||||||||||
In thousands |
Level 1 | Level 2 | Level 3 | |||||||||||||
Property and equipment |
$ | 22,710 | $ | | $ | | $ | 22,710 | $ | 39,316 |
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 Company's Ohio distribution center, as well as a decline in respective future anticipated cash flows of certain retail locations of JUICY COUTURE and the decisions to exit certain retail locations of JUICY COUTURE, impairment analyses were performed on the associated property and equipment. The Company determined that a portion of the assets exceeded
F-38
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
their fair values, resulting in impairment charges, which were recorded in SG&A on the accompanying Consolidated Statement of Operations.
The following table presents the non-financial assets the Company measured at fair value on a non-recurring basis in 2011, based on such fair value hierarchy:
|
|
Fair Value Measured and Recorded at Reporting Date Using: |
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net Carrying Value as of December 31, 2011 |
Total Losses Year Ended December 31, 2011 |
||||||||||||||
In thousands |
Level 1 | Level 2 | Level 3 | |||||||||||||
Property and equipment |
$ | 21,240 | $ | | $ | | $ | 21,240 | $ | 24,341 | ||||||
Intangible assets |
| | | | 1,024 |
As a result of the decisions to close the Company's Ohio distribution center and exit certain JUICY COUTURE retail locations, as well as a decline in respective future anticipated cash flows of certain retail locations of JUICY COUTURE, 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 Consolidated Statement of Operations.
During 2011, the Company recorded a pretax charge of $222.2 million in Discontinued operations, net of income taxes on the accompanying Consolidated Statement of Operations to reduce the net carrying value primarily of the Mexx, MAC & JAC and Adelington Design Group assets and liabilities to fair value, less costs to dispose.
The fair values of the Company's Level 3 Property and equipment, Intangible assets and Assets held for sale 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:
|
December 28, 2013 |
December 29, 2012 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands |
Fair Value | Carrying Value | Fair Value | Carrying Value | |||||||||
6.0% Convertible Senior Notes, due June 2014(a) |
$ | | $ | | $ | 69,088 | $ | 18,287 | |||||
10.5% Senior Secured Notes due April 2019(a) |
400,830 | 382,209 | 410,828 | 383,662 | |||||||||
Revolving credit facility(b) |
2,997 | 2,997 | | |
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.
F-39
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12: 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 purposes of hedging the specific exposure to variability in forecasted cash flows associated primarily with inventory purchases by KSJ. As of December 28, 2013, the Company had forward contracts maturing through December 2014 to sell 2.1 billion yen for $21.1 million.
The Company uses foreign currency forward contracts outside the cash flow hedging program to manage currency risk associated with intercompany loans. As of December 28, 2013, the Company had forward contracts to sell 4.0 billion yen for $38.4 million maturing through March 2014. Transaction gains of $8.5 million and $1.0 million related to these derivative instruments for the years ended December 28, 2013 and December 29, 2012, respectively, were reflected within Other (expense) income, net and the accompanying Consolidated Statements of Operations.
The following table summarizes the fair value and presentation in the Consolidated Financial Statements for derivatives designated as hedging instruments and derivatives not designated as hedging instruments:
|
Foreign Currency Contracts Designated as Hedging Instruments | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Asset Derivatives | Liability Derivatives | |||||||||||||||
Period
|
Balance Sheet Location |
Notional Amount |
Fair Value | Balance Sheet Location |
Notional Amount |
Fair Value | |||||||||||
In thousands |
|
|
|
|
|
|
|||||||||||
December 28, 2013 |
Other current assets | $ | 21,050 | $ | 1,317 | Accrued expenses | $ | | $ | |
The following table summarizes the fair value and presentation in the Consolidated Financial Statements for derivatives not designated as hedging instruments:
|
Foreign Currency Contracts Not Designated as Hedging Instruments | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Asset Derivatives | Liability Derivatives | |||||||||||||||
Period
|
Balance Sheet Location |
Notional Amount |
Fair Value | Balance Sheet Location |
Notional Amount |
Fair Value | |||||||||||
In thousands |
|
|
|
|
|
|
|||||||||||
December 28, 2013 |
Other current assets | $ | 38,403 | $ | 384 | Accrued expenses | $ | | $ | | |||||||
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 Consolidated Financial Statements:
|
Amount of Gain or (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 Gain or (Loss) Recognized in Operations on Derivative (Ineffective Portion) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands |
|
|
|
|
||||||||
Fiscal year ended December 28, 2013 |
$ | 2,911 | Cost of goods sold | $ | 1,326 | $ | | |||||
Fiscal year ended December 29, 2012 |
| Cost of goods sold | | | ||||||||
Fiscal year ended December 31, 2011 |
(4,482 | ) | Discontinued operations, net of income taxes | (7,590 | ) | |
F-40
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company hedged its net investment position in certain euro-denominated functional currency subsidiaries by designating a portion of the outstanding Euro Notes as the hedging instrument in a net investment hedge. To the extent the hedge was effective, related foreign currency translation gains and losses were recorded within Other comprehensive loss. Translation gains and losses related to the ineffective portion of the hedge were recognized in current operations within Other (expense) income, net.
In connection with the sale of an 81.25% interest in the former global Mexx business on October 31, 2011, the Company dedesignated the remaining amount of the Euro Notes that had been previously designated as a hedge of the Company's net investment in certain euro-denominated functional currency subsidiaries. Accordingly, all foreign currency transaction gains or losses related to the remaining Euro Notes were recorded in earnings beginning on November 1, 2011 until the Euro Notes were fully repurchased by the Company in the third quarter of 2012.
The Company recognized the following foreign currency translation (losses) gains related to the net investment hedge:
|
Fiscal Year Ended December 31, 2011 |
|||
---|---|---|---|---|
In thousands |
|
|||
Effective portion recognized within Accumulated OCI |
$ | (10,216 | ) | |
Ineffective portion recognized within Other (expense) income, net |
4,954 |
Also, as a result of the sale of an 81.25% interest in the former global Mexx business, the Company's net investment in certain euro-denominated functional currency subsidiaries was substantially liquidated, and the cumulative translation adjustment recognized on the Company's Euro Notes through October 31, 2011 was written off and included within Loss on disposal of discontinued operations, net of income taxes on the accompanying Consolidated Statement of Operations (see Note 19 Accumulated Other Comprehensive Loss).
The Company occasionally uses short-term foreign currency forward contracts outside the cash flow hedging program to manage currency risk associated with certain expected transactions. In order to mitigate the exposure related to the Tender Offer, the Company entered into forward contracts to sell $182.0 million for 128.0 million euro, which settled in the second quarter of 2011. During the second quarter of 2011, the Company entered into forward contracts designated as non-hedging derivative instruments maturing in July 2011 to sell $15.7 million for 11.0 million euro. The transaction gains of $2.5 million related to these derivative instruments were reflected within Other (expense) income, net on the accompanying Consolidated Statement of Operations for the year ended December 31, 2011.
NOTE 13: STREAMLINING INITIATIVES
2013 Actions
In connection with the sale of the Juicy Couture IP, the Company initiated actions to reduce staff at JUICY COUTURE during the fourth quarter of 2013. Also, as a result of the requirement to wind down the JUICY COUTURE operations, the Company expects to close JUICY COUTURE offices and retail locations that will not be converted to KATE SPADE stores. These actions resulted in charges related to asset impairments, severance and other items in 2013. The Company estimates it will realize a net restructuring credit in 2014 of $0 - $10.0 million related to the sale of the Juicy Couture IP, including costs for severance, contract termination (net of expected credits, including a credit of $51.0 million for the termination of the lease for the JUICY COUTURE flagship store on Fifth Avenue in New York) and
F-41
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
other costs. Although the Company expects to consummate that lease termination transaction, there can be no assurance the termination fee will be realized by the Company and in the instance the termination fee is not realized, the Company expects to incur cash restructuring and transition charges of $40.0 - $50.0 million in 2014 related to the sale of the Juicy Couture IP. These actions are expected to be substantially completed by the end of the second quarter of 2014.
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 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.
F-42
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company expects to pay approximately $16.5 million of accrued streamlining costs during 2014. A summary rollforward and components of the Company's streamlining initiatives were as follows:
|
Payroll and Related Costs |
Contract Termination Costs |
Asset Write-Downs |
Other Costs | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands |
|
|
|
|
|
|||||||||||
Balance at January 1, 2011 |
$ | 97 | $ | 25,150 | $ | | $ | 1,584 | $ | 26,831 | ||||||
2011 provision(a) |
19,867 | 7,442 | 18,876 | 40,875 | 87,060 | |||||||||||
2011 asset write-downs |
| | (18,876 | ) | | (18,876 | ) | |||||||||
Translation difference |
(1 | ) | (10 | ) | | (8 | ) | (19 | ) | |||||||
2011 spending(a) |
(12,611 | ) | (14,570 | ) | | (11,484 | ) | (38,665 | ) | |||||||
| | | | | | | | | | | | | | | | |
Balance at December 31, 2011 |
7,352 | 18,012 | | 30,967 | 56,331 | |||||||||||
2012 provision |
13,412 | 2,681 | 27,783 | 3,732 | 47,608 | |||||||||||
2012 asset write-downs |
| | (27,783 | ) | | (27,783 | ) | |||||||||
Translation difference |
25 | 49 | | 8 | 82 | |||||||||||
2012 spending |
(15,326 | ) | (16,499 | ) | | (18,767 | ) | (50,592 | ) | |||||||
| | | | | | | | | | | | | | | | |
Balance at December 29, 2012 |
5,463 | 4,243 | | 15,940 | 25,646 | |||||||||||
2013 provision(a)(b) |
16,179 | (464 | ) | 39,136 | 3,183 | 58,034 | ||||||||||
2013 asset write-downs(b) |
| | (39,136 | ) | | (39,136 | ) | |||||||||
Translation difference |
(7 | ) | 12 | | 18 | 23 | ||||||||||
2013 spending(a) |
(11,541 | ) | (1,676 | ) | | (7,264 | ) | (20,481 | ) | |||||||
| | | | | | | | | | | | | | | | |
Balance at December 28, 2013 |
$ | 10,094 | $ | 2,115 | $ | | $ | 11,877 | $ | 24,086 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F-43
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expenses associated with the Company's streamlining actions were primarily recorded in SG&A in the Consolidated Statements of Operations and impacted reportable segments and Corporate as follows:
|
Fiscal Years Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 28, 2013 | December 29, 2012 | December 31, 2011 | |||||||
In thousands |
|
|
|
|||||||
JUICY COUTURE |
$ | 47,481 | $ | 7,049 | $ | 18,005 | ||||
LUCKY BRAND(a) |
1,213 | 2,594 | 7,341 | |||||||
KATE SPADE |
791 | 2,519 | 4,834 | |||||||
Adelington Design Group |
272 | 3,112 | 46,842 | |||||||
Corporate |
8,277 | 32,334 | 10,038 | |||||||
| | | | | | | | | | |
Total |
$ | 58,034 | $ | 47,608 | $ | 87,060 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
NOTE 14: SHARE-BASED COMPENSATION
The Company issues stock options, restricted shares, restricted share units and shares with performance features to employees under share-based compensation plans, which are described herein. The Company recognized share-based compensation expense of $8.4 million, $7.2 million and $5.2 million, excluding amounts related to discontinued operations, for the fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011, respectively.
Compensation expense for stock options and restricted stock awards is measured at fair value on the date of grant based on the number of shares granted. The fair value of stock options is estimated based on the Binomial lattice pricing model; the fair value of restricted shares is based on the quoted market price on the date of the grant. Stock option expense is recognized using the straight-line attribution basis over the entire vesting period of the award. Restricted share, restricted share unit and performance share expense is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards. Expense is recognized net of estimated forfeitures. 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.
Stock Plans
In March 1992, March 2000, March 2002, March 2005, May 2011 and May 2013 the Company adopted the "1992 Plan," the "2000 Plan," the "2002 Plan," the "2005 Plan," the "2011 Plan" and the "2013 Plan" respectively, under which options (both nonqualified options and incentive stock options) to acquire shares of common stock may be granted to officers, other key employees, consultants and outside directors, in each case as selected by the Company's Compensation Committee (the "Committee"). Payment by option holders upon exercise of an option may be made in cash or, with the consent of the Committee, by delivering previously acquired shares of Company common stock or any other method approved by the Committee. If previously acquired shares are tendered as payment, the shares are subject to a six-month holding period, as well as specific authorization by the Committee. To date, this type of exercise has not been approved or transacted. The Committee has the authority under all of the plans to allow for a
F-44
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
cashless exercise option, commonly referred to as a "broker-assisted exercise." Under this method of exercise, participating employees must make a valid exercise of their stock options through a designated broker. Based on the exercise and information provided by the Company, the broker sells the shares on the open market. The employees receive cash upon settlement, some of which is used to pay the purchase price. Neither the stock-for-stock nor broker-assisted cashless exercise option are generally available to executive officers or directors of the Company. Although there are none currently outstanding, stock appreciation rights may be granted in connection with all or any part of any option granted under the plans and may also be granted without a grant of a stock option. Vesting schedules will be accelerated upon a change of control of the Company. Options and stock appreciation rights generally may not be transferred during the lifetime of a holder.
Awards under the 2002 and 2005 Plans may also be made in the form of dividend equivalent rights, restricted stock, unrestricted stock performance shares and restricted stock units. Exercise prices for awards under the 2000, 2002, 2005, 2011 and 2013 Plans are determined by the Committee; to date, all stock options have been granted at an exercise price not less than the closing market value of the underlying shares on the date of grant.
Awards granted under plans no longer in use by the Company, including the 2002, 2000 and 1992 Plans, remain in effect in accordance with their terms. The 2005 Plan provides for the issuance of up to 5.0 million shares of common stock with respect to options, stock appreciation rights and other awards. The 2005 Plan expires in 2015. The 2011 Plan provides for the issuance of up to 3.0 million shares of common stock, of which no more than 1.5 million shares may be awarded pursuant to grants of restricted stock, restricted stock units, unrestricted stock and performance shares. The 2011 Plan expires in 2021. The 2013 Plan provides for the issuance of up to 9.5 million shares of common stock. The 2013 Plan expires in 2023. As of December 28, 2013, 9.8 million shares were available for future grant under the 2005, 2011 and 2013 Plans.
The Company delivers treasury shares upon the exercise of stock options and vesting of restricted shares. The difference between the cost of the treasury shares and the exercise price of the options has been reflected on a first-in, first-out basis.
Stock Options
The Company grants stock options to certain domestic and international employees. These options are subject to transfer restrictions and risk of forfeiture until earned by continuing employment. Stock options are issued at the current market price and have a three-year vesting period and a contractual term of 7-10 years.
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.
|
Fiscal Years Ended | |||||
---|---|---|---|---|---|---|
Valuation Assumptions:
|
December 28, 2013 | December 29, 2012 | December 31, 2011 | |||
Weighted-average fair value of options granted |
$10.32 | $6.04 | $2.75 | |||
Expected volatility |
59.5% | 63.3% | 73.0% | |||
Weighted-average volatility |
59.5% | 63.3% | 65.7% | |||
Expected term (in years) |
4.9 | 5.1 | 5.1 | |||
Dividend yield |
| | | |||
Risk-free rate |
0.1% to 3.9% | 0.2% to 3.8% | 0.1% to 4.1% | |||
Expected annual forfeiture |
12.4% | 13.5% | 12.0% |
F-45
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 2012 and 2011. 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 the Company's stock option plans as of December 28, 2013 and changes therein during the fiscal year 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 |
(544,200 | ) | 8.86 | 8,957 | |||||||||
Cancelled/expired |
(458,900 | ) | 33.00 | ||||||||||
| | | | | | | | | | | | | |
Outstanding at December 28, 2013 |
5,166,375 | $ | 11.26 | 3.4 | $ | 108,498 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested or expected to vest at December 28, 2013 |
4,972,877 | $ | 11.26 | 3.3 | $ | 104,547 | |||||||
Exercisable at December 28, 2013 |
3,887,000 | $ | 11.38 | 2.8 | $ | 81,883 |
The total intrinsic value of options exercised was $16.46 and $7.46 for the fiscal years ended December 28, 2013 and December 29, 2012, respectively, and was insignificant for the fiscal year ended December 31, 2011.
As of December 28, 2013, there were approximately 1.3 million nonvested stock options with a weighted average exercise price of $10.91 and there was $5.0 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 1.2 years. The total fair value of shares vested for the years ended December 28, 2013, December 29, 2012 and December 31, 2011 was $4.9 million, $4.1 million and $5.9 million, respectively.
Restricted Stock
The Company grants restricted shares and restricted share units to certain domestic and international employees. These shares are subject to transfer restrictions and risk of forfeiture until earned by continued employment. These shares generally vest 50% on the second anniversary date from the date of grant and 50% on the third anniversary date from the date of grant.
The Company grants performance shares to certain of its employees, including the Company's executive officers. Performance shares are earned based on the achievement of certain profit return on capital targets aligned with the Company's strategy.
In 2010, the Committee granted 855,000 performance shares to a group of key executives. The performance criteria include 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.
F-46
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
The fair value for the performance share units granted is calculated using the Monte Carlo simulation model for the TSR modifier market condition. The following assumptions were used in determining fair value:
Valuation Assumptions:
|
Fiscal Year Ended December 29, 2012 |
|||
---|---|---|---|---|
Weighted-average fair value |
$ | 12.18 | ||
Historic volatility |
76.4 | % | ||
Expected term (in years) |
2.86 | |||
Dividend yield |
| |||
Risk-free rate |
0.41 | % | ||
Expected annual forfeiture |
13.5 | % |
Each of the Company's non-employee Directors received an annual grant of shares of common stock with a value of $100,000 as part of an annual retainer for serving on the Board of Directors, with the exception of the Chairman of the Board, who received an annual grant of shares of common stock with a value of $175,000. Retainer shares are non-transferable until the first anniversary of the grant, with 25% becoming transferable on each of the first and second anniversary of the grant and 50% becoming transferable on the third anniversary, subject to certain exceptions.
A summary of award activity under the Company's restricted stock plans as of December 28, 2013 and changes therein during the fiscal year 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 |
369,000 | 21.79 | |||||
Vested |
(277,350 | ) | 5.79 | ||||
Cancelled(b) |
(734,750 | ) | 6.91 | ||||
| | | | | | | |
Nonvested stock at December 28, 2013(a) |
1,035,250 | $ | 14.93 | ||||
| | | | | | | |
| | | | | | | |
Expected to vest as of December 28, 2013 |
499,185 | $ | 17.12 | ||||
| | | | | | | |
| | | | | | | |
The weighted average grant date fair value of restricted shares granted in the years ended December 28, 2013, December 29, 2012 and December 31, 2011 was $21.79, $11.91 and $5.29, respectively.
F-47
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 28, 2013, there was $5.5 million of total unrecognized compensation cost related to nonvested stock awards granted under the restricted stock plans. That expense is expected to be recognized over a weighted average period of 2.5 years. The total fair value of shares vested during the years ended December 28, 2013, December 29, 2012 and December 31, 2011 was $1.6 million, $2.3 million and $4.8 million, respectively.
NOTE 15: PROFIT-SHARING RETIREMENT, SAVINGS AND DEFERRED COMPENSATION PLANS
The Company maintains a qualified defined contribution plan for its eligible employees. This plan allows deferred arrangements under section 401(k) of the Internal Revenue Code and provides for employer-matching contributions. The plan contains provisions for a discretionary profit sharing component, although such a contribution was not made for 2013, 2012 or 2011.
The Company's aggregate 401(k)/Profit Sharing Plan contribution expense, which is included in SG&A in the accompanying Consolidated Statements of Operations, was $2.0 million, $1.8 million and $1.6 million for the fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011, respectively.
The Company has a non-qualified supplemental retirement plan for certain employees whose benefits under the 401(k)/Profit Sharing Plan are expected to be constrained by the operation of certain Internal Revenue Code limitations. The supplemental plan provides a benefit equal to the difference between the contribution that would be made for an employee under the tax-qualified plan absent such limitations and the actual contribution under that plan. The supplemental plan also allows certain employees to defer up to 50% of their base salary and up to 100% of their annual bonus. The Company established an irrevocable "rabbi" trust to which the Company makes periodic contributions to provide a source of funds to assist in meeting its obligations under the supplemental plan. The principal of the trust and earnings thereon, are to be used exclusively for the participants under the plan, subject to the claims of the Company's general creditors.
F-48
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16: EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per common share:
|
Fiscal Years Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
December 28, 2013 | December 29, 2012 | December 31, 2011 | |||||||
In thousands, except per share data |
|
|
|
|||||||
Income (loss) from continuing operations |
$ | 73,924 | $ | (70,221 | ) | $ | 138,206 | |||
Convertible Notes interest expense(a) |
608 | | 9,166 | |||||||
| | | | | | | | | | |
Income (loss) from continuing operations, diluted(b) |
$ | 74,532 | $ | (70,221 | ) | $ | 147,372 | |||
| | | | | | | | | | |
| | | | | | | | | | |
Basic weighted average shares outstanding |
121,057 | 109,292 | 94,664 | |||||||
Stock options and nonvested shares(c)(d) |
2,272 | | 1,020 | |||||||
Convertible Notes(a)(b) |
1,503 | | 25,008 | |||||||
| | | | | | | | | | |
Diluted weighted average shares outstanding |
124,832 | 109,292 | 120,692 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
Earnings (loss) per share: |
||||||||||
Basic |
||||||||||
Income (loss) from continuing operations |
$ | 0.61 | $ | (0.64 | ) | $ | 1.46 | |||
Loss from discontinued operations |
(0.01 | ) | (0.04 | ) | (3.27 | ) | ||||
| | | | | | | | | | |
Net income (loss) |
$ | 0.60 | $ | (0.68 | ) | $ | (1.81 | ) | ||
| | | | | | | | | | |
| | | | | | | | | | |
Diluted |
||||||||||
Income (loss) from continuing operations |
$ | 0.60 | $ | (0.64 | ) | $ | 1.22 | |||
Loss from discontinued operations |
(0.01 | ) | (0.04 | ) | (2.57 | ) | ||||
| | | | | | | | | | |
Net income (loss) |
$ | 0.59 | $ | (0.68 | ) | $ | (1.35 | ) | ||
| | | | | | | | | | |
| | | | | | | | | | |
NOTE 17: ADDITIONAL FINANCIAL INFORMATION
Licensing-Related Transactions
In the fourth quarter of 2011, the Company completed various disposal or sale transactions, including: (i) 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 for $267.5 million and
F-49
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(ii) 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, for aggregate consideration of $39.8 million.
In connection with these transactions, 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; and (iv) 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.
On August 11, 2011, the Company amended its long-term license agreement with Elizabeth Arden, Inc. ("Elizabeth Arden"), which included the sale of the trademarks for its former Curve brand and selected other smaller fragrance brands. The amendment also included; (i) a lower effective royalty rate associated with the fragrance brands that remain under license, including the JUICY COUTURE and LUCKY BRAND fragrances; (ii) a reduction in the future minimum guaranteed royalties for the term of the license; and (iii) a pre-payment of certain royalties. The Company received $58.4 million in connection with this transaction and recognized a pretax gain on the sale of the trademarks for its former Curve brand and selected other fragrance brands of $15.6 million for the year ended December 31, 2011.
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.
Other (Expense) Income, Net
Other (expense) income, net primarily consisted of (i) foreign currency transaction (losses) gains of $(0.7) million, $1.2 million and $(2.3) million for the years ended December 28, 2013, December 29, 2012 and December 31, 2011, respectively, including the impact of the dedesignation of the hedge of the Company's investment in certain euro-denominated functional currency subsidiaries, which resulted in the recognition of foreign currency translation gains and losses on the Company's Euro Notes within earnings for the year ended December 31, 2011; and (ii) equity in earnings of investments in equity investees.
Consolidated Statements of Cash Flows Supplementary Disclosures
During the years ended December 28, 2013, December 29, 2012 and December 31, 2011, net income tax refunds (payments) were $2.4 million, $(1.1) million and $1.3 million, respectively. During the years ended December 28, 2013, December 29, 2012 and December 31, 2011, the Company made interest payments of $43.6 million, $38.7 million and $49.3 million, respectively. As of December 28, 2013, December 29, 2012 and December 31, 2011, the Company accrued capital expenditures totaling $13.3 million, $7.7 million and $6.4 million, respectively.
F-50
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Depreciation and amortization expense in 2013, 2012 and 2011 includes $5.6 million, $10.3 million and $11.6 million, respectively, related to amortization of deferred financing costs.
During 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 2012, holders of $49.4 million aggregate principal amount of the Convertible Notes converted all of such outstanding Convertible Notes into 14,197,106 shares of the Company's common stock.
During 2011, a holder of $20.8 million aggregate principal amount of the Convertible Notes converted all of such outstanding Convertible Notes into 6,163,221 shares of the Company's common stock.
During 2013, the Company received net proceeds of $188.9 million in connection with the sale of the Juicy Couture IP and $4.0 million from the sale of its noncontrolling interest in Mexx Lifestyle B.V. to Gores, which are reflected as Net proceeds from dispositions on the accompanying Consolidated Statement of Cash Flows.
During 2011, the Company received net proceeds of $309.7 million in connection with the sales of: (i) the global trademark rights for the LIZ CLAIBORNE family of brands and the trademark rights in the US and Puerto Rico for the MONET brand; (ii) the Dana Buchman trademark; and (iii) the sale of the trademarks for the Company's former Curve fragrance brands and selected other smaller fragrance brands, which are reflected as Proceeds from dispositions on the accompanying Consolidated Statement of Cash Flows.
During 2012, the Company made business acquisition payments of $41.0 million related to the KSJ Buyout.
NOTE 18: 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 three 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 three reportable segments, each reflecting the different financial missions, cultural profiles and focal points appropriate for these three reportable segments:
F-51
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As discussed in Note 1 Basis of Presentation and Significant Accounting Policies, on February 3, 2014, the Company completed the sale of LUCKY BRAND.
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 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 and Significant Accounting Policies. 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). The Company, as licensor, also licenses
F-52
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
|
Net Sales | % to Total | Depreciation and Amortization Expense(a) |
Adjusted EBITDA(b) |
% of Sales | Segment Assets |
Expenditures for Long- Lived Assets |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dollars in thousands |
|
|
|
|
|
|
|
|||||||||||||||
Fiscal Year Ended December 28, 2013 |
||||||||||||||||||||||
Reportable Segments: |
||||||||||||||||||||||
KATE SPADE |
$ | 743,152 | 58.8 | % | $ | 25,520 | $ | 130,497 | 17.6 | % | $ | 484,180 | $ | 57,550 | ||||||||
Adelington Design Group |
60,219 | 4.7 | % | 625 | 15,084 | 25.0 | % | 22,130 | 363 | |||||||||||||
JUICY COUTURE |
461,564 | 36.5 | % | 22,092 | 4,722 | 1.0 | % | 118,397 | 13,623 | |||||||||||||
LUCKY BRAND |
| | 496 | (2,047 | ) | | 202,054 | | ||||||||||||||
Corporate |
| | 11,199 | (64,136 | ) | | 150,750 | 9,472 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Totals |
$ | 1,264,935 | 100.0 | % | $ | 59,932 | $ | 81,008 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Fiscal Year Ended December 29, 2012 |
||||||||||||||||||||||
Reportable Segments: |
||||||||||||||||||||||
KATE SPADE |
$ | 461,926 | 44.3 | % | $ | 14,168 | $ | 94,994 | 20.6 | % | $ | 387,640 | $ | 84,408 | ||||||||
Adelington Design Group |
82,840 | 7.9 | % | 958 | 21,009 | 25.4 | % | 13,796 | 392 | |||||||||||||
JUICY COUTURE |
498,637 | 47.8 | % | 23,822 | 24,554 | 4.9 | % | 187,898 | 16,642 | |||||||||||||
LUCKY BRAND |
| | 529 | (1,884 | ) | | 200,673 | | ||||||||||||||
Corporate |
| | 19,653 | (69,468 | ) | | 112,516 | 3,879 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Totals |
$ | 1,043,403 | 100.0 | % | $ | 59,130 | $ | 105,321 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Fiscal Year Ended December 31, 2011 |
||||||||||||||||||||||
Reportable Segments: |
||||||||||||||||||||||
KATE SPADE |
$ | 312,944 | 28.4 | % | $ | 10,190 | $ | 57,370 | 18.3 | % | $ | 16,123 | ||||||||||
Adelington Design Group |
256,876 | 23.3 | % | 3,927 | 38,868 | 15.1 | % | 1,435 | ||||||||||||||
JUICY COUTURE |
530,688 | 48.3 | % | 26,988 | 64,237 | 12.1 | % | 14,404 | ||||||||||||||
LUCKY BRAND |
| | 1,162 | (1,957 | ) | | | |||||||||||||||
Corporate |
| | 28,081 | (89,150 | ) | | 32,209 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Totals |
$ | 1,100,508 | 100.0 | % | $ | 70,348 | $ | 64,171 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
F-53
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables provide a reconciliation to Income (loss) from continuing operations:
|
Fiscal Years Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
In thousands |
December 28, 2013 | December 29, 2012 | December 31, 2011 | |||||||
Reportable Segments Adjusted EBITDA: |
||||||||||
KATE SPADE(a) |
$ | 130,497 | $ | 94,994 | $ | 57,370 | ||||
Adelington Design Group |
15,084 | 21,009 | 38,868 | |||||||
JUICY COUTURE |
4,722 | 24,554 | 64,237 | |||||||
LUCKY BRAND |
(2,047 | ) | (1,884 | ) | (1,957 | ) | ||||
| | | | | | | | | | |
Total Reportable Segments Adjusted EBITDA |
148,256 | 138,673 | 158,518 | |||||||
Unallocated Corporate Costs |
(64,136 | ) | (69,468 | ) | (89,150 | ) | ||||
Depreciation and amortization, net(b) |
(52,408 | ) | (49,401 | ) | (56,701 | ) | ||||
Charges due to streamlining initiatives, brand- |
(69,958 | ) | (66,382 | ) | (108,600 | ) | ||||
Share-based compensation(d) |
(8,446 | ) | (7,195 | ) | (5,187 | ) | ||||
Equity loss (income) included in Reportable Segments Adjusted EBITDA |
1,179 | 1,245 | (1,652 | ) | ||||||
| | | | | | | | | | |
Operating Loss |
(45,513 | ) | (52,528 | ) | (102,772 | ) | ||||
Other (expense) income, net(a) |
(1,674 | ) | (187 | ) | 228 | |||||
Impairment of cost investment |
(6,109 | ) | | | ||||||
Gain on acquisition of subsidiary |
| 40,065 | | |||||||
Gain on sales of trademarks, net |
173,133 | | 286,979 | |||||||
(Loss) gain on extinguishment of debt, net |
(1,707 | ) | (9,754 | ) | 5,157 | |||||
Interest expense, net |
(47,241 | ) | (51,612 | ) | (57,180 | ) | ||||
Benefit for income taxes |
(3,035 | ) | (3,795 | ) | (5,794 | ) | ||||
| | | | | | | | | | |
Income (Loss) from Continuing Operations |
$ | 73,924 | $ | (70,221 | ) | $ | 138,206 | |||
| | | | | | | | | | |
| | | | | | | | | | |
F-54
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
GEOGRAPHIC DATA
Dollars in thousands |
Net Sales | % to Total | Long-Lived Assets |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Fiscal Year Ended December 28, 2013 |
||||||||||
Domestic |
$ | 1,090,499 | 86.2 | % | $ | 211,602 | ||||
International |
174,436 | 13.8 | % | 77,258 | ||||||
| | | | | | | | | | |
Total |
$ | 1,264,935 | 100.0 | % | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
Fiscal Year Ended December 29, 2012 |
||||||||||
Domestic |
$ | 969,588 | 92.9 | % | $ | 310,286 | ||||
International |
73,815 | 7.1 | % | 101,250 | ||||||
| | | | | | | | | | |
Total |
$ | 1,043,403 | 100.0 | % | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
Fiscal Year Ended December 31, 2011 |
||||||||||
Domestic |
$ | 1,049,147 | 95.3 | % | ||||||
International |
51,361 | 4.7 | % | |||||||
| | | | | | | | | | |
Total |
$ | 1,100,508 | 100.0 | % | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
NOTE 19: ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss is comprised of the effects of foreign currency translation and gains on cash flow hedging derivatives, as detailed below:
In thousands |
December 28, 2013 | December 29, 2012 | |||||
---|---|---|---|---|---|---|---|
Cumulative translation adjustment, net of income taxes of $0 |
$ | (21,862 | ) | $ | (10,074 | ) | |
Gains on cash flow hedging derivatives, net of income taxes of $602 |
983 | | |||||
| | | | | | | |
Accumulated other comprehensive loss, net of income taxes |
$ | (20,879 | ) | $ | (10,074 | ) | |
| | | | | | | |
| | | | | | | |
The following table presents the change in each component of Accumulated other comprehensive loss, net of income taxes for the year ended December 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 |
(11,788 | ) | 1,805 | ||||
Amounts reclassified from accumulated other comprehensive loss |
| (822 | ) | ||||
| | | | | | | |
Net current period other comprehensive (loss) income |
(11,788 | ) | 983 | ||||
| | | | | | | |
Balance as of December 28, 2013 |
$ | (21,862 | ) | $ | 983 | ||
| | | | | | | |
| | | | | | | |
NOTE 20: 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
F-55
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, $5.0 million and $2.5 million and 2013, 2012 and 2011, respectively. During the fourth quarter of 2011, KSC reacquired the existing KATE SPADE business in China from Globalluxe.
Additionally, the Company agreed that it or one of its affiliates will reacquire existing KATE SPADE businesses in Southeast Asia in 2014 from Globalluxe, with the purchase price based upon a multiple of Globalluxe's earnings, subject to a cap of $30.0 million (see Note 25 Subsequent Events).
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).
Subsequent to the sale of its former Mexx business, the Company retained a noncontrolling ownership interest in such business and accounted for such investment at cost. The Company's cost investment was valued at $10.0 million as of December 29, 2012 and was included in Other assets on the accompanying Consolidated Balance Sheet.
Kenneth P. Kopelman (a Director of the Company) is a partner in the law firm Kramer, Levin, Naftalis & Frankel LLP, which provided legal services to the Company in 2013, 2012 and 2011. The fees for such services were not significant in such periods. The foregoing transactions between the Company and this entity were effected on an arm's-length basis, with services provided at fair market value.
The Company believes that each of the transactions described above was effected on terms no less favorable to the Company than those that would have been realized in transactions with unaffiliated entities or individuals.
NOTE 21: 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, 2013. The adoption of the new guidance will not affect the Company's financial position, results of operations or cash flows.
NOTE 22: 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
F-56
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 such actions cannot be determined with certainty, management is of the opinion that the final outcome of these actions should not have a material adverse effect on the Company's financial position, results of operations, liquidity or cash flows.
NOTE 23: UNAUDITED QUARTERLY RESULTS
Unaudited quarterly financial information for 2013 and 2012 is set forth in the table below. Certain amounts related to the first three quarters of 2013 and 2012 have been revised from those previously reported in the Company's quarterly reports on Form 10-Q in order to present the results of LUCKY BRAND as discontinued operations.
|
March | June | September | December | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands, except per share data |
2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||
Net sales |
$ | 254,827 | $ | 216,734 | $ | 272,561 | $ | 224,824 | $ | 310,603 | $ | 252,759 | $ | 426,944 | $ | 349,086 | |||||||||
Gross profit |
144,753 | 128,402 | 157,181 | 130,622 | 181,020 | 143,938 | 242,627 | 196,207 | |||||||||||||||||
(Loss) income from continuing operations |
(39,815) | (c) | (47,023) | (d) | (34,580) | (e) | (52,431) | (f) | (12,988) | (g) | (22,545) | (h) | 161,307 | (i) | 51,778 | (j) | |||||||||
(Loss) income from discontinued operations, net of income taxes |
(12,359 | ) | (13,617 | ) | (8,557 | ) | 333 | (3,878 | ) | 3,744 | 23,865 | 5,256 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) income |
$ | (52,174 | ) | $ | (60,640 | ) | $ | (43,137 | ) | $ | (52,098 | ) | $ | (16,866 | ) | $ | (18,801 | ) | $ | 185,172 | $ | 57,034 | |||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings per share:(a) |
|||||||||||||||||||||||||
(Loss) income from continuing operations |
$ | (0.33 | ) | $ | (0.47 | ) | $ | (0.29 | ) | $ | (0.48 | ) | $ | (0.11 | ) | $ | (0.20 | ) | $ | 1.31 | $ | 0.45 | |||
(Loss) income from discontinued operations |
(0.11 | ) | (0.13 | ) | (0.07 | ) | | (0.03 | ) | 0.03 | 0.20 | 0.05 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) income |
$ | (0.44 | ) | $ | (0.60 | ) | $ | (0.36 | ) | $ | (0.48 | ) | $ | (0.14 | ) | $ | (0.17 | ) | $ | 1.51 | $ | 0.50 | |||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share:(a)(b) |
|||||||||||||||||||||||||
(Loss) income from continuing operations |
$ | (0.33 | ) | $ | (0.47 | ) | $ | (0.29 | ) | $ | (0.48 | ) | $ | (0.11 | ) | $ | (0.20 | ) | $ | 1.29 | $ | 0.42 | |||
(Loss) income from discontinued operations |
(0.11 | ) | (0.13 | ) | (0.07 | ) | | (0.03 | ) | 0.03 | 0.19 | 0.05 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) income |
$ | (0.44 | ) | $ | (0.60 | ) | $ | (0.36 | ) | $ | (0.48 | ) | $ | (0.14 | ) | $ | (0.17 | ) | $ | 1.48 | $ | 0.47 | |||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-57
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 24: 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.
F-58
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheets
December 28, 2013
(In thousands)
|
Parent Company Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Fifth & Pacific Companies, Inc. |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets |
||||||||||||||||
Current Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 97,387 | $ | 8,031 | $ | 24,804 | $ | | $ | 130,222 | ||||||
Accounts receivable trade, net |
4,096 | 69,315 | 16,143 | | 89,554 | |||||||||||
Inventories, net |
75 | 152,813 | 31,746 | | 184,634 | |||||||||||
Deferred income taxes |
| | 218 | | 218 | |||||||||||
Intercompany receivable |
| 10,033 | | (10,033 | ) | | ||||||||||
Other current assets |
11,919 | 25,511 | 7,601 | | 45,031 | |||||||||||
Assets held for sale |
| 197,823 | 4,231 | | 202,054 | |||||||||||
| | | | | | | | | | | | | | | | |
Total current assets |
113,477 | 463,526 | 84,743 | (10,033 | ) | 651,713 | ||||||||||
Property and Equipment, Net |
26,811 |
101,719 |
20,541 |
|
149,071 |
|||||||||||
Goodwill |
| | 49,111 | | 49,111 | |||||||||||
Intangibles, Net |
159 | 82,550 | 7,969 | | 90,678 | |||||||||||
Deferred Income Taxes |
| | 57 | | 57 | |||||||||||
Investments in Consolidated Subsidiaries |
337,519 | 131,851 | | (469,370 | ) | | ||||||||||
Intercompany Receivable |
1,825 | 37,957 | | (39,782 | ) | | ||||||||||
Other Assets |
12,877 | 449 | 23,555 | | 36,881 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Assets |
$ | 492,668 | $ | 818,052 | $ | 185,976 | $ | 519,185 | $ | 977,511 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Liabilities and Stockholders' (Deficit) Equity |
||||||||||||||||
Current Liabilities: |
||||||||||||||||
Short-term borrowings |
$ | 410 | $ | | $ | 2,997 | $ | | $ | 3,407 | ||||||
Accounts payable |
16,830 | 115,905 | 9,919 | | 142,654 | |||||||||||
Intercompany payable |
8,538 | | 53,606 | (62,144 | ) | | ||||||||||
Accrued expenses |
66,733 | 122,295 | 11,150 | | 200,178 | |||||||||||
Income taxes payable |
| | 2,631 | | 2,631 | |||||||||||
Deferred income taxes |
| | | | | |||||||||||
Liabilities held for sale |
8,614 | 87,724 | 32 | | 96,370 | |||||||||||
| | | | | | | | | | | | | | | | |
Total current liabilities |
101,125 | 325,924 | 80,335 | (62,144 | ) | 445,240 | ||||||||||
Long-Term Debt |
390,794 |
|
|
|
390,794 |
|||||||||||
Intercompany Payable |
| | 53,710 | (53,710 | ) | | ||||||||||
Other Non-Current Liabilities |
33,231 | 113,519 | 10,585 | | 157,335 | |||||||||||
Deferred Income Taxes |
| 13,804 | 2,820 | | 16,624 | |||||||||||
Commitments and Contingencies |
||||||||||||||||
Total Stockholders' (Deficit) Equity |
(32,482 | ) | 364,805 | 38,526 | (403,331 | ) | (32,482 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Total Liabilities and Stockholders' (Deficit) Equity |
$ | 492,668 | $ | 818,052 | $ | 185,976 | $ | (519,185 | ) | $ | 977,511 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F-59
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F-60
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
Fiscal Year Ended December 28, 2013
(In thousands)
|
Parent Company Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Fifth & Pacific Companies, Inc. |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net Sales |
$ | 13,193 | $ | 1,077,305 | $ | 174,437 | $ | | $ | 1,264,935 | ||||||
Cost of goods sold |
8,604 | 462,923 | 67,827 | | 539,354 | |||||||||||
| | | | | | | | | | | | | | | | |
Gross Profit |
4,589 | 614,382 | 106,610 | | 725,581 | |||||||||||
Selling, general & administrative expenses |
5,202 | 641,408 | 119,493 | | 766,103 | |||||||||||
Impairment of intangible assets |
| 4,991 | | | 4,991 | |||||||||||
| | | | | | | | | | | | | | | | |
Operating Loss |
(613 | ) | (32,017 | ) | (12,883 | ) | | (45,513 | ) | |||||||
Other (expense) income, net |
(2,057 | ) | (64 | ) | 447 | | (1,674 | ) | ||||||||
Impairment of cost investment |
| | (6,109 | ) | | (6,109 | ) | |||||||||
(Loss) gain on sales of trademarks, net |
(9,352 | ) | 182,485 | | | 173,133 | ||||||||||
Equity in earnings (losses) of consolidated subsidiaries continuing operations |
130,228 | (46,385 | ) | | (83,843 | ) | | |||||||||
Loss on extinguishment of debt |
(1,707 | ) | | | | (1,707 | ) | |||||||||
Interest (expense) income, net |
(45,981 | ) | 1,788 | (3,048 | ) | | (47,241 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Income (Loss) Before (Benefit) Provision for Income Taxes |
70,518 | 105,807 | (21,593 | ) | (83,843 | ) | 70,889 | |||||||||
(Benefit) provision for income taxes |
(3,406 | ) | 641 | (270 | ) | | (3,035 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Income (Loss) from Continuing Operations |
73,924 | 105,166 | (21,323 | ) | (83,843 | ) | 73,924 | |||||||||
Discontinued operations, net of income taxes |
(17,272 | ) | 31,811 | (15,468 | ) | | (929 | ) | ||||||||
Equity in earnings (losses) of consolidated subsidiaries discontinued operations, net of income taxes |
16,343 | (24,156 | ) | | 7,813 | | ||||||||||
| | | | | | | | | | | | | | | | |
Net Income (Loss) |
$ | 72,995 | $ | 112,821 | $ | (36,791 | ) | $ | (76,030 | ) | $ | 72,995 | ||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Condensed Consolidating Statements of Comprehensive Income (Loss)
Fiscal Year Ended December 28, 2013
(In thousands)
|
Parent Company Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Fifth & Pacific Companies, Inc. |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net Income (Loss) |
$ | 72,995 | $ | 112,821 | $ | (36,791 | ) | $ | (76,030 | ) | $ | 72,995 | ||||
Other Comprehensive (Loss) Income, Net of Income Taxes |
(10,805 | ) | (11,246 | ) | (10,413 | ) | 21,659 | (10,805 | ) | |||||||
| | | | | | | | | | | | | | | | |
Comprehensive Income (Loss) |
$ | 62,190 | $ | 101,575 | $ | (47,204 | ) | $ | (54,371 | ) | $ | 62,190 | ||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F-61
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
Fiscal Year Ended December 29, 2012
(In thousands)
|
Parent Company Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Fifth & Pacific Companies, Inc. |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net Sales |
$ | 25,918 | $ | 943,671 | $ | 73,814 | $ | | $ | 1,043,403 | ||||||
Cost of goods sold |
17,816 | 395,958 | 30,460 | | 444,234 | |||||||||||
| | | | | | | | | | | | | | | | |
Gross Profit |
8,102 | 547,713 | 43,354 | | 599,169 | |||||||||||
Selling, general & administrative expenses |
4,462 | 598,306 | 48,929 | | 651,697 | |||||||||||
| | | | | | | | | | | | | | | | |
Operating Income (Loss) |
3,640 | (50,593 | ) | (5,575 | ) | | (52,528 | ) | ||||||||
Other income (expense), net |
638 | (882 | ) | 57 | | (187 | ) | |||||||||
Gain on acquisition of subsidiary |
| 38,285 | 1,780 | | 40,065 | |||||||||||
Equity in (losses) earnings of consolidated subsidiaries continuing operations |
(14,472 | ) | (11,187 | ) | | 25,659 | | |||||||||
Loss on extinguishment of debt |
(9,754 | ) | | | | (9,754 | ) | |||||||||
Interest (expense) income, net |
(50,192 | ) | 14 | (1,434 | ) | | (51,612 | ) | ||||||||
| | | | | | | | | | | | | | | | |
(Loss) Income Before Provision for Income Taxes |
(70,140 | ) | (24,363 | ) | (5,172 | ) | 25,659 | (74,016 | ) | |||||||
Provision (benefit) for income taxes |
81 | (4,375 | ) | 499 | | (3,795 | ) | |||||||||
| | | | | | | | | | | | | | | | |
(Loss) Income from Continuing Operations |
(70,221 | ) | (19,988 | ) | (5,671 | ) | 25,659 | (70,221 | ) | |||||||
Discontinued operations, net of income taxes |
(3,305 | ) | 10,478 | (11,457 | ) | | (4,284 | ) | ||||||||
Equity in (losses) earnings of consolidated subsidiaries discontinued operations, net of income taxes |
(979 | ) | (4,947 | ) | | 5,926 | | |||||||||
| | | | | | | | | | | | | | | | |
Net (Loss) Income |
$ | (74,505 | ) | $ | (14,457 | ) | $ | (17,128 | ) | $ | 31,585 | $ | (74,505 | ) | ||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Condensed Consolidating Statements of Comprehensive Loss
Fiscal Year Ended December 29, 2012
(In thousands)
|
Parent Company Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Fifth & Pacific Companies, Inc. |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net (Loss) Income |
$ | (74,505 | ) | $ | (14,457 | ) | $ | (17,128 | ) | $ | 31,585 | $ | (74,505 | ) | ||
Other Comprehensive (Loss) Income, Net of Income Taxes |
(4,150 | ) | (4,809 | ) | (4,273 | ) | 9,082 | (4,150 | ) | |||||||
| | | | | | | | | | | | | | | | |
Comprehensive (Loss) Income |
$ | (78,655 | ) | $ | (19,266 | ) | $ | (21,401 | ) | $ | 40,667 | $ | (78,655 | ) | ||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F-62
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
Fiscal Year Ended December 31, 2011
(In thousands)
|
Parent Company Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Fifth & Pacific Companies, Inc. |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net Sales |
$ | 63,871 | $ | 984,851 | $ | 51,786 | $ | | $ | 1,100,508 | ||||||
Cost of goods sold |
53,995 | 428,039 | 20,143 | | 502,177 | |||||||||||
| | | | | | | | | | | | | | | | |
Gross Profit |
9,876 | 556,812 | 31,643 | | 598,331 | |||||||||||
Selling, general & administrative expenses |
235,800 | 610,604 | (27,283 | ) | (119,042 | ) | 700,079 | |||||||||
Impairment of intangible assets |
| 859 | 165 | | 1,024 | |||||||||||
| | | | | | | | | | | | | | | | |
Operating (Loss) Income |
(225,924 | ) | (54,651 | ) | 58,761 | 119,042 | (102,772 | ) | ||||||||
Other income (expense), net |
3,323 | (5,790 | ) | 2,695 | | 228 | ||||||||||
Equity in earnings (losses) of consolidated subsidiaries continuing operations |
414,899 | 37,793 | | (452,692 | ) | | ||||||||||
(Loss) gain on sales of trademarks, net |
(62 | ) | 287,041 | | | 286,979 | ||||||||||
Gain on extinguishment of debt, net |
5,157 | | | | 5,157 | |||||||||||
Interest (expense) income, net |
(58,346 | ) | 4,009 | (2,843 | ) | | (57,180 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Income (Loss) Before Provision (Benefit) for Income Taxes |
139,047 | 268,402 | 58,613 | (333,650 | ) | 132,412 | ||||||||||
Provision (benefit) for income taxes |
841 | (5,893 | ) | (742 | ) | | (5,794 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Income (Loss) from Continuing Operations |
138,206 | 274,295 | 59,355 | (333,650 | ) | 138,206 | ||||||||||
Discontinued operations, net of income taxes |
(262,783 | ) | 145,021 | (192,131 | ) | | (309,893 | ) | ||||||||
Equity in (losses) earnings of consolidated subsidiaries discontinued operations, net of income taxes |
(47,110 | ) | (164,418 | ) | | 211,528 | | |||||||||
| | | | | | | | | | | | | | | | |
Net (Loss) Income |
$ | (171,687 | ) | $ | 254,898 | $ | (132,776 | ) | $ | (122,122 | ) | $ | (171,687 | ) | ||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Condensed Consolidating Statements of Comprehensive Loss
Fiscal Year Ended December 31, 2011
(In thousands)
|
Parent Company Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Fifth & Pacific Companies, Inc. |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net (Loss) Income |
$ | (171,687 | ) | $ | 254,898 | $ | (132,776 | ) | $ | (122,122 | ) | $ | (171,687 | ) | ||
Other Comprehensive Income (Loss), Net of Income Taxes |
60,378 | (343,394 | ) | (61,636 | ) | 405,030 | 60,378 | |||||||||
| | | | | | | | | | | | | | | | |
Comprehensive (Loss) Income |
$ | (111,309 | ) | $ | (88,496 | ) | $ | (194,412 | ) | $ | 282,908 | $ | (111,309 | ) | ||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F-63
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended December 28, 2013
(In thousands)
|
Parent Company Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Fifth & Pacific Companies, Inc. |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash (used in) provided by operating activities |
$ | (67,270 | ) | $ | 71,767 | $ | (30,867 | ) | $ | 2,339 | $ | (24,031 | ) | |||
Cash Flows from Investing Activities: |
||||||||||||||||
Proceeds from sales of property and equipment |
20,264 | | | | 20,264 | |||||||||||
Purchases of property and equipment |
(8,854 | ) | (58,164 | ) | (11,096 | ) | | (78,114 | ) | |||||||
Net proceeds from dispositions |
| 188,938 | 4,000 | | 192,938 | |||||||||||
Payments for in-store merchandise shops |
| (1,880 | ) | (1,014 | ) | | (2,894 | ) | ||||||||
Investments in and advances to equity investees |
| | (5,500 | ) | | (5,500 | ) | |||||||||
Decrease (increase) in investments in and advances to consolidated subsidiaries |
141,017 | (157,422 | ) | 16,405 | | | ||||||||||
Other, net |
(295 | ) | 324 | 98 | | 127 | ||||||||||
Net cash used in investing activities of discontinued operations |
| (30,567 | ) | (2,138 | ) | | (32,705 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities |
152,132 | (58,771 | ) | 755 | | 94,116 | ||||||||||
| | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: |
||||||||||||||||
Proceeds from borrowings under revolving credit agreement |
646,325 | | 4,228 | | 650,553 | |||||||||||
Repayment of borrowings under revolving credit agreement |
(646,325 | ) | | (1,381 | ) | | (647,706 | ) | ||||||||
Proceeds from capital lease |
| 8,673 | | | 8,673 | |||||||||||
Increase (decrease) in intercompany loans |
1,154 | 2,247 | (3,401 | ) | | | ||||||||||
Principal payments under capital lease obligations |
(4,651 | ) | | | | (4,651 | ) | |||||||||
Proceeds from exercise of stock options |
4,823 | | | | 4,823 | |||||||||||
Payment of deferred financing fees |
(5,468 | ) | | (129 | ) | | (5,597 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Net cash (used in) provided by financing activities |
(4,142 | ) | 10,920 | (683 | ) | | 6,095 | |||||||||
| | | | | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
(14,173 | ) | (20,549 | ) | 29,525 | | (5,197 | ) | ||||||||
Net Change in Cash and Cash Equivalents |
66,547 | 3,367 | (1,270 | ) | 2,339 | 70,983 | ||||||||||
Cash and Cash Equivalents at Beginning of Year |
30,840 | 4,827 | 26,074 | (2,339 | ) | 59,402 | ||||||||||
| | | | | | | | | | | | | | | | |
Cash and Cash Equivalents at End of Year |
97,387 | 8,194 | 24,804 | | 130,385 | |||||||||||
Less: Cash and Cash Equivalents Held for Sale |
| 163 | | | 163 | |||||||||||
| | | | | | | | | | | | | | | | |
Cash and Cash Equivalents |
$ | 97,387 | $ | 8,031 | $ | 24,804 | $ | | $ | 130,222 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F-64
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended December 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 |
$ | (22,221 | ) | $ | 50,699 | $ | (14,946 | ) | $ | (2,174 | ) | $ | 11,358 | |||
Cash Flows from Investing Activities: |
||||||||||||||||
Purchases of property and equipment |
(4,841 | ) | (46,100 | ) | (10,920 | ) | | (61,861 | ) | |||||||
Payments for purchases of businesses |
| | (41,027 | ) | | (41,027 | ) | |||||||||
Payments for in-store merchandise shops |
(231 | ) | (1,829 | ) | (373 | ) | | (2,433 | ) | |||||||
Investments in and advances to equity investees |
| | (5,000 | ) | | (5,000 | ) | |||||||||
(Increase) decrease in investments in and advances to consolidated subsidiaries |
(61,526 | ) | 59,181 | 2,345 | | | ||||||||||
Other, net |
(28 | ) | 793 | 60 | | 825 | ||||||||||
Net cash used in investing activities of discontinued operations |
| (21,599 | ) | | | (21,599 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net cash used in investing activities |
(66,626 | ) | (9,554 | ) | (54,915 | ) | | (131,095 | ) | |||||||
| | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: |
||||||||||||||||
Proceeds from borrowings under revolving credit agreement |
247,097 | | | | 247,097 | |||||||||||
Repayment of borrowings under revolving credit agreement |
(247,097 | ) | | | | (247,097 | ) | |||||||||
Proceeds from issuance of Senior Secured Notes |
164,540 | | | | 164,540 | |||||||||||
(Decrease) increase in intercompany loans |
(19,558 | ) | (49,615 | ) | 69,173 | | | |||||||||
Repayment of Euro Notes |
(158,027 | ) | | | | (158,027 | ) | |||||||||
Principal payments under capital lease obligations |
(4,476 | ) | | | | (4,476 | ) | |||||||||
Proceeds from exercise of stock options |
6,205 | | | | 6,205 | |||||||||||
Payment of deferred financing fees |
(7,140 | ) | | | | (7,140 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net cash (used in) provided by financing activities |
(18,456 | ) | (49,615 | ) | 69,173 | | 1,102 | |||||||||
| | | | | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
(6,640 | ) | (7,005 | ) | 11,746 | | (1,899 | ) | ||||||||
Net Change in Cash and Cash Equivalents |
(113,943 | ) | (15,475 | ) | 11,058 | (2,174 | ) | (120,534 | ) | |||||||
Cash and Cash Equivalents at Beginning of Year |
144,783 | 20,302 | 15,016 | (165 | ) | 179,936 | ||||||||||
| | | | | | | | | | | | | | | | |
Cash and Cash Equivalents at End of Year |
$ | 30,840 | $ | 4,827 | $ | 26,074 | $ | (2,339 | ) | $ | 59,402 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F-65
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended December 31, 2011
(In thousands)
|
Parent Company Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Fifth & Pacific Companies, Inc. |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net cash provided by (used in) operating activities |
$ | 230,480 | $ | (249,842 | ) | $ | (6,021 | ) | $ | 8,355 | $ | (17,028 | ) | |||
Cash Flows from Investing Activities: |
||||||||||||||||
Purchases of property and equipment |
(32,962 | ) | (20,465 | ) | (8,134 | ) | | (61,561 | ) | |||||||
Net proceeds from dispositions |
| 309,717 | | | 309,717 | |||||||||||
Payments for in-store merchandise shops |
| (2,093 | ) | (517 | ) | | (2,610 | ) | ||||||||
Investments in and advances to equity investees |
| (2,506 | ) | | | (2,506 | ) | |||||||||
Decrease (increase) in investments in and advances to consolidated subsidiaries |
108,477 | (86,954 | ) | (21,523 | ) | | | |||||||||
Other, net |
60 | 326 | 626 | | 1,012 | |||||||||||
Net cash (used in) provided by investing activities of discontinued operations |
| (11,177 | ) | 75,078 | | 63,901 | ||||||||||
| | | | | | | | | | | | | | | | |
Net cash provided by investing activities |
75,575 | 186,848 | 45,530 | | 307,953 | |||||||||||
| | | | | | | | | | | | | | | | |
Cash Flows from Financing Activities: |
||||||||||||||||
Proceeds from borrowings under revolving credit agreement |
651,507 | | | | 651,507 | |||||||||||
Repayment of borrowings under revolving credit agreement |
(671,907 | ) | | | | (671,907 | ) | |||||||||
Proceeds from issuance of Senior Secured Notes |
220,094 | | | | 220,094 | |||||||||||
(Decrease) increase in intercompany loans |
(99,119 | ) | 129,104 | (29,985 | ) | | | |||||||||
Repayment of Euro Notes |
(309,159 | ) | | | | (309,159 | ) | |||||||||
Principal payments under capital lease obligations |
(4,216 | ) | | | | (4,216 | ) | |||||||||
Proceeds from exercise of stock options |
304 | | | | 304 | |||||||||||
Payment of deferred financing fees |
(11,000 | ) | | (168 | ) | | (11,168 | ) | ||||||||
Other, net |
(805 | ) | | | | (805 | ) | |||||||||
Net cash used in financing activities of discontinued operations |
| | (2,663 | ) | | (2,663 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net cash (used in) provided by financing activities |
(224,301 | ) | 129,104 | (32,816 | ) | | (128,013 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
59,607 | (50,014 | ) | (15,283 | ) | | (5,690 | ) | ||||||||
Net Change in Cash and Cash Equivalents |
141,361 | 16,096 | (8,590 | ) | 8,355 | 157,222 | ||||||||||
Cash and Cash Equivalents at Beginning of Year |
3,422 | 4,206 | 23,606 | (8,520 | ) | 22,714 | ||||||||||
| | | | | | | | | | | | | | | | |
Cash and Cash Equivalents at End of Year |
$ | 144,783 | $ | 20,302 | $ | 15,016 | $ | (165 | ) | $ | 179,936 | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F-66
Fifth & Pacific Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 25: SUBSEQUENT EVENTS
On January 9, 2014, the Board of Directors of the Company approved various changes to its senior management. As a result of the expected senior management transition, the Company estimates it will incur one-time non-cash severance charges of $16.5 million and cash severance charges of $6.5 million in the first quarter of 2014.
In the first quarter of 2014, the Company entered into employment agreements with certain executive officers. The Employment Agreements provide for, among other things, a one-time grant of market share units ("MSUs") with an aggregate grant date value of $21.0 million (the "Staking Grants") and annual long-term incentive awards having an aggregate total target and/or grant date value of $9.8 million for such executive officers. The Staking Grants vest 50% on the third anniversary of grant and 50% on the fifth anniversary of grant. The MSUs in each of the Staking Grants are earned based on the Company's 40-trading day average stock price on the date the MSUs are settled as compared to that average stock price on the date the MSUs are granted. Half of the long term incentive awards granted will consist of an award of MSUs that vests 50% on each of the second and third anniversaries of the grant date and has a minimum earnout of 30% of target. The second half will consist of an award of performance shares that vests on the third anniversary of the grant date based on the Company's Total Shareholder Return relative to the S&P Mid-Cap Index Total Shareholder Return.
On February 3, 2014, the Company sold 100% of the capital stock of Lucky Brand, to LBD Acquisition, for aggregate consideration of $225.0 million, comprised of $140.0 million cash consideration and a three-year $85.0 million note issued by Lucky Brand LLC to the Company at closing of the stock purchase, subject to working capital and other adjustments. The Company has also agreed to provide certain transition services to LBD Acquisition and Lucky Brand LLC. An offer to purchase the Senior Notes with the $75.0 million of Net Proceeds from the sale of the LUCKY BRAND business is currently underway. To the extent holders of the Senior Notes do not accept the offer, the Company expects to use any remaining net cash proceeds for the payment of various transaction and transition costs incurred, with the remainder to be used for general corporate purposes, including debt reduction.
On February 5, 2014, the Company, through its Kate Spade, LLC and Kate Spade Hong Kong Ltd. subsidiaries, reacquired existing KATE SPADE businesses in Southeast Asia from Globalluxe for $32.0 million, including $2.0 million for working capital and other previously agreed adjustments, which will be funded in the first quarter of 2014.
F-67
Fifth & Pacific Companies, Inc. and Subsidiaries
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
|
|
Additions | |
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
In thousands |
Balance at Beginning of Period |
Charged to Costs and Expenses |
Charged to Other Accounts |
Deductions | Balance at End of Period |
|||||||||||
YEAR ENDED DECEMBER 28, 2013 |
||||||||||||||||
Accounts receivable allowance for doubtful accounts |
$ | 1,625 | $ | 229 | $ | | $ | 54 | (a)(b) | $ | 1,800 | |||||
Allowance for returns |
8,501 | 85,083 | | 86,354 | 7,230 | |||||||||||
Allowance for discounts |
533 | 371 | | 872 | 32 | |||||||||||
Deferred tax valuation allowance |
545,565 | | | 48,080 | 497,485 | |||||||||||
YEAR ENDED DECEMBER 29, 2012 |
||||||||||||||||
Accounts receivable allowance for doubtful accounts |
$ | 340 | $ | 1,555 | $ | | $ | 270 | (a) | $ | 1,625 | |||||
Allowance for returns |
8,053 | 109,493 | | 109,045 | 8,501 | |||||||||||
Allowance for discounts |
569 | 3,626 | | 3,662 | 533 | |||||||||||
Deferred tax valuation allowance |
494,745 | 50,820 | | | 545,565 | |||||||||||
YEAR ENDED DECEMBER 31, 2011 |
||||||||||||||||
Accounts receivable allowance for doubtful accounts |
$ | 16,567 | $ | 581 | $ | | $ | 16,808 | (a)(c) | $ | 340 | |||||
Allowance for returns |
17,218 | 114,979 | | 124,144 | 8,053 | |||||||||||
Allowance for discounts |
919 | 7,071 | | 7,421 | 569 | |||||||||||
Deferred tax valuation allowance |
452,855 | 41,890 | | | 494,745 |
F-68
EXHIBIT 4(H)
EXECUTION COPY
FOURTH SUPPLEMENTAL INDENTURE, dated October 25, 2013, by Fifth & Pacific Companies, Inc., a Delaware corporation (the Company), ABG Juicy Couture, LLC (the New Subsidiary Guarantor), the other Guarantors listed on the signature pages hereto and U.S. Bank National Association, as trustee (herein called the Trustee), to the Indenture dated as of April 7, 2011,, as supplemented on September 21, 2011, October 7, 2011 and December 27, 2012, among the Company, the Guarantors named therein and the Trustee (the Indenture).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee the Indenture, providing for the issuance of 10.50% Senior Secured Notes due 2019 (the Notes);
WHEREAS, the Company will cause the New Subsidiary Guarantor to execute and deliver to the Trustee a Guaranty Agreement pursuant to which the New Subsidiary Guarantor will Guarantee payment of the Notes on the same terms and conditions as those set forth in the Indenture; and
WHEREAS, pursuant to Section 9.06 of the Indenture the Trustee is authorized to execute and deliver this Fourth Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the New Subsidiary Guarantor, the other Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
SECTION 1. Capitalized Terms. Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture. The New Subsidiary Guarantor is a Guarantor for purposes of the Indenture and a Subsidiary Guarantor for purposes of the Indenture as supplemented hereby.
SECTION 2. Guarantee. The New Subsidiary Guarantor (A) hereby, jointly and severally with the other Guarantors, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes, the other Notes Documents or the obligations of the Issuer hereunder or thereunder, that:
(1) the principal of, premium and Additional Interest, if any, and interest on, the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Issuer to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof, and
(2) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.
SECTION 3. Successors and Assigns. All agreements of the Company in this Fourth Supplemental Indenture and the Notes will bind its successors. All agreements of the Trustee in this Fourth Supplemental Indenture will bind its successors. All agreements of each Guarantor in this Fourth Supplemental Indenture will bind its successors, except as otherwise provided in Section 14.10 of the Indenture.
SECTION 4. Modification. No modification, amendment or waiver of any provision of this Fourth Supplemental Indenture, nor the consent to any departure by the New Subsidiary Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the New Subsidiary Guarantor in any case shall entitle the New Subsidiary Guarantor to any other or further notice or demand in the same, similar or other circumstances.
SECTION 5. Releases. The Note Guarantee of the New Subsidiary Guarantor, and the Collateral Agents Lien on the Collateral of such New Subsidiary Guarantor, will be released as provided in Section 10.05 of the Indenture.
SECTION 6. Governing Law. THIS FOURTH SUPPLEMENTAL INDENTURE, THE NOTE, AND THE NOTE GUARANTEES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICTS OF LAW PRINCIPLES INSOFAR AS SUCH PRINCIPLES WOULD DEFER TO THE SUBSTANTIVE LAWS OF SOME OTHER JURISDICTION.
SECTION 7. No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or stockholder of the Issuer or any Guarantor, as such, will have any liability for any obligations of the Issuer or the Guarantors under the Notes, this Indenture, the Note Guarantees, the Security Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.
SECTION 8. Multiple Originals. The parties may sign any number of copies of this Fourth Supplemental Indenture. Each signed copy will be an original, but all of them together represent the same agreement.
SECTION 9. Headings. The headings of the Sections of this Fourth Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part of this Fourth Supplemental Indenture and will in no way modify or restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Fourth Supplemental Indenture to be duly executed as of the date first written above.
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FIFTH & PACIFIC COMPANIES, INC., a | |||
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Delaware corporation | |||
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By: |
/s/ Robert J. Vill | ||
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Name: |
Robert J. Vill | |
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Title |
Senior Vice President | |
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Finance and Treasurer | |
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U.S. BANK NATIONAL ASSOCIATION, | |||
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as Trustee | |||
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By: |
/s/ Donna William | ||
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Name: Donna William | ||
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Title Vice President | ||
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ABG JUICY COUTURE, LLC | |||
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By: |
Juicy Couture, Inc., its sole member | ||
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By: |
/s/ Robert J. Vill | |
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Name: |
Robert J. Vill | |
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Title: |
Senior Vice President | |
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Finance and Treasurer | |
Signature Page to Fourth Supplemental Indenture
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ADELINGTON DESIGN GROUP, LLC |
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FIFTH & PACIFIC COMPANIES COSMETICS, INC. |
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FIFTH & PACIFIC COMPANIES FOREIGN HOLDINGS, INC. |
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FIFTH & PACIFIC COMPANIES PUERTO RICO, INC. |
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FNP HOLDINGS, LLC |
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JUICY COUTURE, INC. |
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KATE SPADE LLC |
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L.C. LICENSING, LLC |
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LCI INVESTMENTS, INC. |
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LCCI HOLDINGS LLC |
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WCFL HOLDINGS LLC |
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By: |
/s/ Robert J. Vill | |
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Name: |
Robert J. Vill |
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Title: |
Senior Vice President |
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Finance and Treasurer |
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LCI HOLDINGS, INC. |
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LUCKY BRAND DUNGAREES, INC. |
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LUCKY GRAND DUNGAREES STORES, INC. |
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By: |
/s/ Robert J. Vill | |
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Name: |
Robert J. Vill |
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Title: |
Vice President |
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Finance and Treasurer |
Signature Page to Fourth Supplemental Indenture
EXHIBIT 4(I)
EXECUTION VERSION
FIFTH SUPPLEMENTAL INDENTURE, dated January 23, 2014, by Fifth & Pacific Companies, Inc., a Delaware corporation (the Company), Lucky PR, LLC (the New Subsidiary Guarantor), the other Guarantors listed on the signature pages hereto and U.S. Bank National Association, as trustee (herein called the Trustee), to the Indenture dated as of April 7, 2011,, as supplemented on September 21, 2011, October 7, 2011, December 27, 2012 and October 25, 2013, among the Company, the Guarantors named therein and the Trustee (the Indenture).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee the Indenture, providing for the issuance of 10.50% Senior Secured Notes due 2019 (the Notes);
WHEREAS, the Company will cause the New Subsidiary Guarantor to execute and deliver to the Trustee a Guaranty Agreement pursuant to which the New Subsidiary Guarantor will Guarantee payment of the Notes on the same terms and conditions as those set forth in the Indenture; and
WHEREAS, pursuant to Section 9.06 of the Indenture the Trustee is authorized to execute and deliver this Fifth Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the New Subsidiary Guarantor, the other Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
SECTION 1. Capitalized Terms. Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture. The New Subsidiary Guarantor is a Guarantor for purposes of the Indenture and a Subsidiary Guarantor for purposes of the Indenture as supplemented hereby.
SECTION 2. Guarantee. The New Subsidiary Guarantor (A) hereby, jointly and severally with the other Guarantors, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes, the other Notes Documents or the obligations of the Issuer hereunder or thereunder, that:
(1) the principal of, premium and Additional Interest, if any, and interest on, the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Issuer to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof, and
(2) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.
SECTION 3. Successors and Assigns. All agreements of the Company in this Fifth Supplemental Indenture and the Notes will bind its successors. All agreements of the Trustee in this Fifth Supplemental Indenture will bind its successors. All agreements of each Guarantor in this Fifth Supplemental Indenture will bind its successors, except as otherwise provided in Section 14.10 of the Indenture.
SECTION 4. Modification. No modification, amendment or waiver of any provision of this Fifth Supplemental Indenture, nor the consent to any departure by the New Subsidiary Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the New Subsidiary Guarantor in any case shall entitle the New Subsidiary Guarantor to any other or further notice or demand in the same, similar or other circumstances.
SECTION 5. Governing Law. THIS FIFTH SUPPLEMENTAL INDENTURE, THE NOTE, AND THE NOTE GUARANTEES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICTS OF LAW PRINCIPLES INSOFAR AS SUCH PRINCIPLES WOULD DEFER TO THE SUBSTANTIVE LAWS OF SOME OTHER JURISDICTION.
SECTION 6. No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or stockholder of the Issuer or any Guarantor, as such, will have any liability for any obligations of the Issuer or the Guarantors under the Notes, this Indenture, the Note Guarantees, the Security Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.
SECTION 7. Multiple Originals. The parties may sign any number of copies of this Fifth Supplemental Indenture. Each signed copy will be an original, but all of them together represent the same agreement.
SECTION 8. Headings. The headings of the Sections of this Fifth Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part of this Fifth Supplemental Indenture and will in no way modify or restrict any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties have caused this Fifth Supplemental Indenture to be duly executed as of the date first written above.
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FIFTH & PACIFIC COMPANIES, INC., a | ||||
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Delaware corporation | ||||
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By |
/s/ George Carrara | |||
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Name: |
George Carrara | ||
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Title: |
Executive Vice President | ||
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Chief Operating Officer Chief Financial Officer | ||
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U.S. BANK NATIONAL ASSOCIATION, | ||||
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as Trustee | ||||
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By: |
/s/ Wally Jones | |||
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Name: Wally Jones | |||
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Title Vice President | |||
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LUCKY PR, LLC | ||||
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By: |
Lucky Brand Dungarees, Inc., its sole member | |||
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By |
/s/ George Carrara | ||
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Name: |
George Carrara | ||
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Title: |
Executive Vice President | ||
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Chief Operating Officer Chief Financial Officer | ||
Signature Page to Fifth Supplemental Indenture
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ADELINGTON DESIGN GROUP, LLC | ||
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FIFTH & PACIFIC COMPANIES COSMETICS, INC. | ||
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FIFTH & PACIFIC COMPANIES FOREIGN HOLDINGS, INC. | ||
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FIFTH & PACIFIC COMPANIES PUERTO RICO, INC. | ||
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FNP HOLDINGS, LLC | ||
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JUICY COUTURE, INC. | ||
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KATE SPADE LLC | ||
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L.C. LICENSING, LLC | ||
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LCI INVESTMENTS, INC. | ||
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LCCI HOLDINGS LLC | ||
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WCFL HOLDINGS LLC | ||
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LCI HOLDINGS, INC. | ||
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LUCKY BRAND DUNGAREES, INC. | ||
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LUCKY GRAND DUNGAREES STORES, INC. | ||
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By: |
/s/ George Carrara | |
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Name: |
George Carrara |
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Title: |
Executive Vice President |
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Chief Operating Officer Chief Financial Officer |
Signature Page to Fifth Supplemental Indenture
DESCRIPTION OF FIFTH & PACIFIC COMPANIES, INC.
2013 EMPLOYEE INCENTIVE PLAN
For the 2013 fiscal year, Fifth & Pacific Companies, Inc. maintained a bonus plan for full time salaried employees under which bonuses were earned based upon either Segment Adjusted EBITDA or total Company Adjusted EBITDA, as measured against pre-established targets, and, as applicable, departmental performance considerations and the achievement of individual goals, subject to certain terms and conditions. A similar bonus plan is anticipated for 2014, with financial targets measured based on similar metrics.
Exhibit 10(j)(i)
FIFTH & PACIFIC COMPANIES, INC.
[ ] MARKET SHARE UNIT AWARD
NOTICE OF GRANT:
PARTICIPANT NAME:
PARTICIPANT ID:
GRANT DATE:
NUMBER OF UNITS: · shares
We are pleased to inform you that, pursuant to the Companys 2013 Stock Incentive Plan, the Compensation Committee of the Board of Directors of Fifth & Pacific Companies, Inc., has made an award of market share units to you, subject to the terms and conditions set forth in the attached Grant Certificate.
* * *
[ ] MARKET SHARE UNIT AWARD GRANT CERTIFICATE
The Grant Certificate (the Grant Certificate) is made as of the Grant Date set forth in the attached Notice of Grant (the Grant Date), by and between Fifth & Pacific Companies, Inc. (the Company) and the employee named in the attached Notice of Award (the Participant).
The Compensation Committee (the Committee) of the Board of Directors of the Company (Board) has made the award described herein (this Award) to the Participant under the Companys 2013 Stock Incentive Plan (the Equity Plan). Any term that is capitalized but not defined herein shall have the meaning given to such term in the Equity Plan.
1. [ ] Market Share Unit Award. This Award consists of a number of market share units (the MSUs) set forth in the Notice of Grant (such number of MSUs, the Target Shares).
2. Threshold Section 162(m) Goal.
(a) No part of this Award shall vest and no amount shall be paid (or shares delivered) in respect of this Award unless and until the Committee certifies that the Company has achieved an adjusted operating income for the [ ] fiscal year of [ ] (the 162(m) Goal). If the 162(m) Goal is not achieved during the [ ] fiscal year, the Award shall be immediately cancelled and the Participant shall have no further rights with respect to the Award.
(b) Once the Committee certifies that the 162(m) Goal has been achieved, the Participants entitlement to payment in respect of the Award shall be determined in accordance with the terms of this Grant Certificate. In no event shall the Participant receive payment in respect of the Award in an amount that exceeds the maximum amount allocated to the Participant in the Committees resolution approving the establishment of the 162(m) Goal.
3. Determination of Earned MSUs.
(a) The Performance Period for one-half of the Target Shares shall be the period from the Grant Date to the second anniversary of the Grant Date and for the other half of the Target Shares shall be the period from the Grant Date to the third anniversary of the Grant Date.
(b) The number of MSUs earned for each Performance Period shall equal (1) the Target Shares for that Performance Period multiplied by (2) the Settlement Price for that Performance Period divided by (3) the Grant Price; provided that the number of MSUs earned for any Performance Period may not be less than 30% or more than 200% of the Target Shares for that Performance Period (the Earned MSUs for that Performance Period).
(c) The Earned MSUs for a Performance Period shall be determined by the Committee within 60 days following the end of the Performance Period. The date the Committee determines the number of Earned Performance Shares for each performance period is the Vesting Date.
(d) The following terms have the meanings indicated below:
(1) Average Price for any day means the average official closing price per share over the 40 consecutive trading days ending with and including that day (or, if there is no official closing price on that day, the last trading day before that day).
(2) Cause and Good Reason have the meanings provided in the Executive Severance Agreement between the Participant and the Company (as it may be amended, replaced or supplemented in accordance with its terms); provided that if there is no Executive Severance Agreement between the Participant and the Company, then Cause shall mean:
(a) the Participants willful and intentional repeated failure or refusal, continuing after notice that specifically identifies the breach(es) complained of, to perform substantially his or her material duties, responsibilities and obligations (other than a failure resulting from the Participants incapacity due to physical or mental illness or other reasons beyond the control of the Participant), and which failure or refusal results in demonstrable direct and material injury to the Company or any of its affiliates;
(b) any willful or intentional act or failure to act involving fraud, misrepresentation, theft, embezzlement, dishonesty or moral turpitude (collectively, Fraud) which results in demonstrable direct and material injury to the Company or any of its respective affiliates;
(c) the Participants conviction of (or a plea of nolo contendere to) an offense which is a felony in the jurisdiction involved or which is a misdemeanor in the jurisdiction involved but which involves Fraud; or
(d) the Participants material breach of a written policy of the Company or the rules of any governmental or regulatory body applicable to the Company.
For purposes of this definition, no act, or failure to act, on the Participants part shall be deemed willful or intentional unless done, or omitted to be done, by the Participant without reasonable belief that the Participants action or omission was in the best interests of the Company.
and Good Reason shall mean the occurrence of one or more of the following events:
(a) the Participant experiences a material diminution in duties or responsibilities, without the Participants consent (provided that a change in reporting structure shall not be deemed a diminution in duties or responsibilities);
(b) the Company moves the Participants work location or its principal offices by more than 100 miles (provided that such move increases the Participants commuting distance by more than 100 miles);
(c) a material reduction in the Participants base salary; or
(d) a material breach by the Company of any of its material obligations under any employment agreement between the Participant and the Company then in effect;
provided, however, that no event or condition shall constitute Good Reason unless (x) the Participant gives the Company a written notice of termination for Good Reason no fewer than 30 days prior to the date of termination and not more than 90 days after the initial existence of the condition giving rise to Good Reason, and (y) the grounds for termination (if susceptible to correction) are not corrected by the Company within 30 days of its receipt of such notice.
(3) Determination Date for any Performance Period means the last day of that Performance Period.
(4) Grant Price shall be the Average Price for the Grant Date.
(5) Settlement Price for any Determination Date means the Average Price for that Determination Date.
4. Adjustments.
(a) No adjustments may be made to the 162(m) Goal.
(b) Notwithstanding anything to the contrary contained herein, pursuant to Section 3.7 of the Equity Plan, the Committee shall adjust this Award to reflect any dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination, exchange of shares or similar corporate change, in such manner as the Committee may deem appropriate, in its sole discretion, to prevent the enlargement or dilution of the Participants rights.
5. Settlement of Award. The Participants Earned MSUs shall be settled by delivery of shares of Common Stock, on a one-for-one basis, as soon as administratively possible following the applicable Vesting Date, and in no event later than 74 days following the year in which the applicable Vesting Date occurred; provided that settlement shall be subject in all respects to Section 2 and no delivery of shares may occur before the Committee certifies whether the 162(m) Goal has been achieved (which determination will occur no later than the Determination Date for the first Performance Period). Shares of Common Stock shall be issued by the Company in the name of the Participant by electronic book-entry transfer or credit of such shares to an account of the Participant maintained with a brokerage firm or other custodian as the Company determines. Alternatively, in the Companys sole discretion, such issuance may be effected in such other manner (including through physical certificates) as the Company may determine.
6. Termination of Employment; Change in Control.
(a) Except as set forth in Sections 6(b) and (c), if the Participants employment terminates for any reason prior to a Vesting Date, the Target Shares for that Performance Period shall be forfeited, there shall be no Earned MSUs for those Target Shares and the portion of the Award represented thereby (or the entire Award for a termination on or before the first Determination Date) shall be cancelled and the Participant shall have no rights with respect to the Award.
(b) If the Participants employment is terminated by the Company without Cause or pursuant to the Participants resignation for Good Reason then:
(1) If the termination date is on or before the Vesting Date with respect to the first Performance Period, then the Earned MSUs shall equal the number of Earned MSUs the Participant would have vested in if the Participant remained employed through the Vesting Date with respect to the first Performance Period, as determined on the Vesting Date, prorated by multiplying that number of Earned MSUs by (1) the number of days during the first Performance Period up to and including the date of termination and dividing by (2) the total number of scheduled days in the first Performance Period without giving effect to this Section 6(b). Following the Vesting Date, the prorated Earned MSUs shall be settled in accordance with Section 5, and any remaining Target Shares shall be forfeited in accordance with Section 6(a).
(2) If the termination date is after the Vesting Date with respect to the first Performance Period, then the Earned MSUs shall equal the number of Earned MSUs the Participant would have vested in with respect to the second Performance Period if the Participant remained employed through the Vesting Date with respect to the second Performance Period, as determined on the Vesting Date, prorated by multiplying that number of Earned MSUs by (1) the number of days during the second Performance Period up to and including the date of termination and dividing by (2) the total number of scheduled days in the second Performance Period without giving effect to this Section 6(b). Following the Vesting Date, the prorated Earned MSUs shall be settled in accordance with Section 5, and any remaining Target Shares shall be forfeited in accordance with Section 6(a).
(c) Change in Control. In the event the Participants employment is terminated by the Company (or its acquiror) without Cause or pursuant to the Participants resignation for Good Reason on or within two years following a Change in Control, each Performance Period shall be deemed to have been completed, the date of termination shall become the Date of Determination for each Performance Period, all unvested Target Shares shall be deemed to be Earned MSUs, and the Participant shall vest in that number of Earned MSUs as of the date of such termination (or, if later, Change in Control). In the event that the Earned MSUs become vested in accordance with this Section 6(c), such shares shall be settled in accordance with Section 5.
7. Nature of MSUs. The Participant shall have no rights as a stockholder with respect to this Award unless and until Common Stock has been delivered to the Participant upon settlement of the Award. The MSUs are mere bookkeeping entries and represent only an unfunded and unsecured obligation of the Company to issue or deliver Common Stock on a future date, subject to the terms and conditions hereof. As a
holder of MSUs, the Participant has no rights other than the rights of a general creditor of the Company. The MSUs carry neither voting rights nor rights to cash or other dividends.
8. Plan Provisions to Prevail. The Award is subject to all of the terms and provisions of the Equity Plan and is subject to all of the terms and provisions therein. In the event of any inconsistency between the provisions of the Grant Certificate and the Equity Plan, the provisions of the Equity Plan shall govern.
9. Withholding Taxes. Shares of Common Stock delivered pursuant to this Award shall be subject to applicable withholding taxes and the Company shall withhold from the delivery of Common Stock pursuant hereto shares having a value equal to the minimum amount of federal, state and other governmental tax withholding requirements related thereto. If Participant fails to comply with his or her obligations in connection with the applicable withholding or other mandatory tax, the Company may refuse to deliver any shares of Common Stock pursuant to this Award. Such shares shall be valued at their Fair Market Value as of the date on which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. In lieu of such withholding, the Participant may elect, and the Company may require as a condition of delivery, that the Participant remit to the Company an amount in cash sufficient in the opinion of the Company to satisfy all or any portion of such tax withholding requirements.
10. Nature of Payments. The grant of this Award is in consideration of services to be performed by the Participant for the Company and constitutes a special incentive payment. The Award does not constitute salary, wages, regular compensation or contractual compensation for the year of grant or any subsequent year. The parties agree that the Award is not to be included in or taken into account in computing the amount of salary or compensation of the Participant for the purposes of determining (1) any pension, retirement, profit-sharing, bonus, life insurance or other benefits under any pension, retirement, profit-sharing, bonus, life insurance or other benefit plan of the Company, (2) any severance or other amounts payable under any other agreement between the Company and the Participant, or (3) any other employment related rights or benefits under law or any plan, program or agreement. No claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of employment. For purposes of clarity, the Participants right to vest in the Award terminates upon the date upon which he or she no longer actively provides services to the Company, except as expressly provided herein, and does not continue during any notice or severance period. The Company is not responsible for any changes in the value of this Award due to foreign exchange rate fluctuations.
11. Administration. By accepting the grant of this Award, the Participant agrees that no member of the Committee shall be liable for any action or determination made in good faith with respect to the Equity Plan or any award thereunder or the Grant Certificate. Any action taken or decision made by the Company, the Board or the Committee or its delegates arising out of or in connection with the construction, administration, interpretation or effect of the Award or the Grant Certificate shall lie within its sole and absolute discretion, shall not require the Participants consent and shall be final, conclusive and binding upon the Participant and all persons claiming under or through the Participant. Any certifications by the Committee pursuant to the Award shall be determined in writing and may be in any form determined by the Committee (including as part of applicable meeting minutes). By accepting this Award, the Participant and each person claiming under or through the Participant shall be conclusively deemed to have indicated acceptance and ratification of, and consent to, any action taken or decision
made under the Award or the Grant Certificate by the Company, the Board or the Committee or its delegates.
12. Notices. Any notice to be given to the Company hereunder shall be in writing and shall be addressed to the Corporate Secretary, Fifth & Pacific Companies, Inc., 5901 Westside Avenue, North Bergen, NJ 07047, or at such other address as the Company may hereafter designate to the Participant by notice as provided in this Section 12. Any notice to be given to the Participant hereunder shall be addressed to the Participants home address of record, or at such other address as the Participant may hereafter designate to the Company by notice as provided herein. A notice shall be deemed to have been duly given when personally delivered or mailed by registered or certified mail to the party entitled to receive it.
13. Right of Discharge Preserved. The grant of the Award and the terms set forth in the Grant Certificate shall not confer upon the Participant the right to continue in the employ or other service of the Company, and shall not affect any right which the Company may have to terminate such employment or service.
14. Successors and Assigns. The terms of the Grant Certificate shall be binding upon and inure to the benefit of the Company and the successors and assigns of the Company. Except as otherwise determined by the Committee in its sole discretion, the Participants rights and interests under the Award and the Grant Certificate may not be sold, assigned, transferred, or otherwise disposed of, or made subject to any encumbrance, pledge, hypothecation or charge of any nature. If the Participant (or those claiming under or through the Participant) attempts to violate this Section 14, such attempted violation shall be null and void and without effect, and the Companys obligation to make any payment to the Participant (or those claiming under or through the Participant) hereunder shall terminate.
15. No Right to Future Awards. The Award is a discretionary award. Neither the Grant Certificate or the Equity Plan, nor the grant of the Award confers on the Participant any right or entitlement to receive another award under the Equity Plan or any other plan at any time in the future or with respect to any future period.
16. Governing Law. The Award and the Grant Certificate shall be interpreted, construed and administered in accordance with the laws of the State of Delaware.
17. Entire Agreement. The Grant Certificate and the Equity Plan constitute the entire agreement between the parties hereto with regard to the subject matter hereof. They supersede all other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the Award. By accepting the Award, the Participant shall be deemed to accept all of the terms and conditions of the Grant Certificate and the Equity Plan.
18. Amendments. Notwithstanding any provision set forth in the Grant Certificate or the Equity Plan and subject to all applicable laws, rules and regulations, the Committee shall have the power to: (1) alter or amend the terms and conditions of the Award in any manner consistent with the provisions of Section 3.1 of the Equity Plan; (2) without the Participants consent, alter or amend the terms and conditions of the Award in any manner that the Committee considers necessary or advisable, in its sole discretion, to comply with, or take into account changes in, or interpretations or rescissions of,
applicable tax laws, securities laws, employment laws, accounting rules or standards and other applicable laws, rules, regulations, guidance, ruling, judicial decision or legal requirement; (3) ensure that the Awards are not subject to federal, state, local or foreign taxes prior to settlement or payment, as applicable; or (4) without the Participants consent, waive any terms and conditions that operate in favor of the Company. Any alteration or amendment of the terms of the Awards by the Committee shall, upon adoption, become and be binding on all persons affected thereby without requirement for consent or other action with respect thereto by any such person. The Committee shall give notice to the Participant of any such alteration or amendment as promptly as practicable after the adoption thereof.
19. Transferability. Before the issuance of shares of Common Stock in settlement of this Award, the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by the Participants creditors or by the Participants beneficiary, except (1) transfer by will or by the laws of descent and distribution or (2) transfer by written designation of a beneficiary, in a form acceptable to the Company, with such designation taking effect upon the Participants death. All rights with respect to this Award shall be exercisable during the Participants lifetime only by the Participant or the Participants guardian or legal representative.
20. Clawback Policy; Right of Recapture.
(a) Notwithstanding anything to the contrary in this Grant Certificate, all MSUs or shares of Common Stock issued in settlement of this Award shall be subject to any clawback policy adopted by the Company from time to time (including, but not limited to, any policy adopted in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law), regardless of whether the policy is adopted after the date on which the MSUs are granted, vest, or are settled by the issuance of shares of Common Stock.
(b) Notwithstanding anything to the contrary in this Grant Certificate, all MSUs payable or shares of Common Stock issued in settlement of this Award shall be subject to the right of recapture as set forth in Section 2.11 of the Equity Plan.
21. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, no shares of Common Stock shall be issued to the Participant upon vesting of this Award unless the Common Stock is then registered under the Securities Act of 1933 or, if such Common Stock is not then so registered, the Company has determined that such vesting and issuance would be exempt from the registration requirements of the Securities Act. By accepting this Award, the Participant agrees not to sell any of the shares of Common Stock received under this Award at a time when applicable laws or Company policies prohibit a sale.
22. Section 409A.
(a) This Award is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the Code) so as not to be subject to taxes, interest or penalties under Section 409A of the Code. This Grant Certificate shall be interpreted and administered to give effect to such intention and understanding and to avoid the
imposition on the Participant of any tax, interest or penalty under Section 409A of the Code in respect of the Award.
(b) Notwithstanding anything else herein to the contrary, any payment scheduled to be made to the Participant after the Participants separation from service shall not be made until the date six months after the date of the Participants separation from service to the extent necessary to comply with Section 409A(a)(B)(i) and applicable Treasury Regulations. Following any such six-month delay, all such delayed payments shall be paid in a single lump sum on the date six months after the Participants separation from service. For purposes of the Award, separation from service with the Company means a separation from service as defined in Section 409A of the Code determined using the default provisions set forth in Treasury Regulation §1.409A-1(h) or any successor regulation thereto. The provisions of this paragraph shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Section 409A of the Code.
(c) If any provision of the Grant Certificate or the Equity Plan would, in the reasonable, good faith judgment of the Committee, result or likely result in the imposition on the Participant, a beneficiary or any other person of any additional tax, accelerated taxation, interest or penalties under Section 409A of the Code, the Company may modify the terms of the Grant Certificate, or may take any other such action, without the Participants consent, a beneficiary or such other person, in the manner that the Company may reasonably and in good faith determine to be necessary or advisable to avoid the imposition of such additional tax, accelerated taxation, interest, or penalties or otherwise comply with Section 409A of the Code. This Section 22 does not create an obligation on the part of the Company to modify the Grant Certificate and does not guarantee that the Award shall not be subject to additional taxes, accelerated taxation, interest or penalties under Section 409A of the Code.
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By the Compensation Committee of the Board of Directors: | |
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Exhibit 10(j)(ii)
FIFTH & PACIFIC COMPANIES, INC.
[ ] PERFORMANCE SHARE AWARD
NOTICE OF GRANT:
PARTICIPANT NAME:
PARTICIPANT ID:
GRANT DATE:
NUMBER OF UNITS: |
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· shares |
We are pleased to inform you that, pursuant to the Companys 2013 Stock Incentive Plan, the Compensation Committee of the Board of Directors of Fifth & Pacific Companies, Inc., has made an award of performance shares to you, subject to the terms and conditions set forth in the attached Grant Certificate.
* * *
[ ] PERFORMANCE SHARE AWARD GRANT CERTIFICATE
The Grant Certificate (the Grant Certificate) is made as of the Grant Date set forth in the attached Notice of Grant (the Grant Date), by and between Fifth & Pacific Companies, Inc. (the Company) and the employee named in the attached Notice of Award (the Participant).
The Compensation Committee (the Committee) of the Board of Directors of the Company (Board) has made the award described herein (this Award) to the Participant under the Companys 2013 Stock Incentive Plan (the Equity Plan). Any term that is capitalized but not defined herein shall have the meaning given to such term in the Equity Plan.
1. [ ] Performance Share Award. This Award consists of a number of performance shares (the Performance Shares) set forth in the Notice of Grant (such number of Performance Shares, the Target Performance Shares).
2. Threshold Section 162(m) Goal.
(a) No part of this Award shall vest and no amount shall be paid (or shares delivered) in respect of this Award unless and until the Committee certifies that the Company has achieved an adjusted operating income for the [ ] fiscal year of [ ] (the 162(m) Goal). If the 162(m) Goal is not achieved during the [ ] fiscal year, the Award shall be immediately cancelled and the Participant shall have no further rights with respect to the Award.
(b) Once the Committee certifies that the 162(m) Goal has been achieved, the Participants entitlement to payment in respect of the Award shall be determined in accordance with the terms of this Grant Certificate. In no event shall the Participant receive payment in respect of the Award in an amount that exceeds the maximum amount allocated to the Participant in the Committees resolution approving the establishment of the 162(m) Goal.
3. Vesting.
(a) The TSR Performance Period shall be the period beginning on January 1, 2014 and ending on December 31, 2016.
(b) The number of Performance Shares that shall vest and become earned (the Earned Performance Shares) shall be determined based on the Company TSR as compared to the Index TSR as set forth in the table below; provided that the number of Earned Performance Shares may not exceed 200% of the Target Performance Shares.
If the Company TSR over the TSR |
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Then the Percentage of |
Or greater than Index TSR plus 100 percentage points |
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200% (maximum) |
Index TSR |
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Index TSR minus 50 percentage points |
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50% |
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* Except as noted in the table, to the extent that the Company TSR as compared to the Index TSR is between two thresholds, the percentage of the Target Performance Shares that shall vest and become Earned Shares shall be determined by the use of straight-line interpolation.
(c) The number of Earned Performance Shares shall be determined by the Committee within 60 days following the end of the TSR Performance Period. The date the Committee determines the number of Earned Performance Shares is the Vesting Date.
(d) The following terms have the meanings indicated below:
(1) Average Price for any day means the average official closing price per share over the 40-consecutive-trading days ending with and including that day (or, if there is no official closing price on that day, the last trading day before that day).
(2) Cause and Good Reason have the meanings provided in the Executive Severance Agreement between the Participant and the Company (as it may be amended, replaced or supplemented in accordance with its terms); provided that if there is no Executive Severance Agreement between the Participant and the Company, then Cause shall mean:
(a) the Participants willful and intentional repeated failure or refusal, continuing after notice that specifically identifies the breach(es) complained of, to perform substantially his or her material duties, responsibilities and obligations (other than a failure resulting from the Participants incapacity due to physical or mental illness or other reasons beyond the control of the Participant), and which failure or refusal results in demonstrable direct and material injury to the Company or any of its affiliates;
(b) any willful or intentional act or failure to act involving fraud, misrepresentation, theft, embezzlement, dishonesty or moral turpitude (collectively, Fraud) which results in demonstrable direct and material injury to the Company or any of its respective affiliates;
(c) the Participants conviction of (or a plea of nolo contendere to) an offense which is a felony in the jurisdiction involved or
which is a misdemeanor in the jurisdiction involved but which involves Fraud; or
(d) the Participants material breach of a written policy of the Company or the rules of any governmental or regulatory body applicable to the Company.
For purposes of this definition, no act, or failure to act, on the Participants part shall be deemed willful or intentional unless done, or omitted to be done, by the Participant without reasonable belief that the Participants action or omission was in the best interests of the Company.
and Good Reason shall mean the occurrence of one or more of the following events:
(a) the Participant experiences a material diminution in duties or responsibilities, without the Participants consent (provided that a change in reporting structure shall not be deemed a diminution in duties or responsibilities);
(b) the Company moves the Participants work location or its principal offices by more than 100 miles (provided that such move increases the Participants commuting distance by more than 100 miles);
(c) a material reduction in the Participants base salary; or
(d) a material breach by the Company of any of its material obligations under any employment agreement between the Participant and the Company then in effect;
provided, however, that no event or condition shall constitute Good Reason unless (x) the Participant gives the Company a written notice of termination for Good Reason no fewer than 30 days prior to the date of termination and not more than 90 days after the initial existence of the condition giving rise to Good Reason, and (y) the grounds for termination (if susceptible to correction) are not corrected by the Company within 30 days of its receipt of such notice.
(3) Company TSR means the Companys TSR for the TSR Performance Period.
(4) Index TSR means the TSR for the TSR Performance Period of the S&P MidCap 400 as published by Standard & Poors Financial Services LLC (or its successor) or, if that index is no longer published on the last day of the TSR Performance Period, a comparable index selected by the Committee.
(5) TSR means total shareholder return, which is the percentage that equals:
(a) the cumulative amount of cash dividends for the TSR Performance Period, assuming same-day reinvestment into the common stock on the ex-dividend date, plus the Average Price at the end of the TSR Performance Period,
(b) divided by the Average Price at the beginning of the TSR Performance Period,
(c) raised to the power of the result of (1) one divided by the number of the Companys fiscal years ending with or within the TSR Performance Period, minus (2) one.
TSR expressed as a formula is as follows:
TSR = [(Cumulative Dividends + Average PriceEnd)/Average PriceBeginning](1/no. of yrs. )- 1
TSR shall be equitably adjusted to reflect stock dividends, stock splits, spin-offs, and other corporate changes having similar effect in a manner consistent with the calculation approach used by Standard & Poors Financial Services LLC (or its successor) in the calculation of total shareholder return.
4. Adjustments.
(a) No adjustments may be made to the 162(m) Goal.
(b) Notwithstanding anything to the contrary contained herein, pursuant to Section 3.7 of the Equity Plan, the Committee shall adjust this Award to reflect any dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination, exchange of shares or similar corporate change, in such manner as the Committee may deem appropriate, in its sole discretion, to prevent the enlargement or dilution of the Participants rights.
5. Settlement of Award. The Participants Earned Performance Shares shall be settled by delivery of shares of Common Stock, on a one-for-one basis, as soon as administratively possible following the Vesting Date, and in no event later than 74 days following the year in which the Vesting Date occurred; provided that settlement shall be subject in all respects to Section 2 and no delivery of shares may occur before the Committee certifies whether the 162(m) Goal has been achieved. Shares of Common Stock shall be issued by the Company in the name of the Participant by electronic book-entry transfer or credit of such shares to an account of the Participant maintained with a brokerage firm or other custodian as the Company determines. Alternatively, in the Companys sole discretion, such issuance may be effected in such other manner (including through physical certificates) as the Company may determine.
6. Termination of Employment; Change in Control.
(a) Except as set forth in Sections 6(b) and (c), if the Participants employment terminates for any reason prior to the Vesting Date, the Award shall be cancelled and the Participant shall have no rights with respect to the Award.
(b) If the Participants employment is terminated by the Company without Cause or pursuant to the Participants resignation for Good Reason, then the Earned Performance Shares shall equal the number of Performance Shares the Participant would have vested in if the Participant remained employed through the end of the TSR Performance Period, as determined on the Vesting Date, prorated by multiplying that number of Earned Performance Shares by (1) the number of days during the TSR Performance Period up to and including the date of termination and dividing by (2) the total number of scheduled days in the TSR Performance Period without giving effect to this Section 6(b). Following the Vesting Date, the prorated Earned Performance Shares shall be settled in accordance with Section 5, and any remaining Target Performance Shares shall be forfeited in accordance with Section 6(a).
(c) Change in Control. In the event the Participants employment is terminated by the Company (or its acquiror) without Cause or pursuant to the Participants resignation for Good Reason or on or within two years following a Change in Control, each Performance Period shall be deemed to have been completed, the date of termination shall become the Vesting Date, all unvested Target Shares shall be deemed to be Earned Performance Shares, and the Participant shall vest in that number of Earned Performance Shares as of the date of such termination (or, if later, Change in Control). In the event that the Earned Performance Shares become vested in accordance with this Section 6(c), such shares shall be settled in accordance with Section 5.
7. Nature of Performance Shares. The Participant shall have no rights as a stockholder with respect to this Award unless and until Common Stock has been delivered to the Participant upon settlement of the Award. The Performance Shares are mere bookkeeping entries and represent only an unfunded and unsecured obligation of the Company to issue or deliver Common Stock on a future date, subject to the terms and conditions hereof. As a holder of Performance Shares, the Participant has no rights other than the rights of a general creditor of the Company. The Performance Shares carry neither voting rights nor rights to cash or other dividends.
8. Plan Provisions to Prevail. The Award is subject to all of the terms and provisions of the Equity Plan and is subject to all of the terms and provisions therein. In the event of any inconsistency between the provisions of the Grant Certificate and the Equity Plan, the provisions of the Equity Plan shall govern.
9. Withholding Taxes. Shares of Common Stock delivered pursuant to this Award shall be subject to applicable withholding taxes and the Company shall withhold from the delivery of Common Stock pursuant hereto shares having a value equal to the minimum amount of federal, state and other governmental tax withholding requirements related thereto. If Participant fails to comply with his or her obligations in connection with the applicable withholding or other mandatory tax, the Company may refuse to deliver any shares of Common Stock pursuant to this Award. Such shares shall be valued at their Fair Market Value as of the date on which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. In lieu of such withholding, the Participant may elect, and the Company may require as a condition of delivery, that the Participant remit to the Company an amount in cash sufficient in the opinion of the Company to satisfy all or any portion of such tax withholding requirements.
10. Nature of Payments. The grant of this Award is in consideration of services to be performed by the Participant for the Company and constitutes a special incentive payment. The Award does not constitute salary, wages, regular compensation or
contractual compensation for the year of grant or any subsequent year. The parties agree that the Award is not to be included in or taken into account in computing the amount of salary or compensation of the Participant for the purposes of determining (1) any pension, retirement, profit-sharing, bonus, life insurance or other benefits under any pension, retirement, profit-sharing, bonus, life insurance or other benefit plan of the Company, (2) any severance or other amounts payable under any other agreement between the Company and the Participant, or (3) any other employment related rights or benefits under law or any plan, program or agreement. No claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of employment. For purposes of clarity, the Participants right to vest in the Award terminates upon the date upon which he or she no longer actively provides services to the Company, except as expressly provided herein, and does not continue during any notice or severance period. The Company is not responsible for any changes in the value of this Award due to foreign exchange rate fluctuations.
11. Administration. By accepting the grant of this Award, the Participant agrees that no member of the Committee shall be liable for any action or determination made in good faith with respect to the Equity Plan or any award thereunder or the Grant Certificate. Any action taken or decision made by the Company, the Board or the Committee or its delegates arising out of or in connection with the construction, administration, interpretation or effect of the Award or the Grant Certificate shall lie within its sole and absolute discretion, shall not require the Participants consent and shall be final, conclusive and binding upon the Participant and all persons claiming under or through the Participant. Any certifications by the Committee pursuant to the Award shall be determined in writing and may be in any form determined by the Committee (including as part of applicable meeting minutes). By accepting this Award, the Participant and each person claiming under or through the Participant shall be conclusively deemed to have indicated acceptance and ratification of, and consent to, any action taken or decision made under the Award or the Grant Certificate by the Company, the Board or the Committee or its delegates.
12. Notices. Any notice to be given to the Company hereunder shall be in writing and shall be addressed to the Corporate Secretary, Fifth & Pacific Companies, Inc., 5901 Westside Avenue, North Bergen, NJ 07047, or at such other address as the Company may hereafter designate to the Participant by notice as provided in this Section 12. Any notice to be given to the Participant hereunder shall be addressed to the Participants home address of record, or at such other address as the Participant may hereafter designate to the Company by notice as provided herein. A notice shall be deemed to have been duly given when personally delivered or mailed by registered or certified mail to the party entitled to receive it.
13. Right of Discharge Preserved. The grant of the Award and the terms set forth in the Grant Certificate shall not confer upon the Participant the right to continue in the employ or other service of the Company, and shall not affect any right which the Company may have to terminate such employment or service.
14. Successors and Assigns. The terms of the Grant Certificate shall be binding upon and inure to the benefit of the Company and the successors and assigns of the Company. Except as otherwise determined by the Committee in its sole discretion, the Participants rights and interests under the Award and the Grant Certificate may not be sold, assigned, transferred, or otherwise disposed of, or made subject to any encumbrance, pledge, hypothecation or charge of any nature. If the Participant (or those claiming under
or through the Participant) attempts to violate this Section 14, such attempted violation shall be null and void and without effect, and the Companys obligation to make any payment to the Participant (or those claiming under or through the Participant) hereunder shall terminate.
15. No Right to Future Awards. The Award is a discretionary award. Neither the Grant Certificate or the Equity Plan, nor the grant of the Award confers on the Participant any right or entitlement to receive another award under the Equity Plan or any other plan at any time in the future or with respect to any future period.
16. Governing Law. The Award and the Grant Certificate shall be interpreted, construed and administered in accordance with the laws of the State of Delaware.
17. Entire Agreement. The Grant Certificate and the Equity Plan constitute the entire agreement between the parties hereto with regard to the subject matter hereof. They supersede all other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the Award. By accepting the Award, the Participant shall be deemed to accept all of the terms and conditions of the Grant Certificate and the Equity Plan.
18. Amendments. Notwithstanding any provision set forth in the Grant Certificate or the Equity Plan and subject to all applicable laws, rules and regulations, the Committee shall have the power to: (1) alter or amend the terms and conditions of the Award in any manner consistent with the provisions of Section 3.1 of the Equity Plan; (2) without the Participants consent, alter or amend the terms and conditions of the Award in any manner that the Committee considers necessary or advisable, in its sole discretion, to comply with, or take into account changes in, or interpretations or rescissions of, applicable tax laws, securities laws, employment laws, accounting rules or standards and other applicable laws, rules, regulations, guidance, ruling, judicial decision or legal requirement; (3) ensure that the Awards are not subject to federal, state, local or foreign taxes prior to settlement or payment, as applicable; or (4) without the Participants consent, waive any terms and conditions that operate in favor of the Company. Any alteration or amendment of the terms of the Awards by the Committee shall, upon adoption, become and be binding on all persons affected thereby without requirement for consent or other action with respect thereto by any such person. The Committee shall give notice to the Participant of any such alteration or amendment as promptly as practicable after the adoption thereof.
19. Transferability. Before the issuance of shares of Common Stock in settlement of this Award, the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by the Participants creditors or by the Participants beneficiary, except (1) transfer by will or by the laws of descent and distribution or (2) transfer by written designation of a beneficiary, in a form acceptable to the Company, with such designation taking effect upon the Participants death. All rights with respect to this Award shall be exercisable during the Participants lifetime only by the Participant or the Participants guardian or legal representative.
20. Clawback Policy; Right of Recapture.
(a) Notwithstanding anything to the contrary in this Grant Certificate, all Performance Shares or shares of Common Stock issued in settlement of this Award shall be subject to any clawback policy adopted by the Company from time to time (including, but not limited to, any policy adopted in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law), regardless of whether the policy is adopted after the date on which the Performance Shares are granted, vest, or are settled by the issuance of shares of Common Stock.
(b) Notwithstanding anything to the contrary in this Grant Certificate, all Performance Shares payable or shares of Common Stock issued in settlement of this Award shall be subject to the right of recapture as set forth in Section 2.11 of the Equity Plan.
21. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, no shares of Common Stock shall be issued to the Participant upon vesting of this Award unless the Common Stock is then registered under the Securities Act of 1933 or, if such Common Stock is not then so registered, the Company has determined that such vesting and issuance would be exempt from the registration requirements of the Securities Act. By accepting this Award, the Participant agrees not to sell any of the shares of Common Stock received under this Award at a time when applicable laws or Company policies prohibit a sale.
22. Section 409A.
(a) This Award is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the Code) so as not to be subject to taxes, interest or penalties under Section 409A of the Code. This Grant Certificate shall be interpreted and administered to give effect to such intention and understanding and to avoid the imposition on the Participant of any tax, interest or penalty under Section 409A of the Code in respect of the Award.
(b) Notwithstanding anything else herein to the contrary, any payment scheduled to be made to the Participant after the Participants separation from service shall not be made until the date six months after the date of the Participants separation from service to the extent necessary to comply with Section 409A(a)(B)(i) and applicable Treasury Regulations. Following any such six-month delay, all such delayed payments shall be paid in a single lump sum on the date six months after the Participants separation from service. For purposes of the Award, separation from service with the Company means a separation from service as defined in Section 409A of the Code determined using the default provisions set forth in Treasury Regulation §1.409A-1(h) or any successor regulation thereto. The provisions of this paragraph shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Section 409A of the Code.
(c) If any provision of the Grant Certificate or the Equity Plan would, in the reasonable, good faith judgment of the Committee, result or likely result in the imposition on the Participant, a beneficiary or any other person of any additional tax, accelerated taxation, interest or penalties under Section 409A of the Code, the Company may modify the terms of the Grant Certificate, or may take any other such action, without the Participants consent, a beneficiary or such other person, in the manner that the Company may reasonably and in good faith determine to be necessary or advisable to
avoid the imposition of such additional tax, accelerated taxation, interest, or penalties or otherwise comply with Section 409A of the Code. This Section 22 does not create an obligation on the part of the Company to modify the Grant Certificate and does not guarantee that the Award shall not be subject to additional taxes, accelerated taxation, interest or penalties under Section 409A of the Code.
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FIFTH & PACIFIC COMPANIES, INC. | |
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By the Compensation Committee of the Board of Directors: | |
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Name: |
[Name] |
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Consented and Agreed to: |
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Exhibit 10(j)(iii)
FIFTH & PACIFIC COMPANIES, INC.
[ ] STAKING MARKET SHARE UNIT AWARD
NOTICE OF GRANT:
PARTICIPANT NAME:
PARTICIPANT ID:
GRANT DATE:
NUMBER OF UNITS: · shares
We are pleased to inform you that, pursuant to the Companys 2013 Stock Incentive Plan, the Compensation Committee of the Board of Directors of Fifth & Pacific Companies, Inc., has made an award of market share units to you, subject to the terms and conditions set forth in the attached Grant Certificate.
* * *
[ ] STAKING MARKET SHARE UNIT AWARD GRANT CERTIFICATE
The Grant Certificate (the Grant Certificate) is made as of the Grant Date set forth in the attached Notice of Grant (the Grant Date), by and between Fifth & Pacific Companies, Inc. (the Company) and the employee named in the attached Notice of Award (the Participant).
The Compensation Committee (the Committee) of the Board of Directors of the Company (Board) has made the award described herein (this Award) to the Participant under the Companys 2013 Stock Incentive Plan (the Equity Plan). Any term that is capitalized but not defined herein shall have the meaning given to such term in the Equity Plan.
1. [ ] Market Share Unit Award. This Award consists of a number of market share units (the MSUs) set forth in the Notice of Grant (such number of MSUs, the Target Shares).
2. Threshold Section 162(m) Goal.
(a) No part of this Award shall vest and no amount shall be paid (or shares delivered) in respect of this Award unless and until the Committee certifies that the Company has achieved an adjusted operating income for the [ ] fiscal year of [ ] (the 162(m) Goal). If the 162(m) Goal is not achieved during the [ ] fiscal year, the Award shall be immediately cancelled and the Participant shall have no further rights with respect to the Award.
(b) Once the Committee certifies that the 162(m) Goal has been achieved, the Participants entitlement to payment in respect of the Award shall be determined in accordance with the terms of this Grant Certificate. In no event shall the Participant receive payment in respect of the Award in an amount that exceeds the maximum amount allocated to the Participant in the Committees resolution approving the establishment of the 162(m) Goal.
3. Determination of Earned MSUs.
(a) The Performance Period for one-half of the Target Shares shall be the period from the Grant Date to the third anniversary of the Grant Date and for the other half of the Target Shares shall be the period from the Grant Date to the fifth anniversary of the Grant Date.
(b) The number of MSUs earned for each Performance Period shall equal (1) the Target Shares for that Performance Period multiplied by (2) the Settlement Price for that Performance Period divided by (3) the Grant Price; provided that the number of MSUs earned for any Performance Period may not be less than 30% or more than 200% of the Target Shares for that Performance Period (the Earned MSUs for that Performance Period).
(c) The Earned MSUs for a Performance Period shall be determined by the Committee within 60 days following the end of the Performance Period. The date the Committee determines the number of Earned Performance Shares for each performance period is the Vesting Date.
(d) The following terms have the meanings indicated below:
(1) Average Price for any day means the average official closing price per share over the 40 consecutive trading days ending with and including that day (or, if there is no official closing price on that day, the last trading day before that day).
(2) Cause and Good Reason have the meanings provided in the Executive Severance Agreement between the Participant and the Company (as it may be amended, replaced or supplemented in accordance with its terms); provided that if there is no Executive Severance Agreement between the Participant and the Company, then Cause shall mean:
(a) the Participants willful and intentional repeated failure or refusal, continuing after notice that specifically identifies the breach(es) complained of, to perform substantially his or her material duties, responsibilities and obligations (other than a failure resulting from the Participants incapacity due to physical or mental illness or other reasons beyond the control of the Participant), and which failure or refusal results in demonstrable direct and material injury to the Company or any of its affiliates;
(b) any willful or intentional act or failure to act involving fraud, misrepresentation, theft, embezzlement, dishonesty or moral turpitude (collectively, Fraud) which results in demonstrable direct and material injury to the Company or any of its respective affiliates;
(c) the Participants conviction of (or a plea of nolo contendere to) an offense which is a felony in the jurisdiction involved or which is a misdemeanor in the jurisdiction involved but which involves Fraud; or
(d) the Participants material breach of a written policy of the Company or the rules of any governmental or regulatory body applicable to the Company.
For purposes of this definition, no act, or failure to act, on the Participants part shall be deemed willful or intentional unless done, or omitted to be done, by the Participant without reasonable belief that the Participants action or omission was in the best interests of the Company.
and Good Reason shall mean the occurrence of one or more of the following events:
(a) the Participant experiences a material diminution in duties or responsibilities, without the Participants consent (provided that a change in reporting structure shall not be deemed a diminution in duties or responsibilities);
(b) the Company moves the Participants work location or its principal offices by more than 100 miles (provided that such move increases the Participants commuting distance by more than 100 miles);
(c) a material reduction in the Participants base salary; or
(d) a material breach by the Company of any of its material obligations under any employment agreement between the Participant and the Company then in effect;
provided, however, that no event or condition shall constitute Good Reason unless (x) the Participant gives the Company a written notice of termination for Good Reason no fewer than 30 days prior to the date of termination and not more than 90 days after the initial existence of the condition giving rise to Good Reason, and (y) the grounds for termination (if susceptible to correction) are not corrected by the Company within 30 days of its receipt of such notice.
(3) Determination Date for any Performance Period means the last day of that Performance Period.
(4) Grant Price shall be the Average Price for the Grant Date.
(5) Settlement Price for any Determination Date means the Average Price for that Determination Date.
4. Adjustments.
(a) No adjustments may be made to the 162(m) Goal.
(b) Notwithstanding anything to the contrary contained herein, pursuant to Section 3.7 of the Equity Plan, the Committee shall adjust this Award to reflect any dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination, exchange of shares or similar corporate change, in such manner as the Committee may deem appropriate, in its sole discretion, to prevent the enlargement or dilution of the Participants rights.
5. Settlement of Award. The Participants Earned MSUs shall be settled by delivery of shares of Common Stock, on a one-for-one basis, as soon as administratively possible following the applicable Vesting Date, and in no event later than 74 days following the year in which the applicable Vesting Date occurred; provided that settlement shall be subject in all respects to Section 2 and no delivery of shares may occur before the Committee certifies whether the 162(m) Goal has been achieved (which determination will occur no later than the Determination Date for the first Performance Period). Shares of Common Stock shall be issued by the Company in the name of the Participant by electronic book-entry transfer or credit of such shares to an account of the Participant maintained with a brokerage firm or other custodian as the Company determines. Alternatively, in the Companys sole discretion, such issuance may be effected in such other manner (including through physical certificates) as the Company may determine.
6. Termination of Employment; Change in Control.
(a) Except as set forth in Sections 6(b) and (c), if the Participants employment terminates for any reason prior to a Vesting Date, the Target Shares for that Performance Period shall be forfeited, there shall be no Earned MSUs for those Target Shares and the portion of the Award represented thereby (or the entire Award for a termination on or before the first Determination Date) shall be cancelled and the Participant shall have no rights with respect to the Award.
(b) If the Participants employment is terminated by the Company without Cause or pursuant to the Participants resignation for Good Reason then:
(1) If the termination date is on or before the Vesting Date with respect to the first Performance Period, then the Earned MSUs shall equal the number of Earned MSUs the Participant would have vested in if the Participant remained employed through the Vesting Date with respect to the first Performance Period, as determined on the Vesting Date, prorated by multiplying that number of Earned MSUs by (1) the number of days during the first Performance Period up to and including the date of termination and dividing by (2) the total number of scheduled days in the first Performance Period without giving effect to this Section 6(b). Following the Vesting Date, the prorated Earned MSUs shall be settled in accordance with Section 5, and any remaining Target Shares shall be forfeited in accordance with Section 6(a).
(2) If the termination date is after the Vesting Date with respect to the first Performance Period, then the Earned MSUs shall equal the number of Earned MSUs the Participant would have vested in with respect to the second Performance Period if the Participant remained employed through the Vesting Date with respect to the second Performance Period, as determined on the Vesting Date, prorated by multiplying that number of Earned MSUs by (1) the number of days during the second Performance Period up to and including the date of termination and dividing by (2) the total number of scheduled days in the second Performance Period without giving effect to this Section 6(b). Following the Vesting Date, the prorated Earned MSUs shall be settled in accordance with Section 5, and any remaining Target Shares shall be forfeited in accordance with Section 6(a).
(c) Change in Control. In the event the Participants employment is terminated by the Company (or its acquiror) without Cause or pursuant to the Participants resignation for Good Reason on or within two years following a Change in Control, each Performance Period shall be deemed to have been completed, the date of termination shall become the Date of Determination for each Performance Period, all unvested Target Shares shall be deemed to be Earned MSUs, and the Participant shall vest in that number of Earned MSUs as of the date of such termination (or, if later, Change in Control). In the event that the Earned MSUs become vested in accordance with this Section 6(c), such shares shall be settled in accordance with Section 5.
7. Nature of MSUs. The Participant shall have no rights as a stockholder with respect to this Award unless and until Common Stock has been delivered to the Participant upon settlement of the Award. The MSUs are mere bookkeeping entries and represent only an unfunded and unsecured obligation of the Company to issue or deliver Common Stock on a future date, subject to the terms and conditions hereof. As a
holder of MSUs, the Participant has no rights other than the rights of a general creditor of the Company. The MSUs carry neither voting rights nor rights to cash or other dividends.
8. Plan Provisions to Prevail. The Award is subject to all of the terms and provisions of the Equity Plan and is subject to all of the terms and provisions therein. In the event of any inconsistency between the provisions of the Grant Certificate and the Equity Plan, the provisions of the Equity Plan shall govern.
9. Withholding Taxes. Shares of Common Stock delivered pursuant to this Award shall be subject to applicable withholding taxes and the Company shall withhold from the delivery of Common Stock pursuant hereto shares having a value equal to the minimum amount of federal, state and other governmental tax withholding requirements related thereto. If Participant fails to comply with his or her obligations in connection with the applicable withholding or other mandatory tax, the Company may refuse to deliver any shares of Common Stock pursuant to this Award. Such shares shall be valued at their Fair Market Value as of the date on which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. In lieu of such withholding, the Participant may elect, and the Company may require as a condition of delivery, that the Participant remit to the Company an amount in cash sufficient in the opinion of the Company to satisfy all or any portion of such tax withholding requirements.
10. Nature of Payments. The grant of this Award is in consideration of services to be performed by the Participant for the Company and constitutes a special incentive payment. The Award does not constitute salary, wages, regular compensation or contractual compensation for the year of grant or any subsequent year. The parties agree that the Award is not to be included in or taken into account in computing the amount of salary or compensation of the Participant for the purposes of determining (1) any pension, retirement, profit-sharing, bonus, life insurance or other benefits under any pension, retirement, profit-sharing, bonus, life insurance or other benefit plan of the Company, (2) any severance or other amounts payable under any other agreement between the Company and the Participant, or (3) any other employment related rights or benefits under law or any plan, program or agreement. No claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of employment. For purposes of clarity, the Participants right to vest in the Award terminates upon the date upon which he or she no longer actively provides services to the Company, except as expressly provided herein, and does not continue during any notice or severance period. The Company is not responsible for any changes in the value of this Award due to foreign exchange rate fluctuations.
11. Administration. By accepting the grant of this Award, the Participant agrees that no member of the Committee shall be liable for any action or determination made in good faith with respect to the Equity Plan or any award thereunder or the Grant Certificate. Any action taken or decision made by the Company, the Board or the Committee or its delegates arising out of or in connection with the construction, administration, interpretation or effect of the Award or the Grant Certificate shall lie within its sole and absolute discretion, shall not require the Participants consent and shall be final, conclusive and binding upon the Participant and all persons claiming under or through the Participant. Any certifications by the Committee pursuant to the Award shall be determined in writing and may be in any form determined by the Committee (including as part of applicable meeting minutes). By accepting this Award, the Participant and each person claiming under or through the Participant shall be conclusively deemed to have indicated acceptance and ratification of, and consent to, any action taken or decision
made under the Award or the Grant Certificate by the Company, the Board or the Committee or its delegates.
12. Notices. Any notice to be given to the Company hereunder shall be in writing and shall be addressed to the Corporate Secretary, Fifth & Pacific Companies, Inc., 5901 Westside Avenue, North Bergen, NJ 07047, or at such other address as the Company may hereafter designate to the Participant by notice as provided in this Section 12. Any notice to be given to the Participant hereunder shall be addressed to the Participants home address of record, or at such other address as the Participant may hereafter designate to the Company by notice as provided herein. A notice shall be deemed to have been duly given when personally delivered or mailed by registered or certified mail to the party entitled to receive it.
13. Right of Discharge Preserved. The grant of the Award and the terms set forth in the Grant Certificate shall not confer upon the Participant the right to continue in the employ or other service of the Company, and shall not affect any right which the Company may have to terminate such employment or service.
14. Successors and Assigns. The terms of the Grant Certificate shall be binding upon and inure to the benefit of the Company and the successors and assigns of the Company. Except as otherwise determined by the Committee in its sole discretion, the Participants rights and interests under the Award and the Grant Certificate may not be sold, assigned, transferred, or otherwise disposed of, or made subject to any encumbrance, pledge, hypothecation or charge of any nature. If the Participant (or those claiming under or through the Participant) attempts to violate this Section 14, such attempted violation shall be null and void and without effect, and the Companys obligation to make any payment to the Participant (or those claiming under or through the Participant) hereunder shall terminate.
15. No Right to Future Awards. The Award is a discretionary award. Neither the Grant Certificate or the Equity Plan, nor the grant of the Award confers on the Participant any right or entitlement to receive another award under the Equity Plan or any other plan at any time in the future or with respect to any future period.
16. Governing Law. The Award and the Grant Certificate shall be interpreted, construed and administered in accordance with the laws of the State of Delaware.
17. Entire Agreement. The Grant Certificate and the Equity Plan constitute the entire agreement between the parties hereto with regard to the subject matter hereof. They supersede all other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the Award. By accepting the Award, the Participant shall be deemed to accept all of the terms and conditions of the Grant Certificate and the Equity Plan.
18. Amendments. Notwithstanding any provision set forth in the Grant Certificate or the Equity Plan and subject to all applicable laws, rules and regulations, the Committee shall have the power to: (1) alter or amend the terms and conditions of the Award in any manner consistent with the provisions of Section 3.1 of the Equity Plan; (2) without the Participants consent, alter or amend the terms and conditions of the Award in any manner that the Committee considers necessary or advisable, in its sole discretion, to comply with, or take into account changes in, or interpretations or rescissions of,
applicable tax laws, securities laws, employment laws, accounting rules or standards and other applicable laws, rules, regulations, guidance, ruling, judicial decision or legal requirement; (3) ensure that the Awards are not subject to federal, state, local or foreign taxes prior to settlement or payment, as applicable; or (4) without the Participants consent, waive any terms and conditions that operate in favor of the Company. Any alteration or amendment of the terms of the Awards by the Committee shall, upon adoption, become and be binding on all persons affected thereby without requirement for consent or other action with respect thereto by any such person. The Committee shall give notice to the Participant of any such alteration or amendment as promptly as practicable after the adoption thereof.
19. Transferability. Before the issuance of shares of Common Stock in settlement of this Award, the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by the Participants creditors or by the Participants beneficiary, except (1) transfer by will or by the laws of descent and distribution or (2) transfer by written designation of a beneficiary, in a form acceptable to the Company, with such designation taking effect upon the Participants death. All rights with respect to this Award shall be exercisable during the Participants lifetime only by the Participant or the Participants guardian or legal representative.
20. Clawback Policy; Right of Recapture.
(a) Notwithstanding anything to the contrary in this Grant Certificate, all MSUs or shares of Common Stock issued in settlement of this Award shall be subject to any clawback policy adopted by the Company from time to time (including, but not limited to, any policy adopted in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law), regardless of whether the policy is adopted after the date on which the MSUs are granted, vest, or are settled by the issuance of shares of Common Stock.
(b) Notwithstanding anything to the contrary in this Grant Certificate, all MSUs payable or shares of Common Stock issued in settlement of this Award shall be subject to the right of recapture as set forth in Section 2.11 of the Equity Plan.
21. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, no shares of Common Stock shall be issued to the Participant upon vesting of this Award unless the Common Stock is then registered under the Securities Act of 1933 or, if such Common Stock is not then so registered, the Company has determined that such vesting and issuance would be exempt from the registration requirements of the Securities Act. By accepting this Award, the Participant agrees not to sell any of the shares of Common Stock received under this Award at a time when applicable laws or Company policies prohibit a sale.
22. Section 409A.
(a) This Award is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the Code) so as not to be subject to taxes, interest or penalties under Section 409A of the Code. This Grant Certificate shall be interpreted and administered to give effect to such intention and understanding and to avoid the
imposition on the Participant of any tax, interest or penalty under Section 409A of the Code in respect of the Award.
(b) Notwithstanding anything else herein to the contrary, any payment scheduled to be made to the Participant after the Participants separation from service shall not be made until the date six months after the date of the Participants separation from service to the extent necessary to comply with Section 409A(a)(B)(i) and applicable Treasury Regulations. Following any such six-month delay, all such delayed payments shall be paid in a single lump sum on the date six months after the Participants separation from service. For purposes of the Award, separation from service with the Company means a separation from service as defined in Section 409A of the Code determined using the default provisions set forth in Treasury Regulation §1.409A-1(h) or any successor regulation thereto. The provisions of this paragraph shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Section 409A of the Code.
(c) If any provision of the Grant Certificate or the Equity Plan would, in the reasonable, good faith judgment of the Committee, result or likely result in the imposition on the Participant, a beneficiary or any other person of any additional tax, accelerated taxation, interest or penalties under Section 409A of the Code, the Company may modify the terms of the Grant Certificate, or may take any other such action, without the Participants consent, a beneficiary or such other person, in the manner that the Company may reasonably and in good faith determine to be necessary or advisable to avoid the imposition of such additional tax, accelerated taxation, interest, or penalties or otherwise comply with Section 409A of the Code. This Section 22 does not create an obligation on the part of the Company to modify the Grant Certificate and does not guarantee that the Award shall not be subject to additional taxes, accelerated taxation, interest or penalties under Section 409A of the Code.
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EXHIBIT 10(O)
EXECUTION VERSION
January 7, 2014
Mr. Craig Leavitt
[XXXXX]
Re: Employment Agreement
Dear Craig:
This is your EMPLOYMENT AGREEMENT (this Agreement) with Fifth & Pacific Companies, Inc., a Delaware corporation (the Company). Effective January 1, 2014 (the Effective Date), this Agreement sets forth the terms and conditions of your employment with the Company.
1. Your Position, Performance and Other Activities.
(a) Position. You will become Chief Executive Officer of the Company beginning on the date that the current Chief Executive Officer of the Company ceases to serve in that position, which in no event will be later than March 31, 2014 (your Position Start Date). From the Effective Date until your Position Start Date, you will continue to hold the position of Co-President and Chief Executive Officer of Kate Spade, LLC.
(b) Responsibilities and Reporting; Board Membership. Beginning on your Position Start Date, you will report directly (and only) to the Board of Directors of the Company (the Board) and will have all authority and responsibility of, and will perform such duties as are consistent with, your position as Chief Executive Officer (including services as an officer, director or equivalent position of any subsidiary, affiliated company or venture of the Company, without additional compensation). In addition, effective on your Position Start Date, you will be appointed as a member of the Board. Thereafter, during your Term of Employment (as defined in Section 2), the Board will nominate you for election or re-election as a member of the Board as and when your term as a director would otherwise expire. To the extent you are a director of the Company during the Term of Employment, you agree to serve without additional compensation. Until your Position Start Date, your reporting, authority and responsibility will continue as currently in effect. You will be based at the Companys principal executive offices (currently in New York, New York), subject to customary travel requirements.
(c) Performance. During the Term of Employment, except as permitted by Section l(d), you agree to (1) devote your full business time and attention to the business and affairs of the Company and to faithfully and diligently perform, using your best efforts, all of your duties and responsibilities under this Agreement; (2) abide by all written policies of the Group (as defined below) from time to time in effect which apply to similarly situated senior executives of the Group; and (3) not take any action or conduct yourself in any manner which would cause harm to the reputation or goodwill of the Group (other
than de minimis harm). As used herein, the term Group means the Company and the Companys subsidiaries or affiliates.
(d) Other Activities. During the Term of Employment, except as otherwise approved in writing by the Board, you will not render any business, commercial or professional services to any person or entity not in the Group. However, you may engage in charitable and community activities and manage your personal investments and affairs so long as the activities do not, individually or collectively, either (1) interfere with the performance of your duties and responsibilities of your employment or (2) constitute restricted activities under the terms of your Executive Severance Agreement with the Company, dated as of the Effective Date (your ESA). Service on the board of any entity (whether for profit or not for profit) must be approved in advance by the Board.
2. Term of Your Employment.
Your employment under this Agreement will begin on the Effective Date and end on December 31, 2014 unless renewed or terminated early. Your Term of Employment (as defined below) will automatically renew for successive one-year periods on each scheduled end date unless the Company delivers to you, or you deliver to the Company, a notice of non-renewal (a Nonrenewal Notice) at least 180 days before the next automatic extension (the original and such successive terms being referred to collectively as your Term of Employment). Your Term of Employment may be terminated early as set forth in your ESA. For the avoidance of doubt, all notices under this Agreement or your ESA must be made in the manner set forth in Section 8 of your ESA.
3. Your Regular Compensation.
(a) Salary. From the Effective Date until your Position Start Date, your Salary will remain at the current rate. Starting on your Position Start Date, your annual base salary (your Salary) will increase to $1,500,000. Beginning in fiscal year 2015, the Board will review your Salary at least annually during your Term of Employment and may increase it at any time in its discretion based on your performance. However, your Salary may not be decreased at any time (including after any increase), and any increase in your Salary will not reduce or limit any other obligation to you under this Agreement. Your Salary will be paid in accordance with the Companys normal payroll practices for its senior executives.
(b) Annual Bonus. During your Term of Employment, you will participate in the Companys annual cash bonus plan, as it may exist from time to time, upon the same terms and conditions as other senior executive officers of the Company. Starting on the Effective Date, your target bonus under the plan for each fiscal year during your Term of Employment will be 150% of your Salary and you will have an opportunity to earn an annual cash bonus of up to 200% of your target. For 2014, your annual bonus will include your performance from the Effective Date calculated based on your Salary as in effect beginning on your Position Start Date and will not be prorated to reflect the time not served as the Chief Executive Officer of the Company prior to the Position Start Date.
(c) Long Term Incentive Award. For each fiscal year during your Term of Employment, you will be entitled to long term incentive awards having a total target and/or grant date value of no less than $5,000,000 on an annualized basis. Your long term incentive awards may be made annually or over some other basis (provided that any performance period will not exceed three years) and will be granted at the same time as
such awards are granted to other senior executive officers of the Company. Performance metrics and their weightings will be communicated to you in writing on or before March 31 of the first year of each performance period. For the 2014 fiscal year, your long term incentive award will comprise an award of market share units, and an award of performance shares, with each type of award representing 50% of the total grant-date value of $5,000,000 and subject to the terms and conditions described in Annex A. For years after the 2014 fiscal year during your Term of Employment, your long term incentive awards will have the terms and conditions described in Annex B. For the avoidance of doubt, your 2014 long term incentive award will not be pro-rated to reflect the time before your Position Start Date.
4. Your One-Time Compensation.
(a) Staking Grant. Within three business days of your execution of this Agreement, you will be granted a one-time grant of market share units with a grant date value of $9,000,000, with the number of market share units determined based on the average official closing price per share over the 40-trading days ending with and including the date this Agreement is executed. The award will be granted under the Companys 2013 Stock Incentive Plan and will be subject to such further terms and conditions as set forth in the applicable award agreement, in the form attached hereto as Annex C, with appropriate modifications as necessary to fill in blank spaces therein and set forth a number of units.
(b) Additional One-Time Payment. On the Companys disposition of Lucky Brand Jeans, in lieu of the grant of your 2013-2015 LTIP award, you will receive a cash payment equal to the pro rata portion of $4,500,000, prorated to reflect the number of months from January 1, 2013 through the date of disposition out of a total of 36 months; provided that, if you do not receive this additional one-time payment by February 15, 2014, the Company will provide you with an initial payment of $1,000,000 and shall make the remainder of the payment upon the disposition.
5. Other Employee Benefits.
(a) Paid Time Off. You will be entitled to annual paid time off during the Term of Employment on a basis that is at least as favorable as that provided to other Company senior executives.
(b) Business Expenses. The Company will reimburse you during the Term of Employment, in accordance with its standard policies from time to time in effect, for such reasonable vouchered out-of-pocket business expenses as may be incurred by you during the Term of Employment in the performance of your duties and responsibilities under this Agreement.
(c) Fringe Benefits. In connection with your entry into this Agreement, the Company adopted the Senior Executive Officer Benefits Policy, which will apply beginning on your Position Start Date. The benefits provided under the Senior Executive Officer Benefits Policy may not be materially and adversely changed without your written consent (not to be unreasonably withheld).
(d) Employee Benefit Plans. During the Term of Employment, you and your family may participate, generally on the same basis as other similarly situated senior executives of the Group, in accordance with and subject to the respective terms and
conditions thereof as to eligibility and otherwise, in the Groups retirement, medical, dental, vision, long-term disability and life insurance programs and employee discount purchase program, as such may exist from time to time.
(e) Stock Ownership Requirement. Beginning on your Position Start Date, you will be subject to the Companys Stock Ownership Requirement, which currently requires holding shares equal to 5 times your Salary within 5 years of your Position Start Date. As required by the Companys Stock Ownership Requirement, 75% of any netted shares received from any equity incentive award must be retained until your stock ownership requirement has been met. In addition, you agree that, on your resignation of employment from the Company without Good Reason or due to your retirement, you will retain the number of Company shares that you have retained as of the date of termination to comply with your stock ownership requirement for at least six months. Beginning on the six-month anniversary of your separation date, you may sell 50% of those shares and you may sell the remainder beginning on the one-year anniversary of your separation date. From the Effective Date until January 1, 2016, your stock ownership requirement may not be materially increased without your written consent. If the stock ownership requirement increases, the increase will be (1) an increase that generally applies to all senior executive officers and (2) reasonable and consistent with current market practice at the time of the increase, and you will have five years to comply with the incremental increased amount.
(f) Plans May be Changed; Award Agreements. Your rights under this Agreement with respect to the Companys compensation and benefits plans and programs and other perquisites and policies set forth in Sections 5(a), 5(b) and 5(d) will not preclude the Company from modifying or terminating any such program, perquisite or policy, subject to your right, in accordance with the terms of this Agreement, to participate in or be eligible for such program, perquisite or policy as so modified or any replacement thereof. Any compensation or benefits granted pursuant to a Company plan will be subject to the terms and provisions of such plan and any award agreement.
6. Early Termination of Your Employment.
(a) ESA. Beginning on the Effective Date, the Term of Employment may be terminated in accordance with the ESA, and all of your rights and the Companys obligations in connection with such termination will be determined in accordance with the ESA. For the avoidance of doubt, if your Term of Employment is terminated by delivery of a Nonrenewal Notice by the Company, the termination will be treated as a termination without Cause, and if your Term of Employment is terminated by delivery of a Nonrenewal Notice by you, the termination will be treated as a termination without Good Reason, in each case for purposes of your ESA and any applicable equity award agreement. The release required in Section 3(f) of the ESA will be substantially in the form set forth in Annex D and the Company will provide you the release within seven (7) days following your date of termination.
(b) Additional Restrictive Covenants. In addition to the covenants set forth in Section 5 of the ESA:
(1) The Company agrees that, during the Restricted Period (as defined in your ESA), the Company will take no action which is intended, or would reasonably be expected, to harm you or your reputation or which would reasonably be expected to lead to unwanted or unfavorable publicity for you; provided, however, that nothing in this Section 6(b)(1) or the ESA will prohibit you or the Company from
making truthful statements to any government agency, in response to any subpoena or as otherwise may be required by applicable law.
(2) The Company agrees not to publicly or privately make or publish any statement (oral or written) that would disparage, criticize or defame you, and the Company will do its best to ensure that the Companys managers, officers and directors also do not publicly or privately make or publish any statement (oral or written) that would disparage, criticize or defame you; provided, however, that nothing in this Section 6(b)(2) or the ESA will prohibit you or the Company from making truthful statements to any government agency, in response to any subpoena or as otherwise may be required by applicable law.
(c) Sole Remedy. Your rights set out in Sections 3(c) and 6 will constitute your sole and exclusive rights and remedies as a result of your actual or constructive termination of employment, and you hereby waive any such other claims against the Group in such event. This Agreement does not provide any termination entitlements separate from your ESA.
7. Successors.
(a) Assignment by You. You may not assign this Agreement without the Companys written consent. Also, except as required by law, your right to receive payments or benefits under this Agreement may not be subject to execution, attachment, levy or similar process. Any attempt to affect any of the preceding in violation of this Section 7(a), whether voluntary or involuntary, will be void.
(b) Companys Successors. Before the effectiveness of any merger, consolidation, statutory share exchange or similar transaction (including an exchange offer combined with a merger or consolidation) involving the Company (a Reorganization) or any sale, lease or other disposition (including by way of a series of transactions or by way of merger, consolidation, stock sale or similar transaction involving one or more subsidiaries) of all or substantially all of the Companys consolidated assets (a Sale), the Company will cause (1) the Surviving Company to unconditionally assume this Agreement and the ESA in writing and (2) a copy of the assumption to be provided to you. The Surviving Company means (i) in a Reorganization, the entity resulting from the Reorganization or (ii) in a Sale, the entity that has acquired all or substantially all of the assets of the Company. After the Reorganization or Sale, the Surviving Company will be treated for all purposes as the Company under this Agreement and the ESA. This provision is in lieu of the application of Section 9(g) of the ESA.
8. Section 409A.
It is the parties intention that the payments to which you could become entitled in connection with your employment under this Agreement be exempt from being considered deferred compensation pursuant to Section 409A of the Internal Revenue Code (the Code) as a short-term deferral, or, if any such payment is deemed to be deferred compensation, will otherwise comply with Section 409A of the Code and the regulations promulgated thereunder. In the event that any such payment is considered deferred compensation under Section 409A of the Code that is payable to you upon your termination of employment, and if at such time you are deemed a covered key employee of the Company such that your payment(s) is subject to the six-month waiting period pursuant to Section 409A of the Code, all affected payments to you will be delayed until
the expiration of such six month period. In the event of any such deferral, you will be entitled to interest on the amount deferred at a rate equal to the highest prime rate (or base rate) reported for the first business day of such six month period in the money rates column or section of The Wall Street Journal as the rate in effect for corporate loans at large U.S. money center commercial banks (whether or not such rate has actually been charged by any such bank) as of such date. This Section 8 will apply to your ESA as if set forth in the ESA.
9. General Provisions.
(a) Construction. References (1) to Sections are to sections of this Agreement unless otherwise stated; (2) to any contract (including this Agreement) are to the contract as amended, modified, supplemented or replaced from time to time; and (3) to any statute, rule or regulation are to the statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, include any rules and regulations promulgated under the statute) and to any section of any statute, rule or regulation include any successor to the section. The various headings in this Agreement are for convenience of reference only and in no way define, limit or describe the scope or intent of any provisions or Sections of this Agreement. Unless the context requires otherwise, (A) words describing the singular number include the plural and vice versa, (B) words denoting any gender include all genders and (C) the words include, includes and including will be deemed to be followed by the words without limitation. It is your and the Companys intention that this Agreement not be construed more strictly with regard any party.
(b) Prior Agreement; Entire Agreement. On the Effective Date, this Agreement supersedes in its entirety your Employment Agreement dated February 29, 2008, as amended June 13, 2011 and as further amended December 18, 2012, with Liz Claiborne, Inc. (your Prior Employment Agreement) except that the settlement of your 2011-2013 LTIP will be made in accordance with Section 3(d) of your Prior Employment Agreement. This Agreement, the ESA and any applicable agreements for bonuses and equity awards described in Sections 3(b), 3(c) and 4 contain the entire understanding and agreement between the parties concerning the subject matter hereof and supersede all prior agreements, term sheets, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto.
(c) Interaction with Other Documents. If any provision of any agreement, plan, program, policy, arrangement or other written document between or relating to the Company and you conflicts with any provision of this Agreement and the ESA, the provision of this Agreement and the ESA will control and prevail.
(d) Withholding. You and the Company will treat all payments to you under this Agreement as compensation for services as an employee. Accordingly, the Company will withhold from any payment any taxes that are required to be withheld under any law, rule or regulation (and, for the purpose of clarity, all amounts set forth herein will represent gross amounts in U.S. dollars, prior to the deduction for employment and income taxes).
(e) No Conflict. You represent and warrant that you are not a party to or subject to any agreement, contract, understanding, covenant, judgment or decree or under any obligation, contractual or otherwise, in any way restricting or adversely affecting your ability to act for the Company in all of the respects contemplated hereby. The Company
represents and warrants that it is fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization.
(f) Indemnification. The Company will provide you with director and officer indemnification to the same extent provided to similarly-situated senior executives of the Group.
(g) No Set-off or Mitigation. Your and the Companys respective obligations under this Agreement will not be affected by any set-off, counterclaim, recoupment or other right you or any member of the Group may have against each other or anyone else. You do not need to seek other employment or take any other action to mitigate any amounts owed to you under this Agreement, and those amounts will not be reduced if you do obtain other employment (except as this Agreement specifically states).
(h) Notices. Section 8 of the ESA will apply to this Agreement as if set forth herein.
(i) Amendments and Waivers. Any provision of this Agreement may be amended or waived but only if the amendment or waiver is in writing and signed, in the case of an amendment, by you and the Company or, in the case of a waiver, by the party that would have benefited from the provision waived. Except as this Agreement otherwise provides, no failure or delay by you or the Group to exercise any right or remedy under this Agreement will operate as a waiver, and no partial exercise of any right or remedy will preclude any further exercise.
(j) Survival. To the extent that any provision of this Agreement would require the survival of such provision beyond the Term of Employment in order to effectuate its intent, such provision will survive the Term of Employment according to its terms.
(k) Counterparts. This Agreement may be executed in counterparts, each of which will constitute an original and all of which, when taken together, will constitute one agreement. Electronic, PDF and fax copies of such signed counterparts may be used in lieu of the originals of this Agreement for any purpose.
(l) Legal Fees. The Company will reimburse you for any reasonable legal fees incurred by you in connection with reviewing, negotiating and finalizing this Agreement, the ESA and the documents related thereto in an amount not to exceed $75,000.
10. Remedies; Disputes; Governing Law.
Sections 6 and 9(a)-(e) of the ESA apply to this Agreement as if set forth herein. For the avoidance of doubt, you and the Company understand and agree that any controversy arising out of or relating to this Agreement or the breach hereof will be settled by JAMS Arbitration in the City of New York in accordance with the ESA.
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Very truly yours, | |
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Fifth and Pacific Companies, Inc. | |
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/s/Arthur Martinez | |
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By: |
Arthur Martinez |
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Chair, Compensation Committee |
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Authorized Signatory |
By signing below, I certify that I (1) have received copies of this Agreement and the ESA referred to in it for review and study before signing them, (2) have read this Agreement and ESA carefully before signing them, (3) have had sufficient opportunity to review the Agreement and ESA with any advisor I desired to consult, including legal counsel, (4) have had sufficient opportunity before signing them to ask any questions about this Agreement and/or ESA and have received satisfactory answers to all such questions, and (5) understand my rights and obligations under this Agreement and ESA.
Accepted and agreed:
/s/ Craig Leavitt |
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Craig Leavitt |
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Annex A
2014 Long Term Incentive Award
Terms and Conditions
2014 Market Share Units
· Expected date of grant is March 1, 2014;
· Market Share Units will have a minimum earnout of 30% of target;
· Market Share Units will vest 50% on each of the second and third anniversary of grant; and
· Maximum payout opportunity is 200% of target.
2014 Performance Shares
· Expected date of grant is March 1, 2014;
· Subject to a three year performance period from date of grant;
· Performance goals will measure TSR relative to the S&P Mid-Cap Index;
· The Companys and Mid-Cap Indexs TSR will be calculated by using a 40-day average for the beginning and ending measurements; and
· Maximum payout opportunity is 200% of target.
Payment
Payment of Market Share Units and Performance Shares will be made within 60 days following vesting.
Termination of Employment and Change in Control
· If your employment terminates without Cause or due to the Companys nonrenewal of this Agreement or due to your resignation for Good Reason (as both are defined in your ESA) or your Retirement (defined as your termination after attaining age 55 and 10 years of service with the Company or any of its affiliates including time served before the Effective Date) within two years following the Effective Date, then 50% of all Market Share Units and Performance Shares, to the extent unvested, will vest at target.
· If your employment terminates without Cause or due to the Companys nonrenewal of this Agreement or due to your resignation for Good Reason or your Retirement following the second anniversary of the Effective Date, then any unvested Market Share Units and Performance Shares will vest based on performance (subject to a minimum earnout of 30% for the MSUs), and those MSUs and Performance Shares will be pro-rated for the number of months you were employed during the applicable vesting period.
· Notwithstanding the foregoing, if your employment terminates without Cause or due to the Companys nonrenewal of this Agreement or for Good Reason or due to your Retirement either (x) in connection with a Change in Control (as defined in the Companys 2013 Stock Incentive Plan), subject to the consummation of the Change in Control within two months of the termination, or (y) on or within two years following a Change in Control, then all Market Share Units and Performance Shares, to the extent unvested, will vest in full at target on the date of your termination (or, if later, the date of the Change in Control).
Annex B
Long Term Incentive Awards After 2014
Terms and Conditions
Termination of Employment and Change in Control
· If you are terminated without Cause or resign for Good Reason (as both are defined in your ESA) or due to your Retirement (defined as your termination after attaining age 55 and 10 years of service with the Company or any of its affiliates including time served before the Effective Date) or the Companys nonrenewal of this Agreement within two years following the applicable grant date, then 50% of all awards, to the extent unvested, will vest at target.
· If your employment terminates without Cause or due to resignation for Good Reason or due to your Retirement or the Companys nonrenewal of this Agreement following the second anniversary of the applicable grant date, then any unvested portion of your awards will vest based on performance, and those awards will be pro-rated for the number of months you were employed during the applicable vesting period.
· Notwithstanding the foregoing, if your employment terminates without Cause or for Good Reason or due to your Retirement or the Companys nonrenewal of this Agreement either (x) in connection with a Change in Control (as defined in the Companys 2013 Stock Incentive Plan), subject to the consummation of the Change in Control within two months of the termination, or (y) on or within two years following a Change in Control, then all awards, to the extent unvested, will vest in full at target on the date of your termination (or, if later, the date of the Change in Control).
Annex C
Form of Staking Grant MSU Award Agreement
FIFTH & PACIFIC COMPANIES, INC.
[ ] MARKET SHARE UNIT AWARD
NOTICE OF GRANT:
PARTICIPANT NAME: |
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NUMBER OF UNITS: |
[ ] shares (Target Shares) |
We are pleased to inform you that, pursuant to the Companys 2013 Stock Incentive Plan, the Compensation Committee of the Board of Directors of Fifth & Pacific Companies, Inc., has made an award of market share units to you, subject to the terms and conditions set forth in the attached Grant Certificate.
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[ ] STAKING MARKET SHARE UNIT AWARD GRANT CERTIFICATE
The Grant Certificate (the Grant Certificate) is made as of the Grant Date set forth in the attached Notice of Grant (the Grant Date), by and between Fifth & Pacific Companies, Inc. (the Company) and the employee named in the attached Notice of Award (the Participant).
The Compensation Committee (the Committee) of the Board of Directors of the Company (Board) has made the award described herein (the Award) to the Participant under the Companys 2013 Stock Incentive Plan (the Equity Plan). Any term that is capitalized but not defined herein shall have the meaning given to such term in the Equity Plan.
1. [ ] Market Share Unit Award. This Award consists of a number of market share units (the MSUs) set forth in the Notice of Grant (such number of MSUs, the Target Shares).
2. Threshold Section 162(m) Goal.
(a) No part of this Award shall vest and no amount shall be paid (or shares delivered) in respect of this Award unless and until the Committee certifies that the Company has achieved an adjusted operating income for the [ ] fiscal year of [ ] (the 162(m) Goal). If the 162(m) Goal is not achieved during the [ ] fiscal year, the Award shall be immediately cancelled and the Participant shall have no further rights with respect to the Award.
(b) Once the Committee certifies that the 162(m) Goal has been achieved, the Participants entitlement to payment in respect of the Award shall be determined in accordance with the terms of this Grant Certificate. In no event shall the Participant receive payment in respect of the Award in an amount that exceeds the maximum amount allocated to the Participant in the Committees resolution approving the establishment of the 162(m) Goal.
3. Determination of Earned MSUs.
(a) The Performance Period for one-half of the Target Shares shall be the period from the Grant Date to the third anniversary of the Grant Date and for the other half of the Target Shares shall be the period from the Grant Date to the fifth anniversary of the Grant Date.
(b) The number of MSUs earned for each Performance Period shall equal (1) the Target Shares for that Performance Period multiplied by (2) the Settlement Price for that Performance Period divided by (3) the Grant Price; provided that the number of MSUs earned for any Performance Period may not be less than 30% or more than 200% of the Target Shares for that Performance Period (the Earned MSUs for that Performance Period).
(c) The Earned MSUs for a Performance Period shall be determined by the Committee within 60 days following the end of the Performance Period.
(d) The following terms have the meanings indicated below:
(1) Average Price for any day means the average official closing price per share over the 40 consecutive trading days ending with and including that day (or, if there is no official closing price on that day, the last trading day before that day).
(2) Cause, Disability and Good Reason have the meanings provided in the Executive Severance Agreement between the Participant and the Company (as it may be amended, replaced or supplemented in accordance with its terms).
(3) Determination Date for any Performance Period means the last day of that Performance Period.
(4) Grant Price shall be the Average Price for the Grant Date.
(5) Settlement Price for any Determination Date means the Average Price for that Determination Date.
4. Adjustments. Notwithstanding anything to the contrary contained herein, pursuant to Section 3.7 of the Equity Plan, the Committee shall adjust this Award to reflect any dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination, exchange of shares or similar corporate change, in such manner as the Committee may deem appropriate, in its sole discretion, to prevent the enlargement or dilution of the Participants rights.
5. Settlement of Award. The Participants Earned MSUs shall be settled by delivery of shares of Common Stock, on a one-for-one basis, as soon as practicable following the Committees determination of the number of Earned MSUs, and in no event later than 60 days following the Determination Date; provided that settlement shall be subject in all respects to Section 2 and no delivery of shares may occur before the Committee certifies whether the 162(m) Goal has been achieved (which determination will occur no later than the Determination Date for the first Performance Period). Shares of Common Stock shall be issued by the Company in the name of the Participant by electronic book-entry transfer or credit of such shares to an account of the Participant maintained with a brokerage firm or other custodian as the Company determines. Alternatively, in the Companys sole discretion, such issuance may be effected in such other manner (including through physical certificates) as the Company may determine.
6. Vesting; Termination of Employment; Change in Control.
(a) Except as set forth in Section 6(b) and (c), if the Participants employment terminates for any reason on or before the end of a Performance Period, the Target Shares for that Performance Period shall be forfeited, there shall be no Earned MSUs for those Target Shares and the portion of the Award represented thereby (or the entire Award for a termination on or before the first Determination Date) shall be cancelled and the Participant shall have no rights with respect to the Award.
(b) If the Participants employment is terminated by the Company without Cause, by the Participant for Good Reason, upon non-renewal of the Participants Employment Agreement by the Company, or due to the Participants death or Disability then:
(1) If the termination date is on or before the second anniversary of the Grant Date, 50% of the Target Shares shall be deemed to be Earned MSUs, and the Earned MSUs shall be settled in accordance with Section 5, and the date of termination shall become the Date of Determination. The remaining Target Shares shall be forfeited in accordance with Section 6(a).
(2) If the termination date is after the second anniversary of the Grant Date but on or before the third anniversary of the Grant Date, each Performance Period shall be deemed to have been completed, the date of termination shall become the Date of Determination for each Performance Period and the resulting Earned MSUs shall be prorated by multiplying the Earned MSUs by (A) the number of days during the relevant Performance Period up to and including the date of termination and dividing by (B) the total number of scheduled days in that Performance Period without giving effect to this Section 6(b). The prorated Earned MSUs shall be settled in accordance with Section 5, and any remaining Target Shares shall be forfeited in accordance with Section 6(a).
(3) If the termination date is after the third anniversary of the Grant Date, the remaining Performance Period shall be deemed to have been completed, the date of termination shall become the Date of Determination for that Performance Period and the resulting Earned MSUs shall be prorated by multiplying the Earned MSUs by (A) the number of days during the Performance Period up to and including the date of termination and dividing by (B) the total number of scheduled days in the Performance Period without giving effect to this Section 6(b). The prorated Earned MSUs shall be settled in accordance with Section 5, and any remaining Target Shares shall be forfeited in accordance with Section 6(a).
(c) Change in Control. In the event the Participants employment is terminated by the Company (or its acquiror) without Cause, pursuant to the Participants resignation for Good Reason or due to the Companys non-renewal of the Employment Agreement, in each case, in connection with a Change in Control (subject to the consummation of the Change in Control within two months of the termination) or on or within two years following a Change in Control, each Performance Period shall be deemed to have been completed, the date of termination (or, if later, the date of the Change in Control) shall become the Date of Determination for each Performance Period, all unvested Target Shares shall be deemed to be Earned MSUs, and the Participant shall vest in that number of Earned MSUs as of the date of such termination (or, if later, Change in Control). In the event that the Earned MSUs become vested in accordance with this Section 6(c), such shares shall be settled in accordance with Section 5.
7. Nature of MSUs. The Participant shall have no rights as a stockholder with respect to this Award unless and until Common Stock has been delivered to the Participant upon settlement of the Award. The MSUs are mere bookkeeping entries and represent only an unfunded and unsecured obligation of the Company to issue or deliver Common Stock on a future date, subject to the terms and conditions hereof. As a holder of MSUs, the Participant has no rights other than the rights of a general creditor of the Company. The MSUs carry neither voting rights nor rights to cash or other dividends.
8. Plan Provisions. The Award is subject to all of the terms and provisions of the Equity Plan and is subject to all of the terms and provisions therein. In the event of any inconsistency between the provisions of the Grant Certificate and the Equity Plan, the provisions of the Grant Certificate shall govern.
9. Withholding Taxes. Shares of Common Stock delivered pursuant to this Award shall be subject to applicable withholding taxes and the Company shall withhold from the delivery of Common Stock pursuant hereto shares having a value equal to the minimum amount of federal, state and other governmental tax withholding requirements related thereto. Such shares shall be valued at their Fair Market Value as of the date on which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. In lieu of such withholding, the Participant may elect, and the Company may require as a condition of delivery, that the Participant remit to the Company an amount in cash sufficient in the opinion of the Company to satisfy all or any portion of such tax withholding requirements.
10. Nature of Payments. The grant of this Award is in consideration of services to be performed by the Participant for the Company and constitutes a special incentive payment. The Award does not constitute salary, wages, regular compensation or contractual compensation for the year of grant or any subsequent year. The parties agree that the Award is not to be included in or taken into account in computing the amount of salary or compensation of the Participant for the purposes of determining (1) any pension, retirement, profit-sharing, bonus, life insurance or other benefits under any pension, retirement, profit-sharing, bonus, life insurance or other benefit plan of the Company, (2) any severance or other amounts payable under any other agreement between the Company and the Participant, or (3) any other employment related rights or benefits under law or any plan, program or agreement.
11. Administration. The Committee shall have all rights, powers and obligations provided by the Equity Plan in connection with this Award and Grant Certificate. Any certifications by the Committee pursuant to the Award shall be determined in writing and may be in any form determined by the Committee (including as part of applicable meeting minutes).
12. Notices. Any notice to be given to the Company hereunder shall be in writing and shall be addressed to the Corporate Secretary, Fifth & Pacific Companies, Inc., 5901 Westside Avenue, North Bergen, NJ 07047, or at such other address as the Company may hereafter designate to the Participant by notice as provided in this Section 12. Any notice to be given to the Participant hereunder shall be addressed to the Participants home address of record, or at such other address as the Participant may hereafter designate to the Company by notice as provided herein. A notice shall be deemed to have been duly given when personally delivered or mailed by registered or certified mail to the party entitled to receive it.
13. Right of Discharge Preserved. The grant of the Award and the terms set forth in the Grant Certificate shall not confer upon the Participant the right to continue in the employ or other service of the Company, and shall not affect any right which the Company may have to terminate such employment or service.
14. Successors and Assigns. The terms of the Grant Certificate shall be binding upon and inure to the benefit of the Company and the successors and assigns of the Company. Except as otherwise determined by the Committee in its sole discretion, the Participants rights and interests under the Award and the Grant Certificate may not be sold, assigned, transferred, or otherwise disposed of, or made subject to any encumbrance, pledge, hypothecation or charge of any nature. If the Participant (or those claiming under or through the Participant) attempts to violate this Section 14, such attempted violation shall be null and void and without effect.
15. No Right to Future Awards. The Award is a discretionary award. Neither the Grant Certificate or the Equity Plan, nor the grant of the Award confers on the Participant any right or entitlement to receive another award under the Equity Plan or any other plan at any time in the future or with respect to any future period.
16. Governing Law. The Award and the Grant Certificate shall be interpreted, construed and administered in accordance with the laws of the State of Delaware.
17. Entire Agreement. The Grant Certificate, the Employment Agreement between the Participant and the Company, and the Equity Plan constitute the entire agreement between the parties hereto with regard to the subject matter hereof. They supersede all other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the Award. By accepting the Award, the Participant shall be deemed to accept all of the terms and conditions of the Grant Certificate and the Equity Plan.
18. Amendments. Notwithstanding any provision set forth in the Grant Certificate or the Equity Plan and subject to all applicable laws, rules and regulations, the Committee shall have the power to: (1) alter or amend the terms and conditions of the Award in any manner consistent with the provisions of Section 3.1 of the Equity Plan or (2) without the Participants consent, alter or amend the terms and conditions of the Award in any manner that the Committee considers necessary or advisable, in its sole discretion, to comply with, or take into account changes in, or interpretations or rescissions of, applicable tax laws, securities laws, employment laws, accounting rules or standards and other applicable laws, rules, regulations, guidance, ruling, judicial decision or legal requirement. Any alteration or amendment of the terms of the Awards by the Committee shall, upon adoption, become and be binding on all persons affected thereby without requirement for consent or other action with respect thereto by any such person. The Committee shall give notice to the Participant of any such alteration or amendment as promptly as practicable after the adoption thereof.
19. Transferability. Before the issuance of shares of Common Stock in settlement of this Award, the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by the Participants creditors or by the Participants beneficiary, except (1) transfer by will or by the laws of descent and distribution or (2) transfer by written designation of a beneficiary, in a form acceptable to the Company, with such designation taking effect upon the Participants death. All rights with respect to this Award shall be exercisable during the Participants lifetime only by the Participant or the Participants guardian or legal representative.
20. Clawback Policy; Right of Recapture.
(a) Notwithstanding anything to the contrary in this Grant Certificate, all MSUs or shares of Common Stock issued in settlement of this Award shall be subject to any clawback policy adopted by the Company from time to time that applies to all senior executives (including, but not limited to, any policy to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law), regardless of whether the policy is adopted after the date on which the MSUs are granted, vest, or are settled by the issuance of shares of Common Stock.
(b) Notwithstanding anything to the contrary in this Grant Certificate, all MSUs payable or shares of Common Stock issued in settlement of this Award shall be subject to the right of recapture as set forth in Section 2.11 of the Equity Plan and, if the subsequent determination is that performance goals were achieved to a greater extent than originally determined, the Committee shall appropriately grant or vest awards to reflect the actual performance achievement.
21. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, no shares of Common Stock shall be issued to the Participant upon vesting of this Award unless the Common Stock is then registered under the Securities Act of 1933 or, if such Common Stock is not then so registered, the Company has determined that such vesting and issuance would be exempt from the registration requirements of the Securities Act. By accepting this Award, the Participant agrees not to sell any of the shares of Common Stock received under this Award at a time when applicable laws or Company policies prohibit a sale.
22. Section 409A.
(a) This Award is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the Code) so as not to be subject to taxes, interest or penalties under Section 409A of the Code. This Grant Certificate shall be interpreted and administered to give effect to such intention and understanding and to avoid the imposition on the Participant of any tax, interest or penalty under Section 409A of the Code in respect of the Award.
(b) Notwithstanding anything else herein to the contrary, any payment scheduled to be made to the Participant after the Participants separation from service shall not be made until the date six months after the date of the Participants separation from service to the extent necessary to comply with Section 409A(a)(B)(i) and applicable Treasury Regulations. Following any such six-month delay, all such delayed payments shall be paid in a single lump sum on the date six months after the Participants separation from service. For purposes of the Award, separation from service with the Company means a separation from service as defined in Section 409A of the Code determined using the default provisions set forth in Treasury Regulation §1.409A-1(h) or any successor regulation thereto. The provisions of this paragraph shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Section 409A of the Code.
(c) If any provision of the Grant Certificate or the Equity Plan would, in the reasonable, good faith judgment of the Committee, result or likely result in the imposition on the Participant or his or her beneficiary of any additional tax, accelerated taxation, interest or penalties under Section 409A of the Code, the Company may modify the terms of the Grant Certificate, or may take any other such action, without the Participants consent, or the consent of his or her beneficiary, in the manner that the Company may reasonably and in good faith determine to be necessary or advisable to avoid the imposition of such additional tax, accelerated taxation, interest, or penalties or otherwise comply with Section 409A of the Code. This Section 22 does not create an
obligation on the part of the Company to modify the Grant Certificate and does not guarantee that the Award shall not be subject to additional taxes, accelerated taxation, interest or penalties under Section 409A of the Code.
[Remainder of Page Intentionally Left Blank]
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FIFTH & PACIFIC COMPANIES, INC. | |
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By the Compensation Committee of the Board of Directors: | |
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By: |
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Authorized Signature |
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Name: |
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Consented and Agreed to: |
Annex D
Form of Release
SEPARATION AND RELEASE AGREEMENT
Effective this · day of ·, Fifth & Pacific Companies, Inc. (including its subsidiaries, affiliates, divisions, successors, predecessors and assigns, collectively referred to as the Company or us, we, our, ours) and · (including his/her heirs, legal representatives, successors, and assigns, collectively referred to as Executive or you, your, yours), enter into this Separation and Release Agreement (Agreement).
1. Separation Date. Your last day of employment with the Company is · (the Separation Date). You agree to resign, effective as of the Separation Date, from all positions, titles, duties, authorities and responsibilities (including without limitation from any board positions) with, arising out of or relating to your employment as [title] of the Company and you agree to execute all additional documents and take such further steps as may be required to effectuate such resignations.
2. Consideration. In consideration for signing this Agreement, and for complying with its terms and the terms of the Executive Severance Agreement entered into between you and the Company, effective ·, 2014 (the Executive Severance Agreement) and the Employment Agreement entered into between you and the Company, effective ·, 2014 (the Employment Agreement), and provided you do not revoke this Agreement within 7 days of the date you sign this Agreement (the Revocation Period), the Company agrees to provide you the payments and benefits, and take other related actions, as set forth in Sections 3(c) and 3(d) of the Executive Severance Agreement, your Employment Agreement and your equity awards. A copy of the Executive Severance Agreement and Employment Agreement are attached hereto, incorporated by referenced herein and made a part hereof. (1)
3. No Consideration Unless You Sign this Agreement. You understand and agree that you would not receive the consideration specified in Section 2, and the payment of the consideration in Section 2 is subject to, the execution and non-revocation of this Agreement and your agreement to fulfill the promises contained in this Agreement and all surviving obligations and promises in the Executive Severance Agreement and the Employment Agreement. You also understand and agree that the consideration specified in Section 2 is sufficient consideration in exchange for your promises and obligations in this Agreement, the Executive Severance Agreement and the Employment Agreement.
4. Release. You agree that, on behalf of yourself and your heirs, legal representatives, successors and assigns (hereinafter, collectively, the Executive Released Parties), and each of them, for good and valuable consideration does hereby unconditionally, knowingly, and voluntarily release and forever discharge the Company Released Parties (as defined below), from any and all known or unknown claims, demands, actions or causes of action that now exist or that may arise in the future, based upon events occurring or omissions on or before the date of the execution of this Agreement, including, but not limited to, any and all claims whatsoever pertaining in any way to your employment at the Company or with any of the Company Released Parties (including any of their predecessors) or the termination of your employment, including, but not limited to, any claims under, as applicable: (1) the Americans with Disabilities Act; the Family and
(1) Note to Draft: This form of Separation and Release Agreement assumes a termination under Section 3(c) of the ESA; to be updated as appropriate for other terminations.
Medical Leave Act; Title VII of the Civil Rights Act; 42 U.S.C. Section 1981; the Older Workers Benefit Protection Act; the Age Discrimination in Employment Act of 1967, as amended; the Employee Retirement Income Security Act of 1974; the Civil Rights Act of 1866, 1871, 1964, and 1991; the Rehabilitation Act of 1973; the Equal Pay Act of 1963; the Vietnam Veterans Readjustment Assistance Act of 1974; the Occupational Safety and Health Act; and the Immigration Reform and Control Act of 1986; and any and all other federal, state or local laws, statutes, ordinances, or regulations pertaining to employment, discrimination or pay; (2) any state tort law theories under which an action could have been brought, including, but not limited to, claims of negligence, negligent supervision, training and retention or defamation; (3) any claims of alleged fraud and/or inducement, including alleged inducement to enter into this Agreement; (4) any and all other tort claims; (5) all claims for attorneys fees and costs; (6) all claims for physical, mental, emotional, and/or pecuniary injuries, losses and damages of every kind, including, but not limited to, earnings, punitive, liquidated and compensatory damages, and employee benefits; (7) any and all claims whatsoever arising under any of the Company Released Parties or Executive Released Parties express or implied contracts or under any federal, state, or local law, ordinance, or regulation; (8) any and all claims whatsoever against any of the Company Released Parties for wages, bonuses, benefits, fringe benefits, vacation pay, or other compensation or for any damages, fees, costs, or benefits; and (9) any and all claims whatsoever to reinstatement; provided, however, that, notwithstanding anything to the contrary contained herein, this Agreement does not cover and specifically excludes your rights and claims directly or indirectly arising from or under or related to (A) any obligation of the Company to provide the benefits or payments described in this Agreement, (B) any indemnification, advancement of expenses, and/or contribution claims or rights that you might have under any agreement, plan, program, policy, bylaw or arrangement of the Company and/or any other Company Released Parties, or under any applicable law, (C) the Consolidated Omnibus Budget Reconciliation Act (COBRA), (D) any vested equity, (E) any profit-sharing and/or retirement plans or other benefits in which you have vested rights, (F) unemployment benefits, and (G) any equity, phantom equity or incentive compensation grant or plan (including but not limited to the Staking Grant set forth in Section 4(a) of the Employment Agreement and any LTIPs), for which your rights are determined by the applicable grant and plan documents. You and the Company also intend that this Section 4 shall operate as a waiver of all unknown claims of the type being released hereunder. You warrant, on the one hand, that you are currently unaware of any such claim, demand, action, or cause of action against any of the Company Released Parties, and the Company hereby warrants, on the other hand, that it is currently unaware of any such claim, demand, action, or cause of action against any of the Executive Released Parties, which you have not released pursuant to this Section 4 except for the rights and/or claims relating to the matters specifically excluded above. For purposes of this Section 4, Company Released Parties means, collectively, the Company and its present and former related companies, subsidiaries and affiliates, and all of their present and former employees, officers, directors, owners, shareholders, shareholders employees, agents, attorneys, insurers, and operators, including in their individual capacity, and each of its and their successors and assigns, but only in their capacity as such (i.e., not in their individual capacity unrelated to their affiliation with the Company or any of its related companies, subsidiaries or affiliates).
5. Acknowledgments and Affirmations. You affirm that you have not filed, caused to be filed, and are presently not a party to, any claim against the Company. You also affirm that, other than any payments or benefits set forth in this Agreement, you have been paid and/or have received all compensation, wages, bonuses, commissions, and/or benefits to which you may have been eligible or entitled. You affirm that you have been
granted any leave to which you were entitled under the Family and Medical Leave Act or state or local leave or disability accommodation laws. You also affirm that you have no known workplace injuries or occupational diseases that are not the subject of pending Workers Compensation claims. You further affirm that you have not been retaliated against for reporting any allegations of wrongdoing by the Company or its officers, including any allegations of corporate fraud. The Company and you both acknowledge that this Agreement does not limit eithers right, where applicable, to file a claim with or participate in an investigation or proceeding by the Equal Employment Opportunity Commission (EEOC) or any comparable federal, state or local governmental agency. To the extent permitted by law, you agree that if such an administrative claim is made, you shall not be entitled to recover any individual monetary relief or other individual remedies. You acknowledge and understand that nothing in this Agreement serves as a waiver of your rights under the Companys 401(k) Savings and Profit Sharing Plan, Supplemental Executive Retirement Plan (SERP) and equity, phantom equity and incentive compensation awards. [You further acknowledge and understand that the benefit you receive from your use of the discount card after your last day of employment, including but not limited to the value of the discount you receive, is considered taxable income under the current U.S. tax regulations, and that you not the Company shall be solely responsible for tracking, calculating, reporting and paying any taxes in connection with such income to the I.R.S. You further agree to indemnify and defend the Company in connection with any taxes or penalties the Company may incur or be assessed by the I.R.S with respect to your use of such discount card after your last day of employment, including but not limited to any failure by you to track, calculate, report or pay any taxes in connection with your use of such discount card.](1)
6. Confidentiality of Agreement. You agree not to disclose any information regarding the terms and conditions of this Agreement, except to your spouse, domestic or civil union partner, tax advisors, financial planners and/or attorneys with whom you choose to consult regarding your consideration of this Agreement, or as otherwise required by law.
7. Return of Property. You affirm that you have returned all, and have not maintained copies of, the Companys property, including paper and electronic records, files, drawings, documents, equipment, materials or writings received from, created for or belonging to the Company, including those which relate to or contain Confidential Information (as defined in Section 4 of the Executive Severance Agreement), that was within your possession and control. You also affirm that you have in your possession all of your personal property that you had at the Companys premises and that the Company is not in possession of any of your personal property. If at any time after signing this Agreement you discover that you have in your possession any Company property, you agree to return it to us immediately.
8. Restrictions & Covenants
a) Executives Confidentiality. You reaffirm and agree that you shall comply with the confidentiality obligations set forth in Section 4 of the Executive Severance Agreement. You understand and agree this obligation continues after the Separation Date, and does not expire.
(1) To be included if appropriate.
b) Executives Competition, Solicitation & Interference. You reaffirm and agree that you shall comply with the restrictions and obligations set forth in Section 5 of the Executive Severance Agreement. The Executive acknowledges that the restrictive covenants contained in Section 5 of the Executive Severance Agreement are reasonable and valid in temporal scope and in all other respects.
c) Mutual Non-Disparagement. You and the Company reaffirm and agree to the mutual non-disparagement clauses set forth in Section 5 of the Executive Severance Agreement and Section 6(b) of the Employment Agreement.
9. Remedies. The Parties agree that Section 6 of the Executive Severance Agreement shall apply to any breach or threatened breach of Section 8 of this Agreement.
10. Notifications. You agree that the notification requirements set forth in this Agreement are satisfied exclusively by written notice to · or his designee, and notification must be delivered in person to · or his designee, or sent by certified mail or recognized overnight carrier, addressed to Fifth & Pacific Companies, Inc., 5901 Westside Avenue, North Bergen, New Jersey 07047, Attn: ·.
11. Governing Law and Interpretation. This Agreement shall be governed and conformed in accordance with the laws of the State of New York and without regard to conflict of law provisions. In the event of a breach of any provision of this Agreement, either party may institute an action specifically to enforce any term or terms of this Agreement and/or to seek any damages for breach, with the prevailing party to reimburse the other for attorneys fees and costs. Should any provision of this Agreement be declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to be enforceable, excluding the general release language, such provision shall immediately become null and void, leaving the remainder of this Agreement in full force and effect. The parties also agree that if there is any question as to interpretation of any provision of this Agreement, then there shall be no presumption against the drafter of this Agreement.
12. No Admission of Wrongdoing. The Company and you agree that neither this Agreement nor the furnishing of the consideration for this Agreement shall be deemed or construed at any time for any purpose as an admission by the Company or you of wrongdoing or evidence of any liability or unlawful conduct of any kind.
13. Cooperation Obligations. You agree to reasonably cooperate in the defense of the Company against any threatened or pending litigation or in any investigation or proceeding that relates to any events or actions which occurred during or prior to the term of your employment with the Company. Furthermore, you agree to reasonably cooperate in the prosecution of any claims and lawsuits brought by the Company or any of its affiliates that are currently outstanding or that may in the future be brought relating to matters which occurred during or prior to the term of your employment with the Company. From and after the Separation Date, except as requested by the Company or as required by law, you shall not comment upon any (i) threatened or pending claim or litigation (including investigations or arbitrations) involving the Company or (ii) threatened or pending government investigation involving the Company. In addition, except as required by law, you shall not disclose any confidential or privileged information in connection with any pending litigation or investigation or proceeding without the consent of the Company and shall give prompt notice to the Company of any request therefor. If you are required to cooperate with the Company in accordance with this Section 13, the Company shall pay you a reasonable per diem fee, in addition to any expense reimbursement, for such
assistance, based on your annual base salary rate immediately preceding the Separation Date.
14. Amendment. This Agreement may not be modified, altered or changed except in writing and signed by both the Company and you in which specific reference is made to this Agreement.
15. Entire Agreement. Except as set forth herein, this Agreement sets forth the entire agreement between the Company and you, and fully supersedes any prior agreements or understandings the Company may have had with you except for the Parties continuing obligations under the Executive Severance Agreement and the Employment Agreement, which obligations remain in full force and effect, except as may be waived herein. You acknowledge that you have not relied on any representations, promises, or agreements of any kind made to you in connection with your decision to accept this Agreement, except for those set forth in this Agreement.
16. Compliance with Law. This Agreement is intended to comply with the requirements of Section 409A of the Code and the parties hereto agree to treat payments and entitlements hereunder consistent with that intent. To the extent that any provision in this Agreement is ambiguous as to its compliance with Section 409A, the provision shall be read in such a manner so that all payments hereunder shall comply with Section 409A.
17. Tax Withholding. The Company is hereby authorized to withhold from any consideration due under this Agreement the amount of withholding taxes due any federal, state or local authority in respect of such payment and to take such other action as may be necessary to satisfy all Company obligations for the payment of such withholding taxes.
18. Recoupment. To the extent required under applicable laws, rules under any administrative or other judicial proceeding, and regulations, the Company shall be entitled to recoup, and you shall be required to repay, any payments or benefits pursuant to this Agreement.
YOU HAVE UP TO TWENTY-ONE (21) CALENDAR DAYS TO CONSIDER THIS AGREEMENT. YOU ARE ALSO ADVISED OF YOUR RIGHT TO CONSULT WITH AN ATTORNEY BEFORE YOU SIGN THIS AGREEMENT.
YOU MAY REVOKE THIS AGREEMENT FOR A PERIOD OF SEVEN (7) CALENDAR DAYS FOLLOWING THE DAY YOU SIGN THIS AGREEMENT. ANY REVOCATION WITHIN THIS PERIOD MUST BE SUBMITTED, IN WRITING, TO AND STATE, I HEREBY REVOKE MY ACCEPTANCE OF OUR SEPARATION AND AGREEMENT, EFFECTIVE , . THE REVOCATION MUST BE PERSONALLY DELIVERED OR SENT BY CERTIFIED MAIL OR RECOGNIZED OVERNIGHT CARRIER, TO OR HIS DESIGNEE, OR MAILED TO FIFTH & PACIFIC COMPANIES, INC., 5901 WESTSIDE AVENUE, NORTH BERGEN, NEW JERSEY 07047, ATTN: AND POSTMARKED WITHIN SEVEN (7) CALENDAR DAYS AFTER YOU SIGN THIS AGREEMENT. PAYMENTS OR OTHER CONSIDERATION PROVIDED IN SECTION 2 OF THIS AGREEMENT SHALL NOT BE PROVIDED UNTIL AT LEAST SEVEN (7) CALENDAR DAYS FOLLOWING THE DAY THIS AGREEMENT IS FULLY EXECUTED.
YOU AGREE THAT ANY MODIFICATIONS, MATERIAL OR OTHERWISE, MADE TO THIS AGREEMENT DO NOT RESTART OR AFFECT IN ANY MANNER THE LENGTH OF THE ORIGINAL CONSIDERATION PERIOD.
YOU FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTER INTO THIS AGREEMENT INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS ASSOCIATE HAS OR MIGHT HAVE AGAINST THE COMPANY RELEASED PARTIES.
The Company and you knowingly and voluntarily sign this as of the date(s) set forth below:
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EXHIBIT 10(P)
EXECUTION VERSION
January 7, 2014
Ms. Deborah Lloyd
1441 Broadway
New York, NY 10018
Re: Employment Agreement
Dear Deborah:
This is your EMPLOYMENT AGREEMENT (this Agreement) with Fifth & Pacific Companies, Inc., a Delaware corporation (the Company). Effective January 1, 2014 (the Effective Date), this Agreement sets forth the terms and conditions of your employment with the Company.
1. Your Position, Performance and Other Activities.
(a) Position. You will become Chief Creative Officer of the Company beginning on the date that the current Chief Executive Officer of the Company ceases to serve in that position, which in no event will be later than March 31, 2014 (your Position Start Date). From the Effective Date until your Position Start Date, you will continue to hold the position of President and Chief Creative Officer of Kate Spade, LLC.
(b) Responsibilities and Reporting; Board Membership. Beginning on your Position Start Date, you will report directly (and only) to the Companys Chief Executive Officer and will have all authority and responsibility of, and will perform such duties as are consistent with, your position as Chief Creative Officer (including services as an officer, director or equivalent position of any subsidiary, affiliated company or venture of the Company, without additional compensation). In addition, effective on your Position Start Date, you will be appointed as a member of the Board of Directors of the Company (the Board). Thereafter, during your Term of Employment (as defined in Section 2), the Board will nominate you for election or re-election as a member of the Board as and when your term as a director would otherwise expire. To the extent you are a director of the Company during the Term of Employment, you agree to serve without additional compensation. Until your Position Start Date, your reporting, authority and responsibility will continue as currently in effect. You will be based at the Companys principal executive offices (currently in New York, New York), subject to customary travel requirements.
(c) Performance. During the Term of Employment, except as permitted by Section l(d), you agree to (1) devote your full business time and attention to the business and affairs of the Company and to faithfully and diligently perform, using your best efforts, all of your duties and responsibilities under this Agreement; (2) abide by all policies of the Group (as defined below) from time to time in effect which apply to similarly situated
senior executives of the Group; and (3) not take any action or conduct yourself in any manner which would cause harm to the reputation or goodwill of the Group (other than de minimis harm). As used herein, the term Group means the Company and the Companys subsidiaries or affiliates.
(d) Other Activities. During the Term of Employment, except as otherwise approved in writing by the Chief Executive Officer of the Company, you will not render any business, commercial or professional services to any person or entity not in the Group. However, you may engage in charitable and community activities and manage your personal investments and affairs so long as the activities do not, individually or collectively, either (1) interfere with the performance of your duties and responsibilities of your employment or (2) constitute restricted activities under the terms of your Executive Severance Agreement with the Company, dated as of the Effective Date (your ESA). Other than your current membership on the board of the Council of Fashion Designers of America, service on the board of any entity (whether for profit or not for profit) must be approved in advance by the Board.
2. Term of Your Employment.
Your employment under this Agreement will begin on the Effective Date and end on December 31, 2014 unless renewed or terminated early. Your Term of Employment (as defined below) will automatically renew for successive one-year periods on each scheduled end date unless the Company delivers to you, or you deliver to the Company, a notice of non-renewal (a Nonrenewal Notice) at least 180 days before the next automatic extension (the original and such successive terms being referred to collectively as your Term of Employment). Your Term of Employment may be terminated early as set forth in your ESA. For the avoidance of doubt, all notices under this Agreement or your ESA must be made in the manner set forth in Section 8 of your ESA.
3. Your Regular Compensation.
(a) Salary. From the Effective Date until your Position Start Date, your Salary will remain at the current rate. Starting on your Position Start Date, your annual base salary (your Salary) will increase to $1,900,000. Beginning in fiscal year 2015, the Board, in consultation with the Companys Chief Executive Officer, will review your Salary at least annually during your Term of Employment and may increase it at any time in its discretion based on your performance. However, your Salary may not be decreased at any time (including after any increase), and any increase in your Salary will not reduce or limit any other obligation to you under this Agreement. Your Salary will be paid in accordance with the Companys normal payroll practices for its senior executives.
(b) Annual Bonus. During your Term of Employment, you will participate in the Companys annual cash bonus plan, as it may exist from time to time, upon the same terms and conditions as other senior executive officers of the Company. Starting on the Effective Date, your target bonus under the plan for each fiscal year during your Term of Employment will be 175% of your Salary and you will have an opportunity to earn an annual cash bonus of up to 200% of your target. For 2014, your annual bonus will include your performance from the Effective Date calculated based on your Salary as in effect beginning on your Position Start Date and will not be prorated to reflect the time not served as the Chief Creative Officer of the Company prior to the Position Start Date.
(c) Long Term Incentive Award. For each fiscal year during your Term of Employment you will be entitled to long term incentive awards having a total target and/or grant date value of no less than $3,275,000 on an annualized basis. Your long term incentive awards may be made annually or over some other basis and will be granted at the same time as such awards are granted to other senior executive officers of the Company. Performance metrics and their weightings will be communicated to you in writing on or before March 31 of the first year of each performance period. For the 2014 fiscal year, your long term incentive award will comprise an award of market share units, and an award of performance shares, with each type of award representing 50% of the total grant-date value of $3,275,000 and subject to the terms and conditions described in Annex A. For years after the 2014 fiscal year during your Term of Employment, your long term incentive awards will have the terms and conditions described in Annex B. For the avoidance of doubt, your 2014 long term incentive award will not be pro-rated to reflect the time before your Position Start Date.
4. Your One-Time Compensation.
(a) Staking Grant. Within three business days of your execution of this Agreement, you will be granted a one-time grant of market share units with a grant date value of $9,000,000, with the number of market share units determined based on the average official closing price per share over the 40-trading days ending with and including the date this Agreement is executed. The award will be granted under the Companys 2013 Stock Incentive Plan and will be subject to such further terms and conditions as set forth in the applicable award agreement, in the form attached hereto as Annex C, with appropriate modifications as necessary to fill in blank spaces therein and set forth a number of units.
(b) Additional One-Time Payment. On the Companys disposition of Lucky Brand Jeans, in lieu of the grant of your 2013-2015 LTIP award, you will receive a cash payment equal to the pro rata portion of $4,500,000, prorated to reflect the number of months from January 1, 2013 through that date of disposition out of a total of 36 months.
5. Other Employee Benefits.
(a) Paid Time Off. You will be entitled to annual paid time off during the Term of Employment (totaling at least 30 business days a year) on a basis that is at least as favorable as that provided to other Company senior executives.
(b) Business Expenses. The Company will reimburse you during the Term of Employment, in accordance with its standard policies from time to time in effect, for such reasonable vouchered out-of-pocket business expenses as may be incurred by you during the Term of Employment in the performance of your duties and responsibilities under this Agreement.
(c) Fringe Benefits. In connection with your entry into this Agreement, the Company adopted the Senior Executive Officer Benefits Policy, which will apply beginning on your Position Start Date. The benefits provided under the Senior Executive Officer Benefits Policy may not be materially and adversely changed without your written consent (not to be unreasonably withheld).
(d) Employee Benefit Plans. During the Term of Employment, you and your family may participate, generally on the same basis as other similarly situated senior
executives of the Group, in accordance with and subject to the respective terms and conditions thereof as to eligibility and otherwise, in the Groups retirement, medical, dental, vision, long-term disability and life insurance programs and employee discount purchase program, as such may exist from time to time.
(e) Stock Ownership Requirement. Beginning on your Position Start Date, you will be subject to the Companys Stock Ownership Requirement, which currently requires holding shares equal to 4 times your Salary within 5 years of your Position Start Date. As required by the Companys Stock Ownership Requirement, 75% of any netted shares received from any equity incentive award must be retained until your stock ownership requirement has been met. In addition, you agree that, on your resignation of employment from the Company without Good Reason or due to your retirement, you will retain the number of Company shares that you have retained as of the date of termination to comply with your stock ownership requirement for at least six months. Beginning on the six-month anniversary of your separation date, you may sell 50% of those shares and you may sell the remainder beginning on the one-year anniversary of your separation date. From the Effective Date until January 1, 2016, your stock ownership requirement may not be materially increased without your written consent. If the stock ownership requirement increases, the increase will be (1) an increase that generally applies to all senior executive officers and (2) reasonable and consistent with current market practice at the time of the increase, and you will have five years to comply with the incremental increased amount.
(f) Plans May be Changed; Award Agreements. Your rights under this Agreement with respect to the Companys compensation and benefits plans and programs and other perquisites and policies set forth in Sections 5(a), 5(b) and 5(d) will not preclude the Company from modifying or terminating any such program, perquisite or policy, subject to your right, in accordance with the terms of this Agreement, to participate in or be eligible for such program, perquisite or policy as so modified or any replacement thereof. Any compensation or benefits granted pursuant to a Company plan will be subject to the terms and provisions of such plan and any award agreement.
6. Early Termination of Your Employment.
(a) ESA. Beginning on the Effective Date, the Term of Employment may be terminated in accordance with the ESA, and all of your rights and the Companys obligations in connection with such termination will be determined in accordance with the ESA. For the avoidance of doubt, if your Term of Employment is terminated by delivery of a Nonrenewal Notice by the Company, the termination will be treated as a termination without Cause, and if your Term of Employment is terminated by delivery of a Nonrenewal Notice by you, the termination will be treated as a termination without Good Reason, in each case for purposes of your ESA and any applicable equity award agreement. The release required in Section 3(f) of the ESA will be substantially in the form set forth in Annex D and the Company will provide you the release within seven (7) days following your date of termination.
(b) Additional Restrictive Covenants. In addition to the covenants set forth in Section 5 of the ESA:
(1) The Company agrees that, during the Restricted Period (as defined in your ESA), the Company will take no action which is intended, or would reasonably be expected, to harm you or your reputation or which would reasonably be expected to lead to unwanted or unfavorable publicity for you; provided, however, that
nothing in this Section 6(b)(1) or the ESA will prohibit you or the Company from making truthful statements to any government agency, in response to any subpoena or as otherwise may be required by applicable law.
(2) The Company agrees not to publicly or privately make or publish any statement (oral or written) that would disparage, criticize or defame you, and the Company will do its best to ensure that the Companys managers, officers and directors also do not publicly or privately make or publish any statement (oral or written) that would disparage, criticize or defame you; provided, however, that nothing in this Section 6(b)(2) or the ESA will prohibit you or the Company from making truthful statements to any government agency, in response to any subpoena or as otherwise may be required by applicable law.
(c) Sole Remedy. Your rights set out in Sections 3(c) and 6 will constitute your sole and exclusive rights and remedies as a result of your actual or constructive termination of employment, and you hereby waive any such other claims against the Group in such event. Except as specifically enumerated herein, this Agreement does not provide any termination entitlements separate from your ESA.
7. Successors.
(a) Assignment by You. You may not assign this Agreement without the Companys written consent. Also, except as required by law, your right to receive payments or benefits under this Agreement may not be subject to execution, attachment, levy or similar process. Any attempt to affect any of the preceding in violation of this Section 7(a), whether voluntary or involuntary, will be void.
(b) Companys Successors. Before the effectiveness of any merger, consolidation, statutory share exchange or similar transaction (including an exchange offer combined with a merger or consolidation) involving the Company (a Reorganization) or any sale, lease or other disposition (including by way of a series of transactions or by way of merger, consolidation, stock sale or similar transaction involving one or more subsidiaries) of all or substantially all of the Companys consolidated assets (a Sale), the Company will cause (1) the Surviving Company to unconditionally assume this Agreement and the ESA in writing and (2) a copy of the assumption to be provided to you. The Surviving Company means (i) in a Reorganization, the entity resulting from the Reorganization or (ii) in a Sale, the entity that has acquired all or substantially all of the assets of the Company. After the Reorganization or Sale, the Surviving Company will be treated for all purposes as the Company under this Agreement and the ESA. This provision is in lieu of the application of Section 9(g) of the ESA.
8. Section 409A.
It is the parties intention that the payments to which you could become entitled in connection with your employment under this Agreement be exempt from being considered deferred compensation pursuant to Section 409A of the Internal Revenue Code (the Code) as a short-term deferral, or, if any such payment is deemed to be deferred compensation, will otherwise comply with Section 409A of the Code and the regulations promulgated thereunder. In the event that any such payment is considered deferred compensation under Section 409A of the Code that is payable to you upon your termination of employment, and if at such time you are deemed a covered key employee of the Company such that your payment(s) is subject to the six-month waiting period
pursuant to Section 409A of the Code, all affected payments to you will be delayed until the expiration of such six month period. In the event of any such deferral, you will be entitled to interest on the amount deferred at a rate equal to the highest prime rate (or base rate) reported for the first business day of such six month period in the money rates column or section of The Wall Street Journal as the rate in effect for corporate loans at large U.S. money center commercial banks (whether or not such rate has actually been charged by any such bank) as of such date. This Section 8 will apply to your ESA as if set forth in the ESA.
9. General Provisions.
(a) Construction. References (1) to Sections are to sections of this Agreement unless otherwise stated; (2) to any contract (including this Agreement) are to the contract as amended, modified, supplemented or replaced from time to time; and (3) to any statute, rule or regulation are to the statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, include any rules and regulations promulgated under the statute) and to any section of any statute, rule or regulation include any successor to the section. The various headings in this Agreement are for convenience of reference only and in no way define, limit or describe the scope or intent of any provisions or Sections of this Agreement. Unless the context requires otherwise, (A) words describing the singular number include the plural and vice versa, (B) words denoting any gender include all genders and (C) the words include, includes and including will be deemed to be followed by the words without limitation. It is your and the Companys intention that this Agreement not be construed more strictly with regard any party.
(b) Prior Agreement; Entire Agreement. On the Effective Date, this Agreement supersedes in its entirety your Employment Agreement dated October 9, 2007, as amended June 13, 2011 and as further amended December 18, 2012, with Liz Claiborne, Inc. (your Prior Employment Agreement) except that the settlement of your 2011-2013 LTIP will be made in accordance with Section 3(d) of your Prior Employment Agreement. This Agreement, the ESA and any applicable agreements for bonuses and equity awards described in Sections 3(b), 3(c) and 4 contain the entire understanding and agreement between the parties concerning the subject matter hereof and supersede all prior agreements, term sheets, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto.
(c) Interaction with Other Documents. If any provision of any agreement, plan, program, policy, arrangement or other written document between or relating to the Company and you conflicts with any provision of this Agreement and the ESA, the provision of this Agreement and the ESA will control and prevail.
(d) Withholding. You and the Company will treat all payments to you under this Agreement as compensation for services as an employee. Accordingly, the Company will withhold from any payment any taxes that are required to be withheld under any law, rule or regulation (and, for the purpose of clarity, all amounts set forth herein will represent gross amounts in U.S. dollars, prior to the deduction for employment and income taxes).
(e) No Conflict. You represent and warrant that you are not a party to or subject to any agreement, contract, understanding, covenant, judgment or decree or under any obligation, contractual or otherwise, in any way restricting or adversely affecting your
ability to act for the Company in all of the respects contemplated hereby. The Company represents and warrants that it is fully authorized and empowered to enter into this Agreement and that the performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or organization.
(f) Indemnification. The Company will provide you with director and officer indemnification to the same extent provided to similarly-situated senior executives of the Group.
(g) No Set-off or Mitigation. Your and the Companys respective obligations under this Agreement will not be affected by any set-off, counterclaim, recoupment or other right you or any member of the Group may have against each other or anyone else. You do not need to seek other employment or take any other action to mitigate any amounts owed to you under this Agreement, and those amounts will not be reduced if you do obtain other employment (except as this Agreement specifically states).
(h) Notices. Section 8 of the ESA will apply to this Agreement as if set forth herein.
(i) Amendments and Waivers. Any provision of this Agreement may be amended or waived but only if the amendment or waiver is in writing and signed, in the case of an amendment, by you and the Company or, in the case of a waiver, by the party that would have benefited from the provision waived. Except as this Agreement otherwise provides, no failure or delay by you or the Group to exercise any right or remedy under this Agreement will operate as a waiver, and no partial exercise of any right or remedy will preclude any further exercise.
(j) Survival. To the extent that any provision of this Agreement would require the survival of such provision beyond the Term of Employment in order to effectuate its intent, such provision will survive the Term of Employment according to its terms.
(k) Counterparts. This Agreement may be executed in counterparts, each of which will constitute an original and all of which, when taken together, will constitute one agreement. Electronic, PDF and fax copies of such signed counterparts may be used in lieu of the originals of this Agreement for any purpose.
(l) Legal Fees. The Company will reimburse you for any reasonable legal fees incurred by you in connection with reviewing, negotiating and finalizing this Agreement, the ESA and the documents related thereto in an amount not to exceed $75,000.
10. Remedies; Disputes; Governing Law.
Sections 6 and 9(a)-(e) of the ESA apply to this Agreement as if set forth herein. For the avoidance of doubt, you and the Company understand and agree that any controversy arising out of or relating to this Agreement or the breach hereof will be settled by JAMS Arbitration in the City of New York in accordance with the ESA.
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Very truly yours, | |
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Fifth and Pacific Companies, Inc. | |
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/s/Arthur Martinez | |
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By: |
Arthur Martinez |
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Chair, Compensation Committee |
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Authorized Signatory |
By signing below, I certify that I (1) have received copies of this Agreement and the ESA referred to in it for review and study before signing them, (2) have read this Agreement and ESA carefully before signing them, (3) have had sufficient opportunity to review the Agreement and ESA with any advisor I desired to consult, including legal counsel, (4) have had sufficient opportunity before signing them to ask any questions about this Agreement and/or ESA and have received satisfactory answers to all such questions, and (5) understand my rights and obligations under this Agreement and ESA.
Accepted and agreed: |
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/s/Deborah Lloyd |
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Deborah Lloyd |
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Annex A
2014 Long Term Incentive Award
Terms and Conditions
2014 Market Share Units
· Expected date of grant is March 1, 2014;
· Market Share Units will have a minimum earnout of 30% of target;
· Market Share Units will vest 50% on each of the second and third anniversary of grant; and
· Maximum payout opportunity is 200% of target.
2014 Performance Shares
· Expected date of grant is March 1, 2014;
· Subject to a three year performance period from date of grant;
· Performance goals will measure TSR relative to the S&P Mid-Cap Index;
· The Companys and Mid-Cap Indexs TSR will be calculated by using a 40-day average for the beginning and ending measurements; and
· Maximum payout opportunity is 200% of target.
Payment
Payment of Market Share Units and Performance Shares will be made within 60 days following vesting.
Termination of Employment and Change in Control
· If your employment terminates without Cause or due to the Companys nonrenewal of this Agreement or due to your resignation for Good Reason (as both are defined in your ESA) within two years following the Effective Date, then 50% of all Market Share Units and Performance Shares, to the extent unvested, will vest at target.
· If your employment terminates without Cause or due to the Companys nonrenewal of this Agreement or due to your resignation for Good Reason following the second anniversary of the Effective Date, then any unvested Market Share Units and Performance Shares will vest based on performance (subject to a minimum earnout of 30% for the MSUs), and those MSUs and Performance Shares will be pro-rated for the number of months you were employed during the applicable vesting period.
· Notwithstanding the foregoing, if your employment terminates without Cause or due to the Companys nonrenewal of this Agreement or for Good Reason either (x) in connection with a Change in Control (as defined in the Companys 2013 Stock Incentive Plan), subject to the consummation of the Change in Control within two months of the termination, or (y) on or within two years following a Change in Control, then all Market Share Units and Performance Shares, to the extent unvested, will vest in full at target on the date of your termination (or, if later, the date of the Change in Control).
Annex B
Long Term Incentive Awards After 2014
Terms and Conditions
Termination of Employment and Change in Control
· If you are terminated without Cause or resign for Good Reason (as both are defined in your ESA) or due to the Companys nonrenewal of this Agreement within two years following the applicable grant date, then 50% of your awards, to the extent unvested, will vest at target.
· If your employment terminates without Cause or due to resignation for Good Reason or due to the Companys nonrenewal of this Agreement following the second anniversary of the applicable grant date, then any unvested portion of your awards will vest based on performance, and those awards will be pro-rated for the number of months you were employed during the applicable vesting period.
· Notwithstanding the foregoing, if your employment terminates without Cause or for Good Reason or due to the Companys nonrenewal of this Agreement either (x) in connection with a Change in Control (as defined in the Companys 2013 Stock Incentive Plan), subject to the consummation of the Change in Control within two months of the termination, or (y) on or within two years following a Change in Control, then all awards, to the extent unvested, will vest in full at target on the date of your termination (or, if later, the date of the Change in Control).
Annex C
Form of Staking Grant MSU Award Agreement
FIFTH & PACIFIC COMPANIES, INC.
2014 MARKET SHARE UNIT AWARD
NOTICE OF GRANT:
PARTICIPANT NAME: |
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[ ] shares (Target Shares) |
We are pleased to inform you that, pursuant to the Companys 2013 Stock Incentive Plan, the Compensation Committee of the Board of Directors of Fifth & Pacific Companies, Inc., has made an award of market share units to you, subject to the terms and conditions set forth in the attached Grant Certificate.
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[ ] STAKING MARKET SHARE UNIT AWARD GRANT CERTIFICATE
The Grant Certificate (the Grant Certificate) is made as of the Grant Date set forth in the attached Notice of Grant (the Grant Date), by and between Fifth & Pacific Companies, Inc. (the Company) and the employee named in the attached Notice of Award (the Participant).
The Compensation Committee (the Committee) of the Board of Directors of the Company (Board) has made the award described herein (the Award) to the Participant under the Companys 2013 Stock Incentive Plan (the Equity Plan). Any term that is capitalized but not defined herein shall have the meaning given to such term in the Equity Plan.
1. 2014 Market Share Unit Award. This Award consists of a number of market share units (the MSUs) set forth in the Notice of Grant (such number of MSUs, the Target Shares).
2. Threshold Section 162(m) Goal.
(a) No part of this Award shall vest and no amount shall be paid (or shares delivered) in respect of this Award unless and until the Committee certifies that the Company has achieved an adjusted operating income for the [ ] fiscal year of $[ ] (the 162(m) Goal). If the 162(m) Goal is not achieved during the [ ] fiscal year, the Award shall be immediately cancelled and the Participant shall have no further rights with respect to the Award.
(b) Once the Committee certifies that the 162(m) Goal has been achieved, the Participants entitlement to payment in respect of the Award shall be determined in accordance with the terms of this Grant Certificate. In no event shall the Participant receive payment in respect of the Award in an amount that exceeds the maximum amount allocated to the Participant in the Committees resolution approving the establishment of the 162(m) Goal.
3. Determination of Earned MSUs.
(a) The Performance Period for one-half of the Target Shares shall be the period from the Grant Date to the third anniversary of the Grant Date and for the other half of the Target Shares shall be the period from the Grant Date to the fifth anniversary of the Grant Date.
(b) The number of MSUs earned for each Performance Period shall equal (1) the Target Shares for that Performance Period multiplied by (2) the Settlement Price for that Performance Period divided by (3) the Grant Price; provided that the number of MSUs earned for any Performance Period may not be less than 30% or more than 200% of the Target Shares for that Performance Period (the Earned MSUs for that Performance Period).
(c) The Earned MSUs for a Performance Period shall be determined by the Committee within 60 days following the end of the Performance Period.
(d) The following terms have the meanings indicated below:
(1) Average Price for any day means the average official closing price per share over the 40 consecutive trading days ending with and including that day (or, if there is no official closing price on that day, the last trading day before that day).
(2) Cause, Disability and Good Reason have the meanings provided in the Executive Severance Agreement between the Participant and the Company (as it may be amended, replaced or supplemented in accordance with its terms).
(3) Determination Date for any Performance Period means the last day of that Performance Period.
(4) Grant Price shall be the Average Price for the Grant Date.
(5) Settlement Price for any Determination Date means the Average Price for that Determination Date.
4. Adjustments. Notwithstanding anything to the contrary contained herein, pursuant to Section 3.7 of the Equity Plan, the Committee shall adjust this Award to reflect any dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination, exchange of shares or similar corporate change, in such manner as the Committee may deem appropriate, in its sole discretion, to prevent the enlargement or dilution of the Participants rights.
5. Settlement of Award. The Participants Earned MSUs shall be settled by delivery of shares of Common Stock, on a one-for-one basis, as soon as practicable following the Committees determination of the number of Earned MSUs, and in no event later than 60 days following the Determination Date; provided that settlement shall be subject in all respects to Section 2 and no delivery of shares may occur before the Committee certifies whether the 162(m) Goal has been achieved (which determination will occur no later than the Determination Date for the first Performance Period). Shares of Common Stock shall be issued by the Company in the name of the Participant by electronic book-entry transfer or credit of such shares to an account of the Participant maintained with a brokerage firm or other custodian as the Company determines. Alternatively, in the Companys sole discretion, such issuance may be effected in such other manner (including through physical certificates) as the Company may determine.
6. Vesting; Termination of Employment; Change in Control.
(a) Except as set forth in Section 6(b) and (c), if the Participants employment terminates for any reason on or before the end of a Performance Period, the Target Shares for that Performance Period shall be forfeited, there shall be no Earned MSUs for those Target Shares and the portion of the Award represented thereby (or the entire Award for a termination on or before the first Determination Date) shall be cancelled and the Participant shall have no rights with respect to the Award.
(b) If the Participants employment is terminated by the Company without Cause, by the Participant for Good Reason, upon non-renewal of the Participants Employment Agreement by the Company, or due to the Participants death or Disability then:
(1) If the termination date is on or before the second anniversary of the Grant Date, 50% of the Target Shares shall be deemed to be Earned MSUs, and the Earned MSUs shall be settled in accordance with Section 5, and the date of termination shall become the Date of Determination. The remaining Target Shares shall be forfeited in accordance with Section 6(a).
(2) If the termination date is after the second anniversary of the Grant Date but on or before the third anniversary of the Grant Date, each Performance Period shall be deemed to have been completed, the date of termination shall become the Date of Determination for each Performance Period and the resulting Earned MSUs shall be prorated by multiplying the Earned MSUs by (A) the number of days during the relevant Performance Period up to and including the date of termination and dividing by (B) the total number of scheduled days in that Performance Period without giving effect to this Section 6(b). The prorated Earned MSUs shall be settled in accordance with Section 5, and any remaining Target Shares shall be forfeited in accordance with Section 6(a).
(3) If the termination date is after the third anniversary of the Grant Date, the remaining Performance Period shall be deemed to have been completed, the date of termination shall become the Date of Determination for that Performance Period and the resulting Earned MSUs shall be prorated by multiplying the Earned MSUs by (A) the number of days during the Performance Period up to and including the date of termination and dividing by (B) the total number of scheduled days in the Performance Period without giving effect to this Section 6(b). The prorated Earned MSUs shall be settled in accordance with Section 5, and any remaining Target Shares shall be forfeited in accordance with Section 6(a).
(c) Change in Control. In the event the Participants employment is terminated by the Company (or its acquiror) without Cause, pursuant to the Participants resignation for Good Reason or due to the Companys non-renewal of the Employment Agreement, in each case, in connection with a Change in Control (subject to the consummation of the Change in Control within two months of the termination) or on or within two years following a Change in Control, each Performance Period shall be deemed to have been completed, the date of termination (or, if later, the date of the Change in Control) shall become the Date of Determination for each Performance Period, all unvested Target Shares shall be deemed to be Earned MSUs, and the Participant shall vest in that number of Earned MSUs as of the date of such termination (or, if later, Change in Control). In the event that the Earned MSUs become vested in accordance with this Section 6(c), such shares shall be settled in accordance with Section 5.
7. Nature of MSUs. The Participant shall have no rights as a stockholder with respect to this Award unless and until Common Stock has been delivered to the Participant upon settlement of the Award. The MSUs are mere bookkeeping entries and represent only an unfunded and unsecured obligation of the Company to issue or deliver Common Stock on a future date, subject to the terms and conditions hereof. As a holder of MSUs, the Participant has no rights other than the rights of a general creditor of the Company. The MSUs carry neither voting rights nor rights to cash or other dividends.
8. Plan Provisions. The Award is subject to all of the terms and provisions of the Equity Plan and is subject to all of the terms and provisions therein. In the event of any inconsistency between the provisions of the Grant Certificate and the Equity Plan, the provisions of the Grant Certificate shall govern.
9. Withholding Taxes. Shares of Common Stock delivered pursuant to this Award shall be subject to applicable withholding taxes and the Company shall withhold from the delivery of Common Stock pursuant hereto shares having a value equal to the minimum amount of federal, state and other governmental tax withholding requirements related thereto. Such shares shall be valued at their Fair Market Value as of the date on which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. In lieu of such withholding, the Participant may elect, and the Company may require as a condition of delivery, that the Participant remit to the Company an amount in cash sufficient in the opinion of the Company to satisfy all or any portion of such tax withholding requirements.
10. Nature of Payments. The grant of this Award is in consideration of services to be performed by the Participant for the Company and constitutes a special incentive payment. The Award does not constitute salary, wages, regular compensation or contractual compensation for the year of grant or any subsequent year. The parties agree that the Award is not to be included in or taken into account in computing the amount of salary or compensation of the Participant for the purposes of determining (1) any pension, retirement, profit-sharing, bonus, life insurance or other benefits under any pension, retirement, profit-sharing, bonus, life insurance or other benefit plan of the Company, (2) any severance or other amounts payable under any other agreement between the Company and the Participant, or (3) any other employment related rights or benefits under law or any plan, program or agreement.
11. Administration. The Committee shall have all rights, powers and obligations provided by the Equity Plan in connection with this Award and Grant Certificate. Any certifications by the Committee pursuant to the Award shall be determined in writing and may be in any form determined by the Committee (including as part of applicable meeting minutes).
12. Notices. Any notice to be given to the Company hereunder shall be in writing and shall be addressed to the Corporate Secretary, Fifth & Pacific Companies, Inc., 5901 Westside Avenue, North Bergen, NJ 07047, or at such other address as the Company may hereafter designate to the Participant by notice as provided in this Section 12. Any notice to be given to the Participant hereunder shall be addressed to the Participants home address of record, or at such other address as the Participant may hereafter designate to the Company by notice as provided herein. A notice shall be deemed to have been duly given when personally delivered or mailed by registered or certified mail to the party entitled to receive it.
13. Right of Discharge Preserved. The grant of the Award and the terms set forth in the Grant Certificate shall not confer upon the Participant the right to continue in the employ or other service of the Company, and shall not affect any right which the Company may have to terminate such employment or service.
14. Successors and Assigns. The terms of the Grant Certificate shall be binding upon and inure to the benefit of the Company and the successors and assigns of the Company. Except as otherwise determined by the Committee in its sole discretion, the Participants rights and interests under the Award and the Grant Certificate may not be sold, assigned, transferred, or otherwise disposed of, or made subject to any encumbrance, pledge, hypothecation or charge of any nature. If the Participant (or those claiming under or through the Participant) attempts to violate this Section 14, such attempted violation shall be null and void and without effect.
15. No Right to Future Awards. The Award is a discretionary award. Neither the Grant Certificate or the Equity Plan, nor the grant of the Award confers on the Participant any right or entitlement to receive another award under the Equity Plan or any other plan at any time in the future or with respect to any future period.
16. Governing Law. The Award and the Grant Certificate shall be interpreted, construed and administered in accordance with the laws of the State of Delaware.
17. Entire Agreement. The Grant Certificate, the Employment Agreement between the Participant and the Company, and the Equity Plan constitute the entire agreement between the parties hereto with regard to the subject matter hereof. They supersede all other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the Award. By accepting the Award, the Participant shall be deemed to accept all of the terms and conditions of the Grant Certificate and the Equity Plan.
18. Amendments. Notwithstanding any provision set forth in the Grant Certificate or the Equity Plan and subject to all applicable laws, rules and regulations, the Committee shall have the power to: (1) alter or amend the terms and conditions of the Award in any manner consistent with the provisions of Section 3.1 of the Equity Plan or (2) without the Participants consent (unless the amendment would have a material adverse effect on this Award), alter or amend the terms and conditions of the Award in any manner that the Committee considers necessary or advisable, in its sole discretion, to comply with, or take into account changes in, or interpretations or rescissions of, applicable tax laws, securities laws, employment laws, accounting rules or standards and other applicable laws, rules, regulations, guidance, ruling, judicial decision or legal requirement. Any alteration or amendment of the terms of the Awards by the Committee shall, upon adoption, become and be binding on all persons affected thereby without requirement for consent or other action with respect thereto by any such person. The Committee shall give notice to the Participant of any such alteration or amendment as promptly as practicable after the adoption thereof.
19. Transferability. Before the issuance of shares of Common Stock in settlement of this Award, the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by the Participants creditors or by the Participants beneficiary, except (1) transfer by will or by the laws of descent and distribution or (2) transfer by written designation of a beneficiary, in a form acceptable to the Company, with such designation taking effect upon the Participants death. All rights with respect to this Award shall be exercisable during the Participants lifetime only by the Participant or the Participants guardian or legal representative.
20. Clawback Policy; Right of Recapture.
(a) Notwithstanding anything to the contrary in this Grant Certificate, all MSUs or shares of Common Stock issued in settlement of this Award shall be subject to any clawback policy adopted by the Company from time to time that applies to all senior executives (including, but not limited to, any policy to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law), regardless of whether the policy is adopted after the date on which the MSUs are granted, vest, or are settled by the issuance of shares of Common Stock.
(b) Notwithstanding anything to the contrary in this Grant Certificate, all MSUs payable or shares of Common Stock issued in settlement of this Award shall be subject to the right of recapture as set forth in Section 2.11 of the Equity Plan and, if the subsequent determination is that performance goals were achieved to a greater extent than originally determined, the Committee shall appropriately grant or vest awards to reflect the actual performance achievement.
21. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, no shares of Common Stock shall be issued to the Participant upon vesting of this Award unless the Common Stock is then registered under the Securities Act of 1933 or, if such Common Stock is not then so registered, the Company has determined that such vesting and issuance would be exempt from the registration requirements of the Securities Act. By accepting this Award, the Participant agrees not to sell any of the shares of Common Stock received under this Award at a time when applicable laws or Company policies prohibit a sale.
22. Section 409A.
(a) This Award is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the Code) so as not to be subject to taxes, interest or penalties under Section 409A of the Code. This Grant Certificate shall be interpreted and administered to give effect to such intention and understanding and to avoid the imposition on the Participant of any tax, interest or penalty under Section 409A of the Code in respect of the Award.
(b) Notwithstanding anything else herein to the contrary, any payment scheduled to be made to the Participant after the Participants separation from service shall not be made until the date six months after the date of the Participants separation from service to the extent necessary to comply with Section 409A(a)(B)(i) and applicable Treasury Regulations. Following any such six-month delay, all such delayed payments shall be paid in a single lump sum on the date six months after the Participants separation from service. For purposes of the Award, separation from service with the Company means a separation from service as defined in Section 409A of the Code determined using the default provisions set forth in Treasury Regulation §1.409A-1(h) or any successor regulation thereto. The provisions of this paragraph shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Section 409A of the Code.
(c) If any provision of the Grant Certificate or the Equity Plan would, in the reasonable, good faith judgment of the Committee, result or likely result in the imposition on the Participant or his or her beneficiary of any additional tax, accelerated taxation, interest or penalties under Section 409A of the Code, the Company may modify the terms of the Grant Certificate, or may take any other such action, without the Participants consent, or the consent of his or her beneficiary, in the manner that the Company may reasonably and in good faith determine to be necessary or advisable to avoid the imposition of such additional tax, accelerated taxation, interest, or penalties or otherwise comply with Section 409A of the Code. This Section 22 does not create an
obligation on the part of the Company to modify the Grant Certificate and does not guarantee that the Award shall not be subject to additional taxes, accelerated taxation, interest or penalties under Section 409A of the Code.
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FIFTH & PACIFIC COMPANIES, INC. | |
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By the Compensation Committee of the Board of Directors: | |
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Authorized Signature |
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Name: |
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Consented and Agreed to: |
Annex D
Form of Release
SEPARATION AND RELEASE AGREEMENT
Effective this · day of ·, Fifth & Pacific Companies, Inc. (including its subsidiaries, affiliates, divisions, successors, predecessors and assigns, collectively referred to as the Company or us, we, our, ours) and · (including his/her heirs, legal representatives, successors, and assigns, collectively referred to as Executive or you, your, yours), enter into this Separation and Release Agreement (Agreement).
1. Separation Date. Your last day of employment with the Company is · (the Separation Date). You agree to resign, effective as of the Separation Date, from all positions, titles, duties, authorities and responsibilities (including without limitation from any board positions) with, arising out of or relating to your employment as [title] of the Company and you agree to execute all additional documents and take such further steps as may be required to effectuate such resignations.
2. Consideration. In consideration for signing this Agreement, and for complying with its terms and the terms of the Executive Severance Agreement entered into between you and the Company, effective ·, 2014 (the Executive Severance Agreement) and the Employment Agreement entered into between you and the Company, effective ·, 2014 (the Employment Agreement), and provided you do not revoke this Agreement within 7 days of the date you sign this Agreement (the Revocation Period), the Company agrees to provide you the payments and benefits, and take other related actions, as set forth in Sections 3(c) and 3(d) of the Executive Severance Agreement, your Employment Agreement and your equity awards. A copy of the Executive Severance Agreement and Employment Agreement are attached hereto, incorporated by referenced herein and made a part hereof. (1)
3. No Consideration Unless You Sign this Agreement. You understand and agree that you would not receive the consideration specified in Section 2, and the payment of the consideration in Section 2 is subject to, the execution and non-revocation of this Agreement and your agreement to fulfill the promises contained in this Agreement and all surviving obligations and promises in the Executive Severance Agreement and the Employment Agreement. You also understand and agree that the consideration specified in Section 2 is sufficient consideration in exchange for your promises and obligations in this Agreement, the Executive Severance Agreement and the Employment Agreement.
4. Release. You agree that, on behalf of yourself and your heirs, legal representatives, successors and assigns (hereinafter, collectively, the Executive Released Parties), and each of them, for good and valuable consideration does hereby unconditionally, knowingly, and voluntarily release and forever discharge the Company Released Parties (as defined below), from any and all known or unknown claims, demands, actions or causes of action that now exist or that may arise in the future, based upon events occurring or omissions on or before the date of the execution of this Agreement, including, but not limited to, any and all claims whatsoever pertaining in any way to your employment at the Company or with any of the Company Released Parties (including any of their predecessors) or the termination of your employment, including, but not limited to, any claims under, as applicable: (1) the Americans with Disabilities Act; the Family and
(1) Note to Draft: This form of Separation and Release Agreement assumes a termination under Section 3(c) of the ESA; to be updated as appropriate for other terminations.
Medical Leave Act; Title VII of the Civil Rights Act; 42 U.S.C. Section 1981; the Older Workers Benefit Protection Act; the Age Discrimination in Employment Act of 1967, as amended; the Employee Retirement Income Security Act of 1974; the Civil Rights Act of 1866, 1871, 1964, and 1991; the Rehabilitation Act of 1973; the Equal Pay Act of 1963; the Vietnam Veterans Readjustment Assistance Act of 1974; the Occupational Safety and Health Act; and the Immigration Reform and Control Act of 1986; and any and all other federal, state or local laws, statutes, ordinances, or regulations pertaining to employment, discrimination or pay; (2) any state tort law theories under which an action could have been brought, including, but not limited to, claims of negligence, negligent supervision, training and retention or defamation; (3) any claims of alleged fraud and/or inducement, including alleged inducement to enter into this Agreement; (4) any and all other tort claims; (5) all claims for attorneys fees and costs; (6) all claims for physical, mental, emotional, and/or pecuniary injuries, losses and damages of every kind, including, but not limited to, earnings, punitive, liquidated and compensatory damages, and employee benefits; (7) any and all claims whatsoever arising under any of the Company Released Parties or Executive Released Parties express or implied contracts or under any federal, state, or local law, ordinance, or regulation; (8) any and all claims whatsoever against any of the Company Released Parties for wages, bonuses, benefits, fringe benefits, vacation pay, or other compensation or for any damages, fees, costs, or benefits; and (9) any and all claims whatsoever to reinstatement; provided, however, that, notwithstanding anything to the contrary contained herein, this Agreement does not cover and specifically excludes your rights and claims directly or indirectly arising from or under or related to (A) any obligation of the Company to provide the benefits or payments described in this Agreement, (B) any indemnification, advancement of expenses, and/or contribution claims or rights that you might have under any agreement, plan, program, policy, bylaw or arrangement of the Company and/or any other Company Released Parties, or under any applicable law, (C) the Consolidated Omnibus Budget Reconciliation Act (COBRA), (D) any vested equity, (E) any profit-sharing and/or retirement plans or other benefits in which you have vested rights, (F) unemployment benefits, and (G) any equity, phantom equity or incentive compensation grant or plan (including but not limited to the Staking Grant set forth in Section 4(a) of the Employment Agreement and any LTIPs), for which your rights are determined by the applicable grant and plan documents. You and the Company also intend that this Section 4 shall operate as a waiver of all unknown claims of the type being released hereunder. You warrant, on the one hand, that you are currently unaware of any such claim, demand, action, or cause of action against any of the Company Released Parties, and the Company hereby warrants, on the other hand, that it is currently unaware of any such claim, demand, action, or cause of action against any of the Executive Released Parties, which you have not released pursuant to this Section 4 except for the rights and/or claims relating to the matters specifically excluded above. For purposes of this Section 4, Company Released Parties means, collectively, the Company and its present and former related companies, subsidiaries and affiliates, and all of their present and former employees, officers, directors, owners, shareholders, shareholders employees, agents, attorneys, insurers, and operators, including in their individual capacity, and each of its and their successors and assigns, but only in their capacity as such (i.e., not in their individual capacity unrelated to their affiliation with the Company or any of its related companies, subsidiaries or affiliates).
5. Acknowledgments and Affirmations. You affirm that you have not filed, caused to be filed, and are presently not a party to, any claim against the Company. You also affirm that, other than any payments or benefits set forth in this Agreement, you have been paid and/or have received all compensation, wages, bonuses, commissions, and/or benefits to which you may have been eligible or entitled. You affirm that you have been
granted any leave to which you were entitled under the Family and Medical Leave Act or state or local leave or disability accommodation laws. You also affirm that you have no known workplace injuries or occupational diseases that are not the subject of pending Workers Compensation claims. You further affirm that you have not been retaliated against for reporting any allegations of wrongdoing by the Company or its officers, including any allegations of corporate fraud. The Company and you both acknowledge that this Agreement does not limit eithers right, where applicable, to file a claim with or participate in an investigation or proceeding by the Equal Employment Opportunity Commission (EEOC) or any comparable federal, state or local governmental agency. To the extent permitted by law, you agree that if such an administrative claim is made, you shall not be entitled to recover any individual monetary relief or other individual remedies. You acknowledge and understand that nothing in this Agreement serves as a waiver of your rights under the Companys 401(k) Savings and Profit Sharing Plan, Supplemental Executive Retirement Plan (SERP) and equity, phantom equity and incentive compensation awards. [You further acknowledge and understand that the benefit you receive from your use of the discount card after your last day of employment, including but not limited to the value of the discount you receive, is considered taxable income under the current U.S. tax regulations, and that you not the Company shall be solely responsible for tracking, calculating, reporting and paying any taxes in connection with such income to the I.R.S. You further agree to indemnify and defend the Company in connection with any taxes or penalties the Company may incur or be assessed by the I.R.S with respect to your use of such discount card after your last day of employment, including but not limited to any failure by you to track, calculate, report or pay any taxes in connection with your use of such discount card.](1)
6. Confidentiality of Agreement. You agree not to disclose any information regarding the terms and conditions of this Agreement, except to your spouse, domestic or civil union partner, tax advisors, financial planners and/or attorneys with whom you choose to consult regarding your consideration of this Agreement, or as otherwise required by law.
7. Return of Property. You affirm that you have returned all, and have not maintained copies of, the Companys property, including paper and electronic records, files, drawings, documents, equipment, materials or writings received from, created for or belonging to the Company, including those which relate to or contain Confidential Information (as defined in Section 4 of the Executive Severance Agreement), that was within your possession and control. You also affirm that you have in your possession all of your personal property that you had at the Companys premises and that the Company is not in possession of any of your personal property. If at any time after signing this Agreement you discover that you have in your possession any Company property, you agree to return it to us immediately.
8. Restrictions & Covenants
a) Executives Confidentiality. You reaffirm and agree that you shall comply with the confidentiality obligations set forth in Section 4 of the Executive Severance Agreement. You understand and agree this obligation continues after the Separation Date, and does not expire.
(1) To be included if appropriate.
b) Executives Competition, Solicitation & Interference. You reaffirm and agree that you shall comply with the restrictions and obligations set forth in Section 5 of the Executive Severance Agreement. The Executive acknowledges that the restrictive covenants contained in Section 5 of the Executive Severance Agreement are reasonable and valid in temporal scope and in all other respects.
c) Mutual Non-Disparagement. You and the Company reaffirm and agree to the mutual non-disparagement clauses set forth in Section 5 of the Executive Severance Agreement and Section 6(b) of the Employment Agreement.
9. Remedies. The Parties agree that Section 6 of the Executive Severance Agreement shall apply to any breach or threatened breach of Section 8 of this Agreement.
10. Notifications. You agree that the notification requirements set forth in this Agreement are satisfied exclusively by written notice to · or his designee, and notification must be delivered in person to · or his designee, or sent by certified mail or recognized overnight carrier, addressed to Fifth & Pacific Companies, Inc., 5901 Westside Avenue, North Bergen, New Jersey 07047, Attn: ·.
11. Governing Law and Interpretation. This Agreement shall be governed and conformed in accordance with the laws of the State of New York and without regard to conflict of law provisions. In the event of a breach of any provision of this Agreement, either party may institute an action specifically to enforce any term or terms of this Agreement and/or to seek any damages for breach, with the prevailing party to reimburse the other for attorneys fees and costs. Should any provision of this Agreement be declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to be enforceable, excluding the general release language, such provision shall immediately become null and void, leaving the remainder of this Agreement in full force and effect. The parties also agree that if there is any question as to interpretation of any provision of this Agreement, then there shall be no presumption against the drafter of this Agreement.
12. No Admission of Wrongdoing. The Company and you agree that neither this Agreement nor the furnishing of the consideration for this Agreement shall be deemed or construed at any time for any purpose as an admission by the Company or you of wrongdoing or evidence of any liability or unlawful conduct of any kind.
13. Cooperation Obligations. You agree to reasonably cooperate in the defense of the Company against any threatened or pending litigation or in any investigation or proceeding that relates to any events or actions which occurred during or prior to the term of your employment with the Company. Furthermore, you agree to reasonably cooperate in the prosecution of any claims and lawsuits brought by the Company or any of its affiliates that are currently outstanding or that may in the future be brought relating to matters which occurred during or prior to the term of your employment with the Company. From and after the Separation Date, except as requested by the Company or as required by law, you shall not comment upon any (i) threatened or pending claim or litigation (including investigations or arbitrations) involving the Company or (ii) threatened or pending government investigation involving the Company. In addition, except as required by law, you shall not disclose any confidential or privileged information in connection with any pending litigation or investigation or proceeding without the consent of the Company and shall give prompt notice to the Company of any request therefor. If you are required to cooperate with the Company in accordance with this Section 13, the Company shall pay you a reasonable per diem fee, in addition to any expense reimbursement, for such
assistance, based on your annual base salary rate immediately preceding the Separation Date.
14. Amendment. This Agreement may not be modified, altered or changed except in writing and signed by both the Company and you in which specific reference is made to this Agreement.
15. Entire Agreement. Except as set forth herein, this Agreement sets forth the entire agreement between the Company and you, and fully supersedes any prior agreements or understandings the Company may have had with you except for the Parties continuing obligations under the Executive Severance Agreement and the Employment Agreement, which obligations remain in full force and effect, except as may be waived herein. You acknowledge that you have not relied on any representations, promises, or agreements of any kind made to you in connection with your decision to accept this Agreement, except for those set forth in this Agreement.
16. Compliance with Law. This Agreement is intended to comply with the requirements of Section 409A of the Code and the parties hereto agree to treat payments and entitlements hereunder consistent with that intent. To the extent that any provision in this Agreement is ambiguous as to its compliance with Section 409A, the provision shall be read in such a manner so that all payments hereunder shall comply with Section 409A.
17. Tax Withholding. The Company is hereby authorized to withhold from any consideration due under this Agreement the amount of withholding taxes due any federal, state or local authority in respect of such payment and to take such other action as may be necessary to satisfy all Company obligations for the payment of such withholding taxes.
18. Recoupment. To the extent required under applicable laws, rules under any administrative or other judicial proceeding, and regulations, the Company shall be entitled to recoup, and you shall be required to repay, any payments or benefits pursuant to this Agreement.
YOU HAVE UP TO TWENTY-ONE (21) CALENDAR DAYS TO CONSIDER THIS AGREEMENT. YOU ARE ALSO ADVISED OF YOUR RIGHT TO CONSULT WITH AN ATTORNEY BEFORE YOU SIGN THIS AGREEMENT.
YOU MAY REVOKE THIS AGREEMENT FOR A PERIOD OF SEVEN (7) CALENDAR DAYS FOLLOWING THE DAY YOU SIGN THIS AGREEMENT. ANY REVOCATION WITHIN THIS PERIOD MUST BE SUBMITTED, IN WRITING, TO · AND STATE, I HEREBY REVOKE MY ACCEPTANCE OF OUR SEPARATION AND AGREEMENT, EFFECTIVE ·, ·. THE REVOCATION MUST BE PERSONALLY DELIVERED OR SENT BY CERTIFIED MAIL OR RECOGNIZED OVERNIGHT CARRIER, TO · OR HIS DESIGNEE, OR MAILED TO FIFTH & PACIFIC COMPANIES, INC., 5901 WESTSIDE AVENUE, NORTH BERGEN, NEW JERSEY 07047, ATTN: · AND POSTMARKED WITHIN SEVEN (7) CALENDAR DAYS AFTER YOU SIGN THIS AGREEMENT. PAYMENTS OR OTHER CONSIDERATION PROVIDED IN SECTION 2 OF THIS AGREEMENT SHALL NOT BE PROVIDED UNTIL AT LEAST SEVEN (7) CALENDAR DAYS FOLLOWING THE DAY THIS AGREEMENT IS FULLY EXECUTED.
YOU AGREE THAT ANY MODIFICATIONS, MATERIAL OR OTHERWISE, MADE TO THIS AGREEMENT DO NOT RESTART OR AFFECT IN ANY MANNER THE LENGTH OF THE ORIGINAL CONSIDERATION PERIOD.
YOU FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTER INTO THIS AGREEMENT INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS ASSOCIATE HAS OR MIGHT HAVE AGAINST THE COMPANY RELEASED PARTIES.
The Company and you knowingly and voluntarily sign this as of the date(s) set forth below:
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EXHIBIT 10(U)(VII)
EXECUTION VERSION
FIRST AMENDMENT, dated as of November 6, 2013 (this Amendment), to the Third Amended and Restated Credit Agreement, dated as of April 18, 2013 (as heretofore amended and as may be further amended, supplemented or otherwise modified from time to time, the Credit Agreement), among Fifth & Pacific Companies, Inc. (the Company), Kate Spade UK Limited and Kate Spade Canada Inc. (collectively, the Borrowers), the other Loan Parties from time to time party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and US Collateral Agent, J.P. Morgan Europe Limited, as European Administrative Agent and European Collateral Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Collateral Agent, Bank of America, N.A., as Syndication Agent, and Wells Fargo Capital Finance, LLC and SunTrust Bank, as Documentation Agents.
W I T N E S S E T H :
WHEREAS, (i) the Borrowers, the other Loan Parties, the Lenders, the Syndication Agent, the Documentation Agents, the Administrative Agent, the European Administrative Agent and the Canadian Administrative Agent are parties to the Credit Agreement, (ii) Fifth & Pacific Companies, Inc., certain Subsidiaries thereof (including Juicy Couture, Inc. (Juicy), L.C. Licensing LLC (L.C. Licensing) and ABG Juicy Couture, LLC (Juicy Newco)), and JPMorgan Chase Bank, N.A., in its capacity as the Administrative Agent and the US Collateral Agent are parties to the Amended and Restated US Pledge and Security Agreement dated as of April 18, 2013 (as heretofore amended and as may be further amended, supplemented or otherwise modified from time to time, the US Security Agreement) and (iii) Juicy Couture Europe Limited (Juicy Europe) and J.P. Morgan Europe Limited, in its capacity as the European Administrative Agent and European Collateral Agent are parties to the Juicy Debenture;
WHEREAS, the Company has entered into that certain Purchase Agreement dated as of October 7, 2013 (as amended by an Amendment Agreement dated as of November 6, 2013, the Purchase Agreement), by and among the Company, Juicy and ABG-Juicy, LLC, a Delaware limited liability company (the Buyer), pursuant to which (i) the Company, L.C. Licensing, Juicy and Juicy Europe will transfer to Juicy Newco the Juicy Assumed Contracts and the Juicy IP Assets (as each such term is defined in the Purchase Agreement), and Juicy Newco will assume the Juicy Assumed Liabilities (as defined in the Purchase Agreement), and (ii) at the Closing Date (as defined in the Purchase Agreement), the Buyer will purchase from Juicy 100% of the issued and outstanding limited liability company membership interests of Juicy Newco (the Company Shares);
WHEREAS, in connection with the foregoing, the Borrowers have requested that the Lenders permit the sale transaction contemplated by the Purchase Agreement;
WHEREAS, in connection with the foregoing, the Lenders are willing to amend the Credit Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises contained herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein which are defined in the Credit Agreement are used herein as therein defined.
2. Amendments.
(a) Clause (a)(vii) of the definition of Consolidated EBITDA in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety as follows:
(vii) cash restructuring charges, cash charges in connection with store closure and other non-recurring cash charges, in each case, related to cost reduction and brand exiting related activities (A) in connection with the wind-down of the Juicy Couture business following the Closing Date (as defined in the Juicy Purchase Agreement) contemplated by the Juicy Purchase Agreement or (B) in an aggregate amount not to exceed $10,000,000 for any Test Period,
(b) Section 1.01 of the Credit Agreement is hereby amended to add the following definition:
Juicy Purchase Agreement means that certain Purchase Agreement dated as of October 7, 2013, by and among the Company, Juicy Couture, Inc. and ABG-Juicy LLC, as amended by an Amendment Agreement dated as of November 6, 2013 and as such agreement may be further amended, supplemented or otherwise modified in a manner that is not adverse to the interests of the Lenders.
(b) Section 6.05 of the Credit Agreement is hereby amended to insert the following clause (u) in the appropriate alphabetical order: (u) the sale of 100% of the issued and outstanding limited liability company membership interests in ABG Juicy Couture, LLC pursuant to the Juicy Purchase Agreement;
(c) The final paragraph of Section 6.05 of the Credit Agreement is hereby amended by deleting and (r) and replacing it with , (r) and (u).
3. Representations and Warranties. The Borrowers hereby represent that as of the Amendment Effective Date (as defined below) each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents is true and correct in all material respects as if made on and as of such date (it being understood and agreed that any representation or warranty that by its terms is made as of a specific date shall be required to be true and correct in all material respects only as of such specified date), and no Default or Event of Default has occurred and is continuing after giving effect to the amendments contemplated herein.
4. Effectiveness of Amendment. This Amendment shall become effective on and as of the date (such date the Amendment Effective Date) of satisfaction of the following conditions:
(a) execution and delivery of this Amendment by the Borrowers, the Administrative Agent, the US Collateral Agent, the European Administrative Agent, the European Collateral Agent, the Canadian Administrative Agent, the Canadian Collateral Agent and the Lenders;
(b) substantially simultaneously with the Amendment Effective Date, the sale of the Company Shares to the Buyer and/or any of its Affiliates pursuant to the Purchase Agreement;
(c) both immediately before and after giving effect to this Amendment and the sale of the Company Shares, no Default or Event of Default shall have occurred and be continuing on the Amendment Effective Date;
(d) both immediately before and after giving effect to this Amendment and the sale of the Company Shares, each of the representations and warranties made by any Loan Party in the Loan Documents shall be true and correct in all material respects on and as of the Amendment Effective Date as if made on and as of such date except to the extent such representations and warranties expressly relate to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date; and
(e) receipt by the Administrative Agent of all reasonable and documented out-of-pocket costs and expenses for which invoices have been presented (including the reasonable and documented fees and expenses of one firm of external legal counsel in each relevant jurisdiction).
5. Expenses. The Borrowers agree to pay and reimburse the Administrative Agent for all its reasonable and documented out-of-pocket costs and expenses incurred in connection with the preparation and delivery of this Amendment, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent.
6. Effect. Except as expressly amended or modified hereby, all of the representations, warranties, terms, covenants and conditions of the Loan Documents shall remain unamended, unmodified and not waived and shall continue to be in full force and effect. The Borrowers and the other parties hereto acknowledge and agree that this Amendment shall constitute a Loan Document. This Amendment shall not constitute an amendment of any provision of the Credit Agreement or any other Loan Document not expressly referred to herein and shall not be construed as a waiver or consent to any further or future action on the part of the Borrowers that would require a waiver or consent of the Lenders or any Agent. Except as expressly amended hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. On and after the Amendment Effective Date, each reference in the Credit Agreement to this Agreement, hereunder, hereof, herein, or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the Credit Agreement, thereunder, thereof, or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement after giving effect to this Amendment.
7. Consent of Guarantors. Each of the Loan Guarantors hereby consents to this Amendment, and to the amendments and modifications to the Credit Agreement pursuant hereto and acknowledges the effectiveness and continuing validity of its obligations under or with respect to the Credit Agreement, any Loan Guaranty, any Collateral Document and the Notes Intercreditor Agreement, as applicable, and its liability for the Obligations or Secured Obligations, as applicable, pursuant to the terms thereof and that such obligations are without defense, setoff and counterclaim
8. Counterparts. This Amendment may be executed in any number of counterparts by the parties hereto (including by facsimile or electronic transmission), each of which counterparts when so executed shall be an original, but all the counterparts shall together constitute one and the same instrument.
9. Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
10. Integration. This Amendment and the other Loan Documents represent the entire agreement of the Loan Parties, the Administrative Agent, the US Collateral Agent, the European Administrative Agent, the European Collateral Agent, the Canadian Administrative Agent, the Canadian Collateral Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the European Administrative Agent, the Canadian
Administrative Agent or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents.
11. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
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BORROWERS | |
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FIFTH & PACIFIC COMPANIES, INC. | |
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By |
/s/ Robert J. Vill |
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Name: |
Robert J. Vill |
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Title: |
SVP Finance and Treasurer |
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KATE SPADE CANADA INC. | |
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By |
/s/ Robert Fagan |
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Name: |
Robert Fagan |
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Title: |
Chief Financial Officer |
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KATE SPADE UK LIMITED | |
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By |
/s/ Robert Fagan |
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Name: |
Robert Fagan |
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Title: |
Chief Financial Officer |
SIGNATURE PAGE TO THE FIRST AMENDMENT
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LOAN GUARANTORS: | ||
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ADELINGTON DESIGN GROUP, LLC | ||
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FIFTH & PACIFIC COMPANIES COSMETICS, INC. | ||
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FIFTH & PACIFIC COMPANIES FOREIGN HOLDINGS, INC. | ||
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FIFTH & PACIFIC COMPANIES PUERTO RICO, INC. | ||
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FNP HOLDINGS, LLC | ||
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JUICY COUTURE, INC. | ||
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KATE SPADE LLC | ||
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L.C. LICENSING, LLC | ||
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LCCI HOLDINGS LLC | ||
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LCI HOLDINGS, INC. | ||
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LCI INVESTMENTS, INC. | ||
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LUCKY BRAND DUNGAREES, INC. | ||
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LUCKY BRAND DUNGAREES STORES, INC. | ||
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WCFL HOLDINGS LLC | ||
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By |
/s/ Robert J. Vill | |
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Name: |
Robert J. Vill | |
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Title: |
SVP Finance and Treasurer | |
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ABG JUICY COUTURE, LLC | ||
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By: Juicy Couture, Inc., its sole member | ||
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By |
/s/ Robert J. Vill | |
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Name: |
Robert J. Vill |
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Title: |
SVP Finance and Treasurer |
SIGNATURE PAGE TO THE FIRST AMENDMENT
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JUICY COUTURE EUROPE LIMITED | |
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By |
/s/ Thomas J. Linko |
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Name: |
Thomas J. Linko |
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Title: |
Director |
SIGNATURE PAGE TO THE FIRST AMENDMENT
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FIFTH & PACIFIC COMPANIES CANADA INC. | |
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By |
/s/ Robert J. Vill |
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Name: |
Robert J. Vill |
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Title: |
SVP Finance and Treasurer |
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JUICY COUTURE CANADA INC. | |
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By |
/s/ Robert J. Vill |
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Name: |
Robert J. Vill |
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Title: |
SVP Finance and Treasurer |
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LUCKY BRAND DUNGAREES CANADA INC. | |
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By |
/s/ Robert J. Vill |
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Name: |
Robert J. Vill |
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Title: |
SVP Finance and Treasurer |
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WESTCOAST CONTEMPO FASHIONS LIMITED | |
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By |
/s/ Robert J. Vill |
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Name: |
Robert J. Vill |
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Title: |
SVP Finance and Treasurer |
SIGNATURE PAGE TO THE FIRST AMENDMENT
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Signed and delivered as a deed for and on behalf of | |
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JUICY COUTURE IRELAND LIMITED | |
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By |
/s/ Thomas Linko |
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Name: |
Thomas Linko |
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Title: |
Director |
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in the presence of: | |
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/s/ Patricia Pena | |
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(Witness Signature) | |
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1440 Broadway 4th Fl, New York, NY 1008 | |
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(Witness Address) | |
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Administrator | |
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(Witness Occupation) |
SIGNATURE PAGE TO THE FIRST AMENDMENT
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JPMORGAN CHASE BANK, N.A., as Administrative Agent, US Collateral Agent and Lender | |
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By |
/s/ Scott Troy |
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Name: |
Scott Troy |
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Title: |
Vice President |
SIGNATURE PAGE TO THE FIRST AMENDMENT
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J.P. MORGAN EUROPE LIMITED, as European Administrative Agent and European Collateral Agent | |
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By |
/s/ Tim Jacob |
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Name: |
Tim Jacob |
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Title: |
Senior Vice President |
SIGNATURE PAGE TO THE FIRST AMENDMENT
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JPMORGAN CHASE BANK, N.A., TORONTO BRANCH, as Canadian Administrative Agent and Canadian Collateral Agent | |
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By |
/s/ Auggie Marchetti |
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Name: |
Auggie Marchetti |
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Title: |
Authorized Officer |
SIGNATURE PAGE TO THE FIRST AMENDMENT
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BANK OF AMERICA, N.A., as Lender | |
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By |
/s/ Christine Hutchinson |
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Name: |
Christine Hutchinson |
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Title: |
Director |
SIGNATURE PAGE TO THE FIRST AMENDMENT
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Bank of America, N.A. (Canada Branch), as Lender | |
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By |
/s/ Medina Sales de Andrade |
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Name: |
Medina Sales de Andrade |
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Title: |
Vice President |
SIGNATURE PAGE TO THE FIRST AMENDMENT
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SunTrust Bank, as Lender | |
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By |
/s/ Ryan Jones |
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Name: |
Ryan Jones |
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Title: |
Vice President |
SIGNATURE PAGE TO THE FIRST AMENDMENT
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WELLS FARGO BANK, N.A., as Lender | |
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By |
/s/ Reza Sabahi |
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Name: |
Reza Sabahi |
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Title: |
Duly Authorized Signer |
SIGNATURE PAGE TO THE FIRST AMENDMENT
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WELLS FARGO CAPITAL FINANCE CORPORATION CANADA, as Canadian Lender | |
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By |
/s/ Domenic Cosentino |
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Name: |
Domenic Cosentino |
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Title: |
Duly Authorized Signer |
SIGNATURE PAGE TO THE FIRST AMENDMENT
EXHIBIT 10(U)(VIII)
EXECUTION VERSION
SECOND AMENDMENT AND WAIVER, dated as of January 27, 2014 (this Amendment), to the Third Amended and Restated Credit Agreement, dated as of April 18, 2013 (as heretofore amended and as may be further amended, supplemented or otherwise modified from time to time, the Credit Agreement), among Fifth & Pacific Companies, Inc. (the Company), Kate Spade UK Limited and Kate Spade Canada Inc. (collectively, the Borrowers), the other Loan Parties from time to time party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and US Collateral Agent, J.P. Morgan Europe Limited, as European Administrative Agent and European Collateral Agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian Administrative Agent and Canadian Collateral Agent, Bank of America, N.A., as Syndication Agent, and Wells Fargo Capital Finance, LLC and SunTrust Bank, as Documentation Agents.
W I T N E S S E T H :
WHEREAS, (i) the Borrowers, the other Loan Parties, the Lenders, the Syndication Agent, the Documentation Agents, the Administrative Agent, the European Administrative Agent and the Canadian Administrative Agent are parties to the Credit Agreement, (ii) Fifth & Pacific Companies, Inc., certain Subsidiaries thereof (including Lucky Brand Dungarees, Inc. (Lucky) and Lucky Brand Dungarees Stores, Inc. (Lucky Stores)), and JPMorgan Chase Bank, N.A., in its capacity as the Administrative Agent and the US Collateral Agent are parties to the Amended and Restated US Pledge and Security Agreement dated as of April 18, 2013 (as heretofore amended and as may be further amended, supplemented or otherwise modified from time to time, the US Security Agreement) and (iii) Lucky Brand Dungarees Canada Inc. (Lucky Canada) and JPMorgan Chase Bank, N.A., Toronto Branch, in its capacity as the Canadian Administrative Agent and Canadian Collateral Agent are parties to the Canadian Security Agreement;
WHEREAS, the Company has entered into that certain Stock Purchase Agreement dated as of December 10, 2013 (the Purchase Agreement), by and among the Company and LBD Acquisition Company, LLC, a Delaware limited liability company (the Buyer), pursuant to which (i) Lucky will contribute to a newly formed, wholly-owned Domestic Subsidiary of Lucky (Lucky Newco) not more than $19,000,000 of the Inventory of Lucky (the Lucky Contribution), and (ii) at the Closing Date (as defined in the Purchase Agreement), the Buyer will purchase from the Company 100% of the issued and outstanding capital stock of Lucky (the Company Shares);
WHEREAS, in connection with the foregoing, the Borrowers have requested that the Lenders (i) waive compliance with Section 5.13 of the Credit Agreement with respect to Lucky Newco as set forth herein, (ii) waive compliance with respect to Sections 6.04 and 6.05 with respect to the Lucky Contribution as set forth herein and (iii) permit the sale transaction contemplated by the Purchase Agreement;
WHEREAS, in connection with the foregoing, the Lenders are willing to grant the waivers and amend the Credit Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises contained herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used herein which are defined in the Credit Agreement are used herein as therein defined.
2. Amendments. Effective as of the Amendment Effective Date (as defined below):
(a) Section 1.01 of the Credit Agreement is hereby amended to add the following
definition:
Lucky Purchase Agreement means that certain Stock Purchase Agreement dated as of December 10, 2013, by and among the Company and LBD Acquisition Company, LLC, as such agreement may be amended, supplemented or otherwise modified in a manner that is not adverse to the interests of the Lenders.
(b) Section 6.05 of the Credit Agreement is hereby amended to insert the following clause (v) in the appropriate alphabetical order: (v) the sale of 100% of the issued and outstanding capital stock in Lucky Brand Dungarees, Inc. pursuant to the Lucky Purchase Agreement;
(c) The final paragraph of Section 6.05 of the Credit Agreement is hereby amended by (i) deleting and (u) and replacing it with , (u) and (v) and (ii) deleting clause m in the parenthetical clause in such paragraph and replacing it with clauses (m) and (v).
3. Waiver. Effective as of the Waiver Effective Date (as defined below), the Lenders hereby waive compliance with:
(a) Section 5.13 of the Credit Agreement solely with respect to Lucky Newco becoming a Loan Party and the execution and delivery of the documents and agreements described in Section 5.13 of the Credit Agreement in connection therewith, provided that, in the event that the sale transaction contemplated by the Purchase Agreement shall not have been consummated (i) within two (2) Business Days of the Lucky Contribution and (ii) prior to February 28, 2014, the waiver provided in this clause (a) shall be null and void and of no further effect and the Loan Parties shall cause Lucky Newco to comply with Section 5.13 of the Credit Agreement within five (5) Business Days thereafter; and
(b) Sections 6.04 and 6.05 of the Credit Agreement solely to allow the Lucky Contribution, and the Lenders hereby authorize the US Collateral Agent to release any Liens granted to the US Collateral Agent by the Loan Parties on the Inventory of Lucky that is subject to the Lucky Contribution upon the consummation of the Lucky Contribution.
4. Representations and Warranties. The Borrowers hereby represent that as of each of the Waiver Effective Date and the Amendment Effective Date each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents is true and correct in all material respects as if made on and as of such date (it being understood and agreed that any representation or warranty that by its terms is made as of a specific date shall be required to be true and correct in all material respects only as of such specified date), and no Default or Event of Default has occurred and is continuing after giving effect to the amendments contemplated herein on such date.
5. Effectiveness of Amendment. The amendments provided in Section 2 above (the Amendments) shall become effective on and as of the date (such date the Amendment Effective Date) of satisfaction of the following conditions:
(a) execution and delivery of this Amendment by the Borrowers, the Administrative Agent, the US Collateral Agent, the European Administrative Agent, the European Collateral Agent, the Canadian Administrative Agent, the Canadian Collateral Agent and the Required Lenders;
(b) substantially simultaneously with the Amendment Effective Date, consummation of the sale of the Company Shares to the Buyer and/or any of its Affiliates pursuant to the Purchase Agreement;
(c) both immediately before and after giving effect to the Amendments and the sale of the Company Shares, no Default or Event of Default shall have occurred and be continuing on the Amendment Effective Date;
(d) both immediately before and after giving effect to the Amendments and the sale of the Company Shares, each of the representations and warranties made by any Loan Party in the Loan Documents shall be true and correct in all material respects on and as of the Amendment Effective Date as if made on and as of such date except to the extent such representations and warranties expressly relate to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date; and
(e) receipt by the Administrative Agent of all reasonable and documented out-of-pocket costs and expenses for which invoices have been presented (including the reasonable and documented fees and expenses of one firm of external legal counsel in each relevant jurisdiction).
6. Effectiveness of Waiver. The waivers provided in Section 3 above (the Waivers) shall become effective on and as of the date (such date the Waiver Effective Date) of satisfaction of the following conditions:
(a) execution and delivery of this Amendment by the Borrowers, the Administrative Agent, the US Collateral Agent, the European Administrative Agent, the European Collateral Agent, the Canadian Administrative Agent, the Canadian Collateral Agent and the Required Lenders;
(b) both immediately before and after giving effect to the Waivers, no Default or Event of Default shall have occurred and be continuing on the Waiver Effective Date;
(c) both immediately before and after giving effect to the Waivers, each of the representations and warranties made by any Loan Party in the Loan Documents shall be true and correct in all material respects on and as of the Waiver Effective Date as if made on and as of such date except to the extent such representations and warranties expressly relate to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date; and
(d) receipt by the Administrative Agent of all reasonable and documented out-of-pocket costs and expenses for which invoices have been presented (including the reasonable and documented fees and expenses of one firm of external legal counsel in each relevant jurisdiction).
7. Post-Closing Covenant. Within five (5) Business Days of the Amendment Effective Date, the Company shall furnish to the Administrative Agent (i) an Aggregate Borrowing Base Certificate, (ii) a US Borrowing Base Certificate, (iii) a Canadian Borrowing Base Certificate and (iv) a UK Borrowing Base Certificate.
8. Expenses. The Borrowers agree to pay and reimburse the Administrative Agent for all its reasonable and documented out-of-pocket costs and expenses incurred in connection with the preparation and delivery of this Amendment, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent.
9. Effect. Except as expressly amended or modified hereby, all of the representations, warranties, terms, covenants and conditions of the Loan Documents shall remain unamended, unmodified and not waived and shall continue to be in full force and effect. The Borrowers and the other parties hereto acknowledge and agree that this Amendment shall constitute a Loan Document. This Amendment shall not constitute an amendment or waiver of any provision of the Credit Agreement or any other Loan Document
not expressly referred to herein and shall not be construed as a waiver or consent to any further or future action on the part of the Borrowers that would require a waiver or consent of the Lenders or any Agent. Except as expressly amended hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. On and after each of the Waiver Effective Date and the Amendment Effective Date, each reference in the Credit Agreement to this Agreement, hereunder, hereof, herein, or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the Credit Agreement, thereunder, thereof, or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as modified by the Waivers, and/or as amended by the Amendments, as applicable.
10. Consent of Guarantors. Each of the Loan Guarantors hereby consents to this Amendment, and to the amendments, waivers and modifications to the Credit Agreement pursuant hereto and acknowledges the effectiveness and continuing validity of its obligations under or with respect to the Credit Agreement, any Loan Guaranty, any Collateral Document and the Notes Intercreditor Agreement, as applicable, and its liability for the Obligations or Secured Obligations, as applicable, pursuant to the terms thereof and that such obligations are without defense, setoff and counterclaim
11. Counterparts. This Amendment may be executed in any number of counterparts by the parties hereto (including by facsimile or electronic transmission), each of which counterparts when so executed shall be an original, but all the counterparts shall together constitute one and the same instrument.
12. Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
13. Integration. This Amendment and the other Loan Documents represent the entire agreement of the Loan Parties, the Administrative Agent, the US Collateral Agent, the European Administrative Agent, the European Collateral Agent, the Canadian Administrative Agent, the Canadian Collateral Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the European Administrative Agent, the Canadian Administrative Agent or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents.
14. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
|
BORROWERS | |
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| |
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| |
|
FIFTH & PACIFIC COMPANIES, INC. | |
|
| |
|
|
|
|
By |
/s/ Christopher T. DiNardo |
|
Name: |
Christopher T. DiNardo |
|
Title: |
Senior Vice President, General Counsel and Corporate Secretary |
|
| |
|
| |
|
KATE SPADE CANADA INC. | |
|
| |
|
| |
|
By |
/s/ Christopher T. DiNardo |
|
Name: |
Christopher T. DiNardo |
|
Title: |
Director |
|
|
|
|
| |
|
KATE SPADE UK LIMITED | |
|
| |
|
| |
|
By |
/s/ Christopher T. DiNardo |
|
Name: |
Christopher T. DiNardo |
|
Title: |
Director |
SIGNATURE PAGE TO THE SECOND AMENDMENT
|
LOAN GUARANTORS: | |
|
| |
|
ADELINGTON DESIGN GROUP, LLC | |
|
FIFTH & PACIFIC COMPANIES COSMETICS, INC. | |
|
FIFTH & PACIFIC COMPANIES FOREIGN HOLDINGS, INC. | |
|
FIFTH & PACIFIC COMPANIES PUERTO RICO, INC. | |
|
FNP HOLDINGS, LLC | |
|
JUICY COUTURE, INC. | |
|
KATE SPADE LLC | |
|
L.C. LICENSING, LLC | |
|
LCCI HOLDINGS LLC | |
|
LCI HOLDINGS, INC. | |
|
LCI INVESTMENTS, INC. | |
|
LUCKY BRAND DUNGAREES, INC. | |
|
LUCKY BRAND DUNGAREES STORES, INC. | |
|
LUCKY PR, LLC | |
|
WCFL HOLDINGS LLC | |
|
| |
|
| |
|
By |
/s/ Christopher T. DiNardo |
|
Name: |
Christopher T. DiNardo |
|
Title: |
Senior Vice President, General Counsel and Corporate Secretary |
SIGNATURE PAGE TO THE SECOND AMENDMENT
|
JUICY COUTURE EUROPE LIMITED | |
|
| |
|
| |
|
By |
/s/ Christopher T. DiNardo |
|
Name: |
Christopher T. DiNardo |
|
Title: |
Director |
SIGNATURE PAGE TO THE SECOND AMENDMENT
|
FIFTH & PACIFIC COMPANIES CANADA INC. | |
|
| |
|
|
|
|
By |
/s/ Christopher T. DiNardo |
|
Name: |
Christopher T. DiNardo |
|
Title: |
Director |
|
|
|
|
| |
|
JUICY COUTURE CANADA INC. | |
|
| |
|
| |
|
By |
/s/ Christopher T. DiNardo |
|
Name: |
Christopher T. DiNardo |
|
Title: |
Director |
|
|
|
|
| |
|
LUCKY BRAND DUNGAREES CANADA INC. | |
|
| |
|
|
|
|
By |
/s/ Christopher T. DiNardo |
|
Name: |
Christopher T. DiNardo |
|
Title: |
Director |
|
|
|
|
| |
|
WESTCOAST CONTEMPO FASHIONS LIMITED | |
|
| |
|
|
|
|
By |
/s/ Christopher T. DiNardo |
|
Name: |
Christopher T. DiNardo |
|
Title: |
Director |
|
|
|
SIGNATURE PAGE TO THE SECOND AMENDMENT |
|
Signed and delivered as a deed for and on behalf of | |
|
JUICY COUTURE IRELAND LIMITED | |
|
| |
|
| |
|
By |
/s/ Christopher T. DiNardo |
|
Name: |
Christopher T. DiNardo |
|
Title: |
Director |
|
|
|
|
in the presence of: | |
|
| |
|
/s/ Marybell Flores | |
|
(Witness Signature) | |
|
| |
|
1441 Broadway, 4th Floor, NY, NY 10018 | |
|
(Witness Address) | |
|
| |
|
Corporate Paralegal | |
|
(Witness Occupation) |
SIGNATURE PAGE TO THE SECOND AMENDMENT
|
JPMORGAN CHASE BANK, N.A., as Administrative Agent, US Collateral Agent and Lender | |
|
| |
|
| |
|
By |
/s/ Dan Bueno |
|
Name: |
Dan Bueno |
|
Title: |
Vice President |
SIGNATURE PAGE TO THE SECOND AMENDMENT
|
J.P. MORGAN EUROPE LIMITED, as European Administrative Agent and European Collateral Agent | |
|
| |
|
|
|
|
By |
/s/ Tim Jacob |
|
Name: |
Tim Jacob |
|
Title: |
Senior Vice President |
SIGNATURE PAGE TO THE SECOND AMENDMENT
|
JPMORGAN CHASE BANK, N.A., TORONTO BRANCH, as Canadian Administrative Agent and Canadian Collateral Agent | |
|
| |
|
|
|
|
By |
/s/ Auggie Marchetti |
|
Name: |
Auggie Marchetti |
|
Title: |
Authorized Officer |
SIGNATURE PAGE TO THE SECOND AMENDMENT
|
BANK OF AMERICA, N.A., as Lender | |
|
|
|
|
|
|
|
By |
/s/ Christine Hutchinson |
|
Name: |
Christine Hutchinson |
|
Title: |
Director |
SIGNATURE PAGE TO THE SECOND AMENDMENT
|
BANK OF AMERICA, N.A. (CANADA BRANCH), as Lender | |
|
| |
|
| |
|
By |
/s/ Medina Sales de Andrade |
|
Name: |
Medina Sales de Andrade |
|
Title: |
Vice President |
SIGNATURE PAGE TO THE SECOND AMENDMENT
|
SunTrust Bank, as Lender | |
|
| |
|
| |
|
By |
/s/ Angela Leake |
|
Name: |
Angela Leake |
|
Title: |
Vice President |
SIGNATURE PAGE TO THE SECOND AMENDMENT
|
WELLS FARGO BANK, N.A., as Lender | |
|
| |
|
| |
|
By |
/s/ Lauren Murphy |
|
Name: |
Lauren Murphy |
|
Title: |
Assistant Vice President |
SIGNATURE PAGE TO THE SECOND AMENDMENT
|
WELLS FARGO CAPITAL FINANCE CORPORATION CANADA, as Canadian Lender | |
|
| |
|
| |
|
By |
/s/ Domenic Cosentino |
|
Name: |
Domenic Consentino |
|
Title: |
Duly Authorized Signer |
SIGNATURE PAGE TO THE SECOND AMENDMENT
Exhibit 12
FIFTH & PACIFIC COMPANIES, INC. AND SUBSIDIARIES
Computation of Ratios of Earnings to Fixed Charges
(In thousands)
|
|
Fiscal Years Ended |
| |||||||||||||
|
|
December 28, 2013 |
|
December 29, 2012 |
|
December 31, 2011 |
|
January 1, 2011 |
|
January 2, 2010 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Earnings: |
|
|
|
|
|
|
|
|
|
|
| |||||
Add: |
|
|
|
|
|
|
|
|
|
|
| |||||
Income (loss) from continuing operations before (benefit) provision for income taxes (1) |
|
$ |
72,068 |
|
$ |
(72,771 |
) |
$ |
130,760 |
|
$ |
(72,973 |
) |
$ |
(243,006 |
) |
Fixed charges |
|
48,266 |
|
53,494 |
|
59,565 |
|
56,335 |
|
59,123 |
| |||||
(Loss) income from equity investees |
|
(1,179 |
) |
(1,245 |
) |
1,652 |
|
969 |
|
265 |
| |||||
Total adjustments |
|
119,155 |
|
(20,522 |
) |
191,977 |
|
(15,669 |
) |
(183,618 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Less: |
|
|
|
|
|
|
|
|
|
|
| |||||
Noncontrolling interest in pre-tax loss of subsidiaries that have not incurred fixed charges |
|
|
|
|
|
|
|
|
|
(38 |
) | |||||
|
|
|
|
|
|
|
|
|
|
(38 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total Earnings |
|
$ |
119,155 |
|
$ |
(20,522 |
) |
$ |
191,977 |
|
$ |
(15,669 |
) |
$ |
(183,580 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Fixed Charges: |
|
|
|
|
|
|
|
|
|
|
| |||||
Interest expense |
|
$ |
47,305 |
|
$ |
51,860 |
|
$ |
57,977 |
|
$ |
54,883 |
|
$ |
58,015 |
|
Amortization of expense related to indebtedness (2) |
|
961 |
|
1,634 |
|
1,588 |
|
1,452 |
|
1,108 |
| |||||
Total Fixed Charges |
|
$ |
48,266 |
|
$ |
53,494 |
|
$ |
59,565 |
|
$ |
56,335 |
|
$ |
59,123 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Ratio of Earnings to Fixed Charges |
|
2.5 |
|
N/A |
|
3.2 |
|
N/A |
|
N/A |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Deficiency of Earnings to Fixed Charges |
|
N/A |
|
$ |
(74,016 |
) |
N/A |
|
$ |
(72,004 |
) |
$ |
(242,703 |
) |
(1) Excludes (loss) income from equity investees.
(2) Represents amortization of financing fees not included in Interest expense.
LIST OF SUBSIDIARIES OF FIFTH & PACIFIC COMPANIES, INC.
Adelington Design Group LLC |
Delaware | |
FNP Holdings, LLC |
Delaware | |
Fifth & Pacific Companies Canada, Inc. |
Canada | |
Fifth & Pacific Companies Cosmetics, Inc. |
Delaware | |
Fifth & Pacific Foreign Holdings, Inc. |
Delaware | |
Fifth & Pacific Companies International Limited |
Hong Kong | |
Fifth & Pacific Companies Puerto Rico, Inc. |
Delaware | |
Juicy Couture Canada, Inc. |
Canada | |
Juicy Couture Europe Limited |
United Kingdom | |
Juicy Couture, Inc. |
California | |
Juicy Couture Ireland Limited |
Ireland | |
Kate Spade South America Comercio, Importaco E Exportacao De Calcados, Bolsas, Roupas E Accessorios LTDA |
Brazil | |
Kate Spade Canada |
Canada | |
Kate Spade China Co. Ltd. |
China | |
Kate Spade Hong Kong Limited |
Hong Kong | |
Kate Spade Japan Co. Ltd. |
Japan | |
Kate Spade LLC |
Delaware | |
Kate Spade UK Limited |
United Kingdom | |
L.C. Licensing, LLC |
Delaware | |
LCCI Holdings Inc. |
Delaware | |
LCI Holdings, Inc. |
Delaware | |
LCI Investments, Inc. |
Delaware | |
Liz Claiborne De El Salvador, S.A., de C.V. |
El Salvador | |
Liz Claiborne de Mexico, S.A. de C.V. |
Mexico | |
Liz Claiborne do Brasil Industria E Comercio Ltda. |
Brazil | |
Liz Claiborne Europe |
United Kingdom | |
Liz Claiborne (Israel) Ltd. |
Israel | |
Liz Claiborne Operations (Israel) 1993 Limited |
Israel | |
Liz Claiborne, S.A. |
Costa Rica | |
Liz Claiborne Servicios de Mexico, S.A. de C.V. |
Mexico | |
Liz Foreign B.V. |
Netherlands | |
Lucky Brand Dungarees Canada Inc. |
Canada | |
Lucky Brand Dungarees, Inc. |
Delaware | |
Lucky Brand Dungarees Stores, Inc. |
Delaware | |
Mexx Portugal, Unnipessoal, LDA |
Portugal | |
MFE Limited |
Hong Kong | |
Segrets, Inc. |
Delaware | |
Sheng Hui Fashion (Shenzhen) Company Limited |
Hong Kong | |
Textiles Liz Claiborne Guatemala, SA |
Guatemala | |
WCFL Holdings, LLC |
Delaware | |
Westcoast Contempo Fashions Limited |
Canada |
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 2-77590, No. 2-95258, No. 033-00661, No. 333-54560, No. 333-105527, No. 333-130382, No. 333-174783, No. 333-186094 and No. 333-189384 each on Form S-8, and Registration Statement No. 333-181590 on Form S-3, of our reports dated February 25, 2014, relating to the consolidated financial statements and financial statement schedule of Fifth & Pacific Companies, Inc. and subsidiaries (the "Company") and the effectiveness of the Company's internal control over financial reporting appearing in this Annual Report on Form 10-K of Fifth & Pacific Companies, Inc. and subsidiaries for the year ended December 28, 2013.
/s/ DELOITTE & TOUCHE LLP
New
York, New York
February 25, 2014
EXHIBIT 31(a)
SECTION 302 CERTIFICATION
I, William L. McComb, certify that:
Date: February 25, 2014 |
By: |
/s/ William L. McComb |
||
William L. McComb Chief Executive Officer |
I, George M. Carrara, certify that:
Date: February 25, 2014 |
By: |
/s/ George M. Carrara |
||
George M. Carrara Chief Financial Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Fifth & Pacific Companies, Inc. (the "Company") on Form 10-K for the period ending December 28, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William L. McComb, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ William L. McComb |
||
William L. McComb Chief Executive Officer |
||
Date: February 25, 2014 |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and is not being filed as part of the Form 10-K or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to Fifth & Pacific Companies, Inc. and will be retained by Fifth & Pacific Companies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Fifth & Pacific Companies, Inc. (the "Company") on Form 10-K for the period ending December 28, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, George M. Carrara, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ George M. Carrara |
||
George M. Carrara Chief Financial Officer |
||
Date: February 25, 2014 |
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and is not being filed as part of the Form 10-K or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to Fifth & Pacific Companies, Inc. and will be retained by Fifth & Pacific Companies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 99
To Be Incorporated By Reference Into
Registration Statement on Form S-3 File No. 333-181590
Registration Statements on Forms S-8
(File Nos. 2-77590, 2-95258, 033-00661, 333-54560,
333-105527, 333-130382, 333-174783, 333-186094 and 333-189384)
UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrants annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plans annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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