Outstanding options to purchase 2.7 million shares of Common Stock for the three month period ended June 2014 were excluded from the calculation of diluted earnings per share because the effect of their inclusion would have been antidilutive. For the quarter ended June 2013, all outstanding options to purchase Common Stock were dilutive and included in the calculation of diluted earnings per share. Outstanding options to purchase 2.7 million and 1.8 million shares of Common Stock for the six month periods ended June 2014 and 2013, respectively, were excluded from the calculations of diluted earnings per share because the effect of their inclusion would have been antidilutive. In addition, 1.3 million and 1.5 million of performance-based restricted stock units were excluded from the computation of diluted earnings per share for the three and six month periods ended June 2014 and June 2013, respectively, because these units are not considered to be contingent outstanding shares.

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Note M – Fair Value Measurements

Financial assets and financial liabilities measured and reported at fair value are classified in a three level hierarchy that prioritizes the inputs used in the valuation process. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs, as follows:

The following table summarizes financial assets and financial liabilities that are measured and recorded in the consolidated financial statements at fair value on a recurring basis:

乱伦巴士’s cash equivalents include money market funds and short-term time deposits that approximate fair value based on Level 1 measurements. The fair value of derivative financial instruments, which consist of forward foreign currency exchange contracts, is determined based on observable market inputs, including spot and forward exchange rates for foreign currencies, and considers the credit risk of the Company and its counterparties. Investment securities are held in 乱伦巴士’s deferred compensation plans as an economic hedge of the related deferred compensation liabilities. These investments are classified as trading securities and primarily include mutual funds (Level 1) that are valued based on quoted prices in active markets and a separately managed fixed income fund (Level 2) that is valued based on the net asset values of the underlying assets. Liabilities related to 乱伦巴士’s deferred compensation plans are recorded at amounts due to participants, based on the fair value of the participants’ selection of hypothetical investments. Other marketable securities consist of common stock investments classified as available-for-sale, the fair value of which is based on quoted prices in active markets.

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All other financial assets and financial liabilities are recorded in the consolidated financial statements at cost, except life insurance contracts which are recorded at cash surrender value. These other financial assets and financial liabilities include cash held as demand deposits, accounts receivable, short-term borrowings, accounts payable and accrued liabilities. At June 2014 and December 2013, their carrying values approximated their fair values. Additionally, at June 2014 and December 2013, the carrying value of 乱伦巴士’s long-term debt, including the current portion, was $1,429.5 million and $1,432.0 million, respectively, compared with a fair value of $1,651.6 million and $1,568.4 million at those dates. Fair value for long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings.

Note N – Derivative Financial Instruments and Hedging Activities

Summary of Derivative Financial Instruments

All of 乱伦巴士’s outstanding derivative financial instruments are forward foreign currency exchange contracts. Although derivatives meet the criteria for hedge accounting at the inception of the hedging relationship, a limited number of derivative contracts intended to hedge assets and liabilities are not designated as hedges for accounting purposes. The notional amounts of outstanding derivative contracts were $1.9 billion at June 2014 and December 2013, and $2.1 billion at June 2013, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Mexican peso, Japanese yen and Polish zloty. Derivative contracts have maturities up to 24 months.

The following table presents outstanding derivatives on a gross basis by individual contract:

乱伦巴士 records and presents the fair values of all of its derivative assets and liabilities in the Consolidated Balance Sheets on a gross basis, even though they are subject to master netting agreements. However, if 乱伦巴士 were to offset and record the asset and liability balances of all of its forward foreign currency exchange contracts on a net basis in accordance with the terms of its master netting agreements, the amounts presented in the Consolidated Balance Sheets as of June 2014, December 2013 and June 2013 would be adjusted from the current gross presentation to the net amounts as detailed in the following table:

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Derivatives are classified as current or noncurrent based on their maturity dates, as follows:

Cash Flow Hedges

乱伦巴士 uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, purchases, production costs and intercompany royalties. The effects of cash flow hedging included in 乱伦巴士’s Consolidated Statements of Income and Consolidated Statements of Comprehensive Income are summarized as follows:

Derivative Contracts Dedesignated as Hedges

Cash flow hedges of some forecasted sales to third parties have historically been dedesignated as hedges when the sales were recognized. At that time, hedge accounting was discontinued and the amount of unrealized hedging gain or loss was recognized in net sales. These derivatives remained outstanding as an economic hedge of foreign currency exposures associated with the ultimate collection of the related accounts receivable, during which time changes in the fair value of the derivative contracts were recognized directly in earnings. As discussed below in Derivative Contracts Not Designated as Hedges, 乱伦巴士 now utilizes separate derivative contracts to manage foreign currency risk related to the balance sheet exposures. Accordingly, 2013 was the last year during which dedesignations were recognized related to these cash flow hedges.

For the three and six month periods ended June 2013, 乱伦巴士 recorded net gains of $0.8 million and $1.3 million, respectively, in other income (expense), net, for derivatives dedesignated as hedging instruments.

Derivative Contracts Not Designated as Hedges

乱伦巴士 uses derivative contracts to manage foreign currency exchange risk on intercompany loans as well as intercompany and third party accounts receivable and payable. These contracts are not designated as hedges, and are recorded at fair value in the Consolidated Balance Sheets. Changes in the fair values of these instruments are recognized directly in earnings. Gains or losses on these contracts largely offset the net remeasurement gains or losses on the related assets and liabilities. Following is a summary of these derivatives included in 乱伦巴士’s Consolidated Statements of Income:

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Other Derivative Information

There were no significant amounts recognized in earnings for the ineffective portion of any hedging relationships during the three and six month periods ended June 2014 and June 2013.

At June 2014, accumulated OCI included $27.9 million of pretax net deferred losses for foreign exchange contracts that are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on exchange rates in effect when outstanding derivative contracts are settled.

乱伦巴士 entered into interest rate swap derivative contracts in 2011 and 2003 to hedge the interest rate risk for issuance of long-term debt due in 2021 and 2033, respectively. In each case, the contracts were terminated concurrent with the issuance of the debt, and the realized gain or loss was deferred in accumulated OCI. The remaining pretax net deferred loss in accumulated OCI was $33.5 million at June 2014, which will be reclassified into interest expense in the Consolidated Statements of Income over the remaining terms of the associated debt instruments. Of the $33.5 million, approximately $4.2 million is expected to be reclassified to earnings during the next 12 months.

Note O – Recently Issued and Adopted Accounting Standards

In July 2013, the Financial Accounting Standards Board (“FASB”) issued an update to their accounting guidance which requires unrecognized tax benefits to be netted with net operating loss or tax credit carryforwards in the balance sheet if specific criteria are met. This guidance became effective in the first quarter of 2014, but did not have an impact on 乱伦巴士’s consolidated financial statements.

In April 2014, the FASB changed the definition and disclosure requirements for discontinued operations. This guidance will be effective in the first quarter of 2015, but will not have an impact on 乱伦巴士’s consolidated financial statements unless the Company disposes of a business that meets the updated definition of discontinued operations.

In May 2014, the FASB issued a new accounting standard on revenue recognition which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The new model provides a 5-step analysis in determining the measurement of revenue and the timing of when it is recognized. New disclosures about revenues and cash flows arising from contracts with customers are also required. This guidance will be effective in the first quarter of 2017, and the Company is currently evaluating the impact that adopting this guidance will have on 乱伦巴士’s consolidated financial statements.

In June 2014, the FASB issued an update to their accounting guidance related to stock-based compensation. The guidance requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. This guidance will be effective in the first quarter of 2016, but is not expected to have an impact on 乱伦巴士’s consolidated financial statements.

Note P – Subsequent Events

On July 15, 2014, 乱伦巴士’s Board of Directors declared a quarterly cash dividend of $0.2625 per share, payable on September 19, 2014 to stockholders of record on September 9, 2014.

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

All per share amounts are presented on a diluted basis. All percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers.

Highlights of the Second Quarter of 2014

Analysis of Results of Operations

Consolidated Statements of Income

The following table presents a summary of the changes in total revenues from the comparable periods in 2013:

乱伦巴士 reported revenue growth of 8% in the second quarter and 7% in the first six months of 2014 driven by growth in the Outdoor & Action Sports coalition, and continued strength in the international and direct-to-consumer businesses. Additional details on revenues are provided in the section titled “Information by Business Segment.”

乱伦巴士’s foreign currency exposure primarily relates to business conducted in euro-based countries. In addition, 乱伦巴士 conducts business in other developed and emerging markets around the world that creates exposure to foreign currencies other than the euro. The impact of foreign currency translation was not material to 乱伦巴士’s operating results for the second quarter and first six months of 2014.

The following table presents the percentage relationships to total revenues for components of the Consolidated Statements of Income:

Gross margin declined 10 basis points in the second quarter and increased 60 basis points during the first half of 2014 compared with the 2013 periods. The second quarter decline was primarily due to the negative impact of foreign currency and initiatives to manage inventories primarily in the Jeanswear coalition. Partially offsetting the gross margin decline in the second quarter and driving the increase in the first half of 2014 was the continued shift in our revenue mix towards higher margin businesses, including Outdoor and Action Sports, international and direct-to-consumer. In addition, a change in classification of retail concession fees positively impacted gross margin by approximately 30 basis points in both the second quarter and first half of 2014. The classification of retail concession fees is discussed below in the Direct-to-Consumer Operations section.

Selling, general and administrative expenses as a percentage of total revenues decreased 10 basis points in the second quarter and increased 20 basis points during the first six months of 2014 compared with the 2013 periods. In the second quarter and first six months of 2014, the positive impact from leverage of operating expenses on higher revenues was partially offset by increased investments in direct-to-consumer businesses and marketing, resulting in net decreases in the percentage of selling, general and administrative expenses to revenues of 40 and 10 basis points, respectively, compared with the 2013 periods. In addition, the second quarter and first six months of 2014 were both negatively impacted by approximately 30 basis points due to the aforementioned change in classification of retail concession fees.

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Net interest expense decreased by $0.9 million in the second quarter and $2.1 million in the first six months of 2014 from the comparable periods in 2013, due to the repayment of $400 million of floating rate notes during the third quarter of 2013, and increased interest income on cash equivalents. Total outstanding debt averaged $1.7 billion for the first half of 2014 and $1.9 billion for the same period in 2013. The weighted average interest rates on total outstanding debt were 4.9% and 4.5% for the first six months of 2014 and 2013, respectively.

The effective income tax rate for the first half of 2014 was 21.7% compared with 21.0% in the first half of 2013. The first six months of 2014 included a net discrete tax benefit of $15.5 million, which included $4.1 million of prior year refund claims and $8.5 million of net tax benefits related to the realization of previously unrecognized tax benefits and interest, reducing the effective income tax rate by 2.7%. The first six months of 2013 included a net discrete tax benefit of $14.4 million, which included $8.3 million of tax benefits related to the extension of certain tax credits and other provisions of the Internal Revenue Code enacted in 2013 which were retroactive to 2012, and $6.9 million of tax benefits related to the realization of previously unrecognized tax benefits and interest, reducing the effective income tax rate by 2.8%. Without discrete items, the effective tax rate for the first half of 2014 increased by 0.6% compared with the 2013 period primarily due to the impact of tax law changes in the U.S.

Net income for the second quarter of 2014 increased to $157.7 million ($0.36 per share) compared with $138.3 million ($0.31 per share) in 2013. Net income for the first half of 2014 increased to $454.9 million ($1.03 per share) compared with $408.7 million ($0.91 per share) in 2013. The increases in earnings per share for the second quarter and first half of 2014 compared with the 2013 periods resulted primarily from improved operating performance, as discussed in the “Information by Business Segment” section below, as well as the other factors described above.

Information by Business Segment

乱伦巴士’s businesses are grouped into product categories, and by brands within those product categories, for management and internal financial reporting purposes. These groupings of businesses within 乱伦巴士 are referred to as “coalitions.” These coalitions are the basis for 乱伦巴士’s reportable business segments.

See Note K to the Consolidated Financial Statements for a summary of results of operations by coalition, along with a reconciliation of coalition profit to income before income taxes.

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The following tables present a summary of the changes in coalition revenues and coalition profit for the second quarter and first six months of 2014 from the comparable periods in 2013:

Coalition revenues:

Coalition profit:

The following section discusses the changes in revenues and profitability by coalition:

Outdoor & Action Sports:

Coalition revenues for Outdoor & Action Sports increased 16% in the second quarter of 2014 compared with 2013 primarily due to growth in The North Face^®, Vans^® and Timberland^® brands, which achieved global revenue growth of 11%, 21% and 19%, respectively. U.S. revenues in the second quarter increased 13% and international revenues rose 19%, reflecting double-digit percentage growth in Europe and Asia Pacific.

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Coalition revenues for Outdoor & Action Sports increased 15% in the first six months of 2014 compared with the 2013 period primarily due to growth in The North Face^®, Vans^® and Timberland^® brands, which grew 13%, 20% and 14%, respectively. U.S. revenues in the first six months increased 14% and international revenues rose 16%, reflecting double-digit percentage growth in both Europe and Asia Pacific.

Global revenue increases in the second quarter and first six months of 2014 were driven by growth in both the direct-to-consumer and wholesale businesses. Direct-to-consumer revenues for Outdoor & Action Sports increased 24% and 21% in the second quarter and first six months of 2014, respectively. New store openings, comparable store growth and an expanding e-commerce business all contributed to the direct-to-consumer revenue growth. Wholesale revenues increased 13% and 12% in the second quarter and first six months of 2014, respectively, driven primarily by growth in The North Face^®, Vans^® and Timberland^® brands.

Operating margin for the second quarter and first six months of 2014 improved 110 basis points compared with the 2013 periods driven by a shift in business mix towards higher margin businesses and the leverage of operating expenses on higher revenues, partially offset by increased investments in direct-to-consumer businesses and marketing.

Jeanswear:

Global Jeanswear revenues decreased 1% and 3% in the second quarter and first six months of 2014, respectively, compared with the 2013 periods. Revenues in the Americas region declined 3% and 6% in the second quarter and first six months of 2014, respectively. These declines were due to unfavorable women’s denim trends and ongoing pressure in the U.S. mid-tier and department store channels, resulting in Lee^® brand revenues in the Americas region declining by a mid-teen and low double-digit percentage rate in the second quarter and first six months of 2014, respectively, compared with the 2013 periods. Wrangler^® brand revenues in the Americas region increased 4% in the second quarter of 2014 and were flat in the first six months of 2014 compared with the 2013 periods. Partially offsetting the revenue decreases in the Americas region for the second quarter and first six months of 2014 were increases in Europe of 15% and 11%, respectively, driven by wholesale growth in the Lee^® and Wrangler^® brands, and increases in the Asia Pacific region of 3% and 7%, respectively, primarily due to wholesale growth in the Lee^® brand.

Operating margin for the second quarter and first six months of 2014 decreased 130 basis points compared with the 2013 periods primarily due to the impact of factory downtime and initiatives to liquidate excess inventory in North America, partially offset by improved profitability in our international businesses.

Imagewear:

Imagewear revenues increased 3% and 4% during the second quarter and first six months of 2014, respectively, compared with the 2013 periods. The Image business grew 5% and 4% in the second quarter and first six months of 2014, respectively, led by its industrial and government sectors. In addition, revenues for the Licensed Sports business increased 1% and 4% in the second quarter and first six months of 2014, respectively, reflecting strong growth in National Football League sales. Effective in the first quarter of 2014, management strategically transitioned the youth business for Major League Baseball to a licensed model, which negatively impacted revenues by 2% and 3% in the second quarter and first six months of 2014, respectively.

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Operating margin decreased 40 basis points during the second quarter of 2014 compared with the 2013 period primarily due to the impact of unfavorable mix in both the Image and Licensed Sports businesses. Operating margin increased 70 basis points during the first six months of 2014 primarily driven by favorable mix in the Licensed Sports business in the first quarter of 2014. In addition, operating margin in both the second quarter and first half of 2014 was positively impacted by the leverage of operating expenses on higher revenues compared with the 2013 periods.

Sportswear:

Sportswear revenues increased 5% and 4% in the second quarter and first six months of 2014, respectively, compared with the 2013 periods. Both 2014 periods were driven by an 18% increase in Kipling^® brand revenues in North America, reflecting growth in direct-to-consumer and wholesale revenues. Nautica^® brand revenues increased 2% and 1% during the second quarter and first six months of 2014, respectively, as growth in the direct-to-consumer business was partially offset by declines in wholesale revenues due to challenges in the U.S. department store channel.

Operating margin declined 490 and 250 basis points in the second quarter and first six months of 2014, respectively, compared with the 2013 periods. The decreases for both periods were primarily driven by a decline in gross margin in the second quarter of 2014 due to higher levels of promotional activity in the wholesale channel, and increased investments in infrastructure and direct-to-consumer businesses, partially offset by a shift in business mix towards higher margin businesses.

Contemporary Brands:

Revenues for Contemporary Brands decreased 2% and 4% in the second quarter and first six months of 2014, respectively, compared with the 2013 periods, due to ongoing challenges in the women’s premium denim market. Wholesale revenues decreased 9% and 11% during the second quarter and first half of 2014, respectively, and were partially offset by increases in direct-to-consumer revenues of 10% and 11% for the respective periods. Effective in the first quarter of 2014, management strategically transitioned a portion of the youth business to a licensed model, which negatively impacted revenues by 3% in the second quarter and first six months of 2014.

Operating margin increased 120 basis points in the second quarter of 2014 compared with the 2013 period primarily due to the favorable resolution of a customs duty matter and a shift in business mix towards higher margin businesses, partially offset by higher selling, general and administrative costs as a percentage of revenues resulting from the overall sales decline and increased investments in direct-to-consumer businesses. Operating margin declined 150 basis points for the first six months of 2014 compared with the 2013 period primarily due to higher selling, general and administrative costs as a percentage of revenues resulting from the sales decline and increased investments in direct-to-consumer businesses.

Other:

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乱伦巴士 Outlet^® stores in the U.S. sell 乱伦巴士-branded products at prices that are generally higher than what could be realized through distressed channels, as well as other non-乱伦巴士 products. Revenues and profits of 乱伦巴士 products sold in these stores are reported as part of the operating results of the applicable coalition, while revenues and profits of non-乱伦巴士 products are reported in this “other” category.

Reconciliation of Coalition Profit to Income Before Income Taxes:

There are two types of costs necessary to reconcile total coalition profit, as discussed in the preceding paragraphs, to consolidated income before income taxes. These costs are (i) corporate and other expenses, discussed below, and (ii) interest expense, net, which was discussed in the previous “Consolidated Statements of Income” section.

Corporate and other expenses are those that have not been allocated to the coalitions for internal management reporting, including (i) information systems and shared services, (ii) corporate headquarters’ costs and (iii) other income and expenses. Other income and expenses includes costs of corporate programs and initiatives; costs of registering, maintaining and enforcing certain 乱伦巴士 trademarks; and miscellaneous costs, the most significant of which is related to the expense of 乱伦巴士’s centrally-managed U.S. defined benefit pension plans. The current year service cost component of pension cost is allocated to the coalitions, while the remaining cost components, totaling $8.0 million and $16.0 million for the second quarter and first half of 2014, respectively, and $15.2 million and $30.4 million for the second quarter and first half of 2013, respectively, are reported in corporate and other expenses.

International Operations

International revenues grew 14% in the second quarter and 12% in the first six months of 2014. Revenues in Europe rose 16% in the second quarter and 13% in the first six months of 2014 with positive results from nearly every 乱伦巴士 brand sold in that region. In the Asia Pacific region, revenues increased 17% in the second quarter and 16% in the first six months of 2014 primarily driven by growth in China and Korea. Revenues in the Americas (non-U.S.) region increased 6% and 3% during the second quarter and first six months of 2014, respectively. International revenues were 36% and 34% of total 乱伦巴士 sales in the second quarter of 2014 and 2013, respectively, and 40% and 38% of total 乱伦巴士 sales in the first six months of 2014 and 2013, respectively.

Direct-to-Consumer Operations

Direct-to-consumer revenues grew 18% in the second quarter and 17% in the first six months of 2014 with double-digit increases in all regions and growth in nearly every 乱伦巴士 brand. New store openings, comparable store growth and an expanding e-commerce business all contributed to the direct-to-consumer revenue growth. 乱伦巴士 opened 41 stores in the second quarter and 64 stores in the first six months of 2014, bringing the total number of 乱伦巴士-owned retail stores to 1,299 at June 2014. Direct-to-consumer revenues reached 26% of total revenues in the second quarter of 2014 compared with 23% (22% prior to the concession classification change discussed below) in the 2013 period. Direct-to-consumer revenues were 24% of total revenues in the first six months of 2014 compared with 22% (21% prior to the concession classification change) in the 2013 period.

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Concessions are retail store locations, which are all outside the U.S., where 乱伦巴士 is responsible for all aspects of operations without ownership of the retail space. Under typical concession arrangements, 乱伦巴士 pays a concession fee for use of the space based on a percentage of retail sales. Beginning in 2014, we have included all concessions-based arrangements in our direct-to-consumer channel. In addition, we began classifying all concession fees as a component of selling, general and administrative expenses instead of the previous treatment as an offset to revenue in the Consolidated Statement of Income. We made these changes to better represent the operations of our direct-to-consumer business. These changes in classification did not impact operating income, and 2013 reported balances have not been restated in the Consolidated Statement of Income because the impact is immaterial. However, comparative references to direct-to-consumer and wholesale revenue growth rates reflect the reclassification of concession revenues to the direct-to-consumer channel as if the change had occurred at the beginning of each reporting period.

Analysis of Financial Condition

Balance Sheets

The following discussion refers to significant changes in balances at June 2014 compared with December 2013:

The following discussion refers to significant changes in balances at June 2014 compared with June 2013:

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Liquidity and Cash Flows

The financial condition of 乱伦巴士 is reflected in the following:

For the ratio of debt to total capital, debt is defined as short-term and long-term borrowings, and total capital is defined as debt plus stockholders’ equity. The ratio of net debt to total net capital (with net debt defined as debt less cash and equivalents and total net capital defined as total capital less cash and equivalents) was 21.4% at June 2014, 10.0% at December 2013 and 23.1% at June 2013.

In summary, our cash flows were as follows:

Cash Provided by Operating Activities

乱伦巴士’s primary source of liquidity is the strong cash flow provided by operating activities, which is dependent on the level of net income and changes in working capital. Cash provided by operating activities for the first six months of 2014 decreased to $219.6 million from $291.4 million for the 2013 period. The decline is due to an increase in net cash usage from working capital changes, partially offset by an increase in net income and a $100.0 million discretionary defined benefit plan contribution in the first quarter of 2013 that did not recur in 2014.

Cash Used by Investing Activities

Cash used by investing activities for the first six months of 2014 decreased to $163.6 million from $188.5 million in 2013. 乱伦巴士’s investing activities in the first six months of 2014 related primarily to capital expenditures of $95.8 million and software purchases of $56.0 million. Capital expenditures decreased $59.6 million compared with the 2013 period due to the completion of a number of significant projects during 2013. Software purchases increased $27.3 million over the 2013 period due to system implementations and a new software license agreement that supports our e-commerce infrastructure and other key business functions.

Cash Used by Financing Activities

Cash used by financing activities in the first six months of 2014 was $352.0 million compared with $375.7 million in the first six months of 2013. The decline was primarily due to an increase in short-term borrowings, partially offset by higher levels of share repurchases and cash dividends paid.

During the first six months of 2014, 乱伦巴士 repurchased 12.0 million shares of its Common Stock in open market transactions at a total cost of $727.5 million (average price per share of $60.46). During the first six months of 2013, 乱伦巴士 repurchased 6.8 million shares of its Common Stock in open market transactions at a total cost of $281.0 million (average price per share of $41.16). As of the end of the second quarter of 2014, the Company had 40.7 million shares remaining under its current share repurchase program authorized by 乱伦巴士’s Board of Directors. 乱伦巴士 will continue to evaluate future share repurchases considering funding required for business acquisitions, 乱伦巴士’s Common Stock price and levels of stock option exercises.

乱伦巴士 relies on continued strong cash generation to finance its ongoing operations. In addition, 乱伦巴士 has significant liquidity from its available cash balances and credit facilities. 乱伦巴士 maintains a $1.25 billion senior unsecured revolving line of credit (the “Global Credit Facility”), which supports its $1.25 billion U.S. commercial paper program for short-term seasonal working capital requirements and corporate operations. The Global Credit Facility expires in December 2016. Commercial paper borrowings and standby letters of credit issued as of June 2014 were $550.0 million and $16.7 million, respectively, leaving $683.3 million available for borrowing against this facility at June 2014.

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乱伦巴士’s favorable credit agency ratings allow for access to additional liquidity at competitive rates. At the end of June 2014, 乱伦巴士’s long-term debt ratings were ‘A’ by Standard & Poor’s Ratings Services and ‘A3’ by Moody’s Investors Service, and commercial paper ratings by those rating agencies were ‘A-1’ and ‘Prime-2’, respectively.

None of 乱伦巴士’s long-term debt agreements contain acceleration of maturity clauses based solely on changes in credit ratings. However, if there were a change in control of 乱伦巴士 and, as a result of the change in control, the 2017, 2021 and 2037 notes were rated below investment grade by recognized rating agencies, 乱伦巴士 would be obligated to repurchase the notes at 101% of the aggregate principal amount, plus any accrued and unpaid interest.

Management’s Discussion and Analysis in the 2013 Form 10-K provided a table summarizing 乱伦巴士’s contractual obligations and commercial commitments at the end of 2013 that would require the use of funds. Since the filing of the 2013 Form 10-K, there have been no material changes in the disclosed amounts, except as noted below:

Management believes that 乱伦巴士’s cash balances and funds provided by operating activities, as well as its Global Credit Facility, additional borrowing capacity and access to capital markets, taken as a whole, provide (i) adequate liquidity to meet all of its current and long-term obligations when due, (ii) adequate liquidity to fund capital expenditures and to maintain the dividend to stockholders at current and expected rates and (iii) flexibility to meet investment opportunities that may arise.

Recently Issued and Adopted Accounting Standards

In July 2013, the FASB issued an update to their accounting guidance which requires unrecognized tax benefits to be netted with net operating loss or tax credit carryforwards in the balance sheet if specific criteria are met. This guidance became effective in the first quarter of 2014, but did not have an impact on 乱伦巴士’s consolidated financial statements.

In April 2014, the FASB changed the definition and disclosure requirements for discontinued operations. This guidance will be effective in the first quarter of 2015, but will not have an impact on 乱伦巴士’s consolidated financial statements unless the Company disposes of a business that meets the updated definition of discontinued operations.

In May 2014, the FASB issued a new accounting standard on revenue recognition which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The new model provides a 5-step analysis in determining the measurement of revenue and the timing of when it is recognized. New disclosures about revenues and cash flows arising from contracts with customers are also required. This guidance will be effective in the first quarter of 2017, and the Company is currently evaluating the impact that adopting this guidance will have on 乱伦巴士’s consolidated financial statements.

In June 2014, the FASB issued an update to their accounting guidance related to stock-based compensation. The guidance requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. This guidance will be effective in the first quarter of 2016, but is not expected to have an impact on 乱伦巴士’s consolidated financial statements.

Critical Accounting Policies and Estimates

Management has chosen accounting policies that it considers to be appropriate to accurately and fairly report 乱伦巴士’s operating results and financial position in conformity with generally accepted accounting principles in the United States. Our critical accounting policies are applied in a consistent manner. Significant accounting policies are summarized in Note A to the Consolidated Financial Statements included in the 2013 Form 10-K.

The application of these accounting policies requires management to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, contingent assets and liabilities, and related disclosures. These estimates, assumptions and judgments are based on historical experience, current trends and other factors believed to be reasonable under the circumstances. Management evaluates these estimates and assumptions and may retain outside consultants to assist in the evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known.

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The accounting policies that involve the most significant estimates, assumptions and management judgments used in preparation of the consolidated financial statements, or are the most sensitive to change from outside factors, are discussed in Management’s Discussion and Analysis in the 2013 Form 10-K. There have been no material changes in these policies.

Cautionary Statement on Forward-Looking Statements

From time to time, 乱伦巴士 may make oral or written statements, including statements in this quarterly report that constitute “forward-looking statements” within the meaning of the federal securities laws. These include statements concerning plans, objectives, projections and expectations relating to 乱伦巴士’s operations or economic performance, and assumptions related thereto. Forward-looking statements are made based on management’s expectations and beliefs concerning future events impacting 乱伦巴士 and therefore involve a number of risks and uncertainties. Forward-looking statements are not guarantees and actual results could differ materially from those expressed or implied in the forward-looking statements.

Potential risks and uncertainties that could cause the actual results of operations or financial condition of 乱伦巴士 to differ materially from those expressed or implied by forward-looking statements in this quarterly report on Form 10-Q include, but are not limited to, the overall level of consumer demand for apparel; fluctuations in the price, availability and quality of raw materials and contracted products; disruption to 乱伦巴士’s distribution system; disruption and volatility in the global capital and credit markets; 乱伦巴士’s reliance on a small number of large customers; the financial strength of 乱伦巴士’s customers; 乱伦巴士’s response to changing fashion trends; increasing pressure on margins; 乱伦巴士’s ability to implement its growth strategy; 乱伦巴士’s ability to grow its international and direct-to-consumer businesses; 乱伦巴士 and its customers’ ability to maintain the strength and security of its information technology systems; adverse unseasonable weather conditions; stability of 乱伦巴士’s manufacturing facilities and foreign suppliers; continued use by 乱伦巴士’s suppliers of ethical business practices; 乱伦巴士’s ability to accurately forecast demand for products; continuity of members of 乱伦巴士’s management; 乱伦巴士’s ability to protect trademarks and other intellectual property rights; maintenance by 乱伦巴士’s licensees and distributors of the value of 乱伦巴士’s brands; foreign currency fluctuations; changes in tax liabilities; and legal, regulatory, political and economic risks in international markets. More information on potential factors that could affect 乱伦巴士’s financial results is included from time to time in 乱伦巴士’s public reports filed with the Securities and Exchange Commission, including 乱伦巴士’s Annual Report on Form 10-K.

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

There have been no significant changes in 乱伦巴士’s market risk exposures from what was disclosed in Item 7A in the 2013 Form 10-K.

Item 4 — Controls and Procedures

Disclosure controls and procedures:

Under the supervision of the Chief Executive Officer and Chief Financial Officer, a Disclosure Committee comprising various members of management has evaluated the effectiveness of the disclosure controls and procedures at 乱伦巴士 and its subsidiaries as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded as of the Evaluation Date that such controls and procedures were effective.

Changes in internal control over financial reporting:

There have been no changes during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, 乱伦巴士’s internal control over financial reporting.

Part II — Other Information

Item 1 — Legal Proceedings

Information on 乱伦巴士’s legal proceedings is set forth under Part I, Item 3, “Legal Proceedings,” in the 2013 Form 10-K. There have been no material changes to the legal proceedings from those described in the 2013 Form 10-K.

Item 1A — Risk Factors

You should carefully consider the risk factors set forth under Part I, Item 1A, “Risk Factors,” in the 2013 Form 10-K. There have been no material changes to the risk factors from those disclosed in the 2013 Form 10-K.

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Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer purchases of equity securities:

Item 6 — Exhibits

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SIGNATURES

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

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