PVH Corp.
Form 10-K
For the Year Ended February 4, 20182, 2020
Table of Contents
| PART I | ||
| Item 1. | Business | |
| Item 1A. | Risk Factors | |
| Item 1B. | Unresolved Staff Comments | |
| Item 2. | Properties | |
| Item 3. | Legal Proceedings | |
| Item 4. | Mine Safety Disclosures | |
| PART II | ||
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | |
| Item 6. | Selected Financial Data | |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | |
| Item 8. | Financial Statements and Supplementary Data | |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |
| Item 9A. | Controls and Procedures | |
| Item 9B. | Other Information | |
| PART III | ||
| Item 10. | Directors, Executive Officers and Corporate Governance | |
| Item 11. | Executive Compensation | |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | |
| Item 14. | Principal Accounting Fees and Services | |
| PART IV | ||
| Item 15. | Exhibits, Financial Statement Schedules | |
| Item 16. | Form 10-K Summary | |
| Signatures | ||
| Index to Financial Statements and Financial Statement Schedule | ||
PART I
Item 1. Business
Introduction
Unless the context otherwise requires, the terms “we,” “our” or “us” refer to PVH Corp. and its subsidiaries.
Our fiscal years are based on the 52-53 week period ending on the Sunday closest to February 1 and are designated by the calendar year in which the fiscal year commences. References to a year are to our fiscal year, unless the context requires otherwise. Our 2019 year commenced on February 4, 2019 and ended on February 2, 2020; our 2018 year commenced on February 5, 2018 and ended on February 3, 2019; and our 2017 year commenced on January 30, 2017 and ended on February 4, 2018; 2016 commenced on2018.
References to the brand names TOMMY HILFIGER, HILFIGER COLLECTION, TOMMY HILFIGER TAILORED, TOMMY JEANS, TOMMY SPORT, CALVIN KLEIN, CALVIN KLEIN 205 W39 NYC, CK CALVIN KLEIN, CALVIN KLEIN JEANS, CALVIN KLEIN UNDERWEAR, CALVIN KLEIN PERFORMANCE, Van Heusen, IZOD, ARROW, Speedo, Warner’s, Olga, True&Co., Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, Unlisted, a Kenneth Cole Production, MICHAEL Michael Kors, Michael Kors Collection, DKNY, Chaps, and to other brand names in this report are to registered and common law trademarks owned by us or licensed to us by third parties and are identified by italicizing the brand name.
References to the acquisition of Warnaco refer to our February 1, 20162013 acquisition of The Warnaco Group, Inc. and ended on January 29, 2017;its subsidiaries, which companies we refer to collectively as “Warnaco.”
References to the acquisition of Tommy Hilfiger refer to our May 2010 acquisition of Tommy Hilfiger B.V. and 2015 commenced oncertain affiliated companies, which companies we refer to collectively as “Tommy Hilfiger.”
References to the acquisition of Calvin Klein refer to our February 2, 20152003 acquisition of Calvin Klein, Inc. and ended on January 31, 2016.certain affiliated companies, which companies we refer to collectively as “Calvin Klein.”
We obtained the market and competitive position data used throughout this report from research, surveys or studies conducted by third parties (including, with respect to the brand rankings, the NPD Group/POS Tracking Service), information provided by customers, and industry or general publications. The United States department and chain store rankings to which we refer in this report are on a unit basis. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable but do not guarantee the accuracy and completeness of such information. While we believe that each of these studies and publications and all other information are reliable, we have not independently verified such data and we do not make any representation as to the accuracy of such information.
Company Information
We were incorporated in the State of Delaware in 1976 as the successor to a business begun in 1881. Our principal executive offices are located at 200 Madison Avenue, New York, New York 10016; our telephone number is (212) 381-3500.
We make available at no cost, on our corporate website, PVH.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we have electronically filed such material with the Securities and Exchange Commission (“SEC”). All such filings are also available on the SEC’s website at sec.gov. Copies of these filings may also be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549, or by calling the SEC at 1-800-SEC-0330.
We also make available at no cost on PVH.com, the charters of the committees of our Board of Directors, as well as our Corporate Governance Guidelines and Code of Business Conduct and Ethics.
Company Overview
We are one of the largest brandedglobal apparel companies in the world, with a history going back over 135 years.world. We have over 36,00040,000 associates operating in overmore than 40 countries. Ourcountries and generated $9.9 billion in revenues in 2019. We manage a diversified brand portfolio, consists of nationally and internationally recognized brand names, including the global designer lifestyle brands TOMMY HILFIGER, CALVIN KLEINand TOMMY HILFIGER, Van Heusen, IZOD, ARROW, Warner’s, Olga and Geoffrey Beene brands,as well as Van Heusen,
America and the Caribbean), Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, Unlisted, a Kenneth Cole Production, MICHAEL Michael Kors, Michael Kors Collection, DKNY andChaps. Our brand portfolio also consists of various other owned, licensed and, to a lesser extent, private label brands. We entered into a definitive agreement on January 9, 2020 to sell our Speedo North America business to Pentland Group PLC (“Pentland”), parent company of Speedo International Limited, which licenses the Speedo brand to us, and we will no longer license the Speedo trademark upon closing of the sale (the “Speedo transaction”). The Speedo transaction is expected to close in the first quarter of 2020, subject to customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which has been received.
We design and market branded dress shirts, neckwear, sportswear (casual apparel), jeanswear, performance apparel, intimate apparel, underwear, swimwear, swim products, handbags, accessories, footwear and other related products. Our brands are positioned to sell globally at various price points and in multiple channels of distribution and regions.distribution. This enables us to offer products to a broad range of consumers, while minimizing competition among our brands and reducing our reliance on any one demographic group, merchandise preference,product category, price point, distribution channel or region. We also license the use of our brandstrademarks to third parties and joint ventures for product categories and in regions where we believe our partners’licensees’ expertise can better serve our brands. During 2017,2019, our directly operated businesses in North America consisted principally of wholesale sales under our TOMMY HILFIGER, CALVIN KLEIN, TOMMY HILFIGER, Van Heusen, IZOD, ARROW, Speedo, Warner’s, Olgaand Olga brands;Geoffrey Beene trademarks; the operation of digital commerce sites under the TOMMY HILFIGER,CALVIN KLEIN, TOMMY HILFIGERSpeedo, SpeedoTrue&Co., Van Heusen and True&Co. brands;IZOD trademarks and the styleBureau.com digital commerce site; and the operation of retail stores, principally in premium outlet centers, primarily under our CALVIN KLEIN,TOMMY HILFIGER, CALVIN KLEIN and certain of our heritage brands.
brands trademarks. Our directly operated businesses outside of North America consisted principally of our wholesale and retail sales in Europe and Asiathe Asia-Pacific region under our TOMMY HILFIGER brands;trademarks; our wholesale and retail sales in Europe, Asiathe Asia-Pacific region and Latin America under our CALVIN KLEIN brands;trademarks; and the operation of digital commerce sites under the TOMMY HILFIGER and CALVIN KLEIN and TOMMY HILFIGER brands. trademarks. Our licensing activities principally related to the licensing worldwide of our TOMMY HILFIGER and CALVIN KLEIN and TOMMY HILFIGERtrademarks for a broad array of product categories and for various regions.use in numerous discrete jurisdictions.
We entered into agreements on July 3, 2019 to terminate early the licenses for the global Calvin Klein and Tommy Hilfiger North America socks and hosiery businesses (the “Socks and Hosiery transaction”) in order to consolidate the socks and hosiery businesses for all of our brands in the United States and Canada in a newly formed joint venture, PVH Legwear LLC (“PVH Legwear”), in which we own a 49% economic interest, and bring in-house the international Calvin Klein socks and hosiery wholesale businesses. The Socks and Hosiery transaction closed on December 2, 2019. PVH Legwear was formed with a wholly owned subsidiary of our former Heritage Brands socks and hosiery licensee. PVH Legwear licenses from us the rights to distribute and sell TOMMY HILFIGER, CALVIN KLEIN, IZOD, Van Heusen and Warner’s socks and hosiery.
We acquired the Tommy Hilfiger retail business in Central and Southeast Asia from our previous licensee in that market (the “TH CSAP acquisition”) on July 1, 2019. As a result of the TH CSAP acquisition, we now operate directly the Tommy Hilfiger retail business in the Central and Southeast Asia market.
We acquired the approximately 78% ownership interests in Gazal Corporation Limited (“Gazal”) that we did not already own (the “Australia acquisition”) on May 31, 2019. Prior to the closing, we, along with Gazal, jointly owned and managed a joint venture, PVH Brands Australia Pty. Limited (“PVH Australia”), which licensed and operated businesses in Australia, New Zealand and other parts of Oceania under the TOMMY HILFIGER, CALVIN KLEIN and Van Heusen brands, along with other owned and licensed brands. PVH Australia came under our full control as a result of the Australia acquisition and we now operate directly those businesses.
We entered into a licensing agreement on May 30, 2019 with G-III Apparel Group, Ltd. (“G-III”) for the design, production and wholesale distribution of CALVIN KLEIN JEANS women’s jeanswear collections in the United States and Canada (the “G-III license”), which resulted in the discontinuation of our directly operated Calvin Klein North America women’s jeanswear wholesale business in 2019.
We acquired the Geoffrey Beene tradename from Geoffrey Beene, LLC (“Geoffrey Beene”) on April 20, 2018. Prior to the acquisition, we had licensed the rights to design, market and distribute Geoffrey Beene dress shirts and neckwear from Geoffrey Beene.
We acquired True & Co., a direct-to-consumer intimate apparel digital commerce retailer, on March 30, 2017. This acquisition enablesenabled us to participate further in the fast-growing online channel and providesprovided a platform to increase innovation, data-driven decisions and speed in the way we serve our consumers across our channels of distribution.
We aggregate our reportable segments for purposes of discussion in this Report into three main businesses: (i) Tommy Hilfiger, which consists of the Tommy Hilfiger North America and Tommy Hilfiger International segments; (ii) Calvin Klein, which consists of the Calvin Klein North America and Calvin Klein International segments; (ii) Tommy Hilfiger, which consists of the Tommy Hilfiger North America and Tommy Hilfiger International segments; and (iii) Heritage Brands, which consists of the Heritage Brands Wholesale and Heritage Brands Retail segments. Note 19,21, “Segment Data,” in the Notes to Consolidated Financial Statements included in Item 8 of this report contains information with respect to revenue, income before interest and taxes, assets, depreciation and amortization, and capital expenditures related to each segment, as well as information regarding our revenue generated from foreignby distribution channel and domestic sources,based on geographic location, and the geographic locations where our net property, plant and equipment is held.
Our 20172019 revenue was $8.9$9.9 billion, of which approximatelyover 50% was generated outside of the United States. Our global designer lifestyle brands, TOMMY HILFIGER and CALVIN KLEINand TOMMY HILFIGER,together generated over 80%approximately 85% of our revenue during 2017.2019.
Tommy Hilfiger Business Overview
We believe TOMMY HILFIGER is one of the world’s leading designer lifestyle brands and is internationally recognized for celebrating the essence of classic American cool style with a preppy twist. Global retail sales of products sold under the TOMMY HILFIGER brands, including sales by our licensees, were approximately $9.2 billion in 2019. Our Tommy Hilfiger business markets its products under several brands in order to fully capitalize on its global appeal, as each brand varies in terms of price point, product offerings, demographic target or distribution. The TOMMY HILFIGER brands consist of:
| • | HILFIGER COLLECTION — the pinnacle of the TOMMY HILFIGER product offerings, HILFIGER COLLECTION blends the brand’s Americana heritage with contemporary influences and a playful fashion edge. The collection targets 25 to 40 year-old consumers. HILFIGER COLLECTION is available globally at select TOMMY HILFIGER stores, through our wholesale partners (in stores and online) and on tommy.com. |
| • | TOMMY HILFIGER TAILORED — this line integrates sharp, sophisticated style with the TOMMY HILFIGER brand’s American menswear heritage. From structured suiting to casual weekend wear, classics are modernized with precision fit, premium fabrics, updated cuts, rich colors and luxe details, executed with the TOMMY HILFIGER brand’s signature twist. The collection targets 25 to 40 year-old consumers. TOMMY HILFIGER TAILORED is available globally at select TOMMY HILFIGER stores, through our wholesale partners (in stores and online) and on tommy.com. |
| • | TOMMY HILFIGER — our core line is globally recognized for bringing to life the classic American cool spirit at the heart of the brand. The collection focuses on 25 to 40 year-old consumers with a broad selection of designs across more than 25 categories, including men’s, women’s and children’s sportswear, footwear and accessories. TOMMY HILFIGER is available globally in our TOMMY HILFIGER stores, through our wholesale partners (in stores and online), through pure play digital commerce retailers and on tommy.com. |
| • | TOMMY JEANS — inspired by American denim classics with a modern, casual edge, TOMMY JEANS adds a youthful energy and irreverent twist to the TOMMY HILFIGER brand’s heritage. The men’s and women’s collections focus on premium denim and target 18 to 30 year-old consumers. TOMMY JEANS is available globally at select TOMMY HILFIGER stores, TOMMY JEANS stores, through our wholesale partners (in stores and online), through pure play digital commerce retailers and on tommy.com. |
| • | TOMMY SPORT— this line is engineered for performance and infused with the brand’s bold red, white and blue heritage. Silhouettes evoke the classic American cool spirit of the TOMMY HILFIGER brand with unique details and functional features. TOMMY SPORT is available globally at select TOMMY HILFIGER stores, through select wholesale partners (in stores and online), through pure play digital commerce retailers and on tommy.com. |
Tommy Hilfiger’s global marketing and communications strategy is to build a consumer-centric, go-to-market strategy that maintains the brand’s momentum, driving awareness, consistency and relevancy across product lines and regions. We engage consumers through comprehensive 360° marketing campaigns, which have a particular focus on innovative experiences and digital marketing initiatives. Marketing campaigns for the brand are focused on attracting a new generation of consumers worldwide through a blend of global and regional brand ambassadors. Tommy Hilfiger spent over $200 million on global marketing and communications efforts in 2019.
Through our Tommy Hilfiger North America and Tommy Hilfiger International segments, we sell TOMMY HILFIGER products in a variety of distribution channels, including:
| • | Wholesale — principally consists of the distribution and sale of products in North America, Europe and the Asia-Pacific region under the TOMMY HILFIGER brands. In North America, distribution is primarily through department stores, warehouse clubs, and off-price and independent retailers, as well as digital commerce sites operated by the department store customers and pure play digital commerce retailers. In Europe and the Asia-Pacific region, distribution is through department and specialty stores, and digital commerce sites operated by department store customers and pure play digital commerce retailers, as well as through distributors and franchisees. |
| • | Retail — principally consists of the distribution and sale of products under the TOMMY HILFIGER brands in our stores in North America, Europe and the Asia-Pacific region, as well as on the tommy.com sites we operate in over 30 countries. Our stores in North America are primarily located in premium outlet centers. In Europe and the Asia-Pacific region, we operate full-price specialty and outlet stores, as well as select flagship stores and concession locations. |
| • | Licensing — we license the TOMMY HILFIGER brands to third parties globally for a broad range of products through approximately 25 license agreements. We provide support to our licensees and seek to preserve the integrity of our brands by taking an active role in the design, quality control, advertising, marketing and distribution of each licensed product, most of which are subject to our prior approval and continuing oversight. The arrangements generally are exclusive to a territory or product category. Territorial licensees include our joint ventures in Brazil, India and Mexico. |
Tommy Hilfiger’s key licensees, and the products and territories licensed, include:
| Licensee | Product Category and Territory | |
| American Sportswear S.A. | Men’s, women’s and children’s apparel, footwear and accessories (Central America, South America (excluding Brazil) and the Caribbean) | |
| F&T Apparel LLC & KHQ Investment LLC | Children’s apparel, children’s underwear and sleepwear and boy’s tailored clothing (United States and Canada) | |
| G-III | Men’s and women’s outerwear, luggage and women’s apparel, dresses, suits and swimwear (excluding intimates, sleepwear, loungewear, hats, scarves, gloves and footwear) (United States and Canada) | |
Handsome Corporation | Men’s, women’s and children’s apparel, sportswear, socks and accessories and men’s and women’s outerwear (South Korea) | |
| MBF Holdings LLC | Men’s and women’s footwear (United States and Canada) | |
| Movado Group, Inc. & Swissam Products, Ltd. | Men’s and women’s watches and jewelry (worldwide, excluding Japan (except certain customers)) | |
| Peerless Clothing International, Inc. | Men’s tailored clothing (United States and Canada) | |
| Safilo Group S.P.A. | Men’s, women’s and children’s eyeglasses and non-ophthalmic sunglasses (worldwide, excluding India) | |
Our Tommy Hilfiger North America segment includes the results of our Tommy Hilfiger wholesale, retail and licensing activities in the United States, Canada and Mexico, and our proportionate share of the net income or loss of our investments in our joint venture in Mexico and in PVH Legwear, in each case relating to the joint venture’s Tommy Hilfiger businesses. Our Tommy Hilfiger International segment includes the results of our Tommy Hilfiger wholesale, retail and
licensing activities outside of North America, and our proportionate share of the net income or loss of our investments in joint ventures in Brazil and India relating to the joint ventures’ Tommy Hilfiger businesses.
We believe Calvin Klein TOMMY HILFIGER is one of the best knownworld’s leading designer names inlifestyle brands and is internationally recognized for celebrating the world, exemplifying bold, progressive ideals andessence of classic American cool style with a seductive, often minimalist aesthetic.preppy twist. Global retail sales of products sold under the CALVIN KLEINTOMMY HILFIGER brands, including sales by our licensees, were approximately $9.1$9.2 billion in 2017.2019. Our Tommy Hilfiger business markets its products under several brands in order to fully capitalize on its global appeal, as each brand varies in terms of price point, product offerings, demographic target or distribution. The CALVIN KLEINTOMMY HILFIGER brands provide us with the opportunityconsist of:
| • | HILFIGER COLLECTION — the pinnacle of the TOMMY HILFIGER product offerings, HILFIGER COLLECTION blends the brand’s Americana heritage with contemporary influences and a playful fashion edge. The collection targets 25 to 40 year-old consumers. HILFIGER COLLECTION is available globally at select TOMMY HILFIGER stores, through our wholesale partners (in stores and online) and on tommy.com. |
| • | TOMMY HILFIGER TAILORED — this line integrates sharp, sophisticated style with the TOMMY HILFIGER brand’s American menswear heritage. From structured suiting to casual weekend wear, classics are modernized with precision fit, premium fabrics, updated cuts, rich colors and luxe details, executed with the TOMMY HILFIGER brand’s signature twist. The collection targets 25 to 40 year-old consumers. TOMMY HILFIGER TAILORED is available globally at select TOMMY HILFIGER stores, through our wholesale partners (in stores and online) and on tommy.com. |
| • | TOMMY HILFIGER — our core line is globally recognized for bringing to life the classic American cool spirit at the heart of the brand. The collection focuses on 25 to 40 year-old consumers with a broad selection of designs across more than 25 categories, including men’s, women’s and children’s sportswear, footwear and accessories. TOMMY HILFIGER is available globally in our TOMMY HILFIGER stores, through our wholesale partners (in stores and online), through pure play digital commerce retailers and on tommy.com. |
| • | TOMMY JEANS — inspired by American denim classics with a modern, casual edge, TOMMY JEANS adds a youthful energy and irreverent twist to the TOMMY HILFIGER brand’s heritage. The men’s and women’s collections focus on premium denim and target 18 to 30 year-old consumers. TOMMY JEANS is available globally at select TOMMY HILFIGER stores, TOMMY JEANS stores, through our wholesale partners (in stores and online), through pure play digital commerce retailers and on tommy.com. |
| • | TOMMY SPORT— this line is engineered for performance and infused with the brand’s bold red, white and blue heritage. Silhouettes evoke the classic American cool spirit of the TOMMY HILFIGER brand with unique details and functional features. TOMMY SPORT is available globally at select TOMMY HILFIGER stores, through select wholesale partners (in stores and online), through pure play digital commerce retailers and on tommy.com. |
Tommy Hilfiger’s global marketing and communications strategy is to market products both domestically and internationally at various price points, through multiple distribution channels and to different consumer groups. Our tiered-brandbuild a consumer-centric, go-to-market strategy provides a focused, consistent approach to global growth and development that preservesmaintains the brand’s prestigemomentum, driving awareness, consistency and image. The CALVIN KLEIN brands are:
Through our Calvin KleinTommy Hilfiger North America and Calvin KleinTommy Hilfiger International segments, we sell CALVIN KLEINTOMMY HILFIGER products in a variety of distribution channels, including:
| • | Wholesale — principally consists of the distribution and sale of products in North America, Europe and the Asia-Pacific region under the TOMMY HILFIGER brands. In North America, distribution is primarily through department stores, warehouse clubs, and off-price and independent retailers, as well as digital commerce sites operated by the department store customers and pure play digital commerce retailers. In Europe and the Asia-Pacific region, distribution is through department and specialty stores, and digital commerce sites operated by department store customers and pure play digital commerce retailers, as well as through distributors and franchisees. |
| • | Retail — principally consists of the distribution and sale of products under the TOMMY HILFIGER brands in our stores in North America, Europe and the Asia-Pacific region, as well as on the tommy.com sites we operate in over 30 countries. Our stores in North America are primarily located in premium outlet centers. In Europe and the Asia-Pacific region, we operate full-price specialty and outlet stores, as well as select flagship stores and concession locations. |
| • | Licensing — we license the TOMMY HILFIGER brands to third parties globally for a broad range of products through approximately 25 license agreements. We provide support to our licensees and seek to preserve the integrity of our brands by taking an active role in the design, quality control, advertising, marketing and distribution of each licensed product, most of which are subject to our prior approval and continuing oversight. The arrangements generally are exclusive to a territory or product category. Territorial licensees include our joint ventures in Brazil, India and Mexico. |
| Licensee | Product Category and Territory | |
| Men’s, women’s and | ||
| G-III | ||
Handsome Corporation | Men’s, women’s and children’s women’s outerwear (South Korea) | |
| Men’s and women’s | ||
| Men’s and women’s | ||
| Peerless Clothing International, Inc. | Men’s tailored clothing (United States | |
| Safilo Group S.P.A. | Men’s, women’s and children’s eyeglasses and non-ophthalmic sunglasses (worldwide, excluding India) | |
Our Calvin KleinTommy Hilfiger North America segment includes the results of our Calvin KleinTommy Hilfiger wholesale, retail and licensing activities in the United States, Canada and Mexico, and our proportionate share of the net income or loss of our investmentinvestments inthe our joint venture in Mexico and in PVH Legwear, in each case relating to the joint venture’s Calvin Klein business.Tommy Hilfiger businesses. Our Calvin KleinTommy Hilfiger International segment includes the results of our Calvin KleinTommy Hilfiger wholesale, retail and
licensing activities outside of North America, and our proportionate share of the net income or loss of our investments in joint ventures in AustraliaBrazil and India relating to the joint ventures’ Calvin KleinTommy Hilfiger businesses.
Tommy Hilfiger Business Overview
We believeTOMMY HILFIGER is one of the world’s leading designer lifestyle brands and is internationally recognized for celebrating the essence of classic American cool style with a preppy twist. Global retail sales of products sold under the TOMMY HILFIGER brands, including sales by our licensees, were approximately $7.4$9.2 billion in 2017.2019. Our Tommy Hilfiger business markets its products under several brands in order to fully capitalize on its global appeal, as each brand varies in terms of price point, product offerings, demographic target andor distribution. The TOMMY HILFIGER brands consist of:
| • | HILFIGER COLLECTION — the pinnacle of the TOMMY HILFIGER product offerings, HILFIGER COLLECTION blends the brand’s Americana heritage with contemporary influences and a playful fashion edge. The collection targets 25 to 40 year-old consumers. HILFIGER COLLECTION is available globally at select TOMMY HILFIGER stores, through our wholesale partners (in stores and online) and on tommy.com. |
| • | TOMMY HILFIGER TAILORED — this line integrates sharp, sophisticated style with the TOMMY HILFIGER brand’s American menswear heritage. From structured suiting to casual weekend wear, classics are modernized with precision fit, premium fabrics, updated cuts, rich colors and luxe details, executed with the TOMMY HILFIGER brand’s signature twist. The collection targets 25 to 40 year-old consumers. TOMMY HILFIGER TAILORED is available globally at select TOMMY HILFIGER stores, through our wholesale partners (in stores and online) and on tommy.com. |
| • | TOMMY HILFIGER — our core line is globally recognized for bringing to life the classic American cool spirit at the heart of the brand. The collection focuses on 25 to 40 year-old consumers with a broad selection of designs across more than 25 categories, including men’s, women’s and children’s sportswear, footwear and accessories. TOMMY HILFIGER is available globally in our TOMMY HILFIGER stores, through our wholesale partners (in stores and online), through pure play digital commerce retailers and on tommy.com. |
| • | TOMMY JEANS — inspired by American denim classics with a modern, casual edge, TOMMY JEANS adds a youthful energy and irreverent twist to the TOMMY HILFIGER brand’s heritage. The men’s and women’s collections focus on premium denim and target 18 to 30 year-old consumers. TOMMY JEANS is available globally at select TOMMY HILFIGER stores, TOMMY JEANS stores, through our wholesale partners (in stores and online), through pure play digital commerce retailers and on tommy.com. |
| • | TOMMY SPORT— this line is engineered for performance and infused with the brand’s bold red, white and blue heritage. Silhouettes evoke the classic American cool spirit of the TOMMY HILFIGER brand with unique details and functional features. TOMMY SPORT is available globally at select TOMMY HILFIGER stores, through select wholesale partners (in stores and online), through pure play digital commerce retailers and on tommy.com. |
Tommy Hilfiger’s global marketing and communications strategy is to build a consumer-centric, go-to-market strategy that maintains the brand’s momentum, driving awareness, consistency and relevancy across product lines and regions. We engage consumers through comprehensive 360° marketing campaigns, which have a particular focus on innovative experiences and digital marketing initiatives. Marketing campaigns for the brand haveare focused on attracting a dedicated focus on TOMMY HILFIGER’snew generation of consumers worldwide through a blend of global growth categories (women’s apparel and accessories, underwear and men’s tailored clothing), as well as its core men’s apparel and denim businesses. During 2017,regional brand ambassadors. Tommy Hilfigerspent over $180$200 million on global marketing and communications efforts.efforts in 2019.
Through our Tommy Hilfiger North America and Tommy Hilfiger International segments, we sell TOMMY HILFIGER products in a variety of distribution channels, including:
| • | Wholesale — principally consists of the distribution and sale of products in North America, Europe and the Asia-Pacific region under the TOMMY HILFIGER brands. In North America, distribution is primarily through department stores, warehouse clubs, and off-price and independent retailers, as well as digital commerce sites operated by the department store customers and pure play digital commerce retailers. In Europe and the Asia-Pacific region, distribution is through department and specialty stores, and digital commerce sites operated by department store customers and pure play digital commerce retailers, as well as through distributors and franchisees. |
| • | Retail — principally consists of the distribution and sale of products under the TOMMY HILFIGER brands in our stores in North America, Europe and the Asia-Pacific region, as well as on the tommy.com sites we operate in over 30 countries. Our stores in North America are primarily located in premium outlet centers. In Europe and the Asia-Pacific region, we operate full-price specialty and outlet stores, as well as select flagship stores and concession locations. |
| • | Licensing — we license the TOMMY HILFIGER brands to third parties globally for a broad range of products through approximately 25 license agreements. We provide support to our licensees and seek to preserve the integrity of our brands by taking an active role in the design, quality control, advertising, marketing and distribution of each licensed product, most of which are subject to our prior approval and continuing oversight. The arrangements generally are exclusive to a territory or product category. Territorial licensees include our joint ventures in Brazil, India and Mexico. |
Tommy Hilfiger’s key licensees, and the products and territories licensed, include:
| Licensee | Product Category and Territory | |
| American Sportswear S.A. | Men’s, women’s and children’s and the Caribbean) | |
| G-III | Men’s and women’s outerwear, luggage | |
Handsome Corporation | ||
Men’s, women’s and children’s apparel, sportswear, socks and | ||
| MBF Holdings LLC | Men’s and women’s footwear (United States and Canada) | |
| Movado Group, Inc. & Swissam Products, Ltd. | Men’s and women’s watches and jewelry (worldwide, excluding Japan (except certain customers)) | |
| Peerless Clothing International, Inc. | Men’s tailored clothing (United States and Canada) | |
| Safilo Group S.P.A. | Men’s, women’s and children’s eyeglasses and non-ophthalmic sunglasses (worldwide, excluding India) | |
Our Tommy Hilfiger North America segment includes the results of our Tommy Hilfiger wholesale, retail and licensing activities in the United States, Canada and Mexico, and our proportionate share of the net income or loss of our investmentinvestments in theour joint venture in Mexico and in PVH Legwear, in each case relating to the joint venture’s Tommy Hilfiger business.businesses. Our Tommy Hilfiger International segment includes the results of our Tommy Hilfiger wholesale, retail and
licensing activities outside of North America, and our proportionate share of the net income or loss of our investments in joint ventures in Australia, Brazil and India relating to the joint ventures’ Tommy Hilfiger businesses.
Calvin Klein Business Overview
CALVIN KLEIN is a global lifestyle brand built on iconic essentials and powered by bold, progressive ideals. Global retail sales of products sold under the CALVIN KLEIN brands, including sales by our licensees, were approximately $9.4 billion in 2019. The CALVIN KLEIN brands provide us with the opportunity to market products both domestically and internationally at various price points, through multiple distribution channels and to different consumer groups. Our tiered-brand strategy provides a focused, consistent approach to global growth and development that preserves the brand’s prestige and image. The CALVIN KLEIN brands consist of:
| • | CK CALVIN KLEIN — our “contemporary” brand, offering modern, sophisticated items including apparel and accessories. Distribution is in the Asia-Pacific region through select CALVIN KLEIN stores, selectwholesale partners (in stores and online) and calvinklein.com. |
| • | CALVIN KLEIN — our “master” brand, offering men’s and women’s sportswear, swimwear, outerwear, fragrance, accessories, footwear, men’s dress furnishings, women’s dresses, suits and handbags, and items for the home. Distribution is primarily in North America, Europe and the Asia-Pacific region through our own stores, our wholesale partners (in stores and online), pure play digital commerce retailers and on calvinklein.com. |
| • | CALVIN KLEIN JEANS — the casual expression of the CALVIN KLEIN brand with roots in denim, offering men’s and women’s jeanswear, related apparel and accessories. CALVIN KLEIN JEANS is known for its unique details and innovative washes. Distribution is worldwide through our own stores, our wholesale partners (in stores and online), pure play digital commerce retailers and on calvinklein.com. |
| • | CALVIN KLEIN UNDERWEAR — known across the globe for provocative, cutting-edge products and marketing campaigns and consistently delivering innovative designs with superior fit and quality. Offerings include men’s and women’s underwear, women’s intimates, sleepwear and loungewear. Distribution is worldwide throughour own stores, our wholesale partners (in stores and online), pure play digital commerce retailers and on calvinklein.com. |
| • | CALVIN KLEIN PERFORMANCE — built on the foundation of innovation, fit and function. Designs are fashion-inspired and feature trend-driven, modern pieces that unite innovative fabric technology with classic American design elements. Distribution is primarily in North America, Europe and the Asia-Pacific region through our own stores, our wholesale partners (in stores and online), pure play digital commerce retailers and on calvinklein.com. |
Over $365 million was spent globally in 2019 in connection with the advertising, marketing and promotion of the CALVIN KLEIN brands and approximately 40% of these expenses were funded by Calvin Klein’s licensees and other authorized users of the brands. Calvin Klein’s global marketing and communications strategy is to bring together all facets of the consumer marketing experience. The CALVIN KLEIN brands continue to generate compelling brand and cultural relevancy by continually evolving and driving consumer engagement. Marketing campaigns for the brand are focused on a truly digital first, socially powered experience for consumers, through the use of global and regional brand ambassadors and experiential events.
Through our Calvin Klein North America and Calvin Klein International segments, we sell CALVIN KLEIN products in a variety of distribution channels, including:
| • | Wholesale — principally consists of the distribution and sale of products in North America, Europe, the Asia-Pacific region and Brazil under the CALVIN KLEIN brands. In North America, distribution is primarily through warehouse clubs, department and specialty stores, and off-price and independent retailers, as well as digital commerce sites operated by department store customers and pure play digital commerce retailers. In Europe, the Asia-Pacific region and Brazil, distribution is through department and specialty stores, and digital commerce sites operated by department store customers and pure play digital commerce retailers, as well as through distributors and franchisees. |
| • | Retail — principally consists of the distribution and sale of apparel, accessories and related products under the CALVIN KLEIN brands in our stores in North America, Europe, the Asia-Pacific region and Brazil, as well as on the calvinklein.com sites we operate in over 35 countries. Our stores in North America are primarily located in premium outlet centers. In Europe, the Asia-Pacific region and Brazil, we operate full-price and outlet stores and concession locations. |
| • | Licensing — we license the CALVIN KLEIN brands throughout the world in connection with a broad array of product categories. In these arrangements, Calvin Klein combines its design, marketing and branding skills with the specific manufacturing, distribution and geographic capabilities of its partners to develop, market and distribute these goods, most of which are subject to our prior approval and continuing oversight. Calvin Klein has approximately 45 licensing and other arrangements across the CALVIN KLEIN brands. The arrangements generally are exclusive to a territory or product category. Territorial licensees include our joint ventures in India and Mexico. |
Calvin Klein’s key licensees, and the products and territories licensed, include:
| Licensee | Product Category and Territory | |
| CK21 Holdings Pte. Ltd. | Men’s and women’s CK CALVIN KLEIN apparel (Asia, excluding Japan) | |
| CK Watch & Jewelry Co., Ltd. (Swatch SA) | Men’s and women’s watches and jewelry (worldwide) * | |
| Coty Inc. | Men’s and women’s fragrance, bath products and color cosmetics (worldwide) | |
| Himatsingka Seide, Ltd. | Soft home bed and bath furnishings (United States, Canada, Mexico, Europe, Middle East, Asia and India) | |
| G-III | Women’s coats, suits, dresses, sportswear, jeanswear, active performancewear, handbags and small leather goods, men’s coats, men’s and women’s luggage and men’s and women’s swimwear (United States and Canada with luggage jurisdictions including Europe, Asia and elsewhere) | |
| Jimlar Corporation | Men’s and women’s footwear (various jurisdictions) * | |
| Marchon Eyewear, Inc. | Men’s and women’s optical frames and sunglasses (worldwide) | |
| Onward Kashiyama Co. Ltd. | Men’s and women’s CK CALVIN KLEIN apparel (Japan) | |
| Peerless Clothing International Inc. | Men’s tailored clothing (United States, Canada and Mexico) | |
*Licenses for these categories will be transitioning to new licensees in 2020.
Our Calvin Klein North America segment includes the results of our Calvin Klein wholesale, retail and licensing activities in the United States, Canada and Mexico, and our proportionate share of the net income or loss of our investments in our joint venture in Mexico and in PVH Legwear, in each case relating to the joint venture’s Calvin Klein businesses in North America. Our Calvin Klein International segment includes the results of our Calvin Klein wholesale, retail and licensing activities outside of North America, and our proportionate share of the net income or loss of our investment in our joint venture in India relating to the joint venture’s Calvin Klein business.
Heritage Brands Business Overview
Our Heritage Brands business designs, sources and markets a varied selection of prominent brand label dress shirts, neckwear, sportswear, swimwear, swim products, intimate apparel, underwear and related apparel and accessories, and licenses certain of ourVan Heusen, IZOD, ARROW, Speedo, Warner’s and Olga brands for an assortment of products. The Heritage Brands business also offers private label dress furnishings programs, particularly in neckwear. We design, source and market substantially all of these products on a brand-by-brand basis, targeting distinct consumer demographics and lifestyles in an effort to minimize competition among our brands. Global retail sales of products sold under our owned and licensed heritage brands, including sales by our licensees, were approximately $3.4$3.3 billion in 2017.2019.
Through our Heritage Brands Wholesale and Heritage Brands Retail segments, we sell heritage brands products in a variety of distribution channels, including:
Wholesale —We principally distribute our Heritage Brands products at wholesale in the United States and Canada through department, chain and specialty stores, warehouse clubs, and mass market, off-price and independent retailers (in stores and online), as well as through pure play digital commerce retailers. As a complement to our wholesale business, which is our core business, we also marketretailers and, for Speedo products, directly to consumers through our Heritage Brandssporting goods stores, team dealers and swimclubs. Products sold through this channel principally located in outlet centers throughout the United States and Canada, and through our directly operated digital commerce sites for Speedo and True&Co.consist of:
| • | Men’s dress shirts and neckwear under brands including Van Heusen, IZOD, ARROW, Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, Unlisted, a Kenneth Cole Production, MICHAEL Michael Kors, Michael Kors Collection and DKNY. We also market dress shirts under the Chaps brand, among others. We offer private label dress shirt and neckwear programs to retailers, primarily national department stores and mass market retailers. We believe our product offerings collectively represent a sizeable portion of the domestic dress furnishings market. |
We license certain of the brands under which we sell men’s dress shirts and neckwear. The following table provides information with respect to the expiration of the licenses for the more significant brands (as determined based on 20172019 sales volume):
| Brand Name | Expiration | |
MICHAEL Michael Kors and Michael Kors Collection | January 31, 2022 | |
| DKNY | Donna Karan Studio LLC | Terminated on December 31, |
Kenneth Cole New York | Kenneth Cole Productions (Lic), LLC and Kenneth Cole Productions, Inc. | December 31, 2022, with a right of renewal (subject to certain conditions) through December 31, 2025 |
| Chaps | The Polo/Lauren Company, LP and PRL USA, Inc. | March 31, |
| • | Men’s sportswear, including sport shirts, sweaters, bottoms and outerwear, principally under the Van Heusen, IZOD and ARROW brands. IZOD and Van Heusen were the first and second best selling national brand men’s woven sport shirts, respectively, in United States department and chain stores in 2019. We also produced men’s sportswear under a license agreement for the DKNY brand as noted in the table above. |
| • | Men’s, women’s and children’s swimwear, pool and deck footwear, and swim-related products and accessories under the Speedo trademark. The Speedo brand is exclusively licensed to us for North America and the Caribbean in perpetuity from Speedo International Limited. We will no longer license the Speedo trademark in conjunction with the Speedo transaction, which is expected to close in the first quarter of 2020, subject to customary closing conditions. |
| • | Women’s intimate apparel under the Warner’s and Olga brands and intimate apparel under the True&Co. brand.Warner’s was the fourth best selling brand for bras and panties in United States department and chain stores in 2019. True&Co. is primarily distributed in the United States through our TrueAndCo.com digital commerce site, and, to a lesser extent, through a department store and a mass market retailer. |
Retail —We also market products directly to consumers through our TrueandCo.comdigital commerce site.
Heritage Brands Retail. Our Heritage Brands Retail segment consists of the operation of stores, primarily located in outlet centers throughout the United States and Canada. A majority of our stores offer a broad selection of Van Heusen men’s and women’s apparel, along with a limited selection of our dress shirt and neckwear offerings, and IZODGolf, Warner’sand to a lesser extent, Speedo brand Warner’s products. Approximately halfThe majority of these stores operate under the Van Heusen name, with the remaining stores featuringfeature multiple brand names on the store signage.signage, with the remaining stores operating under the Van Heusen name. We also sell our products in the United States through our directly operated digital commerce sites for Speedo, True&Co., VanHeusen and IZOD, as well as our styleBureau.com site.
distribution of each licensed product, most of which are subject to our prior approval and continuing oversight. The arrangements generally are exclusive to a territory or product category. Territorial licenses include our joint venturesventure in Australia and Mexico.
Our heritage brands licensees, and the products and territories licensed by them, include:
| Product Category and Territory | ||
Arvind | ARROW men’s and women’s dresswear, sportswear and accessories (India, Middle East, | |
Five Star Blue, LLC | IZOD men’s denim, twill pants and shorts (United States, Canada and Mexico) | |
| F&T Apparel LLC | Van Heusen and ARROW boys’ dress furnishings and sportswear; IZOD boys’ sportswear; IZOD and ARROW boys’ andgirls’ school uniforms; ARROW men’s tailored clothing; IZOD boys’ tailored clothing (United States and Canada) | |
I.C.C. International Public Company | ARROW men’s dress furnishings, tailored clothing, sportswear and accessories; ARROW women’s dresswear and sportswear (Thailand, Myanmar, Laos, Cambodia and Vietnam) | |
Peerless | Van Heusen and IZOD men’s tailored clothing (United States, Canada and Mexico) | |
IZODmen’s, women’s | ||
Our Heritage Brands Wholesale segment includes the results of our Heritage Brands wholesale and licensing activities, the results of our directly operated digital commerce sites, and our proportionate share of the net income or loss of our investments in theour joint venturesventure in AustraliaMexico and Mexicoin PVH Legwear, in each case relating to the joint ventures’venture’s Heritage Brands businesses. Our Heritage Brands Retail segment includes the results of our Heritage Brands retail activities.stores.
Our Business Strategy
We are one of the largest branded apparel companies in the world, with $8.9 billion in revenues in 2017. We see opportunityopportunities for long-term growth as we employ our strategic priorities across our organization. Our global growth strategies include:
Driving consumer engagement by investing inthrough innovative designs and personalized brand product, channel and in-store and online experiences.shopping experiences that capture the heart of the consumer.
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Expanding our worldwide reach through organic growth and acquisitions.
Investing in and evolving how we operate by leveraging technology and data to be dynamic, nimble and forward-thinking.
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Developing a talented and skilled organizationworkforce that embodies our core values by attracting and retaining talent through associate engagementan entrepreneurial spirit, while empowering our associates to design their future.
Delivering sustainable, profitable growth and career growth opportunities.
Our strategies are complemented by accelerating topline growthour purpose to power brands that drive fashion forward, for good.
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Tommy Hilfiger Business
We believe that we can continue to grow global retail sales of TOMMY HILFIGER product through a number of initiatives, which include:
Driving brand heat and focusing on marginconversion by delivering dynamic consumer engagement initiatives that include brand ambassadors, capsule collections, consumer activations and working capital opportunities, while maximizing returns.experiential events.
| • | Delivering compelling products that reflect TOMMY HILFIGER’s accessible premium positioning and classic American cool aesthetic, with a focus on sustainability and social innovation. |
Category expansion within womenswear, accessories, denim and underwear.
Regional expansion, particularly in the communities where we workAsia-Pacific region.
Digitizing the complete brand experience, from design to our showrooms for wholesale customers, to our online and live.in-store experiences.
Calvin Klein Business
We believe significant growth opportunities exist to drive further global retail sales of CALVIN KLEIN product and improvements in the operating margin of our Calvin Klein business over time, including through:
| • | Delivering compelling products that reflect CALVIN KLEIN’s accessible premium positioning and seductive aesthetic, with a focus on sustainable product creation. |
Heritage Brands Business
Our Heritage Brands business represents our original business, where we developed our core competencies, and is an important complement to our global designer brand businesses. We believe that this business can continueIn addition to gaincapturing market share and generategenerating healthy cash flows, as we execute against our keywill continue to look for further ways to optimize the Heritage Brands portfolio. Our strategic initiatives including:for our Heritage Brands business include:
Enhancing profitability by optimizing our portfolio, capitalizing on supply chain opportunities, reducing costs and through pure play digital commerce retailers, as well as increased distribution through wholesale partners (in stores and online).maintaining a critical focus on inventory management.
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Other Strategic Opportunities
Seasonality
Our business generally follows a seasonal pattern. Our wholesale businesses tend to generate higher levels of sales in the first and third quarters, while our retail businesses tend to generate higher levels of sales in the fourth quarter. Royalty, advertising and other revenue tends to be earned somewhat evenly throughout the year, although the third quarter has the highest level of royalty revenue due to higher sales by licensees in advance of the holiday selling season. We expect this seasonal pattern will generally continue. Working capital requirements vary throughout the year to support these seasonal patterns and business trends.
Design
Our businesses dependbusiness depends on our ability to stimulate and respond to consumer tastes and demands, as well as on our ability to remain competitive in the areas of quality and delivering a compelling price value proposition.
Product Sourcing
Our capabilities for worldwide procurement and sourcing enable us to deliver to our customers competitive and high quality goods at an attractive value and on a timely basis. We have an extensive established network of worldwide sourcing partners that enables us to meet our customers’ needs in an efficient manner and not relywithout relying on any one vendor or factory or on vendors or factories in any one country. Our products were produced in over 1,200 factories in approximately 50 countries during 2017.2019. All but twoone of these factories were operated by independent manufacturers, with most being located in Asia.
We source finished products and, to a lesserlimited extent, raw materials and trim. Raw materials and trim include fabric, buttons, thread, labels and similar components. Finished products consist of manufactured and fully assembled products ready for shipment to our customers and our stores. Raw material, trim, and finished product commitments are generally made two to six months prior to production, and quantities are finalized at that time.production. We believe we are one of the largest users of shirting fabric in the world. We believe that an ample number of alternative suppliers exist should we need to secure additional or replacement production capacity and raw materials.
Our purchases from our suppliers are effected through individual purchase orders specifying the price, quantity, delivery date and destination of the items to be produced. Sales are monitored regularly at both the retail and wholesale levels and modifications in production can be made either to increase or reduce inventories. We look to establish long-term supplier relationships in the appropriate locations throughout the world to meet our needs and we place our orders in a manner designed to limit the risk that a production disruption at any one facility could cause a serious inventory problem, while maximizingseeking to maximize the business opportunity.pricing opportunities.
The manufacturers of our products are required to meet our quality, human rights, safety, environmental and cost requirements. Our global supply chain teams, offices and buying agents enable us to monitor the quality of the goods manufactured by, and the delivery performance of, our suppliers and work with our global compliance teams to ensure the enforcement of our human rights and labor standards and other code of conduct requirements through our ongoing extensive training, approval and monitoring system. They also monitor and track the primary cost inputs to the finished product to ensure
that we pay the most appropriate cost for our finished goods.
We continue to assessexplore new areas of production that can grow with our manufacturing footprint to ensure we have the best infrastructure to meet the needs of our global wholesale and retail businesses.
We also continue to develop strategies that can enhance the operational efficiency of our supply chain and unlock gross margin opportunities. We have incorporated 3D technology to enhance our design capabilities, which reduce our lead times, improve our planning abilities and eliminate the need for early samples in the design process. Speed is another critical focus area across the Company. We have implemented various speed models, core replenishment and read and react capabilities for select categories to enhance our operations and make our business model more dynamic and responsive, while also increasing service levels, reducing inventory exposure and improving quality and consumer value. We believe the enhancement of our supply chain efficiencies and working capital management through the effective use of our distribution network and overall infrastructure will allow us to control costs better and provide improved service to our customers.
Corporate Responsibility
As an industry leader and one of the largest branded apparel companies in the world, PVH recognizes itswe recognize that we have a responsibility to address itsour social and environmental impacts. Further, we recognize the responsibility and opportunity to make positive impacts - from source to store - by empowering the people who work in our supply chain, preserving the environment and supporting our communities. Corporate responsibility is central to how we conduct business and it is a crucial consideration embodied in all of the strategic business decisions that we make.
In 2019, we built upon our long-standing commitment to corporate responsibility by launching Forward Fashion, our evolved vision for the future that provides a new level of ambition and transparency across our corporate responsibility program and reinforces our long-standing commitment to sustainable business. Our Forward Fashion strategy supports the standards released by the Global Fashion Agenda in its CEO Agenda 2019, which reflect global developments and focus on climate change as a core priority. We are committed to making an impact on the people, the environmentgoals outlined in our ForwardFashion strategy and the communities where we workare taking action in a number of ways, including joining key pledges and live and communicating our progress transparently to our stakeholders. Our corporate responsibility strategy consists of ten commitments under three key focus areas, whichindustry groups that align with the United Nations’ Sustainable Development Goals, covering issues such as clean water and sanitation, affordable and clean energy, and inclusion and diversity.our strategy.
Increase positive impacts — Our ambition is valued. We view the workers in our supply chain as an extensionfor 100% of our organizationproducts and packaging to be ethically and sustainably sourced from suppliers who respect human rights and are committed to partnering with our business partners to protect the human rights of every worker.good employers.
| • | Improve lives across our value chain — Our ambition is to improve the lives of the over one million people across our value chain, focusing on education and opportunities for women and children, ensuring access to clean water, investing in health and education initiatives, and continuing to champion inclusion and diversity. |
We issue an annual report on our corporate responsibility efforts that can be found on our corporate website at PVH.com/responsibility.website.
Warehousing, Distribution and Logistics
Our products are shipped from manufacturers to our wholesale and retail warehousing and distribution centers for inspection, sorting, packing and shipment. Centers range in size and our main facilities, some of which are operated by independent third parties, are located in the United States, the Netherlands, Canada, China, Japan, Hong Kong, South Korea, TaiwanBrazil and Brazil.Australia. Our warehousing and distribution centers are designed to provide responsive service to our customers and our retail stores on a cost-effective basis.
Our backlog of customer orders totaled $2.097$1.693 billion and $1.377$1.652 billion as of February 4, 20182, 2020 and January 29, 2017,February 3, 2019, respectively. The size of our order backlog depends upon a number of factors, including the timing of the market weeks for our
particular lines, during which a significant percentage of our orders are received, and the timing of the shipments, which varies from year-to-year with consideration for holidays, consumer trends, concept plans, and the usage of our basic stock replenishment programs. As a consequence, a comparison of the size of our order backlog from period to period may not be meaningful, nor may it be indicative of eventual shipments.
Material Customers
Our largest customers account for significant portions of our revenue. Sales to our five largest customers were 18.4% of our revenue in 2019 and 18.9% of our revenue in 2017, 21.3%each of our revenue in 20162018 and 22.2% of our revenue in 2015.2017. No single customer accounted for more than 10% of our revenue in 2017, 20162019, 2018 or 2015.2017.
Advertising and Promotion
Our marketing programs are an integral component of the success of our brands and their associated product offerings. Advertisements generally portray a lifestyle representation of our category offerings rather than a specific item.the products offered under them. We intend for each of our brands to be a leader in its respective market segment, with strong consumer awareness, relevance and consumer loyalty. We believe that our brands are successful in their respective market segments because we have strategically positioned each brand to target a distinct consumer demographic. Advertisements generally portray a lifestyle representation of our category offerings rather than a specific item. We design and market our products to complement each other, satisfy lifestyle needs, emphasize product features important to our target consumers, deliver a strong price/value proposition and encourage consumer loyalty.
We also advertise through print media (including fashion, entertainment/human interest, business, men’s, women’s and sports magazines and newspapers), on television, through outdoor signage and through in-store point of sale materials, as well as participate in cooperative advertising programs with our retail partners. In addition, we advertise our brands through sport sponsorships and product tie-ins. We believe that our use of influentialhigh-profile brand ambassadors and well-known social media influencers across our marketing programs helps drive our brand awareness and cultural relevance.
With respect to our retail outlet operations,stores, the majority of which are located in premium outlet centers in the United States and Canada, we generally rely upon local outlet mall developers to promote traffic for their centers. Outlet center developers employ multiple formats, including signage, (highway billboards, off-highway directional signs, on-site signage and on-site information centers), print advertising, (brochures, newspapers and travel magazines), direct marketing, (to tour bus companies and travel agents), radio and television advertising, and special promotions.
We believe that TOMMY HILFIGER is one of the world’s leading designer lifestyle brands and is internationally recognized for celebrating the essence of classic American cool style with a preppy twist. Tommy Hilfiger employs advertising, marketing and communications staff, including an in-house creative team, as well as outside agencies, to implement its global marketing and communications strategy across all channels of distribution. The Tommy Hilfiger marketing and communications team develops and coordinates TOMMY HILFIGER advertising for all regions and product lines, licensees and regional distributors. Advertisements for TOMMY HILFIGER brand products appear primarily in social media outlets, fashion and lifestyle magazines, newspapers, outdoor media and cinema and on television. The digital and online focus of marketing for the TOMMY HILFIGER brands is integral to its campaigns and continues to increase. Additionally, the marketing and communications team coordinates personal appearances by Mr. Tommy Hilfiger, including at runway shows and brand events and flagship store openings as part of its efforts. Tommy Hilfiger maintains multiple showroom facilities and sales offices around the world, more than halfworld. Nearly all of which include innovative digital salesits showrooms that have createdare digitized, offering a more engaging, integrated and seamless digitized buying experience for its wholesale partners.
Celebrity partnerships continued to be a cornerstone of our TOMMY HILFIGER consumer engagement efforts in 2019 using a balance of global and regional brand ambassadors. TOMMY HILFIGER’s partnership with British Formula OneTM racing driver and five-time Formula OneTMWorld ChampionLewis Hamilton, which began in 2018, continued to drive momentum in 2019, including through an experiential event during Fall 2019 Milan Fashion Week, where consumers were able
to experience the TOMMYHILFIGER fashion show and entertainment through several high profile collaborations duringview the year. Tommy Hilfiger’s advertising programs focusedTommyXLewis collaborative collection on driving sales in its global growth categories - women’s apparel, accessories and men’s tailored apparel and underwear - while different platforms. TOMMY HILFIGER also engaging new consumers, withhas a particular focus on attracting a younger consumer. The successfulmulti-year strategic partnership with Gigi Hadid, the global brand ambassador for TOMMY HILFIGER womenswear, continued with the model co-designing capsule pieces for Spring and Fall 2017. Building upon its role in the “see now, buy now” realm, the brand’s TOMMYNOW Spring 2017 fashion show in Venice Beach and Fall 2017 fashion show in London allowed consumers to immediately purchase items featured on the runway through tommy.com, as well as in TOMMY HILFIGER stores and through select wholesale partners globally. Additionally, the TOMMY JEANS Spring and Fall 2017 marketing campaigns featured celebrities, including Gigi Hadid and Sofia Richie.
Tommy Hilfiger also delivered engaging partnerships geared toward the new globalfemale consumer, enlisting Zendaya as a brand ambassador for TOMMY HILFIGER menswear. These partnerships build upon the efforts to expandbeginning in Spring 2019, helping raise the brand’s global recognition and bring profile. The collaboration continued through our TOMMYNOW fashion show, starring TommyXZendaya in Fall 2019, which resulted in TOMMY HILFIGER being the #1 most talked about fashion brand at New York Fashion Week on Twitter.
Calvin Klein Business
CALVIN KLEIN is a global lifestyle brand built on iconic essentials and powered by bold, progressive ideals. CALVIN KLEIN continues to new audiences,generate compelling brand and cultural relevancy by evolving and driving consumer engagement. The CALVIN KLEIN brands are unified by a dedicated brand purpose with a focus on “defying the boundaries of self-expression.”
We established a Consumer Marketing Organization (the “CMO”) in 2019, which encompasses the business’s marketing, communications, social media, celebrity dressing and special events, while also building personalized relationships and tailoring the overall consumer experience through highly specialized teams. We believe that this enhanced marketing approach will better meet our consumers’ needs as wellwe adapt to their rapidly changing demands.
We celebrated five decades of iconic brand history with a special capsule collection in 2019, which was accompanied by a marketing campaign featuring Justin Bieber back in his CALVIN KLEINUNDERWEAR, alongside wife Hailey Bieber, musicians A$AP Rocky and Troye Sivan, and models Kendall Jenner and Liu Wen. We hosted events across Europe, Asia, Brazil, Mexico and Peru as further drive the global growth of Tommy Hilfiger’s menswear business.
We continued to evolve our marketing strategy, shifting to a digital and video-first mindset by creating branded content and curated experiences to leverage across social media platforms. A highlight of 2019 was CALVIN KLEIN lifestyle brands, respectively,’s official sponsorship of the Coachella Valley Music and Arts Festival in additionCalifornia, where our Spring 2019 campaign came to life through an immersive experience offering the opportunity to interact with both product and branded content. The activation was recognized by Brandweek with its Constellation Award for best luxury/fashion team.
Calvin Klein also continued to leverage strategic partnerships by balancing global and regional brand ambassadors. Singer-actor Lay Zhang was named CALVIN KLEIN’s first-ever Chinese global ambassador, underscoring the significant long-term opportunity to grow CALVIN KLEIN’s footprint and gain market share across the region. In collaboration with the partnership, we hosted several experiential events, including a broad array of apparel and licensed products.surprise performance for fans in Shanghai.
In our Heritage Brands business, in 2017,we continued a partnership for Van Heusen with a particular focus on drivingthe UFC® that featured MMA fighter Stephen Thompson as brand relevance with younger consumers, and communicated our product features through digital, print, point of sale
We continue to commercialize Heritage Brands products, including efforts to develop the Speedo Fit training program by building relevancy through partnerships with personal trainers, gyms and fitness professionals.
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Trademarks
We own the TOMMY HILFIGER, CALVIN KLEIN, TOMMY HILFIGER, Van Heusen, IZOD, ARROW, Warner’s, Olga, True&Co.and Eagle Geoffrey Beene brands, as well as related trademarks (e.g., the interlocking “IZ” logo for IZOD and the TOMMY HILFIGER flag logo and crest design) and lesser-known names. These trademarks are registered for use in each of the primary countries where our products are sold and additional applications for registration of these and other trademarks are made in jurisdictions to accommodate new marks, uses in additional trademark classes or additional categories of goods or expansion into new countries.
Mr. Tommy Hilfiger is prohibited in perpetuity from using, or authorizing others to use, the TOMMY HILFIGER marks (except for the use by Mr. Hilfiger of his name personally and in connection with certain specified activities). In addition, we are prohibited in perpetuity from selling products not ordinarily sold under the names of prestige designer businesses or prestige global lifestyle brands without Mr. Hilfiger’s consent, from engaging in new lines of business materially different from such types of lines of business without Mr. Hilfiger’s consent, or from disparaging or intentionally tarnishing the TOMMY HILFIGER-related marks or Mr. Hilfiger’s personal name.
We own the CALVIN KLEIN marks and derivative marks in all trademark classes and for all product categories through our ownership of Calvin Klein Trademark Trust (“the Trust”), which is the sole and exclusive title owner of substantially all registrations of the CALVIN KLEIN trademarks. The sole purpose of the Trust is to hold these marks. Calvin Klein maintains and protects the marks on behalf of the Trust. The Trust licenses to Calvin Klein and Warnaco on an exclusive, irrevocable, perpetual and royalty-free basis the use of the marks.
Mr. Calvin Klein retains the right to use his name, on a non-competitive basis, with respect to his right of publicity, unless those rights are already being used in the Calvin Klein business. Mr. Klein has also been granted a royalty-free worldwide right to use the CALVIN KLEIN mark with respect to certain personal businesses and activities, subject to certain limitations designed to protect the image and prestige of the CALVIN KLEIN brands and to avoid competitive conflicts.
Our trademarks are the subject of registrations and pending applications throughout the world for use on a variety of apparel, footwear and related products, as well as licensed product categories, and we continue to expand our worldwide usage and registration of new and related trademarks. In general, trademarks remain valid and enforceable as long as the marks continue to be used in connection with the products and services with which they are identified and, as to registered tradenames, the required registration renewals are filed. In markets outside of the United States, particularly those where products bearing any of our brands are not sold by us or any of our licensees or other authorized users, our rights to the use of trademarks may not be clearly established.
Our trademarks and other intellectual property rights are valuable assets and we vigorously seek to protect them on a worldwide basis against infringement. We are susceptible to others imitating our products and infringing on our intellectual property rights. This is especially the case with respect to the TOMMY HILFIGER andCALVIN KLEIN and TOMMY HILFIGER brands, as these brands enjoy significant worldwide consumer recognition and their generally higher pricing (as compared to our heritage brands) provides significant opportunity and incentive for counterfeiters and infringers. We have broad, proactive enforcement programs that we believe have been generally effective in controlling the sale of counterfeit products in the United States and in major markets abroad.
Competition
The apparel industry is competitive as a result of its fashion orientation, mix of large and small producers, low barriers to entry, the flow of domestic and imported merchandise and the wide diversity of retailing methods. We compete with numerous domestic and foreign designers, brands owners, manufacturers and retailers of apparel, accessories and footwear, including, in certain circumstances, the private label brands of our wholesale customers. Additionally, with the shift in consumer shopping preferences driving growth in the digital channel, there are more companies in the apparel sector and an increased level of transparency in pricing and product comparisons, which impacts purchasing decisions. As well, as consumers are increasingly focused on circularity with respect to apparel, companies that enable consumers to rent or purchase pre-owned apparel also impact purchasing decisions.
We believe we are well-positioned to compete primarilyin the apparel industry on the basis of style, quality, price and service. Our business depends on our ability to stimulate consumer tastes and demands, as well as on our ability to remain competitive in these areas. We believe we are well-positioned to compete in the apparel industry. Our diversified portfolio of brands and products and our use of multiple channels of distribution have allowed us to develop a business that produces results that are not dependent on any one demographic group, merchandise preference, distribution channel or region. We have developed a portfolio of brands that appeals to a broad spectrum of consumers. Our owned brands have long histories and enjoy high recognition and awareness within their respective consumer segments. We
develop our owned and licensed brands to complement each other and to generate strong consumer loyalty. The worldwide recognition of the TOMMY HILFIGER and CALVIN KLEIN and TOMMY HILFIGER brands generally provide us with significant global opportunities and the opportunity to develop businesses that target different consumer groups at higher price points and in higher-end distribution channels than our heritage brands, as well as with significant global opportunities due to the worldwide recognition of the brands.
Imports and Import Restrictions
A substantial portion of our products is imported into the United States, Canada, Europe, Asiathe Asia-Pacific region and Latin America. These products are subject to various customs laws, which may impose tariffs, as well as quota restrictions. In addition, each of the countries in which our products are sold has laws and regulations covering imports. The United States and other countries in which our products are sold may impose, from time to time, new duties, tariffs, surcharges, or other import controls or restrictions, including the imposition of a “safeguard quota,” or adjust presently prevailing duty or tariff rates or levels. We, therefore, maintain a program of intensive monitoring of import restrictions and developments. We seek to minimize, where possible, our potential exposure to import related risks through, among other measures, adjustments in product design and fabrication, shifts of production among countries, including consideration of countries with tariff preference and free trade agreements, and manufacturers, and geographical diversification of our sources of supply. In some instances, production of a specific product category (e.g., swim goggles), component parts or raw materials may be highly concentrated in one country.
The United States and China are involved in a trade dispute that has seen the imposition in 2019 of significant additional tariffs on the products we sell that are imported into the United States from China. Please see our risk factor “We primarily use foreign suppliers for our products and raw materials, which poses risks to our business operations”in Item 1A, “Risk Factors,” for further discussion.
Environmental Matters
Our facilities and operations are subject to various environmental, health and safety laws and regulations. In addition, we may incur liability under environmental statutes and regulations with respect to the contamination of sites that we own or operate or previously owned or operated (including contamination caused by prior owners and operators of such sites, abutters or other persons) and the off-site disposal of hazardous materials. We believe our operations are in compliance with the terms of all applicable laws and regulations and our compliance with these laws and regulations has not had, and is not expected to have, a material effect on our capital expenditures, cash flows, earnings or competitive position.
Employees
As of February 4, 2018,2, 2020, we employed approximately 19,60021,500 persons on a full-time basis and approximately 16,90018,500 persons on a part-time basis. Approximately 2% of our employees were represented for the purpose of collective bargaining by four different unions in the United States. Additional persons, some represented by these four unions, are employed from time to time based upon our manufacturing schedules and retailing seasonal needs. Our collective bargaining agreements generally are for one to three-year terms. In some international markets, a significant percentage of employees are covered by governmental labor arrangements. We believe that our relations with our employees are good.
Executive Officers of the Registrant
The following table sets forth the name, age and position of each of our executive officers:
| Name | Age | Position | |||
| Emanuel Chirico | Chairman and Chief Executive Officer | ||||
| Stefan Larsson | 45 | President | |||
| Michael A. Shaffer | Executive Vice President and Chief Operating & Financial Officer | ||||
| Francis K. Duane | Vice Chairman and Chief Executive Officer, Heritage Brands | ||||
| Daniel Grieder | Chief Executive Officer, Tommy Hilfiger Global and PVH Europe | ||||
| Chief Executive Officer, Calvin Klein | |||||
| Mark D. Fischer | Executive Vice President, General Counsel & Secretary | ||||
| David F. Kozel | Executive Vice President, Chief Human Resources Officer | ||||
Mr. Chirico joined us as Vice President and Controller in 1993. Mr. Chirico was named Executive Vice President and Chief Financial Officer in 1999, President and Chief Operating Officer in 2005, Chief Executive Officer in 2006, and Chairman of the Board in 2007.
Mr. Larsson joined us as President in 2019. From 2015 until 2017, Mr. Larsson was President and Chief Executive Officer and a director of Ralph Lauren Corporation. From 2012 until 2015, he was the Global President of Old Navy, Inc., a division of The Gap, Inc.
Mr. Shaffer has been employed by us since 1990. He served as Senior Vice President, Retail Operations immediately prior to being named Executive Vice President, Finance in 2005, Executive Vice President and Chief Financial Officer in 2006, and Executive Vice President and Chief Operating & Financial Officer in 2012.
Mr. Duane served as President of our Izod division from 1998 until 2001, was named Vice Chairman, Sportswear in 2001, Vice Chairman, Wholesale Apparel in 2006, Chief Executive Officer, Wholesale Apparel in 2012, Chief Executive Officer, Heritage Brands and North America Wholesale in 2013, and Vice Chairman and Chief Executive Officer, Heritage Brands in 2018. Mr. Duane will relinquish his title and duties as Vice Chairman and Chief Executive Officer, Heritage Brands in June 2020, in advance of his retirement in February 2021.
Mr. Grieder has been employed by Tommy Hilfiger since 2004 (including time served with a predecessor organization).2004. He served as Chief Executive Officer, Tommy Hilfiger Europe from 2008 until 2014, prior to being named Chief Executive Officer, Tommy Hilfiger Global and PVH Europe in July 2014.
Mr. Fischer joined us as Vice President, General Counsel & Secretary in 1999. He became Senior Vice President in 2007 and Executive Vice President in 2013.
Mr. Kozel served as Vice President, Human Resources from 2003 until 2007, was named Senior Vice President, Human Resources in 2007, Executive Vice President, Human Resources in 2013, and Executive Vice President and Chief Human Resources Officer in 2015.
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Item 1A. Risk Factors
The following risk factors should be read in conjunction with the other information set forth in this Annual Report on Form 10-K when evaluating our business and the forward-looking statements contained within this report. The occurrence of one or more of the circumstances or events described below could have a material adverse effect on our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may occur or become material and may also adversely affect our business, financial condition or results of operations.
A substantial portion of our revenue and gross profit is derived from a small number of large wholesale customers and the loss of any of these customers or significant financial difficulties in their businesses could substantially reduce our revenue.
A few of our customers account for significant portions of our revenue. Sales to our five largest customers were 18.4% of our revenue in 2019 and 18.9% of our revenue in 2017, 21.3%each of our revenue in 20162018 and 22.2% of our revenue in 2015.2017. No single customer accounted for
more than 10% of our revenue in 2017, 20162019, 2018 or 2015.2017. Collectively, Macy’s, announced in 2016 plans to close approximately 100 stores, of which 82 were closed during 2017Inc. (“Macy’s”) and 2016. J. C. Penney Company,Corporation, Inc. (“J. C. Penney”), two of our ten largest customers in 2019, have closed 139 locations in 2017approximately 275 stores since 2016 and Macy’s announced plans to close eight125 additional stores in 2018.over the next three years. These store closings have resulted and may continue to result in a decrease in the total amount of purchases made by Macy’s and J. C. Penney, two of our ten largest customers in 2017.Penney. A continued decline in purchases made over the next several years could have a materially adverse effect on our United States wholesale business.
We havehad an agreement with Macy’s pursuant to which Macy’s iswas the exclusive department store distributor in the United States of men’s sportswear under the TOMMY HILFIGER brand; G-III, a licensee of the TOMMY HILFIGER brand, hashad a similar arrangement with Macy’s for women’s sportswear under the TOMMY HILFIGER brand. The term of our agreement ends on January 31, 2020. As a result of these strategic alliances, the success of Tommy Hilfiger’s North American men’s wholesale business and ourits licensed women’s wholesale business with G-III arewere substantially dependent on this relationshipthese relationships and on the ability of Macy’s to maintain and increase sales of TOMMY HILFIGER products. In addition,Both exclusive arrangements were terminated effective for the United States men’s and women’s businesses may be affected by any operational or financial difficultiesSpring 2019 selling season. We cannot assure you that Macy’s experiences, includingwill continue to order the same volume of TOMMY HILFIGER products from us, G-III or our other TOMMY HILFIGER licensees, or that other department stores will purchase TOMMY HILFIGER products in sufficient volume to offset any deteriorationreduction in sales to Macy’s in the future. This could result in a decline in overall abilityrevenue and have a material adverse effect on our results of Macy’s to attract customer traffic or in its overall liquidity position.operations.
We do not have long-term agreements with any of our customers other than Tommy Hilfiger’s strategic alliance with Macy’s, and purchases generally occur on an order-by-order basis. A decision by any of our major customers, whether motivated by marketing strategy, competitive conditions, financial difficulties or otherwise, to decrease significantly the amount of merchandise purchased from us or our licensing or other partners, or to change their manner of doing business with us or our licensing or other partners, could substantially reduce our revenue and materially adversely affect our profitability. During the past several years, theThe retail industryindustry’s recent history has experiencedseen a great deal of consolidation, particularly in the United States, and other ownership changes, as well as management changes and store closing programs, and we expect such changes to be ongoing. In addition, store closings by our customers,Store closing programs, such as those described above, decrease the number of stores carrying our products, while the remaining stores may purchase a smaller amount of our products and may reduce the retail floor space designated for our brands. In the future, retailers may further consolidate, undergo restructurings or reorganizations, realign their affiliations or reposition their stores’ target markets or marketing strategies. Any of these types of actions could decrease the number of stores that carry our products or increase the ownership concentration within the retail industry. These changes could decrease our opportunities in the market, increase our reliance on a smaller number of large customers and decrease our negotiating strength with our customers. These factors could have a material adverse effect on our financial condition and results of operations.
We may not be able to continue to develop and grow our Tommy Hilfiger and Calvin Klein and Tommy Hilfiger businesses in terms of revenue and profitability.businesses.
A significant portion of our business strategy involves growing our Tommy Hilfiger and Calvin Klein and Tommy Hilfiger businesses. Our achievement of revenue and profitability growth from Tommy Hilfiger and Calvin Klein and Tommy Hilfiger will depend largely upon our ability to:
| • | continue to maintain and enhance the distinctive brand identities of the TOMMY HILFIGER and CALVIN KLEIN brands; |
continue to maintain good working relationships with Tommy Hilfiger’s and Calvin Klein’s and Tommy Hilfiger’s licensees;
| • | continue to enter into new, or renew or extend existing, licensing agreements for the TOMMY HILFIGER and CALVIN KLEIN brands; and |
continue to strengthen and expand the Tommy Hilfiger and Calvin Klein and Tommy Hilfiger businesses.
We cannot assure you that we can successfully execute any of these actions or our growth strategy for these businesses, nor can we assure you that the launch of any additional product lines or businesses by us or our licensees or that the continued offering of these lines will achieve the degree of consistent success necessary to generate profits or positive cash flow. Our ability to successfully carry out our growth strategy may be affected by, among other things, our ability to enhance our relationships with existing customers to obtain additional selling space or add additional product lines, our ability to develop new relationships with retailers, economic and competitive conditions, changes in consumer spending patterns and changes in consumer tastes and style trends. If we fail to continue to develop and grow the Tommy Hilfiger or Calvin Klein or Tommy Hilfiger business, in terms of revenue and profitability, our financial condition and results of operations may be materially and adversely affected.
The success of our Calvin Klein and Tommy Hilfiger and Calvin Kleinbusinesses depends on the value of our “TOMMY HILFIGER” and “CALVIN KLEIN” and “TOMMY HILFIGER” brands and, if the value of either of those brands were to diminish, our business could be adversely affected.
Our success depends on our brands and their value. The CALVIN KLEINTOMMY HILFIGER name is integral to the existing Calvin KleinTommy Hilfiger business, as well as to our strategies for continuing to grow and expand the business. The CALVIN KLEIN brands could be adversely affected if Mr. Klein’s public image or reputation were to be tarnished. We have similar exposure with respect to the TOMMY HILFIGER brands. Mr. Hilfiger, who remains active in the business, is closely identified with the TOMMY HILFIGER brand and any negative perception with respect to Mr. Hilfiger could adversely affect the TOMMY HILFIGER brands. In addition, under Mr. Hilfiger’s employment agreement, if his employment is terminated for any reason, his agreement not to compete with the Tommy Hilfiger business will expire two years after such termination. Although Mr. Hilfiger could not use any TOMMY HILFIGER trademark in connection with a competitive business, his association with a competitive business could adversely affect the Tommy Hilfiger business. We also have exposure with respect to the CALVIN KLEIN brands, which are integral to the existing Calvin Klein business and could be adversely affected if Mr. Klein’s public image or reputation were to be tarnished.
Our retail stores arebusiness is heavily dependent on the ability and desire of consumers to travel and shop.
Our U.S. retail store operations are a material contributor to our revenue and 2016,earnings. The majority of our United States retail stores are located away from major residential centers or near vacation destinations, making travel a critical factor in their success. These retail businesses historically also have had a significant portion of their revenue and earnings attributable to sales to international tourists. In addition to the factors discussed above, international tourism to the United States could be (and, in 2015 and 2016, was) reduced, as could the extent to which international tourists shop at our retail stores, whichduring times of a strengthening United States dollar, particularly the euro, the Brazilian real, the Canadian dollar, the Mexican peso, the Korean won and the Chinese yuan renminbi. A reduction in international tourist traffic or spending therefore could have a material adverse effect on our financial condition and results of operations. In fact in 2019, we did experience a significant decrease in sales to international tourists, which we believe was attributable in ourpart to the strength of the United States dollar and which negatively impacted sales and earnings for our Calvin Klein and Tommy Hilfiger retail stores, which are material contributors of revenue and profits. businesses in the United States.
Other factors that could affect the success of our stores include:
the location of the store or mall, including the location of a particular store within the mall;
the other tenants occupying space at the mall;
increased competition in areas where the stores are located;
the amount of advertising and promotional dollars spent on attracting consumers to the store or mall;
the changing patterns of consumer shopping behavior;
increased competition from online retailers; and
the diversion of sales from our retail stores due to our digital commerce business.sites.
Acquisitions may not be successful in achieving intended benefits, cost savings and synergies.
One component of our growth strategy has been to make acquisitions, such as the Tommy Hilfiger, Calvin Klein Tommy Hilfiger and Warnaco acquisitions. Prior to completing any acquisition, our management team identifies expected synergies, cost savings and growth opportunities but, due to legal and business limitations, we may not have access to all necessary information. The integration process may be complex, costly and time-consuming. The potential difficulties of integrating the operations of an acquired business and realizing our expectations for an acquisition, including the benefits that may be realized, include, among other things:
failure to implement our business plan for the combined business;
delays or difficulties in completing the integration of acquired companies or assets;
higher than expected costs, lower than expected cost savings or a need to allocate resources to manage unexpected operating difficulties;
unanticipated issues in integrating manufacturing, logistics, information, communications and other systems;
unanticipated changes in applicable laws and regulations affecting the acquired business;
unanticipated changes in the combined business due to potential divestitures or other requirements imposed by antitrust regulators;
retaining key customers, suppliers and employees;
retaining and obtaining required regulatory approvals, licenses and permits;
operating risks inherent in the acquired business;
diversion of the attention and resources of management;
consumers’ failure to accept product offerings by us or our licensees;
assumption of liabilities not identified in due diligence;
the impact on our or an acquired business’ internal controls and compliance with the requirements under the Sarbanes-Oxley Act of 2002;applicable regulation; and
other unanticipated issues, expenses and liabilities.
We have completed acquisitions that have not performed as well as initially expected and cannot assure you that any acquisition will not have a material adverse impact on our financial condition and results of operations.
Future economic conditions, including volatility in the financial and credit markets may adversely affect our business.
Economic conditions in the past have adversely affected, and in the future may adversely affect, our business, our customers and licensees and their businesses, and our financing and other contractual arrangements.arrangements, including, for example, as a result of the current COVID-19 outbreak. Such conditions, among other things, have resulted, and in the future may result, in financial difficulties leading to restructurings, bankruptcies, liquidations and other unfavorable events for our customers and licensees, may continue to cause such customers to reduce or discontinue orders of our products or beand licensed products sold by our licensees, and may result in customers being unable to pay us for products they have purchased from us and licensees being unable to pay us for royalties owed to us. Financial difficulties of customers and licensees may also affect the ability of our customers and licensees to access credit markets or lead to higher credit risk relating to receivables from customers.customers and licensees.
Future volatility in the financial and credit markets, including the recent volatility due, in part, to the current COVID-19 outbreak, could make it more difficult for us to obtain financing or refinance existing debt when the need arises, including upon maturity, which for our senior unsecured credit facilities is currently scheduled for April 2024, or on terms that would be acceptable to us.
Our business is exposed to foreign currency exchange rate fluctuations and control regulations.
Our Tommy Hilfiger and Calvin Klein and Tommy Hilfiger businesses each have substantial international components that expose us to significant foreign exchange risk. Our Heritage Brands business also has international components but those components are not significant to the business. Changes in exchange rates between the United States dollar and other currencies can impact our financial results in two ways: a translationtranslational impact and a transactiontransactional impact.
The translationtranslational impact refers to the impact that changes in exchange rates can have on our results of operations and financial position. The functional currencies of our foreign subsidiaries are generally the applicable local currencies. Our consolidated financial statements are presented in United States dollars. The results as our operating resultsof operations in local foreign currencies are translated into United States dollars using an average exchange rate over the representative period.period and our assets and liabilities in local foreign currencies are translated into United States dollars using the closing exchange rate at the balance sheet date. Foreign exchange differences that arise from the translation of our foreign subsidiaries’ assets and liabilities into United States dollars are recorded as foreign currency translation adjustments in other comprehensive (loss) income. Accordingly, our operating results of operations and other comprehensive (loss) income will be unfavorably impacted during times of a strengthening United States dollar, particularly against the euro, the Brazilian real, the Australian dollar, the Japanese yen, the Korean won, the British pound sterling, the Canadian dollar the Mexican peso, the Indian rupee, the Russian ruble and the Chinese yuan renminbi, and favorably impacted during times of a weakening United States dollar against those currencies.
A transactiontransactional impact on financial results is common for apparel companies operating outside the United States that purchase goods in United States dollars, as is the case with most of our foreign operations. As with translation, our operating results of operations will be unfavorably impacted as fluctuationsduring times of thea strengthening United States dollar changeas the increased local currency value of inventory which results in a changehigher cost of goods in local currency when the goods are sold and favorably impacted during times of a weakening United States dollar as the decreased local currency value of inventory results in a lower cost of goods in local currency when the goods are sold. We also have exposure to changes in foreign currency exchange rates related to certain intercompany transactions and selling, general and administrative (“SG(commonly referred to as “SG&A”) expenses. We currently use and plan to continue to use foreign currency forward exchange contracts or other derivative instruments to mitigate the cash flow or market value risks associated with these inventory and intercompany transactions, but we are unable to entirely eliminate these risks.
We are also exposed to foreign exchange risk in connection with our licensing businesses. Most of our licenselicensing agreements require the licensee to report sales to us in the licensee’s local currency but to pay us in United States dollars based on the exchange rate as of the last day of the contractual selling period. Thus, while we are not generally exposed to exchange rate gains and losses between the end of the selling period and the date we collect payment, we are exposed to changes in exchange rate changesrates during and up to the last day of the selling period. In addition, certain of our other foreign licenselicensing agreements expose us to changes in exchange rate changesrates up to the date we collect payment or convert local currency payments into United States dollars. As
a result, during times of a strengthening United States dollar, our foreign royalty revenue will be negatively impacted, and during times of a weakening United States dollar, our foreign royalty revenue will be favorably impacted.
We also have exposure to changes in foreign currency exchange rates related to our €950 million aggregate principal amount of euro-denominated senior notes. During times of a strengthening United States dollar against the euro, we could be required to use a lower amount of our cash flows from operations to pay interest and make long-term debt repayments on our euro-denominated senior notes, whereas during times of a weakening United States dollar against the euro, we could be required to use a greater portionamount of our cash flows from operations to pay interest and make long-term debt repayments.repayments on these notes.
We conduct business, directly or through licensees and other partners, in countries that are or have been subject to exchange rate control regulations and have, as a result, experienced difficulties in receiving payments owed to us when due, with amounts left unpaid for extended periods of time. Although the amounts to date have been immaterial to our results, as our international businesses grow and if controls are enacted or enforced in additional countries, there can be no assurance that such controls would not have a material and adverse effect on our business, financial condition or results of operations.
Our level of debt could impair our financial condition and ability to operate.
We had outstanding as of February 4, 20182, 2020 an aggregate principal amount of $3.086$2.725 billion of indebtedness under our senior securedunsecured credit facilities, our senior unsecured notes and our securedunsecured debentures. In March 2020, we increased our aggregate borrowings outstanding under our senior unsecured revolving credit facilities, other short-term revolving credit facilities and unsecured commercial paper note program from $50 million at February 2, 2020 to approximately $930 million, in order to increase our cash position and preserve financial flexibility in responding to the impacts of the COVID-19 outbreak on our business. Our level of debt could have important consequences to investors, including:
requiring a substantial portion of our cash flows from operations be used for the payment of interest on our debt, thereby reducing the funds available to us for our operations or other capital needs;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate because our available cash flow after paying principal and interest on our debt may not be sufficient to make the capital and other expenditures necessary to address these changes;
increasing our vulnerability to general adverse economic and industry conditions because, during periods in which we experience lower earnings and cash flow, such as during the current COVID-19 outbreak, we will be required to devote a proportionally greater amount of our cash flow to paying principal and interest on our debt;
limiting our ability to obtain additional financing in the future to fund working capital, capital expenditures, acquisitions, contributions to our pension plans and general corporate requirements;
placing us at a competitive disadvantage to other relatively less leveraged competitors that have more cash flow available to fund working capital, capital expenditures, acquisitions, share repurchases, dividend payments, contributions to pension plans and general corporate requirements; and
with respect to any borrowings we make at variable interest rates, including under our senior securedunsecured credit facilities, leaving us vulnerable to increases in interest rates to the extent the borrowings are not subject to an interest rate swap agreement.
In addition, our interest rate swap agreements as well as a portion of the borrowings under our senior unsecured credit facilities that have variable interest rates are tied to the London Interbank Offered Rate (“LIBOR”). In July 2017, the Financial Conduct Authority in the United Kingdom announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021, or whether different benchmark rates used to price indebtedness will develop. We cannot predict the consequences and timing of these developments, which could include an increase in interest expense and may also require the amendment of contracts that reference LIBOR.
We primarily use foreign suppliers for our products and raw materials, which poses risks to our business operations.
The majority of our apparel, footwear and footwear productsaccessories are produced by and purchased or procured from independent manufacturers located in countries in Asia, South America, Europe, Asia, the Middle East, SouthNorth America, the Caribbean,Africa, Central America and Africa.the Caribbean. Although no single supplier or country is or is expected to bebecome critical to our production needs, any of the following could materially and adversely affect our ability to produce or deliver our products and, as a result, have a material adverse effect on our business, financial condition and results of operations:
political or labor instability or military conflict involving any of the countries in which we, our contractors, or our suppliers operate, which could cause a delay in the transportation of our products and raw materials to us and an increase in transportation costs;
heightened terrorism security concerns, which could subject imported or exported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundments of goods for extended periods or could result in decreased scrutiny by customs officials for counterfeit goods, leading to lost sales, increased costs for our anti-counterfeiting measures and damage to the reputation of our brands;
a significant decrease in availability or increase in cost of raw materials, including commodities (particularly cotton), or the inabilityability to use raw materials produced in a country that is a major provider due to political, human rights, labor, environmental, animal cruelty or other concerns;
concerns
a significant decrease in factory and shipping capacity or increase in demand for such capacity;
a significant increase in wage and shipping costs;
natural disasters, which could result in closed factories and scarcity of raw materials;
disease epidemics and health-relatedhealth related concerns, such as the current COVID-19 outbreak, which could result in (and in the case of the COVID-19 outbreak, has resulted in certain of the following) closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;
migration and development of manufacturers, which could affect where our products are or are planned to be produced;
imposition of regulations, quotas and safeguards relating to imports and our ability to adjust timely to changes in trade regulations, which, among other things, could limit our ability to produce products in cost-effective countries that have the labor and expertise needed; and
imposition of duties, taxes and other charges on imports; andimports.
The United States government recently indicated its intentionimposed tariffs in 2019 and 2018 on a variety of imports from China into the United States, including certain categories of apparel, footwear and accessories. These additional tariffs, which were included in a trade agreement signed by the United States and China in January 2020, are not expected to be decreased, at least not in the near term, and in the future the United States could impose significantadditional tariffs or increase existing tariffs on goods imported from China into the United States. China is the largest sourcing country of apparel, footwear and accessories for us globally and for most of our licensees. We imported approximately $400$215 million of inventory into the United States from China in 2017. Enactment of such a proposal2019. Accordingly, any tariffs on apparel, footwear and accessories imported from China into the United States would result in an increase in our cost of goods sold for that product. We are looking at alternative sourcing options but we may not be able to shift production of inventory bound for the United States from China to other countries. In addition, higher costs in sourcing from other countries, orincluding because others in the industry are looking to move production for the same reason, may make the move price-prohibitive. We may not be able to pass the entire cost increase resulting from the tariffs onto consumers or could choose not to. Any increase in prices to consumers could have an adverse impact on our direct sales to consumers, as well as sales by our wholesale customers and our licensees. Any adverse impact on such sales or increase in our cost of goods sold could have a material adverse effect on our business and results of operations.
If our manufacturers, the manufacturers used by our licensees, or our licensees themselves fail to use legal and ethical business practices, our business could suffer.
We require our manufacturers, the manufacturers used by our licensees and the licensees themselves to operate in compliance with applicable laws, rules and regulations regarding working conditions, employment practices and environmental compliance. Additionally, we impose upon our business partners operating guidelines that require additional obligations in those areas in order to promote ethical business practices. We audit, or have audited by third parties audit, the operations of these independent parties to determine compliance. We arewere a signatorymember of the Accord on Fire and Building Safety in Bangladesh and are a member of its successor, the mission of each of which is to improve fire and building safety in Bangladesh’s apparel factories and we continue tofactories. We also collaborate with factories, suppliers, industry participants and other engaged stakeholders to improve the lives of our factory workers and others in our sourcing communities. However, we do not control our manufacturers, the manufacturers used by our licensees, or our licensees themselves, or their labor, manufacturing and other business practices.
If any of these manufacturers or licensees violates labor, environmental, building and fire safety, or other laws or implements labor, manufacturing or other business practices that are generally regarded as unethical, in the United States, the shipment of finished products to us could be interrupted, orders could be canceled and relationships could be terminated. Further, we could be prohibited from importing goods by governmental authorities. In addition, we could be the focus of adverse publicity and our reputation could be damaged. Any of these events could have a material adverse effect on our revenue and, consequently, our results of operations.
We are dependent on third parties to source and manufacture our products and any disruption in our relationships with these parties or in their businesses may materially adversely affect our businesses.
We rely upon independent third parties for the manufacturing of the vast majority of our apparel, footwear and footwear products.accessories. A manufacturer’s failure to ship products to us in a timely manner, which has occurred, and may occur in the future, as a result of the current COVID-19 outbreak, or to meet required quality standards could cause us to miss the delivery date requirements of our customers for those products. As a result, customers could cancel their orders, refuse to accept deliveries or demand reduced prices. Any of these actions taken by our customers could have a material adverse effect on our revenue and, consequently, our results of operations.
We use third party buying offices for a portion of our product sourcing. Any interruption in the operations of these buying offices, or the failure of these buying offices to perform effectively their services for us, could result in material delays, reductions of shipments and increased costs. Furthermore, such events could harm our wholesale and retail relationships. Any disruption in our relationships with these buying offices or in their businesses could have a material adverse effect on our cash flows, business, financial condition and results of operations.
We are dependent on a limited number of distribution facilities. If one becomes inoperable, our business, financial condition and operating results could be negatively impacted.
We operate a limited number of distribution facilities and also rely on certainengage independently operated distribution facilities around the world to warehouse and ship products to our customers and our own retail stores, as well as perform related logistics services. Our ability to meet the needs of our retailwholesale customers and of our own retail stores depends on the proper operation of our primary facilities. If any of our primary facilities were to shut down or otherwise become inoperable or inaccessible, for any reason,including as a result of disease epidemics and other health-related concerns, such as the current COVID-19 outbreak, we could have a substantial loss of inventory or disruptions of deliveries to our customers and our stores, incur significantly higher costs or experience longer lead times associated with the distribution of our products during the time it takes to reopen or replace the facility. This could materially and adversely affect our business, financial condition and operating results.
A portion of our revenue is dependent on royalties and licensing.
The operating profit associated with our royalty, advertising and other revenue is significant because the operating expenses directly associated with administering and monitoring an individual licenselicensing or similar agreement are minimal. Therefore, the loss of a significant licensee, whether due to the termination or expiration of the relationship, the cessation of the licensee’s operations or otherwise (including as a result of financial difficulties of the licensee), without an equivalent replacement, or a significant decline in our licensees’ sales, for example as occurred as a result of the current COVID-19 outbreak, could materially impact our profitability.
While we generally have significant control over our licensees’ products and advertising, we rely on them for, among other things, operational and financial controls over their businesses. Our licensees’ failure to successfully market licensed products or our inability to replace our existing licensees could materially and adversely affect our revenue both directly from reduced royalty, advertising and other revenue received and indirectly from reduced sales of our other products. Risks are also associated with our licensees’ ability to obtain capital, execute their business plans, timely deliver quality products, manage their labor relations, maintain relationships with their suppliers, manage their credit risk effectively and maintain relationships with their customers.
Our licensing business makes us susceptible to the actions of third parties over whom we have limited control.
We rely on our licensees to preserve the value of our brands. Although we attempt to protect our brands through, among other things, approval rights over design, production quality, packaging, merchandising, distribution, advertising and promotion of our products, we cannot assure you that we can control our licensees’ use of our brands. The misuse of our brands by a licensee could have a material adverse effect on our business, financial condition and results of operations.
We may be unable to protect our trademarks and other intellectual property rights.
Our trademarks and other intellectual property rights are important to our success and our competitive position. We are susceptible to others imitating our products and infringing on our intellectual property rights, especially with respect to the TOMMY HILFIGER and CALVIN KLEIN and TOMMY HILFIGER brands, as they enjoy significant worldwide consumer recognition and the generally premium pricing of TOMMY HILFIGER and CALVIN KLEIN and TOMMY HILFIGER brand products creates additional incentive for counterfeiters and infringers. Imitation or counterfeiting of our products or infringement of our intellectual property rights could diminish the value of our brands or otherwise adversely affect our revenue. We cannot assure you that the actions we take to establish and protect our trademarks and other intellectual property rights will be adequate to prevent imitation of our products by others or to prevent others from seekingothers. We cannot assure you that other third parties will not seek to invalidate our trademarks or block sales of our products as a violation of their own trademarks and intellectual property rights. In addition, we cannot assure you that others will not assert rights in, or ownership of, trademarks and other intellectual property rights of ours or in marks that are similar to ours or marks that we license or market or that we will be able to successfully resolve these types of conflicts to our satisfaction. In some cases, there may be trademark owners who have prior rights to our marks because the laws of certain foreign countries may not protect intellectual property rights to the same extent as do the laws of the United States. In other cases, there may be holders who have
prior rights to similar marks. For example,trademarks. We have in the past we werebeen and currently are involved both domestically and internationally in proceedings relating to a company’s claim of prior rights to the IZOD mark in Mexico and to another company’s claimsome of prior rights to the CALVIN KLEIN mark in Chile. We are currently involved in opposition and cancellation proceedings with respect toour trademarks or marks similar to some of our brands, both domestically and internationally.brands.
We face intense competition in the apparel industry.
Competition is intense in the apparel industry. We compete with numerous domestic and foreign designers, brand owners, manufacturers and retailers of apparel, accessories and footwear, some of which have greater resources than we do. We also face increased competition from online retailers in the digital channel, which is characterized by low barriers to entry. In addition, in certain instances, we compete directly with our wholesale customers, as they also sell their own private label products in their stores and online. We compete within the apparel industry primarily on the basis of:
anticipating and responding to changing consumer tastes, demands and shopping preferences in a timely manner and developing attractive, quality products;
maintaining favorable brand recognition and relevance, including an increased focus onthrough digital brand engagement and online and social media presence;
appropriately pricing products and creating an acceptable value proposition for customers;
providing strong and effective marketing support;
ensuring product availability and optimizing supply chain efficiencies with third party manufacturers and retailers; and
obtaining sufficient retail floor space at retail and effective presentation of our products at retail, on digital commerce sites operated by our department store customers and pure play digital commerce retailers, and on our digital commerce sites.
The failure to compete effectively or to keep pace with rapidly changing markets could have a material adverse effect on our business, financial condition and results of operations. In addition, if we misjudge the market for our products, we could be faced with significant excess inventories for some products and missed opportunities for others.
Our profitability may decline as a result of increasing pressure on margins.
The apparel industry, particularly in the United States (our largest market), is subject to significant pricing pressure caused by many factors, including intense competition, consolidation in the retail industry, pressure from retailers and changes in consumer demand.demand including, for example, as a result of the current COVID-19 outbreak. These factors may cause us to reduce our sales prices to retailers and consumers, which could cause our profitability to decline if we are unable to appropriately manage inventory levels or offset price reductions with sufficient reductions in product costs or operating expenses. This could have a material adverse effect on our results of operations, liquidity and financial condition.
If we are unable to manage our inventory effectively and accurately forecast demand for our products, our results of operations could be materially adversely affected.
We have made and continue to make investments in our supply chain management systems and processes that enable us to respond more rapidly to changes in sales trends and consumer demands and enhance our ability to manage inventory. However, we cannot assure you that we will be able to anticipate and respond successfully to changing consumer tastes and style trends or economic conditions and, as a result, we may not be able to manage inventory levels to meet our future order requirements. If we are unable to or fail to accurately forecast consumer demand, including, for example, as a result of the current COVID-19 outbreak, we may experience excess inventory levels or a shortage of product required to meet demand. Inventory levels in excess of consumer demand may result in inventory write-downs and the sale of excess inventory at discounted prices, which could have a material adverse effect on the reputation of our brands and our profitability. If we underestimate consumer demand for our products, we may not be able to have produced for us enoughsufficient inventories of product to meet
consumer requirements in a timely manner, which could result in lost revenues, as well as damage to our reputation and relationships.
We rely significantly on information technology. Our business and reputation could be adversely impacted if our computer systems, or systems of our business partners and service providers, are disrupted or cease to operate effectively or if we or they are subject to a data security or privacy breach.
Our ability to manage and operate our business effectively depends significantly on information technology systems, including systems operated by third parties and us and systems that communicate with third parties, including website and mobile applications through which we communicate with our consumers and our employees. We process, transmit, store and maintain information about consumers, employees, and other individuals in the ordinary course of business, including through our digital
commerce operations. This includes personally identifiable information protected under applicable laws and the collection and processing of customers’ credit and debit card numbers and reliance on systems maintained by third parties with whom we contract to provide payment processing. The failure of any system to operate effectively or disruption in these systems, which may occur as a result of circumstances beyond our control including fire, natural disasters, power outages and systems disruptions, could require significant remediation costs and adversely impact our operations.
We take, and require third party providers to take, measures to protect data but have no control over their efforts and are limited in our ability to assess their systems and processes. Furthermore, while we invest, and believe our service providers invest, considerable resources in protecting systems and information, we all are still subject to security events, including but not limited to cybercrimes and cybersecurity attacks, such as those perpetrated by sophisticated and well-resourced bad actors attempting to disrupt operations or access or steal data. Security events may not be detected for an extended period of time, which could compound the scope and extent of the damages and problems. Such security events could disrupt our business, severely damage our reputation and our relationship with consumers, and expose us to risks of litigation and liability, which may not be covered by insurance or may result in costs in excess of the insurance coverage we maintain.
We regularly implement new systems and hardware and are currently undertaking a major multi-year SAP S/4 implementation to upgrade of our platforms and systems worldwide. The implementation of new software and hardware involves risks and uncertainties that could cause disruptions, delays or deficiencies in the design, implementation or application of these systems including:
•adversely impacting our operations;
increased costs;
disruptions in our ability to effectively source, sell or ship our products;
delays in collecting payments from our customers; and
adversely affecting our ability to timely report our financial results.
Our business, results of operations and financial condition could be materially adversely affected as a result of these implementations. In addition, intended improvements may not be realized. Our business partners and service providers face the same risks, which could also adversely impact our business and operations.
We are subject to data privacy and security laws and regulations, the number and complexity of which are increasing globally. We may be the subject of enforcement or other legal actions despite our compliance efforts.
We collect, use, store, and otherwise process or rely upon access to data, including personally identifiable information, of consumers, employees, and other individuals in the daily conduct of our business, including through our digital commerce operations. There have been significant developments in the area of data privacy and cybersecurity law and regulation. Significant new laws, such as the European Union’s General Data Protection Regulation, the Brazilian General Data Protection Law and the California Consumer Privacy Act, are continuously being proposed and enacted around the world. These laws and regulations have caused and could continue to cause us to change the way we operate, including in a less efficient manner, in order to comply with local requirements. We have a privacy compliance program but our compliance efforts are not an assurance that we will not be the subject of regulatory or other legal actions. We could expend significant management and associate time and incur significant cost investigating and defending ourselves against the claims in any such matter, which matters also could result in us being the subject of significant fines, judgments or settlements. In addition, any such claim could give rise to significant reputational damage, whether or not we are ultimately successful in defending ourselves.
The loss of members of our executive management and other key employees could have a material adverse effect on our business.
We depend on the services and management experience of our executive officers, who have substantial experience and expertise in our business. We also depend on other key executives in various areas of our businesses and operations. Competition for qualified personnel in the apparel industry is intense and competitors may use aggressive tactics to recruit our key employees. The unexpected loss of services of one or more of these individuals could have a material adverse effect on us.
A significant shift in the relative sources of our earnings, adverse decisions of tax authorities or changes in tax treaties, laws, rules or interpretations could have a material adverse effect on our results of operations and cash flow.
We have direct operations in many countries and the applicable tax rates vary by jurisdiction. As a result, our overall effective tax rate could be materially affected by the relative level of earnings in the various taxing jurisdictions to which our earnings are subject. In addition, the tax laws and regulations in the countries where we operate may be subject to change, as evidenced by the United States Tax Cuts and Jobs Act of 2017 (the “Tax Legislation”) enacted in December 2017 that will significantly change the way we are taxed.change. Moreover, there may be changes from time to time in interpretation and enforcement of tax law. As a result, we may pay additional taxes if tax rates increase or if tax laws, regulations or treaties in the jurisdictions where we operate are modified by the competent authorities in an adverse manner.
In addition, various national and local taxing authorities periodically examine us and our subsidiaries. The resolution of an examination or audit may result in us paying more than the amount that we may have reserved for a particular tax matter, which could have a material adverse effect on our cash flows, business, financial condition and results of operations for any affected reporting period.
We and our subsidiaries are engaged in a number of intercompany transactions. Although we believe that these transactions reflect arm’s length terms and that proper transfer pricing documentation is in place, which should be respected for tax purposes, the transfer prices and conditions may be scrutinized by local tax authorities, which could result in additional tax liabilities.
If we are unable to fully utilize our deferred tax assets, our profitability could be reduced.
Our deferred income tax assets are valuable to us. These assets include tax loss and foreign tax credit carryforwards in various jurisdictions. Realization of deferred tax assets is based on a number of factors, including whether there will be adequate levels of taxable income in future periods to offset the tax loss and foreign tax credit carryforwards in jurisdictions where such assets have arisen. Valuation allowances are recorded in order to reduce the deferred tax assets to the amount expected to be realized in the future. In assessing the adequacy of our valuation allowances, we consider various factors including reversal of deferred tax liabilities, forecasted future taxable income and potential tax planning strategies. These factors could reduce the value of the deferred tax assets, which could have a material effect on our profitability.
Volatility in securities markets, interest rates and other economic factors could increase substantially increase our defined benefit pension costs and liabilities.
We have significant obligations under our defined benefit pension plans. The funded status of our pension plans is dependent on many factors, including returns on invested plan assets and the discount rate used to measure pension obligations. Unfavorable returns on plan assets, which, for example, may result from recent market volatility due, in part, to the COVID-19 outbreak, a lower discount rate or unfavorable changes in the applicable laws or regulations could materially change the timing and amount of pension funding requirements, which could reduce cash available for our business.
Our operating performance also may be significantly impacted by the amount of expense recorded for our pension plans. Pension expense recorded throughout the year is calculated using actuarial valuations that incorporate assumptions and estimates about financial market, economic and demographic conditions. Differences between estimated and actual results give rise to gains and losses which can be significant, that are recorded immediately in pension expense, generally in the fourth quarter of the year, whichyear. These gains and losses can be significant and can create volatility in our operating results.
Our balance sheet includes a significant amount of intangible assets and goodwill. A decline in the estimated fair value of an intangible asset or of a reporting unit could result in an impairment charge recorded in our operating results, which could be material.
Goodwill and other indefinite-lived intangible assets are tested for impairment annually and between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Also, we review our amortizable intangible assets for impairment if an event occurs or circumstances change that would indicate the carrying amount may not be recoverable. If the carrying valueamount of our goodwill or an otheranother intangible asset waswere to exceed its fair value, the asset would be written down to its fair value, with the impairment charge recognized as a noncash expense in our operating results. Adverse changes in future market conditions or weaker operating results compared to our expectations, including, for example, as a result of the current COVID-19 outbreak, may impact our projected cash flows and estimates of weighted average cost of capital, which could result in a potentially material impairment charge if we are unable to recover the carrying value of our goodwill and other intangible assets.
As of February 4, 2018,2, 2020, we had approximately $3.835$3.678 billion of goodwill and $3.727$3.481 billion of other identifiable intangible assets on our balance sheet, which together represented 64%53% of our total assets. No impairment was recorded in 20172019 based on our annual goodwill and other indefinite-lived intangible assets impairment tests. However, during the fourth quarter of 2019, we entered into a definitive agreement to sell our Speedo North America business, which prompted the need for us to perform an interim impairment assessment of our Speedo perpetual license right. As a result of this interim test, the perpetual license right was determined to be impaired and an impairment charge of $116.4 million was recorded. The Speedo transaction was also a triggering event that prompted the need for us to perform an interim goodwill impairment test for the Heritage Brands Wholesale reporting unit, the reporting unit that includes the Speedo North America business. No goodwill impairment resulted from this interim test.
Our balance sheet includes a significant amount of long-lived assets in our retail stores, including operating lease right-of-use assets and property, plant and equipment. A decline in the current and projected cash flows in our retail stores could result in impairment charges, which could be material.
Long-lived assets, such as operating lease right-of-use assets and property, plant and equipment in our retail stores, are tested for impairment if an event occurs or circumstances change that would indicate the carrying amount may not be recoverable. If the carrying amount of a long-lived asset were to exceed its fair value, the asset would be written down to its fair value and an impairment charge recognized as a noncash expense in our operating results. Adverse changes in future market conditions or weaker operating results compared to our expectations, including, for example, as a result of the current COVID-19 outbreak, may impact our projected cash flows and estimates of weighted average cost of capital, which could result in a potentially material impairment charge if we are unable to recover the carrying value of our long-lived assets.
Provisions in our certificate of incorporation and our by-laws and Delaware General Corporation Law could make it more difficult to acquire us and may reduce the market price of our common stock.
Our certificate of incorporation and by-laws contain certain provisions, including provisions requiring supermajority voting (80% of the outstanding voting power)stockholders who seek to approveintroduce proposals at a stockholders meeting or nominate a person to become a director to provide us with advance notice and certain business combinations,information, as well as meet certain ownership criteria; permitting the Board of Directors to fill vacancies on the BoardBoard; and authorizing the Board to issue shares of preferred stock without approval of our stockholders. These provisions could also have the effect of deterring changes of control.
In addition, Section 203 of the Delaware General Corporation Law imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our common stock. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the Board.
The United Kingdom’s withdrawal from the European Union could harm our business and financial results.
Voters in the United Kingdom approved a referendum to withdraw from the European Union (commonly referred to as “Brexit”). The United Kingdom formally withdrew from the European Union on January 31, 2020 and is now in a period of transition until December 31, 2020. During the transition period, the United Kingdom’s trading relationship with the European Union is expected to remain largely the same while the two parties negotiate a trade agreement as well as other aspects of the United Kingdom’s relationship with the European Union. The uncertainty surrounding the terms of the United Kingdom’s future relationship with the European Union after December 31, 2020 and its consequences could adversely impact consumer and investor confidence and the level of consumer purchases of discretionary items and retail products, including our products. The eventual terms upon which the withdrawal occurs (which could leave the United Kingdom without a trade agreement with the European Union) also could significantly disrupt the free movement of goods, services and people between the United Kingdom and the European Union and may result in increased legal and regulatory complexities and higher costs of conducting business in Europe. Volatility in the value of the British pound sterling, the euro and other European currencies could also result. Any of these effects, among others, could adversely affect our business, results of operations and financial condition.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
The general location, use, ownership status and approximate size of the principal properties that we occupied as of February 4, 20182, 2020 are set forth below:
| Location | Use | Ownership Status | Approximate Area in Square Feet | |||
| New York, New York | Corporate and Heritage Brands administrative offices and showrooms | Leased | 209,000 | |||
| New York, New York | Calvin Klein administrative offices and showrooms | Leased | ||||
| New York, New York | Tommy Hilfiger administrative offices and showrooms | Leased | ||||
| Bridgewater, New Jersey | Corporate | Leased | ||||
| Banksmeadow, Australia | Tommy Hilfiger, Calvin Klein and Heritage Brands administrative offices, showrooms, warehouse and distribution center | Leased | 243,000 | (1) | ||
| Milperra, Australia | Warehouse and distribution center | Leased | 86,000 | (1) | ||
| Amsterdam, The Netherlands | Tommy Hilfiger and Calvin Klein administrative offices, warehouse and showrooms | Leased | ||||
| Venlo/Oud Gastel, The Netherlands | Warehouse and distribution centers | Leased | ||||
| McDonough, Georgia | Warehouse and distribution center | Leased | 851,000 | |||
| Palmetto, Georgia | Warehouse and distribution center | Leased | 983,000 | |||
| Jonesville, North Carolina | Warehouse and distribution center | Owned | 778,000 | |||
| Montreal, Canada | Administrative offices, warehouse and distribution center | Leased | 183,000 | |||
| Hong Kong SAR, China | Corporate, Tommy Hilfiger and Calvin Klein | Leased | ||||
| Hawassa, Ethiopia | Manufacturing facility | Leased | ||||
| Dusseldorf, Germany | Tommy Hilfiger and Calvin Klein | Leased | ||||
| Cypress, California | Speedo administrative offices | Leased | 69,000 | |||
| Shanghai, China | Leased | |||||
(1) | We occupy properties in Australia since May 2019 in connection with the Australia acquisition. |
(2) | Our Speedo administrative offices in Cypress, California will no longer be occupied by us following the pending sale of our Speedo North America business to Pentland, which is expected to close in the first quarter of 2020, subject to customary conditions. Please see Note 4, “Assets Held For Sale,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion. |
In addition, as of February 4, 2018,2, 2020, we leased certain other administrative/supportadministrative offices and showrooms in various domestic and international locations. We also leased and operated as of February 4, 20182, 2020 over 1,6501,800 retail locations in the United States, Canada, Europe, AsiaAsia-Pacific, and Brazil.
Information with respect to minimum annual rental commitments under leasesmaturities of the Company’s lease liabilities in which we are a lessee is included in Note 16,17, “Leases,” in the Notes to Consolidated Financial Statements included in Item 8 of this report.
Item 3. Legal Proceedings
We are a party to certain litigations which, in management’s judgment based, in part, on the opinions of legal counsel, will not have a material adverse effect on our financial position.
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Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
ISSUER PURCHASES OF EQUITY SECURITIES
| Period | (a) Total Number of Shares (or Units) Purchased(1)(2) | (b) Average Price Paid per Share (or Unit)(1)(2) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(1) | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(1) | ||||||||||
| October 30, 2017 - | ||||||||||||||
| November 26, 2017 | 141,012 | $ | 128.67 | 140,000 | $ | 598,454,309 | ||||||||
| November 27, 2017 - | ||||||||||||||
| December 31, 2017 | 168,485 | 135.29 | 168,000 | 575,721,132 | ||||||||||
| January 1, 2018 - | ||||||||||||||
| February 4, 2018 | 119,456 | 146.48 | 118,500 | 558,348,466 | ||||||||||
| Total | 428,953 | $ | 136.23 | 426,500 | $ | 558,348,466 | ||||||||
| Period | (a) Total Number of Shares (or Units) Purchased(1)(2) | (b) Average Price Paid per Share (or Unit)(1)(2) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs(1) | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(1) | ||||||||||
| November 4, 2019 - | ||||||||||||||
| December 1, 2019 | 333,392 | $ | 97.47 | 332,451 | $ | 752,514,829 | ||||||||
| December 2, 2019 - | ||||||||||||||
| January 5, 2020 | 381,889 | 102.92 | 381,441 | 713,255,373 | ||||||||||
| January 6, 2020 - | ||||||||||||||
| February 2, 2020 | 307,761 | 98.67 | 304,259 | 683,257,019 | ||||||||||
| Total | 1,023,042 | $ | 99.87 | 1,018,151 | $ | 683,257,019 | ||||||||
___________________
(1) |
(2) | Our 2006 Stock Incentive Plan provides us with the right to deduct or withhold, or require employees to remit to us, an amount sufficient to satisfy any applicable tax withholding requirements applicable to stock-based compensation awards. To the extent permitted, employees may elect to satisfy all or part of such withholding requirements by tendering previously owned shares or by having us withhold shares having a fair market value equal to the minimum statutory tax withholding rate that could be imposed on the transaction. Included in this table are shares withheld during the fourth quarter of |
The following performance graph and return to stockholders information shown below are provided pursuant to Item 201(e) of Regulation S-K promulgated under the Exchange Act. The graph and information are not deemed to be “filed” under the Exchange Act or otherwise subject to liabilities thereunder, nor are they to be deemed to be incorporated by reference in any filing under the Securities Act or Exchange Act unless we specifically incorporate them by reference.
The performance graph compares the yearly change in the cumulative total stockholder return on our common stock against the cumulative return of the S&P 500 Index and the S&P 500 Apparel, Accessories & Luxury Goods Index for the five fiscal years ended February 4, 2018.2, 2020.
| Value of $100.00 invested after 5 years: | ||||||
| Our Common Stock | $ | 130.84 | $ | 79.62 | ||
| S&P 500 Index | $ | 202.67 | $ | 179.17 | ||
| S&P 500 Apparel, Accessories & Luxury Goods Index | $ | 109.53 | $ | 78.24 | ||
Item 6. Selected Financial Data
Selected Financial Data appears under the heading “Five Year Financial Summary” on pages F-59F-70 and F-60.F-71.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
The following discussion and analysis is intended to help you understand us, our operations and our financial performance. It should be read in conjunction with our consolidated financial statements and the accompanying notes, which are included elsewhere in this report.
We are one of the largest brandedglobal apparel companies in the world withand, in March 2020, we marked our 100-year anniversary as a history going back over 135 years. Ourlisted company on the New York Stock Exchange. We manage a diversified brand portfolio, consists of nationally and internationally recognized brand names, including TOMMY HILFIGER,CALVIN KLEIN, TOMMY HILFIGER,Van Heusen, IZOD, ARROW, Speedo(licensed (licensed in perpetuity for North America and the Caribbean from Speedo International Limited)Caribbean), Warner’s, Olgaand, True&Co. and Geoffrey Beene. Our brand portfolio also consists of various other owned, licensed and, to a lesser extent, private label brands. We entered into a definitive agreement on January 9, 2020 to sell our Speedo North America business to Pentland and, upon closing of the sale, we will no longer license the Speedo trademark. The Speedo transaction is expected to close in the first quarter of 2020. The closing is subject to customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which has been received.
Our business strategy is to position our brands to sell globally at various price points and in multiple channels of distribution. This enables us to offer products to a broad range of consumers, while minimizing competition among our brands and reducing our reliance on any one demographic group, product category, price point, distribution channel or region. We also license the use of our brandstrademarks to third parties and joint ventures for product categories and in regions where we believe our licensees’ expertise can better serve our brands.
Our revenue was $8.915$9.9 billion in 2017,2019, of which approximatelyover 50% was generated outside of the United States. Our global designer lifestyle brands, TOMMY HILFIGERandCALVIN KLEIN, together generated over 80%approximately 85% of our revenue.
RESULTS OF OPERATIONS
COVID-19 Outbreak
The COVID-19 outbreak is having a significant impact on our business, financial condition, cash flows and results of operations in 2020.
Virus-related concerns, reduced travel, temporary store closures and government-imposed restrictions have resulted in sharply reduced traffic and consumer spending trends and sales stoppages in our retail stores and in the stores of our wholesale customers in virtually all key markets during the first quarter of 2020. In addition, our supply chain had been disrupted and may experience future disruptions as a result of either closed factories or factories with reduced workforces. Our licensees’ sales and their supply chain are also being negatively impacted by the COVID-19 outbreak, which in turn negatively impacts our royalty revenue.
There is significant uncertainty about the duration and extent of the impact of the COVID-19 outbreak; however, there will be a significant negative impact to our 2020 revenue and net income.
Further, our fourth quarter of 2019 earnings were negatively impacted compared to the prior year period by $22 million of additional inventory reserves that we recorded in anticipation of the lower sales trends projected in 2020 as a result of the onset of the COVID-19 outbreak.
Operations Overview
We generate net sales from (i) the wholesale distribution to retailers, franchisees, licensees and distributors of dress shirts, neckwear, sportswear (casual apparel), jeanswear, performance apparel, intimate apparel, underwear, swimwear, swim products, handbags, accessories, footwear and other related products under owned and licensed trademarks, including through digital commerce sites operated by our wholesale partners and pure play digital commerce retailers, and (ii) the sale of certain of these products through (a) over 1,650approximately 1,830 Company-operated free-standing retail store locations worldwide under our TOMMY HILFIGER,CALVIN KLEIN, TOMMY HILFIGER and certain of our heritage brands trademarks, (b) over 1,400approximately 1,500 Company-operated shop-in-shop/concession locations worldwide under our CALVIN KLEIN and TOMMY HILFIGER and CALVIN KLEIN trademarks, and (c) digital commerce sites in certainover 30 countries under our TOMMY HILFIGER and CALVIN KLEIN and TOMMY HILFIGER trademarks and in the United States through our SpeedoUSA.com and TrueandCo.comdirectly operated digital commerce sites.sites for Speedo, True&Co., Van Heusen, and IZOD, as well as our
styleBureau.com site. Additionally, we generate royalty, advertising and other revenue from fees for licensing the use of our trademarks. We manage our operations through our operating divisions, which are presented as six reportable segments: (i) Tommy Hilfiger North America; (ii) Tommy Hilfiger International; (iii) Calvin Klein North America; (ii)(iv) Calvin Klein International; (iii) Tommy Hilfiger North America; (iv) Tommy Hilfiger International; (v) Heritage Brands Wholesale; and (vi) Heritage Brands Retail.
| • | We entered into a definitive agreement on January 9, 2020 to sell our Speedo North America business to Pentland for $170 million in cash, subject to a working capital adjustment, as described above. We recorded a pre-tax noncash loss of $142 million in the fourth quarter of 2019 related to the Speedo transaction and expected deconsolidation of the net assets of the business, consisting of (i) a noncash impairment of our perpetual license right for the Speedo trademark and (ii) a noncash loss to reduce the carrying value of the business to its estimated fair value, less costs to sell. |
| • | We entered into agreements on July 3, 2019 to terminate early the licenses for the global Calvin Klein and Tommy Hilfiger North America socks and hosiery businesses in order to consolidate the socks and hosiery businesses for all of our brands in the United States and Canada in a newly formed joint venture, PVH Legwear, in which we own a 49% economic interest, and to bring in-house the international Calvin Klein socks and hosiery wholesale businesses. PVH Legwear was formed with a wholly owned subsidiary of our former Heritage Brands socks and hosiery licensee, and licenses from us the rights to distribute and sell TOMMY HILFIGER, CALVIN KLEIN, IZOD, Van Heusen and Warner’s socks and hosiery beginning in December 2019. We recorded a pre-tax charge of $60 million during 2019 in connection with these agreements. |
| • | We completed the Australia and TH CSAP acquisitions in the second quarter of 2019. The Australia acquisition closed on May 31, 2019. Prior to the closing, we, along with Gazal, jointly owned and managed a joint venture, PVH Australia, which licensed and operated businesses under the TOMMY HILFIGER, CALVIN KLEIN and Van Heusen brands, along with other owned and licensed brands. PVH Australia came under our full control as a result of the Australia acquisition and we now operate directly those businesses. The aggregate net purchase price for the shares acquired was $59 million, net of cash acquired and after taking into account the proceeds from the divestiture to a third party of an office building and warehouse owned by Gazal in June 2019. We completed the TH CSAP acquisition on July 1, 2019 for $74 million, as a result of which we now operate directly the Tommy Hilfiger retail business in the Central and Southeast Asia market. Please see Note 3, “Acquisitions,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion. |
In connection with the Australia and TH CSAP acquisitions, we recorded an aggregate net pre-tax gain of $83 million during 2019, including (i) a noncash gain of $113 million to write up our existing equity investments in Gazal and PVH Australia to fair value, partially offset by (ii) $21 million of pre-tax costs, primarily consisting of noncash valuation adjustments and one-time expenses recorded on our equity investments in Gazal and PVH Australia prior to the Australia acquisition closing, and (iii) a $9 million expense recorded in interest expense, net resulting from the remeasurement of our mandatorily redeemable non-controlling interest that was recognized in connection with the Australia acquisition.
| • | We entered into a licensing agreement on May 30, 2019 with G-III for the design, production and wholesale distribution of CALVIN KLEIN JEANS women’s jeanswear collections in the United States and Canada, which resulted in the discontinuation of our directly operated Calvin Klein North America women’s jeanswear wholesale business in 2019. |
We refinanced on April 29, 2019 our senior credit facilities and recorded pre-tax debt modification and extinguishment charges of $5 million. Please see the section entitled “Liquidity and Capital Resources” below for further discussion.
| • | We closed our TOMMY HILFIGER flagship and anchor stores in the United States (the “TH U.S. store closures”)in the first quarter of 2019 and recorded pre-tax costs of $55 million, primarily consisting of noncash lease asset impairments. Please see Note 12, “Fair Value Measurements,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion of the noncash lease asset impairments. |
| • | We announced on January 10, 2019 a restructuring in connection with strategic changes for ourCalvin Klein business (the “Calvin Klein restructuring”). The strategic changes included (i) the closure of the CALVIN KLEIN 205 W39 NYC brand (formerly Calvin Klein Collection), (ii) the closure of the flagship store on Madison Avenue in New York, New |
York (collectively with (i), the “CK Collection closure”), (iii) the restructuring of the Calvin Klein creative and design teams globally, and (iv) the consolidation of operations for the men’s Calvin Klein Sportswear and Calvin Klein Jeans businesses. All costs related to this restructuring were incurred by the end of 2019. We recorded pre-tax costs of $103 million during 2019 in connection with the Calvin Klein restructuring, consisting of a $30 million noncash lease asset impairment resulting from the closure of the flagship store on Madison Avenue in New York, New York, $26 million of contract termination and other costs, $26 million of severance, $9 million of other noncash asset impairments and $13 million of inventory markdowns. We recorded pre-tax costs of $41 million in the fourth quarter of 2018, consisting of $27 million of severance, $7 million of noncash asset impairments, $4 million of contract termination and other costs and $2 million of inventory markdowns. Please see Note 18, “Exit Activity Costs,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
| • | We acquired on April 20, 2018 the Geoffrey Beene tradename from Geoffrey Beene for $17 million, of which $16 million was paid in cash. Prior to the acquisition, we had licensed the rights to design, market and distribute Geoffrey Beene dress shirts and neckwear from Geoffrey Beene. |
We issued on December 21, 2017 €600 million euro-denominated principal amount of 3 1/8% senior notes due December 15, 2027. We redeemed on January 5, 2018 our $700 million principal amount of 4 1/2% senior notes due December 15, 2022 (using the proceeds of the senior notes due December 15, 2027) and recorded pre-tax debt extinguishment charges of $24 million. Please see the section entitled “Liquidity and Capital Resources” below for further discussion.
We amended on December 20, 2017 Mr. Tommy Hilfiger’s employment agreement, pursuant to which we made a cash buyout of a portion of the future payment obligation (the “Mr. Hilfiger amendment”). We recorded pre-tax charges of $83 million in 2017 in connection with the Mr. Hilfiger amendment.
We restructured our supply chain relationship with Li & Fung Trading Limited (“Li & Fung”) in a transaction that closed on September 30, 2017. Our non-exclusive buying agency agreement with Li & Fung was terminated in connection with this transaction (the “Li & Fung termination”). We recorded pre-tax charges of $54 million in 2017 in connection with the termination.
We acquired on September 1, 2017 the Tommy Hilfiger and Calvin Klein wholesale and concessions businesses in Belgium and Luxembourg from a former agent (the “Belgian acquisition”). for $12 million. As a result of this acquisition, we now operate directly our Tommy Hilfiger and Calvin Klein businesses in this region. The total consideration for the acquisition was $14 million, consisting of $12 million paid in cash and $2 million included in accrued expenses in our Consolidated Balance Sheet as of February 4, 2018, which is expected to be paid in the first quarter of 2018.
We acquired on March 30, 2017 True & Co., a direct-to-consumer intimate apparel digital commerce retailer.digital-centric retailer, for $28 million, net of $400,000 of cash acquired. This acquisition enablesenabled us to participate further in the fast-growing online channel and providesprovided a platform to increase innovation, data-driven decisions and speed in the way we serve our consumers across our channels of distribution. The total consideration for the acquisition was $28 million, net of $400,000 of cash acquired.
We completed the relocation of our Tommy Hilfiger office in New York in 2017 and recorded related pre-tax charges of $19 million, including noncash depreciation expense.
We purchased a group annuity in 2017 for certain participants of our retirement plans under which certain of our benefit obligations were transferred to an insurer. We recorded a pre-tax loss of $9 million in connection with the noncash settlement of such benefit obligations.
| • | We acquired on April 13, 2016 the 55% ownership interests in our former joint venture for TOMMY HILFIGER in China that we did not already own (the “TH China acquisition”). As a result of the TH China acquisition, we now operate directly our Tommy Hilfiger business in this market. We recorded pre-tax charges of $24 million and $27 million in 2018 and 2017, respectively, primarily consisting of noncash amortization of short-lived assets. |
in the latter part of 2014, resulting2018 and in 2019, particularly the euro, which is the foreign currency in which we transact the most business. As a negative impact onresult, our results of operations for 20152019 revenue and 2016. The United States dollar began to weaken against most major currencies during 2017net income decreased by approximately $215 million and we currently expect that this will result in a favorable impact on our 2018 revenues and earnings$25 million, respectively, as compared to 2017. Additionally, there2018 due to the impact of foreign currency translation. We currently expect a decrease in our revenue and net income in 2020 as compared to 2019 due to the impact of foreign currency translation.
There is also a transactiontransactional impact on our financial results because inventory typically is purchased in United States dollars by our foreign subsidiaries. As with translation, our earningsresults of operations will be unfavorably impacted as fluctuationsduring times of thea strengthening United States dollar, changeas the increased local currency value of inventory which results in a changehigher cost of goods in local currency when the goods are sold, and favorably impacted during times of a weakening United States dollar, as the decreased local currency value of inventory results in a lower cost of goods in local currency when the goods are sold. We use foreign currency forward exchange contracts to hedge against a portion of the exposure related to this transactiontransactional impact. The contracts cover at least 70% of the projected inventory purchases in United States dollars by our foreign subsidiaries. These contracts are generally entered into 12 months in advance of the related inventory purchases. Therefore, the impact of fluctuations of the United States dollar on the cost of inventory purchases covered by these contracts may be realized in our earningsresults of operations in the year following their inception, as the underlying inventory hedged by the contracts is sold. As such,Our 2019 net income included a slight benefit as compared to 2018 as a result of this transactional impact. However, the unfavorable impact of a strengthening United States dollar against most major currencies in the latter part of 20142018 and through 2016,in 2019, particularly the euro, is expected to negatively impactedimpact our gross margin during 2016, and, to2020. Additionally, there is a much lesser extent, during 2017. There is also a transactiontransactional impact related to changes in SG&A expenses as a result of fluctuations in foreign currency exchange rates. Additionally,We currently expect a decrease in our net income in 2020 as compared to 2019 due to the transactional impact.
Further, we have exposure to changes in foreign currency exchange rates related to our €950 million aggregate principal amount of euro-denominated senior notes asthat we had issued in the United States. The strengthening of the United States dollar against the euro would require us to use a lower amount of our cash flows from operations to pay interest and make long-term debt repayments, whereas the weakening of the United States dollar against the euro would require us to use a greater amount of our cash flows from operations to pay interest and make long-term debt repayments. We designated the carrying amount of these euro-denominated senior notes that we had issued in the United States as net investment hedges of our investments in certain of our foreign subsidiaries that use the euro as their functional currency. As a result, the remeasurement of these foreign currency borrowings at the end of each period is recorded in equity.
Retail comparable store sales discussed below refer to sales forfrom Company-operated retail stores that have been open and operated by us for at least 12 months, as well as sales from Company-operated digital commerce sites for those businesses and regions that have operated the related digital commerce site for at least 12 months. Sales forfrom retail stores and Company-operated digital commerce sites that are closed or shut down during the year are excluded from the calculation of retail comparable store sales. Sales for retail stores that are either relocated, materially altered in size or closed for a certain numberprolonged period of consecutive daystime and sales from Company-operated digital commerce sites that are materially altered are also excluded from the calculation of retail comparable store sales until such stores or sites have been in their new location or in their newly renovated state, for at least 12 months. Sales from our Company-operated digital commerce sites are included within retail comparable store sales for those businesses and regions that have operated the related digital commerce siteas applicable, for at least 12 months. Retail comparable store sales are based on local currencies and comparable weeks and, therefore, exclude an extraweeks. As a result of the 53rd week in 2017, as our 2017 fiscal year included 53 weeksthe 2018 retail comparable store sales are more appropriately compared with the 52 week period ended February 4, 2018 (which excludes for this purpose the first week of operations.2017). As such, all 2018 retail comparable store sales are presented on this shifted basis.
The following table summarizes our income statements in 2017, 20162019, 2018 and 2015:2017:
| 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||
| Net sales | $ | 8,439 | $ | 7,791 | $ | 7,605 | $ | 9,400 | $ | 9,154 | $ | 8,439 | ||||||||||
| Royalty revenue | 366 | 321 | 325 | 380 | 376 | 366 | ||||||||||||||||
| Advertising and other revenue | 109 | 91 | 90 | 129 | 127 | 109 | ||||||||||||||||
| Total revenue | 8,915 | 8,203 | 8,020 | 9,909 | 9,657 | 8,915 | ||||||||||||||||
| Gross profit | 4,894 | 4,370 | 4,162 | 5,388 | 5,308 | 4,894 | ||||||||||||||||
| % of total revenue | 54.9 | % | 53.3 | % | 51.9 | % | 54.4 | % | 55.0 | % | 54.9 | % | ||||||||||
| SG&A | 4,248 | 3,637 | 3,418 | 4,715 | 4,433 | 4,245 | ||||||||||||||||
| % of total revenue | 47.7 | % | 44.3 | % | 42.6 | % | 47.6 | % | 45.9 | % | 47.6 | % | ||||||||||
| Non-service related pension and postretirement cost | 90 | 5 | 3 | |||||||||||||||||||
| Debt modification and extinguishment costs | 24 | 16 | — | 5 | — | 24 | ||||||||||||||||
| Other noncash gain, net | — | 71 | — | |||||||||||||||||||
| Other noncash loss, net | 29 | — | — | |||||||||||||||||||
| Equity in net income of unconsolidated affiliates | 10 | 0 | 17 | 10 | 21 | 10 | ||||||||||||||||
| Income before interest and taxes | 632 | 789 | 761 | 559 | 892 | 632 | ||||||||||||||||
| Interest expense | 128 | 121 | 117 | 120 | 121 | 128 | ||||||||||||||||
| Interest income | 6 | 6 | 4 | 5 | 5 | 6 | ||||||||||||||||
| Income before taxes | 510 | 674 | 647 | 444 | 776 | 510 | ||||||||||||||||
| Income tax (benefit) expense | (26 | ) | 125 | 75 | ||||||||||||||||||
| Income tax expense (benefit) | 29 | 31 | (26 | ) | ||||||||||||||||||
| Net income | 536 | 549 | 572 | 415 | 745 | 536 | ||||||||||||||||
| Less: Net loss attributable to redeemable non-controlling interest | (2 | ) | 0 | — | (2 | ) | (2 | ) | (2 | ) | ||||||||||||
| Net income attributable to PVH Corp. | $ | 538 | $ | 549 | $ | 572 | $ | 417 | $ | 746 | $ | 538 | ||||||||||
Total Revenue
Total revenue was $9.909 billion in 2019, $9.657 billion in 2018 and $8.915 billion in 2017. Revenue in 2017 $8.203 billion in 2016 and $8.020 billion in 2015.included the benefit of a 53rd week. The increase in revenue of $712$252 million, or 3%, in 20172019 as compared to 20162018 was due principally to the net effect of the following items, inclusive of a 53rd week in 2017:items:
| • | The net addition of an aggregate $367 million of revenue, or an 8% increase over the prior year, attributable to our Tommy Hilfiger International and Tommy Hilfiger North America segments, which included a negative impact of $129 million, or 3%, related to foreign currency translation. Tommy Hilfiger International segment revenue increased 15% (including a 5% negative foreign currency impact), driven principally by outperformance in Europe and the addition of revenue resulting from the Australia and TH CSAP acquisitions. Tommy Hilfiger International comparable store sales increased 9%, including a benefit of 4% from sales on our digital commerce sites. Revenue in our Tommy Hilfiger North America segment decreased 1%, as growth in the North America wholesale business was more than offset by a 6% decline in Tommy Hilfiger North America comparable store sales due to weakness in traffic and consumer spending trends, especially in stores located in international tourist locations. |
The additionnet reduction of an aggregate $326$63 million of revenue, or a 2% decrease compared to the prior year, attributable to our Calvin Klein International and Calvin Klein North America segments, which included ana negative impact of $85 million, or 2%, related to foreign currency translation. Calvin Klein International segment revenue increased 3% (including a 4% negative foreign currency impact), as continued solid growth in Europe and the addition of approximatelyrevenue resulting from the Australia acquisition were partly offset by the negative impacts of (i) softness experienced in Asia due, in part, to the business disruptions caused by the protests in Hong Kong SAR and the trade tensions between the United States and China and (ii) the reduction of revenue resulting from the CK Collection closure. Calvin Klein International comparable store sales decreased 1%. Revenue in our Calvin Klein North America segment decreased 7%, driven by the effect of the G-III license and a 2% decrease in Calvin Klein North America comparable store sales due to weakness in traffic and consumer spending trends, especially in stores located in international tourist locations.
The reduction of an aggregate $52 million of revenue, or a 3% decrease compared the prior year, attributable to our Heritage Brands Retail and Heritage Brands Wholesale segments, primarily due to weakness in the North America wholesale business and a 2% decline in comparable store sales.
The increase in revenue of $742 million, or 8%, in 2018 as compared to 2017 was due principally to the effect of the following items:
The addition of an aggregate $451 million of revenue, or a 12% increase over the prior year, attributable to our Tommy Hilfiger International and Tommy Hilfiger North America segments, which included the addition of $49 million, or 1%, related to the impact of foreign currency translation. Tommy Hilfiger International segment revenue increased 15% (including a 2% positive foreign currency impact), driven by strong performance across all regions and channels. Tommy Hilfiger International comparable store sales increased 13%. Revenue in our Tommy Hilfiger North America segment increased 6%, principally attributable to strength in the wholesale business and a 5% increase in Tommy Hilfiger North America comparable store sales.
The addition of an aggregate $270 million of revenue, or an 8% increase over the prior year, attributable to our Calvin Klein International and Calvin Klein North America segments, which included the addition of $12 million related to the impact of foreign currency translation. Calvin Klein International segment revenue increased 21% (including a 3% positive foreign currency impact)10%, driven by continued strengthgrowth in Europe and China.Asia. Calvin Klein International comparable store sales increased 6%5%. Revenue in theour Calvin Klein North America segment increased 1%, principally due to5% primarily as a result of growth in the wholesale business and ana 1% increase in royalty revenue, partially offset by a reduction of approximately $60 million resulting from the Mexico deconsolidation and a 1% decline inCalvin Klein North America comparable store sales.
The addition of an aggregate $382$21 million of revenue, attributable to our Tommy Hilfiger International and Tommy Hilfiger North America segments, which included an addition of approximately $73 million related toor a 1% increase over the impact of foreign currency translation. Tommy Hilfiger International segment revenue increased 19% (including a 4% positive foreign currency impact), driven principally by outstanding performance in Europe and Asia, as well as the inclusion of a full first quarter of revenue from the China business as a result of the TH China acquisition in April 2016. Tommy Hilfiger International comparable store sales increased 8%. Revenue in the Tommy Hilfiger North America segment was flat, as a reduction of approximately $75 million resulting from the discontinuation of our directly operated womenswear wholesale business in the United States and Canada during the fourth quarter of 2016 in connection with
partners. We currently expect that revenue will increase 7%decrease significantly in 20182020 compared to 2017,2019, inclusive of a positivenegative impact of approximately 3% related to foreign currency translation.translation, primarily due to the negative impacts to our businesses caused by the COVID-19 outbreak. Revenue forin 2020 is also expected to decrease by approximately $150 million due to the Calvin Klein businessaggregate net effect of reductions resulting from (i) the Speedo transaction, which is expected to increase approximately 9% compared to 2017, inclusiveclose in the first quarter of a positive impact2020, and (ii) the G-III license, which commenced in 2019, partially offset by an addition of approximately 2% related to foreign currency translation. Revenue forrevenue resulting from (iii) the Tommy Hilfiger business is expected to increase approximately 8% compared to 2017, inclusiveAustralia and TH CSAP acquisitions, which closed in the second quarter of a positive impact of approximately 4% related to foreign currency translation. Revenue for our Heritage Brands business is expected to be flat compared to 2017.2019.
Gross Profit
Gross profit is calculated as total revenue less cost of goods sold and gross margin is calculated as gross profit divided by total revenue. Included as cost of goods sold are costs associated with the production and procurement of product, such as inbound freight costs, purchasing and receiving costs and inspection costs. Also included as cost of goods sold are the amounts recognized on foreign currency forward exchange contracts as the underlying inventory hedged by such forward exchange contracts is sold. Warehousing and distribution expenses are included in SG&A expenses. All of our royalty, advertising and other revenue is included in gross profit because there is no cost of goods sold associated with such revenue. As a result, our gross profit may not be comparable to that of other entities.
The following table shows our revenue mix between net sales and royalty, advertising and other revenue, as well as our gross margin for 2017, 20162019, 2018 and 2015:2017:
| 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |||||||||||
| Components of revenue: | ||||||||||||||||
| Net sales | 94.7 | % | 95.0 | % | 94.8 | % | 94.9 | % | 94.8 | % | 94.7 | % | ||||
| Royalty, advertising and other revenue | 5.3 | 5.0 | 5.2 | 5.1 | 5.2 | 5.3 | ||||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
| Gross margin | 54.9 | % | 53.3 | % | 51.9 | % | 54.4 | % | 55.0 | % | 54.9 | % | ||||
Gross profit in 20172019 was $5.388 billion, or 54.4% of total revenue, as compared to $5.308 billion, or 55.0% of total revenue, in 2018. The 60 basis point decrease in gross margin was principally driven by (i) a gross margin decline in our Tommy Hilfiger North America business due to more promotional selling as compared to the prior year, (ii) the impact of additional inventory reserves recorded in the fourth quarter of 2019 in anticipation of lower 2020 sales trends as a result of the onset of the COVID-19 outbreak, (iii) short-lived noncash inventory valuation adjustments recorded in connection with the Australia and TH CSAP acquisitions, and (iv) the negative impact of tariffs imposed on goods imported from China into the United States. These decreases were partially offset by the favorable impact of faster growth in our Tommy Hilfiger
International and Calvin Klein International segments than in our North America segments, as our International segments generally carry higher gross margins, as well as gross margin improvements realized in our Calvin Klein North America business.
Gross profit in 2018 was $5.308 billion, or 55.0% of total revenue, as compared to $4.894 billion, or 54.9% of total revenue, as compared to $4.370 billion, or 53.3% of total revenue, in 2016.2017. The 16010 basis point increase in gross margin was principally driven by (i) a favorable mix of business due to faster growth in our Calvin KleinTommy Hilfiger International and Tommy HilfigerCalvin Klein International segments than in our North America segments, as our International segments generally carry higher gross margins, and (ii) gross margin improvementsimprovement in our North America segmentsTommy Hilfiger business. Partially offsetting these increases were gross margin declines in our Calvin Klein and Heritage Brands businesses principally due to lessmore promotional selling.
We currently expect that gross margin in 2020 will decrease as compared to 2019 primarily due to (i) the need for increased promotional selling and (iii) gross margin improvements related toinventory liquidation as a result of the Mexico deconsolidationCOVID-19 outbreak and the G-III license, as the directly operated businesses in Mexico and the directly operated Tommy Hilfiger wholesale womenswear business in the United States and Canada were replaced by royalty revenues from PVH Mexico and G-III, which carry no cost of goods sold. These increases were partially offset by(ii) the unfavorable impact of the stronger United States dollar on our international businesses that purchase inventory in United States dollars, particularly our European businesses, as the increased local currency value of inventory resultedresults in higher cost of goods in local currency when the goods wereare sold.
SG&A Expenses
Our SG&A expenses were as follows:
| 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||
| SG&A expenses | $ | 4,248 | $ | 3,637 | $ | 3,418 | $ | 4,715 | $ | 4,433 | $ | 4,245 | ||||||||||
| % of total revenue | 47.7 | % | 44.3 | % | 42.6 | % | 47.6 | % | 45.9 | % | 47.6 | % | ||||||||||
SG&A expenses in 20172019 were $4.248$4.715 billion, or 47.7%47.6% of total revenue, as compared to $3.637$4.433 billion, or 44.3%45.9% of total revenue in 2016.2018. The 340170 basis point increase in SG&A expenses as a percentage of total revenue was principally attributable to (i) an increase in costs incurred in connection with the Calvin Klein restructuring, (ii) the costs incurred in connection with the Socks and Hosiery transaction, and (iii) the costs incurred in connection with the TH U.S. store closures. Also contributing to the increase was a change in the mix of business due to faster growth in our Calvin KleinTommy Hilfiger International and Tommy HilfigerCalvin Klein International segments than in our North America segments, as our International segments generally carry higher SG&A expenses as percentages of total revenue.
SG&A expenses in 2018 were $4.433 billion, or 45.9% of total revenue, as compared to $4.245 billion, or 47.6% of total revenue in 2017. The 170 basis point decrease in SG&A expenses as a percentage of total revenue was principally attributable to the absence in 2018 of costs that were recorded in 2017 in connection with (i) the Mr. Hilfiger amendment, (ii) the Li & Fung termination, and (iii) the relocation of our Tommy Hilfiger office in New York, including noncash depreciation expense. Also contributing to the decrease was a leveraging of expenses in the Tommy Hilfiger business. These decreases were partially offset by (i) a change in the mix of business due to faster growth in our Tommy Hilfiger International and Calvin Klein International segments than in our North America segments, as our International segments generally carry higher SG&A expenses as percentages of total revenue, (ii) the costs incurred in connection with the Mr. Hilfiger amendment, (iii) the costs incurred in connection with the Li & Fung termination, (iv) an increase in marketing expenditures, particularly in the Calvin Klein business, (v)restructuring and (iii) an increase in corporate expenses due, in part, to investments in digital and sourcing initiatives,information technology initiatives.
In light of the negative impacts on our business resulting from the COVID-19 outbreak, we are taking measures to significantly reduce SG&A expenses in 2020. As such, we currently expect our SG&A expenses in 2020 will be significantly lower as compared to 2019, including start-upas a result of the reductions resulting from these measures and the absence in 2020 of costs associatedrelated to (i) the Calvin Klein restructuring, (ii) the Socks and Hosiery transaction and (iii) the TH U.S. store closures. However, we expect our SG&A expenses as a percentage of total revenue in 2020 will increase as compared to 2019 primarily due to a deleveraging of expenses driven by the expected decline in revenue resulting from the COVID-19 outbreak. There is significant uncertainty with PVH Ethiopia, (vi)respect to the costs incurred in connection withimpact of the relocationCOVID-19 outbreak on our business and our SG&A expenses may be subject to significant material change, including as a result of noncash impairments of our Tommy Hilfiger office in New York, including noncash depreciation expense, (vii) the absenceproperty, plant and equipment, operating lease right-of-use assets, or goodwill and other intangible assets that we may recognize as a result of the gain recorded in 2016 in connection with a payment made to us to exit a TOMMY HILFIGER flagship store in Europe, (viii) the costs incurred in connection with theCOVID-19 outbreak.
Non-service related pension and postretirement cost in North America2019 was $90 million as compared to $5 million in 2018. Non-service related pension and (ix) an increasepostretirement cost in retirement plan expense resulting from2019 and 2018 included actuarial losses recorded in 2017 compared to the actuarial gain in 2016 (pleaseon our retirement plans of $98 million and $15 million, respectively. Please see Note 12,13, “Retirement and Benefit Plans,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion). These increases were partially offset by (i) a reduction of costs incurreddiscussion.
Non-service related pension and postretirement cost in connection with the TH China acquisition, primarily consisting of noncash valuation adjustments and amortization of short-lived assets, (ii) the absence of the costs incurred in connection with the TH men’s tailored license termination and (iii) the absence of costs incurred in connection with the Warnaco integration and related restructuring.
We currently expect that non-service related pension and postretirement (income) for 2020 will be approximately $15 million compared to non-service related pension and postretirement cost of $90 million in 2019. Our 2019 non-service related pension and postretirement cost included a $98 million actuarial loss on our retirement plans recorded in the fourth quarter. Non-service related pension and postretirement (income) cost recorded throughout the year areis calculated using actuarial valuations that incorporate assumptions and estimates about financial market, economic and demographic conditions. Differences between estimated and actual results give rise to gains and losses that are recorded immediately in earnings, generally in the fourth quarter of the year, which can create volatility in our operating results.results of operations. Our expectation of 2020 non-service related pension and post-retirement income does not include the impact of an actuarial gain or loss. However, if recent market volatility due, in part, to the COVID-19 outbreak continues, we may incur a significant actuarial loss in 2020 as a result of the difference between actual and expected returns on plan assets or if there is a decline in discount rates. Our actual 2020 non-service related pension and postretirement (income) cost may be significantly different than our projections.
Debt Modification and Extinguishment Costs
We incurred costs totaling $5 million in 2019 in connection with the refinancing of our senior credit facilities. Please see the section entitled “Liquidity and Capital Resources” below for further discussion.
We incurred costs totaling $24 million in 2017 in connection with the early redemption of our $700 million 4 1/2% senior notes due December 15, 2022. Please see the section entitled “Liquidity and Capital Resources” below for further discussion.
Other Noncash Gain,Loss, Net
We recorded a pre-tax noncash loss of $142 million in the fourth quarter of 2019 related to the Speedo transaction and expected deconsolidation of the net assets of the Speedo North America business, consisting of a noncash impairment of our perpetual license right for the Speedo trademark, and a noncash loss to reduce the carrying value of the business to its estimated fair value, less costs to sell. Please see Note 4, “Assets Held For Sale,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
We recorded a pre-tax noncash gain of $153$113 million in 2016the second quarter of 2019 to write-upwrite up our equity investmentinvestments in TH ChinaGazal and PVH Australia to fair value in connection with the TH ChinaAustralia acquisition. Please see Note 2,3, “Acquisitions,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
Equity in Net Income of Unconsolidated Affiliates
The equity in net income of unconsolidated affiliates was $10 million in 20172019 as compared to $100,000 during 2016$21 million in 2018 and $17$10 million during 2015.in 2017. These amounts relate to our share of income (loss) from PVH Australia (prior to acquiring it on May 31, 2019 through the Australia acquisition), our joint venture for the TOMMY HILFIGER, CALVIN KLEIN, Warner’s, Olga and Speedo brands in Mexico, our joint ventures for the TOMMY HILFIGER brand in China (prior to the TH China acquisition on April 13, 2016), India and Brazil, our joint venture for the CALVIN KLEIN
brand in India, and our newly formed PVH Legwear joint venture for the TOMMY HILFIGER, CALVIN KLEIN, IZOD, Van Heusen and Van HeusenWarner’s brands and other owned and licensed trademarks in Australia,the United States and for the CALVIN KLEIN, TOMMY HILFIGER, Warner’s, Olga and Speedo brandsCanada. (PVH Legwear began operations in Mexico (since the formation of PVH Mexico on November 30, 2016).December 2019.) Also included is our share of income (loss) from our investments in the parent company of the Karl Lagerfeld brand Holding B.V. (“Karl Lagerfeld”) and beginning in the third quarter of 2016, in Gazal Corporation Limited (“Gazal”),(prior to acquiring it on May 31, 2019 through the Australia
acquisition). The equity in net income for 2019 decreased as compared to 2018, primarily due to having only a partial year of income from our joint venture partnerinvestments in Australia.Gazal and PVH Australia and one-time expenses of $2 million recorded on our equity investments in Gazal and PVH Australia prior to the Australia acquisition closing. Our investments in the continuing joint ventures and Karl Lagerfeld and Gazal are being accounted for under the equity method of accounting. Subsequent to the closing of the Australia acquisition, we began to consolidate the operations of Gazal and PVH Australia into our financial statements. Please see the section entitled “Investments in Unconsolidated Affiliates” within “Liquidity and Capital Resources” below for further discussion. The
We currently expect that our equity in net income of unconsolidated affiliates for 2020 will include an increase in 2016 included a one-time expense of $6 million recordedincome on our equity investment in TH China priorPVH Legwear as compared to 2019, as we recognize a full year of income in 2020, offset by a decrease in income on our investments due to the acquisition closing. The equity in net incomenegative impact of unconsolidated affiliates in 2015 included a one-time gain of $2 millionthe COVID-19 outbreak on our equity investmentunconsolidated affiliates’ businesses in Karl Lagerfeld.2020.
Interest Expense, Net
Net interest expense increased to $122 million in 2017 from $115 million in 2016 primarily due to the net impact of the issuance of €350 million euro-denominated 3 5/8% senior notes in June 2016 and increases in short-term borrowings and interest rates as compared to 2016, partially offset by long-term debt repayments made during 2017 and 2016. Please see the section entitled “Financing Arrangements” within “Liquidity and Capital Resources” below for further discussion.
Net interest expense decreased to $116 million in 2018 is currently expected to be approximately $120 million compared tofrom $122 million in 2017 primarily due to (i) the net impact of the early redemption of our $700 million 4 1/2% senior notes in January 2018 and issuance of €600 million euro-denominated 3 1/8% senior notes in December 2017 and (ii) the cumulative impact of long-term debt repayments made during 2018 and 2017, partially offset by an increase in short-term borrowings and interest rates as compared to 2017. Please see the section entitled “Financing Arrangements” within “Liquidity and Capital Resources” below for further discussion.
We currently expect that net interest expense in 2020 will increase as compared to 2019. We have increased the aggregate borrowings outstanding under our senior unsecured revolving credit facilities, other short-term revolving credit facilities and unsecured commercial paper note program in 2020 to approximately $930 million in order to increase our cash position and preserve financial flexibility in responding to the impacts of the COVID-19 outbreak on our business, and we expect that we may further increase our borrowings under existing or new financing arrangements. There is significant uncertainty with respect to the impact of the COVID-19 outbreak on our business and our interest expense may be subject to further significant increase.
Income Taxes
Income tax expense (benefit) was as follows:
| 2017 | 2016 | 2015 | |||||||||
| (Dollars in millions) | |||||||||||
| Income tax (benefit) expense | $ | (26 | ) | $ | 125 | $ | 75 | ||||
| Income tax (benefit) expense as a % of pre-tax income | (5.1 | )% | 18.6 | % | 11.6 | % | |||||
| 2019 | 2018 | 2017 | |||||||||
| (Dollars in millions) | |||||||||||
| Income tax expense (benefit) | $ | 29 | $ | 31 | $ | (26 | ) | ||||
| Income tax expense (benefit) as a % of pre-tax income | 6.5 | % | 4.0 | % | (5.1 | )% | |||||
We recorded a blended rate of 33.7%. Our effective income tax rate for 2017 was lower than the United States statutory rate primarily due to (i) the provisional net one-timetax benefit of $53 million recordedin the fourth quarter of 2017 in connection with the U.S. Tax Legislation, which resulted in a benefit to our 2017 effective income tax rate of 10.4%, consisting of a $265 million benefit primarily from the remeasurement of our net United States deferred tax liabilities, partially offset by a $38 million valuation allowance on our foreign tax credits and a $174 million transition tax on earnings of foreign subsidiaries deemed to be repatriated,repatriated. In the fourth quarter of 2018, we completed our final analysis of the impacts of the U.S. Tax Legislation and recorded a net tax benefit of $25 million to adjust the provisional amount recorded in 2017, during the measurement period allowed by the Securities and Exchange Commission. The $25 million net
tax benefit included the release of a $26 million valuation allowance on our foreign tax credits, partially offset by a $2 million expense related to the remeasurement of our net United States deferred tax liabilities.
We file income tax returns in more than 40 international jurisdictions each year. A substantial amount of our earnings are in international jurisdictions, particularly in the Netherlands and Hong Kong SAR, where income tax rates, coupled with special rates levied on income from certain of our jurisdictional activities, are lower than the United States statutory income tax rate, and reduced our consolidated effective income tax rate during 2019, 2018 and 2017. We expect to benefit from these special rates until 2022. The reduction in the United States statutory income tax rate from 35.0% to 21.0% as a result of the U.S. Tax Legislation did not have a significant impact on our overall effective tax rate due to our mix of earnings.
Our effective income tax rate for 2019 was lower than the 21.0% United States statutory income tax rate primarily due to (i) the favorable impact on certain liabilities for uncertain tax positions resulting from the expiration of applicable statutes of limitation and the settlement of a multi-year audit from an international jurisdiction, which together resulted in a benefit to our effective income tax rate of 11.8%, and (ii) the favorable impact of a tax exemption on the noncash gain recorded to write-up our existing equity investments in Gazal and PVH Australia to fair value in connection with the Australia acquisition, which resulted in a 5.4% benefit to our effective income tax rate.
The effective income tax rate for 2019 was 6.5% compared with 4.0% in 2018. The 2019 effective income tax rate was higher than the effective income tax rate for 2018 primarily due to (i) the absence of a 5.3% benefit to our 2018 effective income tax rate related to the remeasurement of certain of our net deferred tax liabilities in connection with the legislation enacted in the Netherlands known as the “2019 Dutch Tax Plan” and (ii) the absence of a 3.2% benefit to our 2018 effective income tax rate related to the U.S. Tax Legislation, partially offset by (iii) a favorable change in our uncertain tax positions activity of 8.1%, which includes the benefit to our 2019 effective income tax rate resulting from settlement of a multi-year audit from an international jurisdiction. The variance between the 2019 and 2018 effective income tax rates is also affected by the substantial change in our pre-tax income, which was $444 million in 2019 and $776 million in 2018. As a result, the effect that discrete tax amounts have on the effective income tax rate in each year is not comparable.
Our effective income tax rate for 2018 was lower than the 21.0% United States statutory income tax rate primarily due to (i) a $41 million benefit from the remeasurement of certain of our net deferred tax liabilities in connection with the enactment of the 2019 Dutch Tax Plan, which resulted in a benefit to our effective income tax rate of 5.3%, (ii) the favorable impact on certain liabilities for uncertain tax positions resulting from the expiration of applicable statutes of limitation, which resulted in a benefit to our effective income tax rate of 3.7%, (iii) a net tax benefit of $25 million recorded in 2018 to adjust the provisional amount recorded in 2017 in connection with the U.S. Tax Legislation, which resulted in a benefit to our effective income tax rate of 3.2%, and (iv) the benefit of overall lower tax rates in certain international jurisdictions where we file tax returns.
The effective income tax rate for 2018 was 4.0% compared with (5.1)% in 2017. The 2018 effective income tax rate was higher than the effective income tax rate for 2017 primarily due to (i) a lower net benefit recorded in connection with the U.S. Tax Legislation, which resulted in a 3.2% benefit to our 2018 effective income tax rate compared with a 10.4% benefit to our 2017 effective income tax rate, (ii) an unfavorable change in our uncertain tax positions activity of 3.8%, and (iii) the absence of a 3.0% benefit to our 2017 effective income tax rate resulting from an excess tax benefit from the exercise of stock options by our Chairman and Chief Executive Officer. These unfavorable impacts to our effective income tax rate for 2018 were partially offset by a 5.3% benefit to our 2018 effective income tax rate from the remeasurement of certain of our net deferred tax liabilities in connection with the 2019 Dutch Tax Plan.
As a result of the U.S. Tax Legislation, which reduced the United States statutory income tax rate from 35.0% to 21.0% effective January 1, 2018, our United States statutory income tax rate for 2017 was a blended rate of 33.7%. Our effective income tax rate for 2017 was lower than the United States statutory income tax rate primarily due to (i) the provisional net benefit of $53 million recorded in connection with the U.S. Tax Legislation, which resulted in a benefit to our 2017 effective income tax rate of 10.4%, (ii) the benefit of overall lower tax rates in certain international jurisdictions where we file tax returns, and (iii) the overall benefit of certain discrete items, including the favorable impact on certain liabilities for uncertain tax positions and an excess tax benefit from the exercise of stock options by our Chairman and Chief Executive Officer, which resulted in benefits to our 2017 effective income tax rate of 7.5% and 3.0%, respectively.
Our tax rate is affected by many factors, including the mix of international and domestic pre-tax earnings, discrete events arising from specific transactions, and new regulations, as well as audits by tax authorities orand the receipt of new information, any of which can cause us to change our estimate for uncertain tax positions. Please refer tosee Note 9,10, “Income Taxes,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
Redeemable Non-Controlling Interest
We have consolidateda joint venture in Ethiopia with Arvind Limited, in which we own a 75% interest. We consolidate the results of PVH Ethiopia in which we own a 75% interest, in our consolidated financial statements. PVH Ethiopia was formed to operate a manufacturing facility that produces finished products for us for distribution primarily in the United States. The manufacturing facility began operations in 2017.
The net loss attributable to the redeemable non-controlling interest in PVH Ethiopia was $2 millionimmaterial in 2017 compared to an immaterial amount in 2016.2019, 2018 and 2017. We currently expect that the net loss attributable to the redeemable non-controlling interest for 20182020 will also be immaterial. Please refer tosee Note 6,7, “Redeemable Non-Controlling Interest,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Summary
Cash and cash equivalents at February 4, 20182, 2020 was $494$503 million, a decreasean increase of $236$51 million from the amount at January 29, 2017February 3, 2019 of $730$452 million. The change in cash and cash equivalents included the impact of (i) $250 million of long-term debt repayments, (ii) $249$325 million of common stock repurchases under the stock repurchase program, (ii) $71 million of long-term debt repayments, (iii) a $28$59 million net payment made in connection with the Australia acquisition, and (iv) a $74 million payment made in connection with the acquisition of True & Co., net of $400,000 of cash acquired, and (iv) a $12 million payment made in connection with the BelgianTH CSAP acquisition.
Cash flow in 20182020 will be impacted by various factors in addition to those noted below in this “Liquidity and Capital Resources” section, including expected(i) mandatory long-term debt repayments of approximately $250$14 million, andsubject to exchange rate fluctuations, (ii) common stock repurchases under the stock repurchase program of $200 $111million, which reflects stock repurchases through March 2020 with no further repurchases planned for the remainder of 2020, and (iii) the expected proceeds of $170 million, subject to $250a working capital adjustment, related to the Speedo transaction, which is expected to close in the first quarter of 2020. In addition, in March 2020 we increased the aggregate borrowings outstanding under our senior unsecured revolving credit facilities, other short-term revolving credit facilities and unsecured commercial paper note program to approximately $930 million, in 2018.order to increase our cash position and preserve financial flexibility in responding to the impacts of the COVID-19 outbreak on our business. Given the dynamic nature of the COVID-19 outbreak, our estimates of cash flows in 2020 may be subject to material significant change, including as a result of the actual impact of the COVID-19 outbreak on our 2020 earnings, additional borrowings under existing or new financing arrangements, excess inventories, delays in collection of, or inability to collect on, certain trade receivables, and other working capital changes that we may experience as a result of the COVID-19 outbreak.
As of February 4, 2018,2, 2020, approximately $371$405 million of cash and cash equivalents was held by international subsidiaries. PriorOur intent is to reinvest indefinitely substantially all of our earnings in foreign subsidiaries outside of the United States. However, if management decides at a later date to repatriate these earnings to the enactment of the Tax Legislation, our undistributed foreign earnings were considered permanently reinvested and, as such, United States, federalwe may be required to accrue and pay additional taxes, including any applicable foreign withholding tax and United States state income taxes weretaxes. It is not previously recorded on these earnings. As a result of the Tax Legislation, we recorded a provisional charge in 2017 relatedpracticable to the one-time transition tax on our earnings of foreign subsidiaries deemed to be repatriated inestimate the amount of $174 million. We are intax that might be payable if these earnings were repatriated due to the process of evaluatingcomplexities associated with the impact of the Tax Legislation on our permanent reinvestment assertion under the measurement period allowed by the SEC.hypothetical calculation.
Operations
Cash provided by operating activities was $700$1.020 billion in 2019 compared to $852 million in 2017 compared to $956 million in 2016.2018. The decreaseincrease in cash provided by operating activities as compared to the prior year was primarily driven by changes in working capital, including an increasea favorable change in trade receivables and inventories, principally drivenpartially offset by a decrease in net income as adjusted for noncash charges.
In connection with our expectedacquisition of Calvin Klein, we were obligated to pay Mr. Calvin Klein contingent purchase price payments based on 1.15% of total worldwide net sales growth(as defined in the firstacquisition agreement, as amended) of products bearing any of the CALVIN KLEIN brands with respect to sales made through February 12, 2018. A significant portion of the
sales on which the payments to Mr. Klein were made were wholesale sales by us and our licensees and other partners to retailers. Contingent purchase price payments totaled $16 million and $56 millionin 2018 and 2017, respectively. The final payment due to Mr. Klein was made in the second quarter of 2018 and the timing of inventory receipts as compared to the prior year period due to the inclusion of a 53rd week of operations in 2017, as well as an increase in prepaid expenses due to the inclusion of the 53rd week.2018.
Capital Expenditures
Our capital expenditures in 20172019 were $358$345 million compared to $247$379 million in 2016.2018. The increase in capital expenditures wasin 2019 primarily driven by expenditures related to (i) upgradinginvestments in new stores and enhancingstore expansions, (ii) investments to upgrade and enhance our operating, supply chain and logistics systems and our digital commerce platforms and (ii)(iii) the relocationexpansion of our Tommy Hilfiger officewarehouse and distribution network in New York.North America. We currently expect that capital expenditures for 20182020 will increasedecrease to approximately $450$190 million including a shiftand will include only certain minimum required expenditures in our retail stores and expenditures for projects currently in progress, primarily related to (i) investments to support the timingmulti-year upgrade of our platforms and systems worldwide and (ii) enhancements to our warehouse and distribution network. Given the dynamic nature of the COVID-19 outbreak, our estimates of capital expenditures into 2018 from 2017, and will primarily includein 2020 may be subject to change. Our capital expenditures relatedmay differ materially compared to (i) upgrading and enhancing our operating, supply chain and logistics systems and our digital commerce platforms and (ii) the renovation and expansion of our administrative offices in New York and Amsterdam.current expectations as a result.
Investments in Unconsolidated Affiliates
We own a 50%49% economic interest in aour newly formed PVH Legwear joint venture, PVH Brands Australia Pty. Limited (“PVH Australia”). PVH Australia licenses from our subsidiaries the rights to distribute and sell certain CALVIN KLEIN, TOMMY HILFIGER and Van Heusen brand products in Australia, New Zealand and, in the cases of CALVIN KLEIN and TOMMY HILFIGER, other island nations in the South Pacific. Additionally, subsidiaries of PVH Australia license other trademarks for certain product categories.venture. We made net payments of $21$28 million (of which $20 million was placed into an escrow account prior to the end of 2014) to PVH AustraliaLegwear during 20152019 to contribute our share of the joint venture funding for the period. We received dividends of $3 million and $1 million from PVH Australia during 2017 and 2016, respectively.funding.
We acquiredheld an approximately 10% of the outstanding capital stock of Gazal, which is listed on the Australian Securities Exchange, in 2016 for $9 million. We acquired additional capital stock for $8 million during the fourth quarter of 2017, increasing our22% ownership interest in Gazal to approximately 20%. Gazal is our joint venture partnerand a 50% ownership interest in PVH Australia.Australia until the closing of the Australia acquisition on May 31, 2019. These investments were accounted for under the equity method of accounting. We derecognized our equity investments in Gazal and PVH Australia and began to consolidate the operations of Gazal and PVH Australia in our financial statements effective with the closing of the transaction. We received aggregate dividends of $1$6 million, $8 million and $4 million from Gazal and PVH Australia during 2017.2019, 2018 and 2017, respectively.
We acquired a 51% economic interest in a joint venture, Calvin Klein Arvind Fashion Private Limited (“CK India”) in 2013. We sold 1% of our interest for $400,000 during the fourth quarter ofin 2017, decreasing our economic interest in CK India to 50%. Prior to the sale, we were not deemed to hold a controlling interest in CK India as the shareholders agreement provided the partners with equal rights. CK India licenses from one of our subsidiarysubsidiaries the rights to the CALVIN KLEIN trademarks in India for certain product categories. We made payments of $2 million $2 million and $4 million to CK India during 2017 2016 and 2015, respectively, to contribute our share of the joint venture funding.
We own a 50% economic interest in a joint venture, Tommy Hilfiger Arvind Fashion Private Limited (“TH India”). TH India licenses from one of our subsidiaries the rights to the TOMMY HILFIGER trademarks in India for certain product categories. Arvind, our joint venture partner in PVH Ethiopia and CK India, is also our joint venture partner in TH India. We made payments of $3 million to TH India during 2017 to contribute our share of the joint venture funding.
We acquired a 40% economic interest informed with two other parties a joint venture, Tommy Hilfiger do Brasil S.A. (“TH Brazil”), in 2012.2012, in which we have a 40% economic interest. We acquired an approximately 1% additional interest for $300,000 during the fourth quarter ofin 2017, increasing our economic interest in TH Brazil to approximately 41%. TH Brazil licenses from one of our subsidiaries the rights to the TOMMY HILFIGER trademarks in Brazil for certain product categories. We made payments of $3 million $2 million and $2 million to TH Brazil during 2017 2016 and 2015, respectively, to contribute our share of the joint venture funding. We issued a note receivable to TH Brazil in 2016 for $12 million, of which $6 million was repaid in 2016 and the remaining balance, including accrued interest, was repaid in 2017.
We, andalong with Grupo Axo, S.A.P.I. de C.V., formed a joint venture (“PVH Mexico,Mexico”) in 2016, in which we own a 49% economic interest. PVH Mexico licenses from certain of our wholly owned subsidiaries the rights to distribute and sell certain TOMMY HILFIGER, CALVIN KLEIN, TOMMY HILFIGERWarner’s, Warner’s, Olga and Speedo brand products in Mexico. PVH Mexico was formed by merging our wholly owned subsidiary that principally operated and managed the Calvin Klein business in Mexico (the “Mexico business”) with a wholly owned subsidiary of Grupo Axo that distributes certain TOMMY HILFIGER brand products in Mexico. In connection with the formation of PVH Mexico, we deconsolidated the Mexico business and began accounting for our 49% interest under the equity method of accounting in 2016. We made paymentsreceived dividends of $7 million tofrom PVH Mexico during 20162019.
Payments made to contribute our share of the joint venture funding. Please see Note 5, “Investments in Unconsolidated Affiliates,” inventures funding and the Notesrepayment of the note receivable we issued to Consolidated Financial StatementsTH Brazil were included in Item 8our net cash used by investing activities in our Consolidated Statements of this reportCash Flows for further discussion.the respective period. The dividends received from our investments in unconsolidated affiliates were included in our net cash provided by operating activities in our Consolidated Statements of Cash Flows for the respective period.
Loan to a Supplier
Wuxi Jinmao Foreign Trade Co., Ltd. (“Wuxi”), one of our finished goods inventory suppliers, has a wholly owned subsidiary with which we entered into a loan agreement in 2016. Under the agreement, Wuxi’s subsidiary borrowed a principal amount of $14 million for the development and operation of a fabric mill. Principal payments are due in semi-annual installments beginning March 31, 2018 through September 30, 2026. The outstanding principal balance of the loan bears interest at a rate of (i) 4.50% per annum until the sixth anniversary of the closing date of the loan and (ii) London Interbank Borrowing Rate (“LIBOR”)LIBOR plus 4.00% thereafter. We received principal payments of $400,000 and $200,000 during 2019 and 2018, respectively. The outstanding balance, including accrued interest, was $13 million and $14 million as of both February 4, 20182, 2020 and January 29, 2017.February 3, 2019, respectively.
TH CSAP Acquisition of the Wholesale and Concessions Businesses in Belgium and Luxembourg
We completed the Belgian acquisition on September 1, 2017. The acquisition date fair value of the consideration was $14 million, consisting of $12 million paidTommy Hilfiger retail business in cashCentral and $2 million included in accrued expenses in the Consolidated Balance Sheet as of February 4, 2018, which is expected to be paid in the first quarter of 2018.Southeast Asia on July 1, 2019 for $74 million. Please see Note 2,3, “Acquisitions,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
Australia Acquisition
We completed the Australia acquisition on May 31, 2019. This acquisition resulted in a net cash payment of $59 million, including (i) a payment of $118 million, net of cash acquired of $7 million, as cash consideration for the acquisition and (ii) proceeds of $59 million related to the sale of an office building and warehouse owned by Gazal. Please see Note 3, “Acquisitions,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
Acquisition of the Geoffrey Beene Tradename
We acquired the Geoffrey Beene tradename on April 20, 2018 for $17 million, of which $16 million was paid in cash. Please see Note 3, “Acquisitions,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
Acquisition of the Wholesale and Concessions Businesses in Belgium and Luxembourg
We completed the Belgian acquisition on September 1, 2017. We paid $12 million as cash consideration for this transaction. Please see Note 3, “Acquisitions,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
Acquisition of True & Co.
We acquired True & Co. on March 30, 2017. We paid $28 million, net of $400,000 of cash acquired, as cash consideration for this transaction. Please see Note 2,3, “Acquisitions,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
We completedentered into a definitive agreement on January 9, 2020 to sell our Speedo North America business to Pentland for $170 million in cash, subject to a working capital adjustment. The Speedo transaction is expected to close in the TH China acquisition on April 13, 2016. Priorfirst quarter of 2020, subject to this acquisition, we had a 45% interest in TH China, which we accounted for under the equity method of accounting. We paid $158 million, net of cash acquired of $105 million, as cash consideration for this transaction.customary closing conditions. Please see Note 2, “Acquisitions,4, “Assets Held For Sale,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
Dividends
Our common stock currently payshas historically paid annual dividends, totalingwhich totaled $0.15 per share.share in each of 2019, 2018 and 2017. Dividends on common stock totaled $11 million in 2019 and $12 million in each of 2017, 20162018 and 2015.2017.
We currently project thatdeclared a $0.0375 per share dividend payable to our common stockholders of record as of March 4, 2020, in respect of which we made dividend payments totaling approximately $3 million on March 31, 2020. We have suspended our dividend policy in order to increase our cash position and preserve financial flexibility in responding to the impacts of the COVID-19 outbreak on our business. If we were to pay cash dividends totaling $0.15 per share on our common stock in 2018 will be2020, such dividends would total approximately $12$11 million based on our current dividend rate, the number of shares of our common stock outstanding as of
February 4, 2018,2, 2020, our estimate of stock to be issued during 20182020 under our stock incentive plans and our estimate of stock repurchases during 2018.2020.
Acquisition of Treasury Shares
Our Board of Directors has authorized a $500 million three-yearover time since 2015 an aggregate $2.0 billion stock repurchase program effectivethrough June 3, 2015. On March 21, 2017, the Board of Directors authorized a $750 million increase to the program and extended it to June 3, 2020.2023. Repurchases under the program may be made from time to time over the period through open market purchases, accelerated share repurchase programs, privately negotiated transactions or other methods, as we deem appropriate. Purchases are made based on a variety of factors, such as price, corporate requirements and overall market conditions, applicable legal requirements and limitations, restrictions under our debt arrangements, trading restrictions under our insider trading policy and other relevant factors. The program may be modified by the Board of Directors, including to increase or decrease the repurchase limitation or extend, suspend, or terminate the program, at any time, without prior notice.
During 2017, 20162019, 2018 and 2015,2017, we purchased approximately 3.4 million shares, 2.2 million 3.2 millionshares and 1.32.2 million shares, respectively, of our common stock under the program in open market transactions for $250$325 million, $315$300 million and $126$250 million, respectively. Purchases of $500,000 were accrued for in the Consolidated Balance Sheet as of February 2, 2020. Purchases of $2 million that were accrued for in the Consolidated Balance Sheet as of February 4, 2018 were paid in 2018. The repurchased shares were held as treasury stock and $558$683 million of the authorization remained available for future share repurchases as of February 4, 2018.2, 2020.
Treasury stock activity also includes shares that were withheld principally in conjunction with the settlement of vested restricted stock, restricted stock units and performance share units to satisfy tax withholding requirements.
Mandatorily Redeemable Non-Controlling Interest
The Australia acquisition agreement provided for key members of Gazal and PVH Australia management to exchange a portion of their interests in Gazal for approximately 6% of the outstanding shares in our previously wholly owned subsidiary that acquired 100% of the ownership interests in the Australia business. We are obligated to purchase this 6% interest within two years of the acquisition closing in two tranches as follows: tranche 1 – 50% of the shares one year after the closing, but the holders had the option to defer half of this tranche to tranche 2; and tranche 2 – all remaining shares two years after the closing. With respect to tranche 1, the holders elected not to defer their shares to tranche 2 and as a result we are obligated to purchase all of the tranche 1 shares in the second quarter of 2020. The purchase price for the tranche 1 and tranche 2 shares is based on a multiple of the subsidiary’s adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) less net debt as of the end of the measurement year, and the multiple varies depending on the level of EBITDA compared to a target. The liability for the mandatorily redeemable non-controlling interest was $33.8 million as of February 2, 2020 based on exchange rates in effect on that date, of which $16.9 million is payable in the second quarter of 2020 for the purchase of the tranche 1 shares. Please see Note 3, “Acquisitions,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
Financing Arrangements
Our capital structure was as follows:
follows at the end of 2019 and 2018:
| (In millions) | February 4, 2018 | January 29, 2017 | February 2, 2020 | February 3, 2019 | ||||||||||
| Short-term borrowings | $ | 20 | $ | 19 | $ | 50 | $ | 13 | ||||||
| Current portion of long-term debt | — | — | 14 | — | ||||||||||
| Capital lease obligations | 16 | 16 | ||||||||||||
| Finance lease obligations | 15 | 17 | ||||||||||||
| Long-term debt | 3,061 | 3,197 | 2,694 | 2,819 | ||||||||||
| Stockholders’ equity | 5,536 | 4,804 | 5,811 | 5,828 | ||||||||||
In addition, we had $494$503 million and $730$452 million of cash and cash equivalents as of February 4, 20182, 2020 and January 29, 2017,February 3, 2019, respectively.
Short-Term Borrowings
We have the ability to draw revolving borrowings under our senior unsecured credit facilities, as discussed in the section entitled “2019 Senior Unsecured Credit Facilities” below. We had no borrowings outstanding under these facilities as of
February 2, 2020. The maximum amount of revolving borrowings outstanding under these facilities during 2019 was $378 million. We had $8 million outstanding under our prior senior secured credit facilities as of February 3, 2019 as discussed in the section entitled “2016 Senior Secured Credit Facilities” below. There were no borrowings outstanding under these facilitiesThe weighted average interest rate on the funds borrowed as of February 4, 2018 and January 29, 2017.3, 2019 was 4.45%.
Additionally, we have the availability to borrow under short-term lines of credit, overdraft facilities and short-term revolving credit facilities denominated in various foreign currencies. These facilities, which now include a facility in Australia as a result of the Australia acquisition, provided for borrowings of up to $91$132 million based on exchange rates in effect on February 4, 20182, 2020 and are utilized primarily to fund working capital needs. As of February 4, 2018 and January 29, 2017, weWe had $20$50 million and $19$5 million outstanding under these facilities as of February 2, 2020 and February 3, 2019, respectively. The $50 million of borrowings outstanding as of February 2, 2020 included borrowings under the facility in Australia. The weighted average interest rate on funds borrowed as of February 4, 20182, 2020 and January 29, 2017February 3, 2019 was approximately 1.19%2.56% and 1.40%0.21%, respectively. The maximum amount of borrowings outstanding under these facilities during 2019 was $99 million.
We established on November 5, 2019 an unsecured commercial paper note program in the United States primarily to fund working capital needs. The program enables us to issue, from time to time, unsecured commercial paper notes with maturities that vary but do not exceed 397 days from the date of issuance. We had no borrowings outstanding under the commercial paper note program as of February 2, 2020. The maximum amount of borrowings outstanding under the program during 2019 was $370 million.
The commercial paper program allows for borrowings of up to $675 million to the extent that we have borrowing capacity under our United States dollar-denominated revolving credit facility, as discussed in the section entitled “2019 Senior Unsecured Credit Facilities” below. Accordingly, the combined aggregate amount of (i) borrowings outstanding under the commercial paper note program and (ii) the revolving borrowings outstanding under the United States dollar-denominated revolving credit facility at any one time cannot exceed $675 million. The maximum aggregate amount of borrowings outstanding under the commercial paper program and the United States dollar-denominated revolving credit facility during 2019 was $567 million, which reflects a brief period of higher aggregate borrowings at the time that we launched the commercial paper program.
Finance Lease Obligations
Our cash payments for capitalfinance lease obligations totaled $5 million $7 millionin each of 2019, 2018 and $8 million in 2017, 2016 and 2015, respectively.2017.
2016 Senior Secured Credit Facilities
2019 Senior Unsecured Credit Facilities
We refinanced the 2016 facilities on April 29, 2019 (the “Closing Date”) by entering into senior unsecured credit facilities (the “2019 facilities”), the proceeds of which, along with cash on hand, were used to repay all of the outstanding borrowings under the 2016 facilities, bear interest at variable rates calculated inas well as the related debt issuance costs.
The 2019 facilities consist of a manner as described below. The$1.093 billion United States dollar-denominated Term Loan A facility (the “USD TLA facility”), a €500 million euro-denominated Term Loan A facility (the “Euro TLA facility” and together with the USD TLA facility, the “TLA facilities”) and senior securedunsecured revolving credit facilities consisting of (i) a $675 million United States dollar-denominated revolving credit facility, (ii) a CAD $70 million Canadian dollar-denominated revolving credit facility available in United States dollars or Canadian dollars, (iii) a €200 million euro-denominated revolving credit facility available in euro, British pound sterling, Japanese yen, Swiss francs, Australian dollars and other agreed foreign currencies and (iv) a $50 million United States dollar-denominated revolving credit facility available in United States dollars or Hong Kong dollars. The
2019 facilities are due on April 29, 2024. In connection with the refinancing of our senior credit facilities, we paid debt issuance costs of $10 million (of which $3 million was expensed as debt modification costs and $7 million is being amortized over the term of the debt agreement) and recorded debt extinguishment costs of $2 million to write off previously capitalized debt issuance costs.
Each of the senior unsecured revolving facilities, except for the $50 million United States dollar-denominated revolving credit facility available in United States dollars or Hong Kong dollars, also include amounts available for letters of credit. Acredit and have a portion of each of the United States dollar-denominated revolving credit facilities is also available for the making of swingline loans. The issuance of such letters of credit and the making of any swingline loan reduces the amount available under the applicable revolving credit facility.
We had loans outstanding of $1.792$1.570 billion, net of original issue discounts and debt issuance costs and based on applicable exchange rates, under the Term Loan A facility,TLA facilities and $20 million of outstanding letters of credit under the senior unsecured revolving credit facilities as of February 2, 2020. We had no borrowings outstanding under the senior securedunsecured revolving credit facilities and $23 million of outstanding letters of credit as of February 4, 2018.2, 2020.
The terms of the TLA facilities require us to make quarterly repayments of amounts outstanding under the 2019 facilities, which commenced with the calendar quarter ended September 30, 2019. Such required repayment amounts equal 2.50% per annum of the principal amount outstanding on the Closing Date for the first eight calendar quarters following the Closing Date, 5.00% per annum of the principal amount outstanding on the Closing Date for the four calendar quarters thereafter and 7.50% per annum of the principal amount outstanding on the Closing Date for the remaining calendar quarters, in each case paid in equal installments and in each case subject to certain customary adjustments, with the balance due on the maturity date of the TLA facilities. The outstanding borrowings under the 2019 facilities are prepayable at any time without penalty (other than customary breakage costs). Any voluntary repayments we make would reduce the future required repayment amounts.
We made payments of $71 million on our term loans under the 2019 facilities and we repaid the 2016 facilities in connection with the refinancing of the senior credit facilities during 2019. We made payments of $150 million and $250 million $350 millionduring 2018 and $350 million during 2017, 2016 and 2015, respectively, on our term loans under the 2016 facilities and 2014 facilities. As a result of the voluntary repayments we made, as of February 4, 2018, we are not required to make a long-term debt repayment until December 2019.
The United States dollar-denominated borrowings under the 20162019 facilities bear interest at a rate equal to an applicable margin plus, as determined at our option, either (a) a base rate determined by reference to the greater of (i) the prime rate, (ii) the United States federal funds effective rate plus 1/2 of 1.00% and (iii) a one-month reserve adjusted Eurocurrency rate plus 1.00% or (b) an adjusted Eurocurrency rate, calculated in a manner set forth in the 20162019 facilities.
The Canadian dollar-denominated borrowings under the 20162019 facilities bear interest at a rate equal to an applicable margin plus, as determined at our option, either (a) a Canadian prime rate determined by reference to the greater of (i) the rate of interest per annum that Royal Bank of Canada establishes as the reference rate of interest in order to determine interest rates for loans in Canadian dollars to its Canadian borrowers and (ii) the sum of (x) the average of the rates per annum for Canadian dollar bankers’bankers' acceptances having a term of one month and (y) 0.75%, or (b) an adjusted Eurocurrency rate, calculated in a manner set forth in the 20162019 facilities.
Borrowings available in Hong Kong dollars under the 2019 facilities bear interest at a rate equal to an applicable margin plus an adjusted Eurocurrency rate, calculated in a manner set forth in the 2019 facilities.
The borrowings under the 20162019 facilities in currencies other than United States dollars, Canadian dollars or CanadianHong Kong dollars bear interest at a rate equal to an applicable margin plus an adjusted Eurocurrency rate, calculated in a manner set forth in the 20162019 facilities.
The current applicable margin with respect to the Term Loan A facilityTLA facilities and each revolving credit facility is 1.50%1.375% for adjusted Eurocurrency rate loans and 0.50%0.375% for base rate loans, respectively. Afteror Canadian prime rate loans. The applicable margin for borrowings under the TLA facilities and the revolving credit facilities is subject to adjustment (i) after the date of delivery of the compliance certificate and financial statements, with respect to each of our fiscal quarters, the applicable margin for borrowings under the Term Loan A facility and the revolving credit facilities is subject to adjustment based upon our net leverage ratio.ratio or (ii) after the date of delivery of notice of a change in our public debt rating by Standard & Poor’s or Moody’s.
We entered into an interest rate swap agreement for a two-year term commencing on February 20, 2018. The agreement wasagreements designed with the intended effect of converting an initial notional amount of $306 millionamounts of our variable rate debt obligation to fixed rate debt. Under the terms of the agreementagreements, for the then-outstandingoutstanding notional amount, our exposure to fluctuations in the one-month LIBOR is eliminated and we will pay a fixed rate of 1.566%, plus the current applicable margin.
| (In millions) | ||||||||||||||
| Designation Date | Commencement Date | Initial Notional Amount | Notional Amount Outstanding as of February 2, 2020 | Fixed Rate | Expiration Date | |||||||||
| August 2019 | February 2020 | $ | 50 | $ | — | 1.1975% | February 2022 | |||||||
| June 2019 | February 2020 | 50 | — | 1.409% | February 2022 | |||||||||
| June 2019 | June 2019 | 50 | 50 | 1.719% | July 2021 | |||||||||
| January 2019 | February 2020 | 50 | — | 2.4187% | February 2021 | |||||||||
| November 2018 | February 2019 | 139 | 127 | 2.8645% | February 2021 | |||||||||
| October 2018 | February 2019 | 116 | 103 | 2.9975% | February 2021 | |||||||||
| June 2018 | August 2018 | 50 | 50 | 2.6825% | February 2021 | |||||||||
| June 2017 | February 2018 | 306 | 56 | 1.566% | February 2020 | |||||||||
| July 2014 | February 2016 | 683 | — | 1.924% | February 2018 | |||||||||
The notional amountamounts of anythe outstanding interest rate swap will beswaps that commenced in February 2018 and February 2019 are adjusted according to a pre-set scheduleschedules during the termterms of the applicable swap agreementagreements such that, based on our projections for future debt repayments, our outstanding debt under the Term Loan AUSD TLA facility is expected to always equal or exceed the combined notional amount of the then-outstanding interest rate swaps.
4 1/2% Senior Notes Due 2022
We had outstanding $700 million principal amount of 4 1/2% senior notes due December 15, 2022. We redeemed these notes on January 5, 2018 in connection with the issuance of €600 million euro-denominated principal amount of 3 1/8% senior notes due December 15, 2027, as discussed below. We paid a premium of $16 million to the holders of these notes in connection with the redemption. We alsoredemption and recorded debt extinguishment costs of $8 million to write-off previously capitalized debt issuance costs associated with these notes.notes during 2017.
7 3/4% Debentures Due 2023
We have outstanding $100 million of debentures due November 15, 2023 that accrue interest at the rate of 7 3/4%. The debentures are not redeemable at our option prior to maturity.
3 5/8% Euro Senior Notes Due 2024
We issued on June 20, 2016have outstanding €350 million euro-denominated principal amount of 3 5/8% senior notes due July 15, 2024. Interest on the notes is payable in euros. We paid €6 million (approximately $7 million based on exchange rates in effect on the payment date) of fees during 2016 in connection with the issuance of these notes, which are amortized over the term of the notes. We may redeem some or all of these notes at any time prior to April 15, 2024 by paying a “make whole” premium plus any accrued and unpaid interest. In addition, we may redeem some or all of these notes on or after April 15, 2024 at their principal amount plus any accrued and unpaid interest.
3 1/8% Euro Senior Notes Due 2027
We issued on December 21, 2017 €600 million euro-denominated principal amount of 3 1/8% senior notes due December 15, 2027. Interest on the notes is payable in euros. We paid €9 million (approximately $10 million based on exchange rates in effect on the payment date) of fees during the fourth quarter of 2017 in connection with the issuance of these notes, which are amortized over the term of the notes. We may redeem some or all of these notes at any time prior to September 15, 2027 by paying a “make whole” premium plus any accrued and unpaid interest. In addition, we may redeem some or all of these notes on or after September 15, 2027 at their principal amount plus any accrued and unpaid interest.
Our financing arrangements contain financial and non-financial covenants and customary events of default. As of February 4, 2018,2, 2020, we were in compliance with all applicable covenants.financial and non-financial covenants under our financing arrangements.
As of February 4, 2018,2, 2020, our issuer credit was rated BBB- by Standard & Poor’s with a stable outlook and our corporate credit was rated Ba1Baa3 by Moody’s with a stable outlook, and our issuer creditcommercial paper was rated BB+A-3 by Standard & Poor’s with a positive outlook.and P-3 by Moody’s. In assessing our credit strength, we believe that both Moody’s and Standard & Poor’s and Moody’s considered, among other things, our capital structure and financial policies, our consolidated balance sheet, our historical acquisition activity and other financial information, as well as industry and other qualitative factors.
Please refer tosee Note 8,9, “Debt,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion of our debt.
Contractual Obligations
The following table summarizes, as of February 4, 2018,2, 2020, our contractual cash obligations by future period:
| Payments Due by Period | Payments Due by Period | |||||||||||||||||||||||||||||||||||||||
| Description | Total Obligations | 2018 | 2019-2020 | 2021-2022 | Thereafter | Total Obligations | 2020 | 2021-2022 | 2023-2024 | Thereafter | ||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||||
Long-term debt(1) | $ | 3,086 | $ | — | $ | 273 | $ | 1,526 | $ | 1,287 | $ | 2,725 | $ | 14 | $ | 142 | $ | 1,906 | $ | 663 | ||||||||||||||||||||
| Interest payments on long-term debt | 564 | 103 | 201 | 111 | 149 | 419 | 86 | 159 | 112 | 62 | ||||||||||||||||||||||||||||||
| Short-term borrowings | 20 | 20 | — | — | — | 50 | 50 | |||||||||||||||||||||||||||||||||
Operating and capital leases(2) | 2,560 | 487 | 792 | 539 | 742 | |||||||||||||||||||||||||||||||||||
Operating and finance leases(2) | 2,274 | 445 | 740 | 443 | 646 | |||||||||||||||||||||||||||||||||||
Inventory purchase commitments(3) | 1,089 | 1,089 | — | — | — | 883 | 883 | |||||||||||||||||||||||||||||||||
Minimum contractual royalty payments(4) | 56 | 16 | 30 | 10 | — | 23 | 8 | 11 | 4 | |||||||||||||||||||||||||||||||
Non-qualified supplemental defined benefit plan(5) | 11 | 1 | 2 | 2 | 6 | 8 | 1 | 2 | 1 | 4 | ||||||||||||||||||||||||||||||
Sponsorship and model payments(6) | 55 | 26 | 20 | 9 | — | |||||||||||||||||||||||||||||||||||
Information-technology, sponsorships and other commitments(6) | 134 | 103 | 29 | 2 | ||||||||||||||||||||||||||||||||||||
| Total contractual cash obligations | $ | 7,441 | $ | 1,742 | $ | 1,318 | $ | 2,197 | $ | 2,184 | $ | 6,516 | $ | 1,590 | $ | 1,083 | $ | 2,468 | $ | 1,375 | ||||||||||||||||||||
______________________
(1) | At February |
(2) |
(3) | Represents contractual commitments that are enforceable and legally binding for goods on order and not received or paid for as of February |
(4) | Our minimum contractual royalty payments arise under numerous license agreements we have with third parties, each of which has different terms. Agreements typically require us to make minimum payments to the licensors of the licensed trademarks based on expected or required minimum levels of sales of licensed products, as well as additional royalty payments based on a percentage of sales when our sales exceed such minimum sales. Certain of our license agreements require that we pay a specified percentage of net sales to the licensor for advertising and promotion of the licensed products, in some cases requiring a minimum amount to be paid. Any advertising payments, with the exception of minimum payments to licensors, are excluded from the minimum contractual royalty payments shown in the table. There is no guarantee that we will exceed the minimum payments under any of these license agreements. |
(5) | We have an unfunded, non-qualified supplemental defined benefit plan covering certain retired executives under which the participants will receive a predetermined amount during the 10 years following the attainment of age 65, provided that prior to the termination of employment with us, the participant has been in such plan for at least 10 years and has attained age 55. |
(6) | Information-technology, sponsorships and other commitments represent future cash obligations |
Not included in the above table are contributions to our qualified defined benefit pension plans, or payments to employees and retirees in connection with our unfunded supplemental executive retirement, supplemental pension and postretirement health plans. Contractual cash obligations for these plans cannot be determined due to the number of assumptions required to estimate our future benefit obligations, including return on assets, discount rate and future compensation increases. The liabilities associated with these plans, together with the liability for the non-qualified supplemental defined benefit plans included in the above table, are presented in Note 12,13, “Retirement and Benefit Plans,” in the Notes to Consolidated Financial Statements included in Item 8 of this report. Currently, we do not expect to make any material contributions to our pension plans in 2018.2020. Our actual contributions may differ from our planned contributions due to many factors, including changes in tax and other benefit laws, or significant differences between expected and actual pension asset performance or interest rates.
Not included in the above table are $212$158 million of net potential cash obligations associated with uncertain tax positions due to the uncertainty regarding the future cash outflows associated with such obligations. Please see Note 9,10, “Income Taxes,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further information related to uncertain tax positions.
Not included in the above table are $27$36 million of asset retirement obligations related to leased office and retail store locations due to the uncertainty of timing of future cash outflows associated with such obligations. Please see Note 21,23, “Other Comments,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further information related to asset retirement obligations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have a material current effect, or that are reasonably likely to have a material future effect, on our financial position, changes in financial position, revenue, expenses, results of operations, liquidity, capital expenditures or capital resources.
50
MARKET RISK
Financial instruments held by us as of February 4, 20182, 2020 include cash and cash equivalents, short-term borrowings, long-term debt, foreign currency forward exchange contracts and interest rate swap agreements. Note 11,12, “Fair Value Measurements,” in the Notes to Consolidated Financial Statements included in Item 8 of this report outlines the fair value of our financial instruments as of February 4, 20182, 2020. Cash and cash equivalents held by us are affected by short-term interest rates, which are currently low. DueThe potential for a significant decrease in short-term interest rates is low due to the currently low rates of return we are receiving on our cash and cash equivalents the potential for a significant decrease in short-term interest rates is low and, therefore, a further decrease would not have a material impact on our interest income. However, there is potential for a more significant increase in short-term interest rates, which could have a more material impact on our interest income. Given our balance of cash and cash equivalents at February 4, 20182, 2020, the effect of a 10 basis point change in short-term interest rates on our interest income would be approximately $500,000 annually. Borrowings under our 20162019 facilities bear interest at a rate equal to an applicable margin plus a variable rate. As such, our 20162019 facilities expose us to market risk for changes in interest rates. We have entered into interest rate swap agreements for the intended purpose of reducing our exposure to interest rate volatility. As of February 4, 2018,2, 2020, after taking into account the effect of our interest rate swap agreementagreements that waswere in effect as of such date, approximately 60%55% of our long-term debt was at a fixed interest rate, with the remainder at variable interest rates. Given our long-term debt position at February 4, 2018,2, 2020, the effect of a 10 basis point change in interest rates on our variable interest expense would be approximately $1 million annually. Please refer tosee the section entitled “Liquidity and Capital Resources” above for further discussion of our credit facilities and interest rate swap agreements.
Our Tommy Hilfiger and Calvin Klein and Tommy Hilfiger businesses each have substantial international components that expose us to significant foreign exchange risk. Our Heritage Brands business also has international components but those components are not significant to the business. Over 50% of our $9.909 billion of revenue in 2019 was generated outside of the United States. Changes in exchange rates between the United States dollar and other currencies can impact our financial results in two ways: a translationtranslational impact and a transactiontransactional impact.
The translationtranslational impact refers to the impact that changes in exchange rates can have on our results of operations and financial position. The functional currencies of our foreign subsidiaries are generally the applicable local currencies. Our consolidated financial statements are presented in United States dollars. The results as our operating resultsof operations in local foreign currencies are translated into United States dollars using an average exchange rate over the representative period.period and the assets and liabilities in local foreign currencies are translated into United States dollars using the closing exchange rate at the balance sheet date. Foreign exchange differences that arise from the translation of our foreign subsidiaries’ assets and liabilities into United States dollars are recorded as foreign currency translation adjustments in other comprehensive (loss) income. Accordingly, our reported results of operations and other comprehensive (loss) income will be unfavorably impacted during times of a strengthening United States dollar, particularly against the euro, the Brazilian real, the Japanese yen, the Korean won, the British pound sterling, the CanadianAustralian dollar, the Mexican peso, the Indian rupee, the Russian rubleCanadian dollar and the Chinese yuan renminbi, and favorably impacted during times of a weakening United States dollar against those currencies.
Our 2019 revenues and net income decreased by approximately $215 million and $25 million, respectively, as compared to 2018 due to the impact of foreign currency translation. We currently expect a decrease in our revenue and net income in 2020 as compared to 2019 due to the impact of foreign currency translation.
In addition, in 2019 we recognized unfavorable foreign currency translation adjustments of $158 million within other comprehensive (loss) income principally driven by a strengthening of the United States dollar against the euro of 4% since February 3, 2019. Our foreign currency translation adjustments recorded in other comprehensive (loss) income are significantly impacted by the substantial amount of goodwill and other intangible assets denominated in the euro, which represented 33% of our $7.2 billion total goodwill and other intangible assets as of February 2, 2020. This translational impact was partially mitigated by the change in the fair value of our net investment hedges discussed below.
A transactiontransactional impact on financial results is common for apparel companies operating outside the United States that purchase goods in United States dollars, as is the case with most of our foreign operations. As with translation, our results of operations will be unfavorably impacted as fluctuationsduring times of thea strengthening United States dollar changeas the increased local currency value of inventory which results in a changehigher cost of goods in local currency when the goods are sold and favorably impacted during times of a weakening United States dollar as the decreased local currency value of inventory results in a lower cost of goods in local currency when the goods are sold. We also have exposure to changes in foreign currency exchange rates related to certain intercompany transactions and SG&A expenses. We currently use and plan to continue to use foreign currency forward exchange contracts or other derivative instruments to mitigate the cash flow or market value risks associated with these
inventory and intercompany transactions, but we are unable to entirely eliminate these risks. The foreign currency forward exchange contracts cover at least 70% of the projected inventory purchases in United States dollars by our foreign subsidiaries.
We currently expect a decrease in our net income in 2020 as compared to 2019 due to the transactional impact.
Given our foreign currency forward exchange contracts outstanding at February 4, 2018,2, 2020, the effect of a 10% change in foreign currency exchange rates against the United States dollar would result in a change in the fair value of these contracts of approximately $100$105 million. Any change in the fair value of these contracts would be substantially offset by a change in the fair value of the underlying hedged items.
Additionally, during times of a strengthening United States dollar against the euro, we also have exposurewould be required to changes in foreign currency exchange rates related to our €950 million aggregate principaluse a lower amount of our cash flows from operations to pay interest and make long-term debt repayments on our euro-denominated senior notes. Duringnotes, whereas during times of a weakening United States dollar against the euro, we would be required to use a greater amount of our cash flows from operations to pay interest and make long-term debt repayments.repayments on these notes.
Included in the calculations of expense and liabilities for our pension plans are various assumptions, including return on assets, discount rates, mortality rates and future compensation increases. Actual results could differ from these assumptions, which would require adjustments to our balance sheet and could result in volatility in our future pension expense. Holding all other assumptions constant, a 1% change in the assumed rate of return on assets would result in a change to 20182020 net benefit cost related to the pension plans of approximately $6$7 million. Likewise, a 0.25% change in the assumed discount rate would result in a change to 20182020 net benefit cost of approximately $31$45 million.
SEASONALITY
Our business generally follows a seasonal pattern. Our wholesale businesses tend to generate higher levels of sales in the first and third quarters, while our retail businesses tend to generate higher levels of sales in the fourth quarter. Royalty, advertising and other revenue tends to be earned somewhat evenly throughout the year, although the third quarter has the highest level of royalty revenue due to higher sales by licensees in advance of the holiday selling season. We expect this seasonal pattern will generally continue. Working capital requirements vary throughout the year to support these seasonal patterns and business trends.
RECENT ACCOUNTING PRONOUNCEMENTS
Please refer tosee Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for a discussion of recently issued and adopted accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. Our significant accounting policies are outlined in Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in Item 8 of this report. We believe that the following are the more critical judgmental areas in the application of our accounting policies that currently affect our financial position and results of operations:
Sales allowances and returns—We have arrangements with many of our department and specialty store customers to support their sales of our products. We establish accruals which, based on a review of the individual customer arrangements and the expected performance of our products in their stores, we believe will be required to satisfy our sales allowance obligations. We also establish accruals, which are based on historical data,experience, an evaluation of current sales trends and market conditions, and authorized amounts, that we believe are necessary to provide for sales allowances and inventory returns. Our historical accrual estimates have not differed materially from actual results. It is possible that the accrual estimates could vary from actual results, which would require adjustment to the allowance and returns accruals.
Inventories—Inventories are comprised principally of finished goods and are stated at the lower of cost or net realizable value, except for certain retail inventories in North America that are stated at the lower of cost or market using the retail inventory method. Cost for substantially all wholesale inventories in North America and certain wholesale and retail inventories in Asia and Latin America is determined using the first-in, first-out method. Cost for all other inventories is determined using the weighted average cost method. We review current business trends, inventory aging and discontinued merchandise categories to determine adjustments which we estimate will be needed to liquidate existing clearance inventories and record inventories at either the lower of cost or net realizable value or the lower of cost or market using the retail inventory method, as applicable. We believe that all inventory writedownswrite-downs required at February 4, 20182, 2020 have been recorded. Our
historical estimates of inventory reserves have not differed materially from actual results. If market conditions were to change, including as a result of the current COVID-19 outbreak, it is possible that the required level of inventory reserves would need to be adjusted.
Asset impairments—DuringWe determined during each of 2019, 2018 and 2017 2016 and 2015, we determined that the long-lived assets, primarily in certain of our retail stores and shop-in-shops, were not recoverable, which resulted in us recording impairment charges. Additionally, during 2019 we determined that certain operating lease right-of-use assets were impaired primarily as a result of the closure of certain flagship and anchor stores in the United States. In order to calculate thethese impairment charges, we estimated the undiscounted future cash flows and the related fair value of each asset. The undiscountedUndiscounted future cash flows for each asset were estimated using current sales trends and other factors.factors and, in the case of operating lease right-of-use assets, using estimated sublease income assumptions. If different assumptions had been used, for future sales trends, the recorded impairment charges could have been significantly higher or lower. Note 11,12, “Fair Value Measurements,” in the Notes to Consolidated Financial Statements included in Item 8 of this report includes further discussion of the circumstances surrounding the impairments and the assumptions related to the impairment charges.
Allowance for doubtful accounts—Trade receivables, as presented in our Consolidated Balance Sheets, are net of an allowance for doubtful accounts. An allowance for doubtful accounts is determined through an analysis of the aging of accounts receivable and assessments of collectibility based on historic trends, the financial condition of our customers and an evaluation of economic conditions. Because we cannot predict future changes in economic conditions and in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates and could impact our allowance for doubtful accounts.
Income taxes—Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience and expectations of future taxable income by taxing jurisdiction, the carryforward periods available to us for tax reporting purposes and other relevant factors. The actual realization of deferred tax assets may differ significantly from the amounts we have recorded.
During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.Accounting for income taxes requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if available evidence indicates it is more likely than not that the tax position will be fully sustained upon review by taxing authorities, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount with a greater than 50 percent likelihood of being realized upon ultimate settlement. For tax positions that are 50 percent or less likely of being sustained upon audit, we do not recognize any portion of that benefit in the financial statements. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. Our actual results have differed materially in the past and could differ materially in the future from our current estimates.
The U.S. Tax Legislation was enacted on December 22, 2017. The U.S. Tax Legislation is comprehensive and significantly revisesrevised the United States tax code. The revisions expected to significantly impact us are (i) the reduction of the corporate income tax rate from 35% to 21%, including the resulting remeasurement of our deferred tax assets and liabilities and the recognition of a valuation allowance on our foreign tax credits, (ii) the imposition of a one-time transition tax on earnings of foreign subsidiaries deemed to be repatriated and (iii) the implementation of a modified territorial tax system. The Tax Legislation resulted in a one-time net tax benefit of $53 million recorded in the fourth quarter of 2017, consisting of a benefit primarily from the remeasurement of our net deferred tax liabilities due to the reduction in the United States corporate tax rate, partially offset by a valuation allowance on our foreign tax credits and a transition tax on earnings of foreign subsidiaries deemed to be repatriated. As we complete our analysis of the Tax Legislation, collect and prepare necessary data, and interpret any additional guidance issued by the United States Department of the Treasury, the Internal Revenue Service and other standard-setting bodies, we may make adjustments in 2018 to the provisional amounts recorded in 2017 under the measurement period allowed by the SEC. Refer toPlease see Note 9,10, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 8 of this report for further discussion of the impacts of the U.S. Tax Legislation.
Goodwill and other intangible assets—Goodwill and other indefinite-lived intangible assets are tested for impairment annually, at the beginning of the third quarter of each fiscal year, and between annual tests if an event occurs or circumstances change that would indicate that it is more likely than not that the carrying amount may be impaired. Impairment testing for goodwill is done at the reporting unit level. A reporting unit is defined as an operating segment or one level below the operating segment, called a component. However, two or more components of an operating segment will be aggregated and deemed a single reporting unit if the components have similar economic characteristics.
We assess qualitative factors to determine whether it is necessary to perform a more detailed quantitative impairment test for goodwill and other indefinite-lived intangible assets. We may elect to bypass the qualitative assessment and proceed directly to the quantitative test for any reporting unitunits or indefinite-lived intangible assets. Qualitative factors that we consider as part of our assessment include a change in our market capitalization and its implied impact on reporting unit fair value, a change in our weighted average cost of capital, industry and market conditions, macroeconomic conditions, trends in product costs and financial performance of our businesses. If we perform the quantitative test for any reporting units or indefinite-lived intangible assets, we generally use a discounted cash flow method to estimate fair value. The discounted cash flow method is based on the present value of projected cash flows. Assumptions used in these cash flow projections are generally consistent with our internal forecasts. The estimated cash flows are discounted using a rate that represents our weighted average cost of capital. The weighted average cost of capital is based on a number of variables, including the equity-risk premium and risk-free interest rate. Management believes the assumptions used for the impairment tests are consistent with those that would be utilized by a market participant performing similar analysis and valuations. Adverse changes in future market conditions or weaker operating results compared to our expectations may impact our projected cash flows and estimates of weighted average cost of capital, which could result in a potential impairment charge if we are unable to recover the carrying value of our goodwill and other indefinite-lived intangible assets. For goodwill, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized to the extent the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill. For indefinite-lived intangible assets, an impairment loss is recognized to the extent the carrying amount of the asset exceeds its fair value.
For the 2017 and 20162019 annual goodwill impairment tests,test, we elected to first assessbypass the qualitative factorsassessment for all reporting units and proceeded directly to determine whether it was more likely than not thatthe quantitative impairment test using a discounted cash flow method to estimate the fair value of anyour reporting units. The annual goodwill impairment test during 2019 yielded estimated fair values in excess of the carrying amounts for all of our reporting units and therefore the second step of the quantitative goodwill impairment test was not required. The reporting unit was less thanwith the least excess fair value had an estimated fair value that exceeded its carrying amount asby 15%. No impairment of goodwill resulted from our annual impairment test in 2019. In the fourth quarter of 2019, the Speedo transaction was a basis for determining whether it was necessarytriggering event that indicated that the amount of goodwill allocated to the Heritage Brands Wholesale reporting unit, the reporting unit that includes the Speedo North America business, could be impaired, prompting the need to perform the two-stepan interim goodwill impairment test for this reporting unit. No goodwill impairment resulted from this interim test. In evaluating whether it was more likely than not thatPlease see Note 8, “Goodwill and Other Intangible Assets,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
For the 2018 annual goodwill impairment test, we elected to bypass the qualitative assessment and proceeded directly to the quantitative impairment test using a discounted cash flow method to estimate the fair value of anyour reporting unit was lessunits. The annual goodwill impairment test during 2018 yielded estimated fair values in excess of the carrying amounts for our reporting units, all of which had fair values in excess of the carrying amounts by more than its carrying amount, we assessed relevant events50%, and circumstances includingtherefore the change in our market capitalization and its implied impact on reporting unit fair value, a change in our weighted average costsecond step of capital, industry and market conditions, macroeconomic conditions, trends in product costs and financial performance of our businesses. After assessing these events and circumstances, we determined that it was not more likely than not that the fair value of any reporting unit was less than its carrying amount and concluded that the quantitative goodwill impairment test was not required. No impairment of goodwill resulted from either of our annual impairment tests in 2017 and 2016.
For the 2017 and 20162019 annual impairment teststest of certainall indefinite-lived intangible assets, we elected to first assess qualitative factors to determine whether it was more likely than not thatexcept for the fair value of any asset was less than its carrying amount. In performing this evaluation, we assessed relevant events and circumstances including industry and market conditions, a change in our weighted average cost of capital, macroeconomic conditions, trends in product costs and financial performance of our businesses. After assessing these events and circumstances, we determined that it was not more likely than not that the fair value of these certain indefinite-lived intangible assets were less than their carrying amount and concluded that the quantitative impairment test was not required. For certain other indefinite-lived intangible assets impairment tests,Australia reacquired perpetual license rights, we elected to bypass the qualitative assessment and proceeded directly to the quantitative impairment test using a discounted cash flow method to estimate fair value. For the Australia reacquired perpetual license rights, since only a few months had passed since the acquisition on May 31, 2019 and the business had performed better than initially expected, we determined qualitatively that it was not more likely than not that the fair value of these reacquired perpetual license rights were less than the carrying amount and concluded that the quantitative impairment test was not required. The fair values of all of our indefinite-lived intangible assets substantially exceed their carrying amounts, with the exception of the perpetual license right related to our Speedo North America business, which had a fair value that exceeded its carrying amount by 3% at the testing date. In the fourth quarter of 2019, the Speedo transaction was a triggering event that prompted the need to perform an interim impairment test of this perpetual license right. As a result of this interim test, the perpetual license right was determined to be impaired and an impairment charge of $116 million was recorded to other noncash loss, net in the Consolidated Income Statement. Please see Note 4, “Assets Held For Sale,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.
For the 2018 annual impairment test of all indefinite-lived intangible assets, except for the Geoffrey Beene tradename, we elected to bypass the qualitative assessment and proceeded directly to the quantitative impairment test using a discounted cash flow method to estimate fair value. For the Geoffrey Beene tradename, since only a few months had passed since the acquisition on April 20, 2018 and there had not been any significant changes in the business, we determined qualitatively that it was not more likely than not that the fair value of this tradename was less than the carrying amount and concluded that the
quantitative impairment test was not required. No impairment of indefinite-lived intangible assets resulted from either of our annual impairment tests in 2017 and 2016.2018.
If different assumptions for our goodwill and other indefinite-lived intangible assets impairment tests had been applied, significantly different outcomes could have resulted. There can be no assurance that the estimates and assumptions used in our goodwill and indefinite-lived intangible assets impairment testing performed in 20172019 will prove to be accurate predictions of the future. For example, if general macroeconomic conditions deteriorate or otherwise vary from current assumptions (including those resulting in changes in the weighted average cost of capital), industry or market conditions deteriorate, business conditions or strategies for a specific reporting unit change from current assumptions, including cost increases or loss of major customers, our businesses do not perform as projected, or there is an extended period of a significant decline in our stock price, this could be an indicator that the excess fair value of our reporting units could be lessened and the chance of an impairment of goodwill and other indefinite-lived intangible assets could be raised.
Pension and Benefit Plans —Pension—Pension and benefit plan expenses are recorded throughout the year based on calculations using actuarial valuations that incorporate estimates and assumptions that depend in part on financial market, economic and demographic conditions, including expected long-term rate of return on assets, discount rate and mortality rates. These assumptions require significant judgment. Actuarial gains and losses, which occur when actual experience differs from our actuarial assumptions, are recognized in the year in which they occur and could have a material impact on our operating results. These gains and losses are measured at least annually at the end of our fiscal year and, as such, are generally recorded during the fourth quarter of each year.
The expected long-term rate of return on assets is based on historical returns and the level of risk premium associated with the asset classes in which the portfolio is invested as well as expectations for the long-term future returns of each asset class. The expected long-term rate of return for each asset class is then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio. The expected return on plan assets is recognized quarterly and determined at the beginning of the year by applying the long-term expected rate of return on assets to the actual fair value of plan assets adjusted for expected benefit payments, contributions and plan expenses. At the end of the year, the fair value of the assets is remeasured and any difference between the actual return on assets and the expected return is recorded in earnings as part of the actuarial gain or loss.
The discount rate is determined based on current market interest rates. It is selected by constructing a hypothetical portfolio of high quality corporate bonds that matches the cash flows from interest payments and principal maturities of the portfolio to the timing of benefit payments to participants. The yield on such a portfolio is the basis for the selected discount rate. Service and interest cost is measured using the discount rate as of the beginning of the year, while the projected benefit obligation is measured using the discount rate as of the end of the year. The impact of the change in the discount rate on our projected benefit obligation is recorded in earnings as part of the actuarial gain or loss.
We also periodically review and revise, as necessary, other plan assumptions such as rates of compensation increases, retirement, and termination based on historical experience and anticipated future management actions. We have not historically had significant adjustments to these assumptions.
Actual results could differ from theseour assumptions, which would require adjustments to our balance sheet and could result in volatility in our future net benefit cost. Holding all other assumptions constant, a 1% change in the assumed rate of return on assets would result in a change to 20182020 net benefit cost related to the pension plans of approximately $6$7 million. Likewise, a 0.25% change in the assumed discount rate would result in a change to 20182020 net benefit cost of approximately $31$45 million.
Note 12,13, “Retirement and Benefit Plans,” in the Notes to Consolidated Financial Statements included in Item 8 of this report sets forth certain significant rate assumptions and information regarding our target asset allocation, which are used in performing calculations related to our pension plans.
Stock-based compensation—Accounting for stock-based compensation requires measurement of compensation cost for all stock-based awards at fair value on the date of grant and recognition of compensation cost over the service period for
awards expected to vest. We use the Black-Scholes-Merton option pricing model to determine the fair value of our stock options. This model uses assumptions that include the risk-free interest rate, expected volatility, expected dividend yield and expected life of the options. The fair value of restricted stock units is determined based on the quoted price of our common stock on the date of grant. The fair value of our stock options and restricted stock units is recognized as expense over the service period, net of actual forfeitures.
The fair value of contingently issuable performance shares that are subject to market conditions is established using a Monte Carlo simulation model. Certain contingently issuable performance shares that are subject to market conditions are also subject to a holding period of one year after the vesting date. For such awards, the grant date fair value is discounted for the restriction of liquidity, which is calculated using the Chaffe model. We record expense for the awards that are subject to market conditions ratably over the vesting period, net of actual forfeitures, regardless of whether the market condition is satisfied.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to Quantitative and Qualitative Disclosures About Market Risk appears under the heading “Market Risk” in Item 7.
Item 8. Financial Statements and Supplementary Data
See page F-1 of this report for a listing of the consolidated financial statements and supplementary data included in this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chairman and Chief Executive Officer and Chief Operating & Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chairman and Chief Executive Officer and Chief Operating & Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chairman and Chief Executive Officer and Chief Operating & Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management’s report on internal control over financial reporting and our independent registered public accounting firm’s audit report on our assessment of our internal control over financial reporting can be found on pages F-56F-65 and F-57.F-66.
Changes in Internal Control over Financial Reporting
We implemented internal controls in connection with our adoption of the new lease accounting standard in the first quarter of 2019. There have been no other changes in our internal control over financial reporting during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
56
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information with respect to Directors of the Registrant is incorporated herein by reference to the section entitled “Election of Directors” in our proxy statement for the Annual Meeting of Stockholders to be held on June 21, 2018.18, 2020. Information with respect to compliance by our officers and directors with Section 16(a) of the Securities Exchange Act is incorporated herein by reference to the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in our proxy statement for the Annual Meeting of Stockholders to be held on June 21, 2018.18, 2020. Information with respect to our executive officers is contained in the section entitled “Executive Officers of the Registrant” in Part I, Item 1 of this report. Information with respect to the procedure by which security holders may recommend nominees to our Board of Directors and with respect to our Audit & Risk Management Committee, our Audit Committee Financial Expert and our Code of Ethics for the Chief Executive and Senior Financial Officers is incorporated herein by reference to the section entitled “Election of Directors” in our proxy statement for the Annual Meeting of Stockholders to be held on June 21, 2018.18, 2020.
Item 11. Executive Compensation
Information with respect to Executive Compensation is incorporated herein by reference to the sections entitled “Executive Compensation,” “Compensation Committee Report,” “Compensation Discussion and Analysis” and “Compensation Committee Interlocks and Insider Participation” in our proxy statement for the Annual Meeting of Stockholders to be held on June 21, 2018.18, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information with respect to the Security Ownership of Certain Beneficial Owners and Management and Equity Compensation Plan Information is incorporated herein by reference to the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our proxy statement for the Annual Meeting of Stockholders to be held on June 21, 2018.18, 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information with respect to Certain Relationships and Related Transactions and Director Independence is incorporated herein by reference to the sections entitled “Transactions with Related Persons,” “Election of Directors” and “Director Compensation” in our proxy statement for the Annual Meeting of Stockholders to be held on June 21, 2018.18, 2020.
Item 14. Principal Accounting Fees and Services
Information with respect to Principal Accounting Fees and Services is incorporated herein by reference to the section entitled “Ratification of the Appointment of Auditor” in our proxy statement for the Annual Meeting of Stockholders to be held on June 21, 2018.18, 2020.
57
PART IV
Item 15. Exhibits, Financial Statement Schedules
| (a)(1) | See page F-1 for a listing of the consolidated financial statements included in Item 8 of this report. |
| (a)(2) | See page F-1 for a listing of consolidated financial statement schedules submitted as part of this report. |
| (a)(3) | The following exhibits are included in this report: |
| +101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
________________
| + | Filed or furnished herewith. |
| * | Management contract or compensatory plan or arrangement required to be identified pursuant to Item 15(a)(3) of this report. |
Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibits shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
| (b) | Exhibits: See (a)(3) above for a listing of the exhibits included as part of this report. |
| (c) | Financial Statement Schedules: See page F-1 for a listing of the consolidated financial statement schedules submitted as part of this report. |
62
Item 16. Form 10-K Summary
None.
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 30, 2018April 1, 2020
| PVH CORP. | ||
| By: | /s/ EMANUEL CHIRICO | |
| Emanuel Chirico | ||
| Chairman and Chief Executive Officer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date |
| /s/ EMANUEL CHIRICO | Chairman and Chief Executive Officer | |
| Emanuel Chirico | (Principal Executive Officer) | |
| /s/ MICHAEL SHAFFER | Executive Vice President and Chief Operating & | |
| Michael Shaffer | Financial Officer (Principal Financial Officer) | |
| /s/ JAMES W. HOLMES | Senior Vice President and Controller | |
| James W. Holmes | (Principal Accounting Officer) | |
| /s/ MARY BAGLIVO | Director | |
| Mary Baglivo | ||
| /s/ BRENT CALLINICOS | Director | |
| Brent Callinicos | ||
| /s/ JUAN R. FIGUEREO | Director | |
| Juan R. Figuereo | ||
| /s/ JOSEPH B. FULLER | Director | |
| Joseph B. Fuller | ||
/s/ JUDITH AMANDA SOURRY KNOX | Director | |
Judith Amanda Sourry Knox | ||
| /s/ V. JAMES MARINO | Director | |
| V. James Marino | ||
| /s/ GERALDINE (PENNY) MCINTYRE | Director | |
| Geraldine (Penny) McIntyre | ||
| /s/ AMY MCPHERSON | Director | |
| Amy McPherson | ||
| /s/ HENRY NASELLA | Director | |
| Henry Nasella | ||
| /s/ EDWARD R. ROSENFELD | Director | |
| Edward R. Rosenfeld | ||
| /s/ CRAIG RYDIN | Director | |
| Craig Rydin | ||
64
FORM 10-K-ITEM 15(a)(1) and 15(a)(2)
PVH CORP.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
| 15(a)(1) The following consolidated financial statements and supplementary data are included in Item 8 of this report: |
| 15(a)(2) The following consolidated financial statement schedule is included herein: |
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
F-1
PVH CORP.
CONSOLIDATED INCOME STATEMENTS
(In millions, except per share data)
| 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |||||||||||||||||
| Net sales | $ | 8,439.4 | $ | 7,791.4 | $ | 7,605.5 | $ | 9,400.0 | $ | 9,154.2 | $ | 8,439.4 | ||||||||||
| Royalty revenue | 366.3 | 320.6 | 324.8 | 379.9 | 375.9 | 366.3 | ||||||||||||||||
| Advertising and other revenue | 109.1 | 91.1 | 90.0 | 129.1 | 126.7 | 109.1 | ||||||||||||||||
| Total revenue | 8,914.8 | 8,203.1 | 8,020.3 | 9,909.0 | 9,656.8 | 8,914.8 | ||||||||||||||||
| Cost of goods sold (exclusive of depreciation and amortization) | 4,020.4 | 3,832.8 | 3,858.7 | 4,520.6 | 4,348.5 | 4,020.4 | ||||||||||||||||
| Gross profit | 4,894.4 | 4,370.3 | 4,161.6 | 5,388.4 | 5,308.3 | 4,894.4 | ||||||||||||||||
| Selling, general and administrative expenses | 4,248.2 | 3,636.7 | 3,417.7 | 4,715.2 | 4,432.8 | 4,245.2 | ||||||||||||||||
| Non-service related pension and postretirement cost | 90.0 | 5.1 | 3.0 | |||||||||||||||||||
| Debt modification and extinguishment costs | 23.9 | 15.8 | — | 5.2 | — | 23.9 | ||||||||||||||||
| Other noncash gain, net | — | 71.3 | — | |||||||||||||||||||
| Other noncash loss, net | 28.9 | — | — | |||||||||||||||||||
| Equity in net income of unconsolidated affiliates | 10.1 | 0.1 | 16.6 | 9.6 | 21.3 | 10.1 | ||||||||||||||||
| Income before interest and taxes | 632.4 | 789.2 | 760.5 | 558.7 | 891.7 | 632.4 | ||||||||||||||||
| Interest expense | 128.5 | 120.9 | 117.0 | 120.0 | 120.8 | 128.5 | ||||||||||||||||
| Interest income | 6.3 | 5.9 | 4.0 | 5.3 | 4.7 | 6.3 | ||||||||||||||||
| Income before taxes | 510.2 | 674.2 | 647.5 | 444.0 | 775.6 | 510.2 | ||||||||||||||||
| Income tax (benefit) expense | (25.9 | ) | 125.5 | 75.1 | ||||||||||||||||||
| Income tax expense (benefit) | 28.9 | 31.0 | (25.9 | ) | ||||||||||||||||||
| Net income | 536.1 | 548.7 | 572.4 | 415.1 | 744.6 | 536.1 | ||||||||||||||||
| Less: Net loss attributable to redeemable non-controlling interest | (1.7 | ) | (0.3 | ) | — | (2.2 | ) | (1.8 | ) | (1.7 | ) | |||||||||||
| Net income attributable to PVH Corp. | $ | 537.8 | $ | 549.0 | $ | 572.4 | $ | 417.3 | $ | 746.4 | $ | 537.8 | ||||||||||
| Basic net income per common share attributable to PVH Corp. | $ | 6.93 | $ | 6.84 | $ | 6.95 | $ | 5.63 | $ | 9.75 | $ | 6.93 | ||||||||||
| Diluted net income per common share attributable to PVH Corp. | $ | 6.84 | $ | 6.79 | $ | 6.89 | $ | 5.60 | $ | 9.65 | $ | 6.84 | ||||||||||
See notes to consolidated financial statements.
F-2
PVH CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |||||||||||||||||
| Net income | $ | 536.1 | $ | 548.7 | $ | 572.4 | $ | 415.1 | $ | 744.6 | $ | 536.1 | ||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||
| Other comprehensive (loss) income: | ||||||||||||||||||||||
| Foreign currency translation adjustments | 561.3 | (21.4 | ) | (234.6 | ) | (157.8 | ) | (361.3 | ) | 561.3 | ||||||||||||
| Net unrealized and realized (loss) gain related to effective cash flow hedges, net of tax expense (benefit) of $0.1, $1.2 and $(8.4) | (99.1 | ) | 0.7 | (53.1 | ) | |||||||||||||||||
| Net (loss) gain on net investment hedges, net of tax (benefit) expense of $(28.7) and $8.6 in 2017 and 2016, respectively | (70.8 | ) | 14.1 | — | ||||||||||||||||||
| Total other comprehensive income (loss) | 391.4 | (6.6 | ) | (287.7 | ) | |||||||||||||||||
| Net unrealized and realized (loss) gain related to effective cash flow hedges, net of tax (benefit) expense of $(1.0), $3.2 and $0.1 | (4.1 | ) | 101.8 | (99.1 | ) | |||||||||||||||||
| Net gain (loss) on net investment hedges, net of tax expense (benefit) of $9.6, $22.5 and $(28.7) | 29.7 | 73.1 | (70.8 | ) | ||||||||||||||||||
| Total other comprehensive (loss) income | (132.2 | ) | (186.4 | ) | 391.4 | |||||||||||||||||
| Comprehensive income | 927.5 | 542.1 | 284.7 | 282.9 | 558.2 | 927.5 | ||||||||||||||||
| Less: Comprehensive loss attributable to redeemable non-controlling interest | (1.7 | ) | (0.3 | ) | — | (2.2 | ) | (1.8 | ) | (1.7 | ) | |||||||||||
| Comprehensive income attributable to PVH Corp. | $ | 929.2 | $ | 542.4 | $ | 284.7 | $ | 285.1 | $ | 560.0 | $ | 929.2 | ||||||||||
See notes to consolidated financial statements.
F-3
PVH CORP.
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
| February 4, 2018 | January 29, 2017 | February 2, 2020 | February 3, 2019 | |||||||||||
| ASSETS | ||||||||||||||
| Current Assets: | ||||||||||||||
| Cash and cash equivalents | $ | 493.9 | $ | 730.1 | $ | 503.4 | $ | 452.0 | ||||||
| Trade receivables, net of allowances for doubtful accounts of $21.1 and $15.0 | 658.5 | 616.0 | ||||||||||||
| Trade receivables, net of allowances for doubtful accounts of $21.1 and $21.6 | 741.4 | 777.8 | ||||||||||||
| Other receivables | 37.9 | 25.4 | 23.7 | 26.0 | ||||||||||
| Inventories, net | 1,591.3 | 1,317.9 | 1,615.7 | 1,732.4 | ||||||||||
| Prepaid expenses | 184.5 | 133.2 | 159.9 | 168.7 | ||||||||||
| Other | 64.7 | 57.0 | 112.9 | 81.7 | ||||||||||
| Assets held for sale | 237.2 | — | ||||||||||||
| Total Current Assets | 3,030.8 | 2,879.6 | 3,394.2 | 3,238.6 | ||||||||||
| Property, Plant and Equipment, net | 899.8 | 759.9 | 1,026.8 | 984.5 | ||||||||||
| Operating Lease Right-of-Use Assets | 1,675.8 | — | ||||||||||||
| Goodwill | 3,834.7 | 3,469.9 | 3,677.6 | 3,670.5 | ||||||||||
| Tradenames | 2,928.4 | 2,783.4 | 2,830.2 | 2,863.7 | ||||||||||
| Other Intangibles, net | 798.2 | 826.6 | 650.5 | 705.5 | ||||||||||
| Other Assets, including deferred taxes of $25.4 and $17.4 | 393.8 | 348.5 | ||||||||||||
| Other Assets, including deferred taxes of $40.3 and $40.5 | 375.9 | 400.9 | ||||||||||||
| Total Assets | $ | 11,885.7 | $ | 11,067.9 | $ | 13,631.0 | $ | 11,863.7 | LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | |||||
| Current Liabilities: | ||||||||||||||
| Accounts payable | $ | 889.8 | $ | 682.6 | $ | 882.8 | $ | 924.2 | ||||||
| Accrued expenses | 923.1 | 832.4 | 929.6 | 891.6 | ||||||||||
| Deferred revenue | 39.2 | 30.7 | 64.7 | 65.3 | ||||||||||
| Current portion of operating lease liabilities | 363.5 | — | ||||||||||||
| Short-term borrowings | 19.5 | 19.1 | 49.6 | 12.8 | ||||||||||
| Current portion of long-term debt | — | — | 13.8 | — | ||||||||||
| Liabilities related to assets held for sale | 57.1 | — | ||||||||||||
| Total Current Liabilities | 1,871.6 | 1,564.8 | 2,361.1 | 1,893.9 | ||||||||||
| Long-Term Portion of Operating Lease Liabilities | 1,532.0 | — | ||||||||||||
| Long-Term Debt | 3,061.3 | 3,197.3 | 2,693.9 | 2,819.4 | ||||||||||
| Other Liabilities, including deferred taxes of $663.0 and $877.7 | 1,414.4 | 1,499.3 | ||||||||||||
| Other Liabilities, including deferred taxes of $558.1 and $565.2 | 1,234.5 | 1,322.4 | ||||||||||||
| Redeemable Non-Controlling Interest | 2.0 | 2.0 | (2.0 | ) | 0.2 | |||||||||
| Stockholders’ Equity: | ||||||||||||||
| Preferred stock, par value $100 per share; 150,000 total shares authorized | — | — | — | — | ||||||||||
| Common stock, par value $1 per share; 240,000,000 shares authorized; 84,851,079 and 83,923,184 shares issued | 84.9 | 83.9 | ||||||||||||
| Common stock, par value $1 per share; 240,000,000 shares authorized; 85,890,276 and 85,446,141 shares issued | 85.9 | 85.4 | ||||||||||||
| Additional paid in capital – common stock | 2,941.2 | 2,866.2 | 3,075.4 | 3,017.3 | ||||||||||
| Retained earnings | 3,625.2 | 3,098.0 | 4,753.0 | 4,350.1 | ||||||||||
| Accumulated other comprehensive loss | (321.5 | ) | (710.8 | ) | (640.1 | ) | (507.9 | ) | ||||||
| Less: 7,672,317 and 5,371,660 shares of common stock held in treasury, at cost | (793.4 | ) | (532.8 | ) | ||||||||||
| Less: 13,597,113 and 10,042,510 shares of common stock held in treasury, at cost | (1,462.7 | ) | (1,117.1 | ) | ||||||||||
| Total Stockholders’ Equity | 5,536.4 | 4,804.5 | 5,811.5 | 5,827.8 | ||||||||||
| Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity | $ | 11,885.7 | $ | 11,067.9 | $ | 13,631.0 | $ | 11,863.7 | ||||||
See notes to consolidated financial statements.
F-4
PVH CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| 2019 | 2018 | 2017 | ||||||||||
| OPERATING ACTIVITIES | ||||||||||||
| Net income | $ | 415.1 | $ | 744.6 | $ | 536.1 | ||||||
| Adjustments to reconcile to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 323.8 | 334.8 | 324.9 | |||||||||
| Equity in net income of unconsolidated affiliates | (9.6 | ) | (21.3 | ) | (10.1 | ) | ||||||
| Deferred taxes | (72.9 | ) | (113.3 | ) | (1) | (224.6 | ) | (1) | ||||
| Stock-based compensation expense | 56.1 | 56.2 | 44.9 | |||||||||
| Impairment of long-lived assets | 109.9 | (2) | 17.9 | 7.5 | ||||||||
| Actuarial loss on retirement and benefit plans | 97.8 | 15.0 | 2.5 | |||||||||
| Settlement loss on retirement plans | — | — | 9.4 | |||||||||
| Debt modification and extinguishment costs | 5.2 | — | 23.9 | |||||||||
| Other noncash loss, net | 28.9 | — | — | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Trade receivables, net | (17.1 | ) | (151.4 | ) | 3.3 | |||||||
| Other receivables | 1.0 | 10.7 | (11.7 | ) | ||||||||
| Inventories, net | 121.4 | (212.1 | ) | (163.5 | ) | |||||||
| Accounts payable, accrued expenses and deferred revenue | 47.8 | 112.9 | 185.9 | |||||||||
| Prepaid expenses | (14.4 | ) | 8.5 | (41.0 | ) | |||||||
| Employer pension contributions | (0.7 | ) | (10.0 | ) | (0.3 | ) | ||||||
| Contingent purchase price payments to Mr. Calvin Klein | — | (15.9 | ) | (55.6 | ) | |||||||
| Other, net | (72.0 | ) | 75.9 | 12.6 | ||||||||
| Net cash provided by operating activities | 1,020.3 | 852.5 | 644.2 | |||||||||
INVESTING ACTIVITIES(3) | ||||||||||||
| Acquisitions, net of cash acquired | (192.4 | ) | (15.9 | ) | (40.1 | ) | ||||||
| Purchases of property, plant and equipment | (345.2 | ) | (379.5 | ) | (358.1 | ) | ||||||
| Proceeds from sale of building | 59.4 | — | 3.4 | |||||||||
| Investments in unconsolidated affiliates | (27.7 | ) | — | (14.2 | ) | |||||||
| Payment received on advance to unconsolidated affiliate | — | — | 6.3 | |||||||||
| Net cash used by investing activities | (505.9 | ) | (395.4 | ) | (402.7 | ) | ||||||
FINANCING ACTIVITIES(2) | ||||||||||||
| Net (payments on) proceeds from short-term borrowings | (12.1 | ) | (6.7 | ) | 0.4 | |||||||
| Proceeds from 2019 facilities, net of related fees | 1,639.8 | — | — | |||||||||
| Repayment of 2016 facilities | (1,649.3 | ) | — | — | ||||||||
| Repayment of 2019 facilities | (70.6 | ) | — | — | ||||||||
| Proceeds from 3 1/8% senior notes, net of related fees | — | — | 701.6 | |||||||||
| Redemption of 4 1/2% senior notes, including premium | — | — | (715.8 | ) | ||||||||
| Repayment of 2016/2014 facilities | — | (150.0 | ) | (250.0 | ) | |||||||
| Net proceeds from settlement of awards under stock plans | 2.5 | 20.4 | 30.0 | |||||||||
| Cash dividends | (11.3 | ) | (11.6 | ) | (11.9 | ) | ||||||
| Acquisition of treasury shares | (345.1 | ) | (325.2 | ) | (259.1 | ) | ||||||
| Payments of finance lease liabilities | (5.5 | ) | (5.4 | ) | (5.1 | ) | ||||||
| Tommy Hilfiger India contingent purchase price payments | — | — | (0.8 | ) | ||||||||
| Contributions from non-controlling interest | — | — | 1.7 | |||||||||
| Net cash used by financing activities | (451.6 | ) | (478.5 | ) | (509.0 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (11.4 | ) | (20.5 | ) | 31.3 | |||||||
| Increase (decrease) in cash and cash equivalents | 51.4 | (41.9 | ) | (236.2 | ) | |||||||
| Cash and cash equivalents at beginning of year | 452.0 | 493.9 | 730.1 | |||||||||
| Cash and cash equivalents at end of year | $ | 503.4 | $ | 452.0 | $ | 493.9 | ||||||
| 2017 | 2016 | 2015 | ||||||||||
| OPERATING ACTIVITIES | ||||||||||||
| Net income | $ | 536.1 | $ | 548.7 | $ | 572.4 | ||||||
| Adjustments to reconcile to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 324.9 | 321.8 | 257.4 | |||||||||
| Equity in net income of unconsolidated affiliates | (10.1 | ) | (0.1 | ) | (16.6 | ) | ||||||
| Deferred taxes | (224.6 | ) | (1) | 1.3 | (8.7 | ) | ||||||
| Stock-based compensation expense | 44.9 | 38.2 | 42.0 | |||||||||
| Impairment of long-lived assets | 7.5 | 10.1 | 11.4 | |||||||||
| Actuarial loss (gain) on retirement and benefit plans | 2.5 | (39.1 | ) | (20.2 | ) | |||||||
| Settlement loss on retirement plans | 9.4 | — | — | |||||||||
| Debt modification and extinguishment costs | 23.9 | 15.8 | — | |||||||||
| Gain to write-up equity investment in joint venture to fair value | — | (153.1 | ) | — | ||||||||
| Net loss on deconsolidation of subsidiary | — | 81.8 | — | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Trade receivables, net | 3.3 | 22.3 | 33.2 | |||||||||
| Inventories, net | (163.5 | ) | 2.2 | (96.2 | ) | |||||||
| Accounts payable, accrued expenses and deferred revenue | 185.9 | 166.9 | 58.6 | |||||||||
| Prepaid expenses | (41.0 | ) | 19.2 | (21.3 | ) | |||||||
| Employer pension contributions | (0.3 | ) | (100.0 | ) | (1.5 | ) | ||||||
| Other, net | 0.9 | 19.7 | 94.6 | |||||||||
| Net cash provided by operating activities | 699.8 | 955.7 | 905.1 | |||||||||
INVESTING ACTIVITIES(2) | ||||||||||||
| Business acquisitions, net of cash acquired | (40.1 | ) | (157.7 | ) | — | |||||||
| Purchases of property, plant and equipment | (358.1 | ) | (246.6 | ) | (263.8 | ) | ||||||
| Contingent purchase price payments | (56.4 | ) | (53.7 | ) | (51.3 | ) | ||||||
| Proceeds from sale of building | 3.4 | 16.7 | — | |||||||||
| Change in restricted cash | — | — | 20.2 | |||||||||
| Investments in and advance to unconsolidated affiliates | (14.2 | ) | (32.0 | ) | (26.6 | ) | ||||||
| Payment received on advance to unconsolidated affiliate | 6.3 | 6.2 | — | — | ||||||||
| Loan to a supplier | — | (13.8 | ) | — | ||||||||
| Net cash used by investing activities | (459.1 | ) | (480.9 | ) | (321.5 | ) | ||||||
FINANCING ACTIVITIES(2) | ||||||||||||
| Net proceeds from (payments on) short-term borrowings | 0.4 | (6.8 | ) | 17.4 | ||||||||
| Proceeds from 3 1/8% senior notes, net of related fees | 701.6 | — | — | |||||||||
| Redemption of 4 1/2% senior notes, including premium | (715.8 | ) | — | — | ||||||||
| Proceeds from 2016 facilities, net of related fees | — | 571.1 | — | |||||||||
| Repayment of Term Loan B in connection with amendment to 2014 facilities | — | (582.0 | ) | — | ||||||||
| Repayment of 2016/2014 facilities | (250.0 | ) | (350.0 | ) | (350.0 | ) | ||||||
| Proceeds from 3 5/8% senior notes, net of related fees | — | 389.6 | — | |||||||||
| Net proceeds from settlement of awards under stock plans | 30.0 | 13.1 | 7.4 | |||||||||
| Cash dividends | (11.9 | ) | (12.2 | ) | (12.5 | ) | ||||||
| Acquisition of treasury shares | (259.1 | ) | (322.1 | ) | (138.4 | ) | ||||||
| Payments of capital lease obligations | (5.1 | ) | (7.0 | ) | (7.8 | ) | ||||||
| Contributions from non-controlling interest | 1.7 | 2.2 | — | |||||||||
| Net cash used by financing activities | (508.2 | ) | (304.1 | ) | (483.9 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 31.3 | 3.0 | (22.6 | ) | ||||||||
| (Decrease) increase in cash and cash equivalents | (236.2 | ) | 173.7 | 77.1 | ||||||||
| Cash and cash equivalents at beginning of year | 730.1 | 556.4 | 479.3 | |||||||||
| Cash and cash equivalents at end of year | $ | 493.9 | $ | 730.1 | $ | 556.4 | ||||||
(1) Includes the impact of the recent tax legislation. SeeU.S. Tax Legislation in 2018 and 2017 and the impact of the 2019 Dutch Tax Plan in 2018.
Please see Note 910 for further information.
(2) See Noncash impairment charge of $116.4 million related to the sale of the Speedo North America business is included in Other noncash loss, net. Please see Note 184 for further information.
(3) Please see Note 20 for information on noncash investing and financing transactions.
See notes to consolidated financial statements.
F-5
PVH CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND REDEEMABLE NON-CONTROLLING INTEREST
(In millions, except share and per share data)
| Stockholders’ Equity | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid In Capital- Common Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | Common Stock | Additional Paid In Capital- Common Stock | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable Non-Controlling Interest | Preferred Stock | Shares | td par Value | Retained Earnings | Treasury Stock | Redeemable Non-Controlling Interest | Preferred Stock | Shares | td par Value | Retained Earnings | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| February 1, 2015 | $ | — | $ | — | 83,116,062 | $ | 83.1 | $ | 2,768.7 | $ | 2,001.3 | $ | (416.5 | ) | $ | (72.3 | ) | $ | 4,364.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to PVH Corp. | 572.4 | 572.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (234.6 | ) | (234.6 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized and realized loss related to effective cash flow hedges, net of tax benefit of $(8.4) | (53.1 | ) | (53.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income attributable to PVH Corp. | 284.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of awards under stock plans | 429,756 | 0.4 | 7.0 | 7.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax benefits from awards under stock plans | 4.8 | 4.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 42.0 | 42.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends | (12.5 | ) | (12.5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of 1,454,368 treasury shares | (138.4 | ) | (138.4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| January 31, 2016 | — | — | 83,545,818 | 83.5 | 2,822.5 | 2,561.2 | (704.2 | ) | (210.7 | ) | 4,552.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to PVH Corp. | 549.0 | 549.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (21.4 | ) | (21.4 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized and realized gain related to effective cash flow hedges, net of tax expense of $1.2 | 0.7 | 0.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net gain on net investment hedge, net of tax expense of $8.6 | 14.1 | 14.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income attributable to PVH Corp. | 542.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of awards under stock plans | 377,366 | 0.4 | 12.7 | 13.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax deficiency from awards under stock plans | (7.2 | ) | (7.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 38.2 | 38.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends | (12.2 | ) | (12.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of 3,313,810 treasury shares | (322.1 | ) | (322.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition date fair value of redeemable non-controlling interest | 0.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from the minority shareholder | 2.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss attributable to redeemable non-controlling interest | (0.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| January 29, 2017 | 2.0 | — | 83,923,184 | 83.9 | 2,866.2 | 3,098.0 | (710.8 | ) | (532.8 | ) | 4,804.5 | $ | 2.0 | $ | — | 83,923,184 | $ | 83.9 | $ | 2,866.2 | $ | 3,098.0 | $ | (710.8 | ) | $ | (532.8 | ) | $ | 4,804.5 | ||||||||||||||||||||||||||||||||||||||
| Net income attributable to PVH Corp. | 537.8 | 537.8 | 537.8 | 537.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 561.3 | 561.3 | 561.3 | 561.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized and realized loss related to effective cash flow hedges, net of tax expense of $0.1 | (99.1 | ) | (99.1 | ) | (99.1 | ) | (99.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss on net investment hedges, net of tax benefit of $(28.7) | (70.8 | ) | (70.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income attributable to PVH Corp. | 929.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification related to the adoption of accounting guidance for certain tax effects in connection with the recent tax legislation | 2.1 | (2.1 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss on net investment hedges, net of tax benefit of $28.7 | (70.8 | ) | (70.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income attributable to PVH Corp. | 929.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification related to the adoption of accounting guidance for certain tax effects in connection with the U.S. Tax Legislation | 2.1 | (2.1 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative-effect adjustment related to the adoption of accounting guidance for share-based payment award transactions | 1.1 | (0.8 | ) | 0.3 | 1.1 | (0.8 | ) | 0.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of awards under stock plans | 927,895 | 1.0 | 29.0 | 30.0 | 927,895 | 1.0 | 29.0 | 30.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 44.9 | 44.9 | 44.9 | 44.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends | (11.9 | ) | (11.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends ($0.15 per common share) | (11.9 | ) | (11.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of 2,300,657 treasury shares | (260.6 | ) | (260.6 | ) | (260.6 | ) | (260.6 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from the minority shareholder | 1.7 | 1.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss attributable to redeemable non-controlling interest | (1.7 | ) | (1.7 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| February 4, 2018 | $ | 2.0 | $ | — | 84,851,079 | $ | 84.9 | $ | 2,941.2 | $ | 3,625.2 | $ | (321.5 | ) | $ | (793.4 | ) | $ | 5,536.4 | 2.0 | — | 84,851,079 | 84.9 | 2,941.2 | 3,625.2 | (321.5 | ) | (793.4 | ) | 5,536.4 | ||||||||||||||||||||||||||||||||||||||
| Net income attributable to PVH Corp. | 746.4 | 746.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (361.3 | ) | (361.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized and realized gain related to effective cash flow hedges, net of tax expense of $3.2 | 101.8 | 101.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net gain on net investment hedges, net of tax expense of $22.5 | 73.1 | 73.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income attributable to PVH Corp. | 560.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative-effect adjustment related to the adoption of accounting guidance for revenue recognition | (1.9 | ) | (1.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative-effect adjustment related to the adoption of accounting guidance for income tax accounting on intercompany sales or transfers of assets other than inventory | (8.0 | ) | (8.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of awards under stock plans | 595,062 | 0.5 | 19.9 | 20.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 56.2 | 56.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends ($0.15 per common share) | (11.6 | ) | (11.6 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of 2,370,193 treasury shares | (323.7 | ) | (323.7 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss attributable to redeemable non-controlling interest | (1.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| February 3, 2019 | 0.2 | — | 85,446,141 | 85.4 | 3,017.3 | 4,350.1 | (507.9 | ) | (1,117.1 | ) | 5,827.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to PVH Corp. | 417.3 | 417.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (157.8 | ) | (157.8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized and realized loss related to effective cash flow hedges, net of tax benefit of $1.0 | (4.1 | ) | (4.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net gain on net investment hedges, net of tax expense of $9.6 | 29.7 | 29.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income attributable to PVH Corp. | 285.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative-effect adjustment related to the adoption of accounting guidance for leases | (3.1 | ) | (3.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of awards under stock plans | 444,135 | 0.5 | 2.0 | 2.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | 56.1 | 56.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends ($0.15 per common share) | (11.3 | ) | (11.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of 3,554,603 treasury shares | (345.6 | ) | (345.6 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss attributable to redeemable non-controlling interest | (2.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| February 2, 2020 | $ | (2.0 | ) | $ | — | 85,890,276 | $ | 85.9 | $ | 3,075.4 | $ | 4,753.0 | $ | (640.1 | ) | $ | (1,462.7 | ) | $ | 5,811.5 | ||||||||||||||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
F-6
PVH CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business — PVH Corp. and its consolidated subsidiaries (collectively, the “Company”) constitute a global apparel company with a brand portfolio consisting of nationally and internationally recognized brand names,trademarks, including TOMMY HILFIGER, CALVIN KLEIN, TOMMY HILFIGER, Van Heusen, IZOD, ARROW, Speedo (Warner’s, Olga, True&Co. and Geoffrey Beene, which are owned, as well asvarious other owned, licensed in perpetuityand, to a lesser extent, private label brands. The Company also licenses Speedo for North America and the Caribbean in perpetuity from Speedo International Limited)Limited. The Company entered into a definitive agreement on January 9, 2020 to sell its Speedo North America business to Pentland Group PLC (“Pentland”), Warner’s, Olga and True&Co., as well asvarious other owned, licensedthe parent company of Speedo International Limited, (the “Speedo transaction”). The Company will deconsolidate the net assets of the Speedo North America business and private label brands. no longer license the Speedo trademark upon closing of the sale, which is expected to occur in the first quarter of 2020, subject to customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which was received early in the first quarter of 2020.
The Company designs and markets branded dress shirts, neckwear, sportswear (casual apparel), jeanswear, performance apparel, intimate apparel, underwear, swimwear, swim products, handbags, accessories, footwear and other related products and licenses its owned brands globally over a broad rangearray of productsproduct categories and for use in numerous discrete jurisdictions.
Principles of Consolidation — The consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated in consolidation. Investments in entities that the Company does not control but has the ability to exercise significant influence over are accounted for using the equity method of accounting. The Company’s Consolidated Income Statements include its proportionate share of the net income or loss of these entities. Please see Note 5,6, “Investments in Unconsolidated Affiliates,” for further discussion. During 2016, theThe Company and Arvind Limited (“Arvind”) formedhave a joint venture in Ethiopia, PVH Arvind Manufacturing Private Limited Company (“PVH Ethiopia”), in which the Company owns a 75% interest. PVH Ethiopia is consolidated and the minority shareholder’s proportionate share (25%) of the equity in this joint venture is accounted for as a redeemable non-controlling interest. Please see Note 6,7, “Redeemable Non-Controlling Interest,,” for further discussion.
Use of Estimates — The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from the estimates.
Fiscal Year — The Company uses a 52-53 week fiscal year ending on the Sunday closest to February 1. References to a year are to the Company’s fiscal year, unless the context requires otherwise. Results for 2017, 20162019, 2018 and 20152017 represent the 52 weeks ended February 2, 2020, 52 weeks ended February 3, 2019 and 53 weeks ended February 4, 2018, 52 weeks ended January 29, 2017 and 52 weeks ended January 31, 2016, respectively.
Cash and Cash Equivalents — The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash equivalents also includes amounts due from third party credit card processors for the settlement of customer debit and credit card transactions that are collectible in one week or less. The Company’s cash and cash equivalents at February 4, 20182, 2020 consisted principally of bank deposits and investments in money market funds.
Accounts Receivable — Trade receivables, as presented in the Company’s Consolidated Balance Sheets, are net of returns and allowances. An allowance for doubtful accounts is determined through an analysis of the aging of accounts receivable and assessments of collectibility based on historic trends, the financial condition of the Company’s customers and an evaluation of economic conditions. The Company writes off uncollectible trade receivables once collection efforts have been exhausted and third parties confirm the balance is not recoverable. Costs associated with allowable customer markdowns and operational chargebacks, net of the expected recoveries, are part of the provision for allowances included in accounts receivable. These provisions result from seasonal negotiations, as well as historic deduction trends net of expected recoveries,historical experience, and thean evaluation of current market conditions.
Goodwill and Other Intangible Assets — The Company assesses the recoverability of goodwill annually, at the beginning of the third quarter of each fiscal year, and between annual tests if an event occurs or circumstances change that would indicate that it is more likely than not that the carrying amount may be impaired. Impairment testing for goodwill is done at the
reporting unit level. A reporting unit is defined as an operating segment or one level below the operating segment, called a component. However, two or more components of an operating segment will be aggregated and deemed a single reporting unit if the components have similar economic characteristics.
The Company assesses qualitative factors to determine whether it is necessary to perform a more detailed two-step quantitative goodwill impairment test. The Company may elect to bypass the qualitative assessment and proceed directly to the
quantitative test for any reporting unit. The quantitative goodwill impairment test, if necessary, is a two-step process. The first step is to identify the existence of a potential impairment by comparing the fair value of a reporting unit (the fair value of a reporting unit is estimated using a discounted cash flow model) with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, the reporting unit’s goodwill is considered not to be impaired and performance of the second step of the quantitative goodwill impairment test is unnecessary. However, if the carrying amount of a reporting unit exceeds its fair value, the second step of the quantitative goodwill impairment test is performed to measure the amount of impairment loss to be recorded, if any. The second step of the quantitative goodwill impairment test compares the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined using the same approach as used when determining the amount of goodwill that would be recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of its assets and liabilities as if the reporting unit had been acquired in a business combination and the fair value was the purchase price paid to acquire the reporting unit.
For the 2017 and 20162019 annual goodwill impairment tests,test, the Company elected to first assessbypass the qualitative factorsassessment for all reporting units and proceeded directly to determine whether it was more likely than not thatthe quantitative impairment test using a discounted cash flow method to estimate the fair value of anyits reporting units. The Company’s annual goodwill impairment test during 2019 yielded estimated fair values in excess of the carrying amounts for all of the Company’s reporting units and therefore the second step of the quantitative goodwill impairment test was not required. The reporting unit was less thanwith the least excess fair value had an estimated fair value that exceeded its carrying amount asby 15%. No impairment of goodwill resulted from the Company’s annual impairment test in 2019. In the fourth quarter of 2019, the Speedo transaction was a basistriggering event that indicated that the amount of goodwill allocated to the Heritage Brands Wholesale reporting unit, the reporting unit that includes the Speedo North America business, could be impaired, prompting the need for determining whether it was necessarythe Company to perform the two-stepan interim goodwill impairment test for this reporting unit. No goodwill impairment resulted from this interim test. In evaluating whether it was more likely than not that
For the 2018 annual goodwill impairment test, the Company elected to bypass the qualitative assessment and proceeded directly to the quantitative impairment test using a discounted cash flow method to estimate the fair value of anyits reporting unit was less than itsunits. The Company’s annual goodwill impairment test during 2018 yielded estimated fair values in excess of the carrying amount, the Company assessed relevant events and circumstances including the change inamounts for the Company’s market capitalization and its implied impact on reporting unitunits, all of which had fair value, industry and market conditions, a changevalues in the Company’s weighted average cost of capital, macroeconomic conditions, trends in product costs and financial performanceexcess of the Company’s businesses. After assessing these eventscarrying amounts by more than 50%, and circumstances,therefore the Company determined that it was not more likely than not that the fair valuesecond step of any reporting unit was less than its carrying amount and concluded that the quantitative goodwill impairment test was not required. No impairment of goodwill resulted from either of the Company’s annual impairment tests in 2017 and 2016.
Indefinite-lived intangible assets not subject to amortization are tested for impairment annually, at the beginning of the third quarter of each fiscal year, and between annual tests if an event occurs or circumstances change that would indicate that it is more likely than not that the carrying amount may be impaired. The Company assesses qualitative factors to determine whether it is necessary to perform a more detailed quantitative impairment test for its indefinite-lived intangible assets. The Company may elect to bypass the qualitative assessment and proceed directly to the quantitative impairment test. When performing the quantitative test, an impairment loss is recognized if the carrying amount of the asset exceeds the fair value of the asset, which is generally determined using the estimated discounted cash flows associated with the asset’s use. Intangible assets with finite lives are amortized over their estimated useful lives and are tested for impairment along with other long-lived assets.assets when events and circumstances indicate that the assets might be impaired.
For the 2017 and 20162019 annual impairment teststest of certainall indefinite-lived intangible assets, except for the Company elected to first assess qualitative factors to determine whether it was more likely than not that the fair value of any asset was less than its carrying amount. In performing this evaluation, the Company assessed relevant events and circumstances including industry and market conditions, a change in the Company’s weighted average cost of capital, macroeconomic conditions, trends in product costs and financial performance of the Company’s businesses. After assessing these events and circumstances, the Company determined that it was not more likely than not that the fair values of these certain indefinite-lived intangible assets were less than their carrying amounts and concluded that the quantitative impairment test was not required. For certain other indefinite-lived intangible assets impairment tests,Australia reacquired perpetual license rights, the Company elected to bypass the qualitative assessment and proceeded directly to the quantitative impairment test using a discounted cash flow method to estimate fair value. For the Australia reacquired perpetual license rights, since only a few months had passed since the acquisition on May 31, 2019 and the business had performed better than initially expected, the Company determined qualitatively that it was not more likely than not that the fair value of these reacquired perpetual license rights were less than the carrying amount and concluded that the quantitative impairment test was not required. The fair values of all of the Company’s indefinite-lived intangible assets substantially exceed their carrying amounts, with the exception of the Company’s perpetual license right related to its Speedo North America business, which had a fair value that exceeded its
carrying amount by 3% at the testing date. In the fourth quarter of 2019, the Speedo transaction was a triggering event that prompted the need for the Company to perform an interim impairment test of this perpetual license right. As a result of this interim test, the perpetual license right was determined to be impaired and an impairment charge of $116.4 million was recorded in other noncash loss, net in the Company’s Consolidated Income Statement. Please see Note 4, “Assets Held For Sale,” for further discussion.
For the 2018 annual impairment test of all indefinite-lived intangible assets, except for the Geoffrey Beene tradename, the Company elected to bypass the qualitative assessment and proceeded directly to the quantitative impairment test using a discounted cash flow method to estimate fair value. For the Geoffrey Beene tradename, since only a few months had passed since the acquisition on April 20, 2018 and there had not been any significant changes in the business, the Company determined qualitatively that it was not more likely than not that the fair value of this tradename was less than the carrying amount and concluded that the quantitative impairment test was not required. No impairment of indefinite-lived intangible assets resulted from either of the Company’s annual impairment tests in 2017 and 2016.2018.
Asset Impairments — The Company reviews for impairment of long-lived assets (excluding goodwill and other indefinite-lived intangible assets) when events and circumstances indicate that the assets might be impaired. The Company records an impairment loss when the carrying amount of the asset is not recoverable and exceeds its fair value. Please see Note 11,12, “Fair Value Measurements,” for further discussion.
Inventories —Inventories are comprised principally of finished goods and are stated at the lower of cost or net realizable value, except for certain retail inventories in North America that are stated at the lower of cost or market using the retail inventory method. Cost for substantially all wholesale inventories in North America and certain wholesale and retail inventories in Asia and Latin America is determined using the first-in, first-out method. Cost for all other inventories is determined using the weighted average cost method. The Company reviews current business trends, inventory aging and discontinued merchandise categories to determine adjustments that it estimates will be needed to liquidate existing clearance inventories and record inventories at either the lower of cost or net realizable value or the lower of cost or market using the retail inventory method, as applicable.
Property, Plant and Equipment — Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is generally provided over the estimated useful lives of the related assets on a straight-line basis. The range of useful lives is principally as follows: Buildings and building improvements — 15 to 40 years; machinery, software and equipment — 2 to 10 years; furniture and fixtures — 2 to 10 years; and fixtures located in third party customershop-in-shop/concession locations (“shop-in-shops”) and their related costs — 3 to 4 years. Leasehold improvements are depreciated using the straight-line method over the lesser of the term of the related lease or the estimated useful life of the asset. In certain circumstances, contractual renewal options are considered when determining the term of the related lease. Major additions and improvements that extend the useful life of the asset are capitalized, and repairs and maintenance are charged to operations in the period incurred. Depreciation expense totaled $275.0 million, $263.9 million and $252.2 million $228.4in 2019, 2018 and 2017, respectively.
Cloud Computing Arrangements — The Company incurs costs to implement cloud computing arrangements that are hosted by a third party vendor. Implementation costs incurred during the application development stage of a project are capitalized and amortized over the term of the hosting arrangement on a straight-line basis. The Company capitalized $16.6 million of costs incurred in 2019 to implement cloud computing arrangements, primarily related to digital and $210.8consumer data platforms. Amortization expense totaled $0.9 million in 2017, 20162019. Cloud computing costs of $15.7 million were included in prepaid expenses and 2015, respectively.other assets in the Company’s Consolidated Balance Sheet as of February 2, 2020.
The Company’s policy for accounting for implementation costs incurred in a cloud computing arrangement that is a service contract reflects changes made in 2019 following the adoption of the updated cloud computing guidance. Please see the section “Recently Adopted Accounting Guidance” below for further discussion.
Leases — The Company leases retail locations, warehouses, distribution centers, showrooms, office space and equipment. Assets held under capitala factory in Ethiopia, as well as certain equipment and other assets. The Company recognizes right-of-use assets and lease liabilities at the lease commencement date based on the present value of fixed lease payments over the expected lease term. Operating leases are included in operating lease right-of-use assets, current portion of operating lease liabilities and long-term portion of operating lease liabilities in the Company’s Consolidated Balance Sheet. Finance leases are included in property, plant and equipment, net, accrued expenses and are amortized over the lesser of the term of the related lease or the estimated useful life of the asset. The Company accounts for rent expense under non-cancelable operating leases with scheduled rent increases and rent holidays on a straight-line basis over the lease term. The Company determines the lease term at the inception of a lease, and where renewal options are reasonably assured of being exercised because of the significant economic penalty that exists for not exercising those options, they are includedother liabilities in the lease term. The excess of straight-line rent expense over scheduled payments is recorded as a deferred liability. For certain retail store leases that require variable lease payments based on sales, when sales at those locations exceed a stated base amount, additional rent expenseCompany’s Consolidated Balance Sheet. Please see Note 17, “Leases,” and the section “Recently Adopted Accounting Guidance” below for further discussion.
Revenue Recognition — Revenue is recognized whenupon the liability is probable. In addition, the Company receives build out contributions from landlords primarily as an incentive for the Companytransfer of control of products or services to lease space from the landlords. Such amounts are amortized as a reduction of rent expense over the life of the related lease.
Cost of Goods Sold and Selling, General and Administrative Expenses — Costs associated with the production and procurement of product are included in cost of goods sold, including inbound freight costs, purchasing and receiving costs, inspection costs and other product procurement related charges. Shipping and handling costs incurred by the Company associated with digital commerce transactions are also included in cost of goods sold,charges, as well as the amounts recognized on foreign currency forward exchange contracts as the underlying inventory hedged by such forward exchange contracts is sold. Generally, all other expenses, excluding non-service related pension and post retirement (income) costs, interest and income taxes, are included in selling, general and administrative (“SG&A”) expenses, including warehousing and distribution expenses, as the predominant expenses associated therewith are general and administrative in nature, including rent, utilities, payroll and depreciation and amortization. Warehousing and distribution expenses, which are subject to exchange rate fluctuations, totaled $351.4 million, $307.7 million and $272.6 million $246.5 millionin 2019, 2018 and $232.4 million in 2017, 2016 and 2015, respectively.
Shipping and Handling Fees — Shipping and handling fees that are billed to customers are included in net sales. Shipping and handling costs incurred by the Company are recorded in SG&A expenses.
Advertising — Advertising costs are expensed as incurred and are included in SG&A expenses. Advertising expenses, which are subject to exchange rate fluctuations, totaled $509.7 million, $526.0 million and $501.3 million $416.3 millionin 2019, 2018 and $376.6 million in 2017, 2016 and 2015, respectively. Prepaid advertising expenses recorded in prepaid expenses and other assets totaled $3.9$5.9 million and $7.5$7.3 million at February 4, 20182, 2020 and January 29, 2017,February 3, 2019, respectively. Costs associated with cooperative advertising programs, under which the Company shares the cost of a customer’s advertising expenditures, are treated as a reduction of revenue.
Sales Taxes — The Company accounts for sales taxes and other related taxes on a net basis, excluding such taxes from revenue.
Income Taxes — Deferred tax assets and liabilities are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the periods in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.
Significant judgment is required in assessing the timing and amount of deductible and taxable items, evaluating tax positions and determining the income tax provision. The Company recognizes income tax benefits only when it is more likely than not that the tax position will be fully sustained upon review by taxing authorities, including resolution of related appeals or litigation processes, if any. If the recognition threshold is met, the Company measures the tax benefit at the largest amount with a greater than 50 percent likelihood of being realized upon ultimate settlement. For tax positions that are 50 percent or less likely of being sustained upon audit, the Company does not recognize any portion of that benefit in the financial statements. When the outcome of these tax matters changes, the change in estimate impacts the provision for income taxes in the period that such a determination is made. The Company recognizes interest and penalties related to unrecognized tax benefits in the Company’s income tax provision.
The United States Tax Cuts and Jobs Act of 2017 (the “Tax“U.S. Tax Legislation”) was enacted on December 22, 2017. The U.S. Tax Legislation is comprehensive and significantly revisesrevised the United States tax code. Please see Note 9,10, “Income Taxes,” for further discussion of the U.S. Tax Legislation.
FinancialInstruments — The Company has exposure to changes in foreign currency exchange rates related to anticipated cash flows primarily associated with certain international inventory purchases. The Company periodically uses foreign currency forward exchange contracts to hedge against a portion of this exposure. The Company also has exposure to interest rate volatility related to its secured term loan facilities. The Company enters into interest rate swap agreements to hedge against a portion of this exposure. The Company records the foreign currency forward exchange contracts and interest rate contractsswap agreements at
fair value in its Consolidated Balance Sheets and does not net the related assets and liabilities. The fair value of the foreign currency forward exchange contracts is measured as the total amount of currency to be purchased, multiplied by the difference between (i) the forward rate as of the period end and (ii) the settlement rate specified in each contract. The fair value of the interest rate contractsswap agreements is based on observable interest rate yield curves and represents the expected discounted cash flows underlying
the financial instruments. Changes in fair value of the foreign currency forward exchange contracts primarily associated with certain international inventory purchases and the interest rate contractsswap agreements that are designated as effective hedging instruments (collectively referred to as “cash flow hedges”) are recorded in equity as a component of accumulated other comprehensive loss (“AOCL”). Any ineffectiveness in such cash flow hedges is immediately recognized in earnings. Cash flows from such hedges are presented in the Consolidated Statements of Cash Flows in the same category as the items being hedged.
The Company also has exposure to changes in foreign currency exchange rates related to the value of its investments in foreign subsidiaries denominated in a currency other than the United States dollar. To hedge against a portion of this exposure, the Company designates certain foreign currency borrowings issued in the United States as a net investment hedge of its investments in certain of its foreign subsidiaries that use a functional currency other than the United States dollar. Changes in fair value of the foreign currency borrowings designated as a net investment hedgehedges are recorded in equity as a component of AOCL. The Company evaluates the effectiveness of its net investment hedgehedges at inception and as of the beginning of each quarter. Any ineffectiveness in such net investment hedge is immediately recognized in earnings.
The Company records immediately in earnings changes in the fair value of hedges that are not designated as effective hedging instruments (“undesignated contracts”). Undesignated contracts include all of the foreign currency forward exchange contracts related to intercompany transactions and intercompany loans that are not of a long-term investment nature. Any gains and losses that are immediately recognized in earnings on such contracts are largely offset by the remeasurement of the underlying intercompany balances. Undesignated contracts also include foreign currency option contracts previously used by the Company to hedge against changes in foreign currency exchange rates related to the translation of the earnings of the Company’s subsidiaries that use a functional currency other than the United States dollar. The fair value of the foreign currency option contracts iswas estimated based on external valuation models, which useused the original strike price, then current foreign currency exchange rates, the implied volatility in foreign currency exchange rates at the time and length of time to expiration as inputs. As of February 4, 2018, allAll foreign currency option contracts have expired. expired in 2017.
The Company does not use derivative or non-derivative financial instruments for trading or speculative purposes. Cash flows from the Company’s hedges are presented in the Consolidated Statements of Cash Flows in the same category as the items being hedged. Please see Note 10,11, “Derivative Financial Instruments,” for further discussion.
Foreign Currency Translation and Transactions — The consolidated financial statements of the Company are prepared in United States dollars. If the functional currency of a foreign subsidiary is not the United States dollar, assets and liabilities are translated to United States dollars at the closing exchange ratesrate in effect at the applicable balance sheet date and revenue and expenses are translated to United States dollars at the average exchange rate for the applicable period. Gains and losses on the revaluation of intercompany loans made between foreign subsidiaries that are of a long-term investment nature are included in AOCL. Gains and losses arising from transactions denominated in a currency other than the functional currency of a particular entity, not including inventory purchases, are principally included in SG&A expenses and totaled a loss (gain) loss of $(10.2)16.2 million, $4.717.3 million and $17.3(10.2) million in 20172019, 20162018 and 20152017, respectively.
Balance Sheet Classification of Early Settlements of Long-Term Obligations — The Company classifies obligations settled after the balance sheet date but prior to the issuance of the consolidated financial statements based on the contractual payment terms of the underlying agreements.
Pension and Benefit Plans — Employee pension benefits earned during the year, as well as interest on the projected benefit obligations or accumulated benefit obligations, are accrued quarterly. The expected return on plan assets is recognized quarterly and determined at the beginning of the year by applying the expected long-term rate of return on assets to the actual fair value of plan assets adjusted for expected benefit payments, contributions and plan expenses. Actuarial gains and losses are recognized in the Company’s operating results in the year in which they occur. These gains and losses include the difference between the actual return on plan assets and the expected return that was recognized quarterly, as well as the change in the projected benefit obligation caused by actual experience and updated actuarial assumptions differing from those assumptions used to record service and interest cost throughout the year. Actuarial gains and losses are measured at least annually at the end of the Company’s fiscal year and, as such, are generally recorded during the fourth quarter of each year. The service cost component of net benefit cost is recorded in SG&A expenses and the other components of net benefit cost are recorded in non-service related pension and postretirement cost (income) in the Company’s Consolidated Income Statements. Please see Note 12,13, “Retirement and Benefit Plans,” for further discussion of the Company’s pension and benefit plans.
Stock-Based Compensation—The Company recognizes all share-based payments to employees and non-employee directors, net of actual forfeitures, as compensation expense in the consolidated financial statements based on their grant date fair values. Please see Note 13,14, “Stock-Based Compensation,” for further discussion.
Recently Adopted Accounting Guidance — The FASB issued in July 2015 an update to accounting guidance to simplify the measurement of inventory. The update requires an entity to measure inventory within the scope of the guidance at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The update does not apply to inventory measured using last-in, first-out or the retail inventory methods. Previously, all inventory was measured at the lower of cost or market. The Company adopted this update in the first quarter of 2017 and it did not have a material impact on the Company’s consolidated financial statements.
Financial Accounting Guidance Issued But Not Adopted as of February 4, 2018 — The FASB issued in May 2014 guidance that supersedes most of the current revenue recognition requirements. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. The FASB subsequently delayed the required adoption date of the standard, which made it effective for the Company in the first quarter of 2018. The FASB has also issued several amendments to clarify various aspects of the implementation guidance. The new standard is required to be applied retrospectively either to each prior reporting period (full retrospective method) or with the cumulative effect of initially applying the standard recognized as an adjustment to opening retained earnings at the date of initial adoption (modified retrospective method).
The effects of the adoption on the Company’s Consolidated Balance Sheet as of February 3, 2019 were as follows:
| (In millions) | As Reported 2/3/19 | Adjustments | Adjusted 2/3/19 | ||||||||
| Assets | |||||||||||
| Prepaid expenses | $ | 168.7 | $ | (21.3 | ) | $ | 147.4 | ||||
| Operating Lease Right-of-Use Assets | — | 1,708.2 | 1,708.2 | ||||||||
| Other Assets | 400.9 | (10.3 | ) | 390.6 | |||||||
| Liabilities | |||||||||||
| Accrued expenses | 891.6 | (17.0 | ) | 874.6 | |||||||
| Current portion of operating lease liabilities | — | 350.5 | 350.5 | ||||||||
| Long-Term Portion of Operating Lease Liabilities | — | 1,514.1 | 1,514.1 | ||||||||
| Other Liabilities | 1,322.4 | (167.9 | ) | 1,154.5 | |||||||
| Stockholders’ Equity | |||||||||||
| Retained earnings | 4,350.1 | (3.1 | ) | 4,347.0 | |||||||
The Company formedalso elected the package of practical expedients permitted under the transition guidance, which allows the Company not to reassess whether any existing contracts are or contain a global, cross-functional project team to implementlease, the new guidance and analyze its impacts. The Company has begun to identify and collect relevant datalease classification for itsany existing leases, and is evaluating the changes needed to its processes and internal controlscapitalization of initial direct costs for any existing leases, as a result of the new guidance. To facilitate theadoption date. The Company’s accounting for finance leases (formerly called capital leases) remains substantially unchanged. The adoption of the new guidance and the related reporting requirements, the Company has also begun the implementation of global lease management and accounting software and is currently in the testing phase. While the Company’s assessment of the new guidance is still in process, it will result in a significant increase to the Company’s other assets and other liabilities, but isdid not expected to have a material impact on the Company’s results of operations.operations or cash flows. Please see Note 16,17, “Leases,” for additional information on the Company’s lease obligations. The Company intends to adopt the standard in the first quarter of 2019.
The FASB issued in August 2017 an update to accounting guidance to simplify the application of hedge accounting in certain situations and allow companies to better align their hedge accounting with their risk management activities. The update eliminates the requirement to separately measure and report hedge ineffectiveness and requires companies to recognize all elements of hedge accounting that impact earnings in the same income statement line as the hedged item. The update also simplifies the requirements for hedge documentation and effectiveness assessments and amends the presentation and disclosure requirements. The Company adopted this update will be effective for the Company in the first quarter of 2019 with early adoption permitted. Entities are required to adopt the update using a modified retrospective approach, except for the presentation and disclosure guidance, which is required to bebeing applied on a prospective basis.basis, as required. The adoption of this update did not have any impact on the Company’s consolidated financial statements.
The FASB issued in August 2018 an update to accounting guidance related to implementation costs incurred in a cloud computing arrangement that is a service contract. The update aligns the requirements for capitalizing implementation costs incurred under such arrangements with the requirements for capitalizing costs incurred to develop or obtain internal-use software. Under previous accounting guidance, the Company generally expensed the implementation costs incurred in
connection with a cloud computing arrangement that is a service contract. The Company early adopted this update in the first quarter of 2019 using a prospective approach and, as a result, has capitalized $16.6 million of costs incurred in 2019 to implement cloud computing arrangements, primarily related to digital and consumer data platforms. Such costs were included in prepaid expenses and other assets in the Company’s Consolidated Balance Sheet.
Accounting Guidance Issued But Not Adopted as of February 2, 2020 — The FASB issued in June 2016 an update to accounting guidance that introduces a new impairment model used to measure credit losses for certain financial assets measured at amortized cost, including trade and other receivables. This update requires entities to record an allowance for credit losses using a forward-looking expected loss impairment model that considers historical experience, current conditions, and reasonable and supportable forecasts that affect collectibility, rather than the incurred loss model required under existing guidance. The update will be effective for the Company in the first quarter of 2020. Entities are required to apply the update using a modified-retrospective approach with a cumulative effect adjustment to opening retained earnings in the period of adoption. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.
The FASB issued in January 2018December 2019 an update to accounting guidance to simplify the accounting for income taxes by eliminating certain exceptions to the existing guidance and clarifying and amending certain guidance to reduce diversity in practice. The update eliminates certain exceptions to the guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The update also simplifies aspects of the accounting for franchise taxes and enacted changes in tax onlaws or rates and clarifies the global intangible low-taxed income (“GILTI”) provisionsaccounting for transactions that result in a step-up in the tax basis of goodwill. The update will be effective for the Tax Legislation. The GILTI provisions imposeCompany in the first quarter of 2021, with early adoption permitted. Most amendments in the update are required to be adopted using a tax on foreign income in excess ofprospective approach, while other amendments must be adopted using a deemed return on tangible assets of foreign corporations for tax years beginning after December 31, 2017. The guidance indicates that companies must make a policy election to either record deferred taxes related to GILTI inclusionsmodified-retrospective approach or treat any taxes on GILTI inclusions as period costs.retrospective approach. The Company is currently evaluating the update to determine the impact of the adoption on the Company’s consolidated financial statements.
2. REVENUE
The Company generates revenue primarily from sales of finished products under its owned and licensed trademarks through its wholesale and retail operations. The Company also generates royalty and advertising revenue from licensing the rights to its trademarks to third parties. Revenue is recognized upon the transfer of control of products or services to the Company’s customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those products or services.
Product Sales
The Company generates revenue from the wholesale distribution of its products to traditional retailers (including for sale through their digital commerce sites), pure play digital commerce retailers, franchisees, licensees and distributors. Revenue is recognized upon transfer of control of goods to the customer, which generally occurs when title to goods is passed and risk of loss transfers to the customer. Depending on the contract terms, transfer of control is upon shipment of goods to or upon receipt of goods by the customer. Payment is typically due within 30 to 90 days. The amount of revenue recognized is net of returns, sales allowances and other discounts that the Company offers to its wholesale customers. The Company estimates returns based on an analysis of historical experience and specific customer arrangements and estimates sales allowances and other discounts based on seasonal negotiations, historical experience and an evaluation of current market conditions.
The Company also generates revenue from the retail distribution of its products through its freestanding stores, shop-in-shop/concession locations and digital commerce sites. Revenue is recognized at the point of sale in the stores and shop-in-shop/concession locations and upon estimated time of delivery for sales through the Company’s digital commerce sites, at which point control of the products passes to the customer. The amount of revenue recognized is net of returns, which are estimated based on an analysis of historical experience. Costs associated with coupons are recorded as a reduction of revenue at the time of coupon redemption.
The Company excludes from revenue taxes collected from customers and remitted to government authorities related to sales of the Company’s products. Shipping and handling costs that are billed to customers are included in net sales.
Customer Loyalty Programs
The Company uses loyalty programs that offer customers of its retail businesses specified amounts off of future purchases for a specified period of time after certain levels of spending are achieved. Customers that are enrolled in the programs earn loyalty points for each purchase made.
Loyalty points earned under the customer loyalty programs provide the customer a material right to acquire additional products and give rise to the Company having a separate performance obligation. For each transaction where a customer earns loyalty points, the Company allocates revenue between the products purchased and the loyalty points earned based on the relative standalone selling prices. Revenue allocated to loyalty points is recorded as deferred revenue until the loyalty points are redeemed or expire.
Gift Cards
The Company sells gift cards to customers in its retail stores. The Company does not charge administrative fees on gift cards nor do they expire. Gift card purchases by a customer are prepayments for products to be provided by the Company in the future and are therefore considered to be performance obligations of the Company. Upon the purchase of a gift card by a customer, the Company records deferred revenue for the cash value of the gift card. Deferred revenue is relieved and revenue is recognized when the gift card is redeemed by the customer. The portion of gift cards that the Company does not expect to be redeemed (referred to as “breakage”) is recognized proportionately over the estimated customer redemption period, subject to the constraint that it must be probable that a significant reversal of revenue will not occur, if the Company determines that it does not have a legal obligation to remit the value of such unredeemed gift cards to any jurisdiction.
License Agreements
The Company generates royalty and advertising revenue from licensing the rights to access its trademarks to third parties, including the Company’s joint ventures. The license agreements are generally exclusive to a territory or product category, have terms in excess of one year and, in most cases, include renewal options. In exchange for providing these rights, the license agreements require the licensees to pay the Company a royalty and, in certain agreements, an advertising fee. In both cases, the Company generally receives the greater of (i) a sales-based percentage fee and (ii) a contractual minimum fee for each annual performance period under the license agreement.
In addition to the rights to access its trademarks, the Company provides ongoing support to its licensees over the term of the agreements. As such, the Company’s license agreements are licenses of symbolic intellectual property and, therefore, revenue is recognized over time. For license agreements where the sales-based percentage fee exceeds the contractual minimum fee, the Company recognizes revenues as the licensed products are sold as reported to the Company by its licensees. For license agreements where the sales-based percentage fee does not exceed the contractual minimum fee, the Company recognizes the contractual minimum fee as revenue ratably over the contractual period.
Under the terms of the license agreements, payments are generally due quarterly from the licensees. The Company records deferred revenue when amounts are received or receivable from the licensee in advance of the recognition of revenue.
As of February 2, 2020, the contractual minimum fees on the portion of all license agreements not yet satisfied totaled $1.2 billion, of which the Company expects to recognize $291.5 million as revenue in 2020, $242.4 million in 2021 and $684.2 million thereafter.
Deferred Revenue
Changes in deferred revenue, which primarily relate to customer loyalty programs, gift cards and license agreements for the years ended February 2, 2020 and February 3, 2019, were as follows:
| (In millions) | 2019 | 2018 | |||||
| Deferred revenue balance at beginning of period | $ | 65.3 | $ | 39.2 | |||
| Impact of adopting the new revenue standard | — | 15.6 | |||||
| Net additions to deferred revenue during the period | 60.3 | 61.3 | |||||
Reductions in deferred revenue for revenue recognized during the period (1) | (60.9 | ) | (50.8 | ) | |||
Deferred revenue balance at end of period | $ | 64.7 | $ | 65.3 | |||
(1) Represents the amount of revenue recognized during the period that was included in the deferred revenue balance at the beginning of the period, as adjusted in 2018 for the impact of adopting the new revenue standard, and does not contemplate revenue recognized from amounts deferred during the period.
The Company also had long-term deferred revenue liabilities included in other liabilities in its Consolidated Balance Sheets of $10.3 million and $2.3 million as of February 2, 2020 and February 3, 2019, respectively.
Optional Exemptions
The Company elected not to disclose the remaining performance obligations for contracts that have an original expected term of one year or less and expected sales-based percentage fees for the portion of all license agreements not yet satisfied.
Please see Note 21, “Segment Data,” for information on the disaggregation of revenue by segment and distribution channel.
3. ACQUISITIONS
TH CSAP Acquisition
The Company acquired on July 1, 2019 the Tommy Hilfiger retail business in Central and Southeast Asia from the Company’s previous licensee in that market (the “TH CSAP acquisition”). As a result of the TH CSAP acquisition, the Company now operates directly the Tommy Hilfiger retail business in the Central and Southeast Asia market.
The acquisition date fair value of the consideration paid was $74.3 million. The estimated fair value of the assets acquired consisted of $63.9 million of goodwill and $10.4 million of other net assets. The goodwill of $63.9 million was assigned as of the acquisition date to the Company’s Tommy Hilfiger International segment, which is the Company’s reporting unit that is expected to benefit from the synergies of the combination. Goodwill is not expected to be deductible for tax purposes. The Company is still in the process of analyzingfinalizing the effectsvaluation of the GILTI provisionsassets acquired; thus, the allocation of the acquisition consideration is subject to change.
Australia Acquisition
The Company acquired on May 31, 2019 the approximately 78% ownership interests in Gazal Corporation Limited (“Gazal”) that it did not already own (the “Australia acquisition”). Prior to the Australia acquisition, the Company and plansGazal jointly owned and managed a joint venture, PVH Brands Australia Pty. Limited (“PVH Australia”), with each owning a 50% interest. PVH Australia licensed and operated businesses in Australia, New Zealand and other parts of Oceania under the TOMMY HILFIGER, CALVIN KLEIN and Van Heusen brands, along with other owned and licensed brands. PVH Australia came under the Company’s full control as a result of the acquisition. The Company now operates directly those businesses.
Prior to makeMay 31, 2019, the Company accounted for its approximately 22% interest in Gazal and its 50% interest in PVH Australia under the equity method of accounting. Following the completion of the Australia acquisition, the results of Gazal and PVH Australia have been consolidated in the Company’s consolidated financial statements.
Gain on Previously Held Equity Investments
The carrying values of the Company’s approximately 22% interest in Gazal and 50% interest in PVH Australia prior to the acquisition were $16.5 million and $41.9 million, respectively. In connection with the acquisition, these investments were remeasured to fair values of $40.1 million and $131.4 million, respectively, resulting in the recognition of an accounting policy electionaggregate noncash gain of $113.1 million during the second quarter of 2019, which was included in other noncash loss, net in the Company’s Consolidated Income Statement.
The fair value of the Company’s investment in Gazal was determined using the trading price of Gazal’s common stock, which was listed on the Australian Securities Exchange, on the date of the acquisition. The Company classified this as a Level 1 fair value measurement due to the use of an unadjusted quoted price in an active market. The fair value of Gazal included the fair value of Gazal’s 50% interest in PVH Australia. As such, the Company derived the fair value of its investment in PVH Australia from the fair value of Gazal by adjusting for (i) Gazal’s non-operating assets and net debt position and (ii) the estimated future operating cash flows of Gazal’s standalone operations, which were discounted at a rate of 12.5% to account for the relative risks of the estimated future cash flows. The Company classified this as a Level 3 fair value measurement due to the use of significant unobservable inputs.
Mandatorily Redeemable Non-Controlling Interest
Pursuant to the terms of the acquisition agreement, key members of Gazal and PVH Australia management exchanged a portion of their interests in Gazal for approximately 6% of the outstanding shares in the previously wholly owned subsidiary of the Company that acquired 100% of the ownership interests in the Australia business. The Company is obligated to purchase this 6% interest within two years of the acquisition closing in two tranches as follows: tranche 1 – 50% of the shares one year after the closing, but the holders had the option to defer half of this tranche to tranche 2; and tranche 2 – all remaining shares two years after the closing. With respect to tranche 1, the holders elected not to defer their shares to tranche 2 and as a result the Company is obligated to purchase all of the tranche 1 shares in the second quarter of 2020. The purchase price for the tranche 1 and tranche 2 shares is based on a multiple of the subsidiary’s adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) less net debt as of the end of the measurement year, and the multiple varies depending on the level of EBITDA compared to a target.
The Company recognized a liability of $26.2 million for the fair value of the 6% interest on the date of the acquisition, which is being accounted for as a mandatorily redeemable non-controlling interest. The fair value of the liability was determined using a Monte Carlo simulation model, which utilizes inputs, including the volatility of financial results, in order to model the probability of different outcomes. The Company classified this as a Level 3 fair value measurement due to the use of significant unobservable inputs. In subsequent periods, the liability for the mandatorily redeemable non-controlling interest is adjusted each reporting period allowed byto its redemption value based on conditions that exist as of each subsequent balance sheet date. The Company reflects any adjustment in the Securitiesredemption value in interest expense in the Company’s Consolidated Income Statement. The Company recorded a loss of $8.6 million in interest expense during 2019 in connection with the remeasurement of the mandatorily redeemable non-controlling interest to its redemption value, which for tranche 1 reflects the amount expected to be paid under the conditions specified in the terms of the acquisition agreement and Exchange Commission (“SEC”); therefore,for tranche 2 reflects the Company has not recorded deferred taxes for GILTIamount that would be paid under the conditions specified in the terms of the acquisition agreement if settlement had occurred as of February 4, 2018.
2, 2020. The liability for the mandatorily redeemable non-controlling interest was $33.8 million as of February 2, 2020 based on exchange rates in effect on that date, of which $16.9 million was included in accrued expenses and $16.9 million was included in other liabilities in the Company’s Consolidated Balance Sheet.
Fair Value of the Acquisition
The acquisition date fair value of the business acquired was $324.6 million, consisting of:
| (In millions) | ||||
| Cash consideration | $ | 124.7 | ||
| Fair value of the Company’s investment in PVH Australia | 131.4 | |||
| Fair value of the Company’s investment in Gazal | 40.1 | |||
| Fair value of mandatorily redeemable non-controlling interest | 26.2 | |||
| Elimination of pre-acquisition receivable owed to the Company | 2.2 | |||
| Total acquisition date fair value of the business acquired | $ | 324.6 | ||
Allocation of the Acquisition Date Fair Value
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:
| (In millions) | ||||
| Cash and cash equivalents | $ | 6.6 | ||
| Trade receivables | 15.1 | |||
| Inventories | 89.9 | |||
| Prepaid expenses | 1.3 | |||
| Other current assets | 3.5 | |||
| Assets held for sale | 58.8 | |||
| Property, plant and equipment | 18.4 | |||
| Goodwill | 65.9 | |||
| Intangible assets | 222.2 | |||
| Operating lease right-of-use assets | 56.4 | |||
| Total assets acquired | 538.1 | |||
| Accounts payable | 14.4 | |||
| Accrued expenses | 22.5 | |||
| Short-term borrowings | 50.5 | |||
| Current portion of operating lease liabilities | 10.9 | |||
| Long-term portion of operating lease liabilities | 43.9 | |||
| Deferred tax liability | 69.6 | |||
| Other liabilities | 1.7 | |||
| Total liabilities assumed | 213.5 | |||
| Total acquisition date fair value of the business acquired | $ | 324.6 | ||
Prior to the closing of the Australia acquisition, Gazal had entered into an agreement to sell an office building and warehouse to a third party and, as such, the building was classified as held for sale on the acquisition date. The building was subsequently sold to a third party and leased back to the Company in June 2019. Please see Note 17, “Leases,” for further discussion of this sale-leaseback transaction.
The goodwill of $65.9 million was assigned as of the acquisition date to the Company’s Tommy Hilfiger International and Calvin Klein International segments in the amounts of $56.8 million and $9.1 million, respectively, which include the Company’s reporting units that are expected to benefit from the synergies of the combination. Goodwill will not be deductible for tax purposes. The other intangible assets of $222.2 million consisted of reacquired perpetual license rights of $204.9 million, which are indefinite lived, order backlog of $0.3 million, which was amortized on a straight-line basis over 0.5 years, and customer relationships of $17.0 million, which are being amortized on a straight-line basis over 10.0 years. The Company
is still in the process of finalizing the valuation of the assets and liabilities assumed; thus, the allocation of the acquisition date fair value is subject to change.
Acquisition of the Geoffrey Beene Tradename
The Company acquired on April 20, 2018 the Geoffrey Beene tradename from Geoffrey Beene, LLC (“Geoffrey Beene”). Prior to the acquisition, the Company licensed the rights to design, market and distribute Geoffrey Beene dress shirts and neckwear from Geoffrey Beene.
The tradename was acquired for $17.0 million, consisting of $15.9 million paid in cash, $0.7 million of royalties prepaid to Geoffrey Beene by the Company under the license agreement, and $0.4 million of liabilities assumed by the Company. The transaction was accounted for as an asset acquisition.
Acquisition of the Wholesale and Concessions Businesses in Belgium and Luxembourg
The Company acquired on September 1, 2017 the Tommy Hilfiger and Calvin Klein wholesale and concessions businesses in Belgium and Luxembourg from a former agent (the “Belgian acquisition”). As a result of thisthe Belgian acquisition, the Company now operates directly itsthe Tommy Hilfiger and Calvin Klein businesses in this region.
The acquisition date fair value of the consideration paid was $13.9 million, consisting of $12.0 million paid in cash and $1.9 million included in accrued expenses in the Company’s Consolidated Balance Sheet as of February 4, 2018, which is expected to be paid in the first quarter of 2018.million. The estimated fair value of assets acquired and liabilities assumed includedconsisted of $12.4 million of goodwill and $1.5$0.4 million of other net assets.liabilities. The goodwill of $12.4 million was assigned as of the acquisition date to the Company’s Tommy Hilfiger International and Calvin Klein International segments in the amounts of $11.1 million and $1.3 million, respectively, which are the Company’s reporting units that are expected to benefit from the synergies of the combination. Goodwill willis not be deductible for tax purposes. The Company is stillfinalized the purchase price allocation in the process of finalizing the valuation of certain tax related items; thus, the allocation of the acquisition consideration is subject to change.2018.
Acquisition of True & Co.
The Company acquired on March 30, 2017 True & Co., a direct-to-consumer intimate apparel digital commercedigital-centric retailer. This acquisition enablesenabled the Company to participate further in the fast-growing online channel and providesprovided a platform to increase innovation, data-driven decisions and speed in the way it serves its consumers across its channels of distribution.
The acquisition date fair value of the consideration paid was $28.5 million. The estimated fair value of assets acquired and liabilities assumed includedconsisted of $20.9 million of goodwill and $7.6 million of other net assets (including $7.3 million of deferred tax assets and $0.4 million of cash acquired). The goodwill of $20.9 million was assigned as of the acquisition date to the Company’s Calvin Klein North America, Calvin Klein International and Heritage Brands Wholesale segments in the amounts of $5.4 million, $4.8 million and $10.7 million, respectively, which include the Company’s reporting units that are expected to benefit from the synergies of the combination. For those reporting units that had not been assigned any of the assets acquired or liabilities assumed in the acquisition, the amount of goodwill assigned was determined by calculating the estimated fair value of such reporting units before and after the acquisition. Goodwill willis not be deductible for tax purposes. The Company finalized the purchase price allocation during the fourth quarter ofin 2017.
4. ASSETS HELD FOR SALE
The Company acquiredentered into a definitive agreement on April 13, 2016January 9, 2020 to sell its Speedo North America business to Pentland, the 55%parent company of Speedo International Limited, for $170.0 million in cash, subject to a working capital adjustment. Speedo International Limited licenses the ownership interests in TH Asia, Ltd. (“TH China”), its former joint venture for TOMMY HILFIGER in China, that it did not already own (the “TH China acquisition”). PriorSpeedo trademark to April 13, 2016, the Company accounted for its 45% interest in TH China under the equity method of accounting. Since the completion of the TH China acquisition, the results of TH China’s operations have been consolidated in the Company’s consolidated financial statements. As a result of this acquisition, the Company now operates directly its Tommy Hilfiger business in this high-growth market.
The Company classified the assets and liabilities of the Speedo North America business as held for sale and recorded a pre-tax noncash loss of $142.0 million during the fourth quarter of 2019 (including a $116.4 million noncash impairment charge related to the Speedo perpetual license right) to reduce the carrying value of the Speedo North America business to its estimated fair value, less costs to sell. The estimated fair value, less costs to sell, reflects the amount of consideration the Company expects to receive upon closing of the transaction, inclusive of the working capital adjustment. The loss was recorded
in other noncash loss, net in the Company’s 45% interestConsolidated Income Statement. The loss will be remeasured in TH China prior to the acquisition was $52.5 million. In connection with the acquisition, this investmentclosing of the transaction and will be impacted by changes to the net assets of the Speedo North America business subsequent to February 2, 2020.
The noncash impairment charge related to the Speedo perpetual license right was remeasuredrecorded to write down its carrying value of $203.8 million to a fair value of $205.6$87.4 million, resulting inwhich was implied by the recognition during the first quarterexpected amount of 2016 of a pre-tax noncash gain of $153.1 million. Such fair value was estimated using future operating cash flow projections that were discounted at a rate of 14.4%, which accounted for the relative risksconsideration to be received upon closing of the estimated future cash flows. Such fair value also included an estimated discount for a lack of marketability of 10.0%.transaction. The Company classified this as a Level 3 fair value measurement due to the use of these significant unobservable inputs.
The acquisition date fair valueSpeedo transaction was also a triggering event that prompted the need for the Company to perform an interim goodwill impairment test for its Heritage Brands Wholesale reporting unit. No goodwill impairment resulted from this interim test.
The assets and liabilities of the consideration for the 55% interest that the Company did not already own was $265.8 million, consisting of $263.0 million paid in cash and the elimination of a $2.8 million pre-acquisition receivable owed to the Company by TH China. The total fair value of TH China (at 100%) was $471.4 million. The estimated fair value of assets
| (In millions) | |||
| Assets held for sale: | |||
| Trade receivables | $ | 48.8 | |
| Inventories, net | 54.3 | ||
| Prepaid expenses | 0.6 | ||
| Other current assets | 0.6 | ||
| Property, plant and equipment, net | 6.1 | ||
| Operating lease right-of-use assets | 9.0 | ||
| Goodwill | 48.1 | ||
Other intangibles, net (1) | 95.3 | ||
| Allowance for reduction of assets held for sale | (25.6 | ) | |
| Total assets held for sale | $ | 237.2 | |
| Liabilities related to assets held for sale: | |||
| Accounts payable | $ | 38.7 | |
| Accrued expenses | 5.4 | ||
| Current portion of operating lease liabilities | 0.6 | ||
| Long-term portion of operating lease liabilities | 10.6 | ||
| Other liabilities | 1.8 | ||
| Total liabilities related to assets held for sale | $ | 57.1 | |
(1) Other intangibles, net includes a perpetual license right of $87.4 million and customer relationships of $7.9 million.
F-19
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, was as follows:
| (In millions) | 2019 | 2018 | |||||
| Land | $ | 1.0 | $ | 1.0 | |||
| Buildings and building improvements | 53.2 | 54.8 | |||||
| Machinery, software and equipment | 871.7 | 697.6 | |||||
| Furniture and fixtures | 586.0 | 540.0 | |||||
| Shop-in-shops/concession locations | 209.8 | 230.9 | |||||
| Leasehold improvements | 849.0 | 790.3 | |||||
| Construction in progress | 35.5 | 83.9 | |||||
| Property, plant and equipment, gross | 2,606.2 | 2,398.5 | |||||
| Less: Accumulated depreciation | (1,579.4 | ) | (1,414.0 | ) | |||
| Property, plant and equipment, net | $ | 1,026.8 | $ | 984.5 | |||
| (In millions) | 2017 | 2016 | |||||
| Land | $ | 1.0 | $ | 1.1 | |||
| Buildings and building improvements | 55.3 | 57.4 | |||||
| Machinery, software and equipment | 609.5 | 533.2 | |||||
| Furniture and fixtures | 494.9 | 406.0 | |||||
| Shop-in-shops | 208.6 | 164.1 | |||||
| Leasehold improvements | 724.5 | 622.5 | |||||
| Construction in progress | 35.9 | 30.0 | |||||
| Property, plant and equipment, gross | 2,129.7 | 1,814.3 | |||||
| Less: Accumulated depreciation | (1,229.9 | ) | (1,054.4 | ) | |||
| Property, plant and equipment, net | $ | 899.8 | $ | 759.9 | |||
The increase in Machinery, software and equipment in 2019 primarily relates to software and other equipment that was placed into service in 2019 in connection with the Company’s upgrade of and enhancements to its systems and digital commerce platforms. Construction in progress at February 4, 20182, 2020 and January 29, 2017February 3, 2019 represents costs incurred for machinery, software and equipment, furniture and fixtures, and leasehold improvements not yet placed in use. Construction in progress at February 4, 20182, 2020 and February 3, 2019 principally related to upgrades and enhancements to operating, supply chain and logistics systems. Construction in progress at January 29, 2017 principally related to the construction of retail stores. Interest costs capitalized in construction in progress were immaterial during 20172019, 20162018 and 20152017.
Included in other assets in the Company’s Consolidated Balance Sheets was $176.3 million as of February 2, 2020 and $207.1 million as of February 3, 2019 related to the following investments in unconsolidated affiliates:
PVH AustraliaLegwear
The Company ownsand a 50% economic interest inwholly owned subsidiary of the Company’s former Heritage Brands socks and hosiery licensee formed a joint venture, PVH Brands Australia Pty. LimitedLegwear LLC (“PVH Australia”Legwear”). in 2019, in which the Company owns a 49% economic interest. PVH AustraliaLegwear was formed in order to consolidate the Company’s socks and hosiery businesses for all Company brands in the United States and Canada. PVH Legwear licenses from subsidiaries of the Company the rights to distribute and sell certain in these countries TOMMY HILFIGER, CALVIN KLEIN, TOMMY HILFIGER and IZOD, Van Heusen brand products and Warner’s socks and hosiery beginning in Australia, New ZealandDecember 2019. Additionally, PVH Legwear sells socks and in the cases of CALVIN KLEINhosiery under other owned and TOMMY HILFIGER, other island nations in the South Pacific. Additionally, subsidiaries of PVH Australia license other trademarks for certain product categories.licensed trademarks. This investment is being accounted for under the equity method of accounting.
The Company made net payments of $21.0$27.7 million (of which $20.2 million was placed into an escrow account prior to the end of 2014) to PVH AustraliaLegwear during 20152019 to contribute its share of the joint venture funding forfunding.
Gazal and PVH Australia
Prior to May 31, 2019, the period.
The Company received dividends of $0.6$6.4 million, $7.6 million and $3.7 million from Gazal and PVH Australia during 2017.2019, 2018, and 2017 respectively.
CK India
The Company acquired a 51% economic interest in a joint venture, Calvin Klein Arvind Fashion Private Limited (“CK India”) in 2013. The Company sold 1% of its interest for $0.4 million during the fourth quarter ofin 2017, decreasing its economic interest in CK India to 50%.Prior to the sale, the Company was not deemed to hold a controlling interest in CK India as the shareholders agreement provided the partners with equal rights. This investment is being accounted for under the equity method of accounting. CK India licenses from a subsidiary of the Company the rights to the CALVIN KLEIN trademarks in India for certain product categories.
The Company made payments of $1.6 million $1.5 million and $4.0 million to CK India during 2017 2016 and 2015, respectively, to contribute its share of the joint venture funding.
TH India
The Company owns a 50% economic interest in a joint venture, Tommy Hilfiger Arvind Fashion Private Limited (“TH India”). TH India licenses from a subsidiary of the Company the rights to the TOMMY HILFIGER trademarks in India for certain product categories. This investment is being accounted for under the equity method of accounting. Arvind, the Company’s joint venture partner in PVH Ethiopia and CK India, is also the Company’s joint venture partner in TH India.
The Company made payments of $2.7 million to TH India during 2017 to contribute its share of the joint venture funding.
TH Brazil
The Company acquired a 40% economic interest in a joint venture, Tommy Hilfiger do Brasil S.A. (“TH Brazil”) in 2012. The Company acquired an approximately 1% additional interest for $0.3 million during the fourth quarter ofin 2017, increasing its economic interest in TH Brazil to approximately 41%. TH Brazil licenses from a subsidiary of the Company the rights to the TOMMY HILFIGER trademarks in Brazil for certain product categories. This investment is being accounted for under the equity method of accounting.
The Company made payments of $2.5 million $1.5 million and $1.6 million to TH Brazil during 2017 2016 and 2015, respectively, to contribute its share of the joint venture funding.
The Company issued a note receivable to TH Brazil in 2016 for $12.5 million, of which $6.2 million was repaid in 2016 and the remaining balance, including accrued interest, was repaid in 2017.
PVH Mexico
The Company and Grupo Axo, S.A.P.I. de C.V. (“Grupo Axo”) formed a joint venture (“PVH Mexico”) in 2016 in which the Company owns a 49% economic interest. PVH Mexico licenses from certain wholly owned subsidiaries of the Company the rights to distribute and sell certain TOMMY HILFIGER, CALVIN KLEIN, TOMMY HILFIGERWarner’s, Warner’s, Olga and Speedo brand products in Mexico. PVH Mexico was formed by merging the Company’s wholly owned subsidiary that principally operated and managed the Calvin Klein business in Mexico (the “Mexico business”) with a wholly owned subsidiary of Grupo Axo that distributes
Karl Lagerfeld
The Company owns an economic interest of approximately 8% in the parent company of the Karl Lagerfeld brand Holding B.V. (“Karl Lagerfeld”). The Company is deemed to have significant influence with respect to this investment, which is being accounted for under the equity method of accounting.
The Company and Arvind formed PVH Ethiopia, in which the Company owns a 75% interest, during 2016. The Company has consolidatedconsolidates PVH Ethiopia in its consolidated financial statements. PVH Ethiopia was formed to operate a manufacturing facility that produces finished products for the Company for distribution primarily in the United States. The manufacturing facility began operations in the first half of 2017.
The shareholders agreement governing PVH Ethiopia (the “Shareholders Agreement”) contains a put option under which Arvind can require the Company to purchase all of its shares in the joint venture during various future periods as specified in the Shareholders Agreement. The first such period immediately precedes the ninth anniversary of thePVH Ethiopia’s date of incorporation of PVH Ethiopia.incorporation. The Shareholders Agreement also contains call options under which the Company can require Arvind to sell to the Company (i) all or a portion of its shares during various future periods as specified in the Shareholders Agreement; (ii) all of its shares in the event of a change of control of Arvind; or (iii) all of its shares in the event that Arvind ceases to hold at least 10% of the outstanding shares. The Company’s first call option referred to in clause (i) immediately follows the fifth anniversary of the date of incorporation of PVH Ethiopia. The put and call prices are the fair market value of the shares on the redemption date based upon a multiple of PVH Ethiopia’s earnings before interest, taxes, depreciation and amortizationEBITDA for the prior 12 months, less PVH Ethiopia’s net debt.
The fair value of the redeemable non-controlling interest (“RNCI”) as of the date of formation of PVH Ethiopia was $0.1 million. The carrying amount of the RNCI is adjusted to equal the redemption amount at the end of each reporting period, provided that this amount at the end of each reporting period cannot be lower than the initial fair value adjusted for the minority shareholder’s share of net income or loss. Any adjustment to the redemption amount of the RNCI is determined after attribution of net income or loss of the RNCI and will be recognized immediately in retained earnings of the Company, since it is probable that the RNCI will become redeemable in the future based on the passage of time. The carrying amount of the RNCI as of February 2, 2020 was $(2.0) million, which is also its fair value, was $2.0greater than the redemption amount. The carrying amount decreased from $0.2 million as of both February 4, 2018 and January 29, 2017,3, 2019 as additional contributionsa result of $1.7 million made by Arvind during 2017 for its proportionate share of PVH Ethiopia’s funding were offset by a net loss attributable to the RNCI for 20172019 of $1.7$2.2 million.
The changes in the carrying amount of goodwill, by segment (please see Note 19,21, “Segment Data,” for further discussion of the Company’s reportable segments), were as follows:
| (In millions) | Calvin Klein North America | Calvin Klein International | Tommy Hilfiger North America | Tommy Hilfiger International | Heritage Brands Wholesale | Heritage Brands Retail | Total | ||||||||||||||||||||
| Balance as of February 4, 2018 | |||||||||||||||||||||||||||
| Goodwill, gross | $ | 780.2 | $ | 942.0 | $ | 204.4 | $ | 1,661.6 | $ | 246.5 | $ | 11.9 | $ | 3,846.6 | |||||||||||||
| Accumulated impairment losses | — | — | — | — | — | (11.9 | ) | (11.9 | ) | ||||||||||||||||||
| Goodwill, net | 780.2 | 942.0 | 204.4 | 1,661.6 | 246.5 | — | 3,834.7 | ||||||||||||||||||||
| Contingent purchase price payments to Mr. Calvin Klein | 1.0 | 0.7 | — | — | — | — | 1.7 | ||||||||||||||||||||
| Currency translation | (0.9 | ) | (33.2 | ) | — | (131.8 | ) | — | — | (165.9 | ) | ||||||||||||||||
| Balance as of February 3, 2019 | |||||||||||||||||||||||||||
| Goodwill, gross | 780.3 | 909.5 | 204.4 | 1,529.8 | 246.5 | 11.9 | 3,682.4 | ||||||||||||||||||||
| Accumulated impairment losses | — | — | — | — | — | (11.9 | ) | (11.9 | ) | ||||||||||||||||||
| Goodwill, net | 780.3 | 909.5 | 204.4 | 1,529.8 | 246.5 | — | 3,670.5 | ||||||||||||||||||||
| Australia acquisition | — | 9.1 | — | 56.8 | — | — | 65.9 | ||||||||||||||||||||
| TH CSAP acquisition | — | — | — | 63.9 | — | — | 63.9 | ||||||||||||||||||||
| Reclassification of goodwill to assets held for sale | — | — | — | — | (48.1 | ) | — | (48.1 | ) | ||||||||||||||||||
| Currency translation | 0.1 | (22.5 | ) | — | (52.2 | ) | — | — | (74.6 | ) | |||||||||||||||||
| Balance as of February 2, 2020 | |||||||||||||||||||||||||||
| Goodwill, gross | 780.4 | 896.1 | 204.4 | 1,598.3 | 198.4 | 11.9 | 3,689.5 | ||||||||||||||||||||
| Accumulated impairment losses | — | — | — | — | — | (11.9 | ) | (11.9 | ) | ||||||||||||||||||
| Goodwill, net | $ | 780.4 | $ | 896.1 | $ | 204.4 | $ | 1,598.3 | $ | 198.4 | $ | — | $ | 3,677.6 | |||||||||||||
| (In millions) | Calvin Klein North America | Calvin Klein International | Tommy Hilfiger North America | Tommy Hilfiger International | Heritage Brands Wholesale | Heritage Brands Retail | Total | ||||||||||||||||||||
| Balance as of January 31, 2016 | |||||||||||||||||||||||||||
| Goodwill, gross | $ | 728.0 | $ | 841.5 | $ | 204.4 | $ | 1,208.4 | $ | 237.0 | $ | 11.9 | $ | 3,231.2 | |||||||||||||
| Accumulated impairment losses | — | — | — | — | — | (11.9 | ) | (11.9 | ) | ||||||||||||||||||
| Goodwill, net | 728.0 | 841.5 | 204.4 | 1,208.4 | 237.0 | — | 3,219.3 | ||||||||||||||||||||
| Contingent purchase price payments to Mr. Calvin Klein | 31.3 | 21.3 | — | — | — | — | 52.6 | ||||||||||||||||||||
| TH China acquisition | — | — | — | 258.6 | — | — | 258.6 | ||||||||||||||||||||
| Mexico deconsolidation | (20.5 | ) | — | — | — | (1.0 | ) | — | (21.5 | ) | |||||||||||||||||
| Currency translation and other | 0.6 | 1.7 | — | (41.2 | ) | (0.2 | ) | — | (39.1 | ) | |||||||||||||||||
| Balance as of January 29, 2017 | |||||||||||||||||||||||||||
| Goodwill, gross | 739.4 | 864.5 | 204.4 | 1,425.8 | 235.8 | 11.9 | 3,481.8 | ||||||||||||||||||||
| Accumulated impairment losses | — | — | — | — | — | (11.9 | ) | (11.9 | ) | ||||||||||||||||||
| Goodwill, net | 739.4 | 864.5 | 204.4 | 1,425.8 | 235.8 | — | 3,469.9 | ||||||||||||||||||||
| Contingent purchase price payments to Mr. Calvin Klein | 34.2 | 23.1 | — | — | — | — | 57.3 | ||||||||||||||||||||
| True & Co. acquisition | 5.4 | 4.8 | — | — | 10.7 | — | 20.9 | ||||||||||||||||||||
| Belgian acquisition | — | 1.3 | — | 11.1 | — | — | 12.4 | ||||||||||||||||||||
| Currency translation and other | 1.2 | 48.3 | — | 224.7 | — | — | 274.2 | ||||||||||||||||||||
| Balance as of February 4, 2018 | |||||||||||||||||||||||||||
| Goodwill, gross | 780.2 | 942.0 | 204.4 | 1,661.6 | 246.5 | 11.9 | 3,846.6 | ||||||||||||||||||||
| Accumulated impairment losses | — | — | — | — | — | (11.9 | ) | (11.9 | ) | ||||||||||||||||||
| Goodwill, net | $ | 780.2 | $ | 942.0 | $ | 204.4 | $ | 1,661.6 | $ | 246.5 | $ | — | $ | 3,834.7 | |||||||||||||
The goodwill acquired in the True & Co.Australia and BelgianTH CSAP acquisitions was assigned as of the respective acquisition dates to the Company’s reporting units that are expected to benefit from the synergies of the combinations. For those reporting units that had not been assigned any
The Company reclassified $48.1 million of thegoodwill to assets acquired or liabilities assumedheld for sale in the True & Co. acquisition,Company’s Consolidated Balance Sheet as of February 2, 2020 in connection with the amount of goodwill assigned was determined by calculating the estimated fair value of such reporting units before and after the acquisition.Speedo transaction. Please see Note 4, “Assets Held For Sale,” for further discussion.
The Company iswas required to make contingent purchase price payments to Mr. Calvin Klein in connection with the Company’s acquisition of all of the issued and outstanding stock of Calvin Klein, Inc. and certain affiliated companies. Such payments arewere based on 1.15% of total worldwide net sales as(as defined in the acquisition agreement, (asas amended), of products bearing any of the CALVIN KLEIN brands and arewere required to be made with respect to sales made through February 12, 2018. A significant portion of the sales on which the payments to Mr. Klein have beenwere made arewere wholesale sales by the Company and its licensees and other partners to retailers. TheAll payments are not due or paid in cash until 45 days subsequent to the Company’s applicable quarter end. As such, the final payment due to Mr. Klein will be made inunder the second quarter of 2018.agreement have been made.
The Company’s other intangible assets consisted of the following:
| 2019 | 2018 | ||||||||||||||||||||||
| (In millions) | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||||||||
Customer relationships (1)(2) | $ | 289.9 | $ | (189.2 | ) | $ | 100.7 | $ | 307.4 | $ | (186.1 | ) | $ | 121.3 | |||||||||
| Reacquired license rights | 502.5 | (161.9 | ) | 340.6 | 523.8 | (154.4 | ) | 369.4 | |||||||||||||||
| Total intangible assets subject to amortization | 792.4 | (351.1 | ) | 441.3 | 831.2 | (340.5 | ) | 490.7 | |||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||||||||
| Tradenames | 2,830.2 | — | 2,830.2 | 2,863.7 | — | 2,863.7 | |||||||||||||||||
Perpetual license right (2) | — | — | — | 203.8 | — | 203.8 | |||||||||||||||||
Reacquired perpetual license rights (1) | 209.2 | — | 209.2 | 11.0 | — | 11.0 | |||||||||||||||||
| Total indefinite-lived intangible assets | 3,039.4 | — | 3,039.4 | 3,078.5 | — | 3,078.5 | |||||||||||||||||
| Total other intangible assets | $ | 3,831.8 | $ | (351.1 | ) | $ | 3,480.7 | $ | 3,909.7 | $ | (340.5 | ) | $ | 3,569.2 | |||||||||
| 2017 | 2016 | ||||||||||||||||||||||
| (In millions) | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||||||||
| Customer relationships | $ | 324.7 | $ | (169.4 | ) | $ | 155.3 | $ | 296.7 | $ | (130.8 | ) | $ | 165.9 | |||||||||
| Order backlog | 27.0 | (27.0 | ) | — | 24.6 | (24.6 | ) | — | |||||||||||||||
| Reacquired license rights | 550.7 | (124.4 | ) | 426.3 | 524.7 | (78.1 | ) | 446.6 | |||||||||||||||
| Total intangible assets subject to amortization | 902.4 | (320.8 | ) | 581.6 | 846.0 | (233.5 | ) | 612.5 | |||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||||||||
| Tradenames | 2,928.4 | — | 2,928.4 | 2,783.4 | — | 2,783.4 | |||||||||||||||||
| Perpetual license rights | 204.7 | — | 204.7 | 203.9 | — | 203.9 | |||||||||||||||||
| Reacquired perpetual license rights | 11.9 | — | 11.9 | 10.2 | — | 10.2 | |||||||||||||||||
| Total indefinite-lived intangible assets | 3,145.0 | — | 3,145.0 | 2,997.5 | — | 2,997.5 | |||||||||||||||||
| Total other intangible assets | $ | 4,047.4 | $ | (320.8 | ) | $ | 3,726.6 | $ | 3,843.5 | $ | (233.5 | ) | $ | 3,610.0 | |||||||||
The gross carrying amount and accumulated amortization of certain intangible assets include the impact of changes in foreign currency exchange rates.
(1) The change from February 3, 2019 to February 2, 2020 included intangible assets recorded in connection with the Australia acquisition. The intangible assets as of the acquisition date included reacquired perpetual license rights of $204.9 million, which are indefinite-lived, and customer relationships of $17.0 million, which are being amortized on a straight-line basis over 10.0 years, both of which were subject to exchange rate fluctuations after the acquisition date.
(2) The change from February 3, 2019 to February 2, 2020 included the intangible assets of the Company’s Speedo North America business, consisting of customer relationships of $7.9 million and a perpetual license right of $203.8 million. The Company recorded a $116.4 million noncash impairment charge related to the Speedo perpetual license right in the fourth quarter of 2019 in connection with the Speedo transaction. The remaining perpetual license right of $87.4 million and the customer relationships of $7.9 million were reclassified to assets held for sale in the Company’s Consolidated Balance Sheet as of February 2, 2020. Please see Note 4, “Assets Held For Sale,” for further discussion.
Amortization expense related to the Company’s intangible assets subject to amortization was $65.039.7 million and $86.262.8 million for 20172019 and 2016,2018, respectively. The decrease is primarily related to the reacquired license rights recorded in connection with the acquisition of the 55% ownership interests in the Company’s former joint venture for TOMMY HILFIGER in China that it did not already own (the “TH China acquisition”), which became fully amortized in 2018.
Assuming constant foreign currency exchange rates and no change in the gross carrying amount of the intangible assets, amortization expense for the next five years related to the Company’s intangible assets subject to amortization as of February 4, 20182, 2020 is expected to be as follows:
| (In millions) | ||||
| Fiscal Year | Amount | |||
| 2020 | $ | 36.8 | ||
| 2021 | 36.6 | |||
| 2022 | 34.3 | |||
| 2023 | 24.0 | |||
| 2024 | 23.6 | |||
| (In millions) | ||||
| Fiscal Year | Amount | |||
| 2018 | $ | 65.7 | ||
| 2019 | 41.1 | |||
| 2020 | 41.0 | |||
| 2021 | 40.8 | |||
| 2022 | 38.5 | |||
Short-Term Borrowings
The Company has the ability to draw revolving borrowings under its senior securedunsecured credit facilities, as discussed in the section entitled “2016“2019 Senior SecuredUnsecured Credit Facilities” below. The Company had no borrowings outstanding under these facilities as of February 4, 2018 and January 29, 2017.2, 2020. The maximum amount of revolving borrowings outstanding under these facilities during 20172019 was $233.0$378.4 million. The Company had $7.8 million outstanding under its prior senior secured credit facilities as of February 3, 2019 as discussed in the section entitled “2016 Senior Secured Credit Facilities” below. The weighted average interest rate on the funds borrowed as of February 3, 2019 was 4.45%.
Additionally, the Company has the availability to borrow under short-term lines of credit, overdraft facilities and short-term revolving credit facilities denominated in various foreign currencies. These facilities, which now include a facility in Australia as a result of the Australia acquisition, provided for borrowings of up to
Commercial Paper
The Company established on November 5, 2019 an unsecured commercial paper note program in the United States primarily to fund working capital needs. The program enables the Company to issue, from time to time, unsecured commercial paper notes with maturities that vary but do not exceed 397 days from the date of issuance. The Company had no borrowings outstanding under the commercial paper note program as of February 2, 2020. The maximum amount of borrowings outstanding under the program during 2019 was $370.0 million.
The commercial paper program allows for borrowings of up to $675.0 million to the extent that the Company has borrowing capacity under its United States dollar-denominated revolving credit facility, as discussed in the section entitled “2019 Senior Unsecured Credit Facilities” below. Accordingly, the combined aggregate amount of (i) borrowings outstanding under the commercial paper note program and (ii) the revolving borrowings outstanding under the United States dollar-denominated revolving credit facility at any one time cannot exceed $675.0 million. The maximum aggregate amount of borrowings outstanding under the commercial paper program and the United States dollar-denominated revolving credit facility during 2019 was $567.0 million, which reflects a brief period of higher aggregate borrowings at the time that the Company launched the commercial paper program.
Long-Term Debt
The carrying amounts of the Company’s long-term debt were as follows:
| (In millions) | 2019 | 2018 | |||||
Senior unsecured Term Loan A facilities due 2024 (1)(2) | $ | 1,569.5 | $ | — | |||
| Senior secured Term Loan A facility due 2021 | — | 1,643.8 | |||||
| 7 3/4% debentures due 2023 | 99.7 | 99.6 | |||||
3 5/8% senior unsecured euro notes due 2024 (2) | 382.9 | 396.5 | |||||
3 1/8% senior unsecured euro notes due 2027 (2) | 655.6 | 679.5 | |||||
| Total | 2,707.7 | 2,819.4 | |||||
| Less: Current portion of long-term debt | 13.8 | — | |||||
| Long-term debt | $ | 2,693.9 | $ | 2,819.4 | |||
| (In millions) | 2017 | 2016 | |||||
| Senior secured Term Loan A facility due 2021 | $ | 1,792.1 | $ | 2,039.9 | |||
| 4 1/2% senior unsecured notes due 2022 | — | 690.4 | |||||
| 7 3/4% debentures due 2023 | 99.5 | 99.5 | |||||
3 5/8% senior unsecured euro notes due 2024 (1) | 430.8 | 367.5 | |||||
3 1/8% senior unsecured euro notes due 2027 (1) | 738.9 | — | |||||
| Total | 3,061.3 | 3,197.3 | |||||
| Less: Current portion of long-term debt | — | — | |||||
| Long-term debt | $ | 3,061.3 | $ | 3,197.3 | |||
(1) | The outstanding principal balance for the United States dollar-denominated Term Loan A facility and the euro-denominated Term Loan A facility was $1,029.6 million and €493.8 million, respectively, as of February 2, 2020. |
(2) | The carrying amount of the Company’s euro-denominated Term Loan A facility and senior unsecured euro notes includes the impact of changes in the exchange rate of the United States dollar against the euro. |
Please see Note 11,12, “Fair Value Measurements,” for the fair value of the Company’s long-term debt as of February 4, 20182, 2020 and January 29, 2017.February 3, 2019.
As of February 4, 2018,2, 2020, the Company’s mandatory long-term debt repayments for the next five years were as follows:
| (In millions) | ||
| Fiscal Year | Amount (1) | |
| 2020 | 13.8 | |
| 2021 | 39.0 | |
| 2022 | 102.9 | |
| 2023 | 223.4 | |
| 2024 | 1,682.9 | |
| (In millions) | |||
| Fiscal Year | Amount | ||
| 2018 | $ | — | |
| 2019 | 38.8 | ||
| 2020 | 234.7 | ||
| 2021 | 1,525.8 | ||
| 2022 | — | ||
(1) | A portion of the Company’s mandatory long-term debt repayments are denominated in euro and subject to changes in the exchange rate of the United States dollar against the euro. |
Total debt repayments for the next five years exceed the total carrying amount of the Company’s Term Loan A facilityfacilities, 7 3/4% debentures due 2023 and 3 5/8% senior euro notes due 2024 as of February 4, 20182, 2020 because the carrying amount reflects the unamortized portions of debt issuance costs and the original issue discounts.
As of February 4, 2018,2, 2020, after taking into account the effect of the Company’s interest rate swap agreementagreements discussed in the section entitled “2016“2019 Senior SecuredUnsecured Credit Facilities,” which waswere in effect as of such date, approximately 60%55% of the Company’s long-term debt had a fixed interest rate,rates, with the remainder at variable interest rates.
2016 Senior Secured Credit Facilities
The Company refinanced the 2016 facilities on April 29, 2019 (the “Closing Date”) by entering into senior securedunsecured credit facilities (the “2019 facilities”), the proceeds of which, along with cash on hand, were used to repay all of the outstanding borrowings under the 2016 facilities, as well as the related debt issuance costs.
The 2019 facilities consist of a $1,093.2 million United States dollar-denominated Term Loan A facility (the “USD TLA facility”), a €500.0 million euro-denominated Term Loan A facility (the “Euro TLA facility” and together with the USD TLA facility, the “TLA facilities”) and senior unsecured revolving credit facilities consisting of (i) a $675.0 million United States dollar-denominated revolving credit facility, (ii) a CAD $70.0 million Canadian dollar-denominated revolving credit facility available in United States dollars or Canadian dollars, (iii) a €200.0 million euro-denominated revolving credit facility available in euro, British pound sterling, Japanese yen, Swiss francs, Australian dollars and other agreed foreign currencies and (iv) a $50.0 million United States dollar-denominated revolving credit facility available in United States dollars or Hong Kong dollars. The 2019 facilities are due on April 29, 2024. In connection with the refinancing of the senior credit facilities, the Company paid debt issuance costs of $10.4 million (of which $3.5 million was expensed as debt modification costs and $6.9 million is being amortized over the term of the debt agreement) and recorded debt extinguishment costs of $1.7 million to write off previously capitalized debt issuance costs.
Each of the senior unsecured revolving facilities, except for the $50.0 million United States dollar-denominated revolving credit facility available in United States dollars or Hong Kong dollars, also include amounts available for letters of credit. Acredit and have a portion of each of the United States dollar-denominated revolving credit facilities is also available for the making of swingline loans. The issuance of such letters of credit and the making of any swingline loan reduces the amount available under the applicable revolving credit facility. So long as certain conditions are satisfied, the Company may add one or more senior unsecured term loan facilities or increase the commitments under the senior securedunsecured revolving credit facilities by an aggregate amount not to exceed the sum of (1) the sum of (x) $1,350.0 million plus (y) the aggregate amount of all voluntary prepayments of loans under the Term Loan A and the senior secured revolving credit facilities (to the extent, in the case of voluntary prepayments of loans under the senior secured revolving credit facilities, there is an equivalent permanent reduction of the revolving commitments) plus (z) an amount equal to the aggregate revolving commitments of any defaulting lender (to the extent the commitments with respect thereto have been terminated) and (2) an additional unlimited amount as long as the ratio of the Company’s senior secured net debt to consolidated adjusted earnings before interest, taxes, depreciation and amortization (in each case calculated as set forth in the documentation relating to the 2016 facilities) would not exceed 3 to 1 after giving pro forma effect to the incurrence of such increase.$1,500.0 million. The lenders under the 20162019 facilities are not required to provide commitments with respect to such additional facilities or increased commitments.
The Company had loans outstanding of $1,792.1$1,569.5 million, net of original issue discounts and debt issuance costs and based on applicable exchange rates, under the Term Loan A facility,TLA facilities and $20.3 million of outstanding letters of credit under the senior unsecured revolving credit facilities as of February 2, 2020. The Company had no borrowings outstanding under the senior securedunsecured revolving credit facilities and $22.6 million of outstanding letters of credit as of February 4, 2018.2, 2020.
The terms of the Term Loan A facilityTLA facilities require the Company to make quarterly repayments of amounts outstanding under the 20162019 facilities, which commenced with the calendar quarter ended JuneSeptember 30, 2016.2019. Such required repayment amounts equal 2.50% per annum of the principal amount outstanding on the Closing Date for the first eight calendar quarters following the Closing Date, 5.00% per annum of the principal amount outstanding on the AmendmentClosing Date for the first eightfour calendar quarters following the Amendment Date,thereafter and 7.50% per annum of the principal amount foroutstanding on the four calendar quarters thereafter and 10.00% per annum of the principal amountClosing Date for the remaining calendar quarters, in each case paid in equal installments and in each case subject to certain customary adjustments, with the balance due on the maturity date of the Term Loan A facility.
The outstanding borrowings under the 20162019 facilities are prepayable at any time without penalty (other than customary breakage costs). Any voluntary repayments made by the Company would reduce the future required repayment amounts.
The termsCompany made payments of $70.6 million on its term loans under the 2019 facilities and repaid the 2016 facilities requirein connection with the Company to repay certain amounts outstanding thereunder with (a) net cash proceedsrefinancing of the incurrencesenior credit facilities during 2019. The Company made payments of certain indebtedness, (b) net cash proceeds of certain asset sales or other dispositions (including as a result of casualty or condemnation) that exceed certain thresholds, to$150.0 million and $250.0 million during 2018 and 2017, respectively, on its term loans under the extent such proceeds are not reinvested or committed to be reinvested in the business in accordance with customary reinvestment provisions, and (c) a percentage of excess cash flow that exceeds the voluntary debt payments the Company has made during the applicable year, which percentage is based upon its net leverage ratio during the relevant fiscal period.2016 facilities.
The United States dollar-denominated borrowings under the 20162019 facilities bear interest at a rate equal to an applicable margin plus, as determined at the Company’sCompany's option, either (a) a base rate determined by reference to the greater of (i) the prime rate, (ii) the United States federal funds effective rate plus 1/2 of 1.00% and (iii) a one-month reserve adjusted Eurocurrency rate plus 1.00% or (b) an adjusted Eurocurrency rate, calculated in a manner set forth in the 20162019 facilities.
The Canadian dollar-denominated borrowings under the 20162019 facilities bear interest at a rate equal to an applicable margin plus, as determined at the Company’s option, either (a) a Canadian prime rate determined by reference to the greater of (i) the rate of interest per annum that Royal Bank of Canada establishes as the reference rate of interest in order to determine interest rates for loans in Canadian dollars to its Canadian borrowers and (ii) the sum of (x) the average of the rates per annum for Canadian dollar bankers’
bankers' acceptances having a term of one month and (y) 0.75%, or (b) an adjusted Eurocurrency rate, calculated in a manner set forth in the 20162019 facilities.
Borrowings available in Hong Kong dollars under the 2019 facilities bear interest at a rate equal to an applicable margin plus an adjusted Eurocurrency rate, calculated in a manner set forth in the 2019 facilities.
The borrowings under the 20162019 facilities in currencies other than United States dollars, Canadian dollars or CanadianHong Kong dollars bear interest at a rate equal to an applicable margin plus an adjusted Eurocurrency rate, calculated in a manner set forth in the 20162019 facilities.
The current applicable margin with respect to the Term Loan A facilityTLA facilities and each revolving credit facility is 1.50%1.375% for adjusted Eurocurrency rate loans and 0.50%0.375% for base rate loans, respectively. Afteror Canadian prime rate loans. The applicable margin for borrowings under the TLA facilities and the revolving credit facilities is subject to adjustment (i) after the date of delivery of the compliance certificate and financial statements, with respect to each of the Company’s fiscal quarters, the applicable margin for borrowings under the Term Loan A facility and the revolving credit facilities is subject to adjustment based upon the Company’s net leverage ratio.ratio or (ii) after the date of delivery of notice of a change in the Company’s public debt rating by Standard & Poor’s or Moody’s.
| (Dollars in millions) | ||||||||||||||
| Designation Date | Commencement Date | Initial Notional Amount | Notional Amount Outstanding as of February 2, 2020 | Fixed Rate | Expiration Date | |||||||||
| August 2019 | February 2020 | $ | 50.0 | $ | — | 1.1975% | February 2022 | |||||||
| June 2019 | February 2020 | 50.0 | — | 1.409% | February 2022 | |||||||||
| June 2019 | June 2019 | 50.0 | 50.0 | 1.719% | July 2021 | |||||||||
| January 2019 | February 2020 | 50.0 | — | 2.4187% | February 2021 | |||||||||
| November 2018 | February 2019 | 139.2 | 126.6 | 2.8645% | February 2021 | |||||||||
| October 2018 | February 2019 | 115.7 | 103.3 | 2.9975% | February 2021 | |||||||||
| June 2018 | August 2018 | 50.0 | 50.0 | 2.6825% | February 2021 | |||||||||
| June 2017 | February 2018 | 306.5 | 56.5 | 1.566% | February 2020 | |||||||||
| July 2014 | February 2016 | 682.6 | — | 1.924% | February 2018 | |||||||||
The notional amountamounts of anythe outstanding interest rate swap will beswaps that commenced in February 2018 and February 2019 are adjusted according to a pre-set scheduleschedules during the termterms of the applicable swap agreementagreements such that, based on the Company’s projections for future debt repayments, the Company’s outstanding debt under the Term Loan AUSD TLA facility is expected to always equal or exceed the combined notional amount of the then-outstanding interest rate swaps.
The 20162019 facilities contain customary events of default, including but not limited to nonpayment; material inaccuracy of representations and warranties; violations of covenants; certain bankruptcies and liquidations; cross-default to material indebtedness; certain material judgments; certain events related to the Employee Retirement Income Security Act of 1974, as amended; certain events related to certain of the guarantees by the Company and certain of its subsidiaries, and certain pledges of the Company’s assets and those of certain of the Company’s subsidiaries, as security for the obligations under the 2016 facilities; and a change in control (as defined in the 20162019 facilities).
The 2016 facilities also contain covenants that restrict the Company’s ability to finance future operations or capital needs, to take advantage of other business opportunities that may be in its interest or to satisfy its obligations under its other outstanding debt. These covenants restrict its ability to, among other things:
4 1/2% Senior Notes Due 2022
The Company had outstanding $700.0 million principal amount of 4 1/2% senior notes due December 15, 2022. The Company redeemed these notes on January 5, 2018 in connection with the issuance of €600.0 million euro-denominated principal amount of 3 1/8% senior notes due December 15, 2027, as discussed below. The Company paid a premium of $15.8 million to the holders of these notes in connection with the redemption. The Company alsoredemption and recorded debt extinguishment costs of $8.1 million to write-off previously capitalized debt issuance costs associated with these notes.notes during 2017.
7 3/4% Debentures Due 2023
The Company has outstanding $100.0 million of debentures due November 15, 2023 that accrue interest at the rate of 7 3/4%. Pursuant to the indenture governing the debentures, the Company must maintain a certain level of stockholders’ equity in order to pay cash dividends and make other restricted payments, as defined in the indenture governing the debentures. The debentures are not redeemable at the Company’s option prior to maturity.
The 7 3/4% debentures due 2023 include a “negative lien” covenant that generally requires the debentures to be secured on an equal and ratable basis with secured indebtedness of the Company, as well as limits the Company’s ability to engage in sale/leaseback transactions.
3 5/8% Euro Senior Notes Due 2024
The Company issued on June 20, 2016has outstanding €350.0 million euro-denominated principal amount of 3 5/8% senior notes due July 15, 2024. Interest on the notes is payable in euros. The Company paid €6.4 million (approximately $7.3 million based on exchange rates in effect on the payment date) of fees during 2016 in connection with the issuance of these notes, which are amortized over the term of the notes. The Company may redeem some or all of these notes at any time prior to April 15, 2024 by paying a “make whole” premium plus any accrued and unpaid interest. In addition, the Company may redeem some or all of these notes on or after April 15, 2024 at their principal amount plus any accrued and unpaid interest.
The Company’s ability to create liens on the Company’s assets or engage in sale/leaseback transactions is restricted as definedset forth in the indenture governing the notes.
3 1/8% Euro Senior Notes Due 2027
The Company issued on December 21, 2017 €600.0 million euro-denominated principal amount of 3 1/8% senior notes due December 15, 2027. Interest on the notes is payable in euros. The Company paid €8.7 million (approximately $10.3 million based on exchange rates in effect on the payment date) of fees during the fourth quarter of 2017 in connection with the issuance of these notes, which are amortized over the term of the notes. The Company may redeem some or all of these notes at any time prior to September 15, 2027 by paying a “make whole” premium plus any accrued and unpaid interest. In addition, the Company may redeem some or all of these notes on or after September 15, 2027 at their principal amount plus any accrued and unpaid interest.
The Company’s ability to create liens on the Company’s assets or engage in sale/leaseback transactions is restricted as definedset forth in the indenture governing the notes.
As of February 4, 2018,2, 2020, the Company was in compliance with all applicable financial and non-financial covenants under its financing arrangements.
Interest paid was $108.3 million, $114.6 million and $120.2 million $109.8 millionduring 2019, 2018 and $104.9 million during 2017, 2016 and 2015, respectively.
F-28
10. INCOME TAXES
The domestic and foreign components of (loss) income before (benefit) provision for income taxes were as follows:
| (In millions) | 2019 | 2018 | 2017 | ||||||||
| Domestic | $ | (441.2 | ) | $ | (5.3 | ) | $ | (102.0 | ) | ||
| Foreign | 885.2 | 780.9 | 612.2 | ||||||||
| Total | $ | 444.0 | $ | 775.6 | $ | 510.2 | |||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Domestic | $ | (102.0 | ) | $ | 60.9 | $ | 117.5 | ||||
| Foreign | 612.2 | 613.3 | 530.0 | ||||||||
| Total | $ | 510.2 | $ | 674.2 | $ | 647.5 | |||||
The domestic loss before benefit for income taxes in 2019, 2018 and 2017 is primarily attributable to the domestic portion of certain non-recurring costscharges incurred in 2019, 2018 and 2017. Please see Note 19,21, “Segment Data,” for further discussion of these costs.
Taxes paid were $133.0 million, $138.4 million and $164.6 million $85.3 millionin 2019, 2018 and $91.5 million in 2017, 2016 and 2015, respectively.
The provision (benefit) provision for income taxes attributable to income consisted of the following:
| (In millions) | 2019 | 2018 | 2017 | |||||||||
| Federal: | ||||||||||||
| Current | $ | (30.4 | ) | $ | (30.5 | ) | $ | 51.7 | ||||
| Deferred | (52.6 | ) | (1) | (53.2 | ) | (2) | (198.3 | ) | (2) | |||
| State and local: | ||||||||||||
| Current | 4.3 | 4.6 | 3.5 | |||||||||
| Deferred | (16.5 | ) | 9.6 | (7.8 | ) | |||||||
| Foreign: | ||||||||||||
| Current | 127.9 | 170.2 | 143.5 | |||||||||
| Deferred | (3.8 | ) | (1) | (69.7 | ) | (3) | (18.5 | ) | ||||
| Total | $ | 28.9 | $ | 31.0 | $ | (25.9 | ) | |||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Federal: | |||||||||||
| Current | $ | 51.7 | $ | (2.7 | ) | $ | 6.8 | ||||
| Deferred | (198.3 | ) | (1) | (9.3 | ) | (4.1 | ) | ||||
| State and local: | |||||||||||
| Current | 3.5 | (2.4 | ) | 6.4 | |||||||
| Deferred | (7.8 | ) | (0.9 | ) | (22.2 | ) | |||||
| Foreign: | |||||||||||
| Current | 143.5 | 129.3 | 70.6 | ||||||||
| Deferred | (18.5 | ) | 11.5 | 17.6 | |||||||
| Total | $ | (25.9 | ) | $ | 125.5 | $ | 75.1 | ||||
(1) | Includes a $27.8 million benefit related to the write-off of deferred tax liabilities in connection with the pre-tax noncash impairment of the Speedo perpetual license right, primarily in the United States. Please see Note 4, “Assets Held For Sale,” for further discussion. |
(2) Includes a $24.7 million benefit in 2018 and a $52.8 million benefit in 2017 related to the U.S. Tax Legislation.
(3) | Includes a $41.1 million benefit related to the remeasurement of certain net deferred tax liabilities in connection with the enactment of legislation in the Netherlands known as the “2019 Dutch Tax Plan,” which became effective on January 1, 2019 and includes a gradual reduction of the corporate income tax rate by 2021. |
The provision (benefit) provision for income taxes for the years 20172019, 20162018 and 20152017 was different from the amount computed by applying the statutory United States federal income tax rate to the underlying income as follows:
| 2019 | 2018 | 2017 | |||||||
Statutory federal income tax rate (1) | 21.0 | % | 21.0 | % | 33.7 | % | |||
| State and local income taxes, net of federal income tax benefit | (2.4 | )% | 0.5 | % | (1.1 | )% | |||
| Effects of international jurisdictions, including foreign tax credits | (15.7 | )% | (9.5 | )% | (20.3 | )% | |||
Change in estimates for uncertain tax positions | (11.8 | )% | (2) | (3.7 | )% | (7.5 | )% | ||
| Change in valuation allowance | 1.8 | % | (5.3 | )% | (3) | 11.0 | % | (4) | |
| One-time transition tax due to U.S. Tax Legislation | — | % | — | % | 34.0 | % | |||
| Remeasurement due to U.S. Tax Legislation | — | % | 0.2 | % | (51.9 | )% | |||
| Tax on foreign earnings (U.S. Tax Legislation - GILTI and FDII) | 10.0 | % | 1.9 | % | — | % | |||
| Tax on Speedo transaction basis difference | 2.3 | % | — | % | — | % | |||
| Excess tax benefits related to stock-based compensation | (0.2 | )% | (0.6 | )% | (2.8 | )% | (5) | ||
| Other, net | 1.5 | % | (0.5 | )% | (0.2 | )% | |||
| Effective income tax rate | 6.5 | % | 4.0 | % | (5.1 | )% | |||
| 2017 | 2016 | 2015 | ||||||
| Statutory federal income tax rate | 33.7 | % | (1) | 35.0 | % | 35.0 | % | |
| State and local income taxes, net of federal income tax benefit | (1.1 | )% | 0.4 | % | (1.3 | )% | ||
| Effects of international jurisdictions, including foreign tax credits | (20.3 | )% | (12.9 | )% | (15.0 | )% | ||
Change in estimates for uncertain tax positions | (7.5 | )% | (3.7 | )% | (7.6 | )% | ||
| Change in valuation allowance | 11.0 | % | (2) | (0.1 | )% | (0.2 | )% | |
| Provisional one-time transition tax due to Tax Legislation | 34.0 | % | — | % | — | % | ||
| Provisional remeasurement due to Tax Legislation | (51.9 | )% | — | % | — | % | ||
| Excess tax benefits related to stock-based compensation | (2.8 | )% | (3) | — | % | — | % | |
| Other, net | (0.2 | )% | (0.1 | )% | 0.7 | % | ||
| Effective income tax rate | (5.1 | )% | 18.6 | % | 11.6 | % | ||
(1) | The United States statutory federal income tax rate changed from 35.0% to 21.0%, effective January 1, 2018, as a result of the U.S. Tax Legislation. The United States statutory federal income tax rate for 2017 is a blended rate of 33.7%. |
(2) Includes the settlement of a multi-year audit from an international jurisdiction.
| Includes the release of a $26.3 million valuation allowance on the Company’s foreign tax credits to adjust the provisional amount recorded in 2017 as a result of the U.S. Tax Legislation. |
(4) | Includes the recognition of a $38.5 million provisional valuation allowance on the Company’s foreign tax credits as a result of the U.S. Tax Legislation. |
| Includes an excess tax benefit from the exercise of stock options by the Company’s Chairman and Chief Executive Officer. |
The Company files income tax returns in more than 40 international jurisdictions each year. All of the international jurisdictions in which the Company files tax returns, with the exception of Japan, had lower statutory tax rates than the United States statutory tax rate during 2015, 2016 and in 2017 prior to enactment of the Tax Legislation. A substantial amount of the Company’s earnings come fromare in international operations,jurisdictions, particularly in the Netherlands and Hong Kong China and Canada. The lower statutorySAR, where income tax rates, in these jurisdictions, as compared to the United States statutory rate prior to the Tax Legislation, coupled with special rates levied on income from certain of the Company’s jurisdictional activities, significantly reducedcontinue to be lower than the Company’s consolidated effectiveUnited States statutory income tax rate during 2017, 2016 and 2015.rate. The effects of international jurisdictions, including foreign tax credits, reflected in the above table for 2017, 20162019, 2018 and 20152017 included those taxes at statutory income tax rates and at special rates levied on income from certain jurisdictional activities. The Company expects to benefit from these special rates until 2023.2022.
The U.S. Tax Legislation enacted on December 22, 2017 significantly revised the United States tax code by, among other things, (i) reducing the corporate income tax rate from 35%35.0% to 21%21.0%, effective January 1, 2018, (ii) imposing a one-time transition tax on earnings of foreign subsidiaries deemed to be repatriated, and (iii) implementing a modified territorial tax system.system, (iv) introducing a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations (known as “GILTI”) and a beneficial tax rate to be applied against foreign derived intangible income (known as “FDII”) and (v) introducing a base erosion anti-abuse tax measure (known as “BEAT”) that taxes certain payments between United States corporations and their subsidiaries.
The Tax Legislation resulted inCompany recorded a one-timeprovisional net tax benefit of $52.8 million recorded in the fourth quarter of 2017. The net tax benefit included2017 in connection with the U.S. Tax Legislation, consisting of a $265.0 million benefit primarily from the remeasurement of the Company’s net deferred tax liabilities to the lower United States corporate income tax rate, partially offset by a $38.5 million valuation allowance on the Company’s foreign tax credits and a $173.7 million transition tax on undistributed post-1986 earnings and profits of foreign subsidiaries deemed to be repatriated.
The Company’s estimates are provisional and subject to adjustment in 2018 under the measurement period allowed by the SEC. The Company expects to finalizefinalized its accounting related to the impacts of the U.S. Tax Legislation on the one-time transition tax liability, deferred taxes, valuation allowances, state tax considerations, and any remaining outside basis differences in the Company’s foreign subsidiaries during 2018. AsThe analysis resulted in the Company completes its analysisrecording an additional net tax benefit of $24.7 million to adjust the provisional net tax benefit recorded in the fourth quarter of 2017 during the measurement period allowed by the Securities and Exchange Commission. The net tax benefit included the release of a $26.3 million valuation allowance on the Company’s foreign tax credits, partially offset by a $1.6 million expense related to the remeasurement of the Tax Legislation, collects and prepares necessary data and interprets any additional guidance issued by the United States DepartmentCompany’s net deferred tax liabilities.
The GILTI provisions of the Treasury, the Internal Revenue Service and other standard-setting bodies, the Company may make adjustments during 2018 to the provisional amounts recorded in 2017.
The components of deferred income tax assets and liabilities were as follows:
| (In millions) | 2019 | 2018 | |||||
| Gross deferred tax assets | |||||||
| Tax loss and credit carryforwards | $ | 232.5 | $ | 230.1 | |||
| Operating lease liabilities | 407.6 | — | |||||
| Employee compensation and benefits | 110.9 | 83.1 | |||||
| Inventories | 39.7 | 26.8 | |||||
| Accounts receivable | 20.3 | 17.1 | |||||
| Accrued expenses | 26.5 | 30.2 | |||||
| Other, net | — | 13.8 | |||||
| Subtotal | 837.5 | 401.1 | |||||
| Valuation allowances | (69.8 | ) | (62.6 | ) | |||
| Total gross deferred tax assets, net of valuation allowances | $ | 767.7 | $ | 338.5 | |||
| Gross deferred tax liabilities | |||||||
| Intangibles | $ | (860.6 | ) | $ | (825.3 | ) | |
| Operating lease right-of-use assets | (357.2 | ) | — | ||||
| Property, plant and equipment | (46.2 | ) | (33.6 | ) | |||
| Derivative financial instruments | (12.8 | ) | (4.3 | ) | |||
| Other, net | (8.7 | ) | — | ||||
| Total gross deferred tax liabilities | $ | (1,285.5 | ) | $ | (863.2 | ) | |
| Net deferred tax liability | $ | (517.8 | ) | $ | (524.7 | ) | |
| (In millions) | 2017 | 2016 | |||||
| Gross deferred tax assets | |||||||
| Tax loss and credit carryforwards | $ | 247.0 | $ | 248.1 | |||
| Employee compensation and benefits | 72.2 | 88.7 | |||||
| Inventories | 22.1 | 27.2 | |||||
| Accounts receivable | 17.6 | 26.6 | |||||
| Accrued expenses | 25.5 | 31.7 | |||||
| Derivative financial instruments | 18.3 | — | |||||
| Other, net | 8.7 | 0.0 | |||||
| Subtotal | 411.4 | 422.3 | |||||
| Valuation allowances | (106.3 | ) | (43.9 | ) | |||
| Total gross deferred tax assets, net of valuation allowances | $ | 305.1 | $ | 378.4 | |||
| Gross deferred tax liabilities | |||||||
| Intangibles | $ | (898.9 | ) | $ | (1,157.0 | ) | |
| Property, plant and equipment | (43.8 | ) | (67.6 | ) | |||
| Derivative financial instruments | — | (5.8 | ) | ||||
| Other, net | — | (8.3 | ) | ||||
| Total gross deferred tax liabilities | $ | (942.7 | ) | $ | (1,238.7 | ) | |
| Net deferred tax liability | $ | (637.6 | ) | $ | (860.3 | ) | |
At the end of 2017,2019, the Company had on a tax effectedtax-effected basis approximately $271.5$238.9 million of net operating loss and tax credit carryforwards available to offset future taxable income in various jurisdictions. This included net operating loss carryforwards of approximately $3.6$2.8 million and $54.2$47.1 million for federal and various state and local jurisdictions, respectively, and $30.4$15.5 million for various foreign jurisdictions. The Company also had federal and state tax credit and other carryforwards of $183.3$173.5 million. The carryforwards expire principally between 20182020 and 2037.2039.
permanently reinvested and, as such, United States federal and state income taxes were not previously recorded on these
earnings. As a result of the U.S. Tax Legislation, substantially all of the Company’s earnings ofin foreign subsidiaries aregenerated prior to the enactment of the U.S. Tax Legislation were deemed to have been repatriated and, as part ofa result, the Company recorded a one-time transition tax no additionalof $173.7 million in 2017. The Company's intent is to reinvest indefinitely substantially all of its foreign earnings outside of the United States. However, if the Company decides at a later date to repatriate these earnings to the United States, incomethe Company may be required to accrue and pay additional taxes, orincluding any applicable foreign withholding taxes have been provided on these earnings. The Company will complete its evaluation within the measurement period allowed by the SEC and record the tax effects of any change in its assertion in the period that its analysis is completed and that it is able to make a reasonable estimate of any unrecognized tax liability related to its foreign investments, if practicable.
Uncertain tax positions activity for each of the last three years was as follows:
| (In millions) | 2019 | 2018 | 2017 | ||||||||
| Balance at beginning of year | $ | 248.3 | $ | 297.1 | $ | 245.6 | |||||
| Increases related to prior year tax positions | 7.7 | 13.9 | 15.4 | ||||||||
| Decreases related to prior year tax positions | (15.8 | ) | (24.9 | ) | (10.3 | ) | |||||
| Increases related to current year tax positions | 18.2 | 25.5 | 79.7 | ||||||||
| Lapses in statute of limitations | (36.0 | ) | (54.7 | ) | (46.3 | ) | |||||
| Effects of foreign currency translation | (2.5 | ) | (8.6 | ) | 13.0 | ||||||
| Balance at end of year | $ | 219.9 | $ | 248.3 | $ | 297.1 | |||||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Balance at beginning of year | $ | 245.6 | $ | 226.8 | $ | 244.5 | |||||
| Increases related to prior year tax positions | 15.4 | 2.8 | 4.3 | ||||||||
| Decreases related to prior year tax positions | (10.3 | ) | (9.9 | ) | (12.5 | ) | |||||
| Increases related to current year tax positions | 79.7 | 52.0 | 40.0 | ||||||||
| Lapses in statute of limitations | (46.3 | ) | (24.4 | ) | (44.6 | ) | |||||
| Effects of foreign currency translation | 13.0 | (1.7 | ) | (4.9 | ) | ||||||
| Balance at end of year | $ | 297.1 | $ | 245.6 | $ | 226.8 | |||||
The entire amount of uncertain tax positions as of February 4, 2018,2, 2020, if recognized, would reduce the future effective tax rate under current accounting provisions.guidance.
Interest and penalties related to uncertain tax positions are recorded in the Company’s income tax provision. Interest and penalties recognized in the Company’s Consolidated Income Statements for the years2019, 2018 and 2017 2016 and 2015 totaled an expensea benefit of $0.9$15.0 million, an expense of $1.0$12.1 million and a benefitan expense of $(0.9)$0.9 million, respectively. Interest and penalties accrued in the Company’s Consolidated Balance Sheets as of February 4, 2018, January 29, 20172, 2020 and January 31, 2016February 3, 2019 totaled $29.8 million, $27.8$25.2 million and $27.6$44.1 million, respectively. The Company recorded its liabilities for uncertain tax positions principally in accrued expenses and other liabilities in its Consolidated Balance Sheets.
The Company files income tax returns in the United States and in various foreign, state and local jurisdictions. Most examinations have been completed by tax authorities or the statute of limitations has expired for United States federal, foreign, state and local income tax returns filed by the Company for years through 2005.2006. It is reasonably possible that a reduction of uncertain tax positions in a range of $40.0$20.0 million to $50.0$40.0 million may occur within 12 months of February 4, 2018.2, 2020.
Cash Flow Hedges
The Company has exposure to changes in foreign currency exchange rates related to anticipated cash flows associated with certain international inventory purchases. The Company uses foreign currency forward exchange contracts to hedge against a portion of this exposure.
The Company also has exposure to interest rate volatility related to its term loans under the 20162019 facilities. The Company has entered into interest rate swap agreements to hedge against a portion of this exposure. Please see Note 8,9, “Debt,” for further discussion of the Company’s2019 facilities and these agreements.
The Company records the foreign currency forward exchange contracts and interest rate swap agreements at fair value in its Consolidated Balance Sheets and does not net the related assets and liabilities. The foreign currency forward exchange contracts associated with certain international inventory purchases and the interest rate swap agreements are designated as effective hedging instruments (collectively, referred to as “cash flow hedges”). The changes in the fair value of the cash flow hedges are recorded in equity as a component of AOCL. The cash flows from such hedges are presented in the same category in the Company’s Consolidated Statements of Cash Flows as the items being hedged. No amounts were excluded from effectiveness testing. There was no ineffective portion of cash flow hedges during 2017, 2016 and 2015.
Net Investment Hedges
The Company has exposure to changes in foreign currency exchange rates related to the value of its investments in foreign subsidiaries denominated in a currency other than the United States dollar. To hedge against a portion of this exposure, during the fourth quarter of 2017 and the second quarter of 2016, the Company designated the carrying amounts of its €600.0 million euro-denominated principal amount of 3 1/8% senior notes due 2027 and €350.0 million euro-denominated principal amount of 3 5/8% senior notes due 2024 respectively, (collectively, referred to as the “foreign currency borrowings”), that it had
issued in the United States, as net investment hedges of its investments in certain of its
foreign subsidiaries that use the euro as their functional currency. Please see Note 8,9, “Debt,” for further discussion of the Company’s foreign currency borrowings.
The Company records the foreign currency borrowings at carrying value in its Consolidated Balance Sheets. The carrying value of the foreign currency borrowings is remeasured at the end of each reporting period to reflect changes in the foreign currency exchange spot rate. Since the foreign currency borrowings are designated as a net investment hedge,hedges, such remeasurement is recorded in equity as a component of AOCL. The fair value and the carrying value of the foreign currency borrowings designated as a net investment hedgehedges were $1,226.7$1,178.6 million and $1,169.7$1,038.5 million, respectively, as of February 4, 20182, 2020 and $384.1$1,098.3 million and $367.5$1,076.0 million, respectively, as of January 29, 2017.February 3, 2019. The Company evaluates the effectiveness of its net investment hedges at inception and at the beginning of each quarter thereafter. No amounts were excluded from effectiveness testing. There was no ineffective portion of the net investment hedges during 2017 and 2016.
Undesignated Contracts
The Company records immediately in earnings changes in the fair value of hedges that are not designated as effective hedging instruments (“undesignated contracts”), including all of the foreign currency forward exchange contracts related to intercompany transactions and intercompany loans that are not of a long-term investment nature. Any gains and losses that are immediately recognized in earnings on such contracts are largely offset by the remeasurement of the underlying intercompany balances.
In addition, the Company has exposure to changes in foreign currency exchange rates related to the translation of the earnings of its subsidiaries denominated in a currency other than the United States dollar. To hedge against a portion of this exposure, the Company entered into several foreign currency option contracts during 2017 and 2016.2017. These contracts represented the Company’s purchase of euro put/United States dollar call options and Chinese yuan renminbi put/United States dollar call options. In connection with theAll foreign currency option contracts the Company paid total cash premiums of $1.6 million and $2.3 million during 2017 and 2016, respectively. As of February 4, 2018, all foreign currency option contracts have expired.expired in 2017.
The Company’s foreign currency option contracts were also undesignated contracts. As such, the changes in the fair value of these foreign currency option contracts were immediately recognized in earnings. This mitigated, to an extent, the effect of any strengthening of the United States dollar against the euro and Chinese yuan renminbi on the reporting of the Company’s euro-denominated and Chinese yuan renminbi-denominated earnings, respectively.
The Company does not use derivative or non-derivative financial instruments for trading or speculative purposes. The cash flows from the Company’s hedges are presented in the same category in the Company’s Consolidated Statements of Cash Flows as the items being hedged.
The following table summarizes the fair value and presentation of the Company’s derivative financial instruments in its Consolidated Balance Sheets:
| (In millions) | Assets | Liabilities | Assets | Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Current Assets | Other Assets | Other Current Assets | Other Assets | Accrued Expenses | Other Liabilities | Accrued Expenses | Other Liabilities | Other Current Assets | Other Assets | Other Current Assets | Other Assets | Accrued Expenses | Other Liabilities | Accrued Expenses | Other Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Contracts designated as cash flow hedges: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward exchange contracts (inventory purchases) | $ | 0.9 | $ | 0.1 | $ | 25.0 | $ | 0.1 | 62.4 | $ | 4.1 | $ | 2.0 | $ | 0.6 | $ | 21.4 | $ | 0.4 | $ | 24.0 | $ | 0.7 | $ | 1.2 | $ | 0.1 | $ | 3.5 | $ | 0.7 | |||||||||||||||||||||||||||||||
| Interest rate swap agreements | 1.1 | 1.3 | — | — | 0.1 | — | 7.0 | 0.1 | 0.1 | — | 1.4 | — | 5.5 | 0.4 | 1.2 | 1.6 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total contracts designated as cash flow hedges | 2.0 | 1.4 | 25.0 | 0.1 | 62.5 | 4.1 | 9.0 | 0.7 | 21.5 | 0.4 | 25.4 | 0.7 | 6.7 | 0.5 | 4.7 | 2.3 | ||||||||||||||||||||||||||||||||||||||||||||||
| Undesignated contracts: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward exchange contracts | 0.5 | — | 0.8 | — | 0.9 | — | 0.0 | — | 1.5 | — | 0.1 | — | 0.9 | — | 2.0 | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency option contracts | — | — | 3.2 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total undesignated contracts | 0.5 | — | 4.0 | — | 0.9 | — | 0.0 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 2.5 | $ | 1.4 | $ | 29.0 | $ | 0.1 | $ | 63.4 | $ | 4.1 | $ | 9.0 | $ | 0.7 | $ | 23.0 | $ | 0.4 | $ | 25.5 | $ | 0.7 | $ | 7.6 | $ | 0.5 | $ | 6.7 | $ | 2.3 | ||||||||||||||||||||||||||||||
The notional amount outstanding of foreign currency forward exchange contracts was $1,002.9$1,308.1 million at February 4, 2018.2, 2020. Such contracts expire principally between February 20182020 and July 2019.June 2021.
The following table summarizestables summarize the effect of the Company’s hedges designated as cash flow and net investment hedging instruments:
Gain (Loss) Recognized in Other Comprehensive (Loss) Income | ||||||||||||
| (In millions) | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Foreign currency forward exchange contracts (inventory purchases) | $ | 22.4 | $ | 97.1 | $ | (122.0 | ) | |||||
| Interest rate swap agreements | (5.8 | ) | (2.6 | ) | 3.2 | |||||||
| Foreign currency borrowings (net investment hedges) | 39.3 | 95.6 | (99.5 | ) | ||||||||
| Total | $ | 55.9 | $ | 190.1 | $ | (218.3 | ) | |||||
(Loss) Gain Recognized in Other Comprehensive Income (Loss) | (Loss) Gain Reclassified from AOCL into (Expense) Income | ||||||||||||||||
| (In millions) | Location | Amount | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||||
| Foreign currency forward exchange contracts (inventory purchases) | $ | (122.0 | ) | $ | 2.4 | Cost of goods sold | $ | (13.6 | ) | $ | 14.0 | ||||||
| Interest rate swap agreements | 3.2 | 1.4 | Interest expense | (6.2 | ) | (12.1 | ) | ||||||||||
| Foreign currency borrowings (net investment hedge) | (99.5 | ) | 22.7 | N/A | — | — | |||||||||||
| Total | $ | (218.3 | ) | $ | 26.5 | $ | (19.8 | ) | $ | 1.9 | |||||||
| Amount of Gain (Loss) Reclassified from AOCL into Income (Expense), Consolidated Income Statement Location, and Total Amount of Consolidated Income Statement Line Item | ||||||||||||||||||||||||||
| (In millions) | Amount Reclassified | Location | Total Income Statement Amount | |||||||||||||||||||||||
| 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |||||||||||||||||||||
| Foreign currency forward exchange contracts (inventory purchases) | $ | 23.1 | $ | (11.6 | ) | $ | (13.6 | ) | Cost of goods sold | $ | 4,520.6 | $ | 4,348.5 | $ | 4,020.4 | |||||||||||
| Interest rate swap agreements | (1.4 | ) | 1.1 | (6.2 | ) | Interest expense | 120.0 | 120.8 | 128.5 | |||||||||||||||||
| Total | $ | 21.7 | $ | (10.5 | ) | $ | (19.8 | ) | ||||||||||||||||||
A net lossgain in AOCL on foreign currency forward exchange contracts at February 4, 20182, 2020 of $72.1$29.5 million is estimated to be reclassified in the next 12 months in the Company’s Consolidated Income Statement to costs of goods sold as the underlying inventory hedged by such forward exchange contracts is sold. In addition, a net gainloss in AOCL for interest rate swap agreements at February 4, 20182, 2020 of $1.0$5.4 million is estimated to be reclassified to interest expense within the next 12 months. Amounts recognized in AOCL for foreign currency borrowings would be recognized in earnings only upon the sale or substantially complete liquidation of the hedged net investment.
The following table summarizes the effect of the Company’s undesignated contracts recognized in SG&A expenses in its Consolidated Income Statements:
| Gain (Loss) Recognized in Income (Expense) | ||||||||||||
| (In millions) | 2019 | 2018 | 2017 | |||||||||
| Foreign currency forward exchange contracts | $ | 3.4 | $ | (1.5 | ) | $ | (4.6 | ) | ||||
| Foreign currency option contracts | — | — | (4.3 | ) | ||||||||
(Loss) Gain Recognized in (Expense) Income | ||||||||
| (In millions) | 2017 | 2016 | ||||||
| Foreign currency forward exchange contracts | $ | (4.6 | ) | $ | (1.2 | ) | ||
| Foreign currency option contracts | (4.3 | ) | 0.9 | |||||
The Company had no derivative financial instruments with credit risk-related contingent features underlying the related contracts as of February 4, 2018.2, 2020.
F-34
12. FAIR VALUE MEASUREMENTS
In accordance with accounting principles generally accepted in the United States, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level hierarchy prioritizes the inputs used to measure fair value as follows:
Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 – Observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data.
Level 3 – Unobservable inputs reflecting the Company’s own assumptions about the inputs that market participants would use in pricing the asset or liability based on the best information available.
In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be remeasured at fair value on a recurring basis:
| (In millions) | 2019 | 2018 | |||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Foreign currency forward exchange contracts | N/A | $ | 23.3 | N/A | $ | 23.3 | N/A | $ | 24.8 | N/A | $ | 24.8 | |||||||||||
| Interest rate swap agreements | N/A | 0.1 | N/A | 0.1 | N/A | 1.4 | N/A | 1.4 | |||||||||||||||
| Total Assets | N/A | $ | 23.4 | N/A | $ | 23.4 | N/A | $ | 26.2 | N/A | $ | 26.2 | |||||||||||
| Liabilities: | |||||||||||||||||||||||
| Foreign currency forward exchange contracts | N/A | $ | 2.2 | N/A | $ | 2.2 | N/A | $ | 6.2 | N/A | $ | 6.2 | |||||||||||
| Interest rate swap agreements | N/A | 5.9 | N/A | 5.9 | N/A | 2.8 | N/A | 2.8 | |||||||||||||||
| Total Liabilities | N/A | $ | 8.1 | N/A | $ | 8.1 | N/A | $ | 9.0 | N/A | $ | 9.0 | |||||||||||
| (In millions) | 2017 | 2016 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||
| Assets: | |||||||||||||||||||||||||
| Foreign currency forward exchange contracts | N/A | $ | 1.5 | N/A | $ | 1.5 | N/A | $ | 25.9 | N/A | $ | 25.9 | |||||||||||||
| Interest rate swap agreements | N/A | 2.4 | N/A | 2.4 | N/A | — | N/A | — | |||||||||||||||||
| Foreign currency option contracts | N/A | N/A | N/A | N/A | N/A | 3.2 | N/A | 3.2 | |||||||||||||||||
| Total Assets | N/A | $ | 3.9 | N/A | $ | 3.9 | N/A | $ | 29.1 | N/A | $ | 29.1 | |||||||||||||
| Liabilities: | |||||||||||||||||||||||||
| Foreign currency forward exchange contracts | N/A | $ | 67.4 | N/A | $ | 67.4 | N/A | $ | 2.6 | N/A | $ | 2.6 | |||||||||||||
| Interest rate swap agreements | N/A | 0.1 | N/A | 0.1 | N/A | 7.1 | N/A | 7.1 | |||||||||||||||||
Contingent purchase price payments related to reacquisition of the perpetual rights to the TOMMY HILFIGER trademarks in India | N/A | N/A | N/A | N/A | N/A | N/A | $ | 1.6 | 1.6 | ||||||||||||||||
| Total Liabilities | N/A | $ | 67.5 | N/A | $ | 67.5 | N/A | $ | 9.7 | $ | 1.6 | $ | 11.3 | ||||||||||||
The fair value of the foreign currency forward exchange contracts is measured as the total amount of currency to be purchased, multiplied by the difference between (i) the forward rate as of the period end and (ii) the settlement rate specified in each contract. The fair value of the interest rate swap agreements is based on observable interest rate yield curves and represents the expected discounted cash flows underlying the financial instruments. The fair value of the foreign currency option contracts was estimated based on external valuation models, which used the original strike price, current foreign currency exchange rates, the implied volatility in foreign currency exchange rates and length of time to expiration as inputs.
| (In millions) | 2017 | 2016 | |||||
| Beginning Balance | $ | 1.6 | $ | 2.2 | |||
| Payments | (0.8 | ) | (0.6 | ) | |||
| Adjustments included in earnings | (0.8 | ) | — | ||||
| Ending Balance | $ | — | $ | 1.6 | |||
There were no transfers between any levels of the fair value hierarchy for any of the Company’s fair value measurements.
The following table shows the fair valuevalues of the Company’s non-financial assets and liabilities that were required to be remeasured at fair value on a non-recurring basis (consisting of operating lease right-of-use assets, property, plant and equipment)equipment, and other intangible assets) during 2017, 20162019, 2018 and 2015,2017, and the total impairments recorded as a result of the remeasurement process:
| (In millions) | Fair Value Measurement Using | Fair Value As Of Impairment Date | Total Impairments | Fair Value Measurement Using | Fair Value As Of Impairment Date | Total Impairments | |||||||||||||||||||||||||
| 2019 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
| Operating lease right-of-use assets | N/A | N/A | $ | 14.5 | $ | 14.5 | $ | 83.0 | |||||||||||||||||||||||
| Property, plant and equipment, net | N/A | N/A | — | — | 26.9 | ||||||||||||||||||||||||||
| Other intangible assets, net | N/A | N/A | 87.4 | 87.4 | 116.4 | ||||||||||||||||||||||||||
| 2018 | |||||||||||||||||||||||||||||||
| Property, plant and equipment, net | N/A | N/A | 0.6 | 0.6 | 17.9 | ||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value As Of Impairment Date | Total Impairments | |||||||||||||||||||||||||||
| 2017 | N/A | N/A | $ | 0.6 | |||||||||||||||||||||||||||
| 2016 | N/A | N/A | 0.4 | 0.4 | 10.1 | ||||||||||||||||||||||||||
| 2015 | N/A | N/A | 1.4 | 1.4 | 11.4 | ||||||||||||||||||||||||||
| Property, plant and equipment, net | N/A | N/A | 0.6 | 0.6 | 7.5 | ||||||||||||||||||||||||||
Property, plant and equipment with a carrying amount of $26.9 million was written down to a fair value of 0 during 2019 primarily in connection with the TH U.S. store closures, the closure of the Company’s CALVIN KLEIN 205 W39 NYC brand (formerly Calvin Klein Collection), and the financial performance in certain of the Company’s retail stores and shop-in-shops, including certain CALVIN KLEIN stores affected by the realignment of the Calvin Klein creative direction globally. Please see Note 18, “Exit Activity Costs,” for further discussion of the Calvin Klein restructuring costs. The fair value of the Company’s property, plant and equipment was determined based on the estimated discounted future cash flows associated with the assets using sales trends and market participant assumptions.
The Company’s perpetual license right for the Speedo trademark with a carrying amount of $203.8 million was written down to a fair value of $87.4 million in the fourth quarter of 2019 in connection with the Speedo transaction. Please see Note 4, “Assets Held For Sale,” for further discussion.
The $226.3 million of impairment charges in 2019 was recorded in the Company’s Consolidated Income Statement, of which $109.9 million was included in SG&A expenses and $116.4 million was included in other noncash loss, net. The $226.3 million of impairment charges was recorded to the Company’s segments as follows: $118.6 million in the Heritage Brands Wholesale segment, $50.0 million in the Tommy Hilfiger North America segment, $37.4 million in the Calvin Klein North America segment, $13.1 million in the Calvin Klein International segment, $4.0 million in the Tommy Hilfiger International segment, $0.1 million in the Heritage Brands Retail segment and $3.1 million was recorded in corporate expenses not allocated to any reportable segments.
Property, plant and equipment with a carrying amount of $18.5 million was written down to a fair value of $0.6 million $0.4during 2018 in connection with the financial performance in certain of the Company’s retail stores and shop-in-shops, and the closure of the CALVIN KLEIN 205 W39 NYC brand. Please see Note 18, “Exit Activity Costs,” for further discussion. Fair value of the Company’s retail stores and shop-in-shops was determined based on the estimated discounted future cash flows associated with the assets using sales trends and market participant assumptions. The $17.9 million impairment charge was included in SG&A expenses, of which $8.5 million was recorded in the Calvin Klein International segment, $5.1 million was recorded in the Calvin Klein North America segment, $2.5 million was recorded in the Heritage Brands Wholesale segment,
$1.6 million was recorded in the Tommy Hilfiger International segment and $1.4$0.2 million was recorded in the Tommy Hilfiger North America segment.
Property, plant and equipment with a carrying amount of $8.1 million was written down to a fair value of $0.6 million during 2017 2016 and 2015, respectively, in connection with the financial performance in certain of the Company’s retail stores. Fair value was determined based on the estimated discounted future cash flows associated with the assets using sales trends and market participant assumptions. The $7.5 million impairment charge recorded in 2017 was included in SG&A expenses, of which $3.4 million was recorded in the Calvin Klein International segment, $1.9 million was recorded in the Tommy Hilfiger International segment, $1.8 million was recorded in the Calvin Klein North America segment $3.4 million was recorded in the Calvin Klein International segment,and $0.4 million was recorded in the Tommy Hilfiger North America segment and $1.9 million was recorded in the Tommy Hilfiger International segment. The $10.1 million impairment charge recorded in 2016 was included in SG&A expenses, of which $1.0 million was recorded in the Calvin Klein North America segment, $3.7 million was recorded in the Calvin Klein International segment, $1.4 million was recorded in the Tommy Hilfiger North America segment and $4.0 million was recorded in the Tommy Hilfiger International segment. The $11.4 million impairment charge recorded in 2015 was included in SG&A expenses, of which $2.0 million was recorded in the Calvin Klein North America segment, $3.1 million was recorded in the Calvin Klein International segment and $6.3 million was recorded in the Tommy Hilfiger International segment.
The carrying amounts and the fair values of the Company’s cash and cash equivalents, short-term borrowings and long-term debt were as follows:
| (In millions) | 2019 | 2018 | |||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
| Cash and cash equivalents | $ | 503.4 | $ | 503.4 | $ | 452.0 | $ | 452.0 | |||||||
| Short-term borrowings | 49.6 | 49.6 | 12.8 | 12.8 | |||||||||||
| Long-term debt (including portion classified as current) | 2,707.7 | 2,869.7 | 2,819.4 | 2,853.7 | |||||||||||
| (In millions) | 2017 | 2016 | |||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
| Cash and cash equivalents | $ | 493.9 | $ | 493.9 | $ | 730.1 | $ | 730.1 | |||||||
| Short-term borrowings | 19.5 | 19.5 | 19.1 | 19.1 | |||||||||||
| Long-term debt | 3,061.3 | 3,140.9 | 3,197.3 | 3,248.7 | |||||||||||
The fair values of cash and cash equivalents and short-term borrowings approximate their carrying amounts due to the short-term nature of these instruments. The Company estimates the fair value of its long-term debt using quoted market prices as of the last business day of the applicable year. The Company classifies the measurement of its long-term debt as a Level 1 measurement. The carrying amounts of long-term debt reflect the unamortized portions of debt issuance costs and the original issue discounts.
The Company, as of February 2, 2020, has five5 noncontributory qualified defined benefit pension plans as of February 4, 2018 covering substantially all employees resident in the United States who meet certain age and service requirements. The plans provide monthly benefits upon retirement generally based on career average compensation and years of credited service. Vesting in plan benefits generally occurs after five years of service. The Company refers to these five noncontributory5 plans as its “Pension Plans.”
The Company also has for certain members of Tommy Hilfiger’s domestic senior management a supplemental executive retirement plan, which is an3 noncontributory unfunded non-qualified supplemental defined benefit pension plan. Such plan is frozen and, as aplans, including:
| – | A plan for certain current and former members of Tommy Hilfiger’s domestic senior management. The plan is frozen and, as a result, participants do not accrue additional benefits. |
| – | A capital accumulation program for certain current and former senior executives. Under the individual participants’ agreements, the participants in the program will receive a predetermined amount during the ten years following the attainment of age 65, provided that prior to the termination of employment with the Company, the participant has been in the plan for at least ten years and has attained age 55. |
| – | A plan for certain employees resident in the United States who meet certain age and service requirements that provides benefits for compensation in excess of Internal Revenue Service earnings limits and requires payments to vested employees upon, or shortly after, employment termination or retirement. |
The Company also provides certain postretirement health care and life insurance benefits to certain retirees resident in the United States. Retirees contribute to the cost of this plan, which is unfunded. As a result of the Company’s acquisition of The Warnaco Group, Inc. (“Warnaco”), the Company also provides certain postretirement health care and life insurance benefits to certain Warnaco retirees resident in the United States. Retirees contribute to the cost of thisthe applicable plan, both of which is unfunded. Both of the Company’s postretirement health careare unfunded and life insurance benefit plans are frozen. The Company refers to these two2 plans as its “Postretirement Plans.”
Reconciliations of the changes in the projected benefit obligation (Pension Plans and SERP Plans) and the accumulated benefit obligation (Postretirement Plans) for each of the last two years were as follows:
| Pension Plans | SERP Plans | Postretirement Plans | |||||||||||||||||||||
| (In millions) | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||
| Balance at beginning of year | $ | 651.0 | $ | 648.0 | $ | 99.2 | $ | 96.9 | $ | 8.4 | $ | 10.5 | |||||||||||
| Service cost, net of plan expenses | 31.2 | 31.4 | 5.8 | 5.8 | — | — | |||||||||||||||||
| Interest cost | 27.9 | 26.0 | 4.3 | 3.9 | 0.3 | 0.4 | |||||||||||||||||
| Benefit payments | (29.2 | ) | (26.0 | ) | (7.9 | ) | (6.1 | ) | — | — | |||||||||||||
| Benefit payments, net of retiree contributions | — | — | — | — | (1.0 | ) | (1.4 | ) | |||||||||||||||
| Actuarial loss (gain) | 149.2 | (28.4 | ) | 23.1 | (1.3 | ) | 0.5 | (1.1 | ) | ||||||||||||||
| Balance at end of year | $ | 830.1 | $ | 651.0 | $ | 124.5 | $ | 99.2 | $ | 8.2 | $ | 8.4 | |||||||||||
| Pension Plans | SERP Plans | Postretirement Plans | |||||||||||||||||||||
| (In millions) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||
| Balance at beginning of year | $ | 627.5 | $ | 651.7 | $ | 87.6 | $ | 88.6 | $ | 11.4 | $ | 15.8 | |||||||||||
| Service cost | 26.3 | 24.4 | 4.5 | 4.3 | — | — | |||||||||||||||||
| Interest cost | 25.7 | 29.8 | 3.8 | 3.9 | 0.4 | 0.5 | |||||||||||||||||
| Benefit payments | (29.4 | ) | (75.6 | ) | (5.1 | ) | (8.5 | ) | — | — | |||||||||||||
| Benefit payments, net of retiree contributions | — | — | — | — | (1.6 | ) | (1.9 | ) | |||||||||||||||
| Plan curtailments | (0.3 | ) | — | — | — | — | — | ||||||||||||||||
| Plan settlements | (65.3 | ) | — | — | — | — | — | ||||||||||||||||
| Medicare subsidy | — | — | — | — | 0.0 | 0.0 | |||||||||||||||||
| Actuarial loss (gain) | 63.5 | (2.8 | ) | 6.1 | (0.7 | ) | 0.3 | (3.0 | ) | ||||||||||||||
| Balance at end of year | $ | 648.0 | $ | 627.5 | $ | 96.9 | $ | 87.6 | $ | 10.5 | $ | 11.4 | |||||||||||
The actuarial losses in 20172019 were due principally to decreases in the discount rates. The actuarial gains in 2018 were due principally to increases in the discount rates.
Reconciliations of the fair value of the assets held by the Pension Plans and the funded status were as follows:
| (In millions) | 2019 | 2018 | |||||
| Fair value of plan assets at beginning of year | $ | 636.8 | $ | 660.6 | |||
| Actual return, net of plan expenses | 112.9 | (7.8 | ) | ||||
| Benefit payments | (29.2 | ) | (26.0 | ) | |||
| Company contributions | 0.7 | 10.0 | |||||
| Fair value of plan assets at end of year | $ | 721.2 | $ | 636.8 | |||
| Funded status at end of year | $ | (108.9 | ) | $ | (14.2 | ) | |
Amounts recognized in the Company’s Consolidated Balance Sheets were as follows:
| Pension Plans | SERP Plans | Postretirement Plans | |||||||||||||||||||||
| (In millions) | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||
| Non-current assets | $ | 1.7 | $ | 1.8 | $ | — | $ | — | $ | — | $ | — | |||||||||||
| Current liabilities | — | — | (9.3 | ) | (7.4 | ) | (1.1 | ) | (1.1 | ) | |||||||||||||
| Non-current liabilities | (110.6 | ) | (16.0 | ) | (115.2 | ) | (91.8 | ) | (7.1 | ) | (7.3 | ) | |||||||||||
| Net amount recognized | $ | (108.9 | ) | $ | (14.2 | ) | $ | (124.5 | ) | $ | (99.2 | ) | $ | (8.2 | ) | $ | (8.4 | ) | |||||
The components of net benefit cost recognized were as follows:
| Pension Plans | SERP Plans | Postretirement Plans | ||||||||||||||||||||||||||||||||||
| (In millions) | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||
| Service cost | $ | 33.5 | $ | 33.7 | $ | 27.3 | $ | 5.8 | $ | 5.8 | $ | 4.5 | $ | — | $ | — | $ | — | ||||||||||||||||||
| Interest cost | 27.9 | 26.0 | 25.7 | 4.3 | 3.9 | 3.8 | 0.3 | 0.4 | 0.4 | |||||||||||||||||||||||||||
| Actuarial loss (gain) | 74.2 | 17.4 | (3.9 | ) | 23.1 | (1.3 | ) | 6.1 | 0.5 | (1.1 | ) | 0.3 | ||||||||||||||||||||||||
| Expected return on plan assets | (40.3 | ) | (40.3 | ) | (38.6 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||
| Amortization of prior service cost | — | 0.1 | 0.1 | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Curtailment gain | — | — | (0.3 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Settlement loss | — | — | 9.4 | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Total | $ | 95.3 | $ | 36.9 | $ | 19.7 | $ | 33.2 | $ | 8.4 | $ | 14.4 | $ | 0.8 | $ | (0.7 | ) | $ | 0.7 | |||||||||||||||||
The service cost component of net benefit cost is recorded in SG&A expenses and the other components of net benefit cost are recorded in non-service related pension and postretirement cost in the Company’s Consolidated Income Statements.
The actuarial losses in 2019 were due principally to decreases in the discount rates. For the Pension Plans, these losses were partially offset by an actuarial gain as a result of the difference between the actual and expected returns on plan assets.
In 2017, the Company completed the purchase of a group annuity using assets from the Pension Plans. Under the group annuity, the accrued pension obligations for approximately 4,000 retiree participants who had deferred vested benefits under the Pension Plans were transferred to an insurer. As a result, the Company recognized a loss of $9.4 million, which was recorded in SG&A expensesnon-service related pension and postretirement cost in the Company’s Consolidated Income Statement for 2017. The amount of the pension benefit obligation settled was $65.3 million.
| (In millions) | 2017 | 2016 | |||||
| Fair value of plan assets at beginning of year | $ | 659.5 | $ | 567.4 | |||
| Actual return, net of plan expenses | 95.5 | 67.7 | |||||
| Benefit payments | (29.4 | ) | (75.6 | ) | |||
| Plan settlements | (65.3 | ) | — | ||||
| Company contributions | 0.3 | 100.0 | |||||
| Fair value of plan assets at end of year | $ | 660.6 | $ | 659.5 | |||
| Funded status at end of year | $ | 12.6 | $ | 32.0 | |||
| Pension Plans | SERP Plans | Postretirement Plans | |||||||||||||||||||||
| (In millions) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||
| Non-current assets | $ | 19.1 | $ | 32.6 | $ | — | $ | — | $ | — | $ | — | |||||||||||
| Current liabilities | — | — | (7.4 | ) | (8.5 | ) | (1.4 | ) | (1.5 | ) | |||||||||||||
| Non-current liabilities | (6.5 | ) | (0.6 | ) | (89.5 | ) | (79.1 | ) | (9.1 | ) | (9.9 | ) | |||||||||||
| Net amount recognized | $ | 12.6 | $ | 32.0 | $ | (96.9 | ) | $ | (87.6 | ) | $ | (10.5 | ) | $ | (11.4 | ) | |||||||
| Pension Plans | SERP Plans | Postretirement Plans | ||||||||||||||||||||||||||||||||||
| (In millions) | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||
| Service cost, including plan expenses | $ | 27.3 | $ | 25.2 | $ | 30.6 | $ | 4.5 | $ | 4.4 | $ | 5.6 | $ | — | $ | — | $ | — | ||||||||||||||||||
| Interest cost | 25.7 | 29.8 | 27.8 | 3.8 | 3.9 | 3.7 | 0.4 | 0.5 | 0.6 | |||||||||||||||||||||||||||
| Actuarial (gain) loss | (3.9 | ) | (35.4 | ) | (10.1 | ) | 6.1 | (0.7 | ) | (9.1 | ) | 0.3 | (3.0 | ) | (1.0 | ) | ||||||||||||||||||||
| Expected return on plan assets | (38.6 | ) | (35.9 | ) | (42.5 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||
| Amortization of prior service cost (credit) | 0.1 | 0.0 | 0.0 | (0.0 | ) | (0.1 | ) | (0.1 | ) | — | (0.3 | ) | (0.4 | ) | ||||||||||||||||||||||
| Curtailment gain | (0.3 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Settlement loss | 9.4 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Total | $ | 19.7 | $ | (16.3 | ) | $ | 5.8 | $ | 14.4 | $ | 7.5 | $ | 0.1 | $ | 0.7 | $ | (2.8 | ) | $ | (0.8 | ) | |||||||||||||||
Amortization of prior service creditscost recognized in other comprehensive (loss) income (loss) for Pension Plans, SERP Plans, and Postretirement Plans was immaterial during 2017, 20162019, 2018 and 2015.2017.
Pre-tax amounts in AOCL that had not yet been recognized as components of net benefit cost in the Pension Plans, SERP Plans and Postretirement Plans were immaterial as of February 4, 20182, 2020 and January 29, 2017.February 3, 2019.
Pre-tax amounts in AOCL as of February 4, 20182, 2020 expected to be recognized as components of net benefit cost in 20182020 in the Pension Plans, SERP Plans and Postretirement Plans were immaterial.
The accumulated benefit obligation (Pension Plans and SERP Plans) for each of the last two years were as follows:
| Pension Plans | SERP Plans | ||||||||||||||
| (In millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
| Accumulated benefit obligation | $ | 751.3 | $ | 598.9 | $ | 99.9 | $ | 81.5 | |||||||
| Pension Plans | SERP Plans | ||||||||||||||
| (In millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
| Accumulated benefit obligation | $ | 595.6 | $ | 586.0 | $ | 79.6 | $ | 71.9 | |||||||
In 2017, two2019, three of the Company’s Pension Plans had projected benefit obligations and accumulated benefit obligations in excess of plan assets. In 2016, two2018, three of the Company’s Pension Plans had projected benefit obligations in excess of plan assets and onetwo of the Company’s Pension Plans had an accumulated benefit obligationobligations in excess of plan assets. The balances were as follows:
| (In millions, except plan count) | 2017 | 2016 | 2019 | 2018 | ||||||||||
| Number of plans with projected benefit obligations in excess of plan assets | 2 | 2 | 3 | 3 | ||||||||||
| Aggregate projected benefit obligation | $ | 41.6 | $ | 34.6 | $ | 811.9 | $ | 634.7 | ||||||
| Aggregate fair value of related plan assets | $ | 35.1 | $ | 34.0 | $ | 701.3 | $ | 618.8 | ||||||
| Number of plans with accumulated benefit obligations in excess of plan assets | 2 | 1 | 3 | 2 | ||||||||||
| Aggregate accumulated benefit obligation | $ | 37.4 | $ | 3.3 | $ | 733.3 | $ | 38.5 | ||||||
| Aggregate fair value of related plan assets | $ | 35.1 | $ | 3.1 | $ | 701.3 | $ | 38.0 | ||||||
In 20172019 and 2016,2018, all of the Company’s SERP Plans had projected benefit obligations and accumulated benefit obligations in excess of plan assets as the plans are unfunded.
Significant weighted average rate assumptions used in determining the projected and accumulated benefit obligations at the end of each year and benefit cost in the following year were as follows:
| 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |||||||||||
| Discount rate (applies to Pension Plans and SERP Plans) | 4.08 | % | 4.59 | % | 4.72 | % | 3.15 | % | 4.35 | % | 4.08 | % | ||||
Discount rate (applies to Postretirement Plans) | 3.91 | % | 4.04 | % | 4.28 | % | 2.70 | % | 4.16 | % | 3.91 | % | ||||
| Rate of increase in compensation levels (applies to Pension Plans) | 4.24 | % | 4.27 | % | 4.22 | % | 4.23 | % | 4.24 | % | 4.24 | % | ||||
| Expected long-term rate of return on assets (applies to Pension Plans) | 6.00 | % | 6.50 | % | 6.50 | % | 6.25 | % | 6.50 | % | 6.25 | % | ||||
To develop the expected long-term rate of return on assets assumption, the Company considered the historical level of the risk premium associated with the asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation.
The assets of the Pension Plans are invested with the objective of being able to meet current and future benefit payment needs, while controllingmanaging future contributions. The investment policy aims to earn a reasonable rate of return while minimizing the risk of large losses. Assets are diversified by asset class in order to reduce volatility of overall results from year to year and to take advantage of various investment opportunities. The assets of the Pension Plans are diversified among United States equities, international equities, fixed income investments and cash. The strategic target allocation for the majority of the Pension Plans as of February 4, 20182, 2020 was approximately 40% United States equities, 20% international equities and 40% fixed income investments and cash. Equity securities primarily include investments in large-, mid- and small-cap companies located in the United States and abroad. Fixed income securities include corporate bonds of companies from diversified industries, municipal bonds, collective funds and United States Treasury bonds. Actual investment allocations may vary from the Company’s target investment allocations due to prevailing market conditions.
In accordance with the fair value hierarchy described in Note 11,12, “Fair Value Measurements,” the following tables show the fair value of the total assets of the Pension Plans for each major category as of February 4, 20182, 2020 and January 29, 2017:February 3, 2019:
| (In millions) | Fair Value Measurements as of February 4, 2018(1) | Fair Value Measurements as of February 2, 2020(1) | ||||||||||||||||||||||||||||||
| Asset Category | Total | Quoted Prices In Active Markets for Identical Assets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Total | Quoted Prices In Active Markets for Identical Assets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||||||||
United States equities(2) | $ | 179.8 | $ | 179.8 | $ | — | $ | — | $ | 182.2 | $ | 182.2 | $ | — | $ | — | ||||||||||||||||
International equities(2) | 13.0 | 13.0 | — | — | 10.7 | 10.7 | — | — | ||||||||||||||||||||||||
United States equity fund(3) | 58.9 | — | 58.9 | — | 66.3 | — | 66.3 | — | ||||||||||||||||||||||||
International equity funds(4) | 140.0 | 65.6 | 74.4 | — | 135.1 | 65.4 | 69.7 | — | ||||||||||||||||||||||||
| Fixed income securities: | ||||||||||||||||||||||||||||||||
Government securities(5) | 58.1 | — | 58.1 | — | 74.0 | — | 74.0 | — | ||||||||||||||||||||||||
Corporate securities(5) | 183.3 | — | 183.3 | — | 225.9 | — | 225.9 | — | ||||||||||||||||||||||||
Short-term investment funds(6) | 18.4 | — | 18.4 | — | 18.6 | — | 18.6 | — | ||||||||||||||||||||||||
Total return mutual fund(7) | 6.6 | 6.6 | — | — | 6.9 | 6.9 | — | — | ||||||||||||||||||||||||
| Subtotal | $ | 658.1 | $ | 265.0 | $ | 393.1 | $ | — | $ | 719.7 | $ | 265.2 | $ | 454.5 | $ | — | ||||||||||||||||
Other assets and liabilities(8) | 2.5 | 1.5 | ||||||||||||||||||||||||||||||
| Total | $ | 660.6 | $ | 721.2 | ||||||||||||||||||||||||||||
| (In millions) | Fair Value Measurements as of January 29, 2017(1) | Fair Value Measurements as of February 3, 2019(1) | ||||||||||||||||||||||||||||||
| Asset Category | Total | Quoted Prices In Active Markets for Identical Assets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Total | Quoted Prices In Active Markets for Identical Assets (Level 1) | Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | ||||||||||||||||||||||||
| Equity securities: | ||||||||||||||||||||||||||||||||
United States equities(2) | $ | 193.0 | $ | 193.0 | $ | — | $ | — | $ | 170.9 | $ | 170.9 | $ | — | $ | — | ||||||||||||||||
International equities(2) | 12.2 | 12.2 | — | — | 12.2 | 12.2 | — | — | ||||||||||||||||||||||||
United States equity fund(3) | 51.6 | — | 51.6 | — | 58.9 | — | 58.9 | — | ||||||||||||||||||||||||
International equity funds(4) | 130.5 | 70.4 | 60.1 | — | 126.5 | 60.3 | 66.2 | — | ||||||||||||||||||||||||
| Fixed income securities: | ||||||||||||||||||||||||||||||||
Government securities(5) | 63.3 | — | 63.3 | — | 70.3 | — | 70.3 | — | ||||||||||||||||||||||||
Corporate securities(5) | 181.0 | — | 181.0 | — | 173.7 | — | 173.7 | — | ||||||||||||||||||||||||
Short-term investment funds(6) | 18.9 | — | 18.9 | — | 16.7 | — | 16.7 | — | ||||||||||||||||||||||||
Total return mutual fund(7) | 5.6 | 5.6 | — | — | 6.3 | 6.3 | — | — | ||||||||||||||||||||||||
| Subtotal | $ | 656.1 | $ | 281.2 | $ | 374.9 | $ | — | $ | 635.5 | $ | 249.7 | $ | 385.8 | $ | — | ||||||||||||||||
Other assets and liabilities(8) | 3.4 | 1.3 | ||||||||||||||||||||||||||||||
| Total | $ | 659.5 | $ | 636.8 | ||||||||||||||||||||||||||||
(1) | The Company uses third party pricing services to determine the fair values of the financial instruments held by the |
(2) | Valued at the closing price or unadjusted quoted price in the active market in which the individual securities are traded. |
(3) | Valued at the net asset value of the fund, as determined by a pricing vendor or the fund family. The Company has the ability to redeem this investment at net asset value within the near term and therefore classifies this investment within Level 2. This commingled fund invests in United States large cap equities that track the Russell 1000 Index. |
(4) | Valued at the net asset value of the fund, either as determined by the closing price in the active market in which the individual fund is traded and classified within Level 1, or as determined by a pricing vendor or the fund family and classified within Level 2. This category includes funds that invest in equities of companies outside of the United States. |
(5) | Valued with bid evaluation pricing where the inputs are based on actual trades in active markets, when available, as well as observable market inputs that include actual and comparable trade data, market benchmarks, broker quotes, trading spreads and/or other applicable data. |
(6) | Valued at the net asset value of the funds, as determined by a pricing vendor or the fund family. The Company has the ability to redeem these investments at net asset value within the near term and therefore classifies these investments within Level 2. These funds invest in high-grade, short-term, money market instruments. |
(7) | Valued at the net asset value of |
(8) | This category includes other pension assets and liabilities such as pending trades and accrued income. |
The Company believes that there are no significant concentrations of risk within the plan assets as of February 4, 2018.2, 2020.
Currently, the Company does not expect to make any material contributions to the Pension Plans in 2018.2020. The Company’s actual contributions may differ from planned contributions due to many factors, including changes in tax and other benefit laws, oras well as significant differences between expected and actual pension asset performance or interest rates. The expected benefit payments associated with the Pension Plans and SERP Plans, and expected benefit payments, net of retiree contributions, associated with the Postretirement Plans are as follows:
| (In millions) | ||||||||||||
| Fiscal Year | Pension Plans | SERP Plans | Postretirement Plans | |||||||||
| 2020 | $ | 37.2 | $ | 9.2 | $ | 1.0 | ||||||
| 2021 | 39.0 | 10.1 | 1.0 | |||||||||
| 2022 | 41.1 | 13.3 | 0.9 | |||||||||
| 2023 | 42.3 | 12.2 | 0.8 | |||||||||
| 2024 | 44.2 | 10.0 | 0.7 | |||||||||
| 2025-2029 | 240.6 | 59.1 | 2.7 | |||||||||
| (In millions) | ||||||||||||
| Fiscal Year | Pension Plans | SERP Plans | Postretirement Plans | |||||||||
| 2018 | $ | 24.7 | $ | 7.4 | $ | 1.4 | ||||||
| 2019 | 25.3 | 7.3 | 1.3 | |||||||||
| 2020 | 26.0 | 8.1 | 1.2 | |||||||||
| 2021 | 26.9 | 8.4 | 1.1 | |||||||||
| 2022 | 28.0 | 11.0 | 1.0 | |||||||||
| 2023-2027 | 157.1 | 48.0 | 3.8 | |||||||||
A 1% change in the assumed medical health care cost trend rate for the Postretirement Plans would not have a material impact on the Company’s net benefit cost for 20172019 or the accumulated benefit obligation at February 4, 2018.2, 2020.
The Company has savings and retirement plans and a supplemental savings plan for the benefit of its eligible employees in the United States who elect to participate. The Company matches a portion of employee contributions to the plans. The Company also has a defined contribution planplans for certain employees associated with certain businesses acquired in the Tommy Hilfiger, acquisition,Warnaco and Australia acquisitions, whereby the Company pays a percentage of the contribution for the employee. The Company’s contributions to these plans were $22.129.9 million, $19.725.4 million and $18.222.1 million in 2019, 2018 and 2017, 2016 and 2015, respectively.
F-42
The Company grants stock-based awards under its 2006 Stock Incentive Plan (the “2006 Plan”). Shares issued as a result of stock-based compensation transactions generally have been funded with the issuance of new shares of the Company’s common stock.
The Company may grant the following types of incentive awards under the 2006 Plan: (i) non-qualified stock options;options (“stock options”); (ii) incentive stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) restricted stock units (“RSUs”); (vi) performance shares; (vii) performance share units (“PSUs”); and (viii) other stock-based awards. Each award granted under the 2006 Plan is subject to an award agreement that incorporates, as applicable, the exercise price, the term of the award, the periods of restriction, the number of shares to which the award pertains, performance periods and performance measures, and such other terms and conditions as the plan committee determines. Awards granted under the 2006 Plan are classified as equity awards, which are recorded in stockholders’ equity in the Company’s Consolidated Balance Sheets.
Through February 4, 20182, 2020, the Company has granted under the 2006 Plan (i) service-based non-qualified stock options, (“stock options”), RSUs and restricted stock; and (ii) contingently issuable PSUs and RSUs. AllThere was no restricted stock granted by the Company was fully vested at the endoutstanding as of 2015.February 2, 2020.
According to the terms of the 2006 Plan, for purposes of determining the number of shares available for grant, each share underlying a stock option award reduces the number available by one1 share and each share underlying aan RSU or PSU award reduces the number available by two2 shares. Total shares available for grant at February 4, 20182, 2020 amounted to 5.83.9 million shares.
Net income for 20172019, 20162018 and 20152017 included $44.9$56.1 million, $38.256.2 million and $42.044.9 million, respectively, of pre-tax expense related to stock-based compensation, with related recognized income tax benefits of $6.9 million, $8.9 million and $8.8 million, $11.5 million and $10.7 million, respectively.
The Company receives a tax deduction for certain transactions associated with its stock-based plan awards. The actual income tax benefits realized from these transactions in 2017, 20162019, 2018 and 20152017 were $8.8 million, $13.2 million and $27.2 million, $6.6 million and $10.2 million, respectively. As a result of the Company’s adoption of the update discussed above, the Company recognized aThe tax benefits realized included discrete net excess tax benefitbenefits of $0.9 million, $4.9 million and $15.4 million related to share-based paymentsrecognized in itsthe Company’s provision for income taxes in 2017. Prior to the adoption of this update, the Company recognized excess tax benefits or tax deficiencies in equity as a component of additional paid in capital. Such amounts were a net excess tax deficiency of $7.2 million in 2016during 2019, 2018 and a net excess tax benefit of $4.8 million in 2015.2017, respectively.
Stock Options
Stock options granted to employees are generally exercisable in four equal annual installments commencing one year after the date of grant. The underlying stock option award agreements generally provide for accelerated vesting upon the award recipient’s retirement (as defined in the 2006 Plan). Such stock options are granted with a 10-year term and the per share exercise price cannot be less than the closing price of the common stock on the date of grant.
The Company estimates the fair value of stock options at the date of grant using the Black-Scholes-Merton model. The estimated fair value of the stock options granted is expensed over the stock options’ vesting periods.
The following summarizes the assumptions used to estimate the fair value of stock options granted during 2019, 2018 and 2017 2016 and 2015:the resulting weighted average grant date fair value per stock option:
| 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | |||||||||||||||||
| Weighted average risk-free interest rate | 2.10 | % | 1.45 | % | 1.54 | % | 2.15 | % | 2.78 | % | 2.10 | % | ||||||||||
| Weighted average expected stock option term (in years) | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | 6.25 | ||||||||||||||||
| Weighted average Company volatility | 29.46 | % | 34.54 | % | 36.26 | % | 29.88 | % | 26.92 | % | 29.46 | % | ||||||||||
| Expected annual dividends per share | $ | 0.15 | $ | 0.15 | $ | 0.15 | $ | 0.15 | $ | 0.15 | $ | 0.15 | ||||||||||
| Weighted average grant date fair value per stock option | $ | 33.50 | $ | 35.62 | $ | 40.20 | $ | 37.14 | $ | 51.66 | $ | 33.50 | ||||||||||
The risk-free interest rate is based on United States Treasury yields in effect at the date of grant for periods corresponding to the expected stock option term. The expected stock option term represents the weighted average period of time that stock options granted are expected to be outstanding, based on vesting schedules and the contractual term of the stock options. Company volatility is based on the historical volatility of the Company’s common stock over a period of time corresponding to the expected stock option term. Expected dividends are based on the Company’s common stock cash dividend rate at the date of grant.
The Company has continued to utilize the simplified method to estimate the expected term for its “plain vanilla” stock options granted due to a lack of relevant historical data resulting, in part, from changes in the pool of employees receiving stock option grants. The Company will continue to evaluate the appropriateness of utilizing such method.
Stock option activity for the year was as follows:
| (In thousands, except years and per stock option data) | Stock Options | Weighted Average Exercise Price Per Stock Option | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | ||||||||
| Outstanding at February 3, 2019 | 791 | $ | 107.81 | 6.1 | $ | 6,568 | ||||||
| Granted | 169 | 111.92 | ||||||||||
| Exercised | 31 | 77.92 | ||||||||||
| Cancelled | 27 | 119.83 | ||||||||||
| Outstanding at February 2, 2020 | 902 | $ | 109.25 | 5.9 | $ | 871 | ||||||
| Exercisable at February 2, 2020 | 589 | $ | 106.11 | 4.7 | $ | 871 | ||||||
| (In thousands, except years and per stock option data) | Stock Options | Weighted Average Exercise Price Per Stock Option | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | ||||||||
| Outstanding at January 29, 2017 | 1,466 | $ | 75.74 | 5.3 | $ | 34,996 | ||||||
| Granted | 142 | 101.94 | ||||||||||
| Exercised | 671 | 44.32 | ||||||||||
| Cancelled | 16 | 105.98 | ||||||||||
| Outstanding at February 4, 2018 | 921 | $ | 102.18 | 6.6 | $ | 45,020 | ||||||
| Exercisable at February 4, 2018 | 501 | $ | 100.93 | 5.3 | $ | 25,109 | ||||||
The aggregate grant date fair value of stock options granted during 20172019, 20162018 and 20152017 was $4.8$6.3 million, $8.44.4 million and $7.04.8 million, respectively.
The aggregate grant date fair value of stock options that vested during 20172019, 20162018 and 20152017 was $7.2$6.5 million, $6.96.5 million and $7.2 million, respectively.
The aggregate intrinsic value of stock options exercised during 2019, 2018 and 2017 was $56.91.3 million, $6.910.9 million and $8.456.9 million, in 2017, 2016 and 2015, respectively.
At February 4, 2018,2, 2020, there was $8.9$4.4 million of unrecognized pre-tax compensation expense related to non-vested stock options, which is expected to be recognized over a weighted average period of 1.31.8 years.
RSUs granted to employees since 2016 generally vest in four equal annual installments commencing one year after the date of grant. Outstanding RSUs granted to employees prior to 2016 generally vest in three annual installments of 25%, 25% and 50% commencing two years after the date of grant. Service-based RSUs granted to non-employee directors vest in full one year after the date of grant. The underlying RSU award agreements (excluding agreements for non-employee director awards)
generally provide for accelerated vesting upon the award recipient’s retirement (as defined in the 2006 Plan). The fair value of
RSUs is equal to the closing price of the Company’s common stock on the date of grant and is expensed over the RSUs’ vesting periods.
RSU activity for the year was as follows:
| (In thousands, except per RSU data) | RSUs | Weighted Average Grant Date Fair Value Per RSU | ||||
| Non-vested at February 3, 2019 | 847 | $ | 122.97 | |||
| Granted | 612 | 110.03 | ||||
| Vested | 350 | 116.25 | ||||
| Cancelled | 113 | 123.93 | ||||
| Non-vested at February 2, 2020 | 996 | $ | 117.28 | |||
| (In thousands, except per RSU data) | RSUs | Weighted Average Grant Date Fair Value Per RSU | ||||
| Non-vested at January 29, 2017 | 812 | $ | 105.96 | |||
| Granted | 445 | 103.28 | ||||
| Vested | 263 | 109.04 | ||||
| Cancelled | 77 | 104.48 | ||||
| Non-vested at February 4, 2018 | 917 | $ | 103.90 | |||
The aggregate grant date fair value of RSUs granted during 20172019, 20162018 and 20152017 was $46.067.3 million, $38.853.5 million and $31.746.0 million, respectively. The aggregate grant date fair value of RSUs vested during 20172019, 20162018 and 20152017 was $28.740.7 million, $17.335.1 million and $18.128.7 million, respectively.
At February 4, 20182, 2020, there was $54.773.7 million of unrecognized pre-tax compensation expense related to non-vested RSUs, which is expected to be recognized over a weighted average period of 1.71.8 years.
The following summarizes the following assumptions:assumptions used to estimate the fair value of PSUs granted during 2019, 2018 and 2017 and the resulting weighted average grant date fair value per PSU:
| 2019 | 2018 | 2017 | ||||||||||
| Risk-free interest rate | 2.13 | % | 2.62 | % | 1.49 | % | ||||||
| Expected Company volatility | 30.25 | % | 29.78 | % | 31.29 | % | ||||||
| Expected annual dividends per share | $ | 0.15 | $ | 0.15 | $ | 0.15 | ||||||
| Weighted average grant date fair value per PSU | $ | 119.46 | $ | 159.53 | $ | 96.81 | ||||||
| 2017 | 2016 | 2015 | ||||||||||
| Risk-free interest rate | 1.49 | % | 1.04 | % | 0.90 | % | ||||||
| Expected Company volatility | 31.29 | % | 28.33 | % | 29.10 | % | ||||||
| Expected annual dividends per share | $ | 0.15 | $ | 0.15 | $ | 0.15 | ||||||
| Weighted average grant date fair value per PSU | $ | 96.81 | $ | 87.16 | $ | 101.23 | ||||||
PSU activity for the year was as follows:
| (In thousands, except per PSU data) | PSUs | Weighted Average Grant Date Fair Value Per PSU | ||||
| Non-vested at February 3, 2019 | 194 | $ | 106.76 | |||
| Granted at target | 72 | 119.46 | ||||
| Reduction due to market condition achieved below target | 10 | 87.16 | ||||
| Vested | 67 | 87.16 | ||||
| Cancelled | 8 | 117.27 | ||||
| Non-vested at February 2, 2020 | 181 | $ | 119.63 | |||
| (In thousands, except per PSU data) | PSUs | Weighted Average Grant Date Fair Value Per PSU | ||||
| Non-vested at January 29, 2017 | 125 | $ | 92.32 | |||
| Granted | 72 | 96.81 | ||||
| Vested | — | — | ||||
| Cancelled | — | — | ||||
| Non-vested at February 4, 2018 | 197 | $ | 93.97 | |||
The aggregate grant date fair value of PSUs granted during 2017, 20162019, 2018 and 20152017 was $8.6 million, $7.0 million $6.9and $7.0 million, and $4.6 million, respectively. No PSUs vested in 2017. The aggregate grant date fair value of PSUs that vested during 20162019 and 20152018 was $3.0$6.7 million and $4.8$4.6 million, respectively. No PSUs vested in 2017. PSUs in the above table are subject to market conditions. As such, theythe non-vested PSUs are reflected at the target level, which is consistent with how expense will be recorded, regardless of the numbers of shares that will actually be earned.
At February 4, 2018,2, 2020, there was $7.7$2.4 million of unrecognized pre-tax compensation expense related to non-vested PSUs, which is expected to be recognized over a weighted average period of 1.82.1 years.
The Company’s Board of Directors has authorized a $500.0 million three-yearover time since 2015 an aggregate $2.0 billion stock repurchase program effectivethrough June 3, 2015. On March 21, 2017, the Board of Directors authorized a $750.0 million increase to the program and extended the program to June 3, 2020.2023. Repurchases under the program may be made from time to time over the period through open market purchases, accelerated share repurchase programs, privately negotiated transactions or other methods, as the Company deems appropriate. Purchases are made based on a variety of factors, such as price, corporate requirements and overall market conditions, applicable legal requirements and limitations, restrictions under the Company’s debt arrangements, trading restrictions under the Company’s insider trading policy and other relevant factors. The program may be modified by the Board of Directors, including to increase or decrease the repurchase limitation or extend, suspend, or terminate the program, at any time, without prior notice.
During 2017, 20162019, 2018 and 2015,2017, the Company purchased 3.4 million shares, 2.2 million 3.2 millionshares and 1.32.2 million shares, respectively, of its common stock under the program in open market transactions for $250.4$325.0 million, $315.1$300.1 million and $126.2$250.4 million, respectively. As of February 4, 2018,2, 2020, the repurchased shares were held as treasury stock and $558.3$683.3 million of the authorization remained available for future share repurchases.
Treasury stock activity also includes shares that were withheld principally in conjunction with the settlement of vested restricted stock, RSUs and PSUs to satisfy tax withholding requirements.
F-46
The following table presents the changes in AOCL, net of related taxes, by component:
| (In millions) | Foreign currency translation adjustments | Net unrealized and realized gain (loss) on effective cash flow hedges | Total | ||||||||
| Balance at January 29, 2017 | $ | (737.7 | ) | $ | 26.9 | $ | (710.8 | ) | |||
| Other comprehensive income (loss) before reclassifications | 490.5 | (1)(2) | (116.0 | ) | 374.5 | ||||||
| Less: Amounts reclassified from AOCL | — | (16.9 | ) | (16.9 | ) | ||||||
| Other comprehensive income (loss) | 490.5 | (99.1 | ) | 391.4 | |||||||
Impact of the U.S. Tax Legislation (4) | (2.2 | ) | 0.1 | (2.1 | ) | ||||||
| Balance at February 4, 2018 | $ | (249.4 | ) | $ | (72.1 | ) | $ | (321.5 | ) | ||
| Other comprehensive (loss) income before reclassifications | (288.2 | ) | (1)(3) | 92.0 | (196.2 | ) | |||||
| Less: Amounts reclassified from AOCL | — | (9.8 | ) | (9.8 | ) | ||||||
| Other comprehensive (loss) income | (288.2 | ) | 101.8 | (186.4 | ) | ||||||
| Balance at February 3, 2019 | $ | (537.6 | ) | $ | 29.7 | $ | (507.9 | ) | |||
| Other comprehensive (loss) income before reclassifications | (128.1 | ) | (1)(3) | 15.9 | (112.2 | ) | |||||
| Less: Amounts reclassified from AOCL | — | 20.0 | 20.0 | ||||||||
| Other comprehensive loss | (128.1 | ) | (4.1 | ) | (132.2 | ) | |||||
| Balance at February 2, 2020 | $ | (665.7 | ) | $ | 25.6 | $ | (640.1 | ) | |||
| (In millions) | Foreign currency translation adjustments | Net unrealized and realized gain (loss) on effective cash flow hedges | Total | ||||||||
| Balance at January 31, 2016 | $ | (730.4 | ) | $ | 26.2 | $ | (704.2 | ) | |||
| Other comprehensive (loss) income before reclassifications | (64.0 | ) | (1) | 5.2 | (58.8 | ) | |||||
| Less: Amounts reclassified from AOCL | (56.7 | ) | (2) | 4.5 | (52.2 | ) | |||||
| Other comprehensive (loss) income | (7.3 | ) | 0.7 | (6.6 | ) | ||||||
| Balance at January 29, 2017 | $ | (737.7 | ) | $ | 26.9 | $ | (710.8 | ) | |||
| Other comprehensive income (loss) before reclassifications | 490.5 | (3) | (116.0 | ) | 374.5 | ||||||
| Less: Amounts reclassified from AOCL | — | (16.9 | ) | (16.9 | ) | ||||||
| Other comprehensive income (loss) | 490.5 | (99.1 | ) | 391.4 | |||||||
Impact of the Tax Legislation (4) | (2.2 | ) | 0.1 | (2.1 | ) | ||||||
| Balance at February 4, 2018 | $ | (249.4 | ) | $ | (72.1 | ) | $ | (321.5 | ) | ||
| (In millions) | Amount Reclassified from AOCL | Affected Line Item in the Company’s Consolidated Income Statements | |||||||
| 2017 | 2016 | ||||||||
| Realized (loss) gain on effective cash flow hedges: | |||||||||
| Foreign currency forward exchange contracts (inventory purchases) | $ | (13.6 | ) | $ | 14.0 | Cost of goods sold | |||
| Interest rate swap agreements | (6.2 | ) | (12.1 | ) | Interest expense | ||||
| Less: Tax effect | (2.9 | ) | (2.6 | ) | Income tax (benefit) expense | ||||
| Total, net of tax | $ | (16.9 | ) | $ | 4.5 | ||||
| Foreign currency translation adjustments: | |||||||||
Mexico deconsolidation | $ | — | $ | (56.7 | ) | (2) | Other noncash gain, net | ||
| Less: Tax effect | — | — | Income tax (benefit) expense | ||||||
| Total, net of tax | $ | — | $ | (56.7 | ) | ||||
(1) | Foreign currency translation adjustments included a net gain (loss) on net investment |
(2) |
(3) |
(4) | The stranded tax effects resulting from the U.S. Tax Legislation were reclassified from AOCL to retained earnings as a result of the Company’s early adoption of an update to accounting guidance in the fourth quarter of 2017. |
The following table presents reclassifications from AOCL to earnings:
| (In millions) | Amount Reclassified from AOCL | Affected Line Item in the Company’s Consolidated Income Statements | |||||||||||
| 2019 | 2018 | 2017 | |||||||||||
| Realized gain (loss) on effective cash flow hedges: | |||||||||||||
| Foreign currency forward exchange contracts (inventory purchases) | 23.1 | (11.6 | ) | (13.6 | ) | Cost of goods sold | |||||||
| Interest rate swap agreements | (1.4 | ) | 1.1 | (6.2 | ) | Interest expense | |||||||
| Less: Tax effect | 1.7 | (0.7 | ) | (2.9 | ) | Income tax expense (benefit) | |||||||
| Total, net of tax | $ | 20.0 | $ | (9.8 | ) | $ | (16.9 | ) | |||||
The Company leases approximately 1,830 Company-operated freestanding retail store locations across more than 35 countries, generally with initial lease terms of three to ten years. The Company also leases warehouses, distribution centers, showrooms, office space equipment and a factory in Ethiopia.Ethiopia, generally with initial lease terms of ten to 20 years, as well as certain equipment and other assets, generally with initial lease terms of one to five years.
Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of fixed lease payments over the expected lease term. The Company uses its incremental borrowing rates to determine the present value of fixed lease payments based on the information available at the lease commencement date, as the rate implicit in the lease is not readily determinable for the Company's leases. The Company's incremental borrowing rates are based on the term of the lease, the economic environment of the lease, and the effect of collateralization. Certain leases excluding equipmentinclude one or more renewal options, generally for the same period as the initial term of the lease. The exercise of lease renewal options is generally at the Company’s sole discretion and, as such, the Company typically determines that exercise of these renewal options is not reasonably certain. As a result, the Company does not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the right-of-use asset and lease liability. Certain leases also contain termination options with an associated penalty. Generally, the Company is reasonably certain not to exercise these options and as such, they are not included in the determination of the expected lease term. The Company recognizes operating lease expense on a straight-line basis over the lease term.
Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
Leases generally provide for the paymentpayments of nonlease components, such as common area maintenance, real estate taxes and certain other occupancy expenses. Retail location leases generally are renewable and provide for the payment of percentage rentals based on location sales and other costs associated with the leased property. For lease agreements entered into or modified after February 3, 2019, the Company accounts for lease components and nonlease components together as a single lease component and, as such, includes fixed payments of nonlease components in the measurement of the right-of-use assets and lease liabilities. Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased property are expensed as incurred as variable lease costs and are not recorded on the balance sheet.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictions or covenants.
In conjunction with the Australia acquisition in May 2019, the Company acquired an office building and warehouse owned by Gazal. Prior to the acquisition, Gazal had entered into an agreement with a third party to sell the building and as such, the building was classified as held for sale and recorded at its fair value less estimated costs to sell on the acquisition date. Please see Note 3, “Acquisitions,” for further discussion. In June 2019, the Company completed the sale of the office building and warehouse for $59.4 million, incurring costs of $1.0 million, and leased back the building without an option to repurchase.
No gain or loss was recognized on the transaction. The lease is classified as an operating lease with an initial lease term of five years and includes 3 options to renew for a period of five years each. Exercise of these renewal options is not reasonably certain and as a result, the Company recognized an operating lease right-of-use asset and operating lease liability based on the initial term of the lease.
The components of the net lease cost were as follows:
| (In millions) | Line Item in the Company’s Consolidated Income Statement | 2019 | ||||
| Finance lease cost: | ||||||
| Amortization of right-of-use-assets | SG&A expenses (depreciation and amortization) | $ | 5.3 | |||
| Interest on lease liabilities | Interest expense | 0.5 | ||||
| Total finance lease cost | 5.8 | |||||
| Operating lease cost | SG&A expenses | 459.5 | ||||
| Short-term lease cost | SG&A expenses | 25.9 | ||||
| Variable lease cost | SG&A expenses | 143.8 | ||||
| Less: sublease income | SG&A expenses | (0.4 | ) | |||
| Total net lease cost | $ | 634.6 | ||||
Supplemental balance sheet information related to leases was as follows:
| (In millions) | Line Item in the Company’s Consolidated Balance Sheet | 2019 | ||||
| Right-of-use assets: | ||||||
| Operating lease | Operating lease right-of-use assets | $ | 1,675.8 | |||
| Finance lease | Property, plant and equipment, net | 12.6 | ||||
| $ | 1,688.4 | |||||
| Current lease liabilities: | ||||||
| Operating lease | Current portion of operating lease liabilities | $ | 363.5 | |||
| Finance lease | Accrued expenses | 4.6 | ||||
| $ | 368.1 | |||||
| Other lease liabilities: | ||||||
| Operating lease | Long-term portion of operating lease liabilities | $ | 1,532.0 | |||
| Finance lease | Other liabilities | 9.9 | ||||
| $ | 1,541.9 | |||||
Supplemental cash flow information related to leases was as follows:
| (In millions) | 2019 | |||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows from operating leases | $ | 472.8 | ||
| Operating cash flows from finance leases | 0.5 | |||
| Financing cash flows from finance leases | 5.5 | |||
| Non-cash transactions: | ||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | 441.3 | |||
| Right-of-use assets obtained in exchange for new finance lease liabilities | 3.6 | |||
The following summarizes the weighted average remaining lease term and weighted average discount rate related to the Company’s right-of-use assets and lease liabilities recorded on the balance sheet:
| 2019 | |||
| Weighted average remaining lease term (years): | |||
| Operating leases | 6.84 | ||
| Finance leases | 4.37 | ||
| Weighted average discount rate: | |||
| Operating leases | 4.25 | % | |
| Finance leases | 3.11 | % | |
At February 4, 2018,2, 2020, the maturities of the Company’s lease liabilities were as follows:
| (In millions) | Finance Leases | Operating Leases | Total | |||||||||
| 2020 | $ | 5.1 | $ | 436.2 | $ | 441.3 | ||||||
| 2021 | 4.5 | 399.2 | 403.7 | |||||||||
| 2022 | 2.5 | 323.5 | 326.0 | |||||||||
| 2023 | 1.0 | 244.2 | 245.2 | |||||||||
| 2024 | 0.5 | 187.1 | 187.6 | |||||||||
| Thereafter | 2.3 | 622.5 | 624.8 | |||||||||
| Total lease payments | $ | 15.9 | $ | 2,212.7 | $ | 2,228.6 | ||||||
| Less: Interest | (1.4 | ) | (317.2 | ) | (318.6 | ) | ||||||
| Total lease liabilities | $ | 14.5 | $ | 1,895.5 | $ | 1,910.0 | ||||||
The Company’s lease liabilities exclude $45.0 million of future lease payment obligations related to leases for two new warehouses and various retail store leases that were entered into but did not commence as of February 2, 2020. These leases commence between February 2020 and September 2020 with initial lease terms of five to ten years.
Disclosures Related to Periods Prior to Adoption of the New Lease Accounting Guidance
The Company adopted the update to accounting guidance related to leases in 2019 using the modified retrospective approach applied as of the period of adoption with a cumulative-effect adjustment to opening retained earnings and as such, prior periods have not been restated. As a result, disclosures related to periods prior to adoption are presented under the previous accounting guidance.
At February 3, 2019, minimum annual rental commitments under non-cancelablenoncancelable leases were as follows:
| (In millions) | Capital Leases | Operating Leases | Total | Capital Leases | Operating Leases | Total | |||||||||||||||||
| 2018 | $ | 5.1 | $ | 481.9 | $ | 487.0 | |||||||||||||||||
| 2019 | 4.0 | 426.8 | 430.8 | $ | 5.6 | $ | 402.4 | $ | 408.0 | ||||||||||||||
| 2020 | 2.9 | 358.1 | 361.0 | 4.4 | 371.9 | 376.3 | |||||||||||||||||
| 2021 | 2.4 | 292.8 | 295.2 | 3.8 | 314.0 | 317.8 | |||||||||||||||||
| 2022 | 0.7 | 243.1 | 243.8 | 1.8 | 255.0 | 256.8 | |||||||||||||||||
| 2023 | 0.6 | 189.9 | 190.5 | ||||||||||||||||||||
| Thereafter | 3.3 | 738.7 | 742.0 | 2.5 | 618.7 | 621.2 | |||||||||||||||||
| Total minimum lease payments | $ | 18.4 | $ | 2,541.4 | $ | 2,559.8 | $ | 18.7 | $ | 2,151.9 | $ | 2,170.6 | |||||||||||
| Less: Amount representing interest | (2.4 | ) | (2.2 | ) | |||||||||||||||||||
| Present value of net minimum capital lease payments | $ | 16.0 | $ | 16.5 | |||||||||||||||||||
Aggregate future minimum rentals to be received under non-cancelablenoncancelable capital and operating subleases were $1.0$0.6 million and $13.3$0.2 million, respectively, at February 4, 2018.3, 2019.
Rent expense was as follows:
| (In millions) | 2018 | 2017 | |||||
| Minimum | $ | 465.3 | $ | 455.2 | |||
| Percentage and other | 128.6 | 103.0 | |||||
| Less: Sublease rental income | (1.4 | ) | (1.8 | ) | |||
| Total | $ | 592.5 | $ | 556.4 | |||
| (In millions) | 2017 | 2016 | 2015 | ||||||||
| Minimum | $ | 470.6 | $ | 437.0 | $ | 413.8 | |||||
| Percentage and other | 152.7 | 143.0 | 146.7 | ||||||||
| Less: Sublease rental income | (1.8 | ) | (4.9 | ) | (4.6 | ) | |||||
| Total | $ | 621.5 | $ | 575.1 | $ | 555.9 | |||||
The gross book value of assets under capitalfinance leases, which arewere classified within property, plant and equipment in the Company’s Consolidated Balance Sheets,Sheet, amounted to $34.5 million and $30.1$37.0 million as of February 4, 2018 and January 29, 2017, respectively.3, 2019. Accumulated amortization related to assets under capitalfinance leases amounted to $18.8 million and $13.5$21.6 million as of February 4, 2018 and January 29, 2017, respectively.3, 2019. The Company includes amortization of assets under capitalfinance leases in depreciation and amortization expense. The Company did not incur any expense in percentage rentals under capitalfinance leases during 20172018 or 2016.2017.
Calvin Klein Restructuring Costs
The Company announced on January 10, 2019 a restructuring in connection with strategic changes for itsCalvin Klein business (the “Calvin Klein restructuring”). The strategic changes included (i) the closure of the CALVIN KLEIN 205 W39 NYC brand (formerly Calvin Klein Collection), (ii) the closure of the flagship store on Madison Avenue in New York, New York, (iii) the restructuring of the Calvin Klein creative and design teams globally, and (iv) the consolidation of operations for the men’s Calvin Klein Sportswear and Calvin Klein Jeans businesses. In connection with the Calvin Klein restructuring, the Company recorded pre-tax costs during 2019 and 2018 as shown in the following table. All expected costs related to this restructuring were incurred by the end of 2019.
| (In millions) | Costs Incurred During 2018 | Costs Incurred During 2019 | Cumulative Costs Incurred | ||||||||
| Severance, termination benefits and other employee costs | $ | 27.3 | $ | 25.6 | $ | 52.9 | |||||
Long-lived asset impairments (1) | 6.9 | 38.2 | 45.1 | ||||||||
| Contract termination and other costs | 4.3 | 26.2 | 30.5 | ||||||||
| Inventory markdowns | 2.2 | 12.9 | 15.1 | ||||||||
| Total | $ | 40.7 | $ | 102.9 | $ | 143.6 | |||||
(1) Includes the impact of the closure of the flagship store on Madison Avenue in New York, New York in the first quarter of 2019.
Of the charges for severance, termination benefits and other employee costs, long-lived asset impairments and contract termination and other costs incurred during 2019, $59.5 million relate to SG&A expenses of the Calvin Klein North America segment and $30.5 million relate to SG&A expenses of the Calvin Klein International segment. Of the charges for inventory markdowns incurred during 2019, $6.5 million relate to cost of goods sold of the Calvin Klein North America segment and $6.4 million relate to cost of goods sold of the Calvin Klein International segment. Of the charges for severance, termination benefits and other employee costs, long-lived asset impairments and contract termination and other costs incurred during 2018, $18.9 million relate to SG&A expenses of the Calvin Klein North America segment and $19.6 million relate to SG&A expenses of the Calvin Klein International segment. The charges for inventory markdowns incurred during 2018 were recorded in cost of goods sold of the Company’s Calvin Klein International segment. Please see Note 21, “Segment Data,” for further discussion of the Company’s reportable segments.
Please see Note 12, “Fair Value Measurements,” for further discussion of the long-lived asset impairments recorded during 2019 and 2018.
The liabilities at February 2, 2020 related to these costs were principally recorded in accrued expenses in the Company’s Consolidated Balance Sheets and were as follows:
| (In millions) | Liability at 2/3/19 | Costs Incurred During 2019 | Costs Paid During 2019 | Liability at 2/2/20 | |||||||||||
| Severance, termination benefits and other employee costs | $ | 25.8 | $ | 25.6 | $ | 44.9 | $ | 6.5 | |||||||
| Contract termination and other costs | 2.3 | 26.2 | 27.3 | 1.2 | |||||||||||
| Total | $ | 28.1 | $ | 51.8 | $ | 72.2 | $ | 7.7 | |||||||
19. NET INCOME PER COMMON SHARE
The Company computed its basic and diluted net income per common share as follows:
| (In millions, except per share data) | 2019 | 2018 | 2017 | ||||||||
| Net income attributable to PVH Corp. | $ | 417.3 | $ | 746.4 | $ | 537.8 | |||||
| Weighted average common shares outstanding for basic net income per common share | 74.2 | 76.5 | 77.6 | ||||||||
| Weighted average impact of dilutive securities | 0.4 | 0.8 | 1.0 | ||||||||
| Total shares for diluted net income per common share | 74.6 | 77.3 | 78.6 | ||||||||
| Basic net income per common share attributable to PVH Corp. | $ | 5.63 | $ | 9.75 | $ | 6.93 | |||||
| Diluted net income per common share attributable to PVH Corp. | $ | 5.60 | $ | 9.65 | $ | 6.84 | |||||
| (In millions, except per share data) | 2017 | 2016 | 2015 | ||||||||
| Net income attributable to PVH Corp. | $ | 537.8 | $ | 549.0 | $ | 572.4 | |||||
| Weighted average common shares outstanding for basic net income per common share | 77.6 | 80.2 | 82.4 | ||||||||
| Weighted average impact of dilutive securities | 1.0 | 0.7 | 0.7 | ||||||||
| Total shares for diluted net income per common share | 78.6 | 80.9 | 83.1 | ||||||||
| Basic net income per common share attributable to PVH Corp. | $ | 6.93 | $ | 6.84 | $ | 6.95 | |||||
| Diluted net income per common share attributable to PVH Corp. | $ | 6.84 | $ | 6.79 | $ | 6.89 | |||||
Potentially dilutive securities excluded from the calculation of diluted net income per common share as the effect would be anti-dilutive were as follows:
| (In millions) | 2019 | 2018 | 2017 | |||||
| Weighted average potentially dilutive securities | 1.1 | 0.4 | 0.5 | |||||
| (In millions) | 2017 | 2016 | 2015 | |||||
| Weighted average potentially dilutive securities | 0.5 | 0.8 | 0.6 | |||||
Shares underlying contingently issuable awards that have not met the necessary conditions as of the end of a reporting period are not included in the calculation of diluted net income per common share for that period. The Company had contingently issuable PSU awards outstanding that did not meet the performance conditions as of February 2, 2020, February 3, 2019 and February 4, 2018, January 29, 2017 and January 31, 2016 and, therefore, were excluded from the calculation of diluted net income per common share for each applicable year. The maximum number of potentially dilutive shares that could be issued upon vesting for such awards was 0.10.3 million, 0.3 million and 0.90.1 million as of February 2, 2020, February 3, 2019 and February 4, 2018, January 29, 2017 and January 31, 2016, respectively. These amounts were also excluded from the computation of weighted average potentially dilutive securities in the table above.
Omitted from the Company’s Consolidated Statement of Cash Flows for 20172019 were capital expenditures related to property, plant and equipment of $41.939.5 million, which will not be paid until 2018.2020. The Company paid $35.643.7 million in cash during 20172019 related to property, plant and equipment that was acquired in 20162018. This amount was omitted from the Company’s Consolidated Statement of Cash Flows for 20162018. The Company paid $24.541.9 million in cash during 20162018 related to property, plant and equipment that was acquired in 20152017. This amount was omitted from the Company’s Consolidated Statement of Cash Flows for 20152017.
The Company completed the Australia acquisition during 2019. Omitted from purchases of property, plant and equipment in the Company’s Consolidated Statements of Cash Flows for 2017, 2016 and 2015 were $3.6 million, $6.8 million and $4.3 million, respectively, of assets acquired through capital leases.
Omitted from acquisition of treasury shares in the Company’s Consolidated StatementStatements of Cash Flows for 2019 and 2017 were $0.5 million and $1.5 million, respectively, of shares repurchased under the stock repurchase program for which the trades occurred but remained unsettled as of February 4,the end of the respective periods.
The Company recorded a loss of $1.7 million during 2019 to write-off previously capitalized debt issuance costs in connection with the refinancing of its senior credit facilities.
Omitted from purchases of property, plant and equipment in the Company’s Consolidated Statements of Cash Flows for 2018 and 2017 were $6.0 million and $3.6 million, respectively, of assets acquired through finance leases. Please see Note 17, “Leases,” for supplemental noncash transactions information related to finance leases during 2019.
The Company completed the acquisition of the GeoffreyBeene tradename during 2018. Omitted from acquisitions, net of cash acquired in the Company’s Consolidated Statement of Cash Flows for 2018 was $0.7 million of acquisition consideration related to royalties prepaid to Geoffrey Beene by the Company under the prior license agreement and $0.4 million of liabilities assumed by the Company.
The Company recorded a loss of $8.1 million during 2017 to write-off previously capitalized debt issuance costs in connection with the early redemption of its 4 1/2% senior notes due 2022.
The Company manages its operations through its operating divisions, which are presented as six6 reportable segments: (i) Tommy Hilfiger North America; (ii) Tommy Hilfiger International; (iii) Calvin Klein North America; (ii)(iv) Calvin Klein International; (iii) Tommy Hilfiger North America; (iv) Tommy Hilfiger International; (v) Heritage Brands Wholesale; and (vi) Heritage Brands Retail.
Tommy Hilfiger North America Segment - This segment consists of the Company’s Tommy Hilfiger North America division. This segment derives revenue principally from (i) marketing TOMMY HILFIGER branded apparel and related products at wholesale in the United States and Canada, primarily to department stores, principally Macy’s, Inc.warehouse clubs, and Hudson’s Bay Company,off-price and independent retailers, as well as digital commerce sites operated by these department store customers and pure play digital commerce retailers; (ii) operating retail stores, which are primarily located in premium outlet centers in the United States and Canada, and a digital commerce site in the United States, which sell TOMMY HILFIGER branded apparel, accessories and related products; and (iii) licensing and similar arrangements relating to the use by third parties of the TOMMY HILFIGER brand names for a broad array of product categories in North America. This segment also includes since December 2016, the Company’s proportionate share of the net income or loss of its investment in its unconsolidated foreign affiliate in Mexico relating to the affiliate’s Tommy Hilfiger business and, since December 2019, the Company’s proportionate share of the net income or loss of its investment in its unconsolidated PVH Legwear affiliate relating to the affiliate’s Tommy Hilfiger business.
Tommy Hilfiger International Segment - This segment consists of the Company’s Tommy Hilfiger International division. This segment derives revenue principally from (i) marketing TOMMY HILFIGER branded apparel and related products at wholesale principally in Europe, Asia, and China,since May 31, 2019, Australia, primarily to department and specialty stores, and digital commerce sites operated by key department store customers and pure play digital commerce retailers, as well as through distributors and franchisees; (ii) operating retail stores, in Europe, Chinaconcession locations and Japan and international digital commerce sites in Europe, Asia (including the TH CSAP acquisition) and, since May 31, 2019, Australia, which sell TOMMY HILFIGER
branded apparel, accessories and related products; and (iii) licensing and similar arrangements relating to the use by third parties of the TOMMY HILFIGER brand names for a broad array of product categories outside of North America. This segment also includes the Company’s proportionate share of the net income or loss of its investments in its unconsolidated Tommy Hilfiger foreign affiliates in Brazil and India and its unconsolidated foreign affiliate in Australia relating to the affiliate’s Tommy Hilfiger business.India. This segment included the Company’s proportionate share of the net income or loss of its investment in TH ChinaPVH Australia relating to its Tommy Hilfiger business until April 13, 2016,May 31, 2019, on which date the Company completed the Australia acquisition and began to consolidate the operations as a wholly owned subsidiary of the Company in conjunction with the TH China acquisition.PVH Australia into its financial statements. Please see Note 2,3, “Acquisitions,” for further discussion.
Calvin Klein North America Segment - This segment consists of the Company’s Calvin Klein North America division. This segment derives revenue principally from (i) marketing CALVIN KLEIN branded apparel and related products at wholesale in the United States and Canada, primarily to warehouse clubs, department and specialty stores, and off-price and independent retailers, as well as digital commerce sites operated by department store customers and pure play digital commerce retailers; (ii) operating retail stores, which are primarily located in premium outlet centers, and digital commerce sites in the United States and Canada, which sell CALVIN KLEIN branded apparel, accessories and related products; and (iii) licensing and similar arrangements relating to the use by third parties of the CALVIN KLEIN brand names for a broad array of product categories in North America. This segment also includes the Company’s proportionate share of the net income or loss of its investment in its unconsolidated foreign affiliate in Mexico relating to the affiliate’s Calvin Klein business and, since December 2019, the Company’s proportionate share of the net income or loss of its investment in its unconsolidated PVH Legwear affiliate relating to the affiliate’s Calvin Klein business.
Calvin Klein International Segment - This segment consists of the Company’s Calvin Klein International division. This segment derives revenue principally from (i) marketing CALVIN KLEIN branded apparel and related products at wholesale principally in Europe, Asia, Brazil and, since May 31, 2019, Australia, primarily to department and specialty stores, and digital commerce sites operated by department store customers and pure play digital commerce retailers, as well as through distributors and franchisees; (ii) operating retail stores, concession locations and digital commerce sites in Europe, Asia, Brazil and since May 31, 2019, Australia, which sell CALVIN KLEIN branded apparel, accessories and related products; and (iii) licensing and similar arrangements relating to the use by third parties of the CALVIN KLEIN brand names for a broad array of product categories outside of North America. This segment also includes the Company’s proportionate share of the net income or loss of its unconsolidated Calvin Klein foreign affiliate in India. This segment included the Company’s proportionate share of the net income or loss of its investment in PVH Australia relating to its Calvin Klein business until May 31, 2019, on which date the Company completed the Australia acquisition and began to consolidate the operations of PVH Australia into its financial statements. Please see Note 3, “Acquisitions,” for further discussion.
Heritage Brands Wholesale Segment - This segment consists of the Company’s Heritage Brands Wholesale division. This segment derives revenue primarily from the marketing to department, chain and specialty stores, warehouse clubs, and mass market, off-price and off-priceindependent retailers (in stores and online), as well as digital commerce sites operated by select wholesale partners and pure play digital commerce retailers in North America of (i) men’s dress shirts and neckwear under various owned and licensed brand names, including several private label brands; (ii) men’s sportswear principally under the brand names Van Heusen, IZOD,andARROW; (iii) women’s intimate apparel under the Warner’s, Olga and True&Co. brand; and (iv) men’s, women’s and children’s swimwear, pool and deck footwear, and swim-related products and accessories under the brand name Speedo; and (iv) women’s intimate apparel, shapewear and loungewear undertrademark. On January 9, 2020, the brand names Warner’s and Olga.Company entered into a definitive agreement to sell its Speedo North America business to Pentland. The Speedo transaction is expected to close in the first quarter of 2020, subject to customary closing conditions. This segment also derives revenue from Company operated digital commerce sites in the United States through SpeedoUSAfor Speedo, True&Co., Van Heusen, and IZOD, as well as the Company’s styleBureau.com and,site. In addition, since March 30, 2017, TrueandCo.com. ThisMay 31, 2019, this segment alsoderives revenue from the Heritage Brands business in Australia. As well, this segment includes the Company’s proportionate share of the net income or loss of its investmentsinvestment in its unconsolidated foreign affiliates in Australia and, since December 2016,affiliate in Mexico relating to the affiliates’affiliate’s Heritage Brands businesses.business and, since December 2019, the Company’s proportionate share of the net income or loss of its investment in its unconsolidated PVH Legwear affiliate relating to the affiliate’s Heritage Brands business. This segment included the Company’s proportionate share of the net income or loss of its investment in PVH Australia relating to its Heritage Brands business until May 31, 2019, on which date the Company completed the Australia acquisition and began to consolidate the operations of PVH Australia into its financial statements. Please see Note 3, “Acquisitions,” for further discussion.
Heritage Brands Retail Segment - This segment consists of the Company’s Heritage Brands Retail division. This segment derives revenue principally from operating retail stores, primarily located in outlet centers throughout the United States and Canada, which primarily sell apparel, accessories and related products. A majorityAll of the Company’s Heritage Brands stores offer a broad selection of Van Heusen men’s and women’s apparel, along with a limited selectionvarious of the Company’s dress shirt and neckwear offerings, and IZOD Golf,and Warner’s and, to a lesser extent, Speedo products. Approximately halfThe majority of these stores operate under the Van Heusen name, with the remaining stores featuringfeature multiple brand names on the store signage. The Company exitedsignage, with the Izod retail business inremaining stores operating under the third quarter of 2015.Van Heusen name.
The following tables present summarized informationCompany’s revenue by segment:segment was as follows:
| (In millions) | 2017 | (1) | 2016 | (1) | 2015 | (1) | 2019 | (1) | 2018 | (1) | 2017 | (1) | ||||||||||||||
| Revenue – Tommy Hilfiger North America | ||||||||||||||||||||||||||
| Net sales | $ | 1,540.2 | $ | 1,574.3 | $ | 1,482.2 | ||||||||||||||||||||
| Royalty revenue | 84.1 | 76.2 | 68.9 | |||||||||||||||||||||||
| Advertising and other revenue | 23.6 | 18.7 | 16.7 | |||||||||||||||||||||||
| Total | 1,647.9 | 1,669.2 | 1,567.8 | |||||||||||||||||||||||
| Revenue – Tommy Hilfiger International | ||||||||||||||||||||||||||
| Net sales | 2,994.2 | 2,599.7 | 2,268.0 | |||||||||||||||||||||||
| Royalty revenue | 49.8 | 52.7 | 47.8 | |||||||||||||||||||||||
| Advertising and other revenue | 19.8 | 22.9 | 9.6 | |||||||||||||||||||||||
| Total | 3,063.8 | 2,675.3 | 2,325.4 | |||||||||||||||||||||||
| Revenue – Calvin Klein North America | ||||||||||||||||||||||||||
| Net sales | $ | 1,511.3 | $ | 1,513.0 | $ | 1,457.0 | 1,467.0 | 1,599.9 | 1,511.3 | |||||||||||||||||
| Royalty revenue | 146.4 | 131.7 | 133.7 | 148.9 | 143.6 | 146.4 | ||||||||||||||||||||
| Advertising and other revenue | 50.1 | 45.2 | 44.0 | 53.8 | 49.8 | 50.1 | ||||||||||||||||||||
| Total | 1,707.8 | 1,689.9 | 1,634.7 | 1,669.7 | 1,793.3 | 1,707.8 | ||||||||||||||||||||
| Revenue – Calvin Klein International | ||||||||||||||||||||||||||
| Net sales | 1,645.0 | 1,346.2 | 1,183.4 | |||||||||||||||||||||||
| Royalty revenue | 80.0 | 72.9 | 78.2 | |||||||||||||||||||||||
| Advertising and other revenue | 28.8 | 26.2 | 26.3 | |||||||||||||||||||||||
| Total | 1,753.8 | 1,445.3 | 1,287.9 | |||||||||||||||||||||||
| Revenue – Tommy Hilfiger North America | ||||||||||||||||||||||||||
| Net sales | 1,482.2 | 1,502.4 | 1,567.6 | |||||||||||||||||||||||
| Royalty revenue | 68.9 | 48.9 | 42.4 | |||||||||||||||||||||||
| Advertising and other revenue | 16.7 | 12.0 | 12.7 | |||||||||||||||||||||||
| Total | 1,567.8 | 1,563.3 | 1,622.7 | |||||||||||||||||||||||
| Revenue – Tommy Hilfiger International | ||||||||||||||||||||||||||
| Net sales | 2,268.0 | 1,899.4 | 1,693.6 | 1,896.7 | 1,827.9 | 1,645.0 | ||||||||||||||||||||
| Royalty revenue | 47.8 | 44.5 | 49.3 | 74.1 | 78.9 | 80.0 | ||||||||||||||||||||
| Advertising and other revenue | 9.6 | 3.6 | 3.9 | 27.3 | 31.1 | 28.8 | ||||||||||||||||||||
| Total | 2,325.4 | 1,947.5 | 1,746.8 | 1,998.1 | 1,937.9 | 1,753.8 | ||||||||||||||||||||
| Revenue – Heritage Brands Wholesale | ||||||||||||||||||||||||||
| Net sales | 1,274.4 | 1,271.6 | 1,387.6 | 1,248.5 | 1,293.2 | 1,274.4 | ||||||||||||||||||||
| Royalty revenue | 19.5 | 20.3 | 19.0 | 19.2 | 20.5 | 19.5 | ||||||||||||||||||||
| Advertising and other revenue | 3.5 | 3.9 | 2.9 | 4.2 | 3.7 | 3.5 | ||||||||||||||||||||
| Total | 1,297.4 | 1,295.8 | 1,409.5 | 1,271.9 | 1,317.4 | 1,297.4 | ||||||||||||||||||||
| Revenue – Heritage Brands Retail | ||||||||||||||||||||||||||
| Net sales | 258.5 | 258.8 | 316.3 | 253.4 | 259.2 | 258.5 | ||||||||||||||||||||
| Royalty revenue | 3.7 | 2.3 | 2.2 | 3.8 | 4.0 | 3.7 | ||||||||||||||||||||
| Advertising and other revenue | 0.4 | 0.2 | 0.2 | 0.4 | 0.5 | 0.4 | ||||||||||||||||||||
| Total | 262.6 | 261.3 | 318.7 | 257.6 | 263.7 | 262.6 | ||||||||||||||||||||
| Total Revenue | ||||||||||||||||||||||||||
| Net sales | 8,439.4 | 7,791.4 | 7,605.5 | 9,400.0 | 9,154.2 | 8,439.4 | ||||||||||||||||||||
| Royalty revenue | 366.3 | 320.6 | 324.8 | 379.9 | 375.9 | 366.3 | ||||||||||||||||||||
| Advertising and other revenue | 109.1 | 91.1 | 90.0 | 129.1 | 126.7 | 109.1 | ||||||||||||||||||||
Total(2) | $ | 8,914.8 | $ | 8,203.1 | $ | 8,020.3 | $ | 9,909.0 | $ | 9,656.8 | $ | 8,914.8 | ||||||||||||||
(1) | Revenue was impacted by fluctuations of the United States dollar against foreign currencies in which the Company transacts significant levels of business. |
(2) | No single customer accounted for more than 10% of the Company’s revenue in |
The Company’s net sales are derived from sales of products through its wholesale and retailrevenue by distribution channels. channel was as follows:
| (In millions) | 2019 | 2018 | 2017 | ||||||||
| Wholesale net sales | $ | 5,066.9 | $ | 4,969.6 | $ | 4,504.3 | |||||
| Retail net sales | 4,333.1 | 4,184.6 | 3,935.1 | ||||||||
| Net sales | 9,400.0 | 9,154.2 | 8,439.4 | ||||||||
| Royalty revenue | 379.9 | 375.9 | 366.3 | ||||||||
| Advertising and other revenue | 129.1 | 126.7 | 109.1 | ||||||||
| Total | $ | 9,909.0 | $ | 9,656.8 | $ | 8,914.8 | |||||
The Company has not disclosed net sales by product category as it is impracticable to do so.
The Company’s income before interest and taxes by segment was as follows:
| (In millions) | 2019 | (1) | 2018 | (1) | 2017 | (1) | |||||||||||
| Income before interest and taxes – Tommy Hilfiger North America | $ | 93.5 | (3)(4) | $ | 233.8 | $ | 97.0 | (12)(13)(14) | |||||||||
| Income before interest and taxes – Tommy Hilfiger International | 468.2 | (5) | 377.1 | (10) | 221.5 | (10)(12)(13) | |||||||||||
| Income before interest and taxes – Calvin Klein North America | 99.8 | (3)(6) | 166.7 | (11) | 184.0 | ||||||||||||
| Income before interest and taxes – Calvin Klein International | 153.3 | (3)(5)(6) | 211.5 | (11) | 226.5 | ||||||||||||
| (Loss) Income before interest and taxes – Heritage Brands Wholesale | (84.9 | ) | (5)(7) | 83.3 | 96.7 | ||||||||||||
| Income before interest and taxes – Heritage Brands Retail | 3.0 | 7.4 | 7.6 | ||||||||||||||
Loss before interest and taxes – Corporate(2) | (174.2 | ) | (5)(8)(9) | (188.1 | ) | (200.9 | ) | (15)(16) | |||||||||
| Income before interest and taxes | $ | 558.7 | $ | 891.7 | $ | 632.4 | |||||||||||
| (In millions) | 2017 | (1) | 2016 | (1) | 2015 | (1) | |||||||||||
| Income before interest and taxes – Calvin Klein North America | $ | 184.0 | $ | 123.9 | (10)(11)(12) | $ | 226.4 | (17) | |||||||||
| Income before interest and taxes – Calvin Klein International | 226.5 | 209.6 | (11)(12) | 186.6 | (17) | ||||||||||||
| Income before interest and taxes – Tommy Hilfiger North America | 97.0 | (3)(4)(5) | 135.8 | (13) | 173.9 | ||||||||||||
| Income before interest and taxes – Tommy Hilfiger International | 221.5 | (3)(4)(6) | 328.3 | (14)(15) | 224.7 | ||||||||||||
| Income before interest and taxes – Heritage Brands Wholesale | 96.7 | 90.2 | (11) | 90.4 | (17)(18) | ||||||||||||
| Income (loss) before interest and taxes – Heritage Brands Retail | 7.6 | 8.8 | (3.4 | ) | (19) | ||||||||||||
Loss before interest and taxes – Corporate(2) | (200.9 | ) | (7)(8)(9) | (107.4 | ) | (11)(16) | (138.1 | ) | (17) | ||||||||
| Income before interest and taxes | $ | 632.4 | $ | 789.2 | $ | 760.5 | |||||||||||
(1) | Income (loss) before interest and taxes was impacted by fluctuations of the United States dollar against foreign currencies in which the Company transacts significant levels of business. |
(2) | Includes corporate expenses not allocated to any reportable segments, the Company’s proportionate share of the net income or loss of its investments in Gazal (prior to the Australia acquisition closing) and Karl Lagerfeld, |
(3) | Income before interest and taxes for 2019 included costs of $59.8 million in connection with agreements the Company entered into in 2019 to terminate early the licenses for the global Calvin Klein and Tommy Hilfiger North America socks and hosiery businesses (the “Socks and Hosiery transaction”) in order to consolidate the socks and hosiery businesses for all Company brands in North America in a newly formed joint venture, PVH Legwear, which began operations in December 2019, and to bring in-house the international Calvin Klein socks and hosiery wholesale businesses. Such costs were included in the Company’s segments as follows: $7.5 million in Tommy Hilfiger North America, $25.5 million in Calvin Klein North America and $26.8 million in Calvin Klein International. |
(4) | Income before interest and taxes for 2019 included costs of $54.9 million incurred in connection with the TH U.S. store closures, primarily consisting of noncash lease asset impairments. Please see Note 12, “Fair Value Measurements,” for further discussion. |
(5) | Income (loss) before interest and taxes for 2019 included costs of $19.3 million in connection with the Australia and TH CSAP acquisitions, primarily consisting of noncash valuation adjustments, and one-time costs of $2.1 million recorded on the Company’s equity investments in Gazal and PVH Australia prior to the Australia acquisition closing. Such costs were included in the Company’s segments as follows: $11.1 million in Tommy Hilfiger International, $6.0 million in Calvin Klein International, $1.8 million in Heritage Brands Wholesale and $2.5 million in corporate expenses not allocated to any reportable segments. Please see Note 3, “Acquisitions,” for further discussion. |
(6) | Income before interest and taxes for 2019 included costs of $102.9 million incurred in connection with the Calvin Klein restructuring. Such costs were included in the Company’s segments as follows: $66.0 million in Calvin Klein North America and $36.9 million in Calvin Klein International. Please see Note 18, “Exit Activity Costs,” for further discussion. |
(7) | Loss before interest and taxes for 2019 included a noncash loss of $142.0 million in connection with the Speedo transaction. Please see Note 4, “Assets Held For Sale,” for further discussion. |
(8) | Loss before interest and taxes for 2019 included a noncash gain of $113.1 million to write up the Company’s equity investments in Gazal and PVH Australia to fair value in connection with the Australia acquisition. Please see Note 3, “Acquisitions,” for further discussion. |
(9) | Loss before interest and taxes for 2019 included costs of $6.2 million related to the refinancing of the Company’s senior credit facilities. Please see Note 9, “Debt,” for further discussion. |
(10) | Income before interest and taxes for 2018 and 2017 included costs of $23.6 million and $26.9 million, respectively, associated with the TH China acquisition, primarily consisting of noncash amortization of short-lived assets. |
(11) | Income before interest and taxes for 2018 included costs of $40.7 million incurred in connection with the Calvin Klein restructuring. Such costs were included in the Company’s segments as follows: $18.9 million in Calvin Klein North America and $21.8 million in Calvin Klein International. Please see Note 18, “Exit Activity Costs,” for further discussion. |
(12) | Income before interest and taxes for 2017 included costs of $82.9 million incurred in connection with an amendment to Mr. Tommy Hilfiger’s employment agreement pursuant to which the Company made a cash buyout of a portion of the future |
| Income before interest and taxes for 2017 included costs of $54.2 million associated with the agreements to restructure the Company’s supply chain relationship with Li & Fung Trading Limited (“Li & Fung”), under which the Company terminated its non-exclusive buying agency agreement with Li & Fung in 2017 (the “Li & Fung termination”). Such costs were included in the Company’s segments as follows: $31.3 million in Tommy Hilfiger North America and $22.9 million in Tommy Hilfiger International. |
| Income before interest and taxes for 2017 included costs of $19.2 million associated with the relocation of the Tommy Hilfiger office in New York, including noncash depreciation expense. |
| Loss before interest and taxes for 2017 included costs of $23.9 million related to the early redemption of the Company’s $700 million 4 1/2% senior notes due 2022. Please see Note |
| Loss before interest and taxes for 2017 included costs of $9.4 million related to the noncash settlement of certain of the Company’s benefit obligations related to its Pension Plans as a result of an annuity purchased for certain participants, under which such obligations were transferred to an insurer. Please see Note |
Intersegment transactions primarily consist of transfers of inventory principally from the Heritage Brands Wholesale segment to the Heritage Brands Retail segment, the Calvin KleinTommy Hilfiger North America segment and the Tommy HilfigerCalvin Klein North America segment. These transfers are recorded at cost plus a standard markup percentage. Such markup percentage on ending inventory is eliminated principally in the Heritage Brands Retail segment, the Calvin KleinTommy Hilfiger North America segment and the Tommy HilfigerCalvin Klein North America Segment.
The Company’s identifiable assets, depreciation and amortization, and identifiable capital expenditures by segment were as follows:
| (In millions) | 2017 | 2016 | 2015 | 2019 | 2018 | 2017 | ||||||||||||||||||||
Identifiable Assets | ||||||||||||||||||||||||||
Calvin Klein North America(2) | $ | 1,836.9 | $ | 1,752.1 | $ | 1,935.7 | ||||||||||||||||||||
| Tommy Hilfiger North America | $ | 1,599.0 | $ | 1,330.5 | $ | 1,276.5 | ||||||||||||||||||||
| Tommy Hilfiger International | 4,888.6 | 3,949.3 | 4,047.3 | |||||||||||||||||||||||
| Calvin Klein North America | 1,932.3 | 1,817.9 | 1,836.9 | |||||||||||||||||||||||
| Calvin Klein International | 3,138.0 | 2,821.0 | 2,752.8 | 3,428.9 | 3,114.9 | 3,138.0 | ||||||||||||||||||||
| Tommy Hilfiger North America | 1,276.5 | 1,229.8 | 1,222.8 | |||||||||||||||||||||||
Tommy Hilfiger International(3) | 4,047.3 | 3,481.3 | 3,213.1 | |||||||||||||||||||||||
| Heritage Brands Wholesale | 1,123.5 | 1,203.5 | 1,297.0 | 1,075.3 | 1,178.1 | 1,123.5 | ||||||||||||||||||||
| Heritage Brands Retail | 81.6 | 75.5 | 76.1 | 128.4 | 86.6 | 81.6 | ||||||||||||||||||||
Corporate(4) | 381.9 | 504.7 | 176.3 | |||||||||||||||||||||||
| Corporate | 578.5 | 386.4 | 381.9 | |||||||||||||||||||||||
| Total | $ | 11,885.7 | $ | 11,067.9 | $ | 10,673.8 | $ | 13,631.0 | $ | 11,863.7 | $ | 11,885.7 | ||||||||||||||
| Depreciation and Amortization | ||||||||||||||||||||||||||
| Tommy Hilfiger North America | $ | 40.6 | $ | 37.9 | $ | 45.1 | ||||||||||||||||||||
Tommy Hilfiger International(4) | 119.7 | 133.9 | 124.5 | |||||||||||||||||||||||
| Calvin Klein North America | $ | 43.8 | $ | 47.6 | $ | 43.3 | 38.6 | 41.5 | 43.8 | |||||||||||||||||
| Calvin Klein International | 83.1 | 70.5 | 61.1 | 91.9 | 90.6 | 83.1 | ||||||||||||||||||||
| Tommy Hilfiger North America | 45.1 | 35.3 | 35.4 | |||||||||||||||||||||||
Tommy Hilfiger International(5) | 124.5 | 139.2 | 87.0 | |||||||||||||||||||||||
| Heritage Brands Wholesale | 14.3 | 15.6 | 15.3 | 15.1 | 14.9 | 14.3 | ||||||||||||||||||||
| Heritage Brands Retail | 5.3 | 5.4 | 5.2 | 6.2 | 5.6 | 5.3 | ||||||||||||||||||||
| Corporate | 8.8 | 8.2 | 10.1 | 11.7 | 10.4 | 8.8 | ||||||||||||||||||||
| Total | $ | 324.9 | $ | 321.8 | $ | 257.4 | $ | 323.8 | $ | 334.8 | $ | 324.9 | ||||||||||||||
Identifiable Capital Expenditures | ||||||||||||||||||||||||||
Tommy Hilfiger North America (6) | $ | 41.7 | $ | 56.1 | $ | 82.0 | ||||||||||||||||||||
| Tommy Hilfiger International | 139.6 | 143.9 | 126.7 | |||||||||||||||||||||||
| Calvin Klein North America | $ | 36.8 | $ | 39.3 | $ | 55.1 | 30.3 | 36.0 | 36.8 | |||||||||||||||||
| Calvin Klein International | 96.6 | 79.5 | 70.6 | 83.3 | 102.7 | 96.6 | ||||||||||||||||||||
Tommy Hilfiger North America(7) | 82.0 | 26.9 | 36.1 | |||||||||||||||||||||||
| Tommy Hilfiger International | 126.7 | 82.0 | 83.2 | |||||||||||||||||||||||
| Heritage Brands Wholesale | 8.0 | 14.1 | 14.6 | 18.6 | 15.8 | 8.0 | ||||||||||||||||||||
| Heritage Brands Retail | 4.2 | 7.0 | 4.4 | 6.5 | 8.5 | 4.2 | ||||||||||||||||||||
| Corporate | 10.1 | 8.9 | 7.3 | 21.0 | 18.3 | 10.1 | ||||||||||||||||||||
| Total | $ | 364.4 | $ | 257.7 | $ | 271.3 | $ | 341.0 | $ | 381.3 | $ | 364.4 | ||||||||||||||
(1) | Identifiable assets included the impact of changes in foreign currency exchange rates. |
(2) | Identifiable assets include the impact related to the adoption of accounting guidance for leases in |
(3) | Identifiable assets in |
(4) |
| Depreciation and amortization in 2018 and 2017 |
| Capital expenditures in 2019 included $39.5 million of accruals that will not be paid until 2020. Capital expenditures in 2018 included $43.7 million of accruals that were not paid until 2019. Capital expenditures in 2017 included $41.9 million of accruals that |
Property, plant and equipment, net based on the location where such assets are held, was as follows:
| (In millions) | 2017 (1) | 2016 (1) | 2015 (1) | 2019 (1) | 2018 (1) | 2017 (1) | ||||||||||||||||
| Domestic | $ | 449.2 | $ | 412.8 | $ | 419.1 | $ | 525.8 | $ | 500.5 | $ | 449.2 | ||||||||||
| Canada | 30.0 | 31.0 | 31.8 | 25.3 | 28.8 | 30.0 | ||||||||||||||||
| Europe | 325.5 | 230.5 | 221.6 | 375.6 | 362.7 | 325.5 | ||||||||||||||||
Asia(2) | 73.8 | 66.8 | 57.9 | |||||||||||||||||||
Asia-Pacific(2) | 87.6 | 73.4 | 73.8 | |||||||||||||||||||
| Other foreign | 21.3 | 18.8 | 14.2 | 12.5 | 19.1 | 21.3 | ||||||||||||||||
| Total | $ | 899.8 | $ | 759.9 | $ | 744.6 | $ | 1,026.8 | $ | 984.5 | $ | 899.8 | ||||||||||
(1) | Property, plant and equipment, net included the impact of changes in foreign currency exchange rates. |
(2) |
Revenue, based on location of origin, was as follows:
| (In millions) | 2019 (1) | 2018 (1) | 2017 (1) | ||||||||
| Domestic | $ | 4,275.0 | $ | 4,481.3 | $ | 4,290.1 | |||||
| Canada | 505.5 | 528.8 | 512.2 | ||||||||
| Europe | 3,657.3 | 3,362.1 | 2,907.2 | ||||||||
Asia-Pacific(2) | 1,353.4 | 1,163.7 | 1,059.3 | ||||||||
| Other foreign | 117.8 | 120.9 | 146.0 | ||||||||
| Total | $ | 9,909.0 | $ | 9,656.8 | $ | 8,914.8 | |||||
| (In millions) | 2017 (1) | 2016 (1) | 2015 (1) | ||||||||
| Domestic | $ | 4,290.1 | $ | 4,226.6 | $ | 4,406.2 | |||||
| Canada | 512.2 | 484.5 | 454.2 | ||||||||
| Europe | 2,907.2 | 2,372.7 | 2,130.8 | ||||||||
Asia(2) | 1,059.3 | 910.4 | 785.3 | ||||||||
Other foreign(3) | 146.0 | 208.9 | 243.8 | ||||||||
| Total | $ | 8,914.8 | $ | 8,203.1 | $ | 8,020.3 | |||||
(1) | Revenue was impacted by fluctuations of the United States dollar against foreign currencies in which the Company transacts significant levels of business. |
(2) |
The Company is deemed to have guaranteed lease payments for substantially all G. H. Bass & Co. (“Bass”) retail stores included in the 2013 sale of substantially all of the assets of the Company’s Bass business in the fourth quarter of 2013 pursuant to the terms of noncancelable leases expiring on various dates through 2022. TheseThe obligations deemed to be guaranteed include minimum rent payments and relate to leases that commenced prior to the sale of the Bass assets. In certain instances, the Company’s obligations remain in effect when an option is exercised to extend the term of the lease. The maximum amount deemed to have been guaranteed for all leases as of February 4, 20182, 2020 was $13.4$3.4 million and the Company has the right to seek recourse from the buyer of the Bass assets for the full amount. The liability for the guaranteed lease payments was immaterial as of February 4, 20182, 2020 and January 29, 2017 was $0.6 million and $1.1 million, respectively, which was included in accrued expenses and other liabilities in the Company’s Consolidated Balance Sheets.February 3, 2019.
$11.2 million whichbased on exchange rates in effect on that date. The guarantee is subject to exchange rate fluctuation. The guarantees are in effect for the entire termsterm of the respective obligations.debt. The liability for this guarantee obligation was immaterial as of February 2, 2020 and February 3, 2019.
The Company has guaranteed to a financial institution the repayment of store security deposits in Japan paid to landlords on behalf of the Company. The amount guaranteed as of February 2, 2020 was approximately $5.3 million based on exchange rates in effect on that date. The Company has the right to seek recourse from the landlords for the full amount. The guarantees
expire between 2022 and 2025. The liability for these guarantee obligations was immaterial as of February 4, 20182, 2020 and January 29, 2017.February 3, 2019.
The Company has certain other guarantees whereby it guaranteed the payment of amounts on behalf of certain other parties, none of which are material individually or in the aggregate.
Included in accrued expenses in the Company’s Consolidated Balance Sheets were certain incentive compensation accruals of $108.9$41.1 million and $96.1$99.4 million as of February 4, 20182, 2020 and January 29, 2017, respectively, and certain wholesale sales allowance accruals of $78.1 million and $113.7 million as of February 4, 2018 and January 29, 2017,3, 2019, respectively.
The Company’s asset retirement obligationsliabilities are included in accrued expenses and other liabilities in the Company’s Consolidated Balance Sheets and relate to the Company’s obligation to dismantle or remove leasehold improvements from leased office, retail store or warehouse locations at the end of a lease term in order to restore a facility to a condition specified in the lease agreement. The Company records the fair value of the liability for asset retirement obligations in the period in which it is legally or contractually incurred. Upon initial recognition of the asset retirement liability, an asset retirement cost is capitalized by increasing the carrying amount of the asset by the same amount as the liability. In periods subsequent to initial measurement, the asset retirement cost is recognized as expense through depreciation over the asset’s useful life. Changes in the liability for the asset retirement obligations are recognized for the passage of time and revisions to either the timing or the amount of estimated cash flows. Accretion expense is recognized in SG&A expenses for the impacts of increasing the discounted fair value to its estimated settlement value.
The following table presents the activity related to the Company’s asset retirement obligationsliabilities, included in accrued expenses and other liabilities in the Company’s Consolidated Balance Sheets, for each of the last two years:
| (In millions) | 2019 | 2018 | |||||
| Balance at beginning of year | $ | 32.3 | $ | 27.1 | |||
| Business acquisitions | 1.4 | — | |||||
| Liabilities incurred | 3.9 | 7.4 | |||||
| Liabilities settled (payments) | (2.2 | ) | (1.7 | ) | |||
| Accretion expense | 0.4 | 0.4 | |||||
| Revisions in estimated cash flows | 0.4 | (0.1 | ) | ||||
| Currency translation adjustment | (0.5 | ) | (0.8 | ) | |||
| Balance at end of year | $ | 35.7 | $ | 32.3 | |||
| (In millions) | 2017 | 2016 | |||||
| Balance at beginning of year | $ | 21.8 | $ | 17.9 | |||
| Business acquisitions | — | 0.4 | |||||
| Liabilities incurred | 4.1 | 3.9 | |||||
| Liabilities settled (payments) | (1.0 | ) | (0.6 | ) | |||
| Accretion expense | 0.5 | 0.4 | |||||
| Revisions in estimated cash flows | 0.3 | (0.2 | ) | ||||
| Currency translation adjustment | 1.4 | 0.0 | |||||
| Balance at end of year | $ | 27.1 | $ | 21.8 | |||
The Company is a party to certain litigation which, in management’s judgment, based in part on the opinions of legal counsel, will not have a material adverse effect on the Company’s financial position.
Wuxi Jinmao Foreign Trade Co., Ltd. (“Wuxi”), one of the Company’s finished goods inventory suppliers, has a wholly owned subsidiary with which the Company entered into a loan agreement in 2016. Under the agreement, Wuxi’s subsidiary borrowed a principal amount of $13.8 million for the development and operation of a fabric mill. Principal payments are due in semi-annual installments beginning March 31, 2018 through September 30, 2026. The outstanding principal balance of the loan bears interest at a rate of (i) 4.50% per annum until the sixth anniversary of the closing date of the loan and (ii) LIBOR plus 4.00% thereafter. The Company received principal payments of $0.4 million and $0.2 million during 2019 and 2018, respectively. The outstanding balance, including accrued interest, was $14.0$13.4 million and $13.9$13.8 million as of February 4, 20182, 2020 and January 29, 2017,February 3, 2019, respectively, and was included in other assets (current and non-current) in the Company’s Consolidated Balance Sheets.
F-61
24. SUBSEQUENT EVENTS (UNAUDITED)
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and recommended containment and mitigation measures. COVID-19 continues to spread globally. Virus-related concerns, reduced travel, temporary store closures and government-imposed restrictions have resulted in sharply reduced traffic and consumer spending trends and sales stoppages in the Company’s retail stores in virtually all key markets during the first quarter of 2020. The Company’s wholesale customers and licensees have been similarly impacted, which in turn negatively impacts the Company.
In addition, the Company’s supply chain and the supply chains of its licensees had been disrupted and may experience future disruptions as a result of either closed factories or factories operating with reduced workforces.
The disruption is expected to be temporary but there is significant uncertainty about the duration and extent of the impact of the COVID-19 outbreak. The related financial impact cannot be reasonably estimated at this time. However, the Company expects a significant negative impact to its business, financial condition, cash flows and results of operations in 2020, which may include non-cash asset impairments, excess inventory and difficulty collecting trade receivables, among other things.
As a result, the Company has increased the aggregate borrowings outstanding under its senior unsecured revolving credit facilities, other short-term revolving credit facilities and unsecured commercial paper note program to approximately $930.0 million to increase its cash position and help preserve its financial flexibility.
F-62
PVH CORP.
SELECTED QUARTERLY FINANCIAL DATA - UNAUDITED
(In millions, except per share data)
The following table sets forth selected quarterly financial data (unaudited) for the corresponding thirteen week periods (except the fourth quarter of 2017, which included fourteen weeks) of the fiscal years presented:
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | ||||||||||||||||||||||||||||
2017 (1),(2),(3),(4),(5) | 2016 (11),(12),(13),(14) | 2017 (1),(2),(3) | 2016 (11),(12),(15) | 2017 (1),(2),(3) | 2016 (11),(16),(17) | 2017 (1),(2),(6),(7),(8),(9),(10) | 2016 (11),(17),(18),(19) | ||||||||||||||||||||||||
| Total revenue | $ | 1,989.0 | $ | 1,917.8 | $ | 2,069.9 | $ | 1,933.3 | $ | 2,357.0 | $ | 2,244.3 | $ | 2,498.9 | $ | 2,107.7 | |||||||||||||||
| Gross profit | 1,080.8 | 1,006.9 | 1,147.3 | 1,033.8 | 1,297.3 | 1,191.6 | 1,369.0 | 1,138.0 | |||||||||||||||||||||||
| Net income | 70.1 | 231.6 | 119.4 | 90.5 | 238.7 | 126.1 | 107.9 | 100.5 | |||||||||||||||||||||||
| Net income attributable to PVH Corp. | 70.4 | 231.6 | 119.7 | 90.5 | 239.2 | 126.2 | 108.5 | 100.7 | |||||||||||||||||||||||
| Basic net income per common share attributable to PVH Corp. | 0.90 | 2.85 | 1.54 | 1.12 | 3.09 | 1.58 | 1.41 | 1.27 | |||||||||||||||||||||||
| Diluted net income per common share attributable to PVH Corp. | 0.89 | 2.83 | 1.52 | 1.11 | 3.05 | 1.56 | 1.39 | 1.26 | |||||||||||||||||||||||
| Price range of stock per common share | |||||||||||||||||||||||||||||||
| High | 104.72 | 100.00 | 120.49 | 103.36 | 133.24 | 115.40 | 157.96 | 114.88 | |||||||||||||||||||||||
| Low | 84.53 | 68.96 | 96.85 | 82.10 | 118.17 | 92.83 | 120.91 | 88.71 | |||||||||||||||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | ||||||||||||||||||||||||||||
2019 (1),(2),(3) | 2018 (10) | 2019 (1),(4),(5),(6) | 2018 (10) | 2019 (1),(4),(7) | 2018 (10) | 2019 (4),(7),(8),(9) | 2018 (10),(11),(12),(13),(14) | ||||||||||||||||||||||||
| Total revenue | $ | 2,356.3 | $ | 2,314.6 | $ | 2,364.2 | $ | 2,333.7 | $ | 2,587.7 | $ | 2,524.5 | $ | 2,600.8 | $ | 2,484.0 | |||||||||||||||
| Gross profit | 1,295.9 | 1,291.0 | 1,288.4 | 1,297.0 | 1,406.2 | 1,364.8 | 1,397.9 | 1,355.5 | |||||||||||||||||||||||
| Net income (loss) | 81.6 | 178.9 | 193.1 | 164.7 | 208.9 | 242.6 | (68.5 | ) | 158.4 | ||||||||||||||||||||||
| Net income (loss) attributable to PVH Corp. | 82.0 | 179.4 | 193.5 | 165.2 | 209.2 | 243.1 | (67.4 | ) | 158.7 | ||||||||||||||||||||||
| Basic net income (loss) per common share attributable to PVH Corp. | 1.09 | 2.33 | 2.59 | 2.15 | 2.83 | 3.18 | (0.93 | ) | 2.10 | ||||||||||||||||||||||
| Diluted net income (loss) per common share attributable to PVH Corp. | 1.08 | 2.29 | 2.58 | 2.12 | 2.82 | 3.15 | (0.93 | ) | (15) | 2.09 | |||||||||||||||||||||
(1) |
| The first, second and third quarters of |
| The first quarter of |
| The first quarter of |
| The second, third and fourth |
| The |
| The |
| The third and fourth |
| The fourth quarter of |
| The fourth quarter of 2019 included a pre-tax noncash loss of $142.0 million, as well as a tax benefit of $27.8 million related to the write-off of deferred tax liabilities in connection with the Speedo transaction. |
(10) | The first, second, third and fourth quarters of |
| The |
The remeasurement of certain net deferred tax liabilities in connection with the 2019 Dutch Tax Plan. |
| The |
| The fourth quarter of |
(15) | The diluted net loss per common share attributable to PVH Corp. in the fourth quarter of 2019 excluded potentially dilutive securities because there was a net loss attributable to PVH Corp. in the fourth quarter and as such, the inclusion of these securities would have been anti-dilutive. |
F-64
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for the preparation and integrity of the consolidated financial statements appearing in this Annual Report on Form 10-K. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States and, accordingly, include certain amounts based on management’s best judgments and estimates.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is 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. The Company’s 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 underlying transactions, including the acquisition and disposition of assets; (ii) provide reasonable assurance that the Company’s assets are safeguarded and transactions are executed in accordance with management’s authorization and are recorded as necessary to permit preparation of the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United States; 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 consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Audit & Risk Management Committee of the Company’s Board of Directors, composed solely of directors who are independent in accordance with New York Stock Exchange listing standards, the Securities Exchange Act of 1934, the Company’s Corporate Governance Guidelines and the Committee’s charter, meets periodically with the Company’s independent auditors, the Company’s internal auditors and management to discuss internal control over financial reporting, auditing and financial reporting matters. Both the independent auditors and the Company’s internal auditors periodically meet alone with the Audit Committee and have free access to the Committee.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of February 4, 20182, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 framework). Based on management’s assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of February 4, 20182, 2020.
The Company’s independent auditors, Ernst & Young LLP, a registered public accounting firm, are appointed by the Audit & Risk Management Committee, subject to ratification by the Company’s stockholders. Ernst & Young LLP have audited and reported on the consolidated financial statements of the Company and the effectiveness of the Company’s internal control over financial reporting. The reports of the independent auditors are contained in this Annual Report on Form 10-K.
/s/ EMANUEL CHIRICO | /s/ MICHAEL SHAFFER |
| Emanuel Chirico | Michael Shaffer |
| Chairman and Chief Executive Officer | Executive Vice President and Chief |
| Operating & Financial Officer | |
F-65
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of PVH Corp.
Opinion on Internal Control overOver Financial Reporting
We have audited PVH Corp.’s internal control over financial reporting as of February 4, 2018,2, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, PVH Corp. (the Company) maintained, in all material respects, effective internal control over financial reporting as of February 4, 2018,2, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of February 4, 20182, 2020 and January 29, 2017,February 3, 2019, the related consolidated income statements, statements of comprehensive income, statements of changes in stockholders’ equity and redeemable non-controlling interest and statements of cash flows for each of the three years in the period ended February 4, 2018,2, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated March 30, 2018April 1, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control overOver Financial Reporting
A company’s 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 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, New York
F-66
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of PVH Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PVH Corp. (the Company) as of February 4, 20182, 2020 and January 29, 2017,February 3, 2019, the related consolidated income statements, statements of comprehensive income, statements of changes in stockholders' equity and redeemable non-controlling interest and statements of cash flows for each of the three years in the period ended February 4, 2018,2, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at February 4, 20182, 2020 and January 29, 2017,February 3, 2019, and the results of its operations and its cash flows for each of the three years in the period ended February 4, 2018,2, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of February 4, 2018,2, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 30, 2018April 1, 2020 expressed an unqualified opinion thereon.
Adoption of ASU 2016-02
As discussed in Note 1 to the consolidated financial statements, the Company changed its method for accounting for leases in the fiscal year ended February 2, 2020 due to the adoption of ASU 2016-02, Leases and associated amendments (Topic 842), using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit and risk management committee of the Company’s board of directors and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Wholesale Sales Allowances | ||
| Description of the Matter | As discussed in Note 1 to the consolidated financial statements, the Company generates revenue from the wholesale distribution of its products to traditional retailers (including for sale through their digital commerce sites). The amount of revenue recognized is net of sales allowances that the Company offers to its wholesale customers which are estimated based on seasonal negotiations, historical experience and an evaluation of current market conditions. | |
| Auditing management’s estimate of wholesale sales allowances was complex and judgmental as it is sensitive to changes in future market or economic conditions and has a direct, material impact on the amount of revenue recognized by the Company. There is also significant estimation to establish sales allowances, based on the Company’s review of the individual customer seasonal negotiations and the expected performance of the products in the customers’ stores. | ||
| How we addressed the matter in our audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s process to calculate the wholesale sales allowances, including the consideration of historical experience and current as well as future market conditions. | |
| To test the estimate of wholesale sales allowances, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions used by the Company to calculate the projected sales allowance dollars, including seasonal customer negotiations and expected performance of the products. We compared the significant assumptions used by management to current market and economic trends and other relevant factors. We assessed the historical accuracy of management’s estimate and performed sensitivity analyses of significant assumptions to evaluate the changes in the estimate that would result from changes in the assumptions. | ||
| Valuation of Goodwill and Indefinite-Lived Intangibles | ||
| Description of the Matter | At February 2, 2020, the Company’s goodwill and indefinite-lived intangible assets totaled $3.7 billion and $3.1 billion, respectively. As discussed in Note 1 of the consolidated financial statements, goodwill and indefinite-lived intangible assets are qualitatively tested and quantitatively tested, when necessary, for impairment at least annually. | |
| Auditing management’s annual goodwill and indefinite-lived intangible assets impairment test was complex and judgmental due to the significant estimation required to determine the fair value of the reporting units and the fair value of the indefinite-lived intangible assets. In particular, the fair value estimates were sensitive to significant assumptions such as the weighted average cost of capital, revenue growth rate, forecast earnings before interest and taxes and terminal growth rate, which are affected by expectations about future market or economic conditions. | ||
| How we addressed the matter in our audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill and indefinite-lived intangible assets impairment review process, including controls over management’s review of the significant assumptions described above. | |
| To test the estimated fair value of the Company’s reporting units and indefinite-lived intangible assets, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to current industry and economic trends, changes to the Company’s business, customer base or product mix and other relevant factors. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units and indefinite-lived intangible assets that would result from changes in the assumptions. In addition, we reviewed the reconciliation of the fair value of the reporting units to the market capitalization of the Company. | ||
| Accounting for Acquisition of Gazal | ||
| Description of the Matter | On May 31, 2019, the Company acquired for AUD180.5 million (approximately $124.7 million) the approximately 78% interest in Gazal Corporation Limited (Gazal) that it did not already own. As discussed in Note 3 to the consolidated financial statements, PVH Australia came under the Company’s full control as a result of the acquisition, and the transaction was accounted for using the acquisition method of accounting for business combinations. | |
| Auditing the Company’s accounting for its acquisition of Gazal was complex due to the significant estimation uncertainty required by management to determine the fair value of the Company’s previously held equity interests, the mandatorily redeemable non-controlling interest and identified intangible assets, which consisted principally of reacquired license rights of $204.9 million, which are indefinite lived, order backlog of $0.3 million and customer relationships of $17.0 million. The significant estimation was primarily due to the sensitivity of the respective fair values to underlying assumptions including the weighted average cost of capital, revenue growth rate, revenue and operating expense volatility, forecast earnings before interest and taxes and terminal growth rate. These assumptions relate to the future performance of the acquired businesses, are forward-looking and could be affected by future economic and market conditions. | ||
| How we addressed the matter in our audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to determine the fair value of the previously held equity interests, the mandatorily redeemable non-controlling interest and the identified intangible assets. For example, we tested controls over management’s review of the valuations, including the review of the valuation models and significant assumptions used in the valuations. | |
| To test the fair value of the previously held equity interests, the mandatorily redeemable non-controlling interest and the identified intangible assets, our audit procedures included, among others, evaluating the Company's use of valuation methodologies, evaluating the prospective financial information and testing the completeness and accuracy of underlying data. For example, we compared the significant assumptions to current industry, market and economic trends, historical results of the acquired businesses and to other relevant factors. We also performed sensitivity analyses of the significant assumptions to evaluate the change in the fair values resulting from changes in the assumptions. | ||
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1938.
New York, New York
F-69
PVH CORP.
FIVE YEAR FINANCIAL SUMMARY
(In millions, except per share data, percents and ratios)
2017 (1) | 2016 (2) | 2015 (3) | 2014 (4) | 2013 (5) | 2019 (1) | 2018 (2),(7) | 2017 (3),(6),(7) | 2016 (4),(6),(7) | 2015 (5),(6),(7) | |||||||||||||||||||||||||||||
| Summary of Operations | ||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 8,914.8 | $ | 8,203.1 | $ | 8,020.3 | $ | 8,241.2 | $ | 8,186.4 | $ | 9,909.0 | $ | 9,656.8 | $ | 8,914.8 | $ | 8,203.1 | $ | 8,020.3 | ||||||||||||||||||
| Cost of goods sold, expenses and other income items | 8,282.4 | 7,413.9 | 7,259.8 | 7,711.3 | 7,673.0 | 9,350.3 | 8,765.1 | 8,282.4 | 7,413.9 | 7,259.8 | ||||||||||||||||||||||||||||
| Income before interest and taxes | 632.4 | 789.2 | 760.5 | 529.9 | 513.4 | 558.7 | 891.7 | 632.4 | 789.2 | 760.5 | ||||||||||||||||||||||||||||
| Interest expense, net | 122.2 | 115.0 | 113.0 | 138.5 | 184.7 | 114.7 | 116.1 | 122.2 | 115.0 | 113.0 | ||||||||||||||||||||||||||||
| Income tax (benefit) expense | (25.9 | ) | 125.5 | 75.1 | (47.5 | ) | 185.3 | |||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 28.9 | 31.0 | (25.9 | ) | 125.5 | 75.1 | ||||||||||||||||||||||||||||||||
| Net loss attributable to redeemable non-controlling interest | (1.7 | ) | (0.3 | ) | — | (0.1 | ) | (0.1 | ) | (2.2 | ) | (1.8 | ) | (1.7 | ) | (0.3 | ) | — | ||||||||||||||||||||
| Net income attributable to PVH Corp. | $ | 537.8 | $ | 549.0 | $ | 572.4 | $ | 439.0 | $ | 143.5 | $ | 417.3 | $ | 746.4 | $ | 537.8 | $ | 549.0 | $ | 572.4 | ||||||||||||||||||
| Per Share Statistics | ||||||||||||||||||||||||||||||||||||||
| Basic net income per common share attributable to PVH Corp. | $ | 6.93 | $ | 6.84 | $ | 6.95 | $ | 5.33 | $ | 1.77 | $ | 5.63 | $ | 9.75 | $ | 6.93 | $ | 6.84 | $ | 6.95 | ||||||||||||||||||
| Diluted net income per common share attributable to PVH Corp. | 6.84 | 6.79 | 6.89 | 5.27 | 1.74 | 5.60 | 9.65 | 6.84 | 6.79 | 6.89 | ||||||||||||||||||||||||||||
| Dividends paid per common share | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | 0.15 | ||||||||||||||||||||||||||||
| Stockholders’ equity per common share | 71.73 | 61.16 | 55.86 | 52.89 | 52.76 | 80.39 | 77.29 | 71.73 | 61.16 | 55.86 | ||||||||||||||||||||||||||||
| Financial Position | ||||||||||||||||||||||||||||||||||||||
| Current assets | $ | 3,030.8 | $ | 2,879.6 | $ | 2,804.5 | $ | 2,777.7 | $ | 2,831.3 | $ | 3,394.2 | $ | 3,238.6 | $ | 3,030.8 | $ | 2,879.6 | $ | 2,804.5 | ||||||||||||||||||
| Current liabilities (including short-term borrowings and current portion of long-term debt) | 1,871.6 | 1,564.8 | 1,527.2 | 1,428.1 | 1,551.2 | 2,361.1 | 1,893.9 | 1,871.6 | 1,564.8 | 1,527.2 | ||||||||||||||||||||||||||||
| Working capital | 1,159.2 | 1,314.8 | 1,277.3 | 1,349.6 | 1,280.1 | 1,033.1 | 1,344.7 | 1,159.2 | 1,314.8 | 1,277.3 | ||||||||||||||||||||||||||||
| Total assets | 11,885.7 | 11,067.9 | 10,673.8 | 10,796.6 | 11,376.1 | 13,631.0 | 11,863.7 | 11,885.7 | 11,067.9 | 10,673.8 | ||||||||||||||||||||||||||||
| Capital leases | 16.0 | 16.4 | 14.6 | 18.1 | 25.3 | |||||||||||||||||||||||||||||||||
| Finance leases | 14.5 | 16.5 | 16.0 | 16.4 | 14.6 | |||||||||||||||||||||||||||||||||
| Long-term debt | 3,061.3 | 3,197.3 | 3,031.7 | 3,410.4 | 3,828.1 | 2,693.9 | 2,819.4 | 3,061.3 | 3,197.3 | 3,031.7 | ||||||||||||||||||||||||||||
| Stockholders’ equity | 5,536.4 | 4,804.5 | 4,552.3 | 4,364.3 | 4,335.2 | 5,811.5 | 5,827.8 | 5,536.4 | 4,804.5 | 4,552.3 | ||||||||||||||||||||||||||||
| Other Statistics | ||||||||||||||||||||||||||||||||||||||
Total debt to total capital | 35.9 | % | 40.2 | % | 41.3 | % | 44.8 | % | 47.6 | % | 32.3 | % | 32.8 | % | 35.9 | % | 40.2 | % | 41.3 | % | ||||||||||||||||||
Net debt to net capital | 32.0 | % | 34.2 | % | 36.8 | % | 41.2 | % | 43.6 | % | 28.1 | % | 29.1 | % | 32.0 | % | 34.2 | % | 36.8 | % | ||||||||||||||||||
| Current ratio | 1.6 | 1.8 | 1.8 | 1.9 | 1.8 | 1.4 | 1.7 | 1.6 | 1.8 | 1.8 | ||||||||||||||||||||||||||||
(1) | 2019 includes (a) pre-tax costs of $102.9 million associated with the Calvin Klein restructuring; (b) a pre-tax noncash loss of $142.0 million in connection with the Speedo transaction; (c) a pre-tax noncash gain of $113.1 million to write up the Company’s equity investments in Gazal and PVH Australia to fair value in connection with the Australia acquisition, partially offset by pre-tax acquisition related costs of $19.3 million associated with the Australia and TH CSAP acquisitions, consisting of noncash valuation adjustments, and a one-time cost of $2.1 million recorded on the Company’s equity investments in Gazal and PVH Australia prior to the Australia acquisition closing; (d) pre-tax costs of $59.8 million associated with the Socks and Hosiery transaction; (e) pre-tax costs of $54.9 million associated with the TH U.S. store closures, primarily consisting of noncash lease asset impairments; (f) pre-tax costs of $6.2 million associated with the refinancing of the Company’s senior credit facilities; (g) a pre-tax actuarial loss of $97.8 million on the Company’s Pension Plans, SERP Plans and Postretirement Plans; (h) pre-tax interest expense of $8.6 million resulting from the remeasurements of the mandatorily redeemable non-controlling interest that was recognized in connection with the Australia acquisition; and (i) a discrete tax benefit of $27.8 million related to the write-off of deferred tax liabilities in connection with the Speedo transaction. |
(2) | 2018 includes (a) pre-tax costs of $40.7 million associated with the Calvin Klein restructuring; (b) pre-tax costs of $23.6 million associated with the TH China acquisition, consisting of noncash amortization of short-lived assets; (c) a pre-tax actuarial loss of $15.0 million on the Company’s Pension Plans, SERP Plans and Postretirement Plans; (d) a discrete net tax benefit of $24.7 million related to the U.S. Tax Legislation; and (e) a discrete tax benefit of $41.1 million related to the remeasurement of certain net deferred tax liabilities in connection with the 2019 Dutch Tax Plan. |
(3) | 2017 includes (a) pre-tax costs of $82.9 million associated with the Mr. Hilfiger amendment; (b) pre-tax costs of $54.2 million associated with the Li & Fung termination; (c) pre-tax costs of $23.9 million associated with the early redemption of the Company’s $700 million 4 1/2% senior notes due 2022; (d) pre-tax costs of $26.9 million associated with the TH China acquisition, primarily consisting of noncash amortization of short-lived assets; (e) pre-tax costs of $19.2 million associated with relocation of the Tommy Hilfiger office in New York, including noncash depreciation expense; (f) pre-tax costs of $9.4 million associated with the noncash |
settlement of certain of the Company’s benefit obligations related to its Pension Plans as a result of an annuity purchased for certain participants, under which such obligations were transferred to an insurer; (g) a pre-tax actuarial loss of $2.5 million on the Company’s Pension Plans, SERP Plans and Postretirement Plans; (h) a discrete net tax benefit of $52.8 million related to the U.S. Tax Legislation; and (i) a discrete tax benefit of $15.2 million related to an excess tax benefit from the exercise of stock options by the Company’s Chairman and Chief Executive Officer.
2016 includes (a) |
| 2015 includes (a) pre-tax costs of $73.4 million associated with the integration of Warnaco and the related restructuring; (b) pre-tax costs of $10.3 million related to the operation of and exit from the Izod retail business; (c) pre-tax costs of $16.5 million principally related to the discontinuation of several licensed product lines in the Heritage Brands dress furnishings business; and (d) a pre-tax actuarial gain of $20.2 million on the Company’s Pension Plans, SERP Plans and Postretirement Plans. |
(7) | The Company adopted the update to accounting guidance related to |
| Total capital equals total debt (including |
| Net debt equals total debt (including |
F-71
SCHEDULE II
PVH CORP.
VALUATION AND QUALIFYING ACCOUNTS
(In millions)
| Column A | Column B | Column C | Column D | Column E | ||||||||||||||||
| Additions Charged to Costs and Expenses | Additions Charged to Other Accounts | |||||||||||||||||||
Balance at Beginning of Period | Balance at End of Period | |||||||||||||||||||
| Description | Deductions | (1) | ||||||||||||||||||
| Year Ended February 2, 2020 | ||||||||||||||||||||
| Allowance for doubtful accounts | $ | 21.6 | $ | 5.7 | $ | — | $ | 6.2 | (2) | $ | 21.1 | |||||||||
| Allowance/accrual for operational chargebacks and customer markdowns | 226.8 | 529.3 | — | 535.9 | 220.2 | |||||||||||||||
| Valuation allowance for deferred income tax assets | 62.6 | 17.1 | — | 9.9 | 69.8 | |||||||||||||||
| Year Ended February 3, 2019 | ||||||||||||||||||||
| Allowance for doubtful accounts | $ | 21.1 | $ | 14.2 | $ | — | $ | 13.7 | (2) | $ | 21.6 | |||||||||
| Allowance/accrual for operational chargebacks and customer markdowns | 271.0 | 403.8 | — | 448.0 | 226.8 | |||||||||||||||
| Valuation allowance for deferred income tax assets | 106.3 | 12.9 | — | 56.6 | (3) | 62.6 | ||||||||||||||
| Year Ended February 4, 2018 | ||||||||||||||||||||
| Allowance for doubtful accounts | $ | 15.0 | $ | 7.5 | $ | — | $ | 1.4 | (2) | $ | 21.1 | |||||||||
| Allowance/accrual for operational chargebacks and customer markdowns | 289.5 | 498.2 | — | 516.7 | 271.0 | |||||||||||||||
| Valuation allowance for deferred income tax assets | 43.9 | 64.3 | (4) | 1.9 | 3.8 | 106.3 | ||||||||||||||
| Column A | Column B | Column C | Column D | Column E | ||||||||||||||||
| Additions Charged to Costs and Expenses | Additions Charged to Other Accounts | |||||||||||||||||||
Balance at Beginning of Period | Balance at End of Period | |||||||||||||||||||
| Description | Deductions | (b) | ||||||||||||||||||
| Year Ended February 4, 2018 | ||||||||||||||||||||
| Allowance for doubtful accounts | $ | 15.0 | $ | 7.5 | $ | — | $ | 1.4 | (c) | $ | 21.1 | |||||||||
| Allowance/accrual for operational chargebacks and customer markdowns (a) | 289.5 | 498.2 | — | 516.7 | 271.0 | |||||||||||||||
| Total | $ | 304.5 | $ | 505.7 | $ | — | $ | 518.1 | $ | 292.1 | ||||||||||
| Year Ended January 29, 2017 | ||||||||||||||||||||
| Allowance for doubtful accounts | $ | 18.1 | $ | 6.1 | $ | — | $ | 9.2 | (c) | $ | 15.0 | |||||||||
| Allowance/accrual for operational chargebacks and customer markdowns (a) | 291.9 | 551.0 | — | 553.4 | (d) | 289.5 | ||||||||||||||
| Total | $ | 310.0 | $ | 557.1 | $ | — | $ | 562.6 | $ | 304.5 | ||||||||||
| Year Ended January 31, 2016 | ||||||||||||||||||||
| Allowance for doubtful accounts | $ | 19.0 | $ | 5.1 | $ | — | $ | 6.0 | (c) | $ | 18.1 | |||||||||
| Allowance/accrual for operational chargebacks and customer markdowns (a) | 273.3 | 554.4 | — | 535.8 | 291.9 | |||||||||||||||
| Total | $ | 292.3 | $ | 559.5 | $ | — | $ | 541.8 | $ | 310.0 | ||||||||||
(1) | Includes changes due to foreign currency translation. |
(2) | Principally accounts written off as uncollectible, net of recoveries. |
(3) | Includes the release of a $26.3 million valuation allowance on the Company’s foreign tax credits to adjust the provisional amount recorded in 2017 as a result of the U.S. Tax Legislation. |
(4) | Includes |