Company Quick10K Filing
Quick10K
PVH
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$129.95 75 $9,770
10-K 2019-02-03 Annual: 2019-02-03
10-Q 2018-11-04 Quarter: 2018-11-04
10-Q 2018-08-05 Quarter: 2018-08-05
10-Q 2018-05-06 Quarter: 2018-05-06
10-K 2018-02-04 Annual: 2018-02-04
10-Q 2017-10-29 Quarter: 2017-10-29
10-Q 2017-07-30 Quarter: 2017-07-30
10-Q 2017-04-30 Quarter: 2017-04-30
10-K 2017-01-29 Annual: 2017-01-29
10-Q 2016-10-30 Quarter: 2016-10-30
10-Q 2016-07-31 Quarter: 2016-07-31
10-Q 2016-05-01 Quarter: 2016-05-01
10-K 2016-01-31 Annual: 2016-01-31
10-Q 2015-11-01 Quarter: 2015-11-01
10-Q 2015-08-02 Quarter: 2015-08-02
10-Q 2015-05-03 Quarter: 2015-05-03
10-K 2015-02-01 Annual: 2015-02-01
10-Q 2014-11-02 Quarter: 2014-11-02
10-Q 2014-08-03 Quarter: 2014-08-03
10-Q 2014-05-04 Quarter: 2014-05-04
10-K 2014-02-02 Annual: 2014-02-02
8-K 2019-02-20 Regulation FD, Exhibits
8-K 2019-01-10 Exit Costs, Regulation FD, Exhibits
8-K 2018-11-29 Earnings, Exhibits
8-K 2018-10-18 Suspend Trading, Exhibits
8-K 2018-08-29 Earnings, Exhibits
8-K 2018-06-21 Shareholder Vote
8-K 2018-05-30 Earnings, Exhibits
8-K 2018-03-28 Earnings, Exhibits
8-K 2018-01-05 Leave Agreement, Exhibits
EQM EQM Midstream Partners 9,470
ACH Aluminum Corp of China 7,220
VSAT Viasat 5,270
JBT John Bean Technologies 3,210
PENN Penn National Gaming 2,470
ITCI Intra-Cellular Therapies 698
LFAC LF Capital Acquisition 196
DXYN Dixie Group 14
NFEC NF Energy Saving 0
BHNY Brighthouse Life Insurance Co of Ny 0
PVH 2019-02-03
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
EX-21 pvh10k2018ex21.htm
EX-23 pvh10k2018ex23.htm
EX-31.1 pvh10k2018ex311.htm
EX-31.2 pvh10k2018ex312.htm
EX-32.1 pvh10k2018ex321.htm
EX-32.2 pvh10k2018ex322.htm

PVH Earnings 2019-02-03

PVH 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 pvh10k2018.htm 10-K Document



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K
(Mark One)
 
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended February 3, 2019
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to ___________
 
 
 
Commission File Number        001-07572       
    
PVH CORP.
(Exact name of registrant as specified in its charter)
Delaware
 
13-1166910
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 200 Madison Avenue, New York, New York
 
 10016
(Address of principal executive offices)
 
(Zip Code)
        
212-381-3500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
    
Title of Each Class
 
Name of Each Exchange
on Which Registered
Common Stock, $1.00 par value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
______________________________
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x  No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o  No x
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x 
Accelerated filer  o
Non-accelerated filer  o (Do not check if a smaller reporting company)
Smaller reporting company  o
 
Emerging growth company  o 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No x
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant (assuming, for purposes of this calculation only, that the registrant’s directors and corporate officers are affiliates of the registrant) based upon the closing sale price of the registrant’s common stock on August 5, 2018 (the last business day of the registrant’s most recently completed second quarter) was $11,484,972,142.
Number of shares of Common Stock outstanding as of March 18, 2019: 75,146,409






DOCUMENTS INCORPORATED BY REFERENCE
Document
 
Location in Form 10-K
in which incorporated
Registrant’s Proxy Statement
for the Annual Meeting of
Stockholders to be held on June 20, 2019
 
Part III
 








SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Forward-looking statements in this Annual Report on Form 10-K including, without limitation, statements relating to our future revenue, earnings and cash flows, plans, strategies, objectives, expectations and intentions are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not be anticipated, including, without limitation, (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) we may be considered to be highly leveraged and we use a significant portion of our cash flows to service our indebtedness, as a result of which we might not have sufficient funds to operate our businesses in the manner we intend or have operated in the past; (iii) the levels of sales of our apparel, footwear and related products, both to our wholesale customers and in our retail stores, the levels of sales of our licensees at wholesale and retail, and the extent of discounts and promotional pricing in which we and our licensees and other business partners are required to engage, all of which can be affected by weather conditions, changes in the economy, fuel prices, reductions in travel, fashion trends, consolidations, repositionings and bankruptcies in the retail industries, repositionings of brands by our licensors, and other factors; (iv) our ability to manage our growth and inventory, including our ability to realize benefits from acquisitions, such as the acquisitions identified in this Annual Report on Form 10-K; (v) quota restrictions, the imposition of safeguard controls and the imposition of duties or tariffs on goods from the countries where we or our licensees produce goods under our trademarks, any of which, among other things, could limit the ability to produce products in cost-effective countries, or in countries that have the labor and technical expertise needed; (vi) the availability and cost of raw materials; (vii) our ability to adjust timely to changes in trade regulations and the migration and development of manufacturers (which can affect where our products can best be produced); (viii) changes in available factory and shipping capacity, wage and shipping cost escalation, civil conflict, war or terrorist acts, the threat of any of the foregoing, or political or labor instability in any of the countries where our or our licensees’ or other business partners’ products are sold, produced or are planned to be sold or produced; (ix) disease epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas, as well as reduced consumer traffic and purchasing, as consumers become ill or limit or cease shopping in order to avoid exposure; (x) acquisitions and divestitures and issues arising with acquisitions, divestitures and proposed transactions, including, without limitation, the ability to integrate an acquired entity or business into us with no substantial adverse effect on the acquired entity’s, the acquired business’s or our existing operations, employee relationships, vendor relationships, customer relationships or financial performance, and the ability to operate effectively and profitably our continuing businesses after the sale or other disposal of a subsidiary, business or the assets thereof; (xi) the failure of our licensees to market successfully licensed products or to preserve the value of our brands, or their misuse of our brands; (xii) significant fluctuations of the United States dollar against foreign currencies in which we transact significant levels of business; (xiii) our retirement plan expenses recorded throughout the year are calculated using actuarial valuations that incorporate assumptions and estimates about financial market, economic and demographic conditions, and differences between estimated and actual results give rise to gains and losses, which can be significant, that are recorded immediately in earnings, generally in the fourth quarter of the year; (xiv) the impact of new and revised tax legislation and regulations, particularly the United States Tax Cuts and Jobs Act of 2017 that might disproportionately affect us as compared to some of our peers due to our specific tax structure and greater percentage of revenues and income generated outside of the United States, and the legislation enacted in the Netherlands known as the “2019 Dutch Tax Plan”; and (xv) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.
 
We do not undertake any obligation to update publicly any forward-looking statement, including, without limitation, any estimate regarding revenue, earnings or cash flows, whether as a result of the receipt of new information, future events or otherwise.





PVH Corp.
Form 10-K
For the Year Ended February 3, 2019
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 2018 year commenced on February 5, 2018 and ended on February 3, 2019; our 2017 year commenced on January 30, 2017 and ended on February 4, 2018; and our 2016 year commenced on February 1, 2016 and ended on January 29, 2017.

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 and 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 2013 acquisition of The Warnaco Group, Inc. and 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 certain affiliated companies, which companies we refer to collectively as “Tommy Hilfiger.”

References to the acquisition of Calvin Klein refer to our February 2003 acquisition of Calvin Klein, Inc. and 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.

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 branded apparel companies in the world, with a history going back over 135 years. We have over 38,000 associates operating in over 40 countries and generated $9.7 billion in revenues in 2018. Our brand portfolio consists of nationally and internationally recognized trademarks, including the global designer lifestyle brands TOMMY HILFIGER and CALVIN KLEIN, as well as Van Heusen, IZOD, ARROW, Warner’s, Olga, True&Co and Geoffrey Beene. We

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also license brands from third parties, including Speedo (licensed in perpetuity for North America and the Caribbean), Kenneth Cole New York, Kenneth Cole Reaction, Unlisted, a Kenneth Cole Production, MICHAEL Michael Kors, Michael Kors Collection, DKNY and Chaps. Our brand portfolio also consists of various other owned, licensed and private label brands.
 
We design and market branded dress shirts, neckwear, sportswear, 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. 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 trademarks to third parties and joint ventures for product categories and in regions where we believe our licensees’ expertise can better serve our brands. During 2018, our directly operated businesses in North America consisted principally of wholesale sales under our TOMMY HILFIGER, CALVIN KLEIN, Van Heusen, IZOD, ARROW, Speedo, Warner’s, Olga and Geoffrey Beene trademarks; the operation of digital commerce sites under the TOMMY HILFIGER, CALVIN KLEIN, Speedo, True&Co., Van Heusen and IZOD trademarks and the styleBureau.com digital commerce site; and the operation of retail stores, principally in premium outlet centers, primarily under our TOMMY HILFIGER, CALVIN KLEIN and certain of our heritage brands trademarks. Our directly operated businesses outside of North America consisted principally of our wholesale and retail sales in Europe and Asia under our TOMMY HILFIGER trademarks; our wholesale and retail sales in Europe, Asia and Latin America under our CALVIN KLEIN trademarks; and the operation of digital commerce sites under the TOMMY HILFIGER and CALVIN KLEIN trademarks. Our licensing activities principally related to the licensing worldwide of our TOMMY HILFIGER and CALVIN KLEIN trademarks for a broad array of product categories and for use in numerous discrete jurisdictions.

Our history of growth has been achieved through organic growth, as well as a number of acquisitions and strategic partnerships that have made us a more diversified global organization, with an extensive brand portfolio, retail footprint and distribution network, as well as a large consumer base. These acquisitions included Calvin Klein in 2003, Tommy Hilfiger in 2010, and Warnaco in 2013. We have also acquired or announced plans to acquire several regional licensed businesses where we believe that we have a core expertise and will continue to explore strategic acquisitions of licensed businesses, trademarks and companies that we believe are additive to our overall business.

We entered into on March 25, 2019 a definitive agreement to acquire the Tommy Hilfiger retail business in Hong Kong and certain other countries in Central and Southeast Asia from our current licensee in those markets (the “TH CSAP acquisition”). The closing is subject to customary conditions and regulatory approval and is expected to occur in the second quarter of 2019.

We entered into on February 20, 2019 a definitive agreement to acquire the approximately 78% interest in Gazal Corporation Limited (“Gazal”) that we do not already own (the “Australia acquisition”). We, along with Gazal, jointly own and manage a joint venture, PVH Brands Australia Pty. Limited (“PVH Australia”), which licenses and operates businesses under the TOMMY HILFIGER, CALVIN KLEIN and Van Heusen brands, along with other licensed and owned brands. PVH Australia will come under our full ownership as a result of the Australia acquisition. The closing is subject to customary conditions, including shareholder, court and regulatory approvals, and is expected to occur in the second quarter of 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 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 acquired True & Co., a direct-to-consumer intimate apparel digital commerce retailer on March 30, 2017. This acquisition enabled us to participate further in the fast-growing online channel and provided a platform to increase innovation, data-driven decisions and speed in the way we serve our consumers across our channels of distribution.

We formed a joint venture in Mexico (“PVH Mexico”) in which we own a 49% economic interest on November 30, 2016. The joint venture was formed by merging our wholly owned subsidiary that principally operated and managed our Calvin Klein business in Mexico with a wholly owned subsidiary of Grupo Axo, S.A.P.I. de C.V. (“Grupo Axo”) that distributes certain TOMMY HILFIGER brand products in Mexico. In connection with the formation of PVH Mexico, we deconsolidated our wholly owned subsidiary (the “Mexico deconsolidation”). PVH Mexico licenses from certain of our wholly owned subsidiaries

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the rights to distribute and sell certain TOMMY HILFIGER, CALVIN KLEIN, Warner’s, Olga and Speedo brand products in Mexico.

We acquired the 55% of the ownership interests in TH Asia, Ltd. (“TH China”), our former joint venture for TOMMY HILFIGER in China, that we did not already own (the “TH China acquisition”) on April 13, 2016. As a result of the TH China acquisition, we now operate directly our Tommy Hilfiger business in this market.

We entered into a licensing agreement with G-III Apparel Group, Ltd. (“G-III”) for the design, production and wholesale distribution of TOMMY HILFIGER womenswear in the United States and Canada (the “G-III license”) on February 1, 2016, which resulted in the discontinuation of our directly operated Tommy Hilfiger North America womenswear wholesale business in the fourth quarter of 2016.

We aggregate our reportable segments 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; and (iii) Heritage Brands, which consists of the Heritage Brands Wholesale and Heritage Brands Retail segments. Note 20, “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 by distribution channel and from foreign and domestic sources, and the geographic locations where our net property, plant and equipment is held.

Our 2018 revenue was $9.7 billion, of which over 50% was generated outside of the United States. Our global designer lifestyle brands, TOMMY HILFIGER and CALVIN KLEIN, together generated over 80% of our revenue during 2018.

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 $8.5 billion in 2018. 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 is sophisticated and elevated, blending the brand’s Americana heritage with contemporary influences and a playful fashion edge. The collection targets consumers between 25 and 40 years old. 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 — targeting 25 to 40 year-old consumers, this line integrates a 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. 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 — targeting 25 to 40 year-old consumers, our core line is globally recognized for bringing to life the brand’s classic American cool spirit with a broad selection of designs across more than 25 categories, including men’s, women’s and children’s sportswear, footwear and accessories. Products are sold 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 — targeting 18 to 30 year-old denim-oriented consumers, this line focuses on premium denim separates, footwear, accessories and fragrance. 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 our wholesale partners (in stores and online), through pure play digital commerce retailers and on tommy.com.

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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 and expanding TOMMY HILFIGER’s global growth categories (womenswear, denim, accessories, underwear and men’s tailored clothing), as well as its core men’s apparel and denim businesses. Tommy Hilfiger spent over $210 million on global marketing and communications efforts in 2018. The global brand power and digital expertise of Tommy Hilfiger are being recognized; in 2018, Fast Company ranked TOMMY HILFIGER #3 on its “World’s Most Innovative Companies” list in the Style category.

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, Japan and China 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, Japan and China, 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, Japan, and China, 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, China and Japan, 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 30 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 Australia, Brazil, India and Mexico.
    

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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)
 
 
 
Dickson Concepts (International) Limited
 
Men’s, women’s and children’s sportswear and men’s and women’s jeans and athletic wear (Hong Kong, Macau, Malaysia, Singapore and Taiwan) (We entered into a definitive agreement in March 2019 to acquire this licensed business, which is expected to close in the second quarter of 2019)
 
 
 
F&T Apparel LLC
 
Children’s apparel (United States and Canada) and school uniforms (United States)
 
 
 
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)
 
 
 
Hyundai G&F Co., Ltd.
 
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)
 
 
 
PVH Mexico
 
Men’s, women’s and children’s sportswear, apparel, footwear and accessories and men’s tailored clothing (Mexico)
 
 
 
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 investment in PVH Mexico relating to the joint venture’s Tommy Hilfiger business. 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 one of the world’s most recognized brands, synonymous with bold, progressive ideals and a seductive aesthetic. Global retail sales of products sold under the CALVIN KLEIN brands, including sales by our licensees, were approximately $9.8 billion in 2018. 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:

CALVIN KLEIN 205 W39 NYC (formerly Calvin Klein Collection) — our top-tier brand, offering men’s and women’s high-end designer apparel and accessories, as well as items for the home. Distribution is through our wholesale partners globally (in stores and online), pure play digital commerce retailers and calvinklein.com. While we are selling products under this brand through Spring 2019, we plan to close our collection business in 2019.
    
CK CALVIN KLEIN — our “contemporary” brand, offering modern, sophisticated items including apparel and accessories. Distribution is in Asia through our wholesale partners (in stores and online) and through our own stores and online.


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CALVIN KLEIN — our “master” brand, offering men’s and women’s sportswear, 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 Asia through our own stores, our wholesale partners (in stores and online), pure play digital commerce retailers and 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 jeanswear 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 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 through our own stores, our wholesale partners (in stores and online), pure play digital commerce retailers and 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. Already an established business in North America and Asia, this line launched in Europe in Fall 2018. Distribution is primarily in North America, Europe and Asia through our own stores, our wholesale partners (in stores and online), pure play digital commerce retailers and calvinklein.com.

Over $380 million was spent globally in 2018 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. We announced in January 2019 that we established a Consumer Marketing Organization (the “CMO”), which will focus on creative consistency and consumer-centric marketing to drive sales, 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 we adapt to their rapidly changing demands.

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, Asia 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, Asia 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, Asia 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, Asia 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 50 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 Australia, India and Mexico.


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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)
 
 
 
DWI Holdings, Inc. / 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, active performancewear, handbags and small leather goods, men’s coats, luggage and men’s and women’s swimwear (United States, Canada and Mexico with distribution for luggage in Europe and elsewhere)
 
 
 
Jimlar Corporation / LF USA, Inc.
 
Men’s and women’s footwear (various jurisdictions)
 
 
 
Marchon Eyewear, Inc.
 
Men’s and women’s optical frames and sunglasses (worldwide)
 
 
 
McGregor Industries, Inc. / American Essentials, Inc.
 
Men’s and women’s socks and women’s tights (United States, Canada, Mexico, Central and South America, Europe, Middle East and Asia, excluding Japan)
 
 
 
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)
    
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 investment in PVH Mexico relating to the joint venture’s Calvin Klein business. 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 investments in joint ventures in Australia and India relating to the joint ventures’ Calvin Klein businesses.

Heritage Brands Business Overview

Our Heritage Brands business designs, sources and markets a varied selection of prominent brand label dress shirts, neckwear, sportswear, swim products, intimate apparel, underwear and related apparel and accessories, and licenses certain of our 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 $3.5 billion in 2018.

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 and, for Speedo products, through sporting goods stores, team dealers, swimclubs and catalog retailers. Products sold through this channel principally 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 also 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.


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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 2018 sales volume):

Brand Name
Licensor
Expiration
MICHAEL Michael Kors and Michael Kors Collection
Michael Kors, LLC
January 31, 2022
 
 
 
DKNY
Donna Karan Studio LLC
December 31, 2020, with right of renewal (subject to certain conditions) through December 31, 2023
 
 
 
Kenneth Cole New York, Kenneth Cole Reaction and Unlisted, a Kenneth Cole Production
Kenneth Cole Productions (Lic), 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, 2020
    
Men’s sportswear, including sport shirts, sweaters, bottoms and outerwear, principally under the Van Heusen, IZOD and ARROW brands. Van Heusen and IZOD were the first and second best selling national brand men’s woven sport shirts, respectively, in United States department and chain stores in 2018. We also produce 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, such as swim goggles, learn-to-swim aids, water-based fitness products and training 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.

Women’s intimate apparel under the Warner’s, Olga and True&Co. brands. Warner’s was the fourth best selling brand for bras and panties in United States department and chain stores in 2018. True&Co. is primarily distributed in the United States through our TrueAndCo.com digital commerce site.

Retail We also market products directly to consumers through our Heritage Brands 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 IZOD Golf, Warner’s and, to a lesser extent, Speedo products. The majority of these stores feature multiple brand names on the store 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 and True&Co., as well as our IZOD.com, VanHeusen.com and styleBureau.com sites, which launched in July 2018.

Licensing   We license our Van Heusen, IZOD, ARROW, Geoffrey Beene, Speedo, Warner’s and Olga brands globally for a broad range of products through approximately 90 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 licenses include our joint ventures in Australia and Mexico.











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Our heritage brands licensees, and the products and territories licensed by them, include:

Licensee
 
Product Category and Territory
 
 
 
Arvind Fashions Limited

 
ARROW men’s and women’s dresswear, sportswear and accessories (India, Middle East, Egypt, Ethiopia, Maldives, Nepal, Sri Lanka and South Africa); IZOD men’s and women’s sportswear and accessories (India)

 
 
 
Basic Resources, Inc. / USA Legwear, LLC
 
Van Heusen and IZOD men’s and boys’ knit and woven underwear; Van Heusen, IZOD and Warner’s hosiery (United States and Canada)

 
 
 
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’ and girls’ school uniforms; ARROW men’s tailored clothing; IZOD boys’ tailored clothing (United States and Canada)

 
 
 
I.C.C. International Public Company, Ltd.
 
ARROW men’s dress furnishings, tailored clothing, sportswear and accessories; ARROW women’s dresswear and sportswear (Thailand, Myanmar, Laos, Cambodia and Vietnam)

 
 
 
Peerless Delaware, Inc.


 
Van Heusen and IZOD men’s tailored clothing (United States, Canada and Mexico)


 
 
 
Van Dale Industries, Inc
 
IZOD women’s intimates and sleepwear; Warner’s and Olga women’s shapewear, sleepwear, loungewear and athletic wear (United States and Canada)


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 the joint ventures in Australia and Mexico relating to the joint ventures’ Heritage Brands businesses. Our Heritage Brands Retail segment includes the results of our Heritage Brands stores.

Our Business Strategy

We see opportunities for growth as we employ our strategic priorities across our organization. Our global growth strategies include:
Driving consumer engagement through innovative designs and personalized brand and shopping experiences that capture the heart of the consumer.
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.
Developing a talented and skilled workforce that embodies our core values and an entrepreneurial spirit while empowering our associates to design their future.
Delivering sustainable, profitable growth and generating free cash flow to create long-term stockholder value.

Tommy Hilfiger Business

We believe that we can further grow TOMMY HILFIGER global retail sales through a number of product and regional initiatives, which include:    

Being consumer-centric and enhancing global brand relevance with marketing campaigns and consumer engagement initiatives designed to drive growth and reflect TOMMY HILFIGER’s accessible premium positioning and classic American cool aesthetic.

Driving category expansion within womenswear, accessories, denim, underwear and men’s tailored clothing.

Driving regional expansion, particularly in Asia Pacific.


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Gaining greater control of the brand by acquiring licensed businesses to operate them directly.

Digitizing the complete brand experience, from our stores to our online offerings.

Evolving our supply chain to adapt more quickly to change.

Sharpening our processes and personalizing our customer relationships as we enhance our data capabilities.

Calvin Klein Business

We believe growth opportunities exist to drive further global retail sales and improvements in operating margins of CALVIN KLEIN over time, including through:

Being consumer-centric and enhancing global brand relevance through marketing campaigns and consumer engagement initiatives designed to drive growth and further resonate with youth-minded consumers.

Commercializing the CALVIN KLEIN creative vision to drive product improvement and expansion, particularly within men’s and women’s sportswear, performance apparel, jeanswear, accessories and women’s intimates.

Expanding our distribution by increasing our digital businesses and growing our presence in specialty stores.

Identifying operating efficiencies across the business to drive improvements in our operating margins.

Sharpening our processes and personalizing our customer relationships as we enhance our data capabilities.

Enhancing our supply chain to react more quickly to emerging business trends.

Gaining greater control of the brand by acquiring licensed businesses to operate them directly.
    
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 continue to capture market share and generate healthy cash flows as we execute against our key strategic initiatives, which include:

Being consumer-centric by designing and marketing quality, trend-right products that offer great value to our consumers and introducing products with new technologies and new features.

Driving consumer engagement by leveraging and enhancing each brand’s position in the market and delivering compelling marketing campaigns.

Seeking to maximize distribution, with the greatest opportunities in mass market retailers and digital commerce (through our wholesale partners, our own digital commerce sites and pure play digital commerce retailers).

Enhancing profitability by capitalizing on supply chain opportunities, reducing costs and maintaining a critical focus on inventory management.

Sharpening our processes and personalizing our customer relationships as we enhance our data capabilities.

 Other Strategic Opportunities

While we believe we have an attractive and diverse portfolio of brands with growth potential, we will continue to explore strategic acquisitions of companies or trademarks and licensing opportunities that we believe are additive to our overall business. New license opportunities allow us to fill new product and brand portfolio needs. We take a disciplined approach to acquisitions, seeking brands with broad consumer recognition that we can grow profitably and expand by leveraging our infrastructure and core competencies and, where appropriate, by extending the brand through licensing.



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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 business 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.

Our in-house design teams are significant contributors to the continued strength of our brands. Each of our branded businesses employs its own teams of designers and merchandisers that develop products representing its brand’s aesthetics, while also being mindful of consumers’ tastes, lifestyle needs and current fashion trends. To reflect consumer variances in each of our regional markets, the businesses tailor their products and offerings to appeal to local tastes, fit differences or other preferences, while maintaining the cohesive creative vision for each brand.

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 rely 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 2018. All but one of these factories were operated by independent manufacturers, with most being located in Asia.

We source finished products and, to a lesser 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. 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 seeking to maximize the 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 assess our manufacturing footprint to ensure we have the best infrastructure to meet the needs of our global wholesale and retail businesses.
We continue to make progress on maintaining an agile and data-driven supply chain. We have made advancements to capture additional gross margin opportunities, as we continue to optimize our vendor base to work more closely with long-term strategic partners, focus on core replenishment for select categories and improve our speed to market. We have also developed a country of origin strategy that provides a flexible approach to product sourcing, which enables us to maximize regional opportunities and mitigate our potential exposure to risks associated with new duties, tariffs, surcharges, or other import controls or restrictions. 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.

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We restructured our supply chain relationship with Li & Fung in 2017 in line with our supply chain priorities. In connection with this transaction, we terminated our non-exclusive buying agency agreement with Li & Fung and entered into a new agreement that will allow us to evolve our supply chain, while also building upon our operating platforms to enhance our efficiencies across the organization.
We also began producing finished products in Ethiopia during 2017 to evolve our supply chain and become more dynamic. Production is through a joint venture, PVH Arvind Manufacturing Private Limited Company (“PVH Ethiopia”), that we formed with Arvind Limited (“Arvind”). The goods produced are primarily distributed in the United States by our Heritage Brands business.
Corporate Responsibility

As an industry leader and one of the largest branded apparel companies in the world, we recognize that we have a responsibility to address our social and environmental impacts. 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.

Building on our long-standing commitment to responsible business, in January 2019 we launched the next evolution of our Corporate Responsibility strategy - Forward Fashion. 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.

Our three strategic focus areas are:

Reduce negative impacts — Our ambition is for our products and business operations to generate zero waste, zero carbon and zero hazardous chemicals. This means protecting our global climate by reducing energy use and powering our business through renewable sources, diverting the waste we send to landfills, eliminating water pollution from our wet processors, and fostering and harnessing innovation to design and manufacture products that eliminate product waste.

Increase positive impacts — Our ambition is for 100% of our products and packaging to be ethically and sustainably sourced from suppliers who respect human rights and are good employers.

Improve lives across our value chain — Our ambition is to improve the lives of over one million people across our value chain, focusing on education and opportunities for women and children, ensuring access to clean water 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.

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, Taiwan and Brazil. 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 $1.652 billion and $2.097 billion as of February 3, 2019 and February 4, 2018, 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 18.9% of our revenue in each of 2018 and 2017, and 21.3% of our revenue in 2016. No single customer accounted for more than 10% of our revenue in 2018, 2017 or 2016.

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Advertising and Promotion

Our marketing programs are an integral component of the success of our brands and 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.

A significant component of our marketing programs is digital media, including our digital commerce platforms and social media channels, which allow us to expand our reach to customers and enable us to provide timely information in an entertaining fashion to consumers about our products, special events, promotions and store locations. Tommy Hilfiger’s digital commerce site, tommy.com, and Calvin Klein’s digital commerce site, calvinklein.com, serve as marketing vehicles to complement the ongoing development of the TOMMY HILFIGER and CALVIN KLEIN lifestyle brands, respectively, in addition to offering a broad array of apparel and licensed products. Additionally, during 2018, we launched our own Heritage Brands digital commerce sites.

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 high-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 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, print advertising, direct marketing, radio and television advertising, and special promotions.

Tommy Hilfiger Business

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 as part of its efforts. Tommy Hilfiger maintains multiple showroom facilities and sales offices around the world. Nearly all of its showrooms are digitized, offering a more engaging, integrated and seamless buying experience for its wholesale partners.

Tommy Hilfiger embarked on new exclusive, high-profile partnerships in 2018 to continue its efforts to reach new, younger audiences, while also appealing to its existing consumers. It delivered celebrity partnerships and exciting new brand activations, with a particular focus on the product categories where we see the greatest expansion opportunities - womenswear, accessories, denim, underwear and men’s tailored clothing.

One of Tommy Hilfiger’s largest collaborations during the year was its partnership with British Formula OneTM racing driver and five-time Formula OneTM World Champion Lewis Hamilton, who appeared as the global brand ambassador for TOMMY HILFIGER men’s for Spring and Fall 2018. In conjunction with this, TOMMY HILFIGER formed a multi-year strategic partnership with four-time World Champions Mercedes-AMG Petronas Motorsport as their Official Apparel Partner, beginning in Spring 2018. These partnerships reflect the brand’s strategic commitment to build on its strong menswear heritage and further drive the global growth of its men’s business, while also bringing the next generation of fans to the brand. To capitalize on the power of the collaboration, Tommy Hilfiger offered its first TommyXLewis collaborative collection in Fall 2018 with a world tour that included the TOMMYNOW Fall 2018 fashion show in Shanghai, an industry event in New York City, and a presentation as a 3D holographic water projection in Tokyo. In conjunction with these events, we launched a Super

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Brand day on Tmall, which offered a seamless consumer experience, including order delivery within 24 hours in key Chinese cities.

Tommy Hilfiger also delivered engaging marketing campaigns geared toward the female consumer, as we believe that it is significantly underpenetrated in women’s apparel and accessories. The brand continued its successful partnership with Gigi Hadid for Spring 2018, which marked her final season serving as a brand ambassador and designer of the TommyXGigi capsule collection. Continuing with the “see now, buy now” realm, the brand’s TOMMYNOW Spring 2018 fashion show in Milan featured the TommyXGigi capsule collection, which allowed consumers to purchase immediately items featured on the runway through tommy.com, as well as in TOMMY HILFIGER stores and through select wholesale partners globally. As the year progressed, Tommy Hilfiger enlisted model Hailey Bieber, model and activist Winnie Harlow and actress Maggie Jiang as the newest members of the TOMMY HILFIGER family, with the celebrities serving as the new global brand ambassadors for TOMMY HILFIGER women’s for Fall 2018, as well as starring in the Fall 2018 TOMMY ICONS capsule collection for women.

Tommy Hilfiger named Zendaya as the brand’s female brand ambassador beginning in Spring 2019. Zendaya helped to design a TommyXZendaya capsule collection as part of our vision to collaborate with icons who share the brand’s spirit and values of breaking conventions and celebrating diversity.

Tommy Hilfiger also offered exciting brand activations and more frequent product drops. It collaborated with several of the trendiest streetwear brands, including KITH, Vetements and Monkey Time, to drive desire for TOMMY HILFIGER with the younger fashion consumer. Additionally, the TOMMY JEANS Spring and Fall 2018 marketing campaigns featured a collection of millennial influencers.
    
Calvin Klein Business

We believe Calvin Klein is one of the best known designer names in the world, exemplifying bold, progressive ideals and a seductive, often minimalist aesthetic. As the CALVIN KLEIN brand celebrates its 51st year in business, it continues to experience compelling brand and cultural relevancy by evolving and driving consumer engagement. We announced in January 2019 that we established the CMO, which encompasses the business’s marketing, communications, social media, celebrity dressing and special events. The CMO will focus on creative consistency and consumer-centric marketing to drive sales, while also building personalized relationships and tailoring the overall consumer experience through its highly specialized teams. We believe that this enhanced marketing approach will better meet our consumers’ needs as we adapt to their rapidly changing demands. Calvin Klein maintains showrooms and sales offices around the world.

Consumer engagement remained at the core of Calvin Klein in 2018, as it delivered immersive brand experiences, with a particular focus on youth-minded consumers. Calvin Klein leveraged the already-successful #MYCALVINS legacy and amplified its commerciality by enlisting sisters Kim Kardashian West, Khloé Kardashian, Kourtney Kardashian, Kendall Jenner and Kylie Jenner as brand ambassadors for CALVIN KLEIN JEANS and CALVIN KLEIN UNDERWEAR in Spring and Fall 2018. Calvin Klein also engaged Taiwanese musician Jam Hsiao and Chinese actress Jelly Lin as local brand ambassadors for the Spring and Fall 2018 men’s and women’s collections.

Understanding that today’s consumer is increasingly sophisticated and places a premium on brand authenticity, Calvin Klein began to balance the global brand campaigns with the use of smaller-scale regional and micro-influencers. Also under the #MYCALVINS platform, Calvin Klein enlisted a diverse set of models, artists, fashion bloggers and other social influencers wearing a wide array of CALVIN KLEIN product offerings and plans to expand significantly upon this in 2019.

Digital experiences remained a priority as we continued to grow online sales. Calvin Klein invested in key partnerships, including its collaboration with Zalando in Europe for their 10th anniversary. To celebrate, Calvin Klein offered an exclusive capsule collection, which featured model siblings Kaia and Presley Gerber and was accompanied by a television and social media campaign.

Heritage Brands Business    

In our Heritage Brands business, we leveraged and enhanced each brand’s position in the market by delivering engaging marketing campaigns, with a particular focus on driving relevance with younger consumers. We launched a partnership for Van Heusen with the UFC® that featured MMA fighters Stephen Thompson and T.J. Dillashaw as brand ambassadors. The campaign had digital and social engagement rates that far exceeded our expectations. We also launched our largest media campaign to-date for IZOD that features Green Bay Packers quarterback Aaron Rodgers and comedian Colin Jost from Saturday Night Live. There were engagement opportunities for Speedo, as well, including industry events such as Miami

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Swim Week, and a celebration of Fitness Month by having our Speedo USA team ring the opening bell at the New York Stock Exchange on January 2, 2018, the first trading day of the new year.

We continue to promote our Heritage Brands business through sport sponsorships. Four-time PGA Tour winner Marc Leishman serves as brand ambassador for IZOD Golf, which includes wearing IZOD Golf apparel on-course. Olympic gold medalists and World No. 1 ranked men’s double tennis team, Bob and Mike Bryan continue to serve as brand ambassadors for IZOD. Team Speedo USA consists of world-class swimmers, including Caeleb Dressel, Ryan Murphy, Nathan Adrian, Kathleen Baker and Para-Olympian Becca Meyers. These athletes wear Speedo products exclusively in competition and participate in various promotional activities on behalf of the brand. In addition, we have an all-brand, regional sponsorship relationship with the New York Giants.

We also advertised the Warner’s No Side Effects and Cloud 9 bras and True&Co. True Body Collection bras on television during 2018. Additionally, we leveraged strategic new platforms 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.

Trademarks

We own the TOMMY HILFIGER, CALVIN KLEIN, Van Heusen, IZOD, ARROW, Warner’s, Olga, True&Co. and 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 Calvin Klein and Warnaco subsidiaries’ ownership of the 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 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 and CALVIN KLEIN 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.


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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.

We believe we are well-positioned to compete in 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. 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 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.

Imports and Import Restrictions

A substantial portion of our products is imported into the United States, Canada, Europe, Asia 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 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.

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 3, 2019, we employed approximately 20,500 persons on a full-time basis and approximately 17,500 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 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.


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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
 
61

 
Chairman and Chief Executive Officer
Michael A. Shaffer
 
56

 
Executive Vice President and Chief Operating & Financial Officer
Francis K. Duane
 
62

 
Vice Chairman and Chief Executive Officer, Heritage Brands
Daniel Grieder
 
57

 
Chief Executive Officer, Tommy Hilfiger Global and PVH Europe
Steven B. Shiffman
 
61

 
Chief Executive Officer, Calvin Klein
Mark D. Fischer
 
57

 
Executive Vice President, General Counsel & Secretary
David F. Kozel
 
63

 
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. 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. Grieder has been employed by Tommy Hilfiger since 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. Shiffman has been employed by us since 1992. Mr. Shiffman was named President & Chief Commercial Officer, Calvin Klein Retail in 2009, Group President, Calvin Klein Global Licensing and Retail in 2013, and Chief Executive Officer, Calvin Klein in 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.

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 18.9% of our revenue in each of 2018 and 2017, and 21.3% of our revenue in 2016. No single customer accounted for more than 10%

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of our revenue in 2018, 2017 or 2016. Collectively, Macy’s and J. C. Penney Company, Inc. (“J. C. Penney”), two of our ten largest customers in 2018, have closed over 200 stores since 2016 and will be closing additional stores. 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. A continued decline in purchases made over the next several years could have a materially adverse effect on our United States wholesale business.

We had an agreement with Macy’s pursuant to which Macy’s was 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, had a similar arrangement with Macy’s for women’s sportswear under the TOMMY HILFIGER brand. As a result of these strategic alliances, the success of Tommy Hilfiger’s North American men’s wholesale business and its licensed women’s wholesale business with G-III were substantially dependent on these relationships and on the ability of Macy’s to maintain and increase sales of TOMMY HILFIGER products. The exclusive arrangements are both being terminated effective for the Spring 2019 selling season. We cannot assure you that Macy’s will continue to order the same volume of TOMMY HILFIGER products from us or our licensees or that other department stores will purchase TOMMY HILFIGER products in sufficient volume to offset any reduction in sales to Macy’s. This could result in a decline in overall revenue and have a material adverse effect on our results of operations.

We do not have long-term agreements with any of our customers 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. The retail industry’s recent history has seen 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. 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 businesses.

A significant portion of our business strategy involves growing our Tommy Hilfiger and Calvin Klein businesses. Our achievement of revenue and profitability growth from Tommy Hilfiger and Calvin Klein 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 licensees;
continue to enter into new, or renew or extend existing, license agreements for the TOMMY HILFIGER and CALVIN KLEIN brands; and
continue to strengthen and expand the Tommy Hilfiger and Calvin Klein 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 business, our financial condition and results of operations may be materially and adversely affected.




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The success of our Tommy Hilfiger and Calvin Klein businesses depends on the value of our “TOMMY HILFIGER” and “CALVIN KLEIN” 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 TOMMY HILFIGER name is integral to the existing Tommy Hilfiger business, as well as to our strategies for continuing to grow and expand the business. 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 are heavily dependent on the ability and desire of consumers to travel and shop.

We have retail stores located near vacation destinations and the majority of our United States retail stores are located away from major residential centers. As a result, reduced travel resulting from economic conditions, fuel shortages, increased fuel prices, travel restrictions, travel concerns and other circumstances, including adverse weather conditions, natural disasters, disease epidemics and other health-related concerns, war, terrorist attacks or the perceived threat of war or terrorist attacks could have a material adverse effect on our financial condition and results of operations, particularly if such events impact our higher-volume retail locations. Additionally, during times of a strengthening United States dollar, particularly against the euro, the Brazilian real, the Canadian dollar, the Mexican peso and the Chinese yuan renminbi, international tourism to the United States could be reduced, as could the extent to which international tourists shop at our retail stores, which could have a material adverse effect on our sales in our United States retail stores, as they are material contributors of revenue and profits. 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.

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 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;

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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 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 their businesses, and our financing and other contractual arrangements. 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 may continue to cause such customers to reduce or discontinue orders of our products or be unable to pay us for products they have purchased from us. Financial difficulties of customers may also affect the ability of our customers to access credit markets or lead to higher credit risk relating to receivables from customers.

Future volatility in the financial and credit markets 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 secured credit facilities is currently scheduled for May 2021, 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 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. Changes in exchange rates between the United States dollar and other currencies can impact our financial results in two ways: a translational impact and a transactional impact.

The translational impact refers to the impact that changes in exchange rates can have on our results of operations and financial position as our results of operations in local foreign currencies are translated into United States dollars using an average exchange rate over the representative 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 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 Canadian dollar and the Chinese yuan renminbi, and favorably impacted during times of a weakening United States dollar against those currencies.
    
A transactional 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 during times of a strengthening United States dollar as the increased local currency value of inventory results in a higher 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 (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.


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We are also exposed to foreign exchange risk in connection with our licensing businesses. Most of our license 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 exchange rate changes during and up to the last day of the selling period. In addition, certain of our other foreign license agreements expose us to exchange rate changes 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 weakening United States dollar against the euro, we could be required to use a greater amount of our cash flows from operations to pay interest and make long-term debt repayments on our euro-denominated senior 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 3, 2019 an aggregate of $2.839 billion of indebtedness under our senior secured credit facilities, our senior unsecured notes and our secured debentures. 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, 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 secured credit facilities, leaving us vulnerable to increases in interest rates to the extent the borrowings are not subject to an interest rate swap agreement.

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 accessories are produced by and purchased or procured from independent manufacturers located in countries in Asia, South America, Europe, the Middle East, North America, Africa, Central America and the Caribbean. Although no single supplier or country is or is expected to become 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;

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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 or the inability 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;
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-related concerns, which could result in 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.

The United States government imposed tariffs in 2018 on a variety of imports from China into the United States, including certain categories of accessories, and may impose significant tariffs on additional goods imported from China into the United States. China is the largest sourcing country of apparel, footwear and accessories for us and most of our licensees. We imported approximately $400 million of inventory into the United States from China in 2018. Accordingly, any tariffs on apparel, footwear and accessories imported from China into the United States result in an increase in our cost of goods sold for that product. We may not be able to shift production of inventory bound for the United States from China to other countries or pass the entire cost increase 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 third parties audit, the operations of these independent parties to determine compliance. We are a signatory of the Accord on Fire and Building Safety in Bangladesh to improve fire and building safety in Bangladesh’s apparel factories and we continue to 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. 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.


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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 accessories. A manufacturer’s failure to ship products to us in a timely manner 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 engage independently operated distribution facilities around the world to warehouse and ship products to our customers and our retail stores, as well as perform related logistics services. Our ability to meet the needs of our wholesale customers and of our 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, 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 license 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, 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 brands, as they enjoy significant worldwide consumer recognition and the generally premium pricing of TOMMY HILFIGER and CALVIN KLEIN 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. We

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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, in the past we were involved in proceedings relating to a company’s claim of prior rights to the IZOD mark in Mexico and to another company’s claim of prior rights to the CALVIN KLEIN mark in Chile. We are currently involved in opposition and cancellation proceedings with respect to marks similar to some of our brands, both domestically and internationally.

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 through 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 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.
    
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. 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 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 fail to accurately forecast consumer demand, 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 have sufficient 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.



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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 “U.S. Tax Legislation”) enacted in December 2017 that significantly changed the way we are taxed. 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 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.

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. We process, transmit, store and maintain information about consumers and our employees in the ordinary course of business, including personally identifiable information protected under applicable laws. This includes 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 could 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.


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We regularly implement new systems and hardware and are currently undertaking a major 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 that could adversely impact our operations. 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. 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 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.

Volatility in securities markets, interest rates and other economic factors could increase substantially 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, 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 that are recorded immediately in pension expense, generally in the fourth quarter of the year. 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 value of our goodwill or an other intangible asset were 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 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 3, 2019, we had approximately $3.671 billion of goodwill and $3.569 billion of other identifiable intangible assets on our balance sheet, which together represented 61% of our total assets. No impairment was recorded in 2018 based on our annual goodwill and other indefinite-lived intangible assets impairment tests.

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) to approve certain business combinations, permitting the Board of Directors to fill vacancies on the Board 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.


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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 proposed withdrawal from the European Union could harm our business and financial results.
In June 2016, voters in the United Kingdom approved a referendum to withdraw from the European Union (commonly referred to as “Brexit”). Subsequently, in March 2017, the United Kingdom submitted a formal notification of its intention to withdraw from the European Union, which began a two-year negotiation period that culminated in an agreement upon the withdrawal terms, which was subject to approval by British Parliament. Parliament rejected the agreement and the British Prime Minister requested an extension to June 30, 2019 of the March 29, 2019 effective date for Brexit. On March 21, 2019, the leaders of the other member countries of the European Union agreed to extend the deadline for Brexit until April 12, 2019. However, if the British Parliament approves the previously rejected terms of withdrawal, then the deadline would be further extended to May 22, 2019. Additionally, if the United Kingdom agrees to hold elections for European Parliament that are scheduled for May 23, 2019, the deadline could be further extended. As a result, there remains considerable uncertainty around the withdrawal. If the British Parliament does not agree to terms of withdrawal and the United Kingdom does not agree to participate in the European Parliament elections, the United Kingdom would leave the European Union on April 12, 2019 without an agreement. There is also significant discussion regarding submitting Brexit to a second referendum. The uncertainty surrounding the United Kingdom’s withdrawal 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 withdrawal could also 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 3, 2019 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
 
462,000

 
New York, New York
Tommy Hilfiger administrative offices and showrooms
Leased
 
206,000

 
Bridgewater, New Jersey
Corporate and retail administrative offices
Leased
 
285,000

 
Amsterdam, The Netherlands
Tommy Hilfiger and Calvin Klein administrative offices, warehouse and showrooms
Leased
 
499,000

 
Venlo/Oud Gastel, The Netherlands
Warehouse and distribution centers
Leased
 
2,051,000

 
McDonough, Georgia
Warehouse and distribution center
Leased
 
851,000

 
Jonesville, North Carolina
Warehouse and distribution center
Owned
 
778,000

 
Reading, Pennsylvania
Warehouse and distribution center
Owned
 
410,000

 
Los Angeles, California
Neckwear administrative offices and warehouse
Leased
 
200,000

 
Montreal, Canada
Administrative offices, warehouse and distribution center
Leased
 
183,000

 
Hong Kong, China
Corporate, Tommy Hilfiger and Calvin Klein administrative offices
Leased
 
170,000

 
Hawassa, Ethiopia
Manufacturing facility
Leased
 
155,000

 
Brinkley, Arkansas
Warehouse and distribution center
Owned
 
112,000

 
Dusseldorf, Germany
Tommy Hilfiger and Calvin Klein administrative offices and showrooms

Leased
 
91,000

 
Cypress, California
Speedo administrative offices
Leased
 
69,000

 
Paris, France
Tommy Hilfiger and Calvin Klein administrative offices and showrooms

Leased
 
62,000

 
Milan, Italy
Tommy Hilfiger and Calvin Klein administrative offices and showrooms
Leased
 
58,000

 
Shanghai, China
Tommy Hilfiger and Calvin Klein administrative offices
Leased
 
60,000

 

In addition, as of February 3, 2019, we leased certain other administrative offices and showrooms in various domestic and international locations. We also leased and operated as of February 3, 2019 over 1,700 retail locations in the United States, Canada, Europe, Asia and Brazil.

Our Jonesville, North Carolina property is subject to a lien under our senior secured credit facilities.

Information with respect to minimum annual rental commitments under leases in which we are a lessee is included in Note 16, “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.

29



PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the New York Stock Exchange under the symbol “PVH.” Certain information with respect to the dividends declared on our common stock appear in the Consolidated Statements of Changes in Stockholders’ Equity and Redeemable Non-Controlling Interest included in Item 8 of this report. Please see Note 8, “Debt,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for a description of the restrictions to our paying dividends on our common stock. As of March 18, 2019, there were 590 stockholders of record of our common stock.

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)
November 5, 2018 -
 
 
 
 
 
 
 
 
December 2, 2018
 
158,007

 
$
116.13

 
157,695

 
$
292,665,255

December 3, 2018 -
 
 
 
 

 
 

 
 

January 6, 2019
 
240,657

 
95.72

 
240,352

 
269,662,940

January 7, 2019 -
 
 

 
 

 
 

 
 

February 3, 2019
 
110,154

 
103.76

 
110,000

 
258,257,007

Total
 
508,818

 
$
103.80

 
508,047

 
$
258,257,007

___________________

(1) 
On June 1, 2015, we announced that our Board of Directors had authorized us to repurchase up to $500 million of our outstanding common stock. The Board of Directors’ authorization was effective through June 3, 2018. On March 21, 2017, the Board of Directors authorized a $750 million increase to the program and extended it to June 3, 2020. On March 26, 2019, the Board of Directors authorized a further $750 million increase to the program and extended it to June 3, 2023, which is not reflected in the table above. 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.

(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 2018 principally in connection with the settlement of restricted stock units to satisfy tax withholding requirements, in addition to the shares repurchased as part of the stock repurchase program discussed above.

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.

    

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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 3, 2019.

chart-139c245af65056ed8a6.jpg

Value of $100.00 invested after 5 years:
 
 
 
Our Common Stock
$
90.62

S&P 500 Index
$
168.36

S&P 500 Apparel, Accessories & Luxury Goods Index
$
88.04


Item 6. Selected Financial Data

Selected Financial Data appears under the heading “Five Year Financial Summary” on pages F-63 and F-64.


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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 branded apparel companies in the world, with a history going back over 135 years. Our brand portfolio consists of nationally and internationally recognized trademarks, including TOMMY HILFIGER, CALVIN KLEIN, Van Heusen, IZOD, ARROW, Speedo (licensed in perpetuity for North America and the Caribbean from Speedo International Limited), Warner’s, Olga, True&Co. and Geoffrey Beene. Our brand portfolio also consists of various other owned, licensed and private label brands.
    
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 trademarks 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 $9.657 billion in 2018, of which over 50% was generated outside of the United States. Our global designer lifestyle brands, TOMMY HILFIGER and CALVIN KLEIN, together generated over 80% of our revenue.

RESULTS OF OPERATIONS

Operations Overview

We generate net sales from (i) the wholesale distribution to retailers, franchisees, licensees and distributors of dress shirts, neckwear, sportswear, jeanswear, performance apparel, intimate apparel, underwear, 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) approximately 1,700 Company-operated free-standing retail store locations worldwide under our TOMMY HILFIGER, CALVIN KLEIN and certain of our heritage brands trademarks, (b) approximately 1,500 Company-operated shop-in-shop/concession locations worldwide under our TOMMY HILFIGER and CALVIN KLEIN trademarks, and (c) digital commerce sites in over 30 countries under each of our TOMMY HILFIGER and CALVIN KLEIN trademarks and in the United States through our SpeedoUSA.com, TrueAndCo.com, VanHeusen.com, IZOD.com and styleBureau.com digital commerce sites. 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; (iv) Calvin Klein International; (v) Heritage Brands Wholesale; and (vi) Heritage Brands Retail.

We have entered into the following transactions, which impact our results of operations and comparability among the years, including our 2019 expectations as compared to 2018, as discussed in the section entitled “Result of Operations” below:

We will be closing our TOMMY HILFIGER flagship and anchor stores in the United States in the first quarter of 2019. We expect to incur pre-tax costs of approximately $60 million during 2019, primarily consisting of severance, noncash asset impairments and lease and other contract termination costs.

We announced in the first quarter of 2019 that we had entered into definitive agreements for two pending acquisitions. The first is for purposes of acquiring the approximately 78% interest in Gazal that we do not already own. We, along with Gazal, jointly own and manage PVH Australia, which licenses and operates businesses under the TOMMY HILFIGER, CALVIN KLEIN and Van Heusen brands, along with other licensed and owned brands. PVH Australia will come under our full ownership as a result of the acquisition. The aggregate net purchase price for the shares being acquired is approximately A$124 million (approximately $90 million based on the current exchange rate in effect), after taking into account the divestiture to a third party of an office building and warehouse owned by Gazal. The second is for purposes of acquiring the Tommy Hilfiger retail business in Hong Kong and certain other countries in Central and Southeast Asia from our current licensee in those markets. The purchase price is estimated to be approximately $75 million. The closings of these two pending acquisitions are subject to customary conditions,

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including in respect of the Australia acquisition, shareholder and court approvals, and are expected to occur in the second quarter of 2019. We expect to record a net pre-tax gain of approximately $70 million during 2019 in connection with the Australia acquisition and TH CSAP acquisition, consisting of a noncash gain to write up our equity investments in Gazal and PVH Australia to fair value, partially offset by pre-tax costs related to both acquisitions, primarily consisting of noncash valuation adjustments and amortization of short-lived assets.

We announced on January 10, 2019 a restructuring in connection with strategic changes for our Calvin Klein business (the “Calvin Klein restructuring”). The strategic changes include (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. 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. We expect to incur additional pre-tax costs of approximately $130 million during 2019 in connection with the Calvin Klein restructuring, primarily consisting of severance, noncash asset impairments, lease and other contract termination costs, and inventory markdowns. Please see Note 17, “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 amendment.

We restructured our supply chain relationship with 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. 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”). 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 $12 million.

We acquired on March 30, 2017 True & Co., a direct-to-consumer intimate apparel digital commerce retailer. This acquisition enabled us to participate further in the fast-growing online channel and provided 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 completed a consolidation within our warehouse and distribution network in North America in 2017 and recorded related net pre-tax charges of $8 million, which included a $3 million gain on the sale of a warehouse and distribution center.


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We entered into an agreement on January 24, 2017 to terminate the license for the Tommy Hilfiger men’s tailored clothing business in North America held by Marcraft Clothes, Inc. effective December 31, 2017 (the “TH men’s tailored license termination”). Peerless Clothing International, Inc. became the licensee for the business effective January 1, 2018. These transactions were undertaken in order to consolidate with Peerless Clothing International, Inc. our men’s tailored businesses for all of our brands in North America. We recorded a pre-tax charge of $11 million in 2016 in connection with the TH men’s tailored license termination.

We formed on November 30, 2016 a joint venture in Mexico, PVH Mexico, in which we own a 49% economic interest. The joint venture was formed by merging our wholly owned subsidiary that principally operated and managed our Calvin Klein business in Mexico 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 our wholly owned subsidiary. We recorded a pre-tax noncash loss of $82 million in 2016 (including $57 million related to foreign currency translation adjustment losses previously recorded in accumulated other comprehensive loss) in connection with the Mexico deconsolidation.

We, along with Arvind, formed PVH Ethiopia on June 29, 2016, in which we own a 75% interest. We have consolidated the joint venture 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.

We issued on June 20, 2016 €350 million euro-denominated principal amount of 3 5/8% senior notes due July 15, 2024. Please see the section entitled “Liquidity and Capital Resources” below for further discussion.

We amended on May 19, 2016 our senior secured credit facilities and recorded pre-tax debt modification and extinguishment charges of $16 million. Please see the section entitled “Liquidity and Capital Resources” below for further discussion.

We acquired on April 13, 2016 the 55% of the ownership interests in TH China, our former joint venture for TOMMY HILFIGER in China, that we did not already own. As a result of the TH China acquisition, we now operate directly our Tommy Hilfiger business in this market. The total consideration for the acquisition was $161 million (including the elimination of a $3 million pre-acquisition receivable owed to us by TH China), net of cash acquired of $105 million. We recorded a net pre-tax gain of $70 million in 2016, including a noncash gain of $153 million to write-up our equity investment to fair value prior to the acquisition closing and costs of $83 million, which primarily consisted of noncash valuation adjustments and amortization of short-lived assets. 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.

We exited a TOMMY HILFIGER flagship store in Europe in 2016 and recorded a pre-tax gain of $18 million in connection with a payment made to us.

Our Tommy Hilfiger and Calvin Klein 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. Our results of operations in local foreign currencies are translated into United States dollars using an average exchange rate over the representative period. Accordingly, our results of operations are unfavorably impacted during times of a strengthening United States dollar against the foreign currencies in which we generate significant revenue and earnings and favorably impacted during times of a weakening United States dollar against those currencies. Over 50% of our $9.657 billion of revenue in 2018 was subject to foreign currency translation.

There is also a transactional impact on our financial results because inventory typically is purchased in United States dollars by our foreign subsidiaries. As with translation, our results of operations will be unfavorably impacted during times of a strengthening United States dollar as the increased local currency value of inventory results in a higher 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 transactional 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 results of operations in the year following their inception, as the underlying inventory hedged by the contracts is sold.

34



Additionally, there is a transactional impact related to changes in SG&A expenses as a result of fluctuations in foreign currency exchange rates.

Based on current foreign currency exchange rates, we expect a decrease in revenue of approximately $150 million, or 1%, and a slight decrease in net income in 2019 as compared to 2018 due to the impact of foreign currency exchange.

Further, we have exposure to changes in foreign currency exchange rates related to our €950 million aggregate principal amount of euro-denominated senior notes, as 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 from retail stores that have been open 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 from 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 relocated, materially altered in size or closed for a certain number of consecutive days 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, as applicable, for at least 12 months. Retail comparable store sales are based on local currencies and comparable weeks. As a result of the 53rd week in 2017, the 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 2017). All 2018 retail comparable store sales are presented on this shifted basis. 2017 retail comparable store sales exclude the extra week in 2017.

The following table summarizes our income statements in 2018, 2017 and 2016:
 
2018
 
2017
 
2016
(Dollars in millions)
 
 
 
 
 
Net sales
$
9,154

 
$
8,439

 
$
7,791

Royalty revenue
376

 
366

 
321

Advertising and other revenue
127

 
109

 
91

Total revenue
9,657

 
8,915

 
8,203

Gross profit
5,308

 
4,894

 
4,370

% of total revenue
55.0
%
 
54.9
%
 
53.3
%
SG&A
4,433

 
4,245

 
3,678

% of total revenue
45.9
%
 
47.6
%
 
44.8
%
Non-service related pension and postretirement cost (income)
5

 
3

 
(41
)
Debt modification and extinguishment costs

 
24

 
16

Other noncash gain, net

 

 
71

Equity in net income of unconsolidated affiliates
21

 
10

 
0

Income before interest and taxes
892

 
632

 
789

Interest expense
121

 
128

 
121

Interest income
5

 
6

 
6

Income before taxes
776

 
510

 
674

Income tax expense (benefit)
31

 
(26
)
 
125

Net income
745

 
536

 
549

Less: Net loss attributable to redeemable non-controlling interest
(2
)
 
(2
)
 
0

Net income attributable to PVH Corp.
$
746

 
$
538

 
$
549



35



Total Revenue

Total revenue was $9.657 billion in 2018, $8.915 billion in 2017 and $8.203 billion in 2016. Revenue in 2017 included the benefit of a 53rd week. 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 continued 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% comparable store sales increase.

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 10%, driven by growth in Europe and Asia. Calvin Klein International comparable store sales increased 5%. Revenue in our Calvin Klein North America segment increased 5% primarily as a result of growth in the wholesale business and a 1% comparable store sales increase.

The addition of an aggregate $21 million of revenue, or a 1% increase over the prior year, attributable to our Heritage Brands Retail and Heritage Brands Wholesale segments. Comparable store sales increased 1%.

The increase in revenue of $712 million, or 9%, in 2017 as compared to 2016 was due principally to the effect of the following items, inclusive of a 53rd week in 2017:

The addition of an aggregate $382 million of revenue, or an 11% increase over the prior year, attributable to our Tommy Hilfiger International and Tommy Hilfiger North America segments, which included an addition of approximately $73 million, or 2%, related to 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 our 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 the licensing of this business to G-III offset growth in the retail business. Tommy Hilfiger North America comparable store sales increased 3%.

The addition of an aggregate $326 million of revenue, or a 10% increase over the prior year, attributable to our Calvin Klein International and Calvin Klein North America segments, which included an addition of approximately $49 million, or 2%, related to the impact of foreign currency translation. Calvin Klein International segment revenue increased 21% (including a 3% positive foreign currency impact), driven by strength in Europe and China. Calvin Klein International comparable store sales increased 6%. Revenue in our Calvin Klein North America segment increased 1%, principally due to growth in the wholesale business and an increase in royalty revenue, partially offset by a reduction of approximately $60 million resulting from the Mexico deconsolidation and a 1% decline in comparable store sales.

The addition of an aggregate $3 million of revenue attributable to our Heritage Brands Retail and Heritage Brands Wholesale segments. Comparable store sales increased 2%.

We currently expect that revenue will increase 4% in 2019 compared to 2018, inclusive of a negative impact of approximately 1% related to foreign currency translation. Revenue for the Tommy Hilfiger business is expected to increase approximately 6% compared to 2018, inclusive of a negative impact of approximately 2% related to foreign currency translation. Revenue for the Calvin Klein business is expected to increase approximately 2% compared to 2018, inclusive of a negative impact of approximately 1% related to foreign currency translation. Revenue for our Heritage Brands business is expected to increase approximately 3% compared to 2018. Our 2019 guidance assumes that both the Australia acquisition and the TH CSAP acquisition will close in the second quarter of 2019. These pending acquisitions are expected to add approximately $150 million of revenue in 2019.

36




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 2018, 2017 and 2016:
 
2018
 
2017
 
2016
Components of revenue:
 
 
 
 
 
Net sales
94.8
%
 
94.7
%
 
95.0
%
Royalty, advertising and other revenue
5.2

 
5.3

 
5.0

Total
100.0
%
 
100.0
%
 
100.0
%
Gross margin
55.0
%
 
54.9
%
 
53.3
%

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, in 2017. The 10 basis point increase in gross margin was principally driven by (i) a favorable 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 gross margins, and (ii) gross margin improvement in our Tommy Hilfiger business. Partially offsetting these increases were gross margin declines in our Calvin Klein and Heritage Brands businesses principally due to more promotional selling.

Gross profit in 2017 was $4.894 billion, or 54.9% of total revenue, as compared to $4.370 billion, or 53.3% of total revenue, in 2016. The 160 basis point increase in gross margin was principally driven by (i) a favorable 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 gross margins, (ii) gross margin improvements in our North America segments due to less promotional selling, and (iii) gross margin improvements related to the Mexico deconsolidation 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 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 resulted in higher cost of goods in local currency when the goods were sold.

We currently expect that gross margin in 2019 will increase as compared to 2018 due to (i) the impact of expected 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, and (ii) an expected increase in gross margin in our Calvin Klein business due to less promotional selling resulting from the restructuring initiatives being implemented related to our creative and design functions. These increases will be partially offset by short-lived noncash valuation adjustments expected to be recorded principally in connection with the Australia acquisition.
 
SG&A Expenses

Our SG&A expenses were as follows:
 
2018
 
2017
 
2016
(Dollars in millions)
 
 
 
 
 
SG&A expenses
$
4,433

 
$
4,245

 
$
3,678

% of total revenue
45.9
%
 
47.6
%
 
44.8
%

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

37



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, (iii) the relocation of our Tommy Hilfiger office in New York, including noncash depreciation expense, and (iv) the consolidation within our warehouse and distribution network in North America. 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 Calvin Klein restructuring and (iii) an increase in corporate expenses due, in part, to investments in digital and information technology initiatives.

SG&A expenses in 2017 were $4.245 billion, or 47.6% of total revenue, as compared to $3.678 billion, or 44.8% of total revenue in 2016. The 280 basis point increase in SG&A expenses as a percentage of total revenue was principally attributable to (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) an increase in corporate expenses due, in part, to investments in digital and sourcing initiatives, including start-up costs associated with PVH Ethiopia, (vi) the costs incurred in connection with the relocation of our Tommy Hilfiger office in New York, including noncash depreciation expense, (vii) the absence of the gain recorded in 2016 in connection with a payment made to us to exit a TOMMY HILFIGER flagship store in Europe and (viii) the costs incurred in connection with the consolidation within our warehouse and distribution network in North America. These increases were partially offset by (i) a reduction of costs incurred 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 SG&A expenses as a percentage of total revenue in 2019 will increase as compared to 2018 due to (i) an increase in costs expected to be incurred in connection with the Calvin Klein restructuring, (ii) costs expected to be incurred in connection with the closure of our TOMMY HILFIGER flagship and anchor stores in the United States, (iii) costs expected to be incurred in connection with the Australia acquisition and the TH CSAP acquisition, primarily consisting of noncash valuation adjustments and amortization of short-lived assets, and (iv) 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. These increases will be partially offset by the absence in 2019 of costs that were recorded in 2018 in connection with the TH China acquisition, consisting of noncash amortization of short-lived assets.

Non-Service Related Pension and Postretirement Cost (Income)

Non-service related pension and postretirement cost in 2018 was $5 million as compared to $3 million in 2017. Non-service related pension and postretirement cost in 2018 included a $15 million actuarial loss on our retirement plans. Non-service related pension and postretirement cost in 2017 included a $9 million loss recorded in connection with the noncash settlement of certain of our benefit obligations related to our retirement plans as a result of a group annuity purchased for certain participants under which such obligations were transferred to an insurer, as well as a $3 million actuarial loss on our retirement plans. Please see Note 12, “Retirement and Benefit Plans,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.

Non-service related pension and postretirement cost in 2017 was $3 million as compared to non-service related pension and postretirement income of $41 million in 2016. Non-service related pension and postretirement cost in 2017 included a $9 million loss recorded in connection with the noncash settlement of certain of our benefit obligations related to our retirement plans as a result of a group annuity purchased for certain participants under which such obligations were transferred to an insurer, as well as a $3 million actuarial loss on our retirement plans. Non-service related pension and postretirement income in 2016 included a $39 million actuarial gain on our retirement plans. Please see Note 12, “Retirement and Benefit Plans,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.

We currently expect that non-service related pension and postretirement income for 2019 will be approximately $7 million compared to non-service related pension and postretirement cost of $5 million in 2018. Non-service related pension and postretirement (income) cost 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 that are recorded immediately in earnings, generally in the fourth quarter of the year, which can create volatility in our results of operations. Our 2018 non-service related pension and postretirement cost included a $15

38



million actuarial loss on our retirement plans recorded in the fourth quarter. Based on current market, economic and demographic conditions, we are not aware of any changes to the actuarial valuations for 2019 and as such, our expectation for 2019 assumes there is no actuarial gain or loss. Our actual 2019 non-service related pension and postretirement (income) cost may be significantly different than our projections.

Debt Modification and Extinguishment Costs

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.

We incurred costs totaling $16 million in 2016 in connection with the amendment of our senior secured credit facilities. Please see the section entitled “Liquidity and Capital Resources” below for further discussion.

Other Noncash Gain, Net

We recorded a pre-tax noncash gain of $153 million in 2016 to write up our equity investment in TH China to fair value in connection with the TH China acquisition. Please see Note 3, “Acquisitions,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.

We recorded a pre-tax noncash loss of $82 million in 2016 (including $57 million related to foreign currency translation adjustment losses previously recorded in accumulated other comprehensive loss) in connection with the Mexico deconsolidation. Please see Note 5, “Investments in Unconsolidated Affiliates,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.

We expect to record in 2019 a significant noncash gain to write up our equity investments in Gazal and PVH Australia to fair market value in connection with the Australia acquisition. The closing is expected to occur in the second quarter of 2019.

Equity in Net Income of Unconsolidated Affiliates

The equity in net income of unconsolidated affiliates was $21 million in 2018 as compared to $10 million during 2017 and $100,000 during 2016. These amounts relate to our share of income (loss) from our PVH Australia joint venture, PVH Mexico joint venture (since the formation of PVH Mexico on November 30, 2016), our former joint venture for the TOMMY HILFIGER brand in China (prior to the TH China acquisition on April 13, 2016), and our joint ventures for TOMMY HILFIGER in India and Brazil, and for CALVIN KLEIN in India. Also included is our share of (loss) income from our investments in Karl Lagerfeld Holding B.V. (“Karl Lagerfeld”) and, beginning in the third quarter of 2016, in Gazal. Our investments in the continuing joint ventures, Karl Lagerfeld and Gazal are being accounted for under the equity method of accounting. Please see the section entitled “Investments in Unconsolidated Affiliates” within “Liquidity and Capital Resources” below for further discussion. The equity in net income of unconsolidated affiliates in 2016 included a one-time expense of $6 million recorded on our equity investment in TH China prior to the acquisition closing.

We currently expect that our equity in net income of unconsolidated affiliates for 2019 will decrease as compared to 2018 as the income we recognize on our investments in Gazal and PVH Australia in 2019 will only be for a partial year. Following the closing of the Australia acquisition, which is expected to occur in the second quarter of 2019, we will consolidate the results of Gazal and PVH Australia into our financial statements.

Interest Expense, Net

Net interest expense decreased to $116 million in 2018 from $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.

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 the cumulative impact of long-term debt repayments made during 2017

39



and 2016. Please see the section entitled “Financing Arrangements” within “Liquidity and Capital Resources” below for further discussion.    

Net interest expense in 2019 is currently expected to be approximately $128 million compared to $116 million in 2018 primarily due to higher interest rates, as well as an increase in short-term borrowings, including as a result of the Australia acquisition, the TH CSAP acquisition and costs expected to be incurred in connection with the Calvin Klein restructuring.

Income Taxes

Income tax expense (benefit) was as follows:
 
2018
 
2017
 
2016
(Dollars in millions)
 
 
 
 
 
Income tax expense (benefit)
$
31

 
$
(26
)
 
$
125

Income tax expense (benefit) as a % of pre-tax income
4.0
%
 
(5.1
)%
 
18.6
%

The U.S. Tax Legislation was enacted on December 22, 2017. The U.S. Tax Legislation is comprehensive and significantly revised the United States tax code. The revisions that significantly impact us are (i) the reduction of the corporate income tax rate from 35.0% to 21.0%, (ii) the imposition of a one-time transition tax on earnings of foreign subsidiaries deemed to be repatriated, (iii) the implementation of a modified territorial tax system, (iv) the introduction of 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) the introduction of a base erosion anti-abuse tax measure (known as “BEAT”) that taxes certain payments between United States corporations and their subsidiaries.

We recorded a provisional net tax benefit of $53 million in the fourth quarter of 2017 in connection with the U.S. Tax Legislation, 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. 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. Most of the international jurisdictions in which we file tax returns had lower statutory tax rates than the United States statutory tax rate in 2016 and in 2017 prior to the effective date of the U.S. Tax Legislation. A substantial amount of our earnings comes from our international operations, particularly in the Netherlands and Hong Kong, where income tax rates, coupled with special rates levied on income from certain of our jurisdictional activities, continue to be lower than the United States statutory income tax rate after giving effect to the U.S. Tax Legislation, and reduced our consolidated effective income tax rate during 2018, 2017 and 2016. 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% did not have a significant impact on our overall effective tax rate due to our mix of earnings.
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 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, and 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

40



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.

The effective income tax rate for 2017 was (5.1)% compared with 18.6% in 2016. The 2017 effective income tax rate was significantly lower than the effective income tax rate for 2016 primarily due to (i) the impact of the U.S. Tax Legislation in 2017, which resulted in a benefit to our 2017 effective income tax rate of 10.4%, (ii) a favorable change in our uncertain tax positions activity of 3.8%, (iii) an excess tax benefit from the exercise of stock options by our Chairman and Chief Executive Officer, which resulted in a benefit to our 2017 effective income tax rate of 3.0%, and (iv) faster growth in our international pre-tax earnings as compared to our domestic pre-tax earnings. These favorable impacts to our effective income tax rate for 2017 were partially offset by the absence of a 5.7% benefit to our 2016 effective income tax rate related to the pre-tax gain recorded to write-up our equity investment in TH China to fair value.

The effective income tax rate for 2016 was lower than the 35.0% United States statutory income tax rate due to the benefit of overall lower tax rates in certain international jurisdictions where we file tax returns. Also contributing to the lower effective income tax rate for 2016 was the benefit of discrete items, including the lower tax rate applicable to the pre-tax gain recorded to write-up our equity investment in TH China to fair value that resulted in a 5.7% benefit to our effective income tax rate.

We currently expect that our effective income tax rate in 2019 will be in a range of 15% to 16%. Our expectation that our effective income tax rate in 2019 will be lower than the United States statutory income tax rate is principally due to the overall benefit of certain discrete items, including the favorable impact on certain liabilities for uncertain tax positions. Our expectation that the effective income tax rate in 2019 will increase compared to 2018 is 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 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.

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 and the receipt of new information, which can cause us to change our estimate for uncertain tax positions. Please see Note 9, “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 a joint venture in Ethiopia with Arvind named PVH Ethiopia, in which we own a 75% interest. We consolidate the results of PVH Ethiopia 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 was immaterial in 2018, 2017 and 2016. We currently expect that the net loss attributable to the redeemable non-controlling interest for 2019 will be immaterial. Please see Note 6, “Redeemable Non-Controlling Interest,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.


41



LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Summary

Cash and cash equivalents at February 3, 2019 was $452 million, a decrease of $42 million from the amount at February 4, 2018 of $494 million. The change in cash and cash equivalents included the impact of (i) $302 million of common stock repurchases under the stock repurchase program, (ii) $150 million of long-term debt repayments, (iii) a $16 million payment made in connection with the acquisition of the Geoffrey Beene tradename, and (iv) a $10 million contribution to our defined benefit pension plans.

Cash flow in 2019 will be impacted by various factors in addition to those noted below in this “Liquidity and Capital Resources” section, including (i) expected long-term debt repayments of approximately $150 million, (ii) expected common stock repurchases under the stock repurchase program of approximately $200 million, (iii) the expected net consideration to be paid for the Australia acquisition of A$124 million (approximately $90 million based on the current exchange rate in effect), and (iv) the expected consideration to be paid for the TH CSAP acquisition, which is estimated to be approximately $75 million.

As of February 3, 2019, approximately $415 million of cash and cash equivalents was held by international subsidiaries. Prior to the enactment of the U.S. Tax Legislation, our undistributed foreign earnings were considered 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 our earnings in foreign subsidiaries generated prior to the enactment of the U.S. Tax Legislation were deemed to have been repatriated and, as a result, we recorded a one-time transition tax of $174 million in 2017. Our 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 United States, we may be required to accrue and pay additional taxes, including any applicable foreign withholding tax and United States state income taxes. It is not practicable to estimate the amount of tax that might be payable if these earnings were repatriated due to the complexities associated with the hypothetical calculation.
 
Operations

Cash provided by operating activities was $852 million in 2018 compared to $644 million in 2017. The increase in cash provided by operating activities as compared to the prior year was primarily driven by an increase in net income as adjusted for noncash charges, partially offset by changes in working capital, including (i) an increase in trade receivables due, in part, to an increase in wholesale sales and (ii) an increase in inventories, primarily due to an expected increase in sales for the first quarter of 2019 as compared to the prior year period, as well as an acceleration of receipts in advance of potential tariffs on goods imported from China.

In connection with our acquisition of Calvin Klein, we were obligated to pay Mr. Calvin Klein contingent purchase price payments based on 1.15% of total worldwide net sales (as defined in the acquisition 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 have been made were wholesale sales by us and our licensees and other partners to retailers. Contingent purchase price payments totaled $16 million, $56 million and $53 million in 2018, 2017 and 2016, respectively. All payments due to Mr. Klein under the agreement have been made. All contingent purchase price payments are subject to audit, as per the terms of the acquisition agreement. As a result of accounting guidance adopted in the first quarter of 2018, contingent purchase price payments to Mr. Klein are now classified as operating activities in our Consolidated Statements of Cash Flows, instead of the previous classification as investing activities. Please see Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion of the accounting guidance.

Capital Expenditures
    
Our capital expenditures in 2018 were $379 million compared to $358 million in 2017. The capital expenditures in 2018 primarily related to (i) upgrading and enhancing our operating, supply chain and logistics systems and our digital commerce platforms, (ii) the renovation and expansion of our administrative offices in Amsterdam, and (iii) investments in new stores and store expansions. We currently expect that capital expenditures for 2019 will increase to approximately $425 million and will include expenditures primarily related to (i) investments in new stores and store expansions, (ii) continued investments to upgrade and enhance our operating, supply chain and logistics systems and our digital commerce platforms, and (iii) the expansion of our warehouse and distribution network in North America.

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Investments in Unconsolidated Affiliates

We own a 50% economic interest in PVH Australia. We received dividends of $6 million, $3 million and $1 million from PVH Australia during 2018, 2017 and 2016, respectively.

We acquired 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 in 2017. Our current ownership interest in Gazal is approximately 22%. We received dividends of $1 million from Gazal in each of 2018 and 2017.

We entered into on February 20, 2019 a definitive agreement to acquire the approximately 78% interest in Gazal that we do not already own. PVH Australia will come under our full ownership as a result of the Australia acquisition. The aggregate net purchase price for the shares being acquired is approximately A$124 million (approximately $90 million based on the current exchange rate in effect), after taking into account the divestiture to a third party of an office building and warehouse owned by Gazal. The closing is subject to customary conditions, including shareholder, court and regulatory approvals, and is expected to occur in the second quarter of 2019.

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 in 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 subsidiaries the rights to the CALVIN KLEIN trademarks in India for certain product categories. We made payments of $2 million to CK India in each of 2017 and 2016 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 in a joint venture, Tommy Hilfiger do Brasil S.A. (“TH Brazil”) in 2012. We acquired an approximately 1% additional interest for $300,000 in 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 and $2 million to TH Brazil during 2017 and 2016, 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 and Grupo Axo formed PVH Mexico in 2016. We own a 49% economic interest in the joint venture. PVH Mexico licenses from certain of our wholly owned subsidiaries the rights to distribute and sell certain TOMMY HILFIGER, CALVIN KLEIN, 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 payments of $7 million to PVH Mexico during 2016 to contribute our share of the joint venture funding. Please see Note 5, “Investments in Unconsolidated Affiliates,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.

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 offered rate (“LIBOR”) plus 4.00% thereafter. We received principal payments of $200,000 during 2018. The outstanding balance, including accrued interest, was $14 million as of both February 3, 2019 and February 4, 2018.




43



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 3, “Acquisitions,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.

Acquisition of TH China

We completed the TH China acquisition on April 13, 2016. Prior 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. Please see Note 3, “Acquisitions,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.

TH CSAP Acquisition

We entered into on March 25, 2019 a definitive agreement to acquire the Tommy Hilfiger retail business in Hong Kong and certain other countries in Central and Southeast Asia from our current licensee in those markets. The purchase price is estimated to be approximately $75 million. The closing is subject to customary conditions and regulatory approval and is expected to occur in the second quarter of 2019.

Sale of Assets

We sold a building in Chattanooga, Tennessee in 2017 for $3 million in connection with the consolidation within our warehouse and distribution network in North America.

One of our European subsidiaries sold a building in Amsterdam, the Netherlands in 2016 for €15 million (approximately $17 million based on the exchange rate in effect on the date of the sale).

Dividends

Our common stock currently pays annual dividends totaling $0.15 per share. Dividends on common stock totaled $12 million in each of 2018, 2017 and 2016.

We currently project that cash dividends on our common stock in 2019 will be approximately $11 million based on our current dividend rate, the number of shares of our common stock outstanding as of February 3, 2019, our estimate of stock to be issued during 2019 under our stock incentive plans and our estimate of stock repurchases during 2019.

Acquisition of Treasury Shares

Our Board of Directors authorized a $500 million three-year stock repurchase program effective 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. On March 26, 2019, the Board of Directors authorized a further $750 million increase to the program and extended it to June 3, 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

44



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 2018, 2017 and 2016, we purchased approximately 2.2 million, 2.2 million and 3.2 million shares, respectively, of our common stock under the program in open market transactions for $300 million, $250 million and $315 million, respectively. 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 $258 million of the authorization remained available for future share repurchases as of February 3, 2019.

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.

Tommy Hilfiger India Contingent Purchase Price Payments

We reacquired in 2011 the rights in India to the TOMMY HILFIGER trademarks that had been subject to a perpetual license previously granted to a third party. We were required to make annual contingent purchase price payments to the seller based on a percentage of sales of TOMMY HILFIGER products in India in excess of an agreed upon threshold during each of six consecutive 12-month periods immediately following the acquisition, with the final payment made in 2017. We made contingent purchase price payments of approximately $1 million in each of 2017 and 2016. As a result of accounting guidance adopted in 2018, these contingent purchase price payments are now classified as financing activities in our Consolidated Statements of Cash Flows, instead of the previous classification as investing activities. Please see to Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion of the accounting guidance.

Financing Arrangements

Our capital structure was as follows:
(In millions)
February 3, 2019
 
February 4, 2018
Short-term borrowings
$
13

 
$
20

Current portion of long-term debt

 

Capital lease obligations
17

 
16

Long-term debt
2,819

 
3,061

Stockholders’ equity
5,828

 
5,536


In addition, we had $452 million and $494 million of cash and cash equivalents as of February 3, 2019 and February 4, 2018, respectively.

Short-Term Borrowings

We have the ability to draw revolving borrowings under our senior secured credit facilities, as discussed in the section entitled “2016 Senior Secured Credit Facilities” below. We had $8 million outstanding under these facilities as of February 3, 2019. The weighted average interest rate on funds borrowed as of February 3, 2019 was 4.45%. The maximum amount of revolving borrowings outstanding under these facilities during 2018 was $274 million. There were no borrowings outstanding under these facilities as of February 4, 2018.

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 provided for borrowings of up to $102 million based on exchange rates in effect on February 3, 2019 and are utilized primarily to fund working capital needs. We had $5 million and $20 million outstanding under these facilities as of February 3, 2019 and February 4, 2018, respectively. The weighted average interest rate on funds borrowed as of February 3, 2019 and February 4, 2018 was 0.21% and 1.19%, respectively. The maximum amount of borrowings outstanding under these facilities during 2018 was $39 million.

Capital Lease Obligations

Our cash payments for capital lease obligations totaled $5 million, $5 million and $7 million in 2018, 2017 and 2016, respectively.

45




2016 Senior Secured Credit Facilities

We have senior secured credit facilities due May 19, 2021 (the “2016 facilities”) that consist of a $2.347 billion United States dollar-denominated Term Loan A facility and senior secured revolving credit facilities consisting of (i) a $475 million United States dollar-denominated revolving credit facility, (ii) a $25 million United States dollar-denominated revolving credit facility available in United States dollars and Canadian dollars and (iii) a €186 million euro-denominated revolving credit facility available in euro, British pound sterling, Japanese yen and Swiss francs. Borrowings under the 2016 facilities bear interest at variable rates calculated in the manner as described below. The senior secured revolving credit facilities also include amounts available for letters of credit. 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 prior senior secured credit facilities outstanding through May 19, 2016 (the “2014 facilities”), which were amended by the 2016 facilities in 2016. Among other things, this amendment provided for (i) us to borrow an additional $582 million principal amount of loans under the Term Loan A facility, (ii) the repayment of all outstanding loans under the previously outstanding Term Loan B facility with the proceeds of the additional loans under the Term Loan A facility, and (iii) the termination of the Term Loan B facility. We paid debt issuance costs of $11 million (of which $5 million was expensed as debt modification costs and $6 million is being amortized over the term of the related debt agreement) and recorded debt extinguishment costs of $11 million to write-off previously capitalized debt issuance costs.

We had loans outstanding of $1.644 billion, net of original issue discounts and debt issuance costs, under the Term Loan A facility, $8 million of borrowings outstanding under the senior secured revolving credit facilities and $20 million of outstanding letters of credit under the senior secured revolving credit facilities as of February 3, 2019.

We made payments of $150 million, $250 million and $350 million during 2018, 2017 and 2016, respectively, on our term loans under the 2016 facilities and 2014 facilities. As a result of the voluntary repayments we have made to date, as of February 3, 2019, we are not required to make a long-term debt repayment until June 2020.

The United States dollar-denominated borrowings under the 2016 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 rate plus 1/2 of 1.00% and (iii) a one-month adjusted Eurocurrency rate plus 1.00% or (b) an adjusted Eurocurrency rate, calculated in a manner set forth in the 2016 facilities.

The Canadian dollar-denominated borrowings under the 2016 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’ 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 2016 facilities.

The borrowings under the 2016 facilities in currencies other than United States dollars or Canadian dollars bear interest at a rate equal to an applicable margin plus an adjusted Eurocurrency rate, calculated in a manner set forth in the 2016 facilities.

The current applicable margin with respect to the Term Loan A facility and each revolving credit facility is 1.50% for adjusted Eurocurrency rate loans and 0.50% for base rate loans, respectively. 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.

46




We entered into interest rate swap agreements designed with the intended effect of converting notional amounts of our variable rate debt obligation to fixed rate debt. Under the terms of the agreements, for the outstanding notional amount, our exposure to fluctuations in the one-month LIBOR is eliminated and we pay a fixed rate plus the current applicable margin. The following interest rate swap agreements were entered into or in effect during 2018, 2017 and 2016:
(In millions)
 
 
 
 
 
Designation Date
Commencement Date
Initial Notional Amount
Notional Amount Outstanding as of February 3, 2019
Fixed Rate
Expiration Date
January 2019
February 2020
$
50

$

2.4187%
February 2021
November 2018
February 2019
139


2.8645%
February 2021
October 2018
February 2019
116


2.9975%
February 2021
June 2018
August 2018
50

50

2.6825%
February 2021
June 2017
February 2018
306

182

1.566%
February 2020
July 2014
February 2016
683


1.924%
February 2018

The notional amounts of the outstanding interest rate swap that commenced in February 2018 and the interest rate swaps that will commence in February 2019 will be adjusted according to pre-set schedules during the terms of the swap agreements such that, based on our projections for future debt repayments, our outstanding debt under the 2016 facilities 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 and recorded debt extinguishment costs of $8 million to write-off previously capitalized debt issuance costs associated with these 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, 2016 €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 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 3, 2019, we were in compliance with all applicable covenants under our financing arrangements.

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As of February 3, 2019, our issuer credit was rated BBB- by Standard & Poor’s with a stable outlook and our corporate credit was rated Ba1 by Moody’s with a positive outlook. In assessing our credit strength, we believe that both 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 see Note 8, “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 3, 2019, our contractual cash obligations by future period:

 
 
Payments Due by Period
Description
 
Total
Obligations
 
2019
 
2020-2021
 
2022-2023
 
Thereafter
(In millions)
 
 
Long-term debt(1)
 
$
2,839

 
$

 
$
1,649

 
$
100

 
$
1,090

Interest payments on long-term debt
 
469

 
111

 
178

 
87

 
93

Short-term borrowings
 
13

 
13

 

 

 

Operating and capital leases(2)
 
2,171

 
408

 
694

 
447

 
621

Inventory purchase commitments(3)
 
1,074

 
1,074

 

 

 

Minimum contractual royalty payments(4)
 
32

 
18

 
12

 
2

 

Non-qualified supplemental defined benefit plan(5)
 
9

 
1

 
2

 
1

 
5

Sponsorship and model payments(6)
 
57

 
28

 
25

 
3

 
1

Total contractual cash obligations
 
$
6,664

 
$
1,653

 
$
2,560

 
$
640

 
$
1,810

______________________
(1) 
At February 3, 2019, we had outstanding $1.649 billion under a senior secured Term Loan A facility, which requires mandatory payments through May 19, 2021 (according to the mandatory repayment schedules), $100 million of 7 3/4% debentures due November 15, 2023, $401 million of 3 5/8% senior unsecured euro notes due July 15, 2024 and $688 million of 3 1/8% senior unsecured euro notes due December 15, 2027.
(2) 
Includes retail store, warehouse, distribution centers, showroom, office and equipment operating leases, as well as capital leases. Retail store operating leases generally provide for payment of direct operating costs in addition to rent. The obligation amounts listed include future minimum lease payments and exclude such direct operating costs. Please see Note 16, “Leases,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further information.
(3) 
Represents contractual commitments that are enforceable and legally binding for goods on order and not received or paid for as of February 3, 2019. Inventory purchase commitments also include fabric commitments with our suppliers, which secure a portion of our material needs for future seasons. Substantially all of these goods are expected to be received and the related payments are expected to be made within six months of our year end. This amount does not include foreign currency forward exchange contracts that we have entered into to manage our exposure to exchange rate changes with respect to certain of these purchases. Please see Note 10, “Derivative Financial Instruments,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further information.
(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. However, given our projected sales levels for products covered under these agreements, we currently anticipate that

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future payments required under our license agreements on an aggregate basis will exceed the contractual minimums shown in the table.
(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) 
Represents payment obligations for sponsorships. We have agreements relating to our sponsorship of the Barclays Center, the Brooklyn Nets, Mercedes-AMG Petronas Motorsport in Formula OneTM racing and certain other professional sports teams and athletes and other similar sponsorships, as well as agreements with celebrities, models and stylists.

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, “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. 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 $184 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, “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 $32 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 22, “Other Comments,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further information related to asset retirement obligations.

Not included in the above table are contractual royalty obligations related to our perpetual license agreement with Speedo International Limited. Under the terms of the agreement, our contractual minimum payments each year are $1 million, which is subject to annual increases based on the Consumer Price Index.

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.


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MARKET RISK

Financial instruments held by us as of February 3, 2019 include cash and cash equivalents, short-term borrowings, long-term debt, foreign currency forward exchange contracts and interest rate swap agreements. Note 11, “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 3, 2019. Cash and cash equivalents held by us are affected by short-term interest rates, which are currently low. The 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 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 3, 2019, the effect of a 10 basis point change in short-term interest rates on our interest income would be approximately $450,000 annually. Borrowings under our 2016 facilities bear interest at a rate equal to an applicable margin plus a variable rate. As such, our 2016 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 3, 2019, after taking into account the effect of our interest rate swap agreements that were in effect as of such date, approximately 50% of our long-term debt was at a fixed interest rate, with the remainder at variable interest rates. Given our debt position at February 3, 2019, the effect of a 10 basis point change in interest rates on our variable interest expense would be approximately $1 million annually. Please see 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 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 $9.657 billion of revenue in 2018 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 translational impact and a transactional impact.

The translational 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 of operations in local foreign currencies are translated into United States dollars using an average exchange rate over the representative 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 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 Canadian dollar and the Chinese yuan renminbi, and favorably impacted during times of a weakening United States dollar against those currencies.

In 2018, we recognized unfavorable foreign currency translation adjustments of $361 million within other comprehensive loss, principally driven by a strengthening of the United States dollar against the euro of 8% since February 4, 2018. 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 34% of our $7.2 billion total goodwill and other intangible assets as of February 3, 2019. This translational impact was partially mitigated by the change in the fair value of our net investment hedges discussed below.

A transactional 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 during times of a strengthening United States dollar as the increased local currency value of inventory results in a higher 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.

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Given our foreign currency forward exchange contracts outstanding at February 3, 2019, 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 $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.

Based on current foreign currency exchange rates, we expect a decrease in revenue of approximately $150 million, or 1%, and a slight decrease in net income in 2019 as compared to 2018 due to the impact of foreign currency exchange.
In order to mitigate a portion of our exposure to changes in foreign currency exchange rates related to the value of our investments in foreign subsidiaries denominated in the euro, we designated the carrying amount of our €950 million aggregate principal amount of 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. The effect of a 10% change in the euro against the United States dollar would result in a change in the fair value of the net investment hedges of approximately $110 million. Any change in the fair value of the net investment hedges would be more than offset by a change in the value of our investments in certain of our European subsidiaries. Additionally, 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 on our euro-denominated senior 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 2019 net benefit cost related to the pension plans of approximately $6 million. Likewise, a 0.25% change in the assumed discount rate would result in a change to 2019 net benefit cost of approximately $31 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 see 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 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

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retail inventory method. Cost for substantially all wholesale inventories in North America and certain wholesale inventories in Asia 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 writedowns required at February 3, 2019 have been recorded. Our historical estimates of inventory reserves have not differed materially from actual results. If market conditions were to change, it is possible that the required level of inventory reserves would need to be adjusted.

Asset impairments—We determined during each of 2018, 2017 and 2016 that long-lived assets in certain of our retail stores and shop-in-shops were not recoverable, which resulted in us recording impairment charges. In order to calculate the impairment charges, we estimated the undiscounted future cash flows and the related fair value of each asset. The undiscounted future cash flows for each asset were estimated using current sales trends and other factors. If different assumptions had been used for future sales trends, the recorded impairment charges could have been significantly higher or lower. Note 11, “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 revised the United States tax code. Please see Note 9, “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 units 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

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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 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 our reporting units. 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 50%, and therefore the second step of the quantitative goodwill impairment test was not required. No impairment of goodwill resulted from our annual impairment test in 2018.

For the 2017 annual goodwill impairment test, we elected to first assess qualitative factors to determine whether it was more likely than not that the fair value of any reporting unit was less than its carrying amount as a basis for determining whether it was necessary to perform the two-step goodwill impairment test. In evaluating whether it was more likely than not that the fair value of any reporting unit was less than its carrying amount, we assessed relevant events and circumstances including the 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. 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 our annual impairment test in 2017.

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 our annual impairment tests in 2018.

For the 2017 annual impairment test of certain indefinite-lived intangible assets, we 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, 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 amounts and concluded that the quantitative impairment test was not required. For certain other indefinite-lived intangible assets impairment tests, 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. No impairment of indefinite-lived intangible assets resulted from our annual impairment tests in 2017.

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 2018 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.

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Pension and Benefit Plans—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 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 revised during each of 2018 and 2017 the mortality assumptions used to determine our benefit obligations based on recently published actuarial mortality tables. These changes in life expectancy resulted in changes to the period for which we expect benefits to be paid. In 2018, the decrease in life expectancy decreased our benefit obligations and future expense, and, in 2017, the increase in life expectancy increased our benefit obligations and future expense.

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 our 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 2019 net benefit cost related to the pension plans of approximately $6 million. Likewise, a 0.25% change in the assumed discount rate would result in a change to 2019 net benefit cost of approximately $31 million.

Note 12, “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.


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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-60 and F-61.

Changes in Internal Control over Financial Reporting

There have been no 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

Not applicable.

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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 20, 2019. 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 20, 2019. 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 20, 2019.

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 20, 2019.

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 20, 2019.

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 20, 2019.

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 20, 2019.


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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:

Exhibit
 Number
 
2.1
 
 
 
 
2.2
 
 
 
 
3.1
 
Certificate of Incorporation (incorporated by reference to Exhibit 5 to our Annual Report on Form 10-K for the fiscal year ended January 29, 1977); Amendment to Certificate of Incorporation, filed June 27, 1984 (incorporated by reference to Exhibit 3B to our Annual Report on Form 10-K for the fiscal year ended February 3, 1985); Certificate of Designation of Series A Cumulative Participating Preferred Stock, filed June 10, 1986 (incorporated by reference to Exhibit A of the document filed as Exhibit 3 to our Quarterly Report on Form 10-Q for the period ended May 4, 1986); Amendment to Certificate of Incorporation, filed June 2, 1987 (incorporated by reference to Exhibit 3(c) to our Annual Report on Form 10-K for the fiscal year ended January 31, 1988); Amendment to Certificate of Incorporation, filed June 1, 1993 (incorporated by reference to Exhibit 3.5 to our Annual Report on Form 10-K for the fiscal year ended January 30, 1994); Amendment to Certificate of Incorporation, filed June 20, 1996 (incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q for the period ended July 28, 1996); Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock of Phillips-Van Heusen Corporation (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed on February 26, 2003); Corrected Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock of Phillips-Van Heusen Corporation, dated April 17, 2003 (incorporated by reference to Exhibit 3.9 to our Annual Report on Form 10-K for the fiscal year ended February 2, 2003); Certificate of Amendment of Certificate of Incorporation, filed June 29, 2006 (incorporated by reference to Exhibit 3.9 to our Quarterly Report on Form 10-Q for the period ended May 6, 2007); Certificate Eliminating Reference to Series B Convertible Preferred Stock from Certificate of Incorporation of Phillips-Van Heusen Corporation, filed June 12, 2007 (incorporated by reference to Exhibit 3.10 to our Quarterly Report on Form 10-Q for the period ended May 6, 2007); Certificate Eliminating Reference To Series A Cumulative Participating Preferred Stock From Certificate of Incorporation of Phillips-Van Heusen Corporation (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K, filed on September 28, 2007); Certificate of Designations of Series A Convertible Preferred Stock of Phillips-Van Heusen Corporation (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed May 12, 2010); Certificate of Amendment of Certificate of Incorporation, filed June 23 2011 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed on June 29, 2011); Certificate Eliminating Reference to Series A Convertible Preferred Stock From Certificate of Incorporation of PVH Corp. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed on May 3, 2013).
 
 
 
3.2
 

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4.2

Indenture, dated as of November 1, 1993, between Phillips-Van Heusen Corporation and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.01 to our Registration Statement on Form S-3 (Reg. No. 33-50751) filed on October 26, 1993); First Supplemental Indenture, dated as of October 17, 2002, to Indenture, dated as of November 1, 1993, between Phillips-Van Heusen Corporation and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.15 to our Quarterly Report on Form 10-Q for the period ended November 3, 2002); Second Supplemental Indenture, dated as of February 12, 2002, to Indenture, dated as of November 1, 1993, between Phillips-Van Heusen Corporation and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K, filed on February 26, 2003); Third Supplemental Indenture, dated as of May 6, 2010, between Phillips-Van Heusen Corporation and The Bank of New York Mellon (formerly known as The Bank of New York), as Trustee (incorporated by reference to Exhibit 4.16 to our Quarterly Report on Form 10-Q for the period ended August 1, 2010); Fourth Supplemental Indenture, dated as of February 13, 2013, to Indenture, dated as of November 1, 1993, between PVH Corp. and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.11 to our Quarterly Report on Form 10-Q for the period ended May 5, 2013).
 

 
4.3

 
 
4.4

 
 
4.5

 
 
*10.1  

Phillips-Van Heusen Corporation Capital Accumulation Plan (incorporated by reference to our Current Report on Form 8-K, filed on January 16, 1987); Phillips-Van Heusen Corporation Amendment to Capital Accumulation Plan (incorporated by reference to Exhibit 10(n) to our Annual Report on Form 10-K for the fiscal year ended February 2, 1987); Form of Agreement amending Phillips-Van Heusen Corporation Capital Accumulation Plan with respect to individual participants (incorporated by reference to Exhibit 10(1) to our Annual Report on Form 10-K for the fiscal year ended January 31, 1988); Form of Agreement amending Phillips-Van Heusen Corporation Capital Accumulation Plan with respect to individual participants (incorporated by reference to Exhibit 10.8 to our Quarterly Report on Form 10-Q for the period ended October 29, 1995).
 
 
*10.2  

 
 
*10.3  

 
 
*10.4  

 
 
*10.5  

 
 
*10.6  

Second Amended and Restated Employment Agreement, dated as of December 23, 2008, between Phillips-Van Heusen Corporation and Emanuel Chirico (incorporated by reference to Exhibit 10.15 to our Annual Report on Form 10-K for the fiscal year ended February 1, 2009); First Amendment to Second Amended and Restated Employment Agreement, dated as of January 29, 2010, between Phillips-Van Heusen Corporation and Emanuel Chirico (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended May 2, 2010); Second Amendment to Second Amended and Restated Employment Agreement, dated as of May 27, 2010, between Phillips-Van Heusen Corporation and Emanuel Chirico (incorporated by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q for the period ended August 1, 2010); Third Amendment to Second Amended and Restated Employment Agreement, dated January 28, 2011, between Phillips-Van Heusen Corporation and Emanuel Chirico (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed January 28, 2011).
 
 

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*10.7

 
 
*10.8

 
 
*10.9

 
 
*10.10

 
 
*10.11

 
 
*10.12

 
 
*10.13

 
 
*10.14

 
 
*10.15

Form of Restricted Stock Unit Agreement for Associates under the Phillips-Van Heusen Corporation 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, filed on April 11, 2007); Revised Form of Restricted Stock Unit Agreement for Associates under the Phillips-Van Heusen Corporation 2006 Corporation Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for the period ended May 6, 2007); Revised Form of Restricted Stock Unit Award Agreement for Employees under the Phillips-Van Heusen Corporation 2006 Stock Incentive Plan, effective as of July 1, 2008 (incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q for the period ended August 3, 2008); Revised Form of Restricted Stock Unit Award Agreement for Associates under the Phillips-Van Heusen Corporation 2006 Stock Incentive Plan, effective as of September 24, 2008 (incorporated by reference to Exhibit 10.39 to our Annual Report on Form 10-K for the fiscal year ended February 1, 2009).
 
 
*10.16

 
 

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*10.17

Form of Performance Share Award Agreement under the Phillips-Van Heusen Corporation 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on May 8, 2007); Revised Form of Performance Share Award Agreement under the Phillips-Van Heusen Corporation 2006 Stock Incentive Plan, effective as of April 30, 2008 (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the period ended May 4, 2008); Revised Form of Performance Share Award Agreement under the Phillips-Van Heusen Corporation 2006 Stock Incentive Plan, effective as of December 16, 2008 (incorporated by reference to Exhibit 10.42 to our Annual Report on Form 10-K for the fiscal year ended February 1, 2009); Revised Form of Performance Share Award Agreement under the PVH Corp. 2006 Stock Incentive Plan, effective as of April 25, 2012 (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for the period ended April 29, 2012); Alternative Form of Performance Share Unit Award Agreement under the PVH Corp. 2006 Stock Incentive Plan, effective as of May 1, 2013 (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the period ended May 5, 2013).
 
 
*10.18

Revised Form of Restricted Stock Unit Award Agreement for Directors under the Phillips-Van Heusen Corporation 2006 Stock Incentive Plan, effective as of July 1, 2008 (incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the period ended August 3, 2008); Revised Form of Restricted Stock Unit Award Agreement for Directors under the Phillips-Van Heusen Corporation 2006 Stock Incentive Plan, effective as of September 24, 2008 (incorporated by reference to Exhibit 10.45 to our Annual Report on Form 10-K for the fiscal year ended February 1, 2009); Revised Form of Restricted Stock Unit Award Agreement for Directors under the Phillips-Van Heusen Corporation 2006 Stock Incentive Plan, effective as of June 24, 2010 (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for the period ended August 1, 2010).
 
 
*10.19

 
 
10.20

Credit and Guaranty Agreement, dated as of February 13, 2013, among PVH Corp., Tommy Hilfiger B.V., certain subsidiaries of PVH Corp., Barclays Bank PLC as Administrative Agent and Collateral Agent, Joint Lead Arranger and Joint Lead Bookrunner, Merrill Lynch, Pierce, Fenner & Smith Incorporated as Co-Syndication Agent, Joint Lead Arranger and Joint Lead Bookrunner, Citigroup Global Markets Inc. as Co-Syndication Agent, Joint Lead Arranger and Joint Lead Bookrunner, Credit Suisse Securities (USA) LLC as Co-Documentation Agent and Joint Lead Bookrunner, Royal Bank of Canada as Co-Documentation Agent, and RBC Capital Markets as Joint Lead Bookrunner (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended May 5, 2013); First Amendment to Credit Agreement, dated as of March 21, 2014, entered into by and among PVH Corp., PVH B.V. (formerly known as Tommy Hilfiger B.V.), the Guarantors listed on the signature pages thereto, each Lender party thereto, each Lender Counterparty party thereto, each Issuing Bank party thereto and Barclays Bank PLC, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended May 4, 2014); Second Amendment to Credit Agreement, dated as of May 19, 2016, entered into by and among PVH Corp., PVH B.V., the Guarantors listed on the signature pages thereto, each Lender party thereto, each Issuing Bank party thereto, the Swing Line Lender party thereto and Barclays Bank PLC, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended July 31, 2016).
 
 
*10.21

 
 
*10.22

Employment Agreement, dated as of May 6, 2010, between Tommy Hilfiger Group, B.V. and Fred Gehring (incorporated by reference to Exhibit 10.47 to our Annual Report on Form 10-K for the fiscal year ended January 30, 2011); Addendum to Employment Agreement, dated as of December 31, 2010, between Tommy Hilfiger Group, B.V. and Fred Gehring (incorporated by reference to Exhibit 10.48 to our Annual Report on Form 10-K for the fiscal year ended January 30, 2011); Amended and Restated Employment Agreement, dated as of July 23, 2013, between PVH B.V. and Fred Gehring (incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q for the period ended August 4, 2013); Amendment to Amended and Restated Employment Agreement, dated as of December 23, 2013, between PVH B.V. and Fred Gehring (incorporated by reference to Exhibit 10.33 to our Annual Report on Form 10-K for the fiscal year ended February 2, 2014); Second Amendment to Amended and Restated Employment Agreement, dated as of May 23, 2014, between PVH B.V. and Fred Gehring (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed on June 5, 2014); Third Amendment to Amended and Restated Employment Agreement, dated as of July 31, 2015, between PVH B.V. and Fred Gehring (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the period ended August 2, 2015).
 
 

60



*10.23

Second Amended and Restated Employment Agreement, dated as of December 16, 2008, between Phillips-Van Heusen Corporation and Steven B. Shiffman (incorporated by reference to Exhibit 10.25 to our Annual Report on Form 10-K for the fiscal year ended February 1, 2015); First Amendment to Second Amended and Restated Employment Agreement, dated as of March 31, 2011, between Phillips-Van Heusen Corporation and Steven B. Shiffman (incorporated by reference to Exhibit 10.26 to our Annual Report on Form 10-K for the fiscal year ended February 1, 2015); Second Amendment to Second Amended and Restated Employment Agreement, dated as of June 1, 2013, between PVH Corp. and Steven B. Shiffman (incorporated by reference to Exhibit 10.27 to our Annual Report on Form 10-K for the fiscal year ended February 1, 2015).
 
 
*10.24

 
 
 *10.25

*10.26


 
 
+21

 
 
+23

 
 
+31.1

 
 
+31.2

 
 
+32.1

 
 
+32.2

 
 
+101.INS

XBRL Instance Document
 
 
+101.SCH

XBRL Taxonomy Extension Schema Document
 
 
+101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document
 
 
+101.DEF

XBRL Taxonomy Extension Definition Linkbase Document
 
 
+101.LAB

XBRL Taxonomy Extension Label Linkbase Document
 
 
+101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document
________________

+
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.


61



Item 16. Form 10-K Summary

None.


62



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 29, 2019
 
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
March 29, 2019
Emanuel Chirico
(Principal Executive Officer)
 
 
 
/s/ MICHAEL SHAFFER
Executive Vice President and Chief Operating &
March 29, 2019
Michael Shaffer
Financial Officer (Principal Financial Officer)
 
 
 
/s/ JAMES W. HOLMES
Senior Vice President and Controller
March 29, 2019
James W. Holmes
(Principal Accounting Officer)
 
 
 
/s/ MARY BAGLIVO
Director
March 29, 2019
Mary Baglivo
 
 
 
/s/ BRENT CALLINICOS
Director
March 29, 2019
Brent Callinicos
 
 
 
/s/ JUAN FIGUEREO
Director
March 29, 2019
Juan Figuereo
 
 
 
/s/ JOSEPH B. FULLER
Director
March 29, 2019
Joseph B. Fuller
 
 
 
/s/ JUDITH AMANDA SOURRY KNOX

Director
March 29, 2019
Judith Amanda Sourry Knox

 
 
 
/s/ V. JAMES MARINO
Director
March 29, 2019
V. James Marino
 
 
 
/s/ GERALDINE (PENNY) MCINTYRE
Director
March 29, 2019
Geraldine (Penny) McIntyre
 
 
 
/s/ AMY MCPHERSON
Director
March 29, 2019
Amy McPherson
 
 
 
/s/ HENRY NASELLA
Director
March 29, 2019
Henry Nasella
 
 
 
/s/ EDWARD ROSENFELD
Director
March 29, 2019
Edward Rosenfeld
 
 
 
/s/ CRAIG RYDIN
Director
March 29, 2019
Craig Rydin

63




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:


 
Schedule II - Valuation and Qualifying Accounts                                                                                                         

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)