Company Quick10K Filing
Quick10K
PVH
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$120.65 75 $9,050
10-Q 2019-05-05 Quarter: 2019-05-05
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 2019-06-20 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2019-06-10 Officers, Other Events, Exhibits
8-K 2019-05-31 Regulation FD, Exhibits
8-K 2019-05-29 Earnings, Exhibits
8-K 2019-05-20 Officers, Other Events, Exhibits
8-K 2019-04-30 Exhibits
8-K 2019-04-29 Amend Bylaw, Exhibits
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
STE Steris 10,980
DOMO Domo 985
HCHC HC2 121
RMBL Rumbleon 107
RIOT Riot Blockchain 54
CNL Clecoorate Holdings 0
LEDL LED Lighting 0
OWCP OWC Pharmaceutical Research 0
COOL Cool Technologies 0
DWCH Datawatch 0
PVH 2019-05-05
Part I -- Financial Information
Item 1 - Financial Statements
Part II -- Other Information
Part I - Financial Information
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part II - Other Information
Item 1 - Legal Proceedings
Item 1A - Risk Factors
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 6 - Exhibits
EX-10.1 ex10120191q10q.htm
EX-31.1 ex31120191q10q.htm
EX-31.2 ex31220191q10q.htm
EX-32.1 ex32120191q10q.htm
EX-32.2 ex32220191q10q.htm

PVH Earnings 2019-05-05

PVH 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a10q1q2019.htm 10-Q Document


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

FORM 10-Q
(Mark One)
 
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
May 5, 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
 
(I.R.S. Employer
incorporation or organization)
 
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
Trading Symbol
Name of each exchange on which registered
Common Stock, $1.00 par value
PVH
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
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 Exchange Act). Yes o No x

The number of outstanding shares of common stock of the registrant as of June 4, 2019 was 74,913,188.




PVH CORP.
INDEX

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Forward-looking statements in this Quarterly Report on Form 10-Q, 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 recently completed acquisition of Gazal Corporation Limited and the pending acquisition of the Tommy Hilfiger retail business in Hong Kong and certain other countries in Central and Southeast Asia from our current licensee in those markets referenced in this Quarterly Report on Form 10-Q; (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, such as the recently increased tariffs and threatened additional tariffs on goods imported into the United States from China, 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, or require that we absorb costs or try to pass costs onto consumers, which could materially impact our revenue and profitability; (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.

PART I -- FINANCIAL INFORMATION

Item 1 - Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 













PART II -- OTHER INFORMATION





PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

PVH Corp.
Consolidated Income Statements
Unaudited
(In millions, except per share data)

 
Thirteen Weeks Ended
 
May 5,
 
May 6,
 
2019
 
2018
Net sales    
$
2,237.3

 
$
2,193.5

Royalty revenue    
89.4

 
89.4

Advertising and other revenue    
29.6

 
31.7

Total revenue    
2,356.3

 
2,314.6

Cost of goods sold (exclusive of depreciation and amortization)
1,060.4

 
1,023.6

Gross profit    
1,295.9

 
1,291.0

Selling, general and administrative expenses    
1,161.5

 
1,053.0

Non-service related pension and postretirement income
(2.2
)
 
(2.5
)
Debt modification and extinguishment costs
5.2

 

Equity in net income of unconsolidated affiliates
3.7

 
3.8

Income before interest and taxes
135.1

 
244.3

Interest expense    
31.0

 
29.4

Interest income    
1.1

 
1.0

Income before taxes
105.2

 
215.9

Income tax expense
23.6

 
37.0

Net income
81.6

 
178.9

Less: Net loss attributable to redeemable non-controlling interest
(0.4
)
 
(0.5
)
Net income attributable to PVH Corp.
$
82.0

 
$
179.4

Basic net income per common share attributable to PVH Corp.
$
1.09

 
$
2.33

Diluted net income per common share attributable to PVH Corp.
$
1.08

 
$
2.29


See accompanying notes.

1



PVH Corp.
Consolidated Statements of Comprehensive Income
Unaudited
(In millions)


 
Thirteen Weeks Ended
 
May 5,
 
May 6,
 
2019
 
2018
 
 
 
 
Net income
$
81.6

 
$
178.9

Other comprehensive (loss) income:
 
 
 
Foreign currency translation adjustments
(111.6
)
 
(172.2
)
Net unrealized and realized gain related to effective cash flow hedges, net of tax expense of $0.4 and $2.7
13.4

 
50.1

Net gain on net investment hedges, net of tax expense of $7.2 and $12.0
22.4

 
37.0

Total other comprehensive loss
(75.8
)
 
(85.1
)
Comprehensive income
5.8

 
93.8

Less: Comprehensive loss attributable to redeemable non-controlling interest
(0.4
)
 
(0.5
)
Comprehensive income attributable to PVH Corp.
$
6.2

 
$
94.3


See accompanying notes.


2




PVH Corp.
Consolidated Balance Sheets
(In millions, except share and per share data)
 
May 5,
 
February 3,
 
May 6,
 
2019
 
2019
 
2018
 
UNAUDITED
 
AUDITED
 
UNAUDITED
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and cash equivalents    
$
494.3

 
$
452.0

 
$
434.5

Trade receivables, net of allowances for doubtful accounts of $23.0, $21.6 and $20.5
851.6

 
777.8

 
787.6

Other receivables    
24.4

 
26.0

 
24.7

Inventories, net    
1,608.4

 
1,732.4

 
1,524.9

Prepaid expenses    
173.4

 
168.7

 
201.6

Other
101.3

 
81.7

 
68.3

Total Current Assets
3,253.4

 
3,238.6

 
3,041.6

Property, Plant and Equipment, net
962.3

 
984.5

 
873.5

Operating Lease Right-of-Use Assets
1,606.0

 

 

Goodwill    
3,625.7

 
3,670.5

 
3,762.4

Tradenames    
2,838.4

 
2,863.7

 
2,903.5

Other Intangibles, net
685.6

 
705.5

 
769.0

Other Assets, including deferred taxes of $27.6, $40.5 and $16.1
383.6

 
400.9

 
364.6

Total Assets
$
13,355.0

 
$
11,863.7

 
$
11,714.6

 
 
 
 
 
 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
 
 
Current Liabilities:
 
 
 
 
 
Accounts payable    
$
696.2

 
$
924.2

 
$
670.5

Accrued expenses
789.5

 
891.6

 
754.3

Deferred revenue    
55.9

 
65.3

 
47.8

Current portion of operating lease liabilities
334.3

 

 

Short-term borrowings    
299.7

 
12.8

 
254.5

Current portion of long-term debt    
31.0

 

 

Total Current Liabilities    
2,206.6

 
1,893.9

 
1,727.1

Long-Term Portion of Operating Lease Liabilities
1,499.4

 

 

Long-Term Debt
2,759.4

 
2,819.4

 
3,013.2

Other Liabilities, including deferred taxes of $543.0, $565.2 and $661.9
1,128.3

 
1,322.4

 
1,408.2

Redeemable Non-Controlling Interest
(0.2
)
 
0.2

 
1.5

Stockholders’ Equity:
 
 
 
 
 
Preferred stock, par value $100 per share; 150,000 total shares authorized    

 

 

Common stock, par value $1 per share; 240,000,000 shares authorized; 85,817,270; 85,446,141 and 85,332,726 shares issued
85.8

 
85.4

 
85.3

Additional paid in capital - common stock    
3,032.7

 
3,017.3

 
2,965.6

Retained earnings    
4,423.3

 
4,350.1

 
3,788.8

Accumulated other comprehensive loss
(583.7
)
 
(507.9
)
 
(406.6
)
Less: 10,702,140; 10,042,510 and 8,167,215 shares of common stock held in treasury, at cost
(1,196.6
)
 
(1,117.1
)
 
(868.5
)
Total Stockholders’ Equity    
5,761.5

 
5,827.8

 
5,564.6

Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity
$
13,355.0

 
$
11,863.7

 
$
11,714.6



See accompanying notes.

3




PVH Corp.
Consolidated Statements of Cash Flows
Unaudited
(In millions)
 
Thirteen Weeks Ended
 
May 5,
 
May 6,
 
2019
 
2018
OPERATING ACTIVITIES
 
 
 
Net income
$
81.6

 
$
178.9

Adjustments to reconcile to net cash used by operating activities:
 
 
 
Depreciation and amortization    
76.5

 
83.2

Equity in net income of unconsolidated affiliates
(3.7
)
 
(3.8
)
Deferred taxes    
(10.1
)
 
5.6

Stock-based compensation expense    
13.9

 
11.6

Impairment of long-lived assets
83.7

 

Debt modification and extinguishment costs
5.2

 

Changes in operating assets and liabilities:
 
 
 
Trade receivables, net    
(86.3
)
 
(145.4
)
Other receivables
0.6

 
12.7

Inventories, net    
99.8

 
33.9

Accounts payable, accrued expenses and deferred revenue    
(286.6
)
 
(313.8
)
Prepaid expenses    
(28.0
)
 
(21.4
)
Contingent purchase price payments to Mr. Calvin Klein

 
(14.6
)
Other, net    
(19.8
)
 
47.4

Net cash used by operating activities
(73.2
)
 
(125.7
)
INVESTING ACTIVITIES(1)
 
 
 
Acquisitions, net of cash acquired

 
(15.9
)
Purchases of property, plant and equipment    
(76.7
)
 
(76.7
)
Net cash used by investing activities
(76.7
)
 
(92.6
)
FINANCING ACTIVITIES(1)
 
 
 
Net proceeds from short-term borrowings
286.9

 
235.0

Proceeds from 2019 facilities, net of related fees
1,643.5

 

Repayment of 2016 facilities
(1,649.3
)
 

Net proceeds from settlement of awards under stock plans
1.9

 
13.2

Cash dividends    
(5.7
)
 
(5.9
)
Acquisition of treasury shares    
(77.5
)
 
(75.1
)
Payments of finance lease liabilities
(1.5
)
 
(1.2
)
Net cash provided by financing activities
198.3

 
166.0

Effect of exchange rate changes on cash and cash equivalents    
(6.1
)
 
(7.1
)
Increase (decrease) in cash and cash equivalents
42.3

 
(59.4
)
Cash and cash equivalents at beginning of period    
452.0

 
493.9

Cash and cash equivalents at end of period    
$
494.3

 
$
434.5


(1) See Note 19 for information on Noncash Investing and Financing Transactions.

See accompanying notes.

4




PVH Corp.
Consolidated Statements of Changes in Stockholders’ Equity and Redeemable Non-Controlling Interest
Unaudited
(In millions, except share and per share data)


 
Thirteen Weeks Ended May 6, 2018
 
 
 
Stockholders’ Equity
 
 
 
 
 
Common Stock
 
Additional
Paid In
Capital-
Common
Stock
 
 
 
Accumulated
Other
Comprehensive Loss
 
 
 
Total Stockholders’ Equity
 
Redeemable
Non-Controlling
Interest
 
Preferred
Stock
 
Shares
 
$1 par
Value
 
 
Retained
Earnings
 
 
Treasury
Stock
 
February 4, 2018
2.0

 

 
84,851,079

 
84.9

 
2,941.2

 
3,625.2

 
(321.5
)
 
(793.4
)
 
5,536.4

Net income attributable to PVH Corp.
 
 
 
 
 
 
 
 
 
 
179.4

 
 
 
 
 
179.4

Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
(172.2
)
 
 
 
(172.2
)
Net unrealized and realized gain related to effective cash flow hedges, net of tax expense of $2.7
 
 
 
 
 
 
 
 
 
 
 
 
50.1

 
 
 
50.1

Net gain on net investment hedges, net of tax expense of $12.0
 
 
 
 
 
 
 
 
 
 
 
 
37.0

 
 
 
37.0

Comprehensive income attributable to PVH Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
94.3

Cumulative-effect adjustment related to the adoption of accounting guidance for revenue recognition
 
 
 
 
 
 
 
 
 
 
(1.9
)
 
 
 
 
 
(1.9
)
Cumulative-effect adjustment related to the adoption of accounting guidance for income tax accounting on intercompany sales or transfers of assets other than inventory
 
 
 
 
 
 
 
 
 
 
(8.0
)
 
 
 
 
 
(8.0
)
Settlement of awards under stock plans
 
 
 
 
481,647

 
0.4

 
12.8

 
 
 
 
 
 
 
13.2

Stock-based compensation expense
 
 
 
 
 
 
 
 
11.6

 
 
 
 
 
 
 
11.6

Cash dividends ($0.075 per share)
 
 
 
 
 
 
 
 
 
 
(5.9
)
 
 
 
 
 
(5.9
)
Acquisition of 494,898 treasury shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(75.1
)
 
(75.1
)
Net loss attributable to redeemable non-controlling interest

(0.5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
May 6, 2018
$
1.5

 
$

 
85,332,726

 
$
85.3

 
$
2,965.6

 
$
3,788.8

 
$
(406.6
)
 
$
(868.5
)
 
$
5,564.6


 
Thirteen Weeks Ended May 5, 2019
 
 
 
Stockholders’ Equity
 
 
 
 
 
Common Stock
 
Additional
Paid In
Capital-
Common
Stock
 
 
 
Accumulated
Other
Comprehensive Loss
 
 
 
Total Stockholders’ Equity
 
Redeemable
Non-Controlling
Interest
 
Preferred
Stock
 
Shares
 
$1 par
Value
 
 
Retained
Earnings
 
 
Treasury
Stock
 
February 3, 2019
$
0.2

 
$

 
85,446,141

 
$
85.4

 
$
3,017.3

 
$
4,350.1

 
$
(507.9
)
 
$
(1,117.1
)
 
$
5,827.8

Net income attributable to PVH Corp.
 
 
 
 
 
 
 
 
 
 
82.0

 
 
 
 
 
82.0

Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
(111.6
)
 
 
 
(111.6
)
Net unrealized and realized gain related to effective cash flow hedges, net of tax expense of $0.4
 
 
 
 
 
 
 
 
 
 
 
 
13.4

 
 
 
13.4

Net gain on net investment hedges, net of tax expense of $7.2
 
 
 
 
 
 
 
 
 
 
 
 
22.4

 
 
 
22.4

Comprehensive income attributable to PVH Corp.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.2

Cumulative-effect adjustment related to the adoption of accounting guidance for leases
 
 
 
 
 
 
 
 
 
 
(3.1
)
 
 
 
 
 
(3.1
)
Settlement of awards under stock plans
 
 
 
 
371,129

 
0.4

 
1.5

 
 
 
 
 
 
 
1.9

Stock-based compensation expense
 
 
 
 
 
 
 
 
13.9

 
 
 
 
 
 
 
13.9

Cash dividends ($0.075 per share)
 
 
 
 
 
 
 
 
 
 
(5.7
)
 
 
 
 
 
(5.7
)
Acquisition of 659,630 treasury shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(79.5
)
 
(79.5
)
Net loss attributable to redeemable non-controlling interest

(0.4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
May 5, 2019
$
(0.2
)

$


85,817,270


$
85.8


$
3,032.7


$
4,423.3


$
(583.7
)

$
(1,196.6
)

$
5,761.5


See accompanying notes.


5



PVH CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. GENERAL

PVH Corp. and its consolidated subsidiaries (collectively, the “Company”) constitute a global apparel company with a brand portfolio consisting of nationally and internationally recognized trademarks, including TOMMY HILFIGER, CALVIN KLEIN, Van Heusen, IZOD, ARROW, Warner’s, Olga, True&Co. and Geoffrey Beene, which are owned, and Speedo, which is licensed in perpetuity for North America and the Caribbean, as well as various other owned, licensed and private label brands. The Company designs and markets branded dress shirts, neckwear, sportswear, jeanswear, performance apparel, intimate apparel, underwear, swimwear, swim products, handbags, accessories, footwear and other related products and licenses its owned brands globally over a broad array of product categories and for use in numerous discrete jurisdictions. References to the aforementioned and other brand names are to registered and common law trademarks owned by the Company or licensed to the Company by third parties and are identified by italicizing the brand name.

The consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated in consolidation. Investments in entities that the Company does not control but has the ability to exercise significant influence over are accounted for using the equity method of accounting. The Company’s Consolidated Income Statements include its proportionate share of the net income or loss of these entities. Please see Note 6, “Investments in Unconsolidated Affiliates,” for further discussion. The Company and Arvind Limited (“Arvind”) have a joint venture in Ethiopia, PVH Arvind Manufacturing Private Limited Company (“PVH Ethiopia”), in which the Company owns a 75% interest. PVH Ethiopia is consolidated and the minority shareholder’s proportionate share (25%) of the equity in this joint venture is accounted for as a redeemable non-controlling interest. Please see Note 5, “Redeemable Non-Controlling Interest,” for further discussion.

The Company’s fiscal years are based on the 52-53 week periods 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 the Company’s fiscal year, unless the context requires otherwise.

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not contain all disclosures required by accounting principles generally accepted in the United States for complete financial statements. Reference is made to the Company’s audited consolidated financial statements, including the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended February 3, 2019.

The preparation of the interim financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from these estimates.

The results of operations for the thirteen weeks ended May 5, 2019 and May 6, 2018 are not necessarily indicative of those for a full fiscal year due, in part, to seasonal factors. The data contained in these consolidated financial statements are unaudited and are subject to year-end adjustments. However, in the opinion of management, all known adjustments (which were normal and recurring in nature) have been made to present fairly the consolidated operating results for the unaudited periods.

2. REVENUE

The Company generates revenue primarily from sales of finished products under its owned and licensed trademarks through its wholesale and retail operations. The Company also generates royalty and advertising revenue from licensing the rights to its trademarks to third parties. Revenue is recognized upon the transfer of control of products or services to the Company’s customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those products or services.
Product Sales
The Company generates revenue from the wholesale distribution of its products to traditional retailers (including for sale through their digital commerce sites), pure play digital commerce retailers, franchisees, licensees and distributors. Revenue is recognized upon transfer of control of goods to the customer, which generally occurs when title to goods is passed and risk of loss transfers to the customer. Depending on the contract terms, transfer of control is upon shipment of goods to or upon receipt of goods by the customer. Payment is typically due within 30 to 90 days. The amount of revenue recognized is net of returns, sales allowances and other discounts that the Company offers to its wholesale customers. The Company estimates returns based

6



on an analysis of historical experience and specific customer arrangements and estimates sales allowances and other discounts based on seasonal negotiations, historical experience and an evaluation of current market conditions.
The Company also generates revenue from the retail distribution of its products through its freestanding stores, shop-in-shop/concession locations and digital commerce sites. Revenue is recognized at the point of sale in the stores and shop-in-shop/concession locations and upon estimated time of delivery for sales through the Company’s digital commerce sites, at which point control of the products passes to the customer. The amount of revenue recognized is net of returns, which are estimated based on an analysis of historical experience.
The Company excludes from revenue taxes collected from customers and remitted to government authorities related to sales of the Company’s products. Shipping and handling costs that are billed to customers are included in net sales.
Customer Loyalty Programs

The Company uses loyalty programs that offer customers of its retail businesses specified amounts off of future purchases for a specified period of time after certain levels of spending are achieved. Customers that are enrolled in the programs earn loyalty points for each purchase made.
Loyalty points earned under the customer loyalty programs provide the customer a material right to acquire additional products and give rise to the Company having a separate performance obligation. For each transaction where a customer earns loyalty points, the Company allocates revenue between the products purchased and the loyalty points earned based on the relative standalone selling prices. Revenue allocated to loyalty points is recorded as deferred revenue until the loyalty points are redeemed or expire.
Gift Cards
The Company sells gift cards to customers in its retail stores. Gift card purchases by a customer are prepayments for products to be provided by the Company in the future and are therefore considered to be performance obligations of the Company. Upon the purchase of a gift card by a customer, the Company records deferred revenue for the cash value of the gift card. Deferred revenue is relieved and revenue is recognized when the gift card is redeemed by the customer. The portion of gift cards that the Company does not expect to be redeemed (referred to as “breakage”) is recognized proportionately over the estimated customer redemption period, subject to the constraint that it must be probable that a significant reversal of revenue will not occur, if the Company determines that it does not have a legal obligation to remit the value of such unredeemed gift cards to any jurisdiction.
License Agreements
The Company generates royalty and advertising revenue from licensing the rights to access its trademarks to third parties, including the Company’s joint ventures. The license agreements are generally exclusive to a territory or product category, have terms in excess of one year and, in most cases, include renewal options. In exchange for providing these rights, the license agreements require the licensees to pay the Company a royalty and, in certain agreements, an advertising fee. In both cases, the Company generally receives the greater of (i) a sales-based percentage fee and (ii) a contractual minimum fee for each annual performance period under the license agreement.
In addition to the rights to access its trademarks, the Company provides ongoing support to its licensees over the term of the agreements. As such, the Company’s license agreements are licenses of symbolic intellectual property and, therefore, revenue is recognized over time. For license agreements where the sales-based percentage fee exceeds the contractual minimum fee, the Company recognizes revenues as the licensed products are sold as reported to the Company by its licensees. For license agreements where the sales-based percentage fee does not exceed the contractual minimum fee, the Company recognizes the contractual minimum fee as revenue ratably over the contractual period.
Under the terms of the license agreements, payments are generally due quarterly from the licensees. The Company records deferred revenue when amounts are received or receivable from the licensee in advance of the recognition of revenue.
As of May 5, 2019, the contractual minimum fees on the portion of all license agreements not yet satisfied totaled $1,210.3 million, of which the Company expects to recognize $208.1 million as revenue during the remainder of 2019, $234.6 million in 2020 and $767.6 million thereafter.



7



Deferred Revenue
Changes in deferred revenue related to customer loyalty programs, gift cards and license agreements for the thirteen weeks ended May 5, 2019 and May 6, 2018 were as follows:
(In millions)
Thirteen Weeks Ended
 
5/5/19
 
5/6/18
Deferred revenue balance at beginning of period
$
65.3

 
$
39.2

Impact of adopting the new revenue standard


 
15.6

Net additions to deferred revenue during the period
42.0

 
32.5

Reductions in deferred revenue for revenue recognized during the period (1)
(51.4
)
 
(39.5
)
Deferred revenue balance at end of period
$
55.9

 
$
47.8


(1) Represents the amount of revenue recognized during the period that was included in the deferred revenue balance at the beginning of the period, as adjusted in 2018 for the impact of adopting the new revenue standard, and does not contemplate revenue recognized from amounts deferred during the period.

The Company also had long-term deferred revenue liabilities included in other liabilities in its Consolidated Balance Sheets of $2.1 million, $2.3 million and $4.6 million as of May 5, 2019, February 3, 2019 and May 6, 2018, respectively.

Optional Exemptions
The Company elected not to disclose the remaining performance obligations for contracts that have an original expected term of one year or less (e.g., backlog of customer orders) and expected sales-based percentage fees for the portion of all license agreements not yet satisfied.

Please see Note 20, “Segment Data,” for information on the disaggregation of revenue by segment and distribution channel.
3. INVENTORIES

Inventories are comprised principally of finished goods and are stated at the lower of cost or net realizable value, except for certain retail inventories in North America that are stated at the lower of cost or market using the retail inventory method. Cost for substantially all wholesale inventories in North America and certain wholesale 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. The Company reviews current business trends, inventory aging and discontinued merchandise categories to determine adjustments that it estimates will be needed to liquidate existing clearance inventories and record inventories at either the lower of cost or net realizable value or the lower of cost or market using the retail inventory method, as applicable.

4. ACQUISITIONS

Acquisition of the Geoffrey Beene Tradename

The Company acquired on April 20, 2018 the Geoffrey Beene tradename from Geoffrey Beene, LLC (“Geoffrey Beene”). Prior to the acquisition, the Company licensed the rights to design, market and distribute Geoffrey Beene dress shirts and neckwear from Geoffrey Beene.

The tradename was acquired for $17.0 million, consisting of $15.9 million paid in cash, $0.7 million of royalties prepaid to Geoffrey Beene by the Company under the license agreement, and $0.4 million of liabilities assumed by the Company. The transaction was accounted for as an asset acquisition.

5. REDEEMABLE NON-CONTROLLING INTEREST

The Company owns a 75% interest in the PVH Ethiopia joint venture between the Company and Arvind. The Company consolidates PVH Ethiopia in its consolidated financial statements. PVH Ethiopia was formed to operate a manufacturing facility that produces finished products for the Company for distribution primarily in the United States.

The shareholders agreement governing PVH Ethiopia (the “Shareholders Agreement”) contains a put option under which Arvind can require the Company to purchase all of its shares in the joint venture during various future periods as specified in

8



the Shareholders Agreement. The first such period immediately precedes the ninth anniversary of PVH Ethiopia’s date of incorporation. The Shareholders Agreement also contains call options under which the Company can require Arvind to sell to the Company (i) all or a portion of its shares during various future periods as specified in the Shareholders Agreement; (ii) all of its shares in the event of a change of control of Arvind; or (iii) all of its shares in the event that Arvind ceases to hold at least 10% of the outstanding shares. The Company’s first call option referred to in clause (i) immediately follows the fifth anniversary of the date of incorporation of PVH Ethiopia. The put and call prices are the fair market value of the shares on the redemption date based upon a multiple of PVH Ethiopia’s earnings before interest, taxes, depreciation and amortization for the prior 12 months, less PVH Ethiopia’s net debt.

The fair value of the redeemable non-controlling interest (“RNCI”) as of the date of formation of PVH Ethiopia was $0.1 million. The carrying amount of the RNCI is adjusted to equal the redemption amount at the end of each reporting period, provided that this amount at the end of each reporting period cannot be lower than the initial fair value adjusted for the minority shareholder’s share of net income or loss. Any adjustment to the redemption amount of the RNCI is determined after attribution of net income or loss of the RNCI and will be recognized immediately in retained earnings of the Company, since it is probable that the RNCI will become redeemable in the future based on the passage of time. The carrying amount of the RNCI as of May 5, 2019 was $(0.2) million, which is greater than the redemption amount. The carrying amount decreased from $0.2 million as of February 3, 2019 as a result of a net loss attributable to the RNCI for the thirteen weeks ended May 5, 2019 of $0.4 million. The carrying amount of the RNCI as of May 6, 2018 was $1.5 million.

6. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The Company had investments in unconsolidated affiliates of $208.5 million, $207.1 million and $198.6 million as of May 5, 2019, February 3, 2019 and May 6, 2018, respectively. These investments are accounted for under the equity method of accounting and included in other assets in the Company’s Consolidated Balance Sheets. The Company received dividends of $3.6 million from these investments during the thirteen weeks ended May 6, 2018.

7. GOODWILL

The changes in the carrying amount of goodwill for the thirteen weeks ended May 5, 2019, by segment (please see Note 20, “Segment Data,” for further discussion of the Company’s reportable segments), were as follows:
(In millions)
Calvin Klein North America
 
Calvin Klein International
 
Tommy Hilfiger North America
 
Tommy Hilfiger International
 
Heritage Brands Wholesale
 
Heritage Brands Retail
 
Total
Balance as of February 3, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill, gross    
$
780.3

 
$
909.5

 
$
204.4

 
$
1,529.8

 
$
246.5

 
$
11.9

 
$
3,682.4

Accumulated impairment losses    

 

 

 

 

 
(11.9
)
 
(11.9
)
Goodwill, net    
780.3

 
909.5

 
204.4

 
1,529.8

 
246.5

 

 
3,670.5

Currency translation
(0.2
)
 
(12.3
)
 

 
(32.3
)
 

 

 
(44.8
)
Balance as of May 5, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill, gross    
780.1

 
897.2

 
204.4

 
1,497.5

 
246.5

 
11.9

 
3,637.6

Accumulated impairment losses    

 

 

 

 

 
(11.9
)
 
(11.9
)
Goodwill, net    
$
780.1

 
$
897.2

 
$
204.4

 
$
1,497.5

 
$
246.5

 
$

 
$
3,625.7


8. RETIREMENT AND BENEFIT PLANS

The Company, as of May 5, 2019, has five noncontributory qualified defined benefit pension plans covering substantially all employees resident in the United States who meet certain age and service requirements. The plans provide monthly benefits upon retirement generally based on career average compensation and years of credited service. Vesting in plan benefits generally occurs after five years of service. The Company refers to these five plans as its “Pension Plans.”
 
The Company also has three noncontributory unfunded non-qualified supplemental defined benefit pension plans, including:

A plan for certain current and former members of Tommy Hilfiger’s domestic senior management. The plan is frozen and, as a result, participants do not accrue additional benefits.
A capital accumulation program for certain current and former senior executives. Under the individual participants’ agreements, the participants in the program will receive a predetermined amount during the ten years following the

9




attainment of age 65, provided that prior to the termination of employment with the Company, the participant has been in the plan for at least ten years and has attained age 55.
A plan for certain employees resident in the United States who meet certain age and service requirements that provides benefits for compensation in excess of Internal Revenue Service earnings limits and requires payments to vested employees upon, or shortly after, employment termination or retirement.

The Company refers to these three plans as its “SERP Plans.”

The components of net benefit cost recognized were as follows:
 
Pension Plans
 
SERP Plans
 
Thirteen Weeks Ended
 
Thirteen Weeks Ended
(In millions)
5/5/19
 
5/6/18
 
5/5/19
 
5/6/18
 
 
 
 
 
 
 
 
Service cost
$
8.2

 
$
8.3

 
$
1.5

 
$
1.3

Interest cost    
6.9

 
6.5

 
1.0

 
1.0

Expected return on plan assets    
(10.1
)
 
(10.0
)
 

 

Total    
$
5.0

 
$
4.8

 
$
2.5

 
$
2.3


The Company also provides certain postretirement health care and life insurance benefits to certain retirees resident in the United States. As a result of the Company’s acquisition of The Warnaco Group, Inc. (“Warnaco”), the Company also provides certain postretirement health care and life insurance benefits to certain Warnaco retirees resident in the United States. Retirees contribute to the cost of the applicable plan, both of which are unfunded and frozen. The Company refers to these two plans as its “Postretirement Plans.” Net benefit cost related to the Postretirement Plans was immaterial for the thirteen weeks ended May 5, 2019 and May 6, 2018.

The service cost component of net benefit cost is recorded in selling, general and administrative (“SG&A”) expenses and the other components of net benefit cost are recorded in non-service related pension and postretirement income in the Company’s Consolidated Income Statements.

Currently, the Company does not expect to make material contributions to the Pension Plans in 2019. The Company’s actual contributions may differ from planned contributions due to many factors, including changes in tax and other laws, as well as significant differences between expected and actual pension asset performance or interest rates.
 
9. DEBT

Short-Term Borrowings

The Company has the ability to draw revolving borrowings under its senior unsecured credit facilities, as discussed in the section entitled “2019 Senior Unsecured Credit Facilities” below. The Company had $284.4 million outstanding under these facilities as of May 5, 2019. The weighted average interest rate on funds borrowed as of May 5, 2019 was 3.85%. The maximum amount of revolving borrowings outstanding under these facilities during the thirteen weeks ended May 5, 2019 was $284.4 million.

Additionally, the Company has the availability to borrow under short-term lines of credit, overdraft facilities and short-term revolving credit facilities denominated in various foreign currencies. These facilities provided for borrowings of up to $97.8 million based on exchange rates in effect on May 5, 2019 and are utilized primarily to fund working capital needs. The Company had $15.3 million outstanding under these facilities as of May 5, 2019. The weighted average interest rate on funds borrowed as of May 5, 2019 was 0.20%. The maximum amount of borrowings outstanding under these facilities during the thirteen weeks ended May 5, 2019 was $17.9 million.


10




Long-Term Debt

The carrying amounts of the Company’s long-term debt were as follows:
(In millions)
5/5/19
 
2/3/19
 
5/6/18
 
 
 
 
 
 
Senior unsecured Term Loan A facilities due 2024 (1)(2)
$
1,644.0

 
$

 
$

Senior secured Term Loan A facility due 2021

 
1,643.8

 
1,792.4

7 3/4% debentures due 2023
99.6

 
99.6

 
99.6

3 5/8% senior unsecured euro notes due 2024 (2)
385.8

 
396.5

 
413.0

3 1/8% senior unsecured euro notes due 2027 (2)
661.0

 
679.5

 
708.2

Total    
2,790.4

 
2,819.4

 
3,013.2

Less: Current portion of long-term debt    
31.0

 

 

Long-term debt    
$
2,759.4

 
$
2,819.4

 
$
3,013.2


(1) The outstanding principal balance for the United States dollar-denominated Term Loan A facility and the euro-denominated Term Loan A facility was $1,093.2 million and €500.0 million, respectively, as of May 5, 2019.

(2) The carrying amount of the Company’s euro-denominated Term Loan A facility and senior unsecured euro notes includes the impact of changes in the exchange rate of the United States dollar against the euro.

Please see Note 12, “Fair Value Measurements,” for the fair value of the Company’s long-term debt as of May 5, 2019, February 3, 2019 and May 6, 2018.

As of May 5, 2019, the Company’s mandatory long-term debt repayments for the remainder of 2019 through 2024 were as follows:
(In millions)
 
Fiscal Year
Amount (1)
Remainder of 2019
$
20.6

2020
41.3

2021
61.9

2022
103.2

2023
223.8

2024
1,690.6


(1) A portion of the Company’s mandatory long-term debt repayments are denominated in euro and subject to changes in the exchange rate of the United States dollar against the euro.

Total debt repayments for the remainder of 2019 through 2024 exceed the total carrying amount of the Company’s Term Loan A facilities, 7 3/4% debentures due 2023 and 3 5/8% euro senior notes due 2024 as of May 5, 2019 because the carrying amount reflects the unamortized portions of debt issuance costs and the original issue discounts.

As of May 5, 2019, after taking into account the effect of the Company’s interest rate swap agreements discussed in the section entitled “2019 Senior Unsecured Credit Facilities,” which were in effect as of such date, approximately 60% of the Company’s long-term debt had fixed interest rates, with the remainder at variable interest rates.

2016 Senior Secured Credit Facilities

On May 19, 2016, the Company entered into an amendment to its senior secured credit facilities (as amended, the “2016 facilities”). The Company replaced the 2016 facilities with new senior unsecured credit facilities on April 29, 2019 as discussed in the section entitled “2019 Senior Unsecured Credit Facilities” below. The 2016 facilities, as of the date they were replaced, consisted of a $2,347.4 million United States dollar-denominated Term Loan A facility and senior secured revolving credit facilities consisting of (i) a $475.0 million United States dollar-denominated revolving credit facility, (ii) a $25.0 million United States dollar-denominated revolving credit facility available in United States dollars and Canadian dollars and (iii) a €185.9 million euro-denominated revolving credit facility available in euro, British pound sterling, Japanese yen and Swiss francs.

11





2019 Senior Unsecured Credit Facilities

The Company refinanced the 2016 facilities on April 29, 2019 (the “Closing Date”) by entering into senior unsecured credit facilities (the “2019 facilities”), the proceeds of which, along with cash on hand, were used to repay all of the outstanding borrowings under the 2016 facilities, as well as the related debt issuance costs.

The 2019 facilities consist of a $1,093.2 million United States dollar-denominated Term Loan A facility (the “USD TLA facility”), a €500.0 million euro-denominated Term Loan A facility (the “Euro TLA facility” and together with the USD TLA facility, the “TLA facilities”) and senior unsecured revolving credit facilities consisting of (i) a $675.0 million United States dollar-denominated revolving credit facility, (ii) a CAD $70.0 million Canadian dollar-denominated revolving credit facility available in United States dollars or Canadian dollars, (iii) a €200.0 million euro-denominated revolving credit facility available in euro, British pound sterling, Japanese yen, Swiss francs, Australian dollars and other agreed foreign currencies and (iv) a $50.0 million United States dollar-denominated revolving credit facility available in United States dollars or Hong Kong dollars. The 2019 facilities are due on April 29, 2024. In connection with the refinancing of the senior credit facilities, the Company incurred debt issuance costs of $10.4 million (of which $3.5 million was expensed as debt modification costs and $6.9 million is being amortized over the term of the debt agreement) and recorded debt extinguishment costs of $1.7 million to write-off previously capitalized debt issuance costs.

Each of the senior unsecured revolving facilities, except for the $50.0 million United States dollar-denominated revolving credit facility available in United States dollars or Hong Kong dollars, also include amounts available for letters of credit. A portion of each of these revolving credit facilities are also available for the making of swingline loans. The issuance of such letters of credit and the making of any swingline loan reduces the amount available under the applicable revolving credit facility. So long as certain conditions are satisfied, the Company may add one or more senior unsecured term loan facilities or increase the commitments under the senior unsecured revolving credit facilities by an aggregate amount not to exceed $1,500.0 million. The lenders under the 2019 facilities are not required to provide commitments with respect to such additional facilities or increased commitments.

The Company had loans outstanding of $1,644.0 million, net of debt issuance costs and based on applicable exchange rates, under the TLA facilities, $284.4 million of borrowings outstanding under the senior unsecured revolving credit facilities and $20.4 million of outstanding letters of credit under the senior unsecured revolving credit facilities as of May 5, 2019.

The terms of the TLA facilities require the Company to make quarterly repayments of amounts outstanding under the 2019 facilities, commencing with the calendar quarter ending September 30, 2019. Such required repayment amounts equal 2.50% per annum of the principal amount outstanding on the Closing Date for the first eight calendar quarters following the Closing Date, 5.00% per annum of the principal amount outstanding on the Closing Date for the four calendar quarters thereafter and 7.50% per annum of the principal amount outstanding on the Closing Date for the remaining calendar quarters, in each case paid in equal installments and in each case subject to certain customary adjustments, with the balance due on the maturity date of the TLA facilities. The outstanding borrowings under the 2019 facilities are prepayable at any time without penalty (other than customary breakage costs). Any voluntary repayments made by the Company would reduce the future required repayment amounts.

The Company made no repayments on its term loans under the 2019 facilities and 2016 facilities during the thirteen weeks ended May 5, 2019 and May 6, 2018, other than the repayment of the 2016 facilities in connection with the refinancing of the senior credit facilities.

The United States dollar-denominated borrowings under the 2019 facilities bear interest at a rate equal to an applicable margin plus, as determined at the Company's option, either (a) a base rate determined by reference to the greater of (i) the prime rate, (ii) the United States federal funds effective rate plus 1/2 of 1.00% and (iii) a one-month reserve adjusted Eurocurrency rate plus 1.00% or (b) an adjusted Eurocurrency rate, calculated in a manner set forth in the 2019 facilities.

The Canadian dollar-denominated borrowings under the 2019 facilities bear interest at a rate equal to an applicable margin plus, as determined at the Company’s option, either (a) a Canadian prime rate determined by reference to the greater of (i) the rate of interest per annum that Royal Bank of Canada establishes as the reference rate of interest in order to determine interest rates for loans in Canadian dollars to its Canadian borrowers and (ii) the average of the rates per annum for Canadian dollar bankers' acceptances having a term of one month or (b) an adjusted Eurocurrency rate, calculated in a manner set forth in the 2019 facilities.


12




The Hong Kong dollar-denominated borrowings under the 2019 facilities bear interest at a rate equal to an applicable margin plus an adjusted Eurocurrency rate, calculated in a manner set forth in the 2019 facilities.

The borrowings under the 2019 facilities in currencies other than United States dollars, Canadian dollars or Hong Kong dollars bear interest at a rate equal to an applicable margin plus an adjusted Eurocurrency rate, calculated in a manner set forth in the 2019 facilities.

The current applicable margin with respect to the TLA facilities and each revolving credit facility is 1.375% for adjusted Eurocurrency rate loans and 0.375% for base rate or Canadian prime rate loans. The applicable margin for borrowings under the TLA facilities and the revolving credit facilities is subject to adjustment (i) after the date of delivery of the compliance certificate and financial statements, with respect to each of the Company’s fiscal quarters, based upon the Company’s net leverage ratio or (ii) after the date of delivery of notice of a change in the Company’s public debt rating by Standard & Poor’s or Moody’s.

The Company entered into interest rate swap agreements designed with the intended effect of converting notional amounts of its variable rate debt obligation to fixed rate debt. Under the terms of the agreements, for the outstanding notional amount, the Company’s exposure to fluctuations in the one-month London interbank offered rate (“LIBOR”) is eliminated and the Company pays a fixed rate plus the current applicable margin. The following interest rate swap agreements were entered into or in effect during the thirteen weeks ended May 5, 2019 and/or May 6, 2018:

(In millions)
 
 
 
 
 
 
 
 
 
 
Designation Date
 
Commencement Date
 
Initial Notional Amount
 
Notional Amount Outstanding as of May 5, 2019
 
Fixed Rate
 
Expiration Date
January 2019
 
February 2020
 
$
50.0

 
$

 
2.4187%
 
February 2021
November 2018
 
February 2019
 
139.2

 
139.2

 
2.8645%
 
February 2021
October 2018
 
February 2019
 
115.7

 
115.7

 
2.9975%
 
February 2021
June 2018
 
August 2018
 
50.0

 
50.0

 
2.6825%
 
February 2021
June 2017
 
February 2018
 
306.5

 
181.5

 
1.566%
 
February 2020
July 2014
 
February 2016
 
682.6

 

 
1.924%
 
February 2018

The notional amounts of the outstanding interest rate swaps that commenced in February 2018 and February 2019 are adjusted according to pre-set schedules during the terms of the swap agreements such that, based on the Company’s projections for future debt repayments, the Company’s outstanding debt under the USD TLA facility is expected to always equal or exceed the combined notional amount of the then-outstanding interest rate swaps.

The 2019 facilities contain customary events of default, including but not limited to nonpayment; material inaccuracy of representations and warranties; violations of covenants; certain bankruptcies and liquidations; cross-default to material indebtedness; certain material judgments; certain events related to the Employee Retirement Income Security Act of 1974, as amended; certain events related to certain of the guarantees by the Company; and a change in control (as defined in the 2019 facilities).

The 2019 facilities require the Company to comply with customary affirmative, negative and financial covenants, including minimum interest coverage and maximum net leverage. A breach of any of these operating or financial covenants would result in a default under the 2019 facilities. If an event of default occurs and is continuing, the lenders could elect to declare all amounts then outstanding, together with accrued interest, to be immediately due and payable, which would result in acceleration of the Company’s other debt.

7 3/4% Debentures Due 2023

The Company has outstanding $100.0 million of debentures due November 15, 2023 that accrue interest at the rate of 7 3/4%. The debentures are not redeemable at the Company’s option prior to maturity.


13




3 5/8% Euro Senior Notes Due 2024

The Company has outstanding €350.0 million euro-denominated principal amount of 3 5/8% senior notes due July 15, 2024. Interest on the notes is payable in euros. The Company may redeem some or all of these notes at any time prior to April 15, 2024 by paying a “make whole” premium plus any accrued and unpaid interest. In addition, the Company may redeem some or all of these notes on or after April 15, 2024 at their principal amount plus any accrued and unpaid interest.

3 1/8% Euro Senior Notes Due 2027

The Company has outstanding €600.0 million euro-denominated principal amount of 3 1/8% senior notes due December 15, 2027. Interest on the notes is payable in euros. The Company may redeem some or all of these notes at any time prior to September 15, 2027 by paying a “make whole” premium plus any accrued and unpaid interest. In addition, the Company may redeem some or all of these notes on or after September 15, 2027 at their principal amount plus any accrued and unpaid interest.
  
As of May 5, 2019, the Company was in compliance with all applicable financial and non-financial covenants under its financing arrangements.

Please see Note 8, “Debt,” in the Notes to Consolidated Financial Statements included in Item 8 of the Company’s Annual Report on Form 10-K for the year ended February 3, 2019 for further discussion of the Company’s debt.

10. INCOME TAXES

The effective income tax rates for the thirteen weeks ended May 5, 2019 and May 6, 2018 were 22.4% and 17.1%, respectively.
The effective income tax rate for the thirteen weeks ended May 5, 2019 was higher than the United States statutory income tax rate due to the tax on foreign earnings in excess of a deemed return on tangible assets of foreign corporations (known as “GILTI”) imposed by the United States Tax Cuts and Jobs Act of 2017 (the “U.S. Tax Legislation”), offset by the benefit of overall lower tax rates in certain international jurisdictions where the Company files tax returns.
The effective income tax rate for the thirteen weeks ended May 6, 2018 was lower than the United States statutory income tax rate, primarily due to the benefit of overall lower tax rates in certain international jurisdictions where the Company files tax returns.
The Company files income tax returns in more than 40 international jurisdictions each year. A substantial amount of the Company’s earnings comes from international operations, particularly in the Netherlands and Hong Kong, where income tax rates, coupled with special rates levied on income from certain of the Company’s jurisdictional activities, are lower than the United States statutory income tax rate.

11. DERIVATIVE FINANCIAL INSTRUMENTS

Cash Flow Hedges

The Company has exposure to changes in foreign currency exchange rates related to anticipated cash flows associated with certain international inventory purchases. The Company uses foreign currency forward exchange contracts to hedge against a portion of this exposure.

The Company also has exposure to interest rate volatility related to its term loans under the 2019 facilities. The Company has entered into interest rate swap agreements to hedge against a portion of this exposure. Please see Note 9, “Debt,” for further discussion of the 2019 facilities and these agreements.

The Company records the foreign currency forward exchange contracts and interest rate swap agreements at fair value in its Consolidated Balance Sheets and does not net the related assets and liabilities. The foreign currency forward exchange contracts associated with certain international inventory purchases and the interest rate swap agreements are designated as effective hedging instruments (collectively referred to as “cash flow hedges”). The changes in the fair value of the cash flow hedges are recorded in equity as a component of accumulated other comprehensive loss (“AOCL”). No amounts were excluded from effectiveness testing.




14




Net Investment Hedges

The Company has exposure to changes in foreign currency exchange rates related to the value of its investments in foreign subsidiaries denominated in a currency other than the United States dollar. To hedge against a portion of this exposure, the Company designated the carrying amounts of its €600.0 million euro-denominated principal amount of 3 1/8% senior notes due 2027 and €350.0 million euro-denominated principal amount of 3 5/8% senior notes due 2024 (collectively referred to as the “foreign currency borrowings”), that it had issued in the United States, as net investment hedges of its investments in certain of its foreign subsidiaries that use the euro as their functional currency. Please see Note 9, “Debt,” for further discussion of the Company’s foreign currency borrowings.

The Company records the foreign currency borrowings at carrying value in its Consolidated Balance Sheets. The carrying value of the foreign currency borrowings is remeasured at the end of each reporting period to reflect changes in the foreign currency exchange spot rate. Since the foreign currency borrowings are designated as net investment hedges, such remeasurement is recorded in equity as a component of AOCL. The fair value and the carrying value of the foreign currency borrowings designated as net investment hedges were $1,144.1 million and $1,046.8 million, respectively, as of May 5, 2019, $1,098.3 million and $1,076.0 million, respectively, as of February 3, 2019 and $1,164.4 million and $1,121.2 million, respectively, as of May 6, 2018. The Company evaluates the effectiveness of its net investment hedges at inception and at the beginning of each quarter thereafter. No amounts were excluded from effectiveness testing.

Undesignated Contracts

The Company records immediately in earnings changes in the fair value of hedges that are not designated as effective hedging instruments (“undesignated contracts”), including all of the foreign currency forward exchange contracts related to intercompany transactions and intercompany loans that are not of a long-term investment nature. Any gains and losses that are immediately recognized in earnings on such contracts are largely offset by the remeasurement of the underlying intercompany balances.

The Company does not use derivative or non-derivative financial instruments for trading or speculative purposes. The cash flows from the Company’s hedges are presented in the same category in the Company’s Consolidated Statements of Cash Flows as the items being hedged.

The following table summarizes the fair value and presentation of the Company’s derivative financial instruments in its Consolidated Balance Sheets:
 (In millions)
Assets
 
Liabilities
 
5/5/19
 
2/3/19
 
5/6/18
 
5/5/19
 
2/3/19
 
5/6/18
 
Other Current Assets
Other Assets
 
Other Current Assets
Other Assets
 
Other Current Assets
Other Assets
 
Accrued Expenses
Other Liabilities
 
Accrued Expenses
Other Liabilities
 
Accrued Expenses
Other Liabilities
Contracts designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward exchange contracts (inventory purchases)
$
35.6

$
1.5

 
$
24.0

$
0.7

 
$
8.1

$
1.6

 
$
0.5

$
0.0

 
$
3.5

$
0.7

 
$
14.8

$
0.2

Interest rate swap agreements
0.9


 
1.4

0.0

 
1.7

1.1

 
1.7

1.9

 
1.2

1.6

 


Total contracts designated as cash flow hedges
36.5

1.5

 
25.4

0.7

 
9.8

2.7

 
2.2

1.9

 
4.7

2.3

 
14.8

0.2

Undesignated contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward exchange contracts
0.7


 
0.1


 
0.7


 
1.7


 
2.0


 
1.6


Total
$
37.2

$
1.5

 
$
25.5

$
0.7

 
$
10.5

$
2.7

 
$
3.9

$
1.9

 
$
6.7

$
2.3

 
$
16.4

$
0.2


The notional amount outstanding of foreign currency forward exchange contracts was $1,169.2 million at May 5, 2019. Such contracts expire principally between May 2019 and August 2020.


15




The following tables summarize the effect of the Company’s hedges designated as cash flow and net investment hedging instruments:
 
 
Gain (Loss) Recognized in Other Comprehensive (Loss) Income
(In millions)
 
Thirteen Weeks Ended
 
5/5/19
 
5/6/18
Foreign currency forward exchange contracts     (inventory purchases)
 
$
30.1

 
$
29.4

Interest rate swap agreements
 
(1.1
)
 
0.5

Foreign currency borrowings (net investment hedges)
 
29.6

 
49.0

Total    
 
$
58.6

 
$
78.9

 
 
Amount of Gain (Loss) Reclassified from AOCL into Income (Expense), Consolidated Income Statement Location, and Total Amount of Consolidated Income Statement Line Item
(In millions)
 
Amount Reclassified
 
Location
 
Total Income Statement Amount
Thirteen Weeks Ended
 
5/5/19
 
5/6/18
 
 
 
5/5/19
 
5/6/18
Foreign currency forward exchange contracts (inventory purchases)
 
$
15.0

 
$
(22.9
)
 
Cost of goods sold
 
$
1,060.4

 
$
1,023.6

Interest rate swap agreements
 
0.2

 
0.0

 
Interest expense
 
31.0

 
29.4

Total
 
$
15.2

 
$
(22.9
)
 
 
 


 



A net gain in AOCL on foreign currency forward exchange contracts at May 5, 2019 of $45.0 million is estimated to be reclassified in the next 12 months in the Company’s Consolidated Income Statement to costs of goods sold as the underlying inventory hedged by such forward exchange contracts is sold. In addition, a net loss in AOCL for interest rate swap agreements at May 5, 2019 of $0.8 million is estimated to be reclassified to interest expense within the next 12 months. Amounts recognized in AOCL for foreign currency borrowings would be recognized in earnings only upon the sale or substantially complete liquidation of the hedged net investment.

The following table summarizes the effect of the Company’s undesignated contracts recognized in SG&A expenses in its Consolidated Income Statements:
(In millions)
 
Loss Recognized in Expense
Thirteen Weeks Ended
 
5/5/19
 
5/6/18
 
 
 
 
 
Foreign currency forward exchange contracts
 
$
(0.1
)
 
$
(0.5
)

The Company had no derivative financial instruments with credit risk-related contingent features underlying the related contracts as of May 5, 2019.

12. FAIR VALUE MEASUREMENTS

In accordance with accounting principles generally accepted in the United States, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level hierarchy prioritizes the inputs used to measure fair value as follows:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 – Observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data.


16




Level 3 – Unobservable inputs reflecting the Company’s own assumptions about the inputs that market participants would use in pricing the asset or liability based on the best information available.

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be remeasured at fair value on a recurring basis:
 
5/5/19
 
2/3/19
 
5/6/18
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward exchange contracts    
N/A
 
$
37.8

 
N/A
 
$
37.8

 
N/A
 
$
24.8

 
N/A
 
$
24.8

 
N/A
 
$
10.4

 
N/A
 
$
10.4

Interest rate swap agreements
N/A
 
0.9

 
N/A
 
0.9

 
N/A
 
1.4

 
N/A
 
1.4

 
N/A
 
2.8

 
N/A
 
2.8

Total Assets
N/A
 
$
38.7

 
N/A
 
$
38.7

 
N/A
 
$
26.2

 
N/A
 
$
26.2

 
N/A
 
$
13.2

 
N/A
 
$
13.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward exchange contracts    
N/A
 
$
2.2

 
N/A
 
$
2.2

 
N/A
 
$
6.2

 
N/A
 
$
6.2

 
N/A
 
$
16.6

 
N/A
 
$
16.6

Interest rate swap agreements
N/A
 
3.6

 
N/A
 
3.6

 
N/A
 
2.8

 
N/A
 
2.8

 
N/A
 
N/A

 
N/A
 
N/A

Total Liabilities
N/A
 
$
5.8

 
N/A

$
5.8

 
N/A
 
$
9.0

 
N/A
 
$
9.0

 
N/A
 
$
16.6

 
N/A
 
$
16.6


The fair value of the foreign currency forward exchange contracts is measured as the total amount of currency to be purchased, multiplied by the difference between (i) the forward rate as of the period end and (ii) the settlement rate specified in each contract. The fair value of the interest rate swap agreements is based on observable interest rate yield curves and represents the expected discounted cash flows underlying the financial instruments.

There were no transfers between any levels of the fair value hierarchy for any of the Company’s fair value measurements.

The following table shows the fair value of the Company’s non-financial assets and liabilities that were required to be remeasured at fair value on a non-recurring basis (consisting of operating lease right-of-use assets and property, plant and equipment) during the thirteen weeks ended May 5, 2019, and the total impairments recorded as a result of the remeasurement process:
(In millions)
Fair Value Measurement Using
 
Fair Value
As Of
Impairment Date
 
Total
Impairments
 
Level 1
 
Level 2
 
Level 3
 
 
Operating lease right-of-use assets
N/A
 
N/A
 
$
16.8

 
$
16.8

 
$
77.0

Property, plant and equipment, net
N/A
 
N/A
 

 

 
6.7


Operating lease right-of-use assets with a carrying amount of $93.8 million were written down to a fair value of $16.8 million during the thirteen weeks ended May 5, 2019 as a result of the closure during the first quarter of 2019 of the Company’s TOMMY HILFIGER flagship and anchor stores in the United States (the “TH U.S. store closures”) and the closure during the first quarter of 2019 of the Company’s CALVIN KLEIN flagship store on Madison Avenue in New York, New York in connection with the Calvin Klein restructuring (as defined in Note 17, “Exit Activity Costs”). Please see Note 17 for further discussion of the Calvin Klein restructuring costs. Fair value of the operating lease right-of-use assets was determined based on the discounted cash flows of estimated sublease income using market participant assumptions.

Property, plant and equipment with a carrying amount of $6.7 million was written down to a fair value of zero during the thirteen weeks ended May 5, 2019 primarily in connection with the TH U.S. store closures and the closure of the Company’s CALVIN KLEIN 205 W39 NYC brand (formerly Calvin Klein Collection) in connection with the Calvin Klein restructuring. Please see Note 17, “Exit Activity Costs,” for further discussion of the Calvin Klein restructuring costs. Fair value of the Company’s property plant and equipment was determined based on the estimated discounted future cash flows associated with the assets using sales trends and market participant assumptions.


17




The $83.7 million of impairment charges were included in SG&A expenses, of which $48.6 million was recorded in the Tommy Hilfiger North America segment, $32.2 million was recorded in the Calvin Klein North America segment and $2.9 million was recorded in the Calvin Klein International segment.

The carrying amounts and the fair values of the Company’s cash and cash equivalents, short-term borrowings and long-term debt were as follows:
 
5/5/19
 
2/3/19
 
5/6/18
(In millions)
Carrying Amount
 
Fair
Value
 
Carrying Amount
 
Fair
Value
 
Carrying Amount
 
Fair
Value
 
 

 
 

 
 
 
 
 
 

 
 

Cash and cash equivalents
$
494.3

 
$
494.3

 
$
452.0

 
$
452.0

 
$
434.5

 
$
434.5

Short-term borrowings
299.7

 
299.7

 
12.8

 
12.8

 
254.5

 
254.5

Long-term debt (including portion classified as current)
2,790.4

 
2,907.7

 
2,819.4

 
2,853.7

 
3,013.2

 
3,076.6


The fair values of cash and cash equivalents and short-term borrowings approximate their carrying amounts due to the short-term nature of these instruments. The Company estimates the fair value of its long-term debt using quoted market prices as of the last business day of the applicable quarter. The Company classifies the measurement of its long-term debt as a Level 1 measurement. The carrying amounts of long-term debt reflect the unamortized portions of debt issuance costs and the original issue discounts.

13. STOCK-BASED COMPENSATION

The Company grants stock-based awards under its 2006 Stock Incentive Plan (the “2006 Plan”). Shares issued as a result of stock-based compensation transactions generally have been funded with the issuance of new shares of the Company’s common stock.

The Company may grant the following types of incentive awards under the 2006 Plan: (i) non-qualified stock options (“stock options”); (ii) incentive stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) restricted stock units (“RSUs”); (vi) performance shares; (vii) performance share units (“PSUs”); and (viii) other stock-based awards. Each award granted under the 2006 Plan is subject to an award agreement that incorporates, as applicable, the exercise price, the term of the award, the periods of restriction, the number of shares to which the award pertains, performance periods and performance measures, and such other terms and conditions as the plan committee determines. Awards granted under the 2006 Plan are classified as equity awards, which are recorded in stockholders’ equity in the Company’s Consolidated Balance Sheets.

Through May 5, 2019, the Company has granted under the 2006 Plan (i) service-based stock options, RSUs and restricted stock; and (ii) contingently issuable PSUs and RSUs. All restricted stock granted by the Company was fully vested at the end of 2015.

According to the terms of the 2006 Plan, for purposes of determining the number of shares available for grant, each share underlying a stock option award reduces the number available by one share and each share underlying an RSU or PSU award reduces the number available by two shares.

Net income for the thirteen weeks ended May 5, 2019 and May 6, 2018 included $13.9 million and $11.6 million, respectively, of pre-tax expense related to stock-based compensation, with related recognized income tax benefits of $1.9 million and $2.3 million, respectively.

The Company receives a tax deduction for certain transactions associated with its stock-based plan awards. The actual income tax benefits realized from these transactions during the thirteen weeks ended May 5, 2019 and May 6, 2018 were $7.8 million and $11.7 million, respectively. The tax benefits realized included discrete net excess tax benefits of $1.3 million and $4.5 million recognized in the Company’s provision for income taxes during the thirteen weeks ended May 5, 2019 and May 6, 2018, respectively.


18




Stock Options

Stock options granted to employees are generally exercisable in four equal annual installments commencing one year after the date of grant. The underlying stock option award agreements generally provide for accelerated vesting upon the award recipient’s retirement (as defined in the 2006 Plan). Such stock options are granted with a 10-year term and the per share exercise price cannot be less than the closing price of the common stock on the date of grant.

The Company estimates the fair value of stock options at the date of grant using the Black-Scholes-Merton model. The estimated fair value of the stock options granted is expensed over the stock options’ vesting periods.

The following summarizes the assumptions used to estimate the fair value of stock options granted during the thirteen weeks ended May 5, 2019 and May 6, 2018 and the resulting weighted average grant date fair value per stock option:
 
5/5/19
 
5/6/18
Weighted average risk-free interest rate
2.34
%
 
2.78
%
Weighted average expected stock option term (in years)
6.25

 
6.25

Weighted average Company volatility
28.03
%
 
26.92
%
Expected annual dividends per share    
$
0.15

 
$
0.15

Weighted average grant date fair value per stock option
$
41.15

 
$
51.66


The risk-free interest rate is based on United States Treasury yields in effect at the date of grant for periods corresponding to the expected stock option term. The expected stock option term represents the weighted average period of time that stock options granted are expected to be outstanding, based on vesting schedules and the contractual term of the stock options. Company volatility is based on the historical volatility of the Company’s common stock over a period of time corresponding to the expected stock option term. Expected dividends are based on the Company’s common stock cash dividend rate at the date of grant.

The Company has continued to utilize the simplified method to estimate the expected term for its “plain vanilla” stock options granted due to a lack of relevant historical data resulting, in part, from changes in the pool of employees receiving stock option grants. The Company will continue to evaluate the appropriateness of utilizing such method.

Stock option activity for the thirteen weeks ended May 5, 2019 was as follows:
(In thousands, except per stock option data)
Stock Options
 
Weighted Average Exercise Price
Per Stock Option
Outstanding at February 3, 2019
791

 
$
107.81

  Granted
101

 
127.26

  Exercised
24

 
78.96

  Cancelled
1

 
96.42

Outstanding at May 5, 2019
867

 
$
110.88

Exercisable at May 5, 2019
584

 
$
105.19


RSUs

RSUs granted to employees since 2016 generally vest in four equal annual installments commencing one year after the date of grant. Outstanding RSUs granted to employees prior to 2016 generally vest in three annual installments of 25%, 25% and 50% commencing two years after the date of grant. Service-based RSUs granted to non-employee directors vest in full one year after the date of grant. The underlying RSU award agreements (excluding agreements for non-employee director awards) generally provide for accelerated vesting upon the award recipient’s retirement (as defined in the 2006 Plan). The fair value of RSUs is equal to the closing price of the Company’s common stock on the date of grant and is expensed over the RSUs’ vesting periods.


19




RSU activity for the thirteen weeks ended May 5, 2019 was as follows:
(In thousands, except per RSU data)
RSUs
 
Weighted Average Grant Date Fair Value Per RSU
Non-vested at February 3, 2019
847

 
$
122.97

  Granted
324

 
129.29

  Vested
283

 
114.20

  Cancelled
25

 
123.78

Non-vested at May 5, 2019
863

 
$
128.19


PSUs

Contingently issuable PSUs granted to certain of the Company’s senior executives since 2015 are subject to a three-year performance period. For such awards, the final number of shares to be earned, if any, is contingent upon the Company’s achievement of goals for the applicable performance period, of which 50% is based upon the Company’s absolute stock price growth during the applicable performance period and 50% is based upon the Company’s total shareholder return during the applicable performance period relative to other companies included in the S&P 500 as of the date of grant. For awards granted in 2016, the three-year performance period ended during the first quarter of 2019 and holders of the awards earned an aggregate of 67,000 shares, which was between the threshold and target levels. The Company records expense ratably over the applicable vesting period regardless of whether the market condition is satisfied because the awards are subject to market conditions. The fair value of the awards granted was established for each grant on the grant date using the Monte Carlo simulation model.

The following summarizes the assumptions used to estimate the fair value of PSUs granted during the thirteen weeks ended May 5, 2019 and May 6, 2018 and the resulting weighted average grant date fair value per PSU:
 
5/5/19
 
5/6/18
Risk-free interest rate
2.26
%
 
2.62
%
Expected Company volatility
29.88
%
 
29.78
%
Expected annual dividends per share
$
0.15

 
$
0.15

Weighted average grant date fair value per PSU
$
129.46

 
$
159.53


For certain of the awards granted, the after-tax portion of the award is subject to a holding period of one year after the vesting date. For such awards, the grant date fair value was discounted 6.20% in 2019 and 7.09% in 2018 for the restriction of liquidity, which was calculated using the Chaffe model.

PSU activity for the thirteen weeks ended May 5, 2019 was as follows:
(In thousands, except per PSU data)
PSUs
 
Weighted Average Grant Date Fair Value Per PSU
Non-vested at February 3, 2019
194

 
$
106.76

  Granted at target
52

 
129.46

  Reduction due to market condition achieved below target
10

 
87.16

  Vested
67

 
87.16

  Cancelled
5

 
105.59

Non-vested at May 5, 2019
164

 
$
123.11



20




14. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present the changes in AOCL, net of related taxes, by component for the thirteen weeks ended May 5, 2019 and May 6, 2018:

(In millions)
Foreign currency translation adjustments
 
Net unrealized and realized gain on effective cash flow hedges
 
Total
Balance, February 3, 2019
$
(537.6
)
 
$
29.7

 
$
(507.9
)
Other comprehensive (loss) income before reclassifications
(89.2
)
(1)(2) 
27.7

 
(61.5
)
Less: Amounts reclassified from AOCL

 
14.3

 
14.3

Other comprehensive (loss) income
(89.2
)
 
13.4

 
(75.8
)
Balance, May 5, 2019
$
(626.8
)
 
$
43.1

 
$
(583.7
)


(In millions)
Foreign currency translation adjustments
 
Net unrealized and realized (loss) gain on effective cash flow hedges
 
Total
Balance, February 4, 2018
$
(249.4
)
 
$
(72.1
)
 
$
(321.5
)
Other comprehensive (loss) income before reclassifications
(135.2
)
(1)(2) 
28.0

 
(107.2
)
Less: Amounts reclassified from AOCL

 
(22.1
)
 
(22.1
)
Other comprehensive (loss) income
(135.2
)
 
50.1

 
(85.1
)
Balance, May 6, 2018
$
(384.6
)
 
$
(22.0
)
 
$
(406.6
)
 
(1) Foreign currency translation adjustments included a net gain on net investment hedges of $22.4 million and $37.0 million during the thirteen weeks ended May 5, 2019 and May 6, 2018, respectively.

(2) Unfavorable foreign currency translation adjustments were principally driven by a strengthening of the United States dollar against the euro.

The following table presents reclassifications out of AOCL to earnings for the thirteen weeks ended May 5, 2019 and May 6, 2018:

Amount Reclassified from AOCL
 
Affected Line Item in the Company’s Consolidated Income Statements
 
Thirteen Weeks Ended
 
 
(In millions)
5/5/19
 
5/6/18
 
 
Realized gain (loss) on effective cash flow hedges:
 
 
 
 
 
Foreign currency forward exchange contracts (inventory purchases)
$
15.0

 
$
(22.9
)
 
Cost of goods sold
Interest rate swap agreements
0.2

 

 
Interest expense
Less: Tax effect
0.9

 
(0.8
)
 
Income tax expense
Total, net of tax
$
14.3

 
$
(22.1
)
 
 

15. STOCKHOLDERS’ EQUITY

The Company’s Board of Directors authorized a $2,000.0 million stock repurchase program through 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 the Company deems appropriate. Purchases are made based on a variety of factors, such as price, corporate requirements and overall market conditions, applicable legal requirements and limitations, trading restrictions under the Company’s insider trading policy and other relevant factors. The

21




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 the thirteen weeks ended May 5, 2019 and May 6, 2018, the Company purchased 0.5 million shares and 0.4 million shares, respectively, of its common stock under the program in open market transactions for $61.2 million and $53.7 million, respectively. As of May 5, 2019, the repurchased shares were held as treasury stock and $947.1 million of the authorization remained available for future share repurchases.

Treasury stock activity also includes shares that were withheld principally in conjunction with the settlement of RSUs and PSUs to satisfy tax withholding requirements.

16. LEASES

The Company leases approximately 1,750 Company-operated freestanding retail store locations across more than 35 countries, generally with initial lease terms of 3 to 10 years. The Company also leases warehouses, distribution centers, showrooms, office space, and a factory in Ethiopia, generally with initial lease terms of 10 to 20 years, as well as certain equipment and other assets, generally with initial lease terms of 1 to 5 years.

Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of fixed lease payments over the expected lease term. The Company uses its incremental borrowing rates to determine the present value of fixed lease payments based on the information available at the lease commencement date, as the rate implicit in the lease is not readily determinable for the Company's leases. The Company's incremental borrowing rates are based on the term of the lease, the economic environment of the lease, and the effect of collateralization. Certain leases include one or more renewal options, generally for the same period as the initial term of the lease. The exercise of lease renewal options is generally at the Company’s sole discretion and as such, the Company typically determines that exercise of these renewal options is not reasonably certain. As a result, the Company does not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the right-of-use asset and lease liability. Certain leases also contain termination options with an associated penalty. Generally, the Company is reasonably certain not to exercise these options and as such, they are not included in the determination of the expected lease term. The Company recognizes operating lease expense on a straight-line basis over the lease term.

Leases with an initial lease term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Leases generally provide for payments of nonlease components, such as common area maintenance, real estate taxes and other costs associated with the leased property. For lease agreements entered into or modified after February 3, 2019, the Company accounts for lease components and nonlease components together as a single lease component and, as such, includes fixed payments of nonlease components in the measurement of the right-of-use assets and lease liabilities. Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased property are expensed as incurred as variable lease costs and are not recorded on the balance sheet.
 
The Company’s lease agreements do not contain any material residual value guarantees or material restrictions or covenants.


22




The components of the net lease cost for the thirteen weeks ended May 5, 2019 were as follows:

 
 
 
 
Thirteen Weeks Ended
(In millions)
 
Line Item in the Company’s Consolidated Income Statement
 
5/5/19
Finance lease cost:
 
 
 
 
Amortization of right-of-use-assets
 
SG&A expenses (depreciation and amortization)
 
$
1.3

Interest on lease liabilities
 
Interest expense
 
0.1

Total finance lease cost
 
 
 
1.4

Operating lease cost
 
SG&A expenses
 
112.9

Short-term lease cost
 
SG&A expenses
 
3.5

Variable lease cost
 
SG&A expenses
 
30.3

Less: sublease income
 
SG&A expenses
 
(0.1
)
Total net lease cost
 
 
 
$
148.0


Supplemental balance sheet information related to leases as of May 5, 2019 was as follows:
(In millions)
 
Line Item in the Company’s Consolidated Balance Sheet
 
5/5/19
Right-of-use assets:
 
 
 
 
Operating lease
 
Operating lease right-of-use assets
 
$
1,606.0

Finance lease
 
Property, plant and equipment, net
 
14.6

 
 
 
 
$
1,620.6

Current lease liabilities:
 
 
 
 
Operating lease
 
Current portion of operating lease liabilities
 
$
334.3

Finance lease
 
Accrued expenses
 
4.7

 
 
 
 
$
339.0

Other lease liabilities:
 
 
 
 
Operating lease
 
Long-term portion of operating lease liabilities
 
$
1,499.4

Finance lease
 
Other liabilities