Edgar Filing: PVH CORP. /DE/

10Q.2Q.2013

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	August 4, 2013



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)

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 and posted on its corporate Web site, if any, 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 and post 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

(do not check if a smaller

reporting company)

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, par value $1.00 per share, of the registrant as of September 3, 2013 was 81,572,863.

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 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, the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) in connection with the acquisition of The Warnaco Group, Inc. (“Warnaco”), we borrowed significant amounts, may be considered to be highly leveraged, and will have to use a significant portion of our cash flows to service such 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 plans and results of operations will be affected by our ability to manage our growth and inventory, including our ability to realize benefits from Warnaco; (v) our operations and results could be affected by quota restrictions and the imposition of safeguard controls (which, among other things, could limit our ability to produce products in cost-effective countries that have the labor and technical expertise needed), the availability and cost of raw materials, 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), changes in available factory and shipping capacity, wage and shipping cost escalation, and civil conflict, war or terrorist acts, the threat of any of the foregoing, or political and 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; (vi) 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; (vii) acquisitions and issues arising with acquisitions and proposed transactions, including, without limitation, the ability to integrate an acquired entity, such as Warnaco, into us with no substantial adverse effect on the acquired entity’s or our existing operations, employee relationships, vendor relationships, customer relationships or financial performance; (viii) the failure of our licensees to market successfully licensed products or to preserve the value of our brands, or their misuse of our brands; and (ix) 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 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



Consolidated Income Statements for the Thirteen and Twenty-Six Weeks Ended August 4, 2013 and July 29, 2012	1

Consolidated Statements of Comprehensive (Loss) Income for the Thirteen and Twenty-Six Weeks Ended August 4, 2013 and July 29, 2012	2

Consolidated Balance Sheets as of August 4, 2013, February 3, 2013 and July 29, 2012	3

Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended August 4, 2013 and July 29, 2012	4

Notes to Consolidated Financial Statements	5

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3 - Quantitative and Qualitative Disclosures About Market Risk	45

Item 4 - Controls and Procedures	45

PART II -- OTHER INFORMATION



Item 1 - Legal Proceedings	46

Item 1A - Risk Factors	46

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 6 - Exhibits	47

Signatures	50

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

PVH Corp.

Consolidated Income Statements

Unaudited

(In thousands, except per share data)



	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	August 4,			July 29,			August 4,			July 29,
	2013			2012			2013			2012
Net sales	$	1,884,439		$	1,219,620		$	3,707,484		$	2,532,469
Royalty revenue	62,561			82,513			129,628			167,973
Advertising and other revenue	17,847			34,490			37,895			63,587
Total revenue	1,964,847			1,336,623			3,875,007			2,764,029
Cost of goods sold	938,759			593,962			1,897,058			1,264,539
Gross profit	1,026,088			742,661			1,977,949			1,499,490
Selling, general and administrative expenses	953,468			589,333			1,860,476			1,192,004
Debt modification and extinguishment costs	—			—			40,395			—
Equity in income (loss) of unconsolidated affiliates, net	813			(74		)	3,140			1,850
Income before interest and taxes	73,433			153,254			80,218			309,336
Interest expense	49,495			28,552			97,439			58,069
Interest income	2,116			197			4,111			470
Income (loss) before taxes	26,054			124,899			(13,110		)	251,737
Income tax expense	41,963			34,981			22,812			66,343
Net (loss) income	$	(15,909	)	$	89,918		$	(35,922	)	$	185,394
Less: Net income attributable to redeemable non-controlling interest	87			—			126			—
Net (loss) income attributable to PVH Corp.	$	(15,996	)	$	89,918		$	(36,048	)	$	185,394
Basic net (loss) income per common share attributable to PVH Corp.	$	(0.20	)	$	1.24		$	(0.45	)	$	2.57
Diluted net (loss) income per common share attributable to PVH Corp.	$	(0.20	)	$	1.22		$	(0.45	)	$	2.52
Dividends declared per common share	$	0.0375		$	0.0000		$	0.1125		$	0.0750

See accompanying notes.

PVH Corp.

Consolidated Statements of Comprehensive (Loss) Income

Unaudited

(In thousands)



	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	August 4,			July 29,			August 4,			July 29,
	2013			2012			2013			2012

Net (loss) income	$	(15,909	)	$	89,918		$	(35,922	)	$	185,394
Other comprehensive (loss) income:
Foreign currency translation adjustments, net of tax expense (benefit) of $107; $(690); $(330) and $(453)	(45,713		)	(150,188		)	(150,770		)	(133,187		)
Amortization of prior service credit related to pension and postretirement plans, net of tax (benefit) of $(84); $(84); $(168) and $(168)	(135		)	(135		)	(271		)	(271		)
Net unrealized and realized gain on effective hedges, net of tax expense (benefit) of $482; $(625); $(754) and $364	1,656			6,346			9,514			2,099
Comprehensive (loss) income	(60,101		)	(54,059		)	(177,449		)	54,035
Less: Comprehensive loss attributable to redeemable non-controlling interest	(1,771		)	—			(1,625		)	—
Total comprehensive (loss) income attributable to PVH Corp.	$	(58,330	)	$	(54,059	)	$	(175,824	)	$	54,035

See accompanying notes.

PVH Corp.

Consolidated Balance Sheets

(In thousands, except share and per share data)



	August 4,			February 3,			July 29,
	2013			2013			2012
	UNAUDITED			AUDITED			UNAUDITED
ASSETS
Current Assets:
Cash and cash equivalents	$	628,920		$	892,209		$	261,986
Trade receivables, net of allowances for doubtful accounts of $22,121, $16,114 and $13,955	712,057			418,251			411,381
Other receivables	44,212			23,073			14,284
Inventories, net	1,348,598			878,415			909,447
Prepaid expenses	233,659			157,802			117,826
Other, including deferred taxes of $88,189, $38,310 and $53,150	113,199			67,256			105,014
Total Current Assets	3,080,645			2,437,006			1,819,938
Property, Plant and Equipment, net	693,857			561,335			484,443
Goodwill	3,368,002			1,958,887			1,777,724
Tradenames	2,975,764			2,413,809			2,332,811
Perpetual License Rights	206,336			—			—
Other Intangibles, net	850,218			167,196			150,932
Other Assets, including deferred taxes of $114,320, $61,465 and $5,315	339,924			243,316			165,640
Total Assets	$	11,514,746		$	7,781,549		$	6,731,488

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	552,221		$	377,231		$	372,531
Accrued expenses, including deferred taxes of $3,329, $0 and $0	755,326			646,130			554,078
Deferred revenue	29,208			40,239			41,972
Short-term borrowings	3,447			10,847			52,791
Current portion of long-term debt	85,000			88,000			88,021
Total Current Liabilities	1,425,202			1,162,447			1,109,393
Long-Term Debt	4,195,151			2,211,642			1,715,464
Other Liabilities, including deferred taxes of $1,126,386, $589,796 and $501,858	1,841,033			1,154,891			1,125,803
Redeemable Non-Controlling Interest	5,600			—			—
Stockholders’ Equity:
Preferred stock, par value $100 per share; 150,000 total shares authorized	—			—			—
Series A convertible preferred stock, par value $100 per share; 0, 8,000 and 8,000 total shares authorized; 0, 0 and 4,000 shares issued and outstanding (with total liquidation preference of $0, $0 and $100,000)	—			—			94,298
Common stock, par value $1 per share; 240,000,000 shares authorized; 82,052,537; 73,324,491 and 70,951,932 shares issued	82,053			73,324			70,952
Additional paid in capital - common stock	2,623,659			1,623,693			1,500,032
Retained earnings	1,398,797			1,445,673			1,202,722
Accumulated other comprehensive income (loss)	106			139,882			(57,524		)
Less: 478,934; 413,596 and 409,440 shares of common stock held in treasury, at cost	(56,855		)	(30,003		)	(29,652		)
Total Stockholders’ Equity	4,047,760			3,252,569			2,780,828
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity	$	11,514,746		$	7,781,549		$	6,731,488

See accompanying notes.

PVH Corp.

Consolidated Statements of Cash Flows

Unaudited

(In thousands)



	Twenty-Six Weeks Ended
	August 4,			July 29,
	2013			2012
OPERATING ACTIVITIES
Net (loss) income	$	(35,922	)	$	185,394
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization	205,348			67,792
Equity in income of unconsolidated affiliates, net	(3,140		)	(1,850		)
Deferred taxes	(23,697		)	15,906
Stock-based compensation expense	34,478			18,891
Debt modification and extinguishment costs	40,395			—
Changes in operating assets and liabilities:
Trade receivables, net	(14,276		)	46,095
Inventories, net	(34,010		)	(117,028		)
Accounts payable, accrued expenses and deferred revenue	(145,871		)	39,893
Prepaid expenses	(28,923		)	(8,590		)
Employer pension contributions	(30,000		)	(7,489		)
Other, net	97,659			(31,716		)
Net cash provided by operating activities	62,041			207,298
INVESTING ACTIVITIES⁽¹⁾
Business acquisitions, net of cash acquired	(1,815,329		)	—
Purchase of property, plant and equipment	(105,571		)	(81,685		)
Contingent purchase price payments	(26,734		)	(25,749		)
Net cash used by investing activities	(1,947,634		)	(107,434		)
FINANCING ACTIVITIES⁽¹⁾
Net proceeds from revolving credit facilities	346			40,000
Net payments on short-term borrowings	(34,673		)	(249		)
Repayment of old credit facilities	(900,000		)	(89,680		)
Repayment of new credit facilities	(181,688		)	—
Repayment of Warnaco’s previously outstanding debt	(197,000		)	—
Net proceeds from credit facilities	2,993,430			—
Payment of fees associated with issuance of senior notes	(16,257		)	—
Net proceeds from settlement of awards under stock plans	24,256			4,377
Excess tax benefits from awards under stock plans	15,091			7,082
Cash dividends	(9,203		)	(5,490		)
Acquisition of treasury shares	(57,121		)	(13,633		)
Payments of capital lease obligations	(4,655		)	(5,664		)
Net cash provided (used) by financing activities	1,632,526			(63,257		)
Effect of exchange rate changes on cash and cash equivalents	(10,222		)	(7,818		)
(Decrease) increase in cash and cash equivalents	(263,289		)	28,789
Cash and cash equivalents at beginning of period	892,209			233,197
Cash and cash equivalents at end of period	$	628,920		$	261,986

⁽¹⁾ See Note 17 for information on noncash investing and financing transactions.

See accompanying notes.

PVH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Currency and share amounts in thousands, except per share data)

1. GENERAL

PVH Corp. and its consolidated subsidiaries (collectively, the “Company”) constitute a global apparel company whose brand portfolio consists of nationally and internationally recognized brand names, including Calvin Klein, Tommy Hilfiger, Van Heusen, IZOD, ARROW, Bass, Warner’s and Olga, which are owned, and Speedo, which is licensed, as well as various other owned, licensed and private label brands. The Company designs and markets branded dress shirts, neckwear, sportswear, swim products, intimates and, to a lesser extent, footwear and other related products and licenses its owned brands over a broad range of products. References to the aforementioned and other brand names are to registered 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. Please see Note 4, “Investments in Unconsolidated Affiliates,” for a further discussion. The Company’s Consolidated Income Statements include its proportionate share of the net income or loss of these entities. As a result of the acquisition of The Warnaco Group, Inc. (“Warnaco”), the Company owns a majority interest in a joint venture in India that is consolidated and accounted for as a redeemable non-controlling interest. Please see Note 5, “Redeemable Non-Controlling Interest,” for a further discussion. The redeemable non-controlling interest represents the minority shareholders’ proportionate share (49%) of the equity in the Company’s consolidated subsidiary.

The Company’s 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 the Company’s fiscal year, unless the context requires otherwise.

The accompanying unaudited consolidated financial statements have been prepared in accordance 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 should be made to the 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, 2013.

The preparation of 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 financial statements and accompanying notes. Actual results could differ materially from the estimates.

The results of operations for the thirteen and twenty-six weeks ended August 4, 2013 and July 29, 2012 are not necessarily indicative of those for a full fiscal year due, in part, to seasonal factors. The data contained in these financial statements are unaudited and are subject to year-end adjustments. However, in the opinion of management, all known adjustments (which consist only of normal recurring accruals) have been made to present fairly the consolidated operating results for the unaudited periods.

Certain reclassifications have been made to the consolidated financial statements and the notes thereto for the prior year periods to present that information on a basis consistent with the current year. Please see Note 6, “Goodwill and Other Intangible Assets,” Note 7, “Retirement and Benefit Plans,” and Note 18, “Segment Data,” for discussions of changes in accounting and/or reporting related to these areas.

2. INVENTORIES

Inventories are comprised principally of finished goods and are stated at the lower of cost or market.

3. ACQUISITIONS

Acquisition of Warnaco

The Company acquired on February 13, 2013 all of the outstanding equity interests in Warnaco. The results of Warnaco’s operations since that date have been included in the Company’s consolidated financial statements. Warnaco designs, sources, markets and distributes a broad line of intimate apparel, sportswear and swim products worldwide. Warnaco’s products are sold under the Calvin Klein, Speedo, Warner’s and Olga brand names and were also previously sold under the Chaps brand name. Ralph Lauren Corporation reacquired the Chaps license effective contemporaneously with the Company’s acquisition of Warnaco.

The Warnaco acquisition provided the Company with direct global control of the Calvin Klein brand image and commercial decisions for the two largest Calvin Klein apparel categories—jeanswear and underwear. In addition, the Company believes the acquisition takes advantage of its and Warnaco’s complementary geographic platforms. Warnaco’s operations in Asia and Latin America should enhance the Company’s opportunities in those high-growth regions, and the Company will have the ability to leverage its expertise and infrastructure in North America and Europe to enhance the growth and profitability of the Calvin Klein jeanswear and underwear businesses in those regions.

Fair Value of the Acquisition Consideration

The acquisition date fair value of the acquisition consideration paid at closing totaled $3,137,056, which consisted of the following:



Cash	$	2,179,980
Common stock (7,674 shares, par value $1.00 per share)	926,452
Warnaco employee replacement stock awards	39,752
Elimination of pre-acquisition liability to Warnaco	(9,128		)
Total fair value of the acquisition consideration	$	3,137,056

The fair value of the 7,674 common shares issued was equal to the aggregate value of the shares at the closing market price of the Company’s common stock on February 12, 2013, the day prior to the closing. The value of the replacement stock awards was determined by multiplying the estimated fair value of the Warnaco awards outstanding at the time of the acquisition, reduced by an estimated value of awards to be forfeited, by the proportionate amount of the vesting period that had lapsed as of the acquisition date. Also included in the acquisition consideration was the elimination of a $9,128 pre-acquisition liability to Warnaco.

The Company funded the cash portion and related costs of the Warnaco acquisition, repaid all outstanding borrowings under its previously outstanding senior secured credit facilities and repaid all of Warnaco’s previously outstanding long-term debt with the net proceeds of (i) the issuance of $700,000 of 4 1/2% senior notes due 2022; and (ii) the borrowing of $3,075,000 of term loans under new senior secured credit facilities.

Please see Note 6, “Goodwill and Other Intangible Assets,” Note 8, “Debt,” Note 12, “Stock-Based Compensation,” and Note 14, “Stockholders’ Equity,” for a further discussion of these aspects of the acquisition.

The Company incurred certain pre-tax costs directly associated with the acquisition, including short-lived non-cash valuation adjustments and amortization, totaling approximately $185,000, of which approximately $43,000 was recorded in fiscal 2012 and approximately $142,000 was recorded during the twenty-six weeks ended August 4, 2013. Please see Note 15, “Activity Exit Costs,” for a discussion of restructuring costs incurred during the twenty-six weeks ended August 4, 2013 associated with the acquisition.

The operations acquired with Warnaco had total revenue of $1,027,878 and a net loss, after non-cash valuation adjustments and amortization and integration costs, of $(62,727) for the period from the date of acquisition through August 4, 2013. These amounts are included in the Company’s results of operations for the twenty-six week period then ended.

Pro Forma Impact of the Transaction

The following table presents the Company’s pro forma consolidated results of operations for the thirteen and twenty-six weeks ended August 4, 2013 and July 29, 2012, as if the acquisition and the related financing transactions had occurred on January 30, 2012 (the first day of its fiscal year ended February 3, 2013) instead of on February 13, 2013. The pro forma results were calculated applying the Company’s accounting policies and reflect (i) the impact on revenue, cost of goods sold and selling, general and administrative expenses resulting from the elimination of intercompany transactions; (ii) the impact on depreciation and amortization expense based on fair value adjustments to Warnaco’s property, plant and equipment and intangible assets recorded in connection with the acquisition; (iii) the impact on interest expense resulting from changes to the Company’s capital structure in connection with the acquisition; (iv) the impact on cost of goods sold resulting from acquisition date adjustments to the fair value of inventory; (v) the elimination of transaction costs related to the acquisition that were included in the Company’s results of operations for the thirteen and twenty-six weeks ended August 4, 2013; and (vi) the tax effects of the above adjustments. The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of Warnaco. Accordingly, such pro forma amounts are not indicative of the results that actually would have occurred had the acquisition been completed on January 30, 2012, nor are they indicative of the future operating results of the combined company.



	Pro Forma				Pro Forma
	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	8/4/13		7/29/12		8/4/13		7/29/12
Total revenue	$	1,964,847	$	1,803,015	$	3,938,037	$	3,743,839
Net income attributable to PVH Corp.	74,545		39,616		149,948		80,417

Allocation of the Acquisition Consideration

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:



Cash and cash equivalents	$	364,651
Trade receivables	290,964
Other receivables	47,011
Inventories	452,841
Prepaid expenses	39,979
Other current assets	60,626
Property, plant and equipment	131,357
Goodwill	1,451,479
Tradenames	604,600
Perpetual license rights	206,900
Other intangibles	824,800
Other assets	144,058
Total assets acquired	4,619,266
Accounts payable	179,931
Accrued expenses	262,432
Short-term borrowings	26,927
Current portion of long-term debt	2,000
Long-term debt	195,000
Other liabilities	810,320
Total liabilities assumed	1,476,610
Redeemable non-controlling interest	5,600
Total fair value of acquisition consideration	$	3,137,056

The Company is still in the process of valuing the assets acquired and liabilities assumed; thus, the allocation of the acquisition consideration is subject to change.

In connection with the acquisition, the Company recorded goodwill of $1,451,479, which was assigned to the Company’s Calvin Klein North America, Calvin Klein International and Heritage Brands Wholesale segments in the amounts of $443,419, $878,786 and $129,274, respectively. None of the goodwill is expected to be deductible for tax purposes. The Company also recorded other intangible assets of $1,636,300, which included reacquired license rights of $578,000, order backlog of $97,000 and customer relationships of $149,800, which are all amortizable, as well as tradenames of $604,600 and perpetual license rights of $206,900, which have indefinite lives.

4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

Brazil

In 2012, the Company formed a joint venture, Tommy Hilfiger do Brasil S.A., in Brazil, in which the Company owns a 40% economic interest. The joint venture holds an exclusive license for the Tommy Hilfiger brand in Brazil that became effective on January 4, 2013. This investment is being accounted for under the equity method of accounting.

China

In 2011, the Company formed a joint venture, TH Asia Ltd., in China, in which the Company owns a 45% economic interest. The joint venture assumed direct control of the Tommy Hilfiger wholesale and retail distribution businesses in China from the prior licensee on August 1, 2011. This investment is being accounted for under the equity method of accounting.

India

In 2011, the Company completed an acquisition of a 50% economic interest in a company that has since been renamed Tommy Hilfiger Arvind Fashion Private Limited (“TH India”). TH India is the direct licensee of the Tommy Hilfiger trademarks in India for all categories (other than fragrance), operates a wholesale apparel, footwear and handbags business in connection with its license, and sublicenses the trademarks for certain other product categories. This investment is being accounted for under the equity method of accounting.

Included in other assets in the Company’s Consolidated Balance Sheets as of August 4, 2013, February 3, 2013 and July 29, 2012 is $62,822, $62,021 and $46,880, respectively, related to these investments in unconsolidated affiliates.

5. REDEEMABLE NON-CONTROLLING INTEREST

As a result of the acquisition of Warnaco, the Company owns a 51% interest in a joint venture in India, Premium Garments Wholesale Trading Private Limited (“CK India”), that is consolidated in the Company’s financial statements.

The Shareholders Agreement entered into by the parties to the joint venture (the “Shareholders Agreement”) contains a put option under which the non-controlling shareholders can require the Company to purchase all or a portion of their shares in the joint venture (i) at any date with respect to one of the non-controlling shareholders, who holds a 24% ownership, and (ii) after July 8, 2015, or at any date if the Company commits a material breach, as defined in the Shareholders Agreement, that is not cured, or becomes insolvent, with respect to the other non-controlling shareholder, who holds a 25% ownership. The put price is the fair market value of the shares on the redemption date based upon a multiple of the joint venture’s earnings before interest, taxes, depreciation and amortization for the prior 12 months, less the joint venture’s net debt and any amounts owed to the Company by the non-controlling shareholders.

The Shareholders Agreement also contains a call option, under which the Company can require any of the non-controlling shareholders to sell their shares to the Company (i) at any date in the event that any non-controlling shareholder commits a material breach, as defined in the Shareholders Agreement, under any of the agreements related to the joint venture, that is not cured; or (ii) at any date after July 8, 2015. The call price is determined by the same method as the put price (as described above). During the quarter ended August 4, 2013, the Company gave notice to the non-controlling shareholders that it was exercising the call option due to a continuing material breach by the non-controlling shareholders. The sale of the non-controlling interests has not yet been consummated.

The fair value of the non-controlling interest as of the date of the Warnaco acquisition was estimated to be $5,600, which is subject to change pending the finalization of the valuation of the acquisition consideration allocation. Subsequent changes in

the fair value of the redeemable non-controlling interest are recognized immediately as they occur, since a portion of the non-controlling interest is currently redeemable and it is probable that the other portion will become redeemable in the future based on the passage of time. The carrying amount of the redeemable non-controlling interest is adjusted to equal the fair value 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. Any fair value adjustment to the carrying amount is determined after attribution of net income and other comprehensive income of the non-controlling interest. After initial measurement, the attribution of any net losses of the non-controlling interest cannot exceed the amount of any increase in fair value above the initial fair value. Any fair value adjustment to the carrying amount of the redeemable non-controlling interest will be recognized immediately in retained earnings of the Company. After adjusting the carrying amount for net income and other comprehensive income during the twenty-six weeks ended August 4, 2013, an adjustment to retained earnings of $1,625 was necessary to increase the fair value of the redeemable non-controlling interest, as of August 4, 2013, to the initial fair value of $5,600.

6. GOODWILL AND OTHER INTANGIBLE ASSETS

The acquisition of Warnaco has significantly impacted the way the Company and its chief operating decision maker manage and analyze the Company’s operating results. As such, the Company has changed its reportable segments. Please see Note 18, “Segment Data,” for a further discussion. This change in segments resulted in a reallocation of goodwill amongst some of the Company’s reportable segments. Prior period data has been retrospectively adjusted to reflect this reallocation.

The changes in the carrying amount of goodwill for the twenty-six weeks ended August 4, 2013, by segment, were as follows:



	Calvin Klein North America			Calvin Klein International			Tommy Hilfiger North America		Tommy Hilfiger International			Heritage Brands Wholesale			Total
Balance as of February 3, 2013
Goodwill, gross	$	207,083		$	201,542		$	198,501	$	1,196,619		$	155,142		$	1,958,887
Accumulated impairment losses	—			—			—		—			—			—
Goodwill, net	207,083			201,542			198,501		1,196,619			155,142			1,958,887
Contingent purchase price payments to Mr. Calvin Klein	13,406			9,316			—		—			—			22,722
Goodwill from acquisition of Warnaco	443,419			878,786			—		—			129,274			1,451,479
Currency translation	(1,930		)	(23,954		)	—		(38,715		)	(487		)	(65,086		)
Balance as of August 4, 2013
Goodwill, gross	661,978			1,065,690			198,501		1,157,904			283,929			3,368,002
Accumulated impairment losses	—			—			—		—			—			—
Goodwill, net	$	661,978		$	1,065,690		$	198,501	$	1,157,904		$	283,929		$	3,368,002

The Company is required to make contingent purchase price payments to Mr. Calvin Klein in connection with the Company’s acquisition in 2003 of all of the issued and outstanding stock of Calvin Klein, Inc. and certain affiliated companies (collectively, “Calvin Klein”). Such payments are 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 and are required to be made with respect to sales made through February 12, 2018. A significant portion of the sales on which the payments to Mr. Klein are made are wholesale sales by the Company and its licensees and other partners to retailers.

The Company’s intangible assets consisted of the following:



	8/4/13							2/3/13							7/29/12
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Intangible assets subject to amortization:
Customer relationships⁽¹⁾	$	333,064	$	(54,411	)	$	278,653	$	190,383	$	(41,158	)	$	149,225	$	171,583	$	(35,213	)	$	136,370
Covenants not to compete	2,220		(2,220		)	—		2,220		(2,220		)	—		2,220		(2,190		)	30
Order backlog⁽¹⁾	128,196		(122,504		)	5,692		32,287		(32,287		)	—		32,287		(32,287		)	—
Reacquired license rights⁽¹⁾	566,160		(12,904		)	553,256		8,565		(3,636		)	4,929		5,921		(3,163		)	2,758
Total intangible assets subject to amortization	1,029,640		(192,039		)	837,601		233,455		(79,301		)	154,154		212,011		(72,853		)	139,158

Intangible assets not subject to amortization:
Tradenames⁽¹⁾	2,975,764		—			2,975,764		2,413,809		—			2,413,809		2,332,811		—			2,332,811
Perpetual license rights⁽¹⁾	206,336		—			206,336		—		—			—		—		—			—
Reacquired perpetual license rights	12,617		—			12,617		13,042		—			13,042		11,774		—			11,774
Total intangible assets not subject to amortization	3,194,717		—			3,194,717		2,426,851		—			2,426,851		2,344,585		—			2,344,585
Total intangible assets	$	4,224,357	$	(192,039	)	$	4,032,318	$	2,660,306	$	(79,301	)	$	2,581,005	$	2,556,596	$	(72,853	)	$	2,483,743

⁽¹⁾Change from February 3, 2013 to August 4, 2013 primarily relates to intangible assets recorded in connection with the acquisition of Warnaco. The acquired customer relationships are amortized principally over 10 years, order backlog is amortized principally over 6 months and reacquired license rights are amortized principally over 33 years from the date of the acquisition. As of August 4, 2013, the weighted average life of the amortizable intangible assets recorded in connection with the acquisition of Warnaco was 27.7 years.

Amortization expense related to the Company’s amortizable intangible assets was $112,738 and $6,454 for the twenty-six weeks ended August 4, 2013 and July 29, 2012, respectively.

Amortization expense, a portion of which is subject to exchange rate fluctuation, for the remainder of 2013 and the next five years thereafter related to the Company’s intangible assets as of August 4, 2013 is expected to be as follows:



Fiscal Year	Amount
Remainder of 2013	$	28,951
2014	44,823
2015	44,482
2016	44,482
2017	44,482
2018	44,482

7. RETIREMENT AND BENEFIT PLANS

The Company has six noncontributory defined benefit pension plans (including a plan acquired as part of the Warnaco acquisition, which is frozen) covering substantially all employees resident in the United States who meet certain age and service requirements. For those vested (after five years of service), the plans provide monthly benefits upon retirement based on career compensation and years of credited service. The Company refers to these six plans as its “Pension Plans.”

The Company also has for certain members of Tommy Hilfiger’s domestic senior management a supplemental executive retirement plan, which is an unfunded non-qualified supplemental defined benefit pension plan. Such plan is frozen and, as a result, participants do not accrue additional benefits. In addition, the Company has a capital accumulation program, which is an unfunded non-qualified supplemental defined benefit plan, covering two current and 15 retired executives as of August 4, 2013.

Under the individual participants’ agreements, the participants in this plan will receive a predetermined amount during the 10 years following the attainment of age 65, provided that prior to the termination of employment with the Company, the participant has been in the plan for at least 10 years and has attained age 55. The Company also has for certain employees resident in the United States who meet certain age and service requirements an unfunded non-qualified supplemental defined benefit pension plan, which 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 Company also provides certain postretirement health care and life insurance benefits to certain retirees resident in the United States. Retirees contribute to the cost of this plan, which is unfunded. During 2002, the postretirement plan was amended to eliminate the Company contribution, which partially subsidized benefits, for active participants who, as of January 1, 2003, had not attained age 55 and 10 years of service. As a result of the Company’s acquisition of 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 this plan, which is unfunded. The Company refers to these two plans as its “Postretirement Plans.”

During the fourth quarter of 2012, the Company changed its method of accounting for actuarial gains and losses for its pension and other postretirement plans. Historically, the Company recognized actuarial gains and losses for its pension and other postretirement obligations and pension plan assets as a component of other comprehensive income in the periods in which they arose. As set forth in the Financial Accounting Standards Board (“FASB”) guidance for pension and other postretirement plans, the Company amortized actuarial gains and losses (to the extent they exceeded a 10% corridor) in future periods over the average remaining service period of active employees or, if substantially all plan participants were inactive, over the average remaining life expectancy of inactive participants, as a component of its net periodic benefit cost. The Company elected in the fourth quarter of 2012 to begin to immediately recognize actuarial gains and losses in its operating results in the year in which they occur. These gains and losses are measured at least annually as of the end of the Company’s fiscal year and, as such, will generally be recognized during the fourth quarter of each year. Additionally, beginning in the fourth quarter of 2012, the Company no longer calculates expected return on plan assets using a permitted averaging technique for market-related value of plan assets but instead uses the fair value of plan assets. The financial data for all prior periods presented has been retrospectively adjusted to reflect the effect of these accounting changes.

Net benefit cost related to the Company’s Pension Plans was recognized in selling, general and administrative expenses as follows:



	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	8/4/13			7/29/12			8/4/13			7/29/12

Service cost, including plan expenses	$	4,823		$	4,011		$	9,420		$	7,865
Interest cost	6,528			4,530			13,067			8,986
Expected return on plan assets	(9,658		)	(5,254		)	(19,528		)	(10,476		)
Amortization of prior service cost	2			1			3			2
Total	$	1,695		$	3,288		$	2,962		$	6,377

Net benefit cost related to the Company’s SERP Plans was recognized in selling, general and administrative expenses as follows:



	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	8/4/13			7/29/12			8/4/13			7/29/12

Service cost, including plan expenses	$	1,119		$	814		$	2,169		$	1,787
Interest cost	953			827			1,810			1,673
Amortization of prior service credit	(17		)	(16		)	(34		)	(33		)
Total	$	2,055		$	1,625		$	3,945		$	3,427

Net benefit cost related to the Company’s Postretirement Plans was recognized in selling, general and administrative expenses as follows:



	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	8/4/13			7/29/12			8/4/13			7/29/12

Service cost, including plan expenses	$	14		$	—		$	40		$	—
Interest cost	207			181			429			399
Amortization of prior service credit	(204		)	(204		)	(408		)	(408		)
Total	$	17		$	(23	)	$	61		$	(9	)

Currently, the Company expects to make contributions of approximately $60,000 to its pension plans in 2013, which includes a $30,000 contribution made during the first quarter of 2013 to fund the pension plan that the Company acquired with the Warnaco acquisition. The Company’s actual contributions may differ from 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.

8. DEBT

Short-Term Borrowings

One of the Company’s Asian subsidiaries has a Yen-denominated overdraft facility with a Japanese bank, which provides for borrowings of up to ¥1,000,000 (approximately $10,000 based on exchange rates in effect on August 4, 2013) and is utilized to fund working capital needs. Borrowings under the facility are unsecured and bear interest at the one-month Japanese interbank borrowing rate (“TIBOR”) plus 0.15%. Such facility renews automatically unless the Company gives notice of termination. There were no borrowings outstanding under this facility as of August 4, 2013. The maximum amount of borrowings outstanding under this facility during the twenty-six weeks ended August 4, 2013 was approximately $10,000.

One of the Company’s European subsidiaries acquired as part of the Warnaco acquisition has short-term revolving notes with a number of banks at various interest rates, as well as a Euro-denominated overdraft facility, which are used to fund working capital needs. The total amount of borrowings outstanding as of August 4, 2013 was $2,147. The weighted average interest rate on the funds borrowed at August 4, 2013 was 2.94%. The maximum amount of borrowings outstanding under these facilities during the twenty-six weeks ended August 4, 2013 was approximately $25,300.

One of the Company’s Asian subsidiaries acquired as part of the Warnaco acquisition has Rupee-denominated short-term revolving credit facilities with a local lender. These facilities provide for total borrowings of up to ₨195,000 (approximately $3,200 based on exchange rates in effect on August 4, 2013) and are utilized to fund working capital needs. Borrowings under the facilities bear interest at various interest rates, primarily based on a base rate set by the lending bank. As of August 4, 2013, the Company had $1,300 of borrowings outstanding under these facilities and the weighted average interest rate on the funds borrowed at August 4, 2013 was 10.44%. The maximum amount of borrowings outstanding under these facilities during the twenty-six weeks ended August 4, 2013 was approximately $2,600.

One of the Company’s Asian subsidiaries acquired as part of the Warnaco acquisition has a short-term $10,000 revolving credit facility to be used to fund working capital needs. Borrowings under the facility bear interest at 1.75% plus the one-month London interbank borrowing rate (“LIBOR”). At the end of each month, amounts outstanding under this facility may be carried forward for additional one-month periods for up to one year. The facility was renewed in September 2012 and may be renewed annually in the future. The facility is subject to certain terms and conditions and may be terminated at any time at the discretion of the lender. There were no borrowings outstanding under this facility as of or during the twenty-six weeks ended August 4, 2013.

One of the Company’s Asian subsidiaries acquired as part of the Warnaco acquisition has a Won-denominated short-term revolving credit facility with one lender that provides for borrowings of up to ₩3,000,000 (approximately $2,700 based on exchange rates in effect on August 4, 2013) and is utilized to fund working capital needs. Borrowings under the facility bear interest at the three-month Cost of Funds Index rate plus a specified margin. There were no borrowings outstanding under this facility as of or during the twenty-six weeks ended August 4, 2013.

One of the Company’s Latin American subsidiaries acquired as part of the Warnaco acquisition has Real-denominated short-term revolving credit facilities with a number of banks that provide for total available borrowings of R$44,000 (approximately

$19,000 based on exchange rates in effect on August 4, 2013) and are utilized to fund working capital needs. Borrowings under the facilities bear interest at various interest rates. There were no borrowings outstanding under these facilities as of or during the twenty-six weeks ended August 4, 2013.

Long-Term Debt

The carrying amounts of the Company’s long-term debt were as follows:



	8/4/13		7/29/12

Senior secured term loan A facility due 2018	$	1,672,297	$	—
Senior secured term loan B facility due 2020	1,208,202		—
4 1/2% senior unsecured notes	700,000		—
7 3/8% senior unsecured notes	600,000		600,000
7 3/4% debentures	99,652		99,631
Senior secured term loan A facility due 2016 - United States dollar-denominated	—		592,000
Senior secured term loan A facility due 2016 - Euro-denominated	—		98,844
Senior secured term loan B facility due 2016 - United States dollar-denominated	—		395,000
Senior secured term loan B facility due 2016 - Euro-denominated	—		18,010
Total	4,280,151		1,803,485
Less: Current portion of long-term debt	85,000		88,021
Long-term debt	$	4,195,151	$	1,715,464

As of August 4, 2013, the Company’s mandatory long-term debt repayments for the next five years were as follows:



Remainder of 2013	$	42,500
2014	85,000
2015	116,875
2016	159,375
2017	170,000
2018	1,105,000

As of August 4, 2013, after taking into account the interest rate swap agreement discussed in the section entitled “New Senior Secured Credit Facilities”below, which was in effect as of such date, approximately 45% of the Company’s long-term debt was at a fixed rate, with the remainder at variable rates. As a result of the new interest rate swap agreement for a three-year term commencing on August 19, 2013, as discussed below, approximately 70% of the Company’s long-term debt will be at a fixed rate, with the remainder at variable rates.

Prior Senior Secured Credit Facilities

On May 6, 2010, the Company entered into senior secured credit facilities, which it amended and restated on March 2, 2011 (“the amended facilities”). The amended facilities consisted of a Euro-denominated term loan A facility, a United States dollar-denominated term loan A facility, a Euro-denominated term loan B facility, a United States dollar-denominated term loan B facility, a United States dollar-denominated revolving credit facility and two multi-currency (one United States dollar and Canadian dollar, and the other Euro, Japanese Yen and British Pound) revolving credit facilities. The amended facilities provided for initial borrowings of up to an aggregate of approximately $1,970,000 (based on applicable exchange rates on March 2, 2011), consisting of (i) an aggregate of approximately $1,520,000 of term loan facilities; and (ii) approximately $450,000 of revolving credit facilities.

The Company made payments of $89,680 on its term loans under the amended facilities during the twenty-six weeks ended July 29, 2012.

On February 13, 2013, in connection with the Warnaco acquisition, the Company modified and extinguished the amended facilities and repaid all outstanding borrowings thereunder, as discussed in the section entitled “New Senior Secured Credit Facilities” below.

New Senior Secured Credit Facilities

On February 13, 2013, simultaneously with and related to the closing of the Warnaco acquisition, the Company entered into new senior secured credit facilities (“the new facilities”), the proceeds of which were used to fund a portion of the acquisition, repay all outstanding borrowings under the amended facilities and repay all of Warnaco’s previously outstanding long-term debt. The new facilities consist of a $1,700,000 United States dollar-denominated Term Loan A (recorded net of an original issue discount of $7,325 as of the acquisition date), a $1,375,000 United States dollar-denominated Term Loan B (recorded net of an original issue discount of $6,875 as of the acquisition date) and senior secured revolving credit facilities in an aggregate principal amount of $750,000 (based on the applicable exchange rates on February 13, 2013), consisting of (a) a $475,000 United States dollar-denominated revolving credit facility, (b) a $25,000 United States dollar-denominated revolving credit facility available in United States dollars or Canadian dollars and (c) a €185,850 Euro-denominated revolving credit facility available in Euro, Pounds Sterling, Japanese Yen and Swiss Francs. In connection with entering into the new facilities and repaying all outstanding borrowings under the amended facilities and all of Warnaco’s previously outstanding long-term debt, the Company paid debt issuance costs of $67,370 (of which $34,638 was expensed as debt modification and extinguishment costs and $32,732 will be amortized over the term of the related debt agreement) and recorded additional debt modification and extinguishment costs of $5,757 to write-off previously capitalized debt issuance costs.

The revolving credit facilities include amounts available for letters of credit. As of August 4, 2013, the Company had drawn no revolving credit borrowings and approximately $79,105 of letters of credit. A portion of both United States dollar-denominated revolving credit facilities is also available for the making of swingline loans. The issuance of such letters of credit and the making of any swingline loan reduces the amount available under the applicable revolving credit facility. So long as certain conditions are satisfied, the Company may add one or more term loan facilities or increase the commitments under the revolving credit facilities by an aggregate amount not to exceed the greater of (a) $750,000 and (b) $1,250,000 as long as the ratio of the Company’s senior secured net debt to consolidated adjusted earnings before interest, taxes, depreciation and amortization (in each case calculated as set forth in the documentation relating to the new facilities) would not exceed 3 to 1 after giving pro forma effect to the incurrence of such increase, plus, in either case, an amount equal to the aggregate revolving commitments of any defaulting lender (to the extent the commitments with respect thereto have been terminated). The lenders under the new facilities are not required to provide commitments with respect to such additional facilities or increased commitments.

The Company made payments of $181,688 on its term loans under the new facilities during the twenty-six weeks ended August 4, 2013, the majority of which was voluntary. As of August 4, 2013, the Company had total term loans outstanding of $2,880,499, net of original issue discounts. The terms of each of Term Loan A and Term Loan B contain a mandatory quarterly repayment schedule. Due to the above-mentioned voluntary payments, the Company is not required to make any additional mandatory repayments under Term Loan B prior to maturity.

The outstanding borrowings under the new facilities are prepayable at any time without penalty. The terms of the new facilities require the Company to repay certain amounts outstanding thereunder with (a) net cash proceeds of the incurrence of certain indebtedness, (b) net cash proceeds of certain asset sales or other dispositions (including as a result of casualty or condemnation) that exceed certain thresholds, to the extent such proceeds are not reinvested or committed to be reinvested in the business in accordance with customary reinvestment provisions and (c) a percentage of excess cash flow, which percentage is based upon the Company’s net leverage ratio during the relevant fiscal period.

The United States dollar-denominated borrowings under the new 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 rate plus 1/2 of 1.00% and (iii) a one-month adjusted Eurocurrency rate plus 1.00% (provided that, in the case of Term Loan B, in no event will the base rate be deemed to be less than 1.75%) or (b) an adjusted Eurocurrency rate, calculated in a manner set forth in the new facilities (provided that, in the case of Term Loan B, in no event will the adjusted Eurocurrency rate be deemed to be less than 0.75%).

Canadian dollar-denominated borrowings under the new revolving credit 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 at its main office in Toronto, Ontario 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 that appears on the display referred to as “CDOR Page” of Reuters Monitor Money Rate Services as of 10:00 a.m. (Toronto time) on the date of determination, as reported by the administrative agent (and if such screen is not available, any successor or similar service as

may be selected by the administrative agent), and (y) 0.75%, or (b) an adjusted Eurocurrency rate, calculated in a manner set forth in the new facilities.

The borrowings under the new revolving credit 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 new facilities.

The current applicable margins are in the case of Term Loan A and the revolving credit facilities, 2.00% for adjusted Eurocurrency rate loans and 1.00% for base rate loans, as applicable. The applicable margins in the case of Term Loan B are fixed at 2.50% for adjusted Eurocurrency rate loans and 1.50% for base rate loans, respectively. After the date of delivery of the compliance certificate and financial statements with respect to the Company’s fiscal quarter ending August 4, 2013, the applicable margin for borrowings under Term Loan A and the revolving credit facilities is subject to adjustment based on the Company’s quarter end net leverage ratio.

During the second quarter of 2013, the Company entered into an interest rate swap agreement for a three-year term commencing on August 19, 2013. The agreement was designed with the intended effect of converting an initial notional amount of $1,228,750 of the Company’s variable rate debt obligation under its United States dollar-denominated senior secured Term Loan A facility, or any replacement facility with similar terms, to fixed rate debt. Under the terms of the agreement for the then-outstanding notional amount, the Company’s exposure to fluctuations in the one-month LIBOR is eliminated, and it will pay a fixed rate of 0.604%, plus the current applicable margin.

During the second quarter of 2011, the Company entered into an interest rate swap agreement for a three-year term commencing on June 6, 2011. The agreement was designed with the intended effect of converting an initial notional amount of $632,000 of the Company’s variable rate debt obligation under its previously outstanding United States dollar-denominated senior secured term loan A facility, or any replacement facility with similar terms, to fixed rate debt. Such agreement remains outstanding, with a notional amount of $436,608 as of August 4, 2013, subsequent to the repayment of the Company’s previously outstanding amended facility and is now converting a portion of the Company’s variable rate debt obligation under its new Term Loan A facility to fixed rate debt. Under the terms of the agreement for the then-outstanding notional amount, the Company’s exposure to fluctuations in the three-month LIBOR is eliminated, and it will pay a fixed rate of 1.197%, plus the current applicable margin.

The outstanding notional amount of each interest rate swap will be adjusted according to pre-set schedules during the term of each swap agreement such that, based on the Company’s projections for future debt repayments, the Company’s outstanding debt under the Term Loan A facility is expected to always equal or exceed the then-outstanding combined notional amount of the interest rate swaps.

The new facilities contain covenants that restrict the Company’s ability to finance future operations or capital needs, to take advantage of other business opportunities that may be in its interest or to satisfy its obligations under its other outstanding debt. These covenants restrict the Company’s ability to, among other things:


•	incur or guarantee additional debt or extend credit;


•	make restricted payments, including paying dividends or making distributions on, or redeeming or repurchasing, the Company’s capital stock or certain debt;


•	make acquisitions and investments;


•	dispose of assets;


•	engage in transactions with affiliates;


•	enter into agreements restricting the Company’s subsidiaries’ ability to pay dividends;


•	create liens on the Company’s assets or engage in sale/leaseback transactions; and


•	effect a consolidation or merger, or sell, transfer, or lease all or substantially all of the Company’s assets.

The new facilities require the Company to comply with certain 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 applicable facility. 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. If the Company was unable to repay any such borrowings when due, the lenders could proceed against their collateral, which also secures some of the Company’s other indebtedness.

4 1/2% Senior Notes Due 2022

On December 20, 2012, the Company issued $700,000 principal amount of 4 1/2% senior notes due December 15, 2022 in connection with the Warnaco acquisition. Interest on the 4 1/2% notes is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2013. The Company paid $16,257 of fees in the first quarter of 2013 in connection with the issuance of these notes, which will be amortized over the term of the notes.

The Company may redeem some or all of these notes at any time prior to December 15, 2017 by paying a “make whole” premium plus any accrued and unpaid interest. Subject to certain conditions, the Company may also redeem up to 35% of these notes prior to December 15, 2015 with the net cash proceeds of certain equity offerings without having to pay a penalty or “make whole” premium. In addition, the Company may redeem some or all of these notes on or after December 15, 2017 at specified redemption prices plus any accrued and unpaid interest. The Company’s ability to pay cash dividends and make other restricted payments is limited, in each case, over specified amounts as defined in the indenture governing the notes.

7 3/8% Senior Notes Due 2020

On May 6, 2010, the Company issued $600,000 principal amount of 7 3/8% senior notes due May 15, 2020. Interest on the 7 3/8% notes is payable semi-annually in arrears on May 15 and November 15 of each year.

The Company may redeem some or all of these notes on or after May 15, 2015 at specified redemption prices plus any accrued and unpaid interest. The Company may redeem some or all of these notes at any time prior to May 15, 2015 by paying a “make whole” premium plus any accrued and unpaid interest. In addition, subject to certain conditions, the Company may also redeem up to 35% of these notes prior to May 15, 2013, by paying a set premium, with the net proceeds of certain equity offerings. The Company’s ability to pay cash dividends and make other restricted payments is limited, in each case, over specified amounts as defined in the indenture governing the notes.

7 3/4% Debentures Due 2023

The Company has outstanding $100,000 of debentures due on November 15, 2023 with a yield to maturity of 7.80%. The debentures accrue interest at the rate of 7 3/4%, which is payable semi-annually. Pursuant to the indenture governing the debentures, the Company must maintain a certain level of stockholders’ equity in order to pay cash dividends and make other restricted payments, as defined in the indenture governing the debentures.

9. INCOME TAXES

The effective income tax rates for the thirteen weeks ended August 4, 2013 and July 29, 2012 were 161.1% and 28.0%, respectively. The effective income tax rates for the twenty-six weeks ended August 4, 2013 and July 29, 2012 were (174.0)% and 26.4%, respectively.

The effective income tax rate for the thirteen weeks ended August 4, 2013 was higher than the United States statutory rate due to non-recurring discrete items related to the Warnaco integration and state and local taxes, partially offset by the benefit of the overall lower tax rates in international jurisdictions where the Company files tax returns.

The effective income tax rate for the twenty-six weeks ended August 4, 2013 was lower than the United States statutory rate due to the net impact of non-recurring discrete items related to the Warnaco integration, state and local taxes and the benefit of the overall lower tax rates in international jurisdictions where the Company files tax returns. Since the Company had a pre-tax loss in the twenty-six weeks ended August 4, 2013, the discrete tax expense caused the effective income tax rate to be negative.

The effective income tax rates for the thirteen and twenty-six weeks ended July 29, 2012 were lower than the United States statutory rate due to the benefit of the overall lower tax rates in international jurisdictions where the Company files tax returns and the continuation of the tax synergies resulting from the Tommy Hilfiger acquisition, partially offset by state and local taxes.

10. DERIVATIVE FINANCIAL INSTRUMENTS

The Company has exposure to changes in foreign currency exchange rates related to certain anticipated cash flows associated with certain international inventory purchases. In addition, the Company has exposure to changes in foreign currency exchange rates on certain intercompany loans. To help manage these exposures, the Company periodically uses foreign currency forward exchange contracts.

The Company also has exposure to interest rate volatility related to its senior secured term loan facilities. The Company has entered into interest rate swap agreements to hedge against this exposure. Please see Note 8, “Debt,” for a further discussion of the Company’s senior secured term loan facilities and these agreements. The Company had also entered into an interest rate cap agreement, which expired on September 6, 2012.

The Company records the foreign currency forward exchange contracts and interest rate contracts at fair value in its Consolidated Balance Sheets. Changes in fair value of the foreign currency forward exchange contracts associated with certain international inventory purchases and the interest rate contracts (collectively referred to as “cash flow hedges”) that are designated as effective hedging instruments are recorded in equity as a component of accumulated other comprehensive income (loss) (“AOCI”). The cash flows from such hedges are presented in the same category on the Consolidated Statements of Cash Flows as the items being hedged. Any ineffectiveness in such cash flow hedges is immediately recognized in earnings and no contracts were excluded from effectiveness testing. In addition, changes in the fair value of foreign currency forward exchange contracts that are not designated as effective hedging instruments are immediately recognized in earnings, including the changes in fair value of all of the foreign exchange contracts related to intercompany loans which are not of a long-term investment nature. Any gains and losses that are immediately recognized in earnings on such contracts related to intercompany loans are largely offset by the remeasurement of the underlying intercompany loan balances. The Company does not use derivative financial instruments for trading or speculative purposes.

The following table summarizes the fair value and presentation in the Consolidated Balance Sheets for the Company’s derivative financial instruments:



	Asset Derivatives (Classified in Other Current Assets and Other Assets)				Liability Derivatives (Classified in Accrued Expenses and Other Liabilities)
	8/4/13		7/29/12		8/4/13		7/29/12
Contracts designated as cash flow hedges:
Foreign currency forward exchange contracts (inventory purchases)	$	1,432	$	18,828	$	4,231	$	866
Interest rate contracts	4,110		45		8,097		6,729
Total contracts designated as cash flow hedges	5,542		18,873		12,328		7,595
Undesignated contracts:
Foreign currency forward exchange contracts (inventory purchases)	282		—		109		538
Foreign currency forward exchange contracts (intercompany loans)	396		—		767		111
Total undesignated contracts	678		—		876		649
Total	$	6,220	$	18,873	$	13,204	$	8,244

At August 4, 2013, the notional amount outstanding of foreign currency forward exchange contracts for inventory purchases and intercompany loans was approximately $422,000 and $80,000, respectively. Such contracts expire principally between August 2013 and August 2014 for inventory purchases and between August 2013 and January 2014 for intercompany loans.

The following table summarizes the effect of the Company’s hedges designated as cash flow hedging instruments:



	Gain (Loss) Recognized in Other Comprehensive (Loss) Income (Effective Portion)						(Loss) Gain Reclassified from AOCI into (Expense) Income (Effective Portion)
							Location	Amount

Thirteen Weeks Ended	8/4/13			7/29/12				8/4/13			7/29/12
Foreign currency forward exchange contracts (inventory purchases)	$	1,732		$	6,592		Cost of goods sold	$	(280	)	$	1,007
Interest rate contracts	(897		)	(962		)	Interest expense	(1,023		)	(1,098		)
Total	$	835		$	5,630			$	(1,303	)	$	(91	)

Twenty-Six Weeks Ended	8/4/13			7/29/12				8/4/13			7/29/12
Foreign currency forward exchange contracts (inventory purchases)	$	10,590		$	4,916		Cost of goods sold	$	2,901		$	3,631

Interest rate contracts	(1,106		)	(1,002		)	Interest expense	(2,177		)	(2,180		)
Total	$	9,484		$	3,914			$	724		$	1,451

There was no ineffective portion of hedges designated as cash flow hedging instruments during the twenty-six weeks ended August 4, 2013 and July 29, 2012.

A net loss in AOCI on foreign currency forward exchange contracts at August 4, 2013 of $2,413 is estimated to be reclassified in the next 12 months in the Consolidated Income Statements to costs of goods sold as the underlying inventory is purchased and sold. In addition, a net loss in AOCI for interest rate contracts at August 4, 2013 of $6,601 is estimated to be reclassified to interest expense within the next 12 months.

The following table summarizes the effect of the Company’s foreign currency forward exchange contracts that were not designated as cash flow hedges:



	Gain (Loss) Recognized in Income
Thirteen Weeks Ended	Location	8/4/13			7/29/12

Foreign currency forward exchange contracts (inventory purchases)	Selling, general and administrative expenses	$	661		$	(190	)
Foreign currency forward exchange contracts (intercompany loans)	Selling, general and administrative expenses	(285		)	(1,224		)

Twenty-Six Weeks Ended	Location	8/4/13			7/29/12

Foreign currency forward exchange contracts (inventory purchases)	Selling, general and administrative expenses	$	349		$	679
Foreign currency forward exchange contracts (intercompany loans)	Selling, general and administrative expenses	(38		)	(1,224		)

The Company had no derivative financial instruments with credit risk related contingent features underlying the related contracts as of August 4, 2013.

11. FAIR VALUE MEASUREMENTS

FASB guidance for fair value measurements defines fair value 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. It also establishes a three level hierarchy that prioritizes the inputs used to measure fair value. The three levels of the hierarchy are defined as follows:

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

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

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

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be remeasured at fair value on a recurring basis:



	8/4/13							2/3/13							7/29/12
	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	$	2,110	N/A		$	2,110	N/A	$	4,693	N/A		$	4,693	N/A	$	18,828	N/A		$	18,828
Interest rate contracts	N/A	4,110		N/A		4,110		N/A	N/A		N/A		N/A		N/A	45		N/A		45
Total Assets	N/A	$	6,220	N/A		$	6,220	N/A	$	4,693	N/A		$	4,693	N/A	$	18,873	N/A		$	18,873

Liabilities:
Foreign currency forward exchange contracts	N/A	$	5,107	N/A		$	5,107	N/A	$	13,460	N/A		$	13,460	N/A	$	1,515	N/A		$	1,515
Interest rate contracts	N/A	8,097		N/A		8,097		N/A	5,058		N/A		5,058		N/A	6,729		N/A		6,729
Contingent purchase price payments related to reacquisition of the perpetual rights to the Tommy Hilfiger trademarks in India	N/A	N/A		$	6,649	6,649		N/A	N/A		$	7,003	7,003		N/A	N/A		$	9,021	9,021
Total Liabilities	N/A	$	13,204	$	6,649	$	19,853	N/A	$	18,518	$	7,003	$	25,521	N/A	$	8,244	$	9,021	$	17,265

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 values of the interest rate contracts are based on observable interest rate yield curves and represent the expected discounted cash flows underlying the financial instruments.

Pursuant to the agreement governing the reacquisition of the rights in India to the Tommy Hilfiger trademarks, the Company is required to make annual contingent purchase price payments based on a percentage of annual sales in excess of an agreed upon threshold of Tommy Hilfiger products in India for a period of five years (or, under certain circumstances, a period of six years) following the acquisition date. Such payments are subject to a $25,000 aggregate maximum and are due within 60 days following each one-year period. The first one-year period commenced on July 1, 2011. During the third quarter of 2012, the Company made a contingent purchase price payment of $185 for the first one-year period. The Company is required to remeasure this liability at fair value on a recurring basis and classifies this as a Level 3 measurement. The fair value of such contingent purchase price payments was determined using the discounted cash flow method, based on net sales projections for the Tommy Hilfiger apparel and accessories businesses in India, and was discounted using rates of return that account for the relative risks of the estimated future cash flows. Excluding the initial recognition of the liability for the contingent purchase price payments and payments made to reduce the liability, changes in the fair value are included within selling, general and administrative expenses.

The following table presents the change in the Level 3 contingent purchase price payment liability for the twenty-six weeks ended August 4, 2013 and July 29, 2012:



	Twenty-Six Weeks Ended
	8/4/13			7/29/12
Beginning Balance	$	7,003		$	9,559
Payments	—			—
Adjustments included in earnings	(354		)	(538		)
Ending Balance	$	6,649		$	9,021

Additional information with respect to assumptions used to value the contingent purchase price payment liability is as follows:



Unobservable Inputs	Amount
Approximate compounded annual net sales growth rate	45.0	%
Approximate discount rate	20.0	%

A five percentage point increase or decrease in the discount rate would change the liability by approximately $1,000.

A five percentage point increase or decrease in the compounded annual net sales growth rate would change the liability by approximately $1,000.

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

There were no material non-financial assets or liabilities that were required to be remeasured at fair value on a non-recurring basis during the twenty-six weeks ended August 4, 2013 and July 29, 2012.

The carrying amounts and the fair values of the Company’s cash and cash equivalents, short-term borrowings and long-term debt as of August 4, 2013, February 3, 2013 and July 29, 2012 were as follows:



	8/4/13				2/3/13				7/29/12
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value

Cash and cash equivalents	$	628,920	$	628,920	$	892,209	$	892,209	$	261,986	$	261,986
Short-term borrowings	3,447		3,447		10,847		10,847		52,791		52,791
Long-term debt (including portion classified as current)	4,280,151		4,358,547		2,299,642		2,398,200		1,803,485		1,886,289

The fair values of cash and cash equivalents and short-term borrowings approximate their carrying values 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.

12. STOCK-BASED COMPENSATION

The Company grants stock-based awards under its 2006 Stock Incentive Plan (the “2006 Plan”). The 2006 Plan replaced the Company’s 2003 Stock Option Plan (the “2003 Plan”) and certain other prior stock option plans. The 2003 Plan and these other plans terminated upon the 2006 Plan’s initial stockholder approval in June 2006, other than with respect to outstanding options, which continued to be governed by the applicable prior plan. Only awards under the 2003 Plan continue to be outstanding

insofar as these prior plans are concerned. 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 (“NQs”); (ii) incentive stock options (“ISOs”); (iii) stock appreciation rights; (iv) restricted stock; (v) restricted stock units (“RSUs”); (vi) performance share units; and (vii) 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, applicable performance period(s) and performance measure(s), and such other terms and conditions as the plan committee determines.

Through August 4, 2013, the Company has granted under the 2006 Plan: (i) service-based NQs, RSUs and restricted stock; (ii) contingently issuable performance share units; and (iii) RSUs that are intended to satisfy the performance-based condition for deductibility under Section 162(m) of the Internal Revenue Code. 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, each share underlying a restricted stock award reduces the number available by two shares and each share underlying an RSU or performance share unit award reduces the number available by three shares for awards made before April 29, 2009 and by two shares for awards made on or after April 29, 2009. The per share exercise price of options granted under the 2006 Plan cannot be less than the closing price of the common stock on the date of grant (the business day prior to the date of grant for awards granted prior to September 21, 2006).

The Company currently has service-based NQs and ISOs outstanding under the 2003 Plan. Such options were granted with an exercise price equal to the closing price of the Company’s common stock on the business day immediately preceding the date of grant.

Under the terms of the merger agreement in connection with the Warnaco acquisition, each outstanding award of Warnaco stock options, restricted stock and restricted stock units has been assumed by the Company and converted into an award of the same type, and, subject to the same terms and conditions, but payable in shares of Company common stock. The stock options are generally exercisable in three equal annual installments commencing one year after the date of original grant and the RSUs and restricted stock awards generally vest three years after the date of original grant, principally on a cliff basis. The Company accounted for the replacement awards as a modification of the existing awards. As such, a new fair value was assigned to the awards, a portion of which is included as part of the merger consideration. The merger consideration of $39,752 was determined by multiplying the estimated fair value of the Warnaco awards outstanding at the effective time of the Warnaco acquisition, net of the estimated value of awards to be forfeited, by the proportionate amount of the vesting period that had lapsed as of the acquisition date. The remaining fair value, net of estimated forfeitures, is being expensed on a straight-line basis over the awards’ remaining vesting periods.

Net (loss) income for the twenty-six weeks ended August 4, 2013 and July 29, 2012 included $34,478 and $18,891, respectively, of pre-tax expense related to stock-based compensation.

Stock options currently outstanding, with the exception of the Warnaco employee replacement awards discussed above, are generally cumulatively exercisable in four equal annual installments commencing one year after the date of grant. The vesting of such options outstanding is also generally accelerated upon retirement (as defined in the applicable plan). Such options are generally granted with a 10-year term.

The Company estimates the fair value of stock options granted at the date of grant using the Black-Scholes-Merton model. The estimated fair value of the options, net of estimated forfeitures, is expensed on a straight-line basis over the options’ vesting periods.

The following summarizes the assumptions used to estimate the fair value of service-based stock options granted during the twenty-six weeks ended August 4, 2013 (with the exception of the Warnaco employee replacement stock options) and July 29, 2012:



	Twenty-Six Weeks Ended
	8/4/13			7/29/12
Weighted average risk-free interest rate	1.05		%	1.20		%
Weighted average expected option term (in years)	6.22			6.25
Weighted average Company volatility	45.20		%	45.16		%
Expected annual dividends per share	$	0.15		$	0.15
Weighted average grant date fair value per option	$	51.51		$	40.59

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 option grants. The Company will continue to evaluate the appropriateness of utilizing such method.

The following summarizes the assumptions used to estimate the fair value of the Warnaco employee stock options that were replaced at the effective time of the acquisition:



	Twenty-Six Weeks Ended
	8/4/13
Weighted average risk-free interest rate	0.24		%
Weighted average expected option term (in years)	1.70
Weighted average Company volatility	29.40		%
Expected annual dividends per share	$	0.15
Weighted average grant date fair value per option	$	40.60

Service-based stock option activity for the twenty-six weeks ended August 4, 2013 was as follows:



	Options	Weighted Average Price Per Option
Outstanding at February 3, 2013	1,958	$	44.17
Replacement of Warnaco awards	443	86.26
Granted	182	117.03
Exercised	381	64.43
Cancelled	12	93.60
Outstanding at August 4, 2013	2,190	$	54.95
Exercisable at August 4, 2013	1,511	$	42.83

RSUs granted to employees, with the exception of the Warnaco employee replacement awards, 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 four equal annual installments commencing one year after the date of grant for awards granted prior to 2010 and vest in full one year after the date of grant for awards granted during or after 2010. The underlying RSU award agreements (excluding agreements for non-employee director awards made during or after 2010) generally provide for accelerated vesting upon the award recipient’s retirement (as defined in the 2006 Plan). The fair value of service-based RSUs, with the exception of the Warnaco employee replacement awards, is equal to the closing price of the Company’s common stock on the date of grant and is expensed, net of estimated forfeitures, on a straight-line basis over the RSUs’ vesting periods.

RSU activity for the twenty-six weeks ended August 4, 2013 was as follows:



	RSUs	Weighted Average Grant Date Fair Value
Non-vested at February 3, 2013	660	$	62.24
Replacement of Warnaco awards	120	120.72
Granted	234	119.06
Vested	244	61.24
Cancelled	24	79.78
Non-vested at August 4, 2013	746	$	89.25

The Company’s restricted stock awards consist solely of awards to Warnaco employees that were replaced with the Company’s restricted stock as of the effective time of the acquisition. The fair value of restricted stock with respect to awards for which the vesting period had not lapsed as of the acquisition date was equal to the closing price of the Company’s common stock on February 12, 2013 and is expensed, net of forfeitures, on a straight-line basis over the vesting period.

Restricted stock activity for the twenty-six weeks ended August 4, 2013 was as follows:



	Restricted Stock	Weighted Average Grant Date Fair Value
Non-vested at February 3, 2013	—	$	—
Replacement of Warnaco awards	271	120.72
Granted	—	—
Vested	174	120.72
Cancelled	8	120.72
Non-vested at August 4, 2013	89	$	120.72

The Company granted contingently issuable performance share units to certain of the Company’s senior executives during the first quarter of each of 2012 and 2013 subject to a performance period of two years and a service period of one year beyond the performance period. The Company granted contingently issuable performance share units to certain of the Company’s executives during the second quarter of each of 2010 and 2013 subject to performance periods of three years each. The holders of the awards granted on May 6, 2010 that were subject to a performance period of three years earned an aggregate of 498 shares as a result of the Company’s performance during such three-year period. For the awards granted in the second quarter of 2013, the final number of shares that will be earned, if any, is contingent upon the Company’s achievement of goals for the performance period, of which 50 percent is based upon the Company’s absolute stock price growth during the performance period and 50 percent is based upon the Company’s total shareholder return during the performance period relative to other companies included in the S&P 500 as of the date of grant. For the awards granted in the first quarter of each of 2012 and 2013, the final number of shares that will be earned, if any, is contingent upon the Company’s achievement of goals for each of the performance periods based on both earnings per share growth and return on equity for the awards granted in the first quarter of 2012 and earnings per share growth for the awards granted in the first quarter of 2013 during the applicable performance cycle.

For the contingently issuable performance share units granted prior to the second quarter of 2013, the Company records expense ratably over each applicable vesting period based on fair value and the Company’s current expectations of the probable number of shares that will ultimately be issued. The fair value of these contingently issuable performance share units is equal to the closing price of the Company’s common stock on the date of grant, reduced for the present value of any dividends expected to be paid on the Company’s common stock during the performance cycle, as these contingently issuable performance share units do not accrue dividends prior to the completion of the performance cycle.

For the contingently issuable performance share units granted during the second quarter of 2013, because the awards are subject to market conditions, the Company records expense ratably over the vesting period, net of estimated forfeitures, regardless of whether the market condition is satisfied. The fair value of such awards was established on the grant date using the Monte Carlo simulation model, which was based on the following assumptions:



	Twenty-Six Weeks Ended
	8/4/13
Risk-free interest rate	0.34		%
Expected Company volatility	38.67		%
Expected annual dividends per share	$	0.15
Grant date fair value per performance share unit	$	123.27

Performance share unit activity for the twenty-six weeks ended August 4, 2013 was as follows:



	Performance Shares	Weighted Average Grant Date Fair Value
Non-vested at February 3, 2013	594	$	57.08
Granted	920	122.57
Vested	498	51.07
Cancelled	36	122.45
Non-vested at August 4, 2013	980	$	119.26

The Company receives a tax deduction for certain transactions associated with its stock plan awards. The actual income tax benefits realized from these transactions for the twenty-six weeks ended August 4, 2013 and July 29, 2012 were $45,554 and $12,606, respectively. Of those amounts, $15,091 and $7,082, respectively, were reported as excess tax benefits. Excess tax benefits arise when the actual tax benefit resulting from a stock plan award transaction exceeds the tax benefit associated with the grant date fair value of the related stock award. The Company recognizes these excess tax benefits in additional paid in capital only if an incremental tax benefit would be realized after considering all other tax benefits presently available to the Company.

13. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents the changes in AOCI (net of tax) by component for the twenty-six weeks ended August 4, 2013:



	Foreign currency translation adjustments			Retirement liability adjustment			Net unrealized and realized (loss) gain on effective hedges			Total
Balance at February 3, 2013	$	153,648		$	1,552		$	(15,318	)	$	139,882
Other comprehensive (loss) income before reclassifications	(149,019		)	—			9,503			(139,516		)
Less: Amounts reclassified from AOCI	—			271			(11		)	260
Other comprehensive (loss) income	(149,019		)	(271		)	9,514			(139,776		)
Balance at August 4, 2013	$	4,629		$	1,281		$	(5,804	)	$	106

The following table presents reclassifications out of AOCI to earnings:



	Amount Reclassified from AOCI						Affected Line Item in the Consolidated Income Statements
	Thirteen Weeks Ended 8/4/13			Twenty-Six Weeks Ended 8/4/13
Realized (loss) gain on effective hedges
Foreign currency forward exchange contracts	$	(280	)	$	2,901		Cost of goods sold
Interest rate contracts	(1,023		)	(2,177		)	Interest expense
Less: Tax effect	(391		)	735			Income tax expense
Total, net of tax	$	(912	)	$	(11	)

Amortization of retirement liability items
Prior service credit	$	219		$	439		Selling, general and administrative expenses
Less: Tax effect	84			168			Income tax expense
Total, net of tax	$	135		$	271

14. STOCKHOLDERS’ EQUITY

Common Stock Issuance

On February 13, 2013, the Company issued 7,674 shares of its common stock, par value $1.00 per share, as part of the consideration paid to the former stockholders of Warnaco in connection with the acquisition.

Series A Convertible Preferred Stock Issuance and Conversion

In 2010, the Company sold 8 shares of Series A convertible preferred stock for net proceeds of $188,595 after related fees and expenses. During the first quarter of 2012, one of the holders of Series A convertible preferred stock converted an aggregate of $94,297 of the Series A convertible preferred stock, or 4 shares, into 2,095 shares of the Company’s common stock. The remaining shares of Series A convertible preferred stock were converted into the Company’s common stock during the fourth quarter of 2012. Holders of the Series A convertible preferred stock were entitled to vote and participate in dividends with the holders of the Company’s common stock on an as-converted basis. Due to the conversions of such stock, there were no outstanding shares of the Company’s Series A convertible preferred stock during the twenty-six weeks ended August 4, 2013. On May 2, 2013, the Company filed with the Secretary of State of the State of Delaware a certificate eliminating the Series A convertible preferred stock.

15. ACTIVITY EXIT COSTS

Warnaco Integration Costs

In connection with the Company’s acquisition of Warnaco during the first quarter of 2013 and the related integration, the Company incurred certain costs related to severance and termination benefits, inventory liquidations and lease/contract terminations. Such costs were as follows:



	Total Expected to be Incurred		Incurred During the Thirteen Weeks Ended 8/4/13		Incurred During the Twenty-Six Weeks Ended 8/4/13		Liability at 8/4/13
Severance, termination benefits and other costs	$	175,000	$	40,839	$	97,952	$	44,130
Inventory liquidation costs	30,000		—		30,000		5,035
Lease/contract termination and related costs	50,000		3,289		3,880		1,373
Total	$	255,000	$	44,128	$	131,832	$	50,538

Of the charges for severance, termination benefits and lease/contract termination and other costs incurred during the twenty-six weeks ended August 4, 2013, $23,544 relate to selling, general and administrative expenses of the Calvin Klein North America segment, $39,733 relate to selling, general and administrative expenses of the Calvin Klein International segment, $12,463 relate to selling, general and administrative expenses of the Heritage Brands Wholesale segment and $26,092 relate to corporate expenses not allocated to any reportable segment. The liabilities at August 4, 2013 related to these costs were principally recorded in accrued expenses in the Company’s Consolidated Balance Sheets. The remaining charges for severance and termination benefits and lease/contract termination and other costs expected to be incurred relate principally to the aforementioned segments and corporate expenses not allocated to any reportable segment. Inventory liquidation costs incurred during the twenty-six weeks ended August 4, 2013 were included in net sales of the Company’s Calvin Klein International segment. (See Note 18, “Segment Data.”)

Tommy Hilfiger Integration and Exit Costs

In connection with the Company’s acquisition and integration of Tommy Hilfiger and the related restructuring, the Company incurred certain costs related to severance and termination benefits, long-lived asset impairments, inventory liquidations and lease/contract terminations, including costs associated with the exit of certain Tommy Hilfiger product categories. All expected costs related to this acquisition and integration and the related restructuring were incurred by the end of 2012.

Liabilities for severance and termination benefits and lease/contract termination costs recorded in connection with the acquisition and integration of Tommy Hilfiger and the related restructuring were principally recorded in accrued expenses in the Company’s Consolidated Balance Sheets and were as follows:



	Liability at 2/3/13		Costs Incurred During the Twenty-Six Weeks Ended 8/4/13		Costs Paid During the Twenty-Six Weeks Ended 8/4/13		Liability at 8/4/13
Severance, termination benefits and other costs	$	763	$	—	$	422	$	341
Lease/contract termination and related costs	2,013		—		847		1,166
Total	$	2,776	$	—	$	1,269	$	1,507

16. NET (LOSS) INCOME PER COMMON SHARE

In 2012, the Company utilized the two-class method of calculating basic net (loss) income per common share, as holders of the Company’s Series A convertible preferred stock participated in dividends with holders of the Company’s common stock prior to the conversion in 2012 of such convertible preferred stock into common stock. Net losses were not allocated to holders of the Series A convertible preferred stock.

The Company computed its basic and diluted net (loss) income per common share as follows:

Thirteen Weeks Ended

Twenty-Six Weeks Ended