PVH Corp. Reports 2013 Second Quarter Results

PVH Corp. (NYSE:PVH) reported 2013 second quarter results.

Non-GAAP Amounts:

The discussions of results in this release that refer to non-GAAP amounts exclude the items which are described in this release under the heading “Non-GAAP Exclusions.” Reconciliations of GAAP to non-GAAP amounts are presented later in this release and identify and quantify all excluded items.

Overview of Second Quarter Results:
  • On a non-GAAP basis, earnings per share was $1.39, which exceeded the Company’s guidance of $1.35 and the prior year’s second quarter earnings per share of $1.28.
  • GAAP loss per share was $(0.20) as compared to the prior year’s second quarter earnings per share of $1.22, driven by the acquisition, integration and restructuring costs associated with the Company’s acquisition of The Warnaco Group, Inc. (“Warnaco”). A significant portion of these costs was non-cash.
  • Revenue increased 47% to $1.965 billion, as compared to the prior year’s second quarter. The increase was principally driven by the addition of approximately $507 million of revenue related to the newly acquired Warnaco businesses, net of a reduction in licensing revenue attributable to Warnaco for the prior year. Also contributing to the increase was incremental revenue of $77 million in the Tommy Hilfiger business, $43 million in the pre-acquisition Calvin Klein businesses and $22 million in the pre-acquisition Heritage Brands wholesale businesses, partially offset by a reduction of $13 million in the Heritage Brands Retail business and $8 million attributable to the Izod women’s and Timberland wholesale sportswear businesses that the Company exited in 2012.

Second Quarter Business Review:

Due to the 53rd week in 2012, second quarter 2013 comparable store sales are more appropriately compared with the thirteen week period ended August 5, 2012. All comparable store sales discussed in this release are presented on this shifted basis.

Calvin Klein

Revenue in the Calvin Klein business increased $419 million from the prior year’s second quarter to $671 million. The newly-acquired Warnaco divisions contributed $376 million of the increase, which amount is net of the reduction in licensing revenue attributable to Warnaco for the prior year. Comparable store sales within the Calvin Klein North America retail business increased 6%, while the Company’s Calvin Klein North America wholesale sportswear business experienced strong double-digit growth. Calvin Klein International comparable store sales decreased 1%. Revenue for the Warnaco Calvin Klein jeans and underwear businesses was ahead of the Company’s estimates both in North America and internationally. The Calvin Klein businesses in China and Brazil continued to exhibit strong momentum and the Korea business, which was planned down for the second quarter, showed some improvement over first quarter trends. The Calvin Klein Europe business remained under pressure, as the jeans business is in transition and continues to be weak in Spain and Italy, where it is primarily concentrated. In addition, wholesale revenue in Europe decreased as the Company continued to rationalize its wholesale distribution to focus on accounts that the Company views as brand-enhancing and more creditworthy.

Royalty revenue in the second quarter decreased $21 million from the prior year amount, driven principally by the loss of Warnaco royalties that were included in the prior year and the expiration of a long-term contractual agreement related to royalties in the North America women’s sportswear business, which together totaled $24 million. Excluding the expiration of this contract and the loss of Warnaco royalties, royalty revenue increased 10%, driven by continued strength in women’s sportswear, handbags and accessories, as well as suits and footwear.

Earnings before interest and taxes for the Calvin Klein business increased to $95 million on a non-GAAP basis as compared to $60 million in the prior year’s second quarter (which was in accordance with GAAP). The increase was principally driven by the addition of earnings related to the newly acquired Calvin Klein businesses and a strong increase in revenue from the Company’s pre-acquisition North America divisions mentioned above, combined with gross margin improvement across these divisions resulting from higher average unit retail selling prices.

GAAP loss before interest and taxes for the Calvin Klein business was $(17) million, as compared to earnings before interest and taxes of $60 million in the prior year’s second quarter. Driving the decline were acquisition, integration and restructuring costs incurred during the second quarter associated with the Warnaco acquisition, a significant portion of which was non-cash, partially offset by the earnings increases discussed above.

Tommy Hilfiger

The Tommy Hilfiger business posted revenue of $799 million, an 11% increase as compared to $722 million in the prior year’s second quarter. Revenue in the Tommy Hilfiger North America business increased 10%, principally driven by retail comparable store sales growth of 7% and retail square footage expansion. Revenue in the Tommy Hilfiger International business increased 11% as compared to the prior year’s second quarter, driven by a double-digit increase in the European wholesale business and European retail comparable store sales growth of 6% and retail square footage expansion. These increases were partially offset by a revenue decline in Japan, where the Company’s efforts to strategically reposition the brand are continuing.

Earnings before interest and taxes for the Tommy Hilfiger business increased 3% to $100 million from $97 million on a non-GAAP basis and $94 million on a GAAP basis in the prior year’s second quarter, driven by the Tommy Hilfiger North America business, which exhibited double-digit earnings growth due to the previously mentioned revenue increases. Partially offsetting this increase was a decline in Tommy Hilfiger International earnings due to the underperformance in Japan and gross margin pressure experienced in Europe.

Heritage Brands

Total revenue for the Heritage Brands business was $495 million, an increase of 36% as compared to $363 million in the prior year’s second quarter. The increase was principally driven by the addition of $131 million of revenue related to the newly acquired Speedo swim product and Warner’s and Olga women’s intimate apparel businesses, partially offset by a decrease of $8 million, or 2%, resulting from the 2012 exit from the Izod women’s and Timberland wholesale sportswear businesses. Excluding the impact of exited businesses, revenue for the pre-acquisition Heritage Brands business increased 2%, due principally to increases in the dress furnishings and Van Heusen and Izod men’s wholesale sportswear businesses, partially offset by a 10% comparable store sales decline in the Company’s Heritage Brands Retail business, largely due to the continued soft performance of the Bass retail business.

Earnings before interest and taxes for the Heritage Brands business was $44 million on a non-GAAP basis, as compared to the prior year’s second quarter of $23 million (which was in accordance with GAAP). The increase was due principally to the revenue increases outlined above, partially offset by lower gross margins across our Heritage Brands Retail business resulting from higher promotional selling during the quarter.

On a GAAP basis, earnings before interest and taxes for the Heritage Brands business was $33 million, as compared to $23 million in the prior year’s second quarter. This increase was due principally to the revenue increase noted above, partially offset by Warnaco acquisition, integration and restructuring costs, a significant portion of which was non-cash.

Second Quarter Consolidated Earnings:

On a non-GAAP basis, earnings before interest and taxes increased 35% to $213 million from $158 million in the prior year’s second quarter, driven by (i) an increase of $35 million in the Calvin Klein business; (ii) an increase of $3 million in the Tommy Hilfiger business; and (iii) an increase of $21 million in the Heritage Brands business; partially offset by an increase of $3 million in corporate expenses, due principally to the addition of Warnaco corporate expenses, net of savings and synergies realized from the acquisition.

Earnings before interest and taxes on a GAAP basis was $73 million, as compared to $153 million in the prior year’s second quarter. The earnings decrease was primarily due to $140 million of Warnaco acquisition, integration and restructuring charges, partially offset by the changes discussed above. Of the $140 million of acquisition, integration and restructuring charges incurred during the quarter, $75 million were non-cash, most of which relate to short-lived valuation adjustments and amortization.

Net interest expense increased to $47 million, as compared to $28 million in the prior year’s second quarter, due to an increase in the Company’s total indebtedness incurred in connection with the Warnaco acquisition. During the second quarter of 2013, the Company made debt repayments totaling $182 million on its outstanding term loans, the majority of which was voluntary.

On a non-GAAP basis, the effective tax rate was 30.3% as compared to 27.2% in the prior year’s second quarter. On a GAAP basis, the impact of the Warnaco acquisition on pre-tax income, combined with non-recurring discrete items recorded during the quarter related to the Warnaco integration, resulted in an increase in the GAAP effective tax rate to 161.1%, as compared to 28.0% in the prior year’s second quarter.

Six Months Consolidated Results:
  • On a non-GAAP basis, earnings per share was $3.29 as compared to $2.61 for the prior year.
  • GAAP loss per share was $(0.45) as compared to earnings per share of $2.52 for the prior year.
  • Revenue on a non-GAAP basis was $3.905 billion, which represents an increase of $1.141 billion, or 41% over the prior year’s amount of $2.764 billion (which was in accordance with GAAP). The increase was due to:
    • A $795 million increase in the Calvin Klein business, driven primarily by the addition of (i) $737 million attributable to the newly acquired Warnaco businesses, net of the reduction in licensing revenue attributable to Warnaco for the prior year; (ii) a 5% increase in comparable store sales in the North America retail business; and (iii) a double-digit increase in the pre-acquisition North America wholesale sportswear business. Royalty revenue decreased 34% as compared to the prior year, driven principally by the loss of Warnaco royalties that were included in the prior year and the expiration of a long-term contractual agreement related to royalties in the North America women’s sportswear business, which together totaled $48 million. Excluding the expiration of this contract and loss of Warnaco royalties, royalty revenue increased 7%, driven by strength in women’s sportswear, handbags and accessories, women’s coats, outerwear and suits.
    • An 8%, or $118 million, increase in the Tommy Hilfiger business. Revenue increased 12% in the Tommy Hilfiger North America business, principally driven by comparable store sales growth of 6% and square footage expansion in the North America retail business, combined with strong first quarter performance in the North America wholesale business. Revenue in the Tommy Hilfiger International business increased 5%, driven by European retail comparable store sales growth of 5% and retail square footage expansion, partially offset by continued weakness in Japan, where the Company’s efforts to strategically reposition the brand are continuing.
    • A 30%, or $227 million, increase in the Heritage Brands business driven primarily by the addition of $257 million attributable to the newly acquired Warnaco businesses, partially offset by the negative impact of 5%, or $36 million, related to the exited Izod women’s and Timberland wholesale sportswear businesses and a comparable store sales decline of 9% in the retail business due in large part to the continued weak performance of the Bass retail business.
  • Revenue of $3.875 billion on a GAAP basis was $30 million lower than non-GAAP revenue due to sales returns accepted from certain Warnaco wholesale customers in Asia during the first quarter in connection with an initiative to reduce excess inventory levels.
  • On a non-GAAP basis, earnings before interest and taxes increased $137 million to $455 million. This change resulted from:
    • An $83 million increase in the Calvin Klein business attributed to the revenue increase discussed above, which was principally driven by the addition of the newly acquired Warnaco businesses and strong performance in the Company’s pre-acquisition Calvin Klein businesses.
    • An $18 million increase in the Tommy Hilfiger business due principally to the revenue increase mentioned above.
    • A $43 million increase in the Heritage Brands business driven by the addition of the newly acquired Warnaco businesses.
    • A $6 million increase in corporate expenses due principally to the addition of Warnaco corporate expenses, net of savings and synergies realized from the acquisition.
  • GAAP earnings before interest and taxes decreased $229 million to $80 million as compared to the prior year. The earnings decrease was primarily due to $374 million of acquisition, integration, restructuring and debt modification and extinguishment charges related to the Warnaco acquisition, partially offset by the changes discussed above. Of the $374 million of acquisition, integration and restructuring charges incurred during the six month period, $208 million were non-cash, most of which relate to short-lived valuation adjustments and amortization.
  • On a non-GAAP basis, net interest expense increased to $92 million, as compared to $58 million in the prior year period (which was in accordance with GAAP), due to an increase in the Company’s total indebtedness incurred in connection with the Warnaco acquisition. GAAP net interest expense was $93 million.
  • On a non-GAAP basis, the effective tax rate was 25.1% as compared to 26.0% in the prior year period. The GAAP effective tax rate was (174.0)% as compared to 26.4% for the prior year period. The Company’s GAAP 2013 tax rate was negatively impacted by non-recurring discrete items related to the Warnaco integration.

2013 Guidance:

Please see the section entitled “Full Year and Third Quarter Reconciliations of GAAP to Non-GAAP Amounts” at the end of this release for further detail and reconciliations of GAAP to non-GAAP amounts discussed in this section.

Full Year Guidance

The global environment continues to be challenging in most key markets. In light of the Warnaco integration and the uncertainty impacting the overall markets, the Company remains cautious about the remainder of the year.

The Company projects that revenue on a non-GAAP basis in 2013 will be approximately $8.25 billion.

It is currently projected that revenue for the Calvin Klein business in 2013 on a non-GAAP basis will increase to approximately $2.75 billion as compared to the 2012 amount of $1.15 billion (which was in accordance with GAAP), principally due to the newly acquired Warnaco jeans and underwear businesses. Revenue for the Tommy Hilfiger business in 2013 is currently expected to be approximately $3.42 billion as compared to the 2012 amount of $3.22 billion. Revenue for the Heritage Brands business in 2013 is currently projected to increase to approximately $2.08 billion as compared to the 2012 amount of $1.68 billion due principally to the addition of revenue related to the newly acquired Speedo swim product and Warner’s and Olga women’s intimate apparel businesses.

The Company currently projects that earnings per share on a non-GAAP basis will be approximately $7.00 as compared to $6.58 in 2012.

The Company currently projects that 2013 interest expense will be $195 million to $200 million and that the non-GAAP 2013 full year tax rate will be 25.5% to 26.0%. The Company remains on track to make term loan payments of approximately $400 million for the full year 2013, the majority of which amount would be voluntary.

The Company’s non-GAAP 2013 earnings per share estimate excludes approximately $500 million of pre-tax costs associated with the Warnaco acquisition and the related integration, restructuring and debt modification and extinguishment, of which approximately $250 million are expected to be non-cash charges, the majority of which is expected to relate to short-lived valuation adjustments and amortization. (Please see section entitled “Non-GAAP Exclusions” for details on these pre-tax costs.)

Third Quarter Guidance

Revenue in the third quarter of 2013 is currently expected to be approximately $2.2 billion.

It is currently projected that revenue for the Calvin Klein business in the third quarter of 2013 will increase to approximately $750 million as compared to the 2012 amount of $320 million, principally due to the newly acquired Warnaco jeans and underwear businesses. Revenue for the Tommy Hilfiger business in the third quarter of 2013 is currently expected to be approximately $900 million as compared to the 2012 amount of $834 million. Revenue for the Heritage Brands business in the third quarter of 2013 is currently projected to increase to approximately $550 million as compared to the 2012 amount of $490 million, principally due to the addition of revenue related to the newly acquired Speedo swim product and Warner’s and Olga women’s intimate apparel businesses.

On a non-GAAP basis, earnings per share for the third quarter is projected to be approximately $2.20 as compared to $2.38 in the prior year’s third quarter. This estimate is reflective of a significant shift of advertising expenses into the third quarter as compared to the prior year, as well as an increase in the tax rate from the prior year.

The Company projects that third quarter 2013 interest expense will be approximately $50 million and that the 2013 third quarter tax rate will be approximately 26.5%.

The Company’s third quarter 2013 earnings per share estimate excludes approximately $70 million of pre-tax costs associated with the acquisition, integration and related restructuring of Warnaco. (Please see section entitled “Non-GAAP Exclusions” for details on these pre-tax costs.)

CEO Comments:

Commenting on these results, Emanuel Chirico, Chairman and Chief Executive Officer, noted, “We are pleased with our second quarter performance, which exceeded our previous guidance for both revenue and earnings per share, despite volatility in consumer spending during the second quarter, particularly highlighted by weakness in the United States and Europe. Our results for the quarter were driven by the outperformance of most of our newly acquired businesses coupled with organic growth in our Tommy Hilfiger and pre-acquisition Calvin Klein and wholesale Heritage Brands businesses, which more than offset the continued underperformance in our Tommy Hilfiger Japan, Bass retail and Calvin Klein Europe businesses.”

Mr. Chirico continued, “Our first half efforts have focused around integrating the acquired Warnaco businesses, with an emphasis on making investments in our people and filling key open positions, upgrading the quality and product design of Calvin Klein jeanswear, enhancing the existing operating infrastructure, reducing excess inventory levels in parts of the acquired Calvin Klein businesses, and restructuring our customer distribution in various regions. Our integration efforts and investments in the newly acquired businesses will intensify in the second half of the year, as we continue to invest in building a strong foundation for the future, which will have a negative impact on our year-over-year comparisons. In addition, as we anniversary strong multi-year sales gains at our Tommy Hilfiger and pre-acquisition Calvin Klein businesses in the second half of the year, we are continuing to hold our full year earnings per share guidance at $7.00 due to our cautious outlook that the apparel consumer environment will remain soft and sales volatility will continue, especially in Southern Europe.”

Mr. Chirico concluded, “We believe the investments we make today are necessary to rebuild the newly acquired Calvin Klein businesses and will drive our growth going forward. We are confident that these initiatives will improve and expand our brand presence globally and will position us for significant future growth.”

Non-GAAP Exclusions:

The discussions in this release that refer to non-GAAP amounts exclude the following:
  • A revenue reduction of $30 million in the first quarter of 2013 due to sales returns accepted from certain Warnaco wholesale customers in Asia in connection with an initiative to reduce excess inventory levels.
  • Pre-tax costs of approximately $500 million expected to be incurred in 2013 in connection with the acquisition, integration and related restructuring of Warnaco, including costs associated with the Company’s debt modification and extinguishment and the sales returns mentioned above, of which $236 million was incurred in the first quarter, $140 million was incurred in the second quarter and $70 is expected to be incurred in the third quarter. Approximately $250 million of the acquisition, integration and related restructuring charges expected to be incurred in 2013 are non-cash charges, the majority of which are short-lived valuation adjustments and amortization.
  • A tax expense of $28 million in the second quarter of 2013 associated with non-recurring discrete items related to the Warnaco integration.
  • Pre-tax costs of $21 million incurred in 2012 principally in connection with the integration of Tommy Hilfiger and the related restructuring, of which $3 million was incurred in the first quarter, $5 million was incurred in the second quarter, $7 million was incurred in the third quarter and $6 million was incurred in the fourth quarter.
  • Pre-tax costs of $46 million incurred in 2012 in connection with the acquisition of Warnaco, of which $6 million was incurred in the third quarter and $40 million was incurred in the fourth quarter.
  • A pre-tax expense of $28 million recorded in the fourth quarter of 2012 related to recognized actuarial losses on retirement plans.
  • A tax benefit of $14 million in 2012 related to the recognition of previously unrecognized net operating loss assets and tax credits, of which $5 million was recorded in the third quarter and $9 million was recorded in the fourth quarter.
  • Estimated tax effects associated with the above pre-tax costs, which are based on the Company’s assessment of deductibility. In making this assessment, the Company evaluated each item that it has recorded as an acquisition, integration, restructuring or debt modification and extinguishment cost or actuarial loss on retirement plans immediately recognized in earnings to determine if such cost is tax deductible, and if so, in what jurisdiction the deduction would occur. All items above were identified as either primarily tax deductible, with the tax benefit taken at the statutory income tax rate of the local jurisdiction, or as non-deductible, in which case the Company assumed no tax benefit.

Please see Tables 1 through 8 and the section entitled “Full Year and Third Quarter Reconciliations of GAAP to Non-GAAP Amounts” later in this release for reconciliations of GAAP to non-GAAP amounts.

The Company webcasts its conference calls to review its earnings releases. The Company’s conference call to review its second quarter earnings release is scheduled for Tuesday, September 10, 2013 at 8:30 a.m. EDT. Please log on either to the Company’s web site at www.pvh.com and go to the Press Releases page under the Investors tab or to www.companyboardroom.com to listen to the live webcast of the conference call. The webcast will be available for replay for one year after it is held, commencing approximately two hours after the live broadcast ends. Please log on to www.pvh.com or www.companyboardroom.com as described above to listen to the replay. In addition, an audio replay of the conference call is available for 48 hours starting approximately two hours after it is held. The replay of the conference call can be accessed by calling (domestic) 888-203-1112 and (international) 719-457-0820 and using passcode #1152856. The conference call and webcast consist of copyrighted material. They may not be re-recorded, reproduced, re-transmitted, rebroadcast or otherwise used without the Company’s express written permission. Your participation represents your consent to these terms and conditions, which are governed by New York law.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Forward-looking statements in this press release and made during the conference call/webcast, including, without limitation, statements relating to the Company’s future revenue and earnings, 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) the Company’s plans, strategies, objectives, expectations and intentions are subject to change at any time at the discretion of the Company; (ii) in connection with the acquisition of The Warnaco Group, Inc. (“Warnaco”), the Company borrowed significant amounts, may be considered to be highly leveraged, and will have to use a significant portion of its cash flows to service such indebtedness, as a result of which the Company might not have sufficient funds to operate its businesses in the manner it intends or has operated in the past; (iii) the levels of sales of the Company’s apparel, footwear and related products, both to its wholesale customers and in its retail stores, the levels of sales of the Company’s licensees at wholesale and retail, and the extent of discounts and promotional pricing in which the Company and its 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 the Company’s licensors and other factors; (iv) the Company’s plans and results of operations will be affected by the Company’s ability to manage its growth and inventory, including the Company’s ability to realize benefits from Warnaco; (v) the Company’s operations and results could be affected by quota restrictions and the imposition of safeguard controls (which, among other things, could limit the Company’s ability to produce products in cost-effective countries that have the labor and technical expertise needed), the availability and cost of raw materials, the Company’s ability to adjust timely to changes in trade regulations and the migration and development of manufacturers (which can affect where the Company’s 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 the Company’s or its 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 the Company with no substantial adverse effect on the acquired entity’s or the Company’s existing operations, employee relationships, vendor relationships, customer relationships or financial performance; (viii) the failure of the Company’s licensees to market successfully licensed products or to preserve the value of the Company’s brands, or their misuse of the Company’s brands; and (ix) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”).

This press release includes, and the conference call/webcast will include, certain non-GAAP financial measures, as defined under SEC rules. A reconciliation of these measures is included in the financial information later in this release, as well as in the Company’s Current Report on Form 8-K furnished to the SEC in connection with this earnings release, which is available on the Company’s website at www.pvh.com and on the SEC’s website at www.sec.gov.

The Company does not undertake any obligation to update publicly any forward-looking statement, including, without limitation, any estimate regarding revenue or earnings, whether as a result of the receipt of new information, future events or otherwise.

PVH CORP.

Consolidated GAAP Income Statements

(In thousands, except per share data)
 
  Quarter Ended       Six Months Ended
  8/4/13     7/29/12     8/4/13     7/29/12
 
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
 
Gross profit on net sales $ 945,680 $ 625,658 $ 1,810,426 $ 1,267,930
Gross profit on royalty, advertising and other revenue 80,408   117,003   167,523   231,560
Total 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
 
Earnings before interest and taxes 73,433 153,254 80,218 309,336
 
Interest expense, net 47,379   28,355   93,328   57,599

 
Pre-tax income (loss) 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
 
Diluted net (loss) income per common share attributable to PVH Corp. (1)   $ (0.20 )   $ 1.22       $ (0.45 )   $ 2.52
 
Quarter Ended Six Months Ended
8/4/13 7/29/12 8/4/13 7/29/12
 
Depreciation and amortization expense $ 109,505 $ 34,333 $ 205,348 $ 67,792

Please see following pages for information related to non-GAAP measures discussed in this release.

(1) Please see Note A in the Notes to Consolidated GAAP Income Statements for reconciliations of diluted net (loss) income per common share.

PVH CORP. Non-GAAP Measures (In thousands, except per share data)

The Company believes presenting its results excluding (i) the costs incurred in 2013 in connection with its acquisition and integration of The Warnaco Group, Inc. (“Warnaco”) and the related restructuring; (ii) the revenue and gross margin reduction due to sales returns for certain Warnaco wholesale customers in Asia in connection with an initiative to reduce excess inventory levels; (iii) the costs incurred in 2013 in connection with the Company’s debt modification and extinguishment; (iv) the interest expense incurred prior to the Warnaco acquisition closing date related to the $700 million of senior notes issued to fund the acquisition; (v) the costs incurred in 2012 in connection with its integration of Tommy Hilfiger and the related restructuring; (vi) the tax effects associated with these costs; and (vii) the tax expense associated with non-recurring discrete items related to the Warnaco integration, which are on a non-GAAP basis for each year, provides useful additional information to investors. The Company excludes such amounts that it deems non-recurring or non-operational and believes that this (i) facilitates comparing current results against past and future results by eliminating amounts that it believes are not comparable between periods, thereby permitting management to evaluate performance and investors to make decisions based on the ongoing operations of the Company and (ii) assists investors in evaluating the effectiveness of the Company’s operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. The Company believes that investors often look at ongoing operations of an enterprise as a measure of assessing performance. The Company uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company’s Board of Directors and others. The Company’s results excluding the costs above are also the basis for certain incentive compensation calculations.

The following table presents the Company’s non-GAAP measures that are discussed in this release. Please see Tables 1 through 8 for reconciliations of the GAAP amounts to non-GAAP amounts.

               
  Quarter Ended     Six Months Ended
8/4/13 7/29/12 8/4/13 7/29/12
 
Non-GAAP Measures
Total revenue (1) $ 3,905,007
Total gross profit (2) $ 1,041,264 2,058,422
Selling, general and administrative expenses (3) 828,758 $ 584,792 1,606,956 $ 1,184,147
Earnings before interest and taxes (4) 213,319 157,795 454,606 317,193
Interest expense, net (5) 92,488
Income tax expense (6) 50,350 35,232 90,853 67,526
Net income attributable to PVH Corp. (7) 115,503 94,208 271,139 192,068
Diluted net income per common share attributable to PVH Corp. (8) $ 1.39 $ 1.28 $ 3.29 $ 2.61
 
Depreciation and amortization expense (9)   $ 58,181           $ 110,298      
(1) Please see Table 2 for reconciliation of GAAP to non-GAAP revenue.
(2) Please see Table 4 for reconciliation of GAAP to non-GAAP gross profit.
(3) Please see Table 5 for reconciliation of GAAP to non-GAAP selling, general and administrative expenses (“SG&A”).
(4) Please see Table 3 for reconciliation of GAAP to non-GAAP earnings before interest and taxes.
(5) Please see Table 6 for reconciliation of GAAP to non-GAAP interest expense.
(6) Please see Table 7 for reconciliation of GAAP to non-GAAP income tax expense and an explanation of the calculation of the tax effects associated with acquisition, integration, restructuring and debt modification and extinguishment costs.
(7) Please see Table 1 for reconciliation of GAAP to non-GAAP net (loss) income.
(8) Please see Note A in the Notes to Consolidated GAAP Income Statements for reconciliations of diluted net (loss) income per common share.
(9) Please see Table 8 for reconciliation of GAAP depreciation and amortization expense to non-GAAP depreciation and amortization expense.

PVH CORP.

Reconciliations of GAAP to Non-GAAP Amounts

(In thousands, except per share data)
         

Table 1 - Reconciliation of GAAP net (loss) income to non-GAAP net income
     
  Quarter Ended     Six Months Ended
8/4/13 7/29/12 8/4/13 7/29/12
 
Net (loss) income attributable to PVH Corp. $ (15,996 ) $ 89,918 $ (36,048 ) $ 185,394
 
Diluted net (loss) income per common share attributable to PVH Corp. (1) $ (0.20 ) $ 1.22 $ (0.45 ) $ 2.52
 
Items excluded:
 
Gross margin associated with Warnaco acquisition (including short-lived non-cash inventory valuation adjustments) 15,176 50,473
 
Gross margin impact of sales returns for certain Warnaco wholesale customers in connection with initiative to reduce excess inventory levels 30,000
 
SG&A expenses associated with acquisition and integration of Warnaco and related restructuring 73,386 158,470
 
SG&A expenses associated with Tommy Hilfiger integration and related restructuring 4,541 7,857
 
Depreciation and amortization related to Warnaco acquisition (principally non-cash valuation amortization recorded in SG&A) 51,324 95,050
 
Debt modification and extinguishment costs 40,395
 
Interest expense incurred prior to the Warnaco acquisition closing date associated with $700M of senior notes 840
 
Tax effect of the items above (2) (36,411 ) (251 ) (96,065 ) (1,183 )
 
Discrete tax items related to the Warnaco integration 28,024     28,024    
 
Non-GAAP net income attributable to PVH Corp. $ 115,503 $ 94,208 $ 271,139 $ 192,068
 
Non-GAAP diluted net income per common share attributable to PVH Corp. (1)   $ 1.39     $ 1.28       $ 3.29     $ 2.61  
(1) Please see Note A in the Notes to the Consolidated GAAP Income Statements for reconciliations of diluted net (loss) income per common share.
(2) Please see Table 7 for an explanation of the calculation of the tax effects of the above items.

Table 2 - Reconciliation of GAAP revenue to non-GAAP revenue
 
 
  Six Months Ended
8/4/13
 
Revenue $ 3,875,007
 
Items excluded:
 
Revenue reduction due to sales returns for certain Warnaco wholesale customers in connection with initiative to reduce excess inventory levels 30,000
 
Non-GAAP revenue   $ 3,905,007

PVH CORP.

Reconciliations of GAAP to Non-GAAP Amounts (continued)

(In thousands)
 

Table 3 - Reconciliation of GAAP earnings before interest and taxes to non-GAAP earnings before interest and taxes
               
Quarter Ended     Six Months Ended
8/4/13 7/29/12 8/4/13 7/29/12
 
Earnings before interest and taxes $ 73,433 $ 153,254 $ 80,218 $ 309,336
 
Items excluded:
 
Gross margin associated with Warnaco acquisition (including short-lived non-cash inventory valuation adjustments) 15,176 50,473
 
Gross margin impact of sales returns for certain Warnaco wholesale customers in connection with initiative to reduce excess inventory levels 30,000
 
SG&A expenses associated with acquisition and integration of Warnaco and related restructuring 73,386 158,470
 
SG&A expenses associated with Tommy Hilfiger integration and related restructuring 4,541 7,857
 
Depreciation and amortization related to Warnaco acquisition (principally non-cash valuation amortization recorded in SG&A) 51,324 95,050
 
Debt modification and extinguishment costs     40,395    
 
Non-GAAP earnings before interest and taxes   $ 213,319     $ 157,795       $ 454,606     $ 317,193

Table 4 - Reconciliation of GAAP gross profit to non-GAAP gross profit
     
 
Quarter Ended     Six Months Ended
8/4/13 8/4/13
 
Gross profit $ 1,026,088 $ 1,977,949
 
Items excluded:
 
Gross margin associated with Warnaco acquisition (including short-lived non-cash inventory valuation adjustments) 15,176 50,473
 
Gross margin impact of sales returns for certain Warnaco wholesale customers in connection with initiative to reduce excess inventory levels   30,000
 
Non-GAAP gross profit   $ 1,041,264       $ 2,058,422

PVH CORP.

Reconciliations of GAAP to Non-GAAP Amounts (continued)

(In thousands)
 

Table 5 - Reconciliation of GAAP SG&A to non-GAAP SG&A
           
Quarter Ended     Six Months Ended
8/4/13 7/29/12 8/4/13 7/29/12
 
SG&A $ 953,468 $ 589,333 $ 1,860,476 $ 1,192,004
 
Items excluded:
 
SG&A expenses associated with acquisition and integration of Warnaco and related restructuring (73,386 ) (158,470 )
 
SG&A expenses associated with Tommy Hilfiger integration and related restructuring (4,541 ) (7,857 )
 
Depreciation and amortization related to Warnaco acquisition (principally non-cash valuation amortization recorded in SG&A) (51,324 )   (95,050 )  
 
Non-GAAP SG&A   $ 828,758     $ 584,792       $ 1,606,956     $ 1,184,147  

Table 6 - Reconciliation of GAAP net interest expense to non-GAAP net interest expense
 
 
Six Months Ended
8/4/13
 
Interest expense, net $ 93,328
 
Items excluded:
 
Interest expense incurred prior to the Warnaco acquisition closing date associated with $700M of senior notes (840
 
Non-GAAP interest expense, net   $ 92,488

 

PVH CORP.

Reconciliations of GAAP to Non-GAAP Amounts (continued)

(In thousands)
 

Table 7 - Reconciliation of GAAP income tax expense to non-GAAP income tax expense
           
  Quarter Ended     Six Months Ended
8/4/13 7/29/12 8/4/13 7/29/12
 
Income tax expense $ 41,963 $ 34,981 $ 22,812 $ 66,343
 
Items excluded:
 
Income tax effects of acquisition, integration, restructuring and debt modification and extinguishment costs (1) 36,411 251 96,065 1,183
 
Discrete tax items related to the Warnaco integration (28,024 )   (28,024 )  
 
Non-GAAP income tax expense   $ 50,350     $ 35,232       $ 90,853     $ 67,526
(1) The estimated tax effects of the Company’s acquisition, integration, restructuring and debt modification and extinguishment costs are based on the Company’s assessment of deductibility. In making this assessment, the Company evaluated each item that it has recorded as an acquisition, integration, restructuring and debt modification and extinguishment cost to determine if such item is tax deductible, and if so, in what jurisdiction the deduction would occur. All of the Company’s acquisition, integration, restructuring and debt modification and extinguishment costs were identified as either primarily tax deductible, with the tax benefit taken at the statutory income tax rate of the local jurisdiction, or as non-deductible, in which case the Company assumed no tax benefit.

Table 8 - Reconciliation of GAAP depreciation and amortization to non-GAAP depreciation and amortization
       
Quarter Ended     Six Months Ended
8/4/13 8/4/13
 
Depreciation and amortization $ 109,505 $ 205,348
 
Items excluded:
 
Depreciation and amortization related to Warnaco acquisition (principally short-lived non-cash valuation amortization recorded in SG&A) (51,324 ) (95,050 )
 
Non-GAAP depreciation and amortization   $ 58,181       $ 110,298  

PVH CORP.

Notes to Consolidated GAAP Income Statements

(In thousands, except per share data)
 

A. The Company computed its diluted net (loss) income per common share as follows:
 
  Quarter Ended       Quarter Ended
  8/4/13     7/29/12
GAAP     Non-GAAP GAAP     Non-GAAP
Results Adjustments Results Results Adjustments Results
 
Net (loss) income attributable to PVH Corp. $ (15,996 ) $ (131,499 ) (1) $ 115,503 $ 89,918 $ (4,290 ) (2) $ 94,208
 
Weighted average common shares 81,337 81,337 70,403 70,403
Weighted average dilutive securities 1,681 1,681 1,105 1,105
Weighted average impact of assumed convertible preferred stock conversion     2,095   2,095
Total shares 81,337   83,018   73,603   73,603
 
Diluted net (loss) income per common share attributable to PVH Corp. $ (0.20 ) $ 1.39   $ 1.22   $ 1.28
  Six Months Ended       Six Months Ended
  8/4/13     7/29/12
GAAP     Non-GAAP GAAP     Non-GAAP
Results Adjustments Results Results Adjustments Results
 
Net (loss) income attributable to PVH Corp. $ (36,048 ) $ (307,187 ) (1) $ 271,139 $ 185,394 $ (6,674 ) (2) $ 192,068
 
Weighted average common shares 80,653 80,653 69,471 69,471
Weighted average dilutive securities 1,684 1,684 1,346 1,346
Weighted average impact of assumed convertible preferred stock conversion     2,785   2,785
Total shares 80,653   82,337   73,602   73,602
 
Diluted net (loss) income per common share attributable to PVH Corp. $ (0.45 ) $ 3.29   $ 2.52   $ 2.61

(1) Represents the impact on net loss in the period ended August 4, 2013 from the elimination of (i) costs incurred in connection with the Company’s acquisition and integration of Warnaco and the related restructuring; (ii) the impact of sales returns for certain Warnaco wholesale customers in Asia in connection with an initiative to reduce excess inventory levels; (iii) the costs incurred in connection with the Company’s debt modification and extinguishment; (iv) the interest expense incurred prior to the Warnaco acquisition closing date related to the $700 million of senior notes issued to fund the acquisition; (v) the tax effects associated with these costs; and (vi) the tax expense associated with non-recurring discrete items related to the Warnaco integration. Please see Table 1 for a reconciliation of GAAP net (loss) income to non-GAAP net income. Adjustments to weighted average dilutive securities represent the dilutive impacts of securities included in the non-GAAP earnings per share calculations. Such amounts are not included in the GAAP earnings per share calculations because there are GAAP net losses attributable to PVH Corp., and, as such, the inclusion of these securities would have been antidilutive.

(2) Represents the impact on net income in the period ended July 29, 2012 from the elimination of (i) costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring; and (ii) the tax effects associated with these costs. Please see Table 1 for a reconciliation of GAAP net income to non-GAAP net income.

PVH CORP.

Consolidated Balance Sheets

(In thousands)
 
8/4/13 7/29/12
ASSETS
Current Assets:
Cash and Cash Equivalents $ 628,920 $ 261,986
Receivables 756,269 425,665
Inventories 1,348,598 909,447
Other Current Assets 346,858   222,840
Total Current Assets 3,080,645 1,819,938
Property, Plant and Equipment 693,857 484,443
Goodwill and Other Intangible Assets 7,400,320 4,261,467
Other Assets 339,924   165,640
$ 11,514,746   $ 6,731,488
 
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Accounts Payable and Accrued Expenses $ 1,336,755 $ 968,581
Short-Term Borrowings 3,447 52,791
Current Portion of Long-Term Debt 85,000 88,021
Other Liabilities 1,841,033 1,125,803
Long-Term Debt 4,195,151 1,715,464
Redeemable Non-Controlling Interest 5,600
Stockholders’ Equity 4,047,760   2,780,828
$ 11,514,746   $ 6,731,488
PVH CORP. Segment Data (In thousands)
       

REVENUE BY SEGMENT
Quarter Ended Quarter Ended
  8/4/13     7/29/12

Calvin Klein North America
Net sales $ 332,119 $ 150,546
Royalty revenue 22,610 28,891
Advertising and other revenue 8,024   14,201
Total 362,753 193,638
 

Calvin Klein International
Net sales 286,152 12,124
Royalty revenue 15,796 30,355
Advertising and other revenue 5,884   15,114
Total 307,832 57,593
             

Total Calvin Klein
Net sales 618,271 162,670
Royalty revenue 38,406 59,246
Advertising and other revenue 13,908   29,315
Total   670,585         251,231
 

Tommy Hilfiger North America
Net sales 357,081 324,482
Royalty revenue 6,034 5,101
Advertising and other revenue 1,748   2,285
Total 364,863 331,868
 

Tommy Hilfiger International
Net sales 420,485 375,495
Royalty revenue 12,810 13,078
Advertising and other revenue 1,138   1,465
Total 434,433 390,038
             

Total Tommy Hilfiger
Net sales 777,566 699,977
Royalty revenue 18,844 18,179
Advertising and other revenue 2,886   3,750
Total   799,296         721,906
 

Heritage Brands Wholesale
Net sales 328,540 183,500
Royalty revenue 4,158 3,859
Advertising and other revenue 762   1,189
Total 333,460 188,548
 

Heritage Brands Retail
Net sales 160,062 173,473
Royalty revenue 1,153 1,229
Advertising and other revenue 291   236
Total 161,506 174,938
             

Total Heritage Brands
Net sales 488,602 356,973
Royalty revenue 5,311 5,088
Advertising and other revenue 1,053   1,425
Total   494,966         363,486
 

Total Revenue
Net sales 1,884,439 1,219,620
Royalty revenue 62,561 82,513
Advertising and other revenue 17,847   34,490
Total $ 1,964,847   $ 1,336,623
PVH CORP. Segment Data (continued) (In thousands)
               

EARNINGS BEFORE INTEREST AND TAXES BY SEGMENT
 
Quarter Ended Quarter Ended
  8/4/13       7/29/12  
Results Results
Under Non-GAAP Under Non-GAAP
GAAP Adjustments (1) Results GAAP Adjustments (2) Results
 
Calvin Klein North America $ 39,496 $ (27,632 ) $ 67,128 $ 36,412 $ 36,412
 
Calvin Klein International (56,878 )     (85,008 ) 28,130   23,777     23,777  
                                 
Total Calvin Klein   (17,382 )     (112,640 )   95,258         60,189             60,189  
 
Tommy Hilfiger North America 61,960 61,960 52,636 52,636
 
Tommy Hilfiger International 37,859   37,859   41,113     $ (3,497 ) 44,610  
                                 
Total Tommy Hilfiger   99,819           99,819         93,749         (3,497 )   97,246  
 
Heritage Brands Wholesale 29,149 (11,247 ) 40,396 13,797 13,797
 
Heritage Brands Retail 4,013       4,013   9,306     9,306  
                                 
Total Heritage Brands   33,162       (11,247 )   44,409         23,103             23,103  
 
Corporate (42,166 )   (15,999 ) (26,167 ) (23,787 )     (1,044 ) (22,743 )
 
Total earnings before interest and taxes $ 73,433   $ (139,886 ) $ 213,319   $ 153,254     $ (4,541 ) $ 157,795  

(1) Adjustments for the quarter ended August 4, 2013 represent the elimination of costs incurred in connection with the Company’s acquisition and integration of Warnaco and the related restructuring.

(2) Adjustments for the quarter ended July 29, 2012 represent the elimination of costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring.
PVH CORP. Segment Data (continued) (In thousands)
 

REVENUE BY SEGMENT
           
Six Months Ended Six Months Ended
  8/4/13     7/29/12
Results
Under Non-GAAP

Calvin Klein North America
GAAP Adjustments (1) Results
Net sales $ 625,459 $ 625,459 $ 312,520
Royalty revenue 48,026 48,026 60,199
Advertising and other revenue 16,719   16,719   26,075
Total 690,204 690,205 398,794
 

Calvin Klein International
Net sales 541,340 $ (30,000 ) 571,340 21,869
Royalty revenue 34,149 34,149 64,520
Advertising and other revenue 12,750     12,750   28,167
Total 588,239 (30,000 ) 618,239 114,556
                     

Total Calvin Klein
Net sales 1,166,799 (30,000 ) 1,196,799 334,389
Royalty revenue 82,175 82,175 124,719
Advertising and other revenue 29,469     29,469   54,242
Total   1,278,443     (30,000 )   1,308,443         513,350
 

Tommy Hilfiger North America
Net sales 694,757 694,757 623,462
Royalty revenue 12,524 12,524 9,625
Advertising and other revenue 4,206   4,206   3,972
Total 711,487 711,487 637,059
 

Tommy Hilfiger International
Net sales 872,271 872,271 829,345
Royalty revenue 24,563 24,563 23,358
Advertising and other revenue 2,352   2,352   2,509
Total 899,186 899,186 855,212
                     

Total Tommy Hilfiger
Net sales 1,567,028 1,567,028 1,452,807
Royalty revenue 37,087 37,087 32,983
Advertising and other revenue 6,558   6,558   6,481
Total   1,610,673         1,610,673         1,492,271
 

Heritage Brands Wholesale
Net sales 683,109 683,109 437,618
Royalty revenue 8,150 8,150 7,839
Advertising and other revenue 1,366   1,366   2,357
Total 692,625 692,625 447,814
 

Heritage Brands Retail
Net sales 290,548 290,548 307,655
Royalty revenue 2,216 2,216 2,432
Advertising and other revenue 502   502   507
Total 293,266 293,266 310,594
                     

Total Heritage Brands
Net sales 973,657 973,657 745,273
Royalty revenue 10,366 10,366 10,271
Advertising and other revenue 1,868   1,868   2,864
Total   985,891         985,891         758,408
 

Total Revenue
Net sales 3,707,484 (30,000 ) 3,737,484 2,532,469
Royalty revenue 129,628 129,628 167,973
Advertising and other revenue 37,895     37,895   63,587
Total $ 3,875,007   $ (30,000 ) $ 3,905,007   $ 2,764,029

(1) Adjustments for the six months ended August 4, 2013 represent the elimination of sales returns for certain Warnaco wholesale customers in Asia in connection with an initiative to reduce excess inventory levels.
PVH CORP. Segment Data (continued) (In thousands)
               

EARNINGS BEFORE INTEREST AND TAXES BY SEGMENT
 
Six Months Ended Six Months Ended
  8/4/13       7/29/12  
Results Results
Under Non-GAAP Under Non-GAAP
GAAP Adjustments (1) Results GAAP Adjustments (2) Results
 
Calvin Klein North America $ 51,934 $ (68,734 ) $ 120,668 $ 72,490 $ 72,490
 
Calvin Klein International (105,032 )     (185,468 ) 80,436   46,003     46,003  
                                 
Total Calvin Klein   (53,098 )     (254,202 )   201,104         118,493             118,493  
 
Tommy Hilfiger North America 107,970 107,970 81,513 $ (379 ) 81,892
 
Tommy Hilfiger International 110,001   110,001   114,593       (3,497 ) 118,090  
                                 
Total Tommy Hilfiger   217,971           217,971         196,106         (3,876 )   199,982  
 
Heritage Brands Wholesale 57,504 (28,770 ) 86,274 34,037 34,037
 
Heritage Brands Retail (2,790 )     (2,790 ) 6,710     6,710  
                                 
Total Heritage Brands   54,714       (28,770 )   83,484         40,747             40,747  
 
Corporate (139,369 )   (91,416 ) (47,953 ) (46,010 )     (3,981 ) (42,029 )
 
Total earnings before interest and taxes $ 80,218   $ (374,388 ) $ 454,606   $ 309,336     $ (7,857 ) $ 317,193  

(1) Adjustments for the six months ended August 4, 2013 represent the elimination of (i) costs incurred in connection with the Company’s acquisition and integration of Warnaco and the related restructuring; (ii) the impact of sales returns for certain Warnaco wholesale customers in Asia in connection with an initiative to reduce excess inventory levels; and (iii) the costs incurred in connection with the Company’s debt modification and extinguishment.

(2) Adjustments for the six months ended July 29, 2012 represent the elimination of costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring.

PVH CORP. Full Year and Third Quarter Reconciliations of GAAP to Non-GAAP Amounts

The Company is presenting its (1) 2013 estimated results excluding (a) costs expected to be incurred in connection with its acquisition and integration of Warnaco and the related restructuring; (b) the impact of sales returns for certain Warnaco wholesale customers in Asia in connection with an initiative to reduce excess inventory levels; (c) the costs incurred in connection with the Company’s debt modification and extinguishment; (d) the interest expense incurred prior to the Warnaco acquisition closing date related to the $700 million of senior notes issued to fund the acquisition; (e) the actuarial loss expected to be incurred on retirement plans; (f) the estimated tax effects associated with these costs; and (g) the tax expense associated with non-recurring discrete items related to the Warnaco integration, and (2) 2012 results excluding (a) costs incurred in connection with its integration of Tommy Hilfiger and the related restructuring; (b) costs incurred in connection with its acquisition of Warnaco; (c) the interest expense incurred in connection with the issuance of $700 million of senior notes related to its acquisition of Warnaco; (d) the recognized actuarial loss on retirement plans; (e) the tax effects associated with these costs; and (f) the tax benefit resulting from the recognition of previously unrecognized net operating loss assets and tax credits. Both the 2013 estimated results and 2012 results are on a non-GAAP basis. The Company believes presenting these results on a non-GAAP basis provides useful additional information to investors. The Company excludes such amounts that it deems non-recurring or non-operational and believes that this (i) facilitates comparing current results against past and future results by eliminating amounts that it believes are not comparable between periods, thereby permitting management to evaluate performance and investors to make decisions based on the ongoing operations of the Company and (ii) assists investors in evaluating the effectiveness of the Company’s operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. The Company has provided the reconciliations set forth below to present its estimates on a GAAP basis and excluding these amounts. The Company uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company’s Board of Directors and others. The amounts referred to in clauses (1) and (2)(a) through (2)(e) above are also excluded from earnings per share calculations for purposes of incentive compensation awards. The estimated tax effects associated with the above costs are based on the Company’s assessment of deductibility. In making this assessment, the Company evaluated each item that it has recorded or expects to record as an acquisition, integration, restructuring, debt modification or debt extinguishment cost or actuarial loss on retirement plans to determine if such cost is tax deductible, and if so, in what jurisdiction the deduction would occur. All items above were identified as either primarily tax deductible, with the tax benefit taken at the statutory income tax rate of the local jurisdiction, or as non-deductible, in which case the Company assumed no tax benefit.

2013 Estimated Revenue Reconciliation
  Full Year 2013 (Consolidated)   Full Year 2013 (Calvin Klein)
 
GAAP revenue $8.22B $2.72B
Revenue reduction due to sales returns for certain Warnaco wholesale customers in connection with initiative to reduce excess inventory levels $0.03B $0.03B
Non-GAAP revenue $8.25B $2.75B

2013 Tax Rate Reconciliation
  Full Year 2013 (Estimated)
 
GAAP tax rate range 35.7 % - 36.2%
Adjustment for discrete tax items related to the Warnaco integration (10.2 )%
Non-GAAP tax rate range 25.5 % - 26.0%

PVH CORP.

Full Year and Third Quarter Reconciliations of GAAP to Non-GAAP Amounts (Continued)
 
  Current Guidance   Previous Guidance

2013 Net Income Per Common Share Reconciliations
Full Year 2013

(Estimated)
  Third Quarter

2013

(Estimated)
Second Quarter 2013(Estimated)
 
GAAP net income per common share attributable to PVH Corp. $ 2.18 $ 1.58 $ 0.30
Estimated per common share impact of after tax acquisition, integration, restructuring and debt modification and extinguishment costs and actuarial loss on retirement plans $ 4.82 $ 0.62 $ 1.05
Net income per common share attributable to PVH Corp. excluding impact of acquisition, integration, restructuring and debt modification and extinguishment costs and actuarial loss on retirement plans $ 7.00 $ 2.20 $ 1.35

The GAAP net income per common share amounts presented in the above table are being provided solely to comply with applicable SEC rules and are not, and should not be construed to be, guidance for the Company’s 2013 fiscal year. The Company’s net income per common share, as well as the amounts excluded in providing non-GAAP earnings guidance, would be expected to change as a result of acquisition, restructuring, divestment or similar transactions or activities, adjustments related to the valuation of the purchase price for the Warnaco acquisition, the timing and strategy of restructuring and integration initiatives or other one-time events, if any, that the Company engages in or suffers during the period or any market or other changes affecting the Company’s expected actuarial loss on retirement plans. Other than the Company’s acquisition of Warnaco, which closed on February 13, 2013, and the related restructuring, the Company has no current understanding or agreement regarding any such transaction or definitive plans regarding any such activity.

Reconciliation of GAAP Diluted Net Income Per Common Share to Non-GAAP Diluted Net Income Per Common Share
 

(In millions, except per share data)
   
Full Year 2012 Third Quarter 2012
(Actual) (Actual)
Results Under GAAP   Adjustments Non-GAAP Results Results Under GAAP   Adjustments Non-GAAP Results
 
Net income $ 433.8 $ (52.5 ) ((1 )) $ 486.4 $ 167.7 $ (8.1 ) ((2 )) $ 175.8
Total weighted average shares 73.9   73.9   74.0   74.0
 
Diluted net income per common share $ 5.87   $ 6.58   $ 2.27   $ 2.38

(1) Represents the impact on net income in the year ended February 3, 2013 from the elimination of (i) costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring; (ii) costs incurred in connection with the Company’s acquisition of Warnaco; (iii) the interest expense incurred in connection with the issuance of $700 million of senior notes related to the Company’s acquisition of Warnaco; (iv) the recognized actuarial loss on retirement plans; (v) the tax effects associated with these costs; and (vi) the tax benefit resulting from the recognition of previously unrecognized net operating loss assets and tax credits.

(2) Represents the impact on net income in the quarter ended October 28, 2012 from the elimination of (i) costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring; (ii) costs incurred in connection with the Company’s acquisition of Warnaco; (iii) the tax effects associated with these costs; and (iv) the tax benefit resulting from the recognition of previously unrecognized tax credits.

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