Capital Allocation

Our capital allocation strategy is focused on
positioning our business for long-term growth,
while also delivering solid financial returns to
our stockholders.

Financial accountability and solid balance sheet management remain key priorities for us. Our businesses have historically generated significant free cash flow which we use to strategically invest in our businesses to drive sustainable long-term growth and stockholder returns. We also pride ourselves on solid management of our working capital. Our capital allocation methodology is predicated on the following uses of our free cash flow:

  • Investing in products, marketing, infrastructure and the shopping experience to position our Calvin Klein, Tommy Hilfiger and Heritage Brands businesses for long-term growth.
  • Assuming more direct control over Calvin Klein and Tommy Hilfiger licensed businesses where we believe that we can leverage our core competencies to increase sales and profitability.
  • Repaying debt, with a target net leverage ratio approaching 2x.
  • Repurchasing shares of our stock under our current stock repurchase program.

GAAP to Non-GAAP Cash Flow Reconciliations

(Dollars in Millions)

2014 2015 2016           2017              
 
Cash Flow from Operations $800 $905 $956           $700                
Less:



Capital Expenditures $256 $264 $247           $358                 
Contingent Payments to Mr. Klein $51 $51 $53             $56                 
Dividends $12 $12             $12            $12                 
Free Cash Flow $481 $578 $644           $274               

GAAP to Non-GAAP Gross Debt/Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) Reconciliations

(Dollars in Millions, Except Ratios)


2014 (1) 2015 (2) 2016 (3) 2017 (4)
GAAP Net Income $439 $572 $549 $538
Pre-Tax Items Deemed Non-recurring or Non-operational $391 $81 $5 $231
GAAP Interest and Taxes $91 $188 $241 $96
GAAP Depreciation and Amortization $245 $257 $322 $325
Interest Items Deemed Non-recurring or Non-operational - - - -
Depreciation and Amortization Items Deemed Non-recurring or Non-operational $(6) $(6) $(50) $(38)
Non-GAAP EBITDA as presented $1,160 $1,092 $1,067 $1,152
         
Gross Debt, Including Current Portion and Short-term Borrowings $3,557 $3,225 $3,242 $3,106
Capital Lease Obligations $18 $15 $16 $16
Total Debt $3,575 $3,240 $3,258 $3,122
Total Cash $479 $556 $730 $494
Net Debt $3,096 $2,684 $2,528 $2,628
Net Leverage Ratio 2.7 2.5 2.4 2.3
  • (1) Amounts that were deemed non-recurring or non-operational for 2014 were (i) the costs incurred in connection with our integration of The Warnaco Group, Inc. ("Warnaco") and the related restructuring; (ii) the costs incurred in connection with our exit from the Izod retail business, including noncash impairment charges; (iii) the costs incurred in connection with our exit from a discontinued product line in the Tommy Hilfiger Japan business; (iv) the impairment of certain TOMMY HILFIGER stores in North America; (v) the costs incurred related to the sale of the Bass business; (vi) the costs incurred in connection with the amendment and restatement of our credit facility and the related redemption of our 7 3/8% senior notes due 2020; (vii) the net gain on the deconsolidation of certain Calvin Klein subsidiaries in Australia and New Zealand and the previously consolidated Calvin Klein joint venture in India; and (viii) the recognized actuarial loss on retirement plans.
  • (2) Amounts that were deemed non-recurring or non-operational for 2015 were (i) the costs incurred in connection with our integration of Warnaco and the related restructuring; (ii) the costs incurred in connection with the operation of and exit from the Izod retail business; (iii) the costs incurred principally in connection with the discontinuation of several licensed product lines in the Heritage Brands dress furnishings business; (iv) the costs incurred in connection with the the licensing to G-III Apparel Group, Ltd. of the Tommy Hilfiger womenswear wholesale business in the U.S. and Canada (the "G-III license"); (v) the gain recorded on our equity investment in the parent company of the Karl Lagerfeld brand ("Karl Lagerfeld"); and (vi) the recognized actuarial gain on retirement plans.
  • (3) Amounts that were deemed non-recurring or non-operational for 2016 were (i) the costs incurred in connection with our integration of Warnaco and the related restructuring; (ii) the costs incurred in connection with the discontinuation of several licensed product lines in the Heritage Brands dress furnishings business; (iii) the costs incurred in connection with the G-III license; (iv) the costs incurred in connection with the restructuring associated with the global creative strategy for CALVIN KLEIN; (v) the noncash gain recorded to write-up our equity investment in TH Asia Ltd. ("TH China"), our former joint venture for Tommy Hilfiger in China, to fair value in connection with the acquisition of the 55% interest that we did not already own (the "TH China acquisition"); (vi) the one-time costs recorded on our equity investment in TH China prior to the TH China acquisition closing; (vii) the costs incurred in connection with the TH China acquisition, primarily consisting of noncash valuation adjustments and amortization of short-lived assets; (viii) the costs incurred in connection with the amendment of our credit facility; (ix) the noncash costs recorded in connection with the Mexico deconsolidation; (x) the gain recorded in connection with a payment made to us to exit a TOMMY HILFIGER flagship store in Europe; (xi) the costs incurred in connection with the early termination of the license agreement for the Tommy Hilfiger men's tailored clothing business in North America (the "TH men's tailored license termination"); and (xii) the recognized actuarial gain on retirement plans.
  • (4) Amounts that were deemed non-recurring or non-operational for 2017 were (i) the costs incurred related to the TH China acquisition, primarily consisting of noncash amortization of short-lived assets; (ii) the costs incurred in connection with agreements to restructure our supply chain relationship with Li & Fung Trading Limited (“Li & Fung”), under which we terminated our non-exclusive buying agency agreement with Li & Fung in 2017 (the “Li & Fung termination”); (iii) the costs incurred in connection with the relocation of the Tommy Hilfiger office in New York, including noncash depreciation expense; (iv) the costs incurred in connection with the noncash settlement of certain of the Company’s benefit obligations related to its retirement plans as a result of an annuity purchased for certain participants, under which such obligations were transferred to an insurer; (v) the net costs incurred in connection with the consolidation within the Company’s warehouse and distribution network in North America, which included a gain recorded on the sale of a warehouse and distribution center; (vi) the costs incurred in connection with an amendment to Mr. Tommy Hilfiger’s employment agreement pursuant to which the Company made a cash buyout of a portion of the future payment obligation (the “Mr. Hilfiger amendment”); (vii) the costs incurred in connection with the early redemption of the Company’s $700 million 4 1/2% senior notes; (viii) the costs incurred in connection with the issuance of the Company’s €600 million 3 1/8% senior notes; and (ix) the recognized actuarial loss on retirement plans.

GAAP to Non-GAAP Net Income Reconciliations

(Dollars in Millions)

2014
GAAP Adjustments (1) Non-GAAP
Net Income (Loss) Attributable to PVH Corp. $439 $(169) $608
2015
GAAP Adjustments (2) Non-GAAP
Net Income (Loss) Attributable to PVH Corp. $572 $(14) $586
2016
GAAP Adjustments (3) Non-GAAP
Net Income (Loss) Attributable to PVH Corp. $549 $(1) $550
 2017 
GAAP Adjustments (4) Non-GAAP
Net Income (Loss) Attributable to PVH Corp. $538 $(86) $624
  • (1)Adjustments for 2014 from the elimination of (i) the costs incurred in connection with our integration of Warnaco and the related restructuring; (ii) the costs incurred in connection with our exit from the Izod retail business, including noncash impairment charges; (iii) the costs incurred in connection with our exit from a discontinued product line in the Tommy Hilfiger Japan business; (iv) the impairment of certain TOMMY HILFIGER stores in North America; (v) the costs incurred related to the sale of the Bass business; (vi) the costs incurred in connection with the amendment and restatement of our credit facility and the related redemption of our 7 3/8% senior notes due 2020; (vii) the net gain on the deconsolidation of certain Calvin Klein subsidiaries in Australia and New Zealand and the previously consolidated Calvin Klein joint venture in India; (viii) the recognized actuarial loss on retirement plans; (ix) the tax effects associated with the foregoing pre-tax items; and (x) the tax benefits associated with discrete items primarily related to the resolution of uncertain tax positions and various Warnaco integration activities.
  • (2)Adjustments for 2015 from the elimination of (i) the costs incurred in connection with our integration of Warnaco and the related restructuring; (ii) the costs incurred in connection with the operation of and exit from the Izod retail business; (iii) the costs incurred principally in connection with the discontinuation of several licensed product lines in the Heritage Brands dress furnishings business; (iv) the costs incurred in connection with the licensing to G-III Apparel Group, Ltd. of the Tommy Hilfiger womenswear wholesale business in the U.S. and Canada (the “G-III license”), which resulted in the discontinuation of our directly operated Tommy Hilfiger North America womenswear wholesale business in 2016; (v) the gain recorded on our equity investment in the parent company of the Karl Lagerfeld brand ("Karl Lagerfeld"); (vi) the recognized actuarial gain on retirement plans; (vii) the tax effects associated with the foregoing pre-tax items; and (viii) the tax benefits associated with discrete items related to the resolution of uncertain tax positions and the impact of tax law and tax rate changes on deferred taxes.
  • (3)Adjustments for 2016 from the elimination of (i) the costs incurred in connection with our integration of Warnaco and the related restructuring; (ii) the costs incurred in connection with the discontinuation of several licensed product lines in the Heritage Brands dress furnishings business; (iii) the costs incurred in connection with the G-III license; (iv) the costs incurred in connection with the restructuring associated with the global creative strategy for CALVIN KLEIN; (v) the noncash gain recorded to write-up our equity investment in TH Asia, Ltd. (“TH China”), our former joint venture for TOMMY HILFIGER in China, to fair value in connection with the acquisition of the 55% interest that we did not already own (the “TH China acquisition”); (vi) the one-time costs recorded on our equity investment in TH China prior to the TH China acquisition closing; (vii) the costs incurred in connection with the TH China acquisition, primarily consisting of noncash valuation adjustments and amortization of short-lived assets; (viii) the costs incurred in connection with the amendment of our credit facility; (ix) the noncash costs recorded in connection with the deconsolidation of our subsidiary that principally operated and managed our Calvin Klein business in Mexico ("the Mexico deconsolidation") in connection with the formation of a joint venture in Mexico to operate that and other businesses; (x) the gain recorded in connection with a payment made to us to exit a TOMMY HILFIGER flagship store in Europe; (xi) the costs incurred in connection with the early termination of the previous license agreement for the Tommy Hilfiger men’s tailored clothing business in North America (the “TH men’s tailored license termination”); (xii) the recognized actuarial gain on retirement plans;(xiii) the tax effects associated with the foregoing pre-tax items; and (xiv) the tax benefits associated with discrete items related to the resolution of uncertain tax positions.
  • (4)Adjustments for 2017 represent the elimination of (i) the costs incurred related to the TH China acquisition, primarily consisting of noncash amortization of short-lived assets; (ii) the costs incurred in connection with agreements to restructure our supply chain relationship with Li & Fung Trading Limited (“Li & Fung”), under which we terminated our non-exclusive buying agency agreement with Li & Fung in 2017 (the “Li & Fung termination”); (iii) the costs incurred in connection with the relocation of the Tommy Hilfiger office in New York, including noncash depreciation expense; (iv) the costs incurred in connection with the noncash settlement of certain of our benefit obligations related to our retirement plans as a result of an annuity purchased for certain participants, under which such obligations were transferred to an insurer; (v) the net costs incurred in connection with the consolidation within our warehouse and distribution network in North America, which included a gain recorded on the sale of a warehouse and distribution center; (vi) the costs incurred in connection with an amendment to Mr. Tommy Hilfiger’s employment agreement pursuant to which the Company made a cash buyout of a portion of the future payment obligation (the “Mr. Hilfiger amendment”); (vii) the costs incurred in connection with the early redemption of the Company’s $700 million 4 1/2% senior notes; (viii) the costs incurred in connection with the issuance of the Company’s €600 million 3 1/8% senior notes; (ix) the recognized actuarial loss on retirement plans; (x) the tax effects associated with the foregoing pre-tax items; (xi) the tax benefits associated with discrete items related to the resolution of uncertain tax positions; (xii) the discrete net tax benefit recorded in connection with the enactment of the U.S. Tax Cuts and Jobs Act of 2017 in the fourth quarter of 2017; and (xiii) the discrete tax benefit related to an excess tax benefit from the exercise of stock options by our Chief Executive Officer.
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  • * Figures exclude certain amounts that were deemed non-recurring or non-operational.
  • Notes to free cash flow:
  • - Free cash flow defined as cash flow from operations less capital expenditures, contingent payments to Mr. Klein and dividends.
  • Updated guidance related to share-based payment award transactions was adopted in the first quarter of 2017. Prior amounts have
  • been adjusted to reflect the retrospective application of this guidance.
  • - 2017 free cash flow was impacted by larger capital expenditures compared to prior years, an increase in inventories, principally
  • by our expected sales growth in the first quarter of 2018 and the timing of inventory receipts as compared to the prior year period
  • due to the inclusion of a 53rd week of operations in 2017, and an increase in prepaid expenses due to the inclusion of the 53rd week.