PVH Corp. Reports 2015 Second Quarter Results Above Guidance and Raises Full Year EPS Guidance on a Non-GAAP Basis

NEW YORK--(BUSINESS WIRE)--PVH Corp. (NYSE PVH) reported 2015 second quarter results.

Non-GAAP Amounts:

Non-GAAP amounts discussed in this release exclude the items that are described in this release under the heading “Non-GAAP Exclusions.” Amounts stated on a constant currency basis are also considered to be non-GAAP measures. 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:

• Earnings per share on a non-GAAP basis was $1.37, inclusive of a $0.31 negative impact primarily related to foreign currency exchange rates compared to the prior year. Earnings per share on a non-GAAP basis excluding the negative impact primarily related to foreign currency exchange rates was $1.68, or an increase of 11% compared to the prior year’s second quarter earnings per share on a non-GAAP basis of $1.51.
• GAAP earnings per share was $1.22 compared to $1.52 for the prior year’s second quarter.
• Revenue increased 2% on a constant currency basis (decreased 6% on a GAAP basis) compared to the prior year’s second quarter revenue of $1.98 billion. As compared to the prior year’s second quarter, revenues increased 5% in the Tommy Hilfiger business on a constant currency basis (decreased 7% on a GAAP basis); increased 3% in the Calvin Klein business on a constant currency basis (decreased 4% on a GAAP basis); and decreased 6% in the Heritage Brands business.

CEO Comments:

Commenting on these results, Emanuel Chirico, Chairman and Chief Executive Officer, noted, “We are very pleased with our second quarter results, which exceeded our top and bottom line guidance. Our second quarter performance highlighted continued strength in our Calvin Klein business, as consumers responded well to our recent product initiatives, particularly in underwear. Overall, our first half earnings per share, which increased 16% on a non-GAAP and constant currency basis, demonstrated our ability to deliver against our 2015 plan, while managing through the anticipated difficult global retail environment.”

Mr. Chirico continued, “As we look ahead to the second half of the year, we now expect to generate earnings per share growth on a non-GAAP and constant currency basis of 12% to 14% for 2015, up from our previous guidance of 11% to 12%. We continue to believe, however, that the strength of the U.S. dollar and the changing consumer spending patterns for international tourists in the U.S., along with the volatility in the global environment, will remain a headwind.”

Mr. Chirico concluded, “Lastly, we remain focused on the strategic growth opportunities ahead of us. We believe that the sound execution of our business strategies and investment in our world-class brands, together with our strong balance sheet and the efforts of our talented associates, will position us to deliver strong results in 2015.”

Second Quarter Business Review:

Calvin Klein

Revenue in the Calvin Klein business for the quarter increased 3% on a constant currency basis (decreased 4% on a GAAP basis) from $675 million in the prior year’s second quarter.

Calvin Klein North America revenue was flat on a constant currency basis (decreased 2% on a GAAP basis) compared to the prior year’s second quarter. North America retail comparable store sales increased 4% as compared to the prior year’s second quarter, despite continued decreased traffic and spending trends in the Company’s U.S. stores located in international tourist locations as a result of the strengthening U.S. dollar. The North America wholesale business experienced a moderate revenue decline due principally to a shift of shipments into the first quarter from the second quarter in the current year, as well as from the prior year’s second quarter having the benefit of sales from the packaging re-launch of men’s basic styles of Calvin Klein Underwear. Calvin Klein International revenue increased 7% on a constant currency basis (decreased 6% on a GAAP basis) compared to the prior year’s second quarter, with a 3% increase in retail comparable store sales. The international revenue increase on a constant currency basis was driven by continued strength in Europe, as customers are responding well to the investments we have made around the brand and in upgraded product, combined with growth in China. Overall, the Calvin Klein Underwear business performed exceptionally well globally.

Earnings before interest and taxes on a non-GAAP basis in the Calvin Klein business decreased to $81 million, inclusive of a $9 million negative impact due to foreign currency exchange rates, from $86 million in the prior year’s second quarter. The earnings increase on a constant currency basis was due principally to the constant currency revenue increase mentioned above, combined with gross margin improvements globally, particularly in Europe. Negatively impacting the current quarter’s earnings was an increase of $5 million spent on advertising compared to the prior year’s second quarter.

Earnings before interest and taxes on a GAAP basis in the Calvin Klein business was $81 million compared to $70 million in the prior year’s second quarter. The increase was principally driven by a reduction in Warnaco integration and restructuring costs compared to the prior year’s second quarter.

Tommy Hilfiger

Revenue in the Tommy Hilfiger business for the quarter increased 5% on a constant currency basis (decreased 7% on a GAAP basis) from $870 million in the prior year’s second quarter. Tommy Hilfiger North America revenue increased 3% on a constant currency basis (increased 1% on a GAAP basis) compared to the second quarter of 2014 due to square footage expansion in Company-operated retail stores and modest growth in the wholesale business on a constant currency basis. North America retail comparable store sales were relatively flat to the prior year’s second quarter. As with Calvin Klein, there was a continued decline in traffic and spending trends in the Company’s U.S. stores located in international tourist locations. Tommy Hilfiger International revenue increased 6% on a constant currency basis (decreased 13% on a GAAP basis) from the prior year period. The increase on a constant currency basis was driven by solid performance in the European business, including a 9% increase in retail comparable store sales.

Earnings before interest and taxes in the Tommy Hilfiger business was $98 million on a GAAP basis, inclusive of an $18 million negative impact due to foreign currency exchange rates, compared to $116 million on a GAAP basis and $118 million on a non-GAAP basis in the prior year’s second quarter. Earnings on a constant currency basis declined slightly, as earnings growth in Europe was more than offset by an earnings decline in North America due to weak international tourist traffic and spending, which drove more promotional selling, resulting in lower gross margins.

Heritage Brands

Revenue in the Heritage Brands business for the quarter declined 6% from $431 million in the prior year’s second quarter. The decline was driven in part by the prior year’s second quarter having the benefit of the sales attributable to the launch of IZOD at Kohl’s and a shift in the timing of wholesale shipments into the first quarter from the second quarter in the current year. Partially offsetting this decline was an 8% increase in retail comparable store sales in the Van Heusen business.

Earnings before interest and taxes on a non-GAAP basis in the Heritage Brands business decreased to $26 million compared to $29 million in the prior year’s second quarter due principally to the wholesale revenue decline discussed above.

Earnings before interest and taxes on a GAAP basis in the Heritage Brands business was $15 million compared to $25 million in the prior year’s second quarter. The decrease was mainly attributable to the wholesale revenue decline discussed above, as well as $6 million of expenses incurred in connection with operating and exiting the Izod retail business and $3 million of expenses incurred related to exiting various product lines in the dress furnishings business, partially offset by a reduction in Warnaco integration and restructuring costs incurred compared to the prior year’s second quarter.

Second Quarter Consolidated Earnings:

Earnings before interest and taxes on a non-GAAP basis for the second quarter decreased 2% on a constant currency basis (decreased 15% including foreign currency exchange rate impacts) from $206 million in the prior year’s second quarter. Earnings of the Calvin Klein business grew 5% on a constant currency basis (5% decrease including foreign currency exchange rate impacts) despite an increase of $5 million spent on advertising, but was more than offset by the decreases in the earnings of the Tommy Hilfiger and Heritage Brands businesses mentioned previously and a $3 million increase in corporate expenses attributable to associate-related benefits, primarily pension expense.

Earnings before interest and taxes on a GAAP basis was $154 million compared to $159 million in the prior year’s second quarter. The decrease was primarily due to a negative impact of foreign currency exchange rates and the items mentioned above that affected the earnings on a non-GAAP basis, partially offset by a reduction in Warnaco integration and restructuring costs incurred compared to the prior year’s second quarter.

Net interest expense decreased to $28 million from $34 million in the prior year’s second quarter due principally to lower average debt balances. The effective tax rate on a non-GAAP basis decreased to 21.5% compared to 26.9% in the prior year’s second quarter due to certain favorable discrete items in the current quarter. The effective tax rate on a GAAP basis increased to an expense of 19.0% compared to a benefit of 0.8% in the prior year’s second quarter, as the prior year effective tax rate included a discrete benefit of approximately $30 million related to the favorable resolution of uncertain tax positions.

Six Months Consolidated Results:

Earnings per share on a non-GAAP basis for the first six months of 2015 was $2.87, inclusive of a $0.58 negative impact primarily related to foreign currency exchange rates compared to the prior year period. Earnings per share on a non-GAAP basis excluding the negative impact primarily related to foreign currency exchange rates was $3.45, or an increase of 16% compared to earnings per share on a non-GAAP basis of $2.98 in the prior year period. GAAP earnings per share was $2.59 compared to $1.94 in the prior year period.

Revenue increased 3% on a constant currency basis (decreased 5% on a GAAP basis) compared to $3.94 billion in the prior year period.

The revenue change was due to:

• A 4% increase on a constant currency basis (3% decrease on a GAAP basis) in the Calvin Klein business compared to the prior year period, primarily driven by strong performance in Europe, as well as in Asia, which included a benefit due to the Chinese New Year, as the first quarter of fiscal 2015 included a Chinese New Year while the first quarter of fiscal 2014 did not. International retail comparable store sales increased 6%. North America retail comparable store sales increased 2% despite the decreased traffic and spending trends in the Company’s U.S. stores located in international tourist locations as a result of the strengthening U.S. dollar.
• A 3% increase on a constant currency basis (9% decrease on a GAAP basis) in the Tommy Hilfiger business compared to the prior year period. Tommy Hilfiger North America revenue increased 1% on a constant currency basis (decreased 1% on a GAAP basis) inclusive of a 2% decrease in retail comparable store sales attributable to the decline in traffic and spending trends in the Company’s U.S. stores located in international tourist locations as a result of the strengthening U.S. dollar. Tommy Hilfiger International revenue increased 4% on a constant currency basis (decreased 15% on a GAAP basis), driven principally by European retail comparable store sales growth of 6% and low-single digit percentage wholesale growth on a constant currency basis.
• Relatively flat revenue in the Heritage Brands business compared to the prior year period, as an 11% retail comparable store sales increase in the Van Heusen business was offset by the prior year’s second quarter having the benefit of the sales attributable to the launch of IZOD at Kohl’s.

Earnings before interest and taxes on a non-GAAP basis increased 3% on a constant currency basis (decreased 9% including foreign currency exchange rate impacts) from $409 million in the prior year period. Strong performance in the Calvin Klein business on a constant currency basis was partially offset by a decline in the Tommy Hilfiger business due to weak international tourist traffic in the U.S., which drove more promotional selling, resulting in lower gross margins. A $6 million increase in corporate expenses attributable to associate-related benefits, primarily pension expense, also negatively impacted earnings.

Earnings before interest and taxes on a GAAP basis was $331 million compared to $244 million in the prior year period. The increase was primarily due to the absence in 2015 of $93 million of debt modification and extinguishment costs and a reduction in Warnaco integration and restructuring costs compared to prior year period, partially offset by the negative impact of foreign currency exchange rates and expenses incurred in 2015 in connection with operating and exiting the Izod retail business and exiting various product lines in the Heritage Brands dress furnishings business.

Net interest expense decreased to $58 million from $74 million in the prior year period due to lower average debt balances and interest rates, combined with the effect of the amendment and restatement of the Company’s credit facility during the first quarter of 2014 and the related redemption of its 7 3/8% senior notes due 2020. Since the Warnaco acquisition, the Company has made repayments of approximately $1.1 billion on its long-term debt.

Stock Repurchase Program:

During the second quarter of 2015, the Company repurchased approximately $15 million of its common stock under the $500 million three-year stock repurchase program authorized by the Board of Directors in June 2015. Stock repurchases under this program may be made from time to time over the period through open market purchases, accelerated share repurchase programs, privately negotiated transactions or other methods, as the Company deems appropriate. Purchases are made based on a variety of factors, such as price, corporate requirements and overall market conditions, applicable legal requirements and limitations, restrictions under the Company’s debt arrangements, trading restrictions under the Company’s insider trading policy, and other relevant factors. The stock repurchase program may be modified, including to increase or decrease the repurchase limitation or extend, suspend, or terminate the program, by the Company at any time, without prior notice.

2015 Guidance:

The Company currently expects its full year earnings per share results to be negatively impacted versus the prior year by (i) approximately $1.20 per share from foreign currency exchange rates due to the significant strengthening of the U.S. dollar against other currencies in which the Company transacts significant levels of business, and (ii) volatility in the global macroeconomic environment, particularly with respect to the Company’s businesses in Russia. The Company continues to expect a negative impact of approximately $0.10 per share from its Russia businesses due to political and economic instability in the region.

Please see the section entitled “Full Year and Quarterly 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

Earnings per share for the full year 2015 is currently projected to be in a range of $6.90 to $7.00 on a non-GAAP basis, which includes the expected $1.30 negative impact related to foreign currency exchange rates and pressures on the Company’s Russia businesses, as described above. Excluding this negative impact, earnings per share on a non-GAAP basis is expected to increase 12% to 14% compared to the prior year’s non-GAAP earnings per share of $7.30.

Revenue in 2015 is currently projected to increase approximately 4% on a constant currency basis (decrease approximately 2% on a GAAP basis) as compared to 2014. It is currently projected that revenue for the Calvin Klein business will increase approximately 8% on a constant currency basis (increase approximately 1% on a GAAP basis). Revenue for the Tommy Hilfiger business is currently expected to increase approximately 4% on a constant currency basis (decrease approximately 5% on a GAAP basis). Revenue for the Heritage Brands business is currently projected to decrease approximately 3%.

Net interest expense for the full year 2015 is expected to be approximately $120 million compared to the 2014 amount of $139 million, mainly due to lower average debt balances.

The Company currently expects to generate approximately $450 million of free cash flow in 2015, which will be used primarily to repay approximately $350 million of debt, of which $166 million was repaid during the first half of the year, as well as to repurchase stock.

The Company currently estimates that the 2015 effective tax rate will be approximately 21.5%.

The Company’s earnings per share estimate on a non-GAAP basis excludes approximately $55 million of pre-tax costs associated primarily with the Warnaco integration and related restructuring, $15 million of pre-tax costs associated with operating and exiting the Izod retail business and $6 million of pre-tax costs associated with exiting various product lines in the dress furnishings business. (Please see section entitled “Non-GAAP Exclusions” for details on these pre-tax costs.)

Third Quarter Guidance

The Company currently expects its third quarter 2015 earnings per share results to be negatively impacted versus the prior year period by approximately $0.40 per share primarily from foreign currency exchange rates due to the significant strengthening of the U.S. dollar against other currencies in which the Company transacts significant levels of business.

Third quarter 2015 earnings per share on a non-GAAP basis is currently projected to be in a range of $2.45 to $2.50, which reflects an expected $0.40 per share negative impact primarily related to foreign currency exchange rates as described above. Excluding this negative impact, earnings per share on a non-GAAP basis is expected to increase 11% to 13% compared to the prior year’s third quarter non-GAAP earnings per share of $2.56.

Revenue in the third quarter of 2015 is currently projected to increase approximately 3% on a constant currency basis (decrease approximately 3% on a GAAP basis) compared to the prior year’s third quarter. It is currently projected that revenue for the Calvin Klein business in the third quarter will increase approximately 7% on a constant currency basis (increase 1% on a GAAP basis). Revenue for the Tommy Hilfiger business in the third quarter is currently expected to increase approximately 4% on a constant currency basis (decrease approximately 4% on a GAAP basis). Revenue for the Heritage Brands business in the third quarter is currently projected to decrease approximately 5% due in part to the closure of the Izod retail business.

The Company currently projects that the third quarter 2015 net interest expense will be approximately $30 million, a reduction of approximately $2 million compared to the third quarter of 2014, mainly due to lower average debt balances and interest rates. The Company currently estimates that the third quarter effective tax rate will be approximately 18%.

The Company’s third quarter earnings per share estimate on a non-GAAP basis excludes approximately $15 million of pre-tax costs associated with the integration and related restructuring of Warnaco, $8 million of pre-tax costs associated with operating and exiting the Izod retail business and $3 million of pre-tax costs associated with exiting various product lines in the dress furnishings business. (Please see section entitled “Non-GAAP Exclusions” for details on these pre-tax costs.)

Non-GAAP Exclusions:

The discussions in this release that refer to non-GAAP amounts exclude the following:

• Pre-tax costs of approximately $55 million expected to be incurred in 2015 in connection with the integration of Warnaco and the related restructuring, of which $19 million was incurred in the first quarter, $13 million was incurred in the second quarter and approximately $15 million is expected to be incurred in the third quarter.
• Pre-tax costs of approximately $15 million expected to be incurred in 2015 related to operating and exiting the Izod retail business, of which $1 million was incurred in the first quarter, $6 million was incurred in the second quarter and approximately $8 million is expected to be incurred in the third quarter.
• Pre-tax costs of approximately $6 million expected to be incurred in 2015 related to exiting various product lines in the dress furnishings business, of which $3 million was incurred in the second quarter and approximately $3 million is expected to be incurred in the third quarter.
• A pre-tax gain of $2 million recorded in the second quarter of 2015 on the Company’s equity investment in Kingdom Holding 1 B.V., the parent company of the Karl Lagerfeld brand.
• Discrete tax benefits of $3 million recorded in 2015 related to the resolution of uncertain tax positions, of which $2 million was incurred in the first quarter and $1 million was incurred in the second quarter.
• Pre-tax costs of $138 million incurred in 2014 in connection with (i) the integration of Warnaco and the related restructuring, including a pre-tax gain resulting from the deconsolidation of certain Calvin Klein subsidiaries in Australia and New Zealand, which were transferred to the Company’s joint venture there, and the previously consolidated Calvin Klein joint venture in India, which the Company effectively no longer controls; (ii) the sale of the G.H. Bass & Co. business, which closed in the fourth quarter of 2013 (as certain costs related to the sale were incurred in 2014); (iii) the impairment of certain Tommy Hilfiger stores in North America in the second quarter of 2014; and (iv) costs incurred in connection with the exit of a discontinued product line in the Tommy Hilfiger Japan business. Of the total costs, $26 million was incurred in the first quarter, $46 million was incurred in the second quarter, $29 million was incurred in the third quarter and $37 million was incurred in the fourth quarter.
• Pre-tax costs of $21 million incurred in the fourth quarter of 2014 related to the exit of the Izod retail business, which includes $18 million of noncash charges related to asset impairments.
• Pre-tax costs of $93 million recorded in the first quarter of 2014 associated with the amendment and restatement of the Company’s credit facility and the related redemption of its 7 3/8% senior notes due 2020.
• A pre-tax expense of $139 million recorded in the fourth quarter of 2014 related to recognized actuarial losses on retirement plans.
• Discrete tax benefits of $92 million in 2014 primarily related to various Warnaco integration activities and the resolution of uncertain tax positions, of which $30 million was recorded in the second quarter, $25 million was recorded in the third quarter and $37 million was recorded in the fourth quarter.
• Estimated tax effects associated with the above pre-tax items, which are based on the Company’s assessment of deductibility. In making this assessment, the Company evaluated each item that it had identified above as a non-GAAP exclusion to determine if such item is taxable or tax deductible, and if so, in what jurisdiction the tax expense or tax deduction would occur. All items above were identified as either primarily taxable or tax deductible, with the tax effect taken at the statutory income tax rate of the local jurisdiction, or as non-taxable or non-deductible, in which case the Company assumed no tax effect.

As a supplement to the Company’s reported operating results, the Company presents constant currency financial information, which is a non-GAAP financial measure. The Company presents results in this manner because it is a global company that reports financial information in U.S. dollars in accordance with generally accepted accounting principles in the U.S. Foreign currency exchange rate fluctuations affect the amounts reported by the Company in U.S. dollars with respect to its foreign revenues and profit. Additionally, the Company’s international businesses often purchase inventory in U.S. dollars and, as the U.S. dollar strengthens, this U.S. dollar-based inventory converts into a higher value of local currency inventory and cost of goods when the goods are sold. Exchange rate fluctuations can have a significant effect on reported operating results. The Company believes presenting constant currency information provides useful information to investors, as it provides information to assess how its businesses performed excluding the effects of changes in foreign currency translation rates and 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.

These constant currency performance measures should be viewed in addition to, and not in lieu of or as superior to, the Company’s operating performance measures calculated in accordance with GAAP. The constant currency information presented may not be comparable to similarly titled measures reported by other companies.

Please see Tables 1 through 7 and the sections entitled “Reconciliations of 2015 Constant Currency Amounts” and “Full Year and Quarterly Reconciliations of GAAP to Non-GAAP Amounts” later in this release for reconciliations of GAAP to non-GAAP amounts.

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

The Company believes presenting its results excluding (i) the costs incurred in 2015 and 2014 in connection with its integration of The Warnaco Group, Inc. (“Warnaco”) and the related restructuring; (ii) the costs incurred in 2015 in connection with operating and exiting its Izod retail business; (iii) the costs incurred in 2015 in connection with exiting various product lines in its dress furnishings business; (iv) the gain recorded in 2015 on its equity investment in Kingdom Holding 1 B.V., the parent company of the Karl Lagerfeld brand; (v) the impairment recorded in 2014 of certain Tommy Hilfiger stores in North America; (vi) the costs incurred in 2014 related to its sale of the G.H. Bass & Co. (“Bass”) business; (vii) the costs incurred in 2014 in connection with the amendment and restatement of its credit facility and the related redemption of its 7 3/8% senior notes due 2020; (viii) the net gain recorded in 2014 on the deconsolidation of certain Calvin Klein subsidiaries in Australia and New Zealand and the previously consolidated Calvin Klein joint venture in India; (ix) the tax effects associated with the foregoing items; and (x) the tax benefits recorded in 2015 and 2014 associated with non-recurring discrete items related to the resolution of uncertain tax positions, which are on a non-GAAP basis for each year, provides useful 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 certain of the items described 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 7 for reconciliations of the GAAP amounts to amounts on a non-GAAP basis.

Note: Year over year balances are impacted by changes in foreign currency exchange rates.

As a supplement to the Company’s reported operating results, the Company presents constant currency financial information, which is a non-GAAP financial measure. The Company presents results in this manner because it is a global company that reports financial information in U.S. dollars in accordance with generally accepted accounting principles in the U.S. Foreign currency exchange rate fluctuations affect the amounts reported by the Company in U.S. dollars with respect to its foreign revenues and profit. Additionally, the Company’s international businesses often purchase inventory in U.S. dollars and, as the U.S. dollar strengthens, this U.S. dollar-based inventory converts into a higher value of local currency inventory and cost of goods when the goods are sold. Exchange rate fluctuations can have a significant effect on reported operating results. The Company believes presenting constant currency information provides useful information to investors, as it provides information to assess how its businesses performed excluding the effects of changes in foreign currency translation rates and 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.

These constant currency performance measures should be viewed in addition to, and not in lieu of or superior to, the Company’s operating performance measures calculated in accordance with GAAP. The constant currency information presented may not be comparable to similarly titled measures reported by other companies.

The Company is presenting its (1) 2015 estimated results excluding (a) the costs expected to be incurred in connection with its integration of Warnaco and the related restructuring; (b) the costs expected to be incurred in connection with operating and exiting its Izod retail business; (c) the costs expected to be incurred in connection with exiting various product lines in its dress furnishings business; (d) the gain recorded on its equity investment in Kingdom Holding 1 B.V., the parent company of the Karl Lagerfeld brand; (e) the estimated tax effects associated with these costs; and (f) the tax benefits associated with non-recurring discrete items related to the resolution of uncertain tax positions, and (2) 2014 results excluding (a) the costs incurred in connection with its integration of Warnaco and the related restructuring; (b) the costs incurred in connection with the exit of its Izod retail business, including noncash impairment charges; (c) the costs incurred in connection with its exit of a discontinued product line in the Tommy Hilfiger Japan business; (d) the impairment of certain Tommy Hilfiger stores in North America; (e) the costs incurred related to the sale of its Bass business; (f) the costs incurred in connection with the amendment and restatement of its credit facility and the related redemption of its 7 3/8% senior notes due 2020; (g) 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; (h) the recognized actuarial loss on retirement plans; (i) the estimated tax effects associated with these costs; and (j) tax benefits associated with non-recurring discrete items primarily related to various Warnaco integration activities and the resolution of uncertain tax positions. The 2015 estimated results and 2014 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 Company’s results excluding certain of the items described above are also the basis for certain incentive compensation calculations. The estimated tax effects associated with the above costs are based on the Company’s assessment of taxability and deductibility. In making this assessment, the Company evaluated each pre-tax item that it has identified as a non-GAAP exclusion to determine if such item is taxable or tax deductible, and if so, in what jurisdiction the tax expense or tax deduction would occur. All items above were assumed to be either primarily taxable or tax deductible, with the tax effect taken at the statutory income tax rate of the local jurisdiction, or as non-taxable or non-deductible, in which case the Company assumed no tax effect.

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 2015 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, 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 gain or loss on retirement plans. The Company has no current understanding or agreement regarding any such transaction or definitive plans regarding any such activity that has not been announced or completed.

Please refer to the section entitled “Reconciliations of 2015 Constant Currency Amounts” for a description of the presentation of constant currency amounts.

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

(In millions, except per share data)