RETIREMENT AND BENEFIT PLANS

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

As a result of the Company’s acquisition of Tommy Hilfiger, the Company also has for certain members of Tommy Hilfiger’s domestic senior management a supplemental executive retirement plan, which is an unfunded non-qualified supplemental defined benefit pension plan. Such plan is frozen and, as a result, participants do not accrue additional benefits. In addition, the Company has a capital accumulation program, which is an unfunded non-qualified supplemental defined benefit plan covering two current and 16 retired executives. Under the individual participants’ agreements, the participants in this plan will receive a predetermined amount during the 10 years following the attainment of age 65, provided that prior to the termination of employment with the Company, the participant has been in the plan for at least 10 years and has attained age 55. The Company also has for certain employees resident in the United States who meet certain age and service requirements an unfunded non-qualified supplemental defined benefit pension plan, which provides benefits for compensation in excess of Internal Revenue Service earnings limits and requires payments to vested employees upon, or shortly after, employment termination or retirement. The Company refers to these three plans as its “SERP Plans.”

The Company also provides certain postretirement health care and life insurance benefits to certain retirees resident in the United States. Retirees contribute to the cost of this plan, which is unfunded. During 2002, the postretirement plan was amended to eliminate benefits for active participants who, as of January 1, 2003, had not attained age 55 and 10 years of service.

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

Reconciliations of the changes in the projected benefit obligation (pension plans and SERP Plans) and the accumulated benefit obligation (postretirement plan) for each of the last two years were as follows:



	Pension Plans						SERP Plans						Postretirement Plan
	2012			2011			2012			2011			2012			2011
Balance at beginning of year	$	359,727		$	289,942		$	71,717		$	59,734		$	18,247		$	17,781
Service cost	15,315			11,160			3,579			3,069			—			—
Interest cost	17,974			17,391			3,366			3,602			798			1,018
Benefit payments	(14,456		)	(12,696		)	(2,674		)	(4,984		)	—			—
Benefit payments, net of retiree contributions	—			—			—			—			(1,959		)	(1,800		)
Plan settlements	—			—			(6,977		)	—			—			—
Medicare subsidy	—			—			—			—			56			107
Actuarial loss (gain)	27,835			53,930			5,850			10,296			(1,106		)	1,141
Balance at end of year	$	406,395		$	359,727		$	74,861		$	71,717		$	16,036		$	18,247

Reconciliations of the fair value of the assets held by the Company’s pension plans and the plans’ funded status for each of the last two years were as follows:



	2012			2011
Fair value of plan assets at beginning of year	$	268,505		$	251,810
Actual return, net of plan expenses	24,973			9,371
Benefit payments	(14,456		)	(12,696		)
Company contributions	105,000			20,020
Fair value of plan assets at end of year	$	384,022		$	268,505
Funded status at end of year	$	(22,373	)	$	(91,222	)

Amounts recognized in the Company’s Consolidated Balance Sheets were as follows:



	Pension Plans						SERP Plans						Postretirement Plan
	2012			2011			2012			2011			2012			2011
Current liabilities	$	—		$	—		$	(7,021	)	$	(7,259	)	$	(1,965	)	$	(2,028	)
Non-current liabilities	(22,373		)	(91,222		)	(67,840		)	(64,458		)	(14,071		)	(16,219		)
Net amount recognized on balance sheet	$	(22,373	)	$	(91,222	)	$	(74,861	)	$	(71,717	)	$	(16,036	)	$	(18,247	)

Pre-tax amounts in AOCI that, as of the end of each applicable fiscal year, had not yet been recognized as components of net benefit cost were as follows:



	Pension Plans						SERP Plans				Postretirement Plan
	2012			2011			2012		2011		2012		2011
Prior service (cost) credit	$	(16	)	$	(21	)	$	272	$	340	$	2,255	$	3,072

Pre-tax amounts in AOCI as of February 3, 2013 expected to be recognized as components of net benefit cost in 2013 were as follows:



	Pension Plans			SERP Plans		Postretirement Plan
Prior service (cost) credit	$	(6	)	$	68	$	817

The pension plan assets are invested with the objective of being able to meet current and future benefit payment needs, while controlling pension expense volatility and future contributions. Plan assets are diversified among United States equities, international equities, fixed income investments and cash. The strategic target allocation for the majority of the plans as of February 3, 2013 was approximately 45% United States equities, 15% international equities and 40% fixed income investments. Equity securities primarily include investments in large-cap and mid-cap companies located in the United States and abroad. Fixed income securities include corporate bonds of companies from diversified industries, municipal bonds, collective funds and United States Treasury bonds. Actual investment allocations may vary from the Company’s target investment allocations due to prevailing market conditions.

In accordance with the fair value hierarchy described in Note 9, “Fair Value Measurements,” the following tables show the fair value of the Company’s total pension plan assets for each major category as of February 3, 2012 and January 29, 2012:



			Fair Value Measurements at February 3, 2013⁽⁹⁾
Asset Category	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Equity securities:
United States equities⁽¹⁾	$	65,101	$	65,101	$	—	$	—
International equities⁽¹⁾	1,266		1,266		—		—
Global equity mutual fund⁽²⁾	16,373		16,373		—		—
United States equity fund⁽³⁾	42,183		42,183		—		—
International equity commingled fund⁽⁴⁾	46,976		—		46,976		—
Fixed income securities:
Government securities⁽⁵⁾	19,356		—		19,356		—
Corporate securities⁽⁵⁾	86,982		—		86,982		—
Short-term investment commingled funds⁽⁶⁾	99,297		—		99,297		—
Total return mutual fund⁽⁷⁾	4,784		4,784		—		—
Subtotal	$	382,318	$	129,707	$	252,611	$	—
Other assets and liabilities⁽⁸⁾	1,704
Total	$	384,022



			Fair Value Measurements at January 29, 2012⁽⁹⁾
Asset Category	Total		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Equity securities:
United States equities⁽¹⁾	$	56,016	$	56,016	$	—	$	—
International equities⁽¹⁾	1,285		1,285		—		—
Global equity mutual fund⁽²⁾	13,297		13,297		—		—
United States equity fund⁽³⁾	37,564		37,564		—		—
International equity commingled fund⁽⁴⁾	41,288		—		41,288		—
Fixed income securities:
Government securities⁽⁵⁾	17,922		—		17,922		—
Corporate securities⁽⁵⁾	55,551		—		55,551		—
Short-term investment commingled funds⁽⁶⁾	39,379		—		39,379		—
Total return mutual fund⁽⁷⁾	4,194		4,194		—		—
Subtotal	$	266,496	$	112,356	$	154,140	$	—
Other assets and liabilities⁽⁸⁾	2,009
Total	$	268,505

⁽¹⁾ Valued at the closing price in the active market in which the individual securities are traded.


⁽²⁾	Valued at the net asset value of the fund, as determined by the closing price in the active market in which the individual fund is traded. This fund invests in a portfolio of U.S. and international equities seeking long-term growth of principal and income.


⁽³⁾	Valued at the closing price in the active market in which this fund is traded. This fund invests in U.S. large cap equities that track the Russell 1000 Index.


⁽⁴⁾	Valued at the net asset value of the fund, as determined by a pricing vendor or the fund family. The Company has the ability to redeem these investments at net asset value within the near term and therefore classifies these investments within Level 2. This fund invests primarily in equities outside the U.S. seeking long-term capital appreciation.


⁽⁵⁾	Valued with bid evaluation pricing that uses a discounted cash flow method. Inputs include actual and comparable trade data, market benchmarks, broker quotes, trading spreads and/or other applicable data.


⁽⁶⁾	Valued at the net asset value of the fund, as determined by a pricing vendor or the fund family. The Company has the ability to redeem these investments at net asset value within the near term and therefore classifies these investments within Level 2. This fund invests in high-grade, short-term, money market instruments.


⁽⁷⁾	Valued at the net asset value of the fund, as determined by the closing price in the active market in which the individual fund is traded. This fund invests in both equity securities and fixed income securities seeking a high total return.


⁽⁸⁾	This category includes other pension assets and liabilities such as pending trades and accrued income.

⁽⁹⁾

The Company uses third-party pricing services to determine the fair values of the financial instruments held by the pension plans. The Company obtains an understanding of the pricing services’ valuation methodologies and related inputs and validates a sample of prices provided by the pricing services by reviewing prices from other pricing sources and analyzing pricing data in certain instances. The Company has not adjusted any prices received from the third-party pricing services.

The Company believes that there are no significant concentrations of risk within its plan assets at February 3, 2013.

In 2012, all of the Company’s pension plans had projected benefit obligations in excess of plan assets and certain of the Company’s pension plans had accumulated benefit obligations in excess of plan assets. In 2011, all of the Company’s pension plans had projected and accumulated benefit obligations in excess of plan assets. The balances were as follows:



	2012		2011
Number of plans with projected benefit obligations in excess of plan assets	5		5
Aggregate projected benefit obligation	$	406,395	$	359,727
Aggregate fair value of related plan assets	$	384,022	$	268,505

Number of plans with accumulated benefit obligations in excess of plan assets	3		5
Aggregate accumulated benefit obligation	$	33,730	$	337,284
Aggregate fair value of related plan assets	$	30,583	$	268,505

The components of net benefit cost and other pre-tax amounts recognized in other comprehensive income (loss) in each of the last three years were as follows:



Net Benefit Cost Recognized in Selling, General and Administrative Expenses

	Pension Plans									SERP Plans									Postretirement Plan
	2012			2011			2010			2012			2011			2010			2012			2011			2010
Service cost, including plan expenses	$	15,729		$	11,550		$	7,740		$	3,579		$	3,069		$	1,866		$	—		$	—		$	—
Interest cost	17,974			17,391			16,339			3,366			3,602			3,127			798			1,018			1,090
Actuarial loss (gain)	23,398			64,683			5,872			5,850			10,296			2,631			(1,106		)	1,141			(3,969		)
Expected return on plan assets	(20,950		)	(20,514		)	(16,568		)	—			—			—			—			—			—
Amortization of prior service cost (credit)	6			6			6			(68		)	(68		)	(68		)	(817		)	(817		)	(817		)
Total	$	36,157		$	73,116		$	13,389		$	12,727		$	16,899		$	7,556		$	(1,125	)	$	1,342		$	(3,696	)



Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss)

	Pension Plans									SERP Plans						Postretirement Plan
	2012			2011			2010			2012		2011		2010		2012		2011		2010
Prior service cost	$	1		$	—		$	9		$	—	$	—	$	—	$	—	$	—	$	—
Amortization of prior service (cost) credit	(6		)	(6		)	(6		)	68		68		68		817		817		817
Loss (income) recognized in other comprehensive income (loss)	$	(5	)	$	(6	)	$	3		$	68	$	68	$	68	$	817	$	817	$	817

Currently, the Company expects to make contributions of approximately $30,000 to its pension plans in 2013. The estimated pension contributions do not include anticipated contributions for the pension plans that the Company acquired in connection with the Warnaco acquisition. The Company’s actual contributions may differ from planned contributions due to many factors, including changes in tax and other benefit laws, or significant differences between expected and actual pension asset performance or interest rates. The expected benefit payments associated with the Company’s pension plans and SERP Plans, and expected benefit payments, net of retiree contributions, associated with the Company’s postretirement plan are as follows:



			Postretirement Plan
	Pension Plans	SERP Plans	Excluding Medicare Subsidy Receipts	Expected Medicare Subsidy Receipts
2013	14,779	7,021	1,965	76
2014	15,424	5,746	1,858	73
2015	16,297	5,547	1,755	68
2016	16,985	5,865	1,621	63
2017	17,781	5,736	1,523	58
2018-2022	105,569	45,721	6,150	216

The medical health care cost trend rate assumed for 2013 is 6.31% and is assumed to decrease by approximately 0.15% per year through 2022. Thereafter, the rate assumed is 5.0%. If the assumed health care cost trend rate increased or decreased by 1%, the aggregate effect on the service and interest cost components of the net postretirement benefit cost for 2012 and on the accumulated postretirement benefit obligation at February 3, 2013 would be as follows:



	1% Increase		1% Decrease
Impact on service and interest cost	$	52	$	(46	)
Impact on year end accumulated postretirement benefit obligation	$	1,110	$	(990	)

Significant weighted average rate assumptions used in determining the projected and accumulated benefit obligations at the end of each year and benefit cost in the following year were as follows:



	2012		2011		2010
Discount rate	4.67	%	5.06	%	6.09	%
Rate of increase in compensation levels (applies to pension plans only)	4.34	%	4.31	%	4.30	%
Long-term rate of return on assets (applies to pension plans only)	7.25	%	7.75	%	8.25	%

To develop the expected weighted average long-term rate of return on assets assumption, the Company considered the historical level of the risk premium associated with the asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio.

The Company has savings and retirement plans and a supplemental savings plan for the benefit of its eligible employees who elect to participate. The Company matches a portion of employee contributions to the plans. The Company also has a defined contribution plan for certain employees associated with certain businesses acquired in the Tommy Hilfiger acquisition, whereby the Company pays a percentage of the contribution for the employee. The Company’s contributions to these plans were $15,114, $12,664 and $9,898 in 2012, 2011 and 2010, respectively.