FAIR VALUE MEASUREMENTS

FASB guidance for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a three level hierarchy that prioritizes the inputs used to measure fair value. The three levels of the hierarchy are defined as follows:

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

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

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

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



(In millions)	7/31/16							1/31/16							8/2/15
	Level 1	Level 2		Level 3		Total		Level 1	Level 2		Level 3		Total		Level 1	Level 2		Level 3		Total
Assets:
Foreign currency forward exchange contracts	N/A	$	8.6	N/A		$	8.6	N/A	$	44.2	N/A		$	44.2	N/A	$	64.8	N/A		$	64.8
Interest rate contracts	N/A	—		N/A		—		N/A	—		N/A		—		N/A	0.3		N/A		0.3
Foreign currency option contracts	N/A	1.0		N/A		1.0		N/A	N/A		N/A		N/A		N/A	N/A		N/A		N/A
Total Assets	N/A	$	9.6	N/A		$	9.6	N/A	$	44.2	N/A		$	44.2	N/A	$	65.1	N/A		$	65.1

Liabilities:
Foreign currency forward exchange contracts	N/A	$	13.2	N/A		$	13.2	N/A	$	1.8	N/A		$	1.8	N/A	$	3.6	N/A		$	3.6
Interest rate contracts	N/A	17.0		N/A		17.0		N/A	20.6		N/A		20.6		N/A	14.4		N/A		14.4
Contingent purchase price payments related to reacquisition of the perpetual rights to the Tommy Hilfiger trademarks in India	N/A	N/A		$	2.2	2.2		N/A	N/A		$	2.2	2.2		N/A	N/A		$	4.1	4.1
Total Liabilities	N/A	$	30.2	$	2.2	$	32.4	N/A	$	22.4	$	2.2	$	24.6	N/A	$	18.0	$	4.1	$	22.1

The fair value of the foreign currency forward exchange contracts is measured as the total amount of currency to be purchased, multiplied by the difference between (i) the forward rate as of the period end and (ii) the settlement rate specified in each contract. The fair values of the interest rate contracts are based on observable interest rate yield curves and represent the expected discounted cash flows underlying the financial instruments. The fair value of the foreign currency option contracts is estimated based on external valuation models, which do not involve management judgment and use the original strike price, current foreign currency exchange rates, the implied volatility in foreign currency exchange rates and length of time to expiration as inputs.

Pursuant to the agreement governing the reacquisition of the rights in India to the Tommy Hilfiger trademarks (which the Company entered into in September 2011 in connection with its acquisition of its 50% ownership of TH India), the Company is required to make annual contingent purchase price payments based on a percentage of sales of Tommy Hilfiger products in India in excess of an agreed upon threshold during each of five consecutive 12-month periods (extended to a sixth consecutive 12-month period if the aggregate payments for the five 12-month periods are not at least $15.0 million, which will be the case). Such payments are subject to a $25.0 million aggregate maximum and are due within 60 days following each one-year period. The Company made annual contingent purchase price payments of $0.6 million, $0.6 million, $0.4 million and $0.2 million during 2015, 2014, 2013 and 2012, respectively. The Company is required to remeasure this liability at fair value on a recurring basis and classifies this as a Level 3 measurement. The fair value of such liability was determined using the discounted cash flow method, based on net sales projections for the Tommy Hilfiger apparel and accessories businesses in India, and was discounted using rates of return that account for the relative risks of the estimated future cash flows. Excluding the initial recognition of the liability for the contingent purchase price payments and payments made to reduce the liability, changes in the fair value are included within selling, general and administrative expenses in the Company’s Consolidated Income Statements.

The following table presents the change in the Level 3 contingent purchase price payment liability during the twenty-six weeks ended July 31, 2016 and August 2, 2015:



(In millions)	Twenty-Six Weeks Ended
	7/31/16		8/2/15
Beginning Balance	$	2.2	$	4.0
Payments	—		—
Adjustments included in earnings	0.0		0.1
Ending Balance	$	2.2	$	4.1

Additional information with respect to assumptions used to value the contingent purchase price payment liability as of July 31, 2016 is as follows:



Unobservable Inputs	Amount
Approximate compounded annual net sales growth rate	35.0	%
Approximate discount rate	15.0	%

A five percentage point increase or decrease in the discount rate or the compounded annual net sales growth rate would result in an immaterial change to the liability.

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

The following table shows the fair value of the Company’s non-financial assets and liabilities that were required to be remeasured at fair value on a nonrecurring basis during the twenty-six weeks ended August 2, 2015, and the total impairments recorded as a result of the remeasurement process:

(In millions)

Fair Value Measurement Using

Fair Value
As Of
Impairment Date

Total

Impairments

Assets:

Level 1

Level 2

Level 3

Property, plant and equipment

N/A

—

1.6

Long-lived assets with a carrying amount of $1.6 million were written down to a fair value of zero during the twenty-six weeks ended August 2, 2015 in connection with the financial performance in one of the Company’s Calvin Klein retail stores in North America. Fair value was determined based on the estimated future operating results reflecting poor year-to-date performance and sales trends. The impairment charge was included in selling, general and administrative expenses in the Calvin Klein North America segment.

In connection with the Company’s acquisition in April 2016 of the 55% of the ownership interests in TH China that it did not already own, the 45% interest in TH China owned by the Company was remeasured to a fair value of $205.6 million, resulting in the recognition of a pre-tax noncash gain of $153.1 million in the twenty-six weeks ended July 31, 2016. The Company classifies this as a Level 3 measurement. Please see Note 3, “Acquisitions,” for a further discussion.

The Company guaranteed lease payments for substantially all G. H. Bass & Co. (“Bass”) retail stores included in the sale of substantially all of the assets of the Company’s Bass business in the fourth quarter of 2013 pursuant to the terms of noncancelable leases expiring on various dates through 2022. These guarantees include minimum rent payments and relate to leases that commenced prior to the sale of the Bass assets. In certain instances, the Company’s guarantee remains in effect when an option is exercised to extend the term of the lease. The estimated fair value of these guarantee obligations as of July 31, 2016, January 31, 2016 and August 2, 2015 was $1.6 million, $1.9 million and $2.6 million, respectively, which was included in accrued expenses and other liabilities in the Company’s Consolidated Balance Sheets. The Company classifies these as Level 3 measurements. The fair value of such guarantee obligations was determined using the discounted cash flow method, based on the guaranteed lease payments, the estimated probability of lease extensions and estimates of the risk of default by the buyer of the Bass assets, and was discounted using rates of return that account for the relative risks of the estimated future cash flows.

The carrying amounts and the fair values of the Company’s cash and cash equivalents, short-term borrowings and long-term debt as of July 31, 2016, January 31, 2016 and August 2, 2015 were as follows:



(In millions)	7/31/16				1/31/16				8/2/15
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value

Cash and cash equivalents	$	741.7	$	741.7	$	556.4	$	556.4	$	466.7	$	466.7
Short-term borrowings	19.4		19.4		25.9		25.9		8.1		8.1
Long-term debt (including portion classified as current)	3,358.2		3,434.6		3,168.3		3,190.5		3,348.5		3,408.6

The fair values of cash and cash equivalents and short-term borrowings approximate their carrying amounts due to the short-term nature of these instruments. The Company estimates the fair value of its long-term debt using quoted market prices as of the last business day of the applicable quarter. The Company classifies the measurement of its long-term debt as a Level 1 measurement. The carrying amounts of long-term debt reflect the unamortized portions of debt issuance costs and the original issue discounts.