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SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-724
PHILLIPS-VAN HEUSEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1166910
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1290 Avenue of the Americas New York, New York 10104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (212) 541-5200
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that registrant was required to file such reports), and (2) has
been subject to such filing requirement for the past 90 days.
Yes X No
The number of outstanding shares of common stock, par value $1.00 per
share, of Phillips-Van Heusen Corporation as of May 31, 1995: 26,666,116
shares.
PHILLIPS-VAN HEUSEN CORPORATION
INDEX
PART I -- FINANCIAL INFORMATION
Independent Accountants' Review Report................................ 1
Consolidated Balance Sheets as of April 30, 1995 and
January 29, 1995...................................................... 2
Consolidated Statements of Income for the thirteen weeks
ended April 30, 1995 and May 1, 1994.................................. 3
Consolidated Statements of Cash Flows for the thirteen weeks ended
April 30, 1995 and May 1, 1994........................................ 4
Notes to Consolidated Financial Statements............................ 5-6
Management's Discussion and Analysis of Results of Operations
and Financial Condition............................................... 7-8
PART II -- OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K............................. 9-11
Signatures............................................................ 12
Exhibit--Acknowledgment of Independent Accountants.................... 13
Exhibit--Financial Data Schedule...................................... 14
Independent Accountants' Review Report
Stockholders and Board of Directors
Phillips-Van Heusen Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Phillips-Van Heusen Corporation as of April 30, 1995, and the related
condensed consolidated statements of income and cash flows for the three-month
periods ended April 30, 1995 and May 1, 1994. These financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Phillips-Van Heusen Corporation
as of January 29, 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended (not presented
herein) and in our report dated March 14, 1995, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of January 29, 1995, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
New York, New York
May 16, 1995
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Phillips-Van Heusen Corporation
Consolidated Balance Sheets
(In thousands, except share data)
UNAUDITED AUDITED
April 30, January 29,
1995 1995
ASSETS
Current Assets:
Cash, including cash equivalents of $9,438 and $68,586 $ 11,738 $ 80,473
Trade receivables, less allowances of $4,808 and $1,617 89,458 77,527
Inventories 338,341 255,244
Other, including deferred taxes of $7,108 21,228 16,426
Total Current Assets 460,765 429,670
Property, Plant and Equipment 142,573 136,297
Goodwill 124,734 17,733
Other Assets, including deferred taxes of $10,412 and
$9,502 22,991 12,584
$751,063 $596,284
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 84,855 $ 0
Accounts payable 49,034 38,759
Accrued expenses 95,326 75,014
Current portion of long-term debt 260 260
Total Current Liabilities 229,475 114,033
Long-Term Debt, less current portion 194,681 169,679
Other Liabilities 56,433 37,112
Stockholders' Equity:
Preferred Stock, par value $100 per share; 150,000
shares authorized, no shares outstanding
Common Stock, par value $1 per share; 100,000,000
shares authorized; shares issued 26,657,116
and 26,610,310 26,657 26,610
Additional Capital 113,128 112,801
Retained Earnings 130,689 136,049
Total Stockholders' Equity 270,474 275,460
$751,063 $596,284
See accompanying notes.
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Phillips-Van Heusen Corporation
Consolidated Statements of Income
Unaudited
(In thousands, except per share amounts)
Thirteen Weeks
Ended
April 30, May 1,
1995 1994
Net sales $282,987 $238,897
Cost of goods sold 185,584 159,735
Gross profit 97,404 79,162
Selling, general and administrative expenses 97,756 81,371
Loss before interest and taxes (352) (2,209)
Interest expense, net 4,783 3,322
Loss before taxes (5,135) (5,531)
Income taxes 1,775 2,000
Net loss $ (3,360) $ (3,531)
Net loss per share $ (0.13) $ (0.13)
Cash dividends per share $ 0.0375 $ 0.0375
See accompanying notes.
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Phillips-Van Heusen Corporation
Consolidated Statements of Cash Flows
Unaudited
(In Thousands)
Thirteen Weeks Ended
April 30, May 1,
1995 1994
OPERATING ACTIVITIES:
Net Loss $ (3,360) $ (3,531)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 8,188 5,875
Other-net (2,841) (993)
Changes in operating assets and liabilities:
Receivables 10,201 (3,165)
Inventories (45,253) (3,001)
Accounts payable and accrued expenses (15,234) (12,156)
Other-net (7,319) (582)
Net Cash Used By Operating Activities (55,618) (17,553)
INVESTING ACTIVITIES:
Acquisition of Crystal Brands (114,503)
Plant and equipment acquired (10,137) (8,158)
Contributions from landlords 2,049 1,219
Other-net 1,244 1,484
Net Cash Used By Investing Activities (121,347) (5,455)
FINANCING ACTIVITIES:
Borrowings from revolving credit facility 109,856
Exercise of stock options 374 594
Payment of dividends (2,000) (1,990)
Net Cash Provided (Used) By Financing Activities 108,230 (1,396)
DECREASE IN CASH (68,735) (24,404)
Cash at beginning of period 80,473 68,070
Cash at end of period $ 11,738 $ 43,666
See accompanying notes.
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PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not contain all
disclosures required by generally accepted accounting principles for complete
financial statements. Reference should be made to the annual financial
statements, including the footnotes thereto, included in the Company's Annual
Report to Stockholders for the year ended January 29, 1995.
The results of operations for the thirteen weeks ended April 30, 1995 and May
1, 1994 are not necessarily indicative of those for a full fiscal year because
of seasonal factors. The data contained in these financial statements are
unaudited and are subject to year-end adjustments; however, in the opinion of
management, all known adjustments (which consist only of normal recurring
accruals) have been made to present fairly the consolidated operating results
for the unaudited periods.
Certain reclassifications have been made to the segment information for the
quarter ended May 1, 1994 to present that information on a basis consistent
with the quarter ended April 30, 1995.
INVENTORIES
Inventories are summarized as follows:
April 30, January 29,
1995 1995
Raw materials $ 16,432 $ 19,849
Work in process 17,827 17,026
Finished goods 304,082 218,369
Total $338,341 $255,244
Inventories are stated at the lower of cost or market. Cost for the apparel
business is determined principally using the last-in first-out method (LIFO),
except for certain sportswear inventories which are determined using the
first-in first-out method (FIFO). Cost for the footwear business is
determined using FIFO. Inventories would have been $13,580 and $12,700 higher
than reported at April 30, 1995 and January 29, 1995, respectively, if the
FIFO method of inventory accounting had been used for the entire apparel
business.
The determination of cost of sales and inventories under the LIFO method can
only be made at the end of each fiscal year based on inventory cost and
quantities on hand. Interim LIFO determinations are based on management's
estimates of expected year-end inventory levels and costs. Such estimates are
subject to revision at the end of each quarter. Since estimates of future
inventory levels and costs are subject to external factors, interim financial
results are subject to year-end LIFO inventory adjustments.
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SEGMENT DATA
The Company operates in two industry segments: (i) apparel - the manufacture,
procurement for sale and marketing of a broad range of men's, women's and
children's apparel to wholesale customers as well as through Company-owned
retail stores, and (ii) footwear - the manufacture, procurement for sale and
marketing of a broad range of men's, women's and children's shoes to wholesale
customers as well as through Company-owned retail stores.
Operating income represents net sales less operating expenses. Excluded from
operating results of the segments are interest expense, net, corporate
expenses and income taxes.
Thirteen Weeks
Ended
April 30, May 1,
1995 1994
Net sales-apparel $204,991 $159,103
Net sales-footwear 77,996 79,794
Total net sales $282,987 $238,897
Operating loss-apparel $ (1,333) $ (1,724)
Operating income-footwear 3,357 1,917
Total operating income 2,024 193
Corporate expenses 2,376 2,402
Interest expense, net 4,783 3,322
Loss before taxes $ (5,135) $ (5,531)
ACQUISITION
On February 17, 1995, the Company completed the acquisition of the Apparel
Group of Crystal Brands, Inc. for $114,503 in cash, net of cash acquired, and
subject to certain adjustments. This acquisition was accounted for as a
purchase. The acquired operations are included in the Company's consolidated
financial statements since February 17, 1995.
The Company acquired assets with a fair value estimated to be $134,503
(including $106,400 of excess of cost over net assets acquired) and assumed
liabilities of $20,000. The Company has not yet determined the final value of
the assets acquired and liabilities assumed, and, accordingly, adjustments to
certain amounts in the consolidated balance sheet at April 30, 1995 may be
required.
If the acquisition had occurred on the first day of fiscal 1994 instead of on
February 17, 1995, the Company's proforma consolidated results of operations
would have been:
Thirteen Weeks Ended
April 30, May 1,
1995 1994
Net sales $289,118 $292,029
Net loss $ (3,423) $ (4,107)
Net loss per share $ (0.13) $ (0.15)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Thirteen Weeks Ended April 30, 1995 Compared to Thirteen Weeks Ended
May 1, 1994
APPAREL
Net sales of the Company's apparel segment in the first quarter were $205.0
million in 1995 and $159.1 million last year, an increase of approximately
28.8%. The acquisition of the Apparel Group of Crystal Brands, Inc. on
February 17, 1995, coupled with the growth in the Company's Geoffrey Beene and
Bass Apparel retail operations, accounted for this increase.
Gross profit on apparel sales was 32.6% in the first quarter of 1995 compared
with 32.2% in the prior year. Improved margins on Bass Apparel sales and
better margins on merchandise sold under the labels acquired from Crystal
Brands were offset, in part, by reduced margins on sales of private label
apparel and by an increased LIFO charge of $0.9 million in this year's first
quarter compared with $0.4 million in last year's quarter.
Selling, general and administrative expenses as a percent of apparel sales in
the first quarter were 33.2% in both the current and prior year.
FOOTWEAR
Net sales of the Company's footwear segment were basically flat at $78.0
million in the first quarter of 1995 compared with $79.8 million last year.
Gross profit on footwear sales was 39.2% in the current quarter compared with
35.1% in the prior year's quarter. The prior year's quarter was negatively
impacted by significant clearance markdowns to remove slower moving
merchandise from inventory. The Company began the current year with a much
improved inventory mix, which in turn reduced overall markdowns.
Selling, general and administrative expenses as a percent of footwear sales
were 34.9% in the current quarter compared with 32.7% in the prior year's
quarter. Growth of the Company's retail operations, which are seasonally weak
in the first quarter, accounted for this increase.
INTEREST EXPENSE
Net interest expense was $4.8 million in the first quarter of 1995 compared
with $3.3 million last year. This increase resulted from the cash purchase of
the Apparel Group of Crystal Brands, Inc.
INCOME TAXES
Income tax was estimated at a rate of 34.6% for the first quarter and year of
1995 compared with last year's rates of 36.2% and 18.7% for the first quarter
and year, respectively. The effective rate for the full year 1994, excluding
the effect of reversals of estimated tax liabilities and restructuring
expenses, would have been approximately 31.5%. The increase in the 1995 rate
is due principally to normally taxed income increasing more rapidly than tax
exempt income from operations in Puerto Rico.
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CORPORATE EXPENSES
Corporate expenses were $2.4 million in the first quarter of both 1995 and
1994.
SEASONALITY
The Company's business is seasonal, with higher sales and income during its
third and fourth quarters, which coincide with the Company's two peak retail
selling seasons: the first running from the start of the summer vacation
period in late May and continuing through September; the second being the
Christmas selling season beginning with the weekend following Thanksgiving and
continuing through the week after Christmas.
Also contributing to the strength of the third quarter is the high volume of
fall shipments to wholesale customers which are more profitable than spring
shipments. The slower spring selling season at wholesale combined with retail
seasonality makes the first quarter particularly weak.
LIQUIDITY AND CAPITAL RESOURCES
The seasonal nature of the Company's business typically requires the use of
cash to fund a build up in the Company's inventory in the first half of each
fiscal year. During the third and fourth quarters, the Company's higher level
of sales tends to reduce its inventory and generate cash from operations.
Cash used by operations in the first quarter totalled $55.6 million in 1995
and $17.6 million last year. The seasonal build up in inventory for sales
planned for the second quarter and balance of the year has increased in the
current quarter due to the growth of the Company's business and due to the
Company ending 1994 with approximately $13 million less inventory than 1993.
The Company has a revolving credit agreement under which the Company may, at
its option, borrow and repay amounts up to a maximum of $185 million, except
that for the Company's third quarter, during which period its borrowings peak,
the maximum amount available to the Company is $200 million. The acquisition
of Crystal Brands for cash was funded from the Company's cash reserves and
from borrowings under this facility. The Company believes that its borrowing
capacity under this facility is adequate for its 1995 peak seasonal needs. At
the end of the first quarter, the Company estimated that $25 million of the
outstanding borrowings under this facility are non-current. The resulting
increase in long-term debt, offset in part by earnings generated over the past
year, has increased the Company's long-term debt (net of invested cash) as a
percentage of total capital to 40.6% at the end of the current quarter
compared with 34.6% at the end of last year's first quarter.
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Part II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
4.1 Specimen of Common Stock certificate (incorporated by reference to
Exhibit 4 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1981).
4.2 Preferred Stock Purchase Rights Agreement (the "Rights Agreement"),
dated June 10, 1986 between PVH and The Chase Manhattan Bank, N.A.
(incorporated by reference to Exhibit 3 to the Company's Quarterly
Report as filed on Form 10-Q for the period ended May 4, 1986).
4.3 Amendment to the Rights Agreement, dated March 31, 1987 between PVH
and The Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 4(c) to the Company's Annual Report on Form 10-K for the
year ended February 2, 1987).
4.4 Supplemental Rights Agreement and Second Amendment to the Rights
Agreement, dated as of July 30, 1987, between PVH and The Chase
Manhattan Bank, N.A. (incorporated by reference to Exhibit (c)(4)
to the Company's Schedule 13E-4, Issuer Tender Offer Statement,
dated July 31,1987).
4.5 Credit Agreement, dated as of December 16, 1993, among PVH, Bankers
Trust Company, The Chase Manhattan Bank, N.A., Citibank, N.A., The
Bank of New York, Chemical Bank and Philadelphia National Bank, and
Bankers Trust Company, as agent (incorporated by reference to
Exhibit 4.5 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1994).
4.6 First Amendment, dated as of February 13, 1995, to the Credit
Agreement dated as of December 16, 1993 (incorporated by reference
to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 1995).
4.7 Note Agreement, dated October 1, 1992, among PVH, The Equitable
Life Assurance Society of the United States, Equitable Variable
Life Insurance Company, Unum Life Insurance Company of America,
Nationwide Life Insurance Company, Employers Life Insurance Company
of Wausau and Lutheran Brotherhood (incorporated by reference to
Exhibit 4.21 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993).
4.8 Indenture, dated as of November 1, 1993, between PVH and The Bank
of New York, as Trustee (incorporated by reference to Exhibit 4.01
to the Company's Registration Statement on Form S-3 (Reg. No. 33-
50751) filed on October 26, 1993).
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*10.1 1987 Stock Option Plan, including all amendments through March 30,
1993 (incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 30,
1994).
*10.2 1973 Employees' Stock Option Plan (incorporated by reference to
Exhibit 1 to the Company's Registration Statement on Form S-8 (Reg.
No. 2-72959) filed on July 15, 1981).
*10.3 Supplement to 1973 Employees' Stock Option Plan (incorporated by
reference to the Company's Prospectus filed pursuant to Rule 424(c)
to the Registration Statement on Form S-8 (Reg. No. 2-72959) filed
on March 31, 1982).
*10.4 Phillips-Van Heusen Corporation Special Severance Benefit Plan
(incorporated by reference to the Company's Report on Form 8-K
filed on January 16, 1987).
*10.5 Phillips-Van Heusen Corporation Capital Accumulation Plan
(incorporated by reference to the Company's Report on Form 8-K
filed on January 16, 1987).
*10.6 Phillips-Van Heusen Corporation Amendment to Capital Accumulation
Plan (incorporated by reference to Exhibit 10(n) to the Company's
Annual Report on Form 10-K for the fiscal year ended February 2,
1987).
*10.7 Form of Agreement amending Phillips-Van Heusen Corporation Capital
Accumulation Plan with respect to individual participants
(incorporated by reference to Exhibit 10(1) to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31,
1988).
*10.8 Phillips-Van Heusen Corporation Supplemental Defined Benefit Plan,
dated January 1, 1991, as amended and restated on June 2, 1992
(incorporated by reference to Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1993).
*10.9 Phillips-Van Heusen Corporation Supplemental Savings Plan, dated as
of January 1, 1991 and amended and restated as of January 1, 1992
(incorporated by reference to Exhibit 10.29 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 2, 1992).
10.10 Asset Sale Agreement, dated January 24, 1995, Among the Company and
Crystal Brands, Inc., Crystal Apparel, Inc., Gant Corporation,
Crystal Sales, Inc., Eagle Shirtmakers, Inc., and Crystal Brands
(Hong Kong) Limited (incorporated by reference to Exhibit 1 to the
Company's Report on Form 8-K dated March 6, 1995).
*10.11 Agreement, dated as of April 28, 1993, between Bruce J. Klatsky,
Lawrence S. Phillips and the Company (incorporated by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 1995).
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*10.12 Non-Incentive Stock Option Agreement, dated as of April 28, 1993,
between the Company and Bruce J. Klatsky. Non-Incentive Stock
Option Agreement, dated as of December 3, 1993, between the Company
and Bruce J. Klatsky (reload of April 28, 1993 Non-Incentive Stock
Option Agreement) (incorporated by reference to Exhibit 10.12 to
the Company's Annual Report on Form 10-K for the fiscal year ended
January 29, 1995).
*10.13 Amendment, dated December 6, 1993, to the Agreement, dated April
28, 1993, between Bruce J. Klatsky, Lawrence S. Phillips and the
Company (incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 29, 1995).
*10.14 Consulting and non-competition agreement, dated February 14, 1995,
between the Company and Lawrence S. Phillips (incorporated by
reference to Exhibit 10.14 to the Company's Annual Report on Form
10-K for the fiscal year ended January 29, 1995).
*10.15 Performance Restricted Stock Plan, effective as of April 18, 1995
(incorporated by reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 29, 1995).
15. Acknowledgement of Independent Accountants.
27. Financial Data Schedule.
* Management contract or compensatory plan or arrangement required to be
identified pursuant to Item 14(a) of this report.
(b) Reports on Form 8-K filed during the quarter ended April 30, 1995.
Report on Form 8-K, Dated as of February 17, 1995, describing the
acquisition of the Apparel Group of Crystal Brands, Inc.
Amendment No. 1 to Report on Form 8-K, dated as of February 17, 1995, to
include certain financial statements and pro forma financial information
which were previously not available.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHILLIPS-VAN HEUSEN CORPORATION
Registrant
June 8, 1995 /s/ Emanuel Chirico
Emanuel Chirico, Controller
Vice President and
Chief Accounting Officer
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Exhibit 15
May 16, 1995
Stockholders and Board of Directors
Phillips-Van Heusen Corporation
We are aware of the incorporation by reference in the Registration Statement
(Form S-8, No. 33-59101), Registration Statement (Form S-3, No. 33-50751),
Registration Statement (Form S-8, No. 33-59602), Registration Statement (Form
S-3, No. 33-46770), Registration Statement (Form S-8, No. 33-38698), Post-
Effective amendment No. 1 to the Registration Statement (Form S-8, No. 33-
24057), Post-Effective amendment No. 2 to the Registration Statement (Form S-
8, No. 2-73803), Post-Effective amendment No. 4 to the Registration Statement
(Form S-8, No. 2-72959), Post-Effective amendment No. 6 to the Registration
Statement (Form S-8, No. 2-64564), and Post-Effective amendment No. 13 to the
Registration Statement (Form S-8, No. 2-47910), of Phillips-Van Heusen
Corporation of our report dated May 16, 1995 relating to the unaudited
condensed consolidated interim financial statements of Phillips-Van Heusen
Corporation which are included in its Form 10-Q for the three month period
ended April 30, 1995.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a
part of the registration statements or post-effective amendments prepared or
certified by accountants within the meaning of Section 7 or 11 of the
Securities Act of 1933.
ERNST & YOUNG LLP
New York, New York
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