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 November 2, 1997
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 November 28, 1997: 27,164,183
shares.
PHILLIPS-VAN HEUSEN CORPORATION
INDEX
PART I -- FINANCIAL INFORMATION
Independent Accountants Review Report.................................. 1
Condensed Consolidated Balance Sheets as of November 2, 1997 and
February 2, 1997...................................................... 2
Condensed Consolidated Statements of Operations for the thirteen
weeks and thirty-nine weeks ended November 2, 1997 and
October 27, 1996...................................................... 3
Condensed Consolidated Statements of Cash Flows for the thirty-nine
weeks ended November 2, 1997 and October 27, 1996..................... 4
Notes to Condensed Consolidated Financial Statements.................. 5-8
Management's Discussion and Analysis of Results of Operations
and Financial Condition............................................... 9-14
PART II -- OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K............................. 15-18
Signatures............................................................ 19
Exhibit--Acknowledgment of Independent Accountants.................... 20
Exhibit--Financial Data Schedule...................................... 21
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 November 2, 1997, and the related
condensed consolidated statements of operations for the thirteen and thirty-
nine week periods ended November 2, 1997 and October 27, 1996, and the related
condensed consolidated statements of cash flows for the thirty-nine week
periods ended November 2, 1997 and October 27, 1996. 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 February 2, 1997, 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 11, 1997, 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 February 2, 1997, 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
November 17, 1997
-1-
Phillips-Van Heusen Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share data)
UNAUDITED AUDITED
November 2, February 2,
1997 1997
ASSETS
Current Assets:
Cash, including cash equivalents of $1,600 and $1,861 $ 20,482 $ 11,590
Trade receivables, less allowances of $3,521 and $3,401 144,311 91,806
Inventories 316,780 237,422
Other, including deferred taxes of $13,575 and $4,300 30,621 22,140
Total Current Assets 512,194 362,958
Property, Plant and Equipment 118,945 137,060
Goodwill 117,902 120,324
Other Assets, including deferred taxes of $27,330 and
$16,617 48,247 37,094
$797,288 $657,436
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $107,000 $ 20,000
Accounts payable 50,530 36,355
Accrued expenses 89,074 55,754
Current portion of long-term debt 10,182 10,157
Total Current Liabilities 256,786 122,266
Long-Term Debt, less current portion 209,078 189,398
Other Liabilities 67,924 55,614
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 27,162,962 and 27,045,705 27,163 27,046
Additional Capital 116,856 116,296
Retained Earnings 119,481 146,816
Total Stockholders' Equity 263,500 290,158
$797,288 $657,436
See accompanying notes.
-2-
Phillips-Van Heusen Corporation
Condensed Consolidated Statements of Operations
Unaudited
(In thousands, except per share data)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 2, October 27, November 2, October 27,
1997 1996 1997 1996
Net sales $413,643 $391,245 $1,013,026 $978,712
Cost of goods sold 273,877 261,536 678,994 650,581
Gross profit 139,766 129,709 334,032 328,131
Selling, general and administrative expenses 113,803 102,817 315,118 295,538
Facility and store closing and restructuring
and other expenses - - 41,150 -
Income (loss) before interest and taxes 25,963 26,892 (22,236) 32,593
Interest expense, net 5,958 5,958 16,234 18,029
Income (loss) before taxes 20,005 20,934 (38,470) 14,564
Income tax expense (benefit) 5,453 5,899 (15,197) 3,957
Net income (loss) $ 14,552 $ 15,035 $ (23,273) $ 10,607
Net income (loss) per share $ 0.54 $ 0.56 $ (0.86) $ 0.39
Average shares outstanding 27,132 27,005 27,088 26,994
Cash dividends per share $ 0.0375 $ 0.0375 $ 0.1125 $ 0.1125
In the second quarter of 1997, the Company recorded a non-recurring pre-tax
charge of $57 million related principally to a series of actions the Company
has taken to accelerate the execution of its ongoing strategy to build its
brands. Such amount has been recorded in the statements of operations for
the thirty-nine weeks ended November 2, 1997 as follows:
Cost of goods sold $ 15,850
Facility and store closing and restructuring
and other expenses 41,150
57,000
Income tax benefit (20,200)
$ 36,800
See accompanying notes.
-3-
Phillips-Van Heusen Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited
(In thousands)
Thirty-Nine Weeks Ended
November 2, October 27,
1997 1996
OPERATING ACTIVITIES:
Net income (loss) $ (23,273) $ 10,607
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 19,297 22,395
Amortization of contributions from landlords (3,547) (4,711)
Write-off of assets 18,800 -
Deferred income taxes (19,988) -
Equity income in Pyramid Sportswear (1,050) (938)
Changes in operating assets and liabilities:
Receivables (52,505) (18,908)
Income tax refund - 16,987
Inventories (79,358) (22,348)
Accounts payable and accrued expenses 46,959 6,945
Other-net 12,926 1,802
Net Cash Provided (Used) By
Operating Activities (81,739) 11,831
INVESTING ACTIVITIES:
Property, plant and equipment acquired (12,882) (16,302)
Contributions from landlords 193 1,780
Net Cash Used By Investing Activities (12,689) (14,522)
FINANCING ACTIVITIES:
Proceeds from revolving line of credit
and long-term borrowings 113,505 26,411
Payments on revolving line of credit
and long-term borrowings (6,800) (14,280)
Exercise of stock options 677 282
Cash dividends (4,062) (4,051)
Net Cash Provided By Financing Activities 103,320 8,362
Increase In Cash 8,892 5,671
Cash at beginning of period 11,590 17,533
Cash at end of period $ 20,482 $ 23,204
See accompanying notes.
-4-
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
GENERAL
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the thirteen
and thirty-nine weeks ended November 2, 1997 are not necessarily indicative of
the results that may be expected for the year ended February 1, 1998 due, in
part, to seasonal factors. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report to Stockholders for the year ended February 2, 1997.
As part of its ongoing strategic and expense reduction initiatives, the
Company continues to evaluate its operations.
Certain reclassifications have been made to the condensed consolidated
financial statements for the thirty-nine weeks ended October 27, 1996 to
present that information on a basis consistent with the thirty-nine weeks
ended November 2, 1997.
INVENTORIES
Inventories are summarized as follows:
November 2, February 2,
1997 1997
Raw materials $ 17,332 $ 16,670
Work in process 19,531 13,208
Finished goods 279,917 207,544
Total $316,780 $237,422
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 $14,000 and $13,000 higher
than reported at November 2, 1997 and February 2, 1997, respectively, if the
FIFO method of inventory accounting had been used for the entire apparel
business.
-5-
The final 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.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted by the Company
on February 1, 1998. At that time, the Company will be required to change the
method currently used to compute net income per share and restate all prior
periods. Under the new requirements for calculating primary net income per
share, the dilutive effect of stock options will be excluded. Implementation
of the new requirements will not have a material effect on the calculation of
earnings per share.
FACILITY AND STORE CLOSING AND RESTRUCTURING AND OTHER EXPENSES
The results of operations for the thirty-nine weeks ended November 2, 1997
include a non-recurring pre-tax charge of $57 million ($36.8 million after-tax
or $1.36 per share) recorded in the second quarter related principally to a
series of actions the Company has taken to accelerate the execution of its
ongoing strategy to build its brands. Included in these actions were the
closing of approximately 150 additional outlet stores, repositioning the Gant
brand in the United States to be consistent with its highly successful
positioning in Europe and Asia, exiting the sweater manufacturing business and
restructuring warehousing and distribution facilities as well as other
logistical and administrative areas in order to reduce costs and improve
efficiencies. The components of the charge are summarized as follows:
Outlet stores $17,000
Gant brand repositioning 13,500
Exiting the sweater manufacturing business 13,000
Restructuring warehousing and distribution
facilities and other areas 13,500
Total charge, including $15,850 in cost of goods sold 57,000
Less income tax benefit (20,200)
Net charge $36,800
The retail outlet store closings have continued the elimination of the
Company's weakest and worst-trending stores. At the same time, it has
expedited the realignment of the Company's wholesale/retail sales mix and
generated positive cash flow as working capital is reduced. The charge
relates principally to asset write-offs, accruals of lease termination fees
and inventory markdowns (included in cost of goods sold) associated with store
closings.
-6-
Gant is successfully marketed as an upscale brand in 24 countries throughout
Europe, Canada, the Middle East and Asia. Included in this global network are
50 independent Gant retail stores in 19 countries, with 13 additional stores
scheduled to be opened in Europe this year. The repositioning of the Gant
brand in the United States encompassed new and upgraded products and the
consolidation of the worldwide design and sourcing functions -- all focused on
promoting consistency of product and quality throughout the world. It is a
major step forward in creating "one image" for this global brand. Enhancing
this image is the Gant Flagship Store on Fifth Avenue in New York City which
opened on November 20, 1997. The charge relates principally to asset write-
offs (primarily merchandise display fixtures) and inventory markdowns
(included in cost of goods sold) associated with the phase-out of old product
lines.
The Company's sweater manufacturing business is capital intensive and losing
money, and its operations are not a part of the Company's strategy of building
its brands. The charge relates principally to exiting the manufacturing
facility in Barranquitas, Puerto Rico, and includes asset write-offs
(primarily manufacturing equipment), accruals for employee termination and
severance costs and a write-down of inventory values (included in cost of
goods sold) associated with exiting the facility.
The Company's warehousing and distribution facilities were reconfigured,
including the closing of the Company's Atlanta, Georgia distribution facility,
to reduce costs and maximize efficiencies. Certain other logistical and
administrative areas were also restructured to streamline costs. The charge
relates principally to the write-off of equipment and accrual of employee
termination and severance costs.
In summary, the $57,000 pre-tax non-recurring charge consists of the
following:
Asset write-offs $18,800
Inventory markdowns and write-downs
(included in cost of goods sold) 15,850
Employee termination and severance
costs for approximately 700 employees 7,200
Lease and other obligations 10,350
Other 4,800
$57,000
-7-
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 and women'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 Thirty-Nine Weeks Ended
November 2, October 27, November 2, October 27,
1997 1996 1997 1996
Net sales-apparel $320,165 $291,222 $ 761,769 $714,647
Net sales-footwear 93,478 100,023 251,257 264,065
Total net sales $413,643 $391,245 $1,013,026 $978,712
Operating income (loss)-apparel* $ 28,340 $ 20,325 $ (15,725) $ 21,518
Operating income-footwear* 2,893 10,780 6,156 21,110
Total operating income (loss)* 31,233 31,105 (9,569) 42,628
Corporate expenses (5,270) (4,213) (12,667) (10,035)
Interest expense, net (5,958) (5,958) (16,234) (18,029)
Income (loss) before taxes $ 20,005 $ 20,934 $ (38,470) $ 14,564
* Operating income (loss) for the thirty-nine weeks ended November 2, 1997,
includes a $57,000 non-recurring pre-tax charge, of which $50,765 and
$6,235 relate to the Company's apparel and footwear businesses,
respectively.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
The results of operations for the thirty-nine weeks ended November 2, 1997
include a non-recurring pre-tax charge of $57 million recorded in the second
quarter related principally to a series of actions the Company has taken to
accelerate the execution of its ongoing strategy to build its brands. See
Notes to Condensed Consolidated Financial Statements.
The following statements of operations, segment data and discussion segregate
this non-recurring charge from the Company's ongoing operations.
Statements of Operations (In thousands)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
11/2/97 10/27/96 11/2/97 10/27/96
Net sales $413,643 $391,245 $1,013,026 $978,712
Cost of goods sold 273,877 261,536 678,994 650,581
Non-recurring charge - - (15,850) -
Gross profit before
non-recurring charge 139,766 129,709 349,882 328,131
SG&A expenses and non-recurring
charge 113,803 102,817 356,268 295,538
Non-recurring charge - - (41,150) -
Selling, general and
administrative expenses 113,803 102,817 315,118 295,538
Income before interest, taxes
and non-recurring charge 25,963 26,892 34,764 32,593
Interest expense, net 5,958 5,958 16,234 18,029
Income tax expense 5,453 5,899 5,003 3,957
Income from ongoing
operations before
non-recurring charge 14,552 15,035 13,527 10,607
Non-recurring charge, net
of tax benefit - - (36,800) -
Net income (loss) $ 14,552 $ 15,035 $ (23,273) $ 10,607
Segment Data (In thousands)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
11/2/97 10/27/96 11/2/97 10/27/96
Net sales-apparel $320,165 $291,222 $ 761,769 $714,647
Net sales-footwear 93,478 100,023 251,257 264,065
Total net sales $413,643 $391,245 $1,013,026 $978,712
Operating income-apparel $ 28,340 $ 20,325 $ 35,040 $ 21,518
Operating income-footwear 2,893 10,780 12,391 21,110
Total operating income 31,233 31,105 47,431 42,628
Corporate expenses (5,270) (4,213) (12,667) (10,035)
Interest expense, net (5,958) (5,958) (16,234) (18,029)
Income before taxes and
non-recurring charge $ 20,005 $ 20,934 $ 18,530 $ 14,564
-9-
Thirteen Weeks Ended November 2, 1997 Compared With Thirteen Weeks Ended
October 27, 1996
APPAREL
Net sales of the Company's apparel segment in the third quarter increased to
$320.2 million in 1997 compared with $291.2 million last year, an increase of
10.0%. Net sales of the Company's wholesale branded apparel increased 42% in
the current year's third quarter compared with last year's third quarter,
offset, in part, by the decrease in retail sales resulting from the Company's
strategic initiative to close outlet stores.
Gross margin on apparel sales was 32.9% in the third quarter of 1997 compared
with 31.7% in last year's third quarter. The increase was driven principally
by improved gross margins at Dress Shirts and Van Heusen. This was offset, in
part, by sales of golf apparel to pro shops, where significantly increased
competition continued to weaken gross margin percentages.
Selling, general and administrative expenses as a percentage of apparel sales
was 24.1% in the third quarter of 1997 compared with 24.8% in the third
quarter of 1996. These expenses increased in the third quarter of 1997
principally due to the launching of a significant advertising program.
However, as a percentage of apparel sales, these expenses decreased because of
the significantly higher sales volume in 1997 compared with 1996. Expense
levels are expected to increase as a percentage of net sales for the balance
of the year, as the Company continues to significantly increase its
advertising expense.
FOOTWEAR
Net sales of the Company's footwear segment in the third quarter were $93.5
million in 1997 compared with $100.0 million last year, a decline of 6.5%.
The decline was due principally to the decrease in retail sales resulting from
the Company's strategic initiative to close outlet stores and a reduction in
wholesale shipments due to a slowdown in footwear re-orders.
Gross margin on footwear sales was 36.8% in the third quarter of 1997 compared
with 37.2% in last year's third quarter. The decrease is due to markdowns
required because of lower than planned sell-throughs of selected Fall product.
As part of the Company's ongoing brand building strategy, the repositioning of
the Bass brand included upgrading its product line and increasing its
offerings of higher priced product. While Bass was able to sell-in such
product, the sell-throughs at retail of selected Fall product were
disappointing. To address this, markdowns were required which significantly
reduced gross margin. It is anticipated that this slowdown in sales of
selected Fall product will continue into the fourth quarter.
-10-
Selling, general and administrative expenses as a percentage of footwear sales
in the third quarter was 33.7% in 1997 compared with 26.4% in 1996. The
increase was due primarily to the launching of a significant advertising
program and additional brand investment in design. As in apparel, expense
levels are expected to increase as a percentage of net sales for the balance
of the year, as the Company continues to significantly increase its
advertising expense.
INTEREST EXPENSE
Interest expense in the third quarter was $6.0 million in 1997 and 1996.
INCOME TAXES
Income tax was estimated at a rate of 27.3% in the third quarter of 1997
compared with 28.2% in last year's third quarter. The tax rates reflect the
relationship of U.S. income taxed at normal rates versus tax exempted income
from operations in Puerto Rico.
CORPORATE EXPENSES
Corporate expenses in the third quarter were $5.3 million in 1997 compared
with $4.2 million in 1996. The increase is due solely to timing as expenses
are expected to be substantially flat for the year.
Thirty-Nine Weeks Ended November 2, 1997 Compared With Thirty-Nine Weeks Ended
October 27, 1996
APPAREL
Net sales of the Company's apparel segment in the first nine months were
$761.8 million in 1997 compared with $714.6 million last year, an increase of
6.6%. In the first nine months, net sales of the Company's wholesale branded
apparel increased 30% in 1997 compared with last year, offset, in part, by the
decrease in retail sales resulting from the Company's strategic initiative to
close outlet stores.
Gross margin on apparel sales before the non-recurring charge was 33.0% in the
first nine months of 1997 compared with 32.1% in last year's first nine
months. Virtually all of the Company's branded apparel businesses showed
gross margin improvement in the first nine months of 1997 compared with last
year as product upgrades and brand development began to take hold. These
initiatives have enabled the Company to command higher prices and take fewer
markdowns. The only exception was in sales of golf apparel to pro shops,
where significantly increased competition continued to weaken gross margin
percentages.
Selling, general and administrative expenses, before the non-recurring charge,
as a percentage of apparel sales in the first nine months was 28.4% in 1997
compared with 29.1% in 1996. These expenses increased in the first nine
months of 1997 principally due to the launching of a significant advertising
program in the third quarter. However, as a percentage of apparel sales,
these expenses decreased because of the significantly higher sales volume in
1997 compared with 1996. Expense levels are expected to increase as a
percentage of net sales for the balance of the year, as the Company
significantly increases its advertising expense.
-11-
FOOTWEAR
Net sales of the Company's footwear segment in the first nine months were
$251.3 million in 1997 compared with $264.1 million last year, a decline of
4.9%. The decline was due principally to the decrease in retail sales
resulting from the Company's strategic initiative to close outlet stores and a
reduction in wholesale shipments due to a slowdown in footwear re-orders.
Gross margin on footwear sales before the non-recurring charge was 39.1% in
the first nine months of 1997 compared with 37.2% last year. The improvement
in gross margin began in the second half of 1996 as the impact of the
Company's product upgrades and brand development began to take hold. In
addition, the difficulties experienced by Bass during the first half of last
year in restructuring its Puerto Rico manufacturing operations did not recur,
thus adding to margin improvement. These were offset, in part, by markdowns
required in the third quarter of this year because of lower than planned sell-
throughs of selected Fall product. It is anticipated that this slowdown in
sales of selected Fall product will continue into the fourth quarter.
Selling, general and administrative expenses, before the non-recurring charge,
as a percentage of footwear sales in the first nine months was 34.1% in 1997
compared with 29.3% in 1996. The increase was due principally to the
launching of a significant advertising program in the third quarter and
additional brand investment in design. As in apparel, expense levels are
expected to increase as a percentage of net sales for the balance of the year,
as the Company continues to significantly increase its advertising expense.
INTEREST EXPENSE
Interest expense in the first nine months was $16.2 million in 1997 compared
with $18.0 million last year. The decrease reflects lower average debt
resulting from decreased working capitals levels, principally inventory.
INCOME TAXES
Income tax was estimated at a rate of 27.0% in 1997 compared with last year's
rate of 27.2%. The tax rates reflect the relationship of U.S. income taxed at
normal rates versus tax exempted income from operations in Puerto Rico.
CORPORATE EXPENSES
Corporate expenses in the first nine months were $12.7 million in 1997
compared with $10.0 million in 1996. The increase is due solely to timing as
expenses are expected to be substantially flat for the year.
FACILITY AND STORE CLOSING AND RESTRUCTURING AND OTHER EXPENSES
The results of operations for the thirty-nine weeks ended November 2, 1997
include a non-recurring pre-tax charge of $57 million ($36.8 million after-tax
or $1.36 per share) recorded in the second quarter related principally to a
series of actions the Company has taken to accelerate the execution of its
ongoing strategy to build its brands. Included in these actions were the
closing of approximately 150 additional outlet stores, repositioning the Gant
brand in the United States to be consistent with its highly successful
positioning in Europe and Asia, exiting the sweater manufacturing business and
restructuring warehousing and distribution facilities as well as other
logistical and administrative areas in order to reduce costs and improve
efficiencies.
-12-
YEAR 2000
Like most corporations, the Company is heavily reliant on technology to
deliver services. As the millennium approaches, the Company is preparing all
of its computer systems to be Year 2000 compliant and is reviewing all systems
to ensure that they do not malfunction as a result of Year 2000. In this
process, the Company expects to both upgrade some systems and replace others.
The Company is currently evaluating the total cost of this effort and expects
that most of these costs will be expensed as incurred in compliance with
generally accepted accounting principles.
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 back to school and
fall selling seasons beginning in August 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 generally more profitable than
spring shipments. The slower spring selling season at wholesale combines with
retail seasonality to make the first fiscal 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.
Net cash used by operations in the first nine months was $81.7 million in 1997
compared with net cash provided by operations of $11.8 million in 1996. This
increase in cash used by operations is related to later than usual shipments
in the latter part of 1995 which, in turn, created a significant increase in
collections in the early part of 1996. This pattern did not repeat itself in
1996 resulting in lower relative collections in the early part of 1997.
Receivables were further impacted by wholesale apparels' strong sales growth
in this year's third quarter. Additionally, the seasonal build-up of
inventory in the prior year was extremely moderate compared with the more
usual build-up which occurred in the current year.
Capital spending in the first nine months was $12.9 million in 1997 compared
with $16.3 million last year. The Company anticipates overall capital
spending levels for 1997 to be flat compared with 1996 levels.
The Company has a credit agreement which includes a revolving credit facility
under which the Company may, at its option, borrow and repay amounts within
certain limits. The credit agreement also includes a letter of credit
facility. The total amount available to the Company under each of the
revolving credit and the letter of credit facilities is $250 million provided,
however, that the aggregate maximum amount outstanding at any time under both
facilities is $400 million. The Company believes that its borrowing capacity
under these facilities is adequate for its 1997 peak seasonal needs. The
ratio of total debt to total capital rose this year versus last year
principally because the impact of the restructuring charge (net outflow of
funds) began to be felt. This outflow should be offset next year by the
positive cash flow benefits derived from the restructuring initiatives.
-13-
* * *
******************************************************************************
* *
* SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF*
* 1995 *
* *
* Forward-looking statements in this Form 10-Q report, including without *
* limitation statements relating to the Company's plans, strategies, *
* objectives, expectations and intentions, are made pursuant to the safe *
* harbor provisions of the Private Securities Litigation Reform Act of 1995. *
* Investors are cautioned that such forward-looking statements involve risks *
* and uncertainties, including without limitation the following: (i) the *
* Company's plans, strategies, objectives, expectations and intentions are *
* subject to change at any time at the discretion of the Company; (ii) the *
* levels of sales of the Company's apparel and footwear products, both to *
* its wholesale customers and in its retail stores, and the extent of *
* discounts and promotional pricing in which the Company is required to *
* engage; (iii) the Company's plans and results of operations will be *
* affected by the Company's ability to manage its growth and inventory; and *
* (iv) other risks and uncertainties indicated from time to time in the *
* Company's filings with the Securities and Exchange Commission. *
* *
******************************************************************************
-14-
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
3.1 Certificate of Incorporation (incorporated by reference to Exhibit
5 to the Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 1977).
3.2 Amendment to Certificate of Incorporation, filed June 27, 1984
(incorporated by reference to Exhibit 3B to the Company's Annual
Report on Form 10-K for the fiscal year ended February 3, 1985).
3.3 Certificate of Designation of Series A Cumulative Participating
Preferred Stock, filed June 10, 1986 (incorporated by reference to
Exhibit A of the document filed as Exhibit 3 to the Company's
Quarterly Report as filed on Form 10-Q for the period ended May 4,
1986).
3.4 Amendment to Certificate of Incorporation, filed June 2, 1987
(incorporated by reference to Exhibit 3(c) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1988).
3.5 Amendment to Certificate of Incorporation, filed June 1, 1993
(incorporated by reference to Exhibit 3.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 30, 1994).
3.6 Amendment to Certificate of Incorporation, filed June 20, 1996
(incorporated by reference to Exhibit 3.1 to the Company's Report
on Form 10-Q for the period ended July 28, 1996).
3.7 By-Laws of Phillips-Van Heusen Corporation, as amended through
June 18, 1996 (incorporated by reference to Exhibit 3.2 to the
Company's Report on Form 10-Q for the period ended July 28, 1996).
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).
-15-
4.5 Notice of extension of the Rights Agreement, dated June 5, 1996,
from Phillips-Van Heusen Corporation to The Bank of New York
(incorporated by reference to Exhibit 4.13 to the Company's report
on Form 10-Q for the period ended April 28, 1996).
4.6 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).
4.7 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).
4.8 Second Amendment, dated as of July 17, 1995, to the Credit
Agreement dated as of December 16, 1993 (incorporated by reference
to Exhibit 4.7 to the Company's report on Form 10-Q for the period
ending October 29, 1995).
4.9 Third Amendment, dated as of September 27, 1995, to the Credit
Agreement dated as of December 16, 1993 (incorporated by reference
to Exhibit 4.8 to the Company's report on Form 10-Q for the period
ending October 29, 1995).
4.10 Fourth Amendment, dated as of September 28, 1995, to the Credit
Agreement dated as of December 16, 1993 (incorporated by reference
to Exhibit 4.9 to the Company's report on Form 10-Q for the period
ending October 29, 1995).
4.11 Fifth Amendment, dated as of April 1, 1996, to the Credit Agreement
dated as of December 16, 1993 (incorporated by reference to Exhibit
4.10 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 28, 1996).
4.12 Sixth Amendment, dated as of July 3, 1997, to the Credit Agreement
dated as of December 16, 1993 (incorporated by reference to Exhibit
4.12 to the Company's report on Form 10-Q for the period ending
August 3, 1997).
4.13 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).
4.14 First Amendment Agreement, dated as of June 24, 1996, to the Note
Agreement, dated as of October 1, 1992 (incorporated by reference
to Exhibit 4.14 to the Company's report on Form 10-Q for the period
ended July 28, 1996).
-16-
4.15 Second Amendment Agreement, dated as of July 15, 1997, to the Note
Agreement, dated as of October 1, 1992 (incorporated by reference
to Exhibit 4.15 to the Company's report on Form 10-Q for the period
ending August 3, 1997).
4.16 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).
10.1 1987 Stock Option Plan, including all amendments through April 29,
1997 (incorporated by reference to Exhibit 10.1 to the Company's
report on Form 10-Q for the period ended May 4, 1997).
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 Amendment to 1973 Employees' Stock Option Plan, effective as of
April 29, 1997 (incorporated by reference to Exhibit 10.12 to the
Company's report on Form 10-Q for the period ended May 4, 1997).
10.5 Phillips-Van Heusen Corporation Special Severance Benefit Plan, as
amended as of April 16, 1996 (incorporated by reference to Exhibit
10.4 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 28, 1996).
10.6 Phillips-Van Heusen Corporation Capital Accumulation Plan
(incorporated by reference to the Company's Report on Form 8-K
filed on January 16, 1987).
10.7 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).
10.8 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).
10.9 Form of Agreement amending Phillips-Van Heusen Corporation Capital
Accumulation Plan with respect to individual participants
(incorporated by reference to Exhibit 10.8 to the Company's report
on Form 10-Q for the period ending October 29, 1995).
-17-
10.10 Agreement amending Phillips-Van Heusen Corporation Capital
Accumulation Plan with respect to Bruce J. Klatsky (incorporated by
reference to Exhibit 10.13 to the Company's report on Form 10-Q for
the period ended May 4, 1997).
10.11 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).
10.12 Phillips-Van Heusen Corporation Supplemental Savings Plan,
effective as of January 1, 1991 and amended and restated as of
April 29, 1997 (incorporated by reference to Exhibit 10.10 to the
Company's report on Form 10-Q for the period ended May 4, 1997).
10.13 Non-Incentive Stock Option Agreement, dated as of December 3, 1993,
between the Company and Bruce J. Klatsky (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).
10.14 Phillips-Van Heusen Corporation 1997 Stock Option Plan, effective
as of April 29, 1997 (incorporated by reference to Exhibit 10.14 to
the Company's report on Form 10-Q for the period ending August 3,
1997).
10.15 Phillips-Van Heusen Corporation Senior Management Bonus Program for
fiscal year 1997.
15. Acknowledgement of Independent Accountants.
27. Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended November 2, 1997.
No reports have been filed on Form 8-K during the quarter covered by this
report.
-18-
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
December 16, 1997 /s/ Emanuel Chirico
Emanuel Chirico, Controller
Vice President and
Chief Accounting Officer
-19-
Exhibit 15
November 17, 1997
Stockholders and Board of Directors
Phillips-Van Heusen Corporation
We are aware of the incorporation by reference in
(i) Post-Effective Amendment No. 2 to the Registration Statement (Form
S-8, No. 2-73803), which relates to the Phillips-Van Heusen Corporation
Employee Savings and Retirement Plan,
(ii) Registration Statement (Form S-8, No. 33-50841) and Registration
Statement (Form S-8, No. 33-59602), each of which relate to the
Phillips-Van Heusen Corporation Associates Investment Plan for Residents
of the Commonwealth of Puerto Rico,
(iii) Registration Statement (Form S-8, No. 33-59101), which relates to
the Voluntary Investment Plan of Phillips-Van Heusen Corporation
(Crystal Brands Division),
(iv) Post-Effective Amendment No. 4 to Registration Statement (Form S-8,
No. 2-72959), Post Effective Amendment No. 6 to Registration Statement
(Form S-8, No. 2-64564), and Post Effective Amendment No. 13 to
Registration Statement (Form S-8, No. 2-47910), each of which relate to
the 1973 Employee's Stock Option Plan of Phillips-Van Heusen
Corporation, and
(v) Registration Statement (Form S-8, No. 33-38698), Post-Effective
Amendment No. 1 to Registration Statement (Form S-8, No. 33-24057) and
Registration Statement (Form S-8, No. 33-60793), each of which relate to
the Phillips-Van Heusen Corporation 1987 Stock Option Plan,
of our reports dated November 17, 1997, August 18, 1997 and May 22, 1997
relating to the unaudited condensed consolidated interim financial statements
of Phillips-Van Heusen Corporation that are included in its Forms 10-Q for the
thirteen week periods ended November 2, 1997, August 3, 1997 and May 4, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933, our reports are 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
-20-
Exhibit 10.15
PHILLIPS-VAN HEUSEN CORPORATION
SENIOR MANAGEMENT BONUS PROGRAM
For fiscal year 1997, Phillips-Van Heusen Corporation (the
"Company") implemented a senior management bonus program under
which 17 eligible senior management executives may receive a
bonus based on (a) for members of the Company's Operating
Committee and Corporate/Logistics Group, earnings targets for the
Company as a whole and (b) for division presidents, earnings
targets for their respective divisions.
Participants for the fiscal year were selected by the
Company during the first quarter of its fiscal year. In order to
remain eligible to receive a bonus, a participant must be
employed by the Company on the last day of the vesting period described below.
In the event of the death of a participant during the fiscal year,
his or her estate will receive the bonus, if any, payable to the
participant for the fiscal year, pro rated to reflect the portion
of the year worked by the participant.
Threshold, budget, and maximum earnings targets were set by
the Company during the first quarter of its fiscal year, and
bonus payments will be calculated in relation to the extent to
which earnings fall within the target range. The amount of the
bonus payment will be a varying percentage of a participant's
base salary.
The amount of a participant's bonus payment, if any, for the
fiscal year will be determined by the end of the first quarter of
the succeeding fiscal year. Payment of such bonus will be subject to a
one year vesting period, ending the last day of the succeeding fiscal year.
Interest will accrue on any unpaid bonus amounts beginning with the first
day of the second quarter of the succeeding fiscal year.
5
9-MOS
FEB-01-1998
NOV-02-1997
20,482
0
147,832
3,521
316,780
512,194
118,945
0
797,288
256,786
209,078
0
0
27,163
236,337
797,288
1,013,026
1,013,026
678,994
678,994
356,268
0
16,234
(38,470)
(15,197)
(23,273)
0
0
0
(23,273)
(.86)
(.86)
Property, Plant and equipment is presented net of accumulated depreciation.
Provision for doubtful accounts is included in other costs and expenses.
