SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549
                                                    

                                   FORM 10-K
                                                    

             Annual Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

For the fiscal year ended February 1, 1998        Commission file number: 1-724

                        PHILLIPS-VAN HEUSEN CORPORATION
            (Exact name of registrant as specified in its charter)

                            DELAWARE                      13-1166910
                   (State of incorporation)              (IRS Employer
                                                          Identification No.)
                          1290 Avenue of the Americas
                           New York, New York 10104
                   (Address of principal executive offices)

                                 212-541-5200
                        (Registrant's telephone number)
                                                          

          Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of Each Exchange
                     Title of Each Class              on Which Registered  
              Common Stock, $1.00 par value      New York Stock Exchange
              Preferred Stock Purchase Rights    New York Stock Exchange
                                                     

         Securities registered pursuant to Section 12(g) of the Act: 
                                      NONE           
                                                      

   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 and (2) has been subject to such filing
requirements for at least 90 days.

                               Yes  X   No     

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  (   )

   The aggregate market value of the voting stock of registrant held by
nonaffiliates of the registrant as of April 1, 1998 was approximately 
$322,000,000.
                                                     

   Number of shares of Common Stock outstanding as of April 1, 1998:
27,187,644.
                                                     

                      DOCUMENTS INCORPORATED BY REFERENCE

                                                    Location in Form 10-K
                        Document                    in which incorporated 

              Registrant's Proxy Statement               Part III
                for the Annual Meeting of
         Stockholders to be held on June 18, 1998


                                     * * *

******************************************************************************
                                                                             *
* SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF*
* 1995                                                                       *
*                                                                            *
* Forward-looking statements in this Form 10-K 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 are    *
* inherently subject to risks and uncertainties, many of which cannot be     *
* predicted with accuracy, and some of which might not be anticipated,       *
* 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.                                    *
*                                                                            *
******************************************************************************

                                    PART I
Item 1.  Business

   Unless the context otherwise requires, the term "Company" means Phillips-
Van Heusen Corporation ("PVH") and its subsidiaries ("Subsidiaries").  The
Company's fiscal year is based on the 52-53 week period ending on the Sunday
on or closest to January 31 and is designated by the calendar year in which
the fiscal year commences.  The Company derives market share data information
used herein from various industry sources.

Overview

   The Company is a leading marketer of men's, women's and children's apparel
and footwear, sold under five nationally recognized brand names -- Van Heusen,
Bass, Izod, Gant and Geoffrey Beene -- in the dress shirt, casual footwear,
and sportswear sectors. The Company is brand focused and manages the design,
sourcing and manufacturing of substantially all of its products on a brand by
brand basis. The Company's products include both dress and sport shirts and
casual shoes and, to a lesser extent, sweaters, neckwear, furnishings,
bottoms, outerwear and leather and canvas accessories. Approximately 23% of
the Company's net sales in fiscal 1997 were derived from sales of dress
shirts, 33% from sales of footwear and related products and 44% from sales of
other apparel goods, primarily branded sportswear. The Company markets its
products at a wholesale level through national and regional department store
chains and also directly to consumers through its own retail stores, generally
located in factory outlet retail malls. The Company believes that marketing
through the wholesale channel provides the opportunity to build brand equity
and represents its core business, and views its retail business as a
complement to its strong branded positions in the wholesale market. The
Company's strategy is to exploit and expand its branded position in the United
States and, on a longer-term basis, in the international arena, and the
Company believes that its portfolio of well recognized brands offers the
Company the best opportunity for realizing sales growth and enhancing profit
margins. 

   The Company's net sales and earnings before interest, taxes, depreciation
and amortization (exclusive of the non-recurring charges to earnings recorded
in fiscal 1997) were $1,350.0 million and $70.8 million, respectively, in
fiscal 1997 versus $1,359.6 million and $77.2 million, respectively, in fiscal
1996. Fiscal 1997 was a year of transition, as the Company continued to

                                     1

realign and strengthen its business and further reduce costs. The Company
continued its store closing program and closed its sweater manufacturing
operations, which resulted in a planned reduction of revenue, made a major
investment of $18.4 million in incremental advertising expenditures in the
second half of the year, and took non-recurring charges to earnings of $132.7
million in connection with certain restructuring expenses. The Company
believes that it made significant progress in its apparel segment where sales
and profitability increased, but it was disappointed with the results of its
footwear and related products segment. The Company believes that the increased
advertising expenditures and brand repositionings executed in 1997 position it
well to compete in its markets and expects the actions which gave rise to the
1997 charges to result in aggregate cost savings of over $40 million in the
period 1998 to 2000, and to exceed $20 million annually by 2000. 

   The Company's Van Heusen, Bass, Izod, Gant and Geoffrey Beene brands
collectively account for approximately 93% of the Company's net sales, with
approximately 73% of net sales being derived from Van Heusen, Bass and
Geoffrey Beene alone. Izod and Gant were acquired by the Company in 1995 and
subsequently repositioned in their markets. The Company believes that Izod and
Gant have substantial brand equity and position the Company well to capitalize
on the increasing popularity of branded sportswear. The Company owns four of
the five brands, with sales of the fifth -- Geoffrey Beene -- being under
licensing agreements with that designer. In addition, the Company recently
entered into a license agreement to market DKNY brand men's dress shirts. 

   The Company's brands enjoy national recognition in their respective sectors
of the market and share a rich heritage with between 40 and 120 years of
operating history. They represent sales leaders in their respective market
niches, from a dominant position in dress shirts, to a leading position in
casual footwear, to an increasingly important position in men's sportswear. In
the United States, Van Heusen is the best selling men's dress shirt and woven
sport shirt brand, and Geoffrey Beene is the best selling men's designer dress
shirt brand. The Company believes that its overall share of the United States
men's dress shirt market, including its branded, designer and private label
offerings, is the largest of any company and that it has a growing market
share, currently in excess of 32%, in the key department store channel. In the
United States, Izod products include the best selling men's sweater brand, one
of the best selling basic knit shirts and the number one ranked golf apparel
brand in pro shops and resorts. Gant represents the largest collection brand
in several countries in Europe, and is second only to 'Polo' in most of the
other European countries. Bass is the leading brand of men's, women's and
children's casual shoes at the moderate price range in the United States. 

   The Company markets its five premier brands to different segments of the
market, appealing to varied demographic sectors and a broad spectrum of
consumers. This diversity of the Company's brands is intended to minimize
competition among the brands. The Van Heusen brand, designed to target the
moderate price range, appeals to the relatively conservative 'middle American'
consumer. The typical Bass consumer is family oriented, views the Bass brand
as 'Americana', associated with a casual, outdoor lifestyle, and pays moderate
prices for his or her product. The Company's Izod brand is 'active inspired',
designed to sell on the main floor of department stores largely in knitwear
categories in the moderate to upper moderate price range. The Gant brand is
the Company's entry into collection sportswear and focuses on a traditional
consumer with refined taste who is prepared to purchase apparel in the higher
price range of the market. Geoffrey Beene is targeted toward a more fashion-
forward consumer who is prepared to purchase apparel in the upper moderate
price range. The Company's products are designed to appeal to relatively
stable demographic sectors and generally are not reliant on rapidly changing
fashion trends. 

   The Company believes that because of its strong brands it is well-
positioned to capitalize on several trends that have affected the apparel and
footwear sectors in recent years. These include the stabilization of the
department store sector with a smaller number of stronger players, among which
the Company ranks its most important customers; the continued importance of
branding as a measure of product differentiation; continued growth in the

                                        2

branded sportswear sector; and the stabilization of the dress shirt sector
after several years of modest decline. In addition, the recent lack of
momentum in the athletic shoe sector provides the Company with the opportunity
to capitalize on its Bass casual footwear products. 

   Substantially all of the Company's sales are made in the United States.
However, the Company believes that global name awareness is a key to the
creation of lasting brand equity and that it must pursue selective
opportunities to expand the sales of its brands internationally. Currently,
Gant is the Company's brand that is most developed internationally, with its
name recognition and sales substantially stronger in Europe than in the United
States. Gant products are sold in 35 countries, including in over 50 Gant
stores owned or franchised by the Company's licensing partner, Pyramid
Sportswear, in which the Company owns a minority interest with an option to
acquire 100%. Although the Van Heusen, Bass and Izod product lines also are
sold outside the United States, both directly and through licensees, their
international sales are small relative to Gant. Based on its experience with
Gant, the Company believes that opportunities exist to expand the sales of its
Van Heusen, Bass and Izod brands internationally. 

   Consistent with its strategy of developing its brands, the Company has
focused on the wholesale sector -- primarily department stores -- as the key
source of distribution for its products. The Company believes that the
wholesale channel generally, and department stores specifically, provide the
best means of promoting a fully conceptualized image for each of its brands
and of securing broad awareness of its products and image. The Company's
wholesale customers for branded and designer apparel include May Co.,
Federated, JC Penney, Proffits and Dillard's. The Company's customers for
footwear include Federated, May Co., Dillard's, Belk's and Nordstrom. The
Company's ten largest wholesale customers, accounting for over 60% of the
Company's fiscal 1997 sales to wholesale customers, have each been the
Company's customers for more than 25 years. The Company believes that its
customers rely on its ability to design, manufacture to exacting quality
standards and deliver on a timely basis commercially successful apparel and
footwear programs. 

   While focused on the wholesale sector, the Company also sells its products
directly to consumers in approximately 695 Company-owned stores located
primarily in factory outlet retail malls. The stores are operated in five
formats, matching each of the Company's premier brands -- Van Heusen, Bass,
Izod, Gant and Geoffrey Beene. Van Heusen and Bass, which have the broadest
national recognition, followed by Izod, are in the broadest range of malls.
Geoffrey Beene stores are located in malls where that brand has greater name
recognition. Gant stores are included in a limited number of the most
successful of the nation's malls. Historically, the Company participated in
the significant expansion of the factory outlet mall sector, capitalizing on
mall expansion to build a portfolio of approximately 1,000 stores and generate
significant sales and cash flow growth. However, this strategy left the
Company reliant on mall growth rather than on brand and market share
development as the primary driver of expansion, contributed to a deterioration
in the quality and stability of earnings and failed to strengthen the image
and brand equity in its major businesses. Since 1995, the Company has
significantly reduced the number of its retail locations and has closed its
least attractive stores to optimize its portfolio. The Company's retail
presence remains an important complement to its strong branded positions in
the wholesale market, facilitating product experimentation, the gathering of
market intelligence, effective inventory control and management of surplus
product. 

Strategy 

   The Company's strategy is to exploit and expand its branded position in the
United States and, on a longer-term basis, internationally. Elements of this
strategy include: 

   o  CAPITALIZE ON SPORTSWEAR OPPORTUNITY.  With a renewed strong focus by
   retailers on the importance of men's sportswear and the customer impact of

                                         3

   brand differentiation within that sector, the Company has actively sought
   to build a leading branded presence in this fragmented niche, acquiring
   existing sportswear brands (Izod and Gant) and expanding their presence in
   the wholesale sector. This renewed focus is in part attributable to the on-
   going move of employers towards casual dress policies, such as 'casual
   Fridays', and the increasing number of people who work at home. In
   addition, outside of the workplace, people's social activities generally
   focus on a more casual lifestyle. These trends present greater
   opportunities for the Company in sportswear. Sportswear now represents 66%
   of the Company's apparel segment sales, and it is expected that sportswear
   will continue to increase as a percentage of sales. 

   o  EXTEND BRAND PRODUCT RANGE.  The Company continues to broaden the
   product range of its brands, capitalizing on the name recognition, popular
   draw and discrete target customer segmentation of each of its major labels.
   For example, dress shirts are now marketed under the Bass name and
   sportswear under the Van Heusen name, and Izod recently has expanded its
   offerings to include products for the fall and holiday seasons, a step
   toward building a year-round brand. As part of the introduction of the
   European Gant collection in the United States, the Company expanded its
   sportswear offerings to include sport coats, outerwear, rainwear, swimwear
   and accessories. Brand differentiation is maintained with design,
   manufacturing and procurement functions managed at the brand level. 

   o  PROMOTE GLOBAL BRAND AND IMAGE.  The Company believes that over the long
   term the most successful brands will be those with a consistent imagery,
   market positioning and name recognition throughout the world's major
   consumer markets. The Company's longer-term goal is to develop its core
   brands into international consumer franchises. Currently all four of the
   Company's owned brands are distributed internationally, although only Gant,
   which in its niche is the leading market player in several European
   countries and is second only to 'Polo' in most of the other European
   countries, has achieved widespread brand recognition. The Van Heusen brand
   is licensed in 21 countries in North, Central and South America. In 1992,
   Bass began marketing its footwear internationally and is now selling
   limited amounts of footwear to retailers in Europe, Canada, South America,
   the Middle East, Africa and Asia. The Company plans to build on these bases
   and to project a consistent global image for each of its owned brands. 
   
   o  BUILD UPON ENHANCED ADVERTISING PRESENCE.  The Company launched
   advertising campaigns for its brands in the second half of fiscal 1997,
   which resulted in an increase in advertising expenditures by $18.4 million
   from fiscal 1996 to $37.8 million. Based upon dialogue with its wholesale
   customers, the Company believes that the campaigns were well received. The
   Company is committed to a continued advertising program to support and
   further develop the national and international recognition of its brands.
   The Company believes that ongoing communication with the consumer is a core
   ingredient for branded marketing success. 
   
   o  LEVERAGE CORE COMPETENCIES IN LOGISTICAL AND IT SUPPORT.  With primary
   focus on the more demanding wholesale customer nationwide and on securing
   and maintaining a strong presence on the department store floor, the
   Company has made significant investments to ensure the adequacy of its
   inventory replenishment programs, its capacity to monitor sales by SKU and
   margin and its ability to ensure its customers of timely product
   availability in a cost effective manner. 
   
   o  INCREASE OPERATING EFFICIENCIES.  The Company is committed to a cost
   reduction program and constantly explores alternative methods to achieve
   that objective. Given its size, purchasing power and ability to optimize
   manufacturing and outsourcing alternatives, the Company is in a position to
   achieve significant efficiencies in procurement and manufacturing. This is
   essential if the Company is to provide high levels of service and
   responsiveness to its wholesale customers, while maintaining control over
   costs and working capital. The Company has developed significant
   manufacturing flexibility by maintaining a range of Company-owned and third
   party manufacturing capacity available to it, while optimizing margins

                                         4

   through recourse to low cost non-United States manufacturing. The Company
   has announced a number of programs, including the contraction of its United
   States manufacturing and logistical infrastructure, to achieve significant
   cost savings. 
   
   o  OPERATE COMPLEMENTARY RETAIL OPERATIONS.  The Company's factory outlet
   retail stores provide a valuable complement to its wholesale presence,
   allowing for product experimentation, the gathering of market information,
   increasing the efficiency of inventory and surplus product management. The
   Company's stores sell a breadth of product not otherwise found in the
   Company's wholesale offerings. With a significant program of store closures
   in progress, the Company has been very focused on improving the
   profitability of the retail portfolio as a whole and maintaining its
   financial viability as a second channel of distribution. The Company's
   remaining retail stores are profitable and the average sales per square
   foot and inventory turn at such stores have significantly improved since
   1995, thereby positioning the Company's retail operations to generate
   increasing earnings and cash flows. 

Implementation of the Company's Strategies 

   Specific action steps taken beginning in 1995 and continuing into 1998 and
1999 with respect to the implementation of these strategies include (i) the
acquisition of the Izod and Gant brands; (ii) the reorganization of the
Company's non-dress shirt operations along brand lines versus a
wholesale/retail organizational structure; (iii) the complete repositioning of
Gant's domestic brand image to match its highly successful European brand
image; (iv) the launching of new, focused Van Heusen, Izod and Gant
advertising campaigns; (v) the closure of approximately 400 of the Company's
worst performing retail locations in a program that by the end of fiscal 1998,
after approximately 50 new store openings, will have reduced the retail
portfolio from approximately 1,000 locations to approximately 650; (vi) the
closure of domestic shirt manufacturing plants and its United States mainland
shoe manufacturing plant; (vii) the consolidation of the Company's domestic
warehousing and distribution facilities; and (viii) the closure of the
Company's sweater manufacturing operations, which were unprofitable, capital
intensive and did not match the Company's branded strategy. 

   These steps have had the effect of focusing the Company's attention and
resources on its core brands and have yielded strong and positive results,
with further benefits expected to continue over the next three years. The
Company's apparel operations (excluding sweater operations) saw net sales
increase 4.9% in fiscal 1997 to $882.0 million, representing 65% of total
fiscal 1997 net sales, gross margins improve from 31.3% to 32.9% and operating
income increase over 50% to $45.4 million in fiscal 1997 (after incremental
advertising expenses of $15.0 million) as compared to fiscal 1996. The
Company's net sales of wholesale branded apparel products increased 24% in
1997 to $387.2 million. With $6.0 million of annual savings already realized
from the closure of dress shirt manufacturing facilities in 1995 and 1996, the
further closures in manufacturing facilities and consolidation of logistical
infrastructure announced by the Company in 1997 are expected to result in
substantial future cash savings. 

   Within the dress shirt sector, as the benefits of brand development and
manufacturing reorientation have begun to be realized, estimated market share
in the department store channel in which the Company competes has increased to
31% from 26%, with sales increasing by 20% in fiscal 1997 as compared to
fiscal 1996, and operating margins and profitability more than doubling.
Approximately 60 underperforming Geoffrey Beene sportswear retail outlets have
been closed, resulting in significant increases in productivity and sales per
square foot in the remaining stores, and eliminating the losses experienced by
that business in 1996. Gant's 1997 repositioning in the United States was
implemented as the Company opened a new flagship store on Fifth Avenue in
Manhattan and increased by 34% the number of in-store shops in department
stores carrying the Gant collection, with a further increase of 30% planned by
department stores in 1998. Izod's wholesale sales doubled during 1997, with a 

                                         5


32% increase in the number of stores carrying the line. While Van Heusen's
retail sales experienced a small decline as poorly performing stores were
closed, operating profit increased 23%, reflecting the benefits of the
Company's programs. 

   The process of implementing the Company's strategic initiatives has not
been without disappointment. In the Bass business, fiscal 1997 net sales
declined 5% to $439.0 million, as a result of the Company's attempt to
reposition its Bass brand to higher price points, which proved overly
aggressive. While the higher price position was endorsed by the Company's
wholesale customers, the initiatives were not well executed and did not meet
with consumer support, resulting in an inventory build up at both the
wholesale level and in the Company's own factory outlet retail stores. To
protect its franchise and preserve its wholesale customer relationships, the
Company took substantial markdowns in its own retail stores and aggressively
financed the markdowns required by its wholesale customers to sell this
inventory. Line management responsible for the Bass business has been changed,
a decision was made to close the United States mainland manufacturing
facilities and the brand was returned to its historic positioning targeted in
the moderate price range as a family oriented, 'Americana'-associated casual
lifestyle brand. The result of these actions was a non-recurring charge to
fiscal 1997 earnings of $54.2 million and a decline in footwear and related
products operating income (before such charge) of $17.5 million to $15.4
million. While the Company is disappointed at the outcome of the Bass
repositioning effort, the Company believes that its current plans for Bass
will allow it to return to its historical levels of sales and profitability. 

   The implementation of these strategic initiatives has resulted in the
Company taking pre-tax charges of $27.0 million in fiscal 1995 and $132.7
million in fiscal 1997, inclusive of the $54.2 million of Bass related
charges. The Company believes that these initiatives have positioned it to
achieve significant improvements in sales, operating income and cash flow in
its apparel businesses and will position it further to compete cost
effectively in the future across all of its business sectors. Furthermore, the
Company believes that the initiatives favorably position the Company to
accelerate its strategy of building pre-eminent global apparel and footwear
brands. 

Company's Strengths 

   The key strengths of the Company are as follows: 
   
   o  MARKET LEADERSHIP POSITION.  The Company maintains a dominant position
   in men's dress shirts, a leading position in casual footwear and an
   increasingly important position in the fragmented men's sportswear market.
   The Company's strong market shares provide it with significant marketing
   strength relative to its competitors and attractive selling floor space at
   its department store customers. 
   
   o  HIGH BRAND AWARENESS.  The Company's five premier brands -- Van Heusen,
   Bass, Izod, Gant and Geoffrey Beene -- enjoy national recognition in their
   respective sectors of the market. Brand recognition is critical in the
   apparel and footwear industries, where strong brand names help define
   consumer preferences and drive department store floor space allocation. 
   
   o  MARKET SEGMENTATION.  The Company markets its five premier brands to
   different segments of the market, appealing to varied demographic sectors
   and a broad spectrum of consumers. Accordingly, the diversity of the
   Company's brands is intended to minimize competition among the brands. 
   
   o  STRENGTH AND BREADTH OF CUSTOMERS.  The Company markets its products to
   a broad spectrum of customers, including department stores, as well as
   directly to the consumer in its factory outlet retail stores. The Company's
   retail business is intended to serve as a complement to its strong branded
   positions in the wholesale market. The Company's ten largest wholesale
   customers, accounting for over 60% of the Company's fiscal 1997 sales to
   wholesale customers, have each been the Company's customers for more than

                                         6

   25 years. No single customer accounted for more than 6% of the Company's
   total sales in any of the last three years. 
   
   o  STRONG LOGISTICS.  Timely delivery and product quality are among the
   most important criteria used by retailers to evaluate suppliers. Because of
   the Company's relatively large size and vertical integration, it has the
   capacity to contend successfully with the demands of large retailers. The
   Company's investment in information technology, use of the Company's
   electronic data interchange system ('EDI'), automated warehousing and
   distribution operations and global sourcing network facilitate quick
   response to sales trends and inventory demands, maximizing its inventory
   flexibility and contributing to its strength in dealing with its large
   retail customers. 
   
   o  WORLDWIDE SOURCING ABILITY.  The Company has the capability to source
   effectively on a world-wide basis as a result of its structure and history
   in the apparel and footwear industries. The Company employs highly seasoned
   sourcing specialists for each brand. To support these specialists, the
   Company maintains a world-wide sourcing network, with offices in various
   countries, whose responsibilities include technical support, quality
   control and human rights monitoring. These sourcing specialists provide
   expertise in sourcing multiple classifications, which results in highly
   efficient and cost-effective inventory movement. As a result of the
   Company's sourcing network, the Company has developed strong and stable
   global relationships over the years. 
   
   o  STRONG MANAGEMENT.  The Company's management is composed of a loyal team
   of relatively young and experienced individuals. The average officer of the
   Company is under 50 and has spent 25 years in the apparel industry, 13 of
   those years being with the Company. The Company believes that its unique
   team has the experience and expertise to implement the objectives of the
   Company. 
   
   The Company was incorporated in the State of Delaware in 1976 as the
successor to a business begun in 1881, and, with respect to Bass, a business
begun in 1876. The Company's principal executive offices are located at 1290
Avenue of the Americas, New York, New York 10104; its telephone number is
(212) 541-5200. 

Business

  Dress Shirts 

   The Company's dress shirts currently are marketed principally under the Van
Heusen and Geoffrey Beene brands. These two brands are by far the leaders in
men's dress shirts in their respective markets, finishing calendar 1997 with a
combined market share in the key United States department store sector of 31%,
an increase of five percentage points over the prior year. In addition, the
Company markets its dress shirts under the Bass and Etienne Aigner brands, as
well as providing private label dress shirts. The Company recently entered
into a license agreement pursuant to which it will market men's dress shirts
under the DKNY brand beginning with the holiday season in 1998, thereby
permitting the Company further to leverage its competencies and resources. 

   While the dress shirt sector in the United States has undergone
considerable change and some contraction over the last several years, the
Company believes that the sector has started to demonstrate stability. Over
the last three years, the Company has increased both the level of its sales in
dollar terms and its overall market share and the Company believes that the
core strength of its brands provides it with a strong foundation for future
market development. 

   In the past year, the Company made considerable progress not only with
respect to the increase in estimated market share, which generated a
substantial increase in sales, but also with respect to cost and working
capital. With the benefits of the first of the Company's manufacturing and
logistics rationalization strategies beginning to be felt, profitability in

                                        7

this core area of the Company's business benefited from approximately $6.0
million of achieved cost savings, and gross margins increased 2.7 percentage
points to 24.3% and operating profit more than doubled to $19.6 million. In
addition, the Company improved its inventory turn significantly in this sector
of its business, reflecting a better logistics function and the strength of
its underlying product and appeal to the end consumer. 

   Van Heusen dress shirts have provided a strong foundation for the Company
for most of its 117-year history and now constitute the best-selling men's
dress shirt brand in the United States. The Van Heusen dress shirt is marketed
at wholesale in the moderate price range to major department stores and men's
specialty stores nationwide, including May Co., JC Penney, Mervyns and
Federated. Its primary competitors are 'Arrow' and private label shirts. 

   The Company markets Geoffrey Beene men's dress shirts under a license
agreement with that designer, which is up for renewal in 2001. Geoffrey Beene
dress shirts are the best-selling men's designer dress shirts in the United
States. In fiscal 1997, Geoffrey Beene garnered the largest market share of
all dress shirt brands in the department store channel of distribution.
Geoffrey Beene dress shirts are sold in the upper moderate price range to
major department stores and men's specialty stores nationwide, including
Federated, May Co., Proffits and Mercantile. Geoffrey Beene dress shirts
compete with those of other designers, including 'Perry Ellis' and 'Ralph
Lauren Polo'. 

   Bass dress shirts are marketed at wholesale to major department stores,
including Federated, Mercantile and Dayton-Hudson, and are sold in the upper
moderate price range. This is a small but successful example of expanding an
existing product line. DKNY dress shirts will be sold in the better price
range and targeted to younger and more contemporary customers. 

   Private label programs offer the retailer the ability to create its own
line of exclusive merchandise and give the retailer control over distribution
of the product. Private label represents an opportunistic business which
leverages the Company's strong design and sourcing expertise. The Company's
customers work with the Company's designers to develop shirts in the styles,
sizes and cuts which the customers desire to sell in their stores with their
particular store names or private labels. Private label programs offer the
consumer quality product and offer the retailer the opportunity to enjoy
higher margins and product exclusivity. Private label products, however, do
not have the same level of consumer recognition as branded products and
private label manufacturers do not generally provide retailers with the same
breadth of services and in-store sales and promotional support as branded
manufacturers. The Company markets at wholesale men's dress shirts under
private labels to major national retail chains and department stores,
including JC Penney, Sears, May Co., Target and Federated. The Company
believes it is one of the largest marketers of private label dress shirts in
the United States. 

  Sportswear 

   Several trends have affected the domestic and global apparel business in
recent years, including the increase in casual dress in and away from the
workplace. The retail dollar volume for men's casual business attire grew 7.3%
annually between 1991 and 1997, and the retail dollar volume of women's casual
business attire increased 4.9% annually in the same period, in comparison to
the retail dollar volume for total tailored apparel, which grew 2.1% annually.
In 1997, 65% of the retail dollars spent on casual and tailored apparel was
attributed to casual apparel. The Company has sought to capitalize on this
trend and sportswear sales now account for 66% of the Company's apparel
segment sales. The Company's sportswear products currently are marketed
principally under the Van Heusen, Izod, Izod Club, Gant and Geoffrey Beene
brands. 

   Van Heusen is the best-selling woven sport shirt brand in the United
States. Van Heusen apparel also includes knit sport shirts, sweaters and golf

                                         8

apparel. Like Van Heusen branded dress shirts, Van Heusen branded sport shirts
and sweaters are marketed at wholesale in the moderate price range to major
department stores and men's specialty stores nationwide, including JC Penney,
Mervyns, May Co. and Proffits. The Company believes that the main floor
classification business in department stores is becoming increasingly
important and that there are few important brands in that category. As a
result, the Company believes that the success of Van Heusen dress shirts in
department stores where it is part of the stores' classification offerings
supports its presence in the department stores' sportswear classification
offerings and presents a significant opportunity for further development. 

   During 1997, the Company's Van Heusen sport shirt product presentation was
improved through new packaging and a modest program to reposition the brand
was implemented, all in an effort to improve its share of floor space in
better department stores. The Company ascribes the increased sales at
wholesale to a combination of retailers' increased focus on the classification
sportswear sector and to the success of these programs. 

   The product mix targeted for Van Heusen outlet stores is intended to
satisfy the key apparel needs of men from dress furnishings to sportswear and
of women for sportswear. Van Heusen stores' merchandising strategy is focused
on achieving a classic and/or updated traditional look in a range of primarily
moderate price points. Target customers represent the broadest spectrum of the
American consumer. The Company closed a number of the worst performing Van
Heusen retail outlets during fiscal 1997, resulting in a small reduction in
sales, but a significant increase in profit margin in its retail operations. 

   Izod occupies a major presence in department stores as a main floor
lifestyle classification sportswear brand. Izod branded apparel products
consist of active inspired men's and women's sportswear, including Izod
sweaters (the best-selling men's sweater brand in the United States), knitwear
(one of the best-selling basic knit shirts in the United States), slacks,
fleecewear and microfiber jackets. These products are marketed in the moderate
to upper moderate price range in major department store locations, including
May Co., Federated, JC Penney, Mercantile and Belk's. 

   The Company continues to upgrade its growing product line from the core of
the pique knit shirt and has expanded its wholesale customer base
significantly. During fiscal 1997, Izod doubled its wholesale revenues from
the previous fiscal year. In spring of 1997, the Company sold its Izod
products in more than 1,700 department store locations; by spring 1998, the
Company expects to have an Izod presence in approximately 2,300 department
store locations. The Company has expanded the Izod brand to include apparel
appropriate for the fall and winter seasons, including long-sleeve knit
shirts, fleecewear and microfiber jackets. 

   The Company's Izod outlet stores market Izod branded men's and women's
active-inspired sportswear. Target customers are generally brand loyalists who
expect quality and fashion at reasonable prices. 

   Izod Club branded golf apparel is marketed to approximately 4,000 golf pro
shops and resorts across the United States in the better price range and is
ranked as the number one golf brand in that channel of distribution. Products
marketed in the Izod Club men's and women's collections include knit shirts,
sweaters, bottoms, outerwear, windshirts, headwear and hosiery. Izod Club
women's products have been sold at Nordstrom stores since 1997 and since 1998
at Dayton Hudson department stores. Izod Club has developed a professional
golf tournament strategy, which was highlighted by its management of the
merchandising efforts at the 1997 U.S. Open, USGA Senior's Open, and USGA
Women's Open. In addition, four of the top 10 women golf professionals on the
LPGA tour wear Izod Club golf apparel, making the Izod Club brand highly
visible on the golf course and on televised LPGA events. In 1997, Izod Club
was reorganized into Izod and all of Izod Club's operational functions, other
than its sales function, were integrated with Izod's operational functions. 

                                         9


   The Gant brand is the Company's only lifestyle collection of men's
sportswear that includes woven and knit tops, bottoms and outerwear. For the
past decade, Gant has been successfully marketed internationally as an upscale
brand (competing head-to-head with 'Polo') through a license to the Company's
affiliate, Pyramid Sportswear. Gant's international sales have experienced
significant growth annually for the last decade and the international business
has developed the critical mass to serve as a fully developed stable business.
It is now the largest collection brand in several countries in Europe, and is
second only to 'Polo' in most of the other European countries. Gant products
are sold in 35 countries throughout Europe, Canada, the Middle East and Asia,
including in over 50 Gant retail stores, with 13 additional stores scheduled
to be opened in Europe in 1998. The Company receives a royalty on the sales of
Gant products by Pyramid Sportswear, and also owns 25% of Pyramid Sportswear
with an option to purchase the balance beginning in 2000. 

   Commencing in 1997, as a part of the Company's ongoing strategy to build
its brands, the Company undertook a series of measures to reposition the Gant
brand in the United States as a pre-eminent global sportswear collection. The
repositioning of the Gant brand in the United States has encompassed new,
expanded 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. Serving as a
showcase of Gant products for retail customers and building brand recognition
among consumers, the store carries a wide range of Gant brand products at
higher quality and better price points. Part of this repositioning has been an
increased effort to encourage wholesale customers to present the Gant
collection in separate in-store shops. The number of Gant in-store shops more
than doubled from 156 in 1995 to 441 in 1997. In 1998, Gant will be offered as
a collection in selected Federated stores, including Macy's East and West. 

   The Company's limited number of Gant outlet stores offer fine quality knit
and woven shirts, sweaters, pants, shorts, outerwear and accessories for men.
The Gant line incorporates several sportswear 'lifestyles'. Included are
spectator-active and sportswear products, all of which maintain detailed
construction and high quality fabrics. 

   The Company's Geoffrey Beene stores offer dress and sport shirts, neckwear,
furnishings, outerwear, bottoms and sportswear. Through their product mix, the
Geoffrey Beene stores seek to meet the full needs of men's wardrobes
(excluding suits) from dress furnishings to sportswear. The merchandising
strategy is focused on an upscale, fashion forward consumer who is prepared to
purchase apparel in the upper moderate price range. Most Geoffrey Beene stores
also offer a full line of women's casual apparel bearing the Geoffrey Beene
name, which accounts for more than one-third of the Company's Geoffrey Beene
outlet business. The Company offers Geoffrey Beene products in its stores
under license agreements which expire in 1999. The Company is negotiating for
a renewal of these agreements. 

   Geoffrey Beene products are styled to be more fashion-forward than the
Company's Van Heusen brand, and the Geoffrey Beene brand name recognition is
more geographically focused, versus the broader based familiarity with the Van
Heusen, Bass or Izod labels. In recognition of this, the Company has closed a
significant number of its Geoffrey Beene retail outlets in parts of the
country where brand recognition was not strong, which has resulted in a
substantial improvement in store productivity and inventory turn and a
significant increase in profitability. 

   The Company's extensive resources in both product development and sourcing
have permitted it to market successfully private label sport shirts to major
retailers, including K-Mart, Wal-Mart, Target, Sears, JC Penney and Lord &
Taylor. Private label golf apparel is marketed to traditional department and
specialty stores, national retail chains and catalog merchants. The Company
also markets private label shirts to companies in service industries, 

                                      10


including major airlines and food chains. The Company believes it is one of
the largest marketers of private label sport shirts in the United States. 

Footwear and Related Products 

   The Company manufactures, procures for sale and markets a broad line of
traditional men's, women's and children's casual shoes and related products
under the Bass brand in the moderate price range. The Bass brand has a very
strong heritage since its formation in 1876 and has been an icon to a wide
spectrum of consumers. A number of Bass' trademarks are highly recognized, the
most important ones being Weejun and Sunjun. Bass is the leading brand of
men's, women's and children's casual shoes at the moderate price range in the
United States. Based on the number of pairs sold, Bass branded footwear has a
3.4% share of the upper moderate casual shoe market. 

   The Company launched an aggressive repositioning program at Bass during
fiscal 1997 intended to capitalize on its broad name recognition and
reputation. Based on extensive market research and encouragement from its
wholesale customers, the Company implemented significant price increases
without, however, the depth of prior marketing and brand image support that
such a program requires. The repositioning was not well-executed and did not
meet with consumer support. This misstep in execution resulted in a
significant build up in inventory at both the wholesale customer and Company-
owned retail store levels, as the end-consumer resisted the price changes. The
Company elected to correct this inventory build up as expeditiously as
possible through inventory markdowns and allowances to wholesale customers,
and to restore Bass to its historical price point and image. While the Company
continues to believe that the Bass brand is capable of sustaining higher end
product pricing and a more upmarket image, the experience in fiscal 1997 has
resulted in the determination to undertake any such repositioning in a very
gradual and incremental fashion. The Company does not believe that the
underlying brand equity built up over 120 years has been weakened. 

   Bass' traditional wholesale customers are major department stores and
specialty shoe stores throughout the United States, including Federated, May
Co., Dillard's, Belk's and Nordstrom. In 1992, Bass began marketing its
footwear internationally and is now selling limited amounts of footwear to
retailers in Europe, Canada, South America, the Middle East, Africa and Asia. 

   Bass' merchandising strategy is focused on achieving an American classic
look that emphasizes the Bass style -- the classic and traditional designs
Bass has marketed for more than a century -- representing the 'Bass
Lifestyle'. All footwear is designed in-house, regardless of source, to
maintain tight control of the styling and quality offered by the brand. 

   The Company's Bass factory outlet retail stores typically carry an
assortment of Bass shoes and accessories for men, women and children, in the
moderate price range, as well as complementary products not sold to wholesale
customers. Bass sportswear apparel for men, women and children is marketed in
approximately 70% of the Company's Bass stores. 

Competition 

   The apparel industry is highly competitive due to its fashion orientation,
its mix of large and small producers, the flow of domestic and imported
merchandise and the wide diversity of retailing methods. The Company's apparel
wholesale divisions experience competition in branded, designer and private
label products. Some of the larger dress shirt competitors include: Bidermann
Industries ('Arrow' brand); Salant Corporation ('Perry Ellis' and 'John Henry'
brands); Smart Shirt (private label shirt division of Kellwood); Capital
Mercury (private label shirts); and Oxford Industries (private label shirts).
The dominance of the Company's dress shirts has increased, in part
attributable to the decrease in sales of the 'Arrow' brand of Bidermann
Industries. The Geoffrey Beene brand has increased its lead in sales over
other dress shirt brands, augmenting its dominance in department stores. Some
of the larger sportswear competitors include: Warnaco ('Chaps' brand); Nautica

                                        11

Enterprises ('Nautica' brand); Polo/Ralph Lauren L.P. ('Polo' brand); Ashworth
and Tommy Hilfiger. 

   The shoe industry is characterized by fragmented competition. Consequently,
retailers and consumers have a wide variety of choices regarding brands, style
and price. However, over the years, Bass has maintained its important position
in the traditional casual footwear market, and few of its competitors have the
significant brand recognition of Bass. The Company's primary competitors
include Dexter, Rockport, Eastland, Sperry and Sebago. The Company believes,
however, that it manufactures a more extensive line of footwear for both
genders and children and in a broader price range than any of its competitors.


   Based on the variety of the apparel and footwear marketed by the Company,
the various channels of distribution it has developed, its logistics and
sourcing expertise, and the strength of the Company's brands, the Company
believes it is particularly well-positioned to compete in the apparel and
footwear industries. 

Merchandise Design and Product Procurement 

   Each brand employs its own designers, product line builders and separate
merchandise product development groups, creating a structure that focuses on
the brand's special qualities and identity. These designers, product line
builders and merchants consider consumer taste, fashion trends and the
economic environment when creating a product plan for a particular season for
their brand. Each brand also employs sourcing specialists who focus on the
manufacturing and sourcing needs of the particular brand. In addition, the
Company operates a world-wide network providing technical support and quality
control to those sourcing specialists. The apparel and footwear merchandise
manufactured by the Company, as well as the vast majority of its sourced
products, are planned, designed and sourced through the efforts of its various
merchandise/product development and sourcing groups. 

   The process from initial design to finished product varies greatly, but
generally spans nine to 12 months prior to each selling season. Apparel and
footwear product lines are developed primarily for two major selling seasons,
spring and fall. However, certain of the Company's product lines require more
frequent introductions of new merchandise. Raw materials and production
commitments are generally made four to 12 months prior to production and
quantities are finalized at that time. In addition, sales are monitored
regularly at both the retail and wholesale levels and modifications in
production can be made both to increase or reduce availability. The Company's
substantial efforts in the area of quick response to sales trends (through the
expanded use of EDI) enhance its inventory flexibility and reduce production
overruns. EDI provides a computer link between the Company and its wholesale
customers that enables both the customer and the Company to track sales,
inventory and shipments; currently 65% of the Company's total invoices are
handled using EDI. Use of the system also reduces the amount of time it takes
a customer to determine its inventory needs and order replenishment
merchandise and for the Company to respond to the customer's order. 

   Dress shirts are manufactured in the Company's domestic apparel
manufacturing facilities in Alabama and Arkansas as well as in Costa Rica,
Guatemala and Honduras. However, most of the Company's dress shirts and
substantially all of its sportswear are sourced and manufactured to the
Company's specifications by independent manufacturers in the Far East, Middle
East and Caribbean areas who meet its quality and cost requirements. Footwear
is manufactured in the Company's factories located in Puerto Rico and the
Dominican Republic. However, approximately 80% of the Company's footwear is
sourced to independent manufacturers which meet its quality and cost
requirements, principally located in Brazil and the Far East. 

   The Company's foreign offices, located principally in Hong Kong, Taiwan,
the Philippines, Singapore and throughout Central America, enable the Company
to monitor the quality of the goods manufactured by, and the delivery

                                        12

performance of, its suppliers. The Company continually seeks additional
suppliers throughout the world for its sourcing needs and places its orders in
a manner designed to limit the risk that a disruption of production at any one
facility could cause a serious inventory problem. The Company has not
experienced significant production delays or difficulties in importing goods.
However, from time to time the Company has incurred added costs by shipping
goods by air freight in order to meet certain delivery commitments to its
customers. The Company's purchases from its suppliers are effected through
individual purchase orders specifying the price and quantity of the items to
be produced. Generally, the Company does not have any long-term, formal
arrangements with any of the suppliers which manufacture its products. The
Company believes that it is the largest customer of many of its manufacturing
suppliers and that its long-standing relationships with its suppliers provide
the Company with a competitive advantage over its competitors. No single
supplier is critical to the Company's production needs, and the Company
believes that an ample number of alternative suppliers exist should the
Company need to secure additional or replacement production capacity. 

   The Company purchases raw materials, including shirting fabric, buttons,
thread, labels, yarn, piece goods and leather, from domestic and foreign
sources based on quality, pricing and availability (including quotas and
duties). The Company believes it is one of the largest procurers of shirting
fabric worldwide and purchases the majority of its shirting fabric from
overseas manufacturers, due, principally, to decreased domestic production.
The Company monitors factors affecting textile production and imports and
remains flexible in order to exploit advantages in obtaining materials from
different suppliers and different geographic regions. Rawhide leather for Bass
footwear is procured mainly from domestic suppliers. Bass monitors the leather
market and makes purchases on the spot market or through blanket contracts
with suppliers as price trends dictate. No single supplier of raw materials is
critical to the Company's production needs and the Company believes that an
ample number of alternative suppliers exist should the Company need to secure
additional or replacement raw materials. 

Advertising and Promotion 

   The Company has used national advertising to communicate the Company's
marketing message since the 1920s. In recent years, the Company focused on
cooperative advertising, through which the Company and individual retailers
combine their efforts and share the cost of store radio, television and
newspaper advertisements and in-store advertising and promotional events
featuring the Company's branded products. While the Company believes that this
effort has helped create strong brand awareness and a high recognition factor
among American consumers, as well as contributed to the overall success of the
Company, in fiscal 1997 the Company increased its media marketing activities
in an aggressive fashion by also communicating its brand position directly to
the American consumer. The Company's advertising expenses increased by $18.4
million to $37.8 million. 

   The Company advertises primarily in national print media, including
fashion, entertainment/human interest, business, men's, women's and sports
magazines. The Company continues its efforts in cooperative advertising, as it
believes that brand awareness and in-store positioning is further supplemented
by the Company's continuation of such a program. 

   In the Company's retail sector, the Company relies upon local outlet mall
developers to promote traffic for their centers. Outlet center developers
employ multiple formats, including signage (highway billboards, off-highway
directional signs, on-site signage and on-site information centers), print
advertising (brochures, newspapers and travel magazines), direct marketing (to
tour bus companies and travel agents), radio and television, and special
promotions. 


                                         13


Trademarks 

   The Company has the exclusive right to use the Izod and Gant names in most
countries, the Van Heusen name in North, Central and South America as well as
the Philippines, and the exclusive worldwide right to use the Bass name for
footwear. The Company has registered or applied for registration of numerous
other trademarks for use on a variety of items of apparel and footwear and
related products and owns many foreign trademark registrations. It presently
has pending a number of applications for additional trademark registrations.
The Company regards its trademarks and other proprietary rights as valuable
assets and believes that they have significant value in the marketing of its
products. 

Licensing 

   The Company has various agreements under which it licenses the use of its
brand names. The Company is licensing the Van Heusen name for apparel products
in Canada and in most of the South and Central American countries. In the
United States, the Company currently licenses the use of the Van Heusen name
for various products that it does not manufacture or source, including boy's
apparel, sleepwear, eyeglasses, neckwear and other accessories and is
exploring the possibility of licensing the name for use on other products. The
Company licenses the use of the Gant name for a complete range of sportswear
and footwear in Europe, Australia, New Zealand and the Far East. (During 1995,
the Company acquired 25% of the Gant licensee, Pyramid Sportswear, and has an
option to purchase the remaining 75% beginning in the year 2000.) The Company
also licenses the use of the Gant name for dress furnishings in the United
States. The Company licenses the use of the Izod name for infants, toddlers
and children's clothing, as well as 'big and tall' apparel, in the United
States, and for men's and women's sportswear in Canada. 

   The Company plans to continue expanding its worldwide marketing efforts,
utilizing licenses and other techniques for all its brands, especially under
the Izod and Gant trademarks. A substantial portion of sales by its domestic
licensing partners are made to the Company's largest customers. While the
Company has significant control over its licensing partners' products and
advertising, it relies on its licensing partners for, among other things,
operational and financial control over their businesses. In addition, failure
by the Company to maintain its existing licensing alliances could adversely
affect the Company's financial condition and results of operations. Although
the Company believes in most circumstances it could replace existing licensing
partners if necessary, its inability to do so for any period of time could
adversely affect the Company's revenues both directly from reduced licensing
revenue received and indirectly from reduced sales of the Company's other
products. To the extent the equity and awareness of each of the Company's
brands grows, the Company expects to gain even greater opportunities to build
on its licensing efforts. 

Tariffs and Import Restrictions 

   A substantial portion of the Company's products is manufactured by
contractors located outside the United States. These products are imported and
are subject to United States Customs laws, which impose tariffs as well as
import quota restrictions established by the United States government.
However, a significant portion of the Company's apparel products is imported
from its Caribbean Basin manufacturing facilities and is therefore eligible
for certain duty-advantaged programs commonly known as '807 Programs'. While
importation of goods from certain countries from which the Company obtains
goods may be subject to embargo by United States Customs authorities if
shipments exceed quota limits, the Company closely monitors import quotas and
can, in most cases, shift production to contractors located in countries with
available quotas. The existence of import quotas has, therefore, not had a
material adverse effect on the Company's business. 

                                        14


Employees

   As of February 1, 1998, the Company employed approximately 8,450 persons on
a full-time basis and approximately 3,400 persons on a part-time basis. 
Approximately 5% of the Company's 11,850 employees are represented for the
purpose of collective bargaining by three different unions.  Additional
persons, some represented by these three unions, are employed from time to
time based upon the Company's manufacturing schedules and retailing seasonal
needs.  The Company believes that its relations with its employees are
satisfactory.  As a result of the restructuring and reorganization of the
Company's operations over the past three years, the number of the Company's
employees will have been reduced by approximately 3,400 persons.




                                       15



Item 2.  Properties

   The Company maintains its principal executive offices at 1290 Avenue of the
Americas, New York, New York, occupying approximately 80,000 square feet under
a sub-lease which expires on December 30, 1998.  The Company also maintains
administrative offices at 404 Fifth Avenue, New York, New York, where the
Company occupies approximately 38,000 square feet under leases which expire on
December 31, 1998; in Bridgewater, New Jersey, where the Company occupies a
building of approximately 153,000 square feet under a lease which expires on
July 30, 2007; and in Portland, Maine, where the Company occupies a building
of approximately 95,000 square feet under a lease which expires on October 1,
2008.  The Company expects to move prior to the end of 1998 in order to
consolidate its offices now located at 1290 Avenue of the Americas and 404
Fifth Avenue, New York, New York.  The following tables summarize the other
manufacturing facilities, warehouses and distribution centers, administrative
offices and retail stores of the Company as of February 1, 1998:

                                    Apparel

                                                            Square Feet of
                                                         Floor Space (000's) 

                                                        Owned  Leased  Total

Manufacturing Facilities . . . . . . . . . . . . . .      239    127     366
Warehouses and Distribution Centers. . . . . . . . .    1,770    146   1,916
Administrative . . . . . . . . . . . . . . . . . . .       16    311     327
Retail Stores. . . . . . . . . . . . . . . . . . . .        6  1,759   1,765

                                                        2,031  2,343   4,374

                         Footwear and Related Products

                                                        Owned  Leased  Total

Manufacturing Facilities . . . . . . . . . . . . . .      274    151     425
Warehouses and Distribution Centers. . . . . . . . .      209     57     266
Administrative . . . . . . . . . . . . . . . . . . .       20    115     135
Retail Stores. . . . . . . . . . . . . . . . . . . .        8  1,381   1,389
                                                    
                                                          511  1,704   2,215

   Information with respect to minimum annual rental commitments under leases
in which the Company is a lessee is included in the note entitled "Leases" in
the Notes to Consolidated Financial Statements included in Item 8 of this
report.  

Item 3.  Legal Proceedings

   The Company is a party to certain litigation which, in the Company's
judgment based in part on the opinion of legal counsel, will not have a
material adverse effect on the Company's financial position.  

Item 4.  Submission of Matters to a Vote of Security Holders

   None.


                                      16



Executive Officers of the Registrant

   The following table sets forth certain information concerning the Company's
Executive Officers:

   Name                                      Position                    Age

Bruce J. Klatsky       Chairman and Chief Executive Officer; 
                         Director                                         49 
Mark Weber             President and Chief Operating Officer;
                         Director                                         49
Irwin W. Winter        Executive Vice President and Chief Financial
                         Officer; Director                                64
Allen E. Sirkin        Vice Chairman                                      55
Michael J. Blitzer     Senior Vice President                              48
Emanuel Chirico        Vice President and Controller                      40


   Mr. Bruce J. Klatsky has been employed by the Company in various capacities
over the last 26 years, and was President of the Company from 1987 to March
1998.  Mr. Klatsky has served as a director of the Company since 1985 and was
named Chief Executive Officer in June of 1993 and Chairman of the Board of
Directors in June of 1994.

   Mr. Mark Weber has been employed by the Company in various capacities over
the last 26 years, had been a Vice President of the Company since 1988, was
Vice Chairman of the Company since 1995 and was named President and Chief
Operating Office in 1998.  

   Mr. Irwin W. Winter joined the Company in 1987 as Vice President, Finance
and Chief Financial Officer, and has over 30 years of experience in the
apparel industry.  

   Mr. Allen E. Sirkin has been employed by the Company since 1985.  He served
as Chairman of the Company's Apparel Group since 1990 and was named Vice
Chairman of the Company in 1995.

   Mr. Michael J. Blitzer has been employed by the Company since 1980.  In
1995, Mr. Blitzer was named Senior Vice President.  For the previous five
years, Mr. Blitzer served as President of the Company's Van Heusen retail
operations.

   Mr. Emanuel Chirico has been employed by the Company as Vice President and
Controller since 1993.  Prior to that, Mr. Chirico was a partner with the
accounting firm of Ernst and Young LLP.



                                        17



                                    PART II

Item 5.  Market for Registrant's Common Stock and Related Security Holder
Matters

   Information with respect to the market for the Company's common stock and
related security holder matters appears under the heading "Selected Quarterly
Financial Data" on page F-19.  As of April 1, 1998, there were 1,540
stockholders of record of the Company's common stock.

Item 6.  Selected Financial Data

   Selected Financial Data appears under the heading "Ten Year Financial
Summary" on pages F-21 and F-22.

Item 7.  Management's Discussion and Analysis of Financial Condition and
Results of Operations

   The Company manages and analyzes its operating results by two vertically
integrated business segments: (i) apparel and (ii) footwear and related
products.  As described more fully in the "Non-Recurring Charges" section of
this review, the results of operations for 1997 and 1995 include pre-tax non-
recurring charges of $132.7 million and $27 million, respectively.   

The following adjusted statements of operations and segment data segregate the
non-recurring charges from the Company's ongoing operations, and the review
which follows discusses the Company's results of operations before the non-
recurring charges.


                           Adjusted Statements of Operations

(In thousands)                               1997         1996         1995

Net Sales                                 $1,350,007   $1,359,593   $1,464,128
Cost of goods sold                           937,965      910,517      987,921
Non-recurring charges                        (46,000)                         

Gross profit before non-recurring charges    458,042      449,076      476,207

SG&A expenses and non-recurring charges      499,195      401,338      455,634
Non-recurring charges                        (86,700)                  (27,000)

SG&A expenses before non-recurring charges   412,495      401,338      428,634

Income before interest, taxes and 
  non-recurring charges                       45,547       47,738       47,573
Interest expense, net                         20,672       23,164       23,199

Income before taxes and non-recurring 
  charges                                     24,875       24,574       24,374
Income tax expense                             5,954        6,044        7,064

Income from ongoing operations before
  non-recurring charges                       18,921       18,530       17,310
Non-recurring charges, net of tax benefit    (85,500)                  (17,016)

Net income (loss)                         $  (66,579)  $   18,530   $      294


                                          18



                             Adjusted Segment Data      

(In thousands)                               1997         1996         1995

Net sales-Apparel                         $  911,047   $  897,370   $1,006,701
Net sales-Footwear and Related Products      438,960      462,223      457,427

Total net sales                           $1,350,007   $1,359,593   $1,464,128

Operating income-Apparel                  $   45,416   $   30,021   $   37,432
Operating income-Footwear and
  Related Products                            15,382       32,888       23,026

Total operating income                        60,798       62,909       60,458
Corporate expenses                           (15,251)     (15,171)     (12,885)

Income-before interest, taxes and
  non-recurring charges                   $   45,547   $   47,738   $   47,573


Apparel 

   Net sales of the Company's apparel segment were $911.0 million in 1997
compared with $897.4 million in 1996 and $1,006.7 million in 1995. In both
1997 and 1996, sales growth was limited by the planned closing of retail
outlet stores and the contraction of the private label business, including the
closing in 1997 of the Company's sweater manufacturing operations. The
Company's sales of wholesale branded products increased 24% and 3% in 1997 and
1996, respectively, to $387.2 million in 1997 from $311.9 million in 1996 and
$303.2 million in 1995. The major areas of growth in 1997 were Van Heusen and
Geoffrey Beene dress shirts, as well as Izod sportswear. 

   Gross margin increased to 32.9% in 1997 from 31.3% in 1996 and 31.4% in
1995. All divisions had gross margin improvements with the exception of Izod
Club, which experienced a particularly difficult competitive environment.
Strong inroads by high-visibility men's department store brands into the
'green grass' channel of distribution serviced by Izod Club caused price
pressures which, in turn, led to price promotions and a reduced gross margin.
The Company believes that the consolidation during 1997 of Izod Club into the
various functional departments of Izod should result in significant cost
reductions, as well as provide major improvements in product and product
distribution. 

Two factors were key to the improvement in gross margin: 

1. The closing of underperforming retail outlet stores and the contraction of
   the less profitable private label business.

2. Improvement, across the board, in product and presentation in all of the
   Company's brands.

   The Company believes these factors should continue in 1998 as the Company's
brands continue to improve their positioning in department store accounts and
as the Company's marketing efforts continue to increase consumer awareness of
the considerable attributes that each of the Company's brands offers. 
         
   Selling, general and administrative expenses were 27.9% of net sales in
1997 and 1996 compared with 27.7% in 1995. While overall expense levels have
remained flat, there has been a significant shift in the mix of these
expenditures to marketing and advertising from more general logistical areas.
Included in 1997 were incremental advertising expenses of $15.0 million. 

                                         19


   Operating income increased 51.3% in 1997 to $45.4 million compared with
$30.0 million in 1996 and $37.4 million in 1995. The Company believes that its
wholesale sales gains, gross margin improvement, operating efficiency and
marketing investment are all very positive indications of the impact of the
Company's strategic initiatives. 
         
Footwear and Related Products 

   The process of implementing the Company's strategic initiatives has not
been without disappointment. In the footwear and related products segment,
fiscal 1997 net sales declined 5.0% to $439.0 million compared with $462.2
million in 1996 and $457.4 million in 1995. A closing of retail outlet stores
was a factor in the reduction of overall Bass sales in 1997. However, the
larger negative factor in 1997 was the disappointing results of the Company's
attempt to reposition its Bass brand to higher price points. While the higher
price position was endorsed by the Company's wholesale customers, the
initiatives were not well executed and did not meet with consumer support,
resulting in an inventory build up at both the wholesale level and in the
Company's own factory outlet retail stores. To protect its franchise and
preserve its wholesale customer relationships, the Company took substantial
markdowns in its own retail stores and aggressively financed the markdowns
required by its wholesale customers to sell this inventory. Line management
responsible for the Bass business has been changed, a decision was made to
close the United States mainland footwear manufacturing facilities and the
brand was returned to its historic positioning targeted in the moderate price
range as a family oriented, 'Americana'-associated, casual lifestyle brand.
The result of these actions was a non-recurring charge to fiscal 1997 earnings
of $54.2 million and a decline in footwear and related products operating
income (before such charge) of $17.5 million to $15.4 million. Operating
income in 1995 was $23.0 million. 

   Gross margin in 1997 was 36.0% compared with 36.3% in 1996 and 34.9% in
1995. As in all of the Company's branded businesses, the footwear and related
products segment represents a combination of wholesale and retail businesses.
The sales problems described above caused gross margin reductions across the
board as markdown allowances to wholesale customers took place
contemporaneously with markdowns taken at the Company's retail outlet stores.
However, the much sharper declines in the Company's wholesale sector created a
greater weighting to the Company's higher margin retail sector and this shift
offset most of the overall percentage decline. The Company believes that the
repositioning of the Bass brand should enable both the mix of business and
their respective gross margins to return to more normal levels. 

   Selling, general and administrative expenses were 32.5% of net sales in
1997 compared with 29.2% in 1996 and 29.9% in 1995. The increase in 1997 was
caused principally by increased national advertising as well as a ramping up
of design and selling costs to support the upgrading of product and product
presentation which was a part of the Bass repositioning. 

   The Bass misstep is by far the biggest disappointment that the Company has
had in executing its brand strategy. However much it negatively impacted the
Company's results of operations in 1997, and is expected to dampen 1998, the
Company believes its impact should be substantially behind the Company by the
fall 1998 season. In the process, the Company has strengthened the Bass
management team and has substantially redirected the sourcing of Bass product.
The Company believes it can lower its costs considerably and build on Bass'
historically strong record of profitability. 

                                       20


Non-Recurring Charges 

   The Company recorded pre-tax non-recurring charges of $132.7 million ($85.5
million after tax) in 1997 related to a series of actions the Company has
taken towards: 

   o Exiting all United States mainland footwear manufacturing with the
     closing of its Wilton, Maine footwear manufacturing facility; 

   o Exiting the sweater manufacturing business with the sale and liquidation
     of its Puerto Rico sweater operations; 

   o Consolidating and contracting plant and warehouse and distribution
     facilities as well as restructuring other logistical and administrative
     areas in order to reduce product costs and operating expenses and improve
     efficiencies; 
     
   o Repositioning the Gant brand in the United States to be consistent with
     its highly successful positioning in Europe; 

   o Closing an additional 150 underperforming retail outlet stores; and 

   o Modifying a repositioning of Bass, including the liquidation of a
     resulting excess inventory. 
     
   The Company believes that these initiatives will enable the Company to
significantly reduce future operating expenses and product costs. It is
expected that the actions which gave rise to the 1997 charge will result in
aggregate cost savings of over $40 million in the period 1998 to 2000, and
will exceed $20 million annually by 2000. 

   The Company had recorded a pre-tax non-recurring charge of $27.0 million
($17.0 million after tax) in 1995 to provide for the closing of some 300
retail outlet stores, the closing of three domestic shirt manufacturing
facilities and a reorganization of the Company's management structure. 

Corporate Expenses 

   Corporate expenses were $15.3 million in 1997 compared with $15.2 million
in 1996 and $12.9 million in 1995. The increase in 1996 compared with 1995 was
attributable to an increase in spending relating to information technology. 

Interest Expense 

   Interest expense was $20.7 million in 1997 compared with $23.2 million in
both 1996 and 1995. A strong cash flow in 1996 reduced overall debt levels
early in 1997 and was the principal reason for the reduction in interest
expense in 1997. The 1997 restructuring activities, described above, will
result in a cash outflow that will likely increase interest expense in 1998.
These activities should become cash positive in 1999 with a resulting interest
expense reduction. 

Income Taxes 

   Excluding the non-recurring charges, the income tax expense rate was 23.9%
in 1997, 24.6% in 1996 and 29.0% in 1995. The Company's effective tax rate is
lower than statutory rates due to tax exempt income from operations in Puerto
Rico, as well as other permanent differences between book income and taxable
income. 

                                                21


Liquidity and Capital Resources 

The following table shows key cash flow elements over the last three years: 
1997 1996 1995 (In thousands) OPERATING ACTIVITIES Income from operations before non-recurring charges adjusted for non-cash items. . . . . . . . . . . . . . . . . . . . . . . $ 42,021 $ 55,282 $ 67,328 Change in working capital.. . . . . . . . . . . . . . . . . . . . (16,275) 54,104 (35,344) Cash flow before non-recurring charges. . . . . . . . . . . . . . 25,746 109,386 31,984 Non-recurring charges -- cash impact. . . . . . . . . . . . . . . (34,100) (7,510) (6,490) Working capital acquired(1).. . . . . . . . . . . . . . . . . . . -- -- (56,282) (8,354) 101,876 (30,788) INVESTMENT ACTIVITIES Acquisition of Izod and Gant. . . . . . . . . . . . . . . . . . . -- -- (114,503) Investment in Pyramid Sportswear. . . . . . . . . . . . . . . . . -- -- (6,950) Capital spending. . . . . . . . . . . . . . . . . . . . . . . . . (17,923) (22,578) (39,773) Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 360 143 -- (17,563) (22,435) (161,226) FINANCING ACTIVITIES Cash dividends. . . . . . . . . . . . . . . . . . . . . . . . . . (4,065) (4,050) (4,007) Exercise of stock options.. . . . . . . . . . . . . . . . . . . . 791 386 1,745 (3,274) (3,664) (2,262) Increase (decrease) in cash before net change in debt. . . . . . . $ (29,191) $ 75,777 $(194,276)
(1) Represents working capital related to the acquisition of the Izod and Gant businesses. As noted in the table above, the Company's cash flow before non-recurring charges was positive in each of the three fiscal years ended February 1, 1998. The cash impact in 1997 of the initiatives covered by the Company's restructuring charges totaled $34.1 million. The principal areas of outflow related to the repositioning of Gant and costs associated with the inventory correction at Bass. Capital spending in 1997 was $17.9 million compared with $22.6 million in 1996 and $39.8 million in 1995. The reduced level of spending in the latest two years reflects the completion in 1995 of several large capital spending projects, including the Company's new distribution center in North Carolina. In 1998, upon the expiration of the lease at the Company's New York headquarters, the Company anticipates consolidating all of its New York office space into one location. Capital expenditures related to that move are anticipated to be approximately $15 million. Capital expenditures, in total, for 1998 are planned at approximately $40 million. Beyond that, the Company anticipates returning to the lower level of capital expenditures of the past two years. Total debt as a percentage of total capital was 53.0% at the end of fiscal 1997 compared with 43.1% at the end of fiscal 1996 and 52.3% at the end of fiscal 1995. In fiscal 1998, the Company anticipates additional cash outflows of approximately $47 million to substantially complete the restructuring programs provided for in 1997. Most of that amount should be funded by cash flow from 22 operations as well as certain of the cash flow benefits stemming from these restructuring moves, particularly the closing of retail stores and the exiting from the capital-intensive sweater manufacturing business. Beyond that, the Company anticipates that the cash flow benefits from the balance of restructuring together with cash flow from operations should allow it to begin to realize an overall positive cash flow in its individual business units and in the Company as a whole. Primarily as a result of the non-recurring charge to earnings recorded in the fourth quarter of 1997, the Company negotiated amendments to certain covenant levels through the second quarter of fiscal 1998 under the Company's Senior Notes Due 1999-2002 and its Existing Credit Agreement pending issuance of the Notes and the entering into of the New Credit Facility. As a result, under generally accepted accounting principles, such debt is required to be classified as short-term debt in the Company's financial statements. The Senior Notes Due 1999-2002 and the Existing Credit Facility are intended to be repaid from the proceeds of this offering and borrowings under the New Credit Facility. The Notes and substantially all of the indebtedness evidenced by the New Credit Facility will be classified as long-term debt. The Company believes that these refinancings should provide a secure financial base and allow the Company to fully focus its attention on the execution of its strategic business plan. Year 2000 Until recently computer programs were written using two digits rather than four to define the applicable year. Thus such programs were unable to properly distinguish between the year 1900 and the year 2000. In October 1996, the Company initiated a comprehensive Year 2000 Project to address this issue. The Company determined that it will need to modify or replace significant portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and beyond. The Company has also initiated discussions with its significant suppliers and large customers to determine the status of their compliance programs. The Company is utilizing both internal and external resources to remediate, or replace, and test the software for year 2000 modifications. The Company anticipates completing the Year 2000 Project by June 30, 1999. The total cost of the Year 2000 Project is estimated at a range of $20-$24 million and is being funded through operating cash flows. Of the total project cost, approximately $3 million is attributable to the purchase of new software which will be capitalized, with the remaining cost expensed as incurred. The cost of the project and the date on which the Company believes it will complete the year 2000 modifications are based on management's estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of resources, third party modification plans and other factors. The Company presently believes that the year 2000 issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, or the systems of other companies on which the Company's systems and operations rely are not converted on a timely basis, the year 2000 issue could have a material adverse impact on the Company's operations. 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, and the second being the Christmas selling season beginning with the weekend following Thanksgiving and continuing through the week after Christmas. 23 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 quarter particularly weak. Item 8. Financial Statements and Supplementary Data See page F-1 for a listing of the consolidated financial statements and supplementary data included in this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 24 PART III Item 10. Directors and Executive Officers of the Registrant The information required by Item 10 is incorporated herein by reference to the section entitled "Election of Directors" of the Company's proxy statement for the Annual Meeting of Stockholders to be held on June 18, 1998. Item 11. Executive Compensation Information with respect to Executive Compensation is incorporated herein by reference to the sections entitled "Executive Compensation", "Compensation Committee Report on Executive Compensation" and "Performance Graph" of the Company's proxy statement for the Annual Meeting of Stockholders to be held on June 18, 1998. Item 12. Security Ownership of Certain Beneficial Owners and Management Information with respect to the Security Ownership of Certain Beneficial Owners and Management is incorporated herein by reference to the section entitled "Security Ownership of Certain Beneficial Owners and Management" of the Company's proxy statement for the Annual Meeting of Stockholders to be held on June 18, 1998. Item 13. Certain Relationships and Related Transactions Information with respect to Certain Relationships and Related Transactions is incorporated herein by reference to the sections entitled "Election of Directors" and "Compensation of Directors" of the Company's proxy statement for the Annual Meeting of Stockholders to be held on June 18, 1998. 25 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) See page F-1 for a listing of the consolidated financial statements included in Item 8 of this report. (a)(2) See page F-1 for a listing of financial statement schedules submitted as part of this report. (a)(3) The following exhibits are included in this report: Exhibit Number 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). 26 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 Seventh Amendment, dated as of January 30, 1998, to the Credit Agreement dated as of December 16, 1993. 4.14 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). 4.15 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). 4.16 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). 27 4.17 Third Amendment Agreement, dated as of February 1, 1998, to the Note Agreement, dated as of October 1, 1992. 4.18 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). *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). 28 *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 (incorporated by reference to Exhibit 10.15 to the Company's report on Form 10-Q for the period ending November 2, 1997). 21. Subsidiaries of the Company. 23. Consent of Independent Auditors. 27. Financial Data Schedule (b) Reports filed on Form 8-K filed during the fourth quarter of 1997: None (c) Exhibits: See (a)(3) above for a listing of the exhibits included as part of this report. (d) Financial Statement Schedules: See page F-1 for a listing of the financial statement schedules submitted as part of this report. (e) The Company agrees to furnish to the Commission upon request a copy of each agreement with respect to long-term debt where the total amount of securities authorized thereunder does not exceed 10% of the total consolidated assets of the Company. * Management contract or compensatory plan or arrangement required to be identified pursuant to Item 14(a) of this report. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By: Bruce J. Klatsky Bruce J. Klatsky Chairman, Chief Executive Officer and Director Date: April 10, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date Bruce J. Klatsky Chairman, Chief Executive April 10, 1998 Bruce J. Klatsky Officer and Director (Principal Executive Officer) Mark Weber President, Chief Operating April 14, 1998 Mark Weber Officer and Director Irwin W. Winter Executive Vice President and April 14, 1998 Irwin W. Winter Chief Financial Officer Emanuel Chirico Vice President and Controller April 14, 1998 Emanuel Chirico (Principal Accounting Officer) Edward H. Cohen Director April 10, 1998 Edward H. Cohen Joseph B. Fuller Director April 14, 1998 Joseph B. Fuller Joel H. Goldberg Director April 13, 1998 Joel H. Goldberg Marc Grosman Director April 14, 1998 Marc Grosman Dennis F. Hightower Director April 10, 1998 Dennis F. Hightower Maria Elena Lagomasino Director April 10, 1998 Maria Elena Lagomasino Harry N.S. Lee Director April 13, 1998 Harry N.S. Lee Bruce Maggin Director April 14, 1998 Bruce Maggin Slyvia M. Rhone Director April 14, 1998 Slyvia M. Rhone Peter J. Solomon Director April 13, 1998 Peter J. Solomon 30 FORM 10-K-ITEM 14(a)(1) and 14(a)(2) PHILLIPS-VAN HEUSEN CORPORATION INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES 14(a)(1) The following consolidated financial statements and supplementary data are included in Item 8 of this report: Consolidated Statements of Operations--Years Ended February 1, 1998, February 2, 1997 and January 28, 1996 . . . . F-2 Consolidated Balance Sheets--February 1, 1998 and February 2, 1997. . . . . . . . . . . . . . . . . . . . . . . . F-3 Consolidated Statements of Cash Flows--Years Ended February 1, 1998, February 2, 1997 and January 28, 1996 . . . . F-4 Consolidated Statements of Changes in Stockholders' Equity--Years Ended February 1, 1998, February 2, 1997 and January 28, 1996. . . . . . . . . . . . . . . . . . . . . . F-5 Notes to Consolidated Financial Statements. . . . . . . . . . . . F-6 Selected Quarterly Financial Data . . . . . . . . . . . . . . . . F-19 Report of Ernst & Young LLP, Independent Auditors . . . . . . . . F-20 10 Year Financial Summary . . . . . . . . . . . . . . . . . . . . F-21 14(a)(2) The following consolidated financial statement schedule is included herein: Schedule II - Valuation and Qualifying Accounts. . . . . . . . F-23 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. F-1 PHILLIPS-VAN HEUSEN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
1997 1996 1995 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,350,007 $1,359,593 $1,464,128 Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . 937,965 910,517 987,921 Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412,042 449,076 476,207 Selling, general and administrative expenses. . . . . . . . . . . . . 412,495 401,338 428,634 Facility and store closing, restructuring and other expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 86,700 27,000 Income (loss) before interest and taxes . . . . . . . . . . . . . . . (87,153) 47,738 20,573 Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . 20,672 23,164 23,199 Income (loss) before taxes. . . . . . . . . . . . . . . . . . . . . . (107,825) 24,574 (2,626) Income tax expense (benefit). . . . . . . . . . . . . . . . . . . . . (41,246) 6,044 (2,920) Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ (66,579) $ 18,530 $ 294 Net income (loss) per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2.46) $ 0.69 $ 0.01 Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2.46) $ 0.68 $ 0.01
In 1997 and 1995, PVH recorded pre-tax charges of $132,700 and $27,000 respectively, related principally to a series of actions the Company has taken to accelerate the execution of PVH's ongoing strategy to build its brands. Such charges have been recorded in the consolidated statements of operations as follows: 1997 1995 Cost of goods sold $ 46,000 Facility and store closing, restructuring and other expenses 86,700 $27,000 132,700 27,000 Income tax benefit (47,200) (9,984) $ 85,500 $17,016 See notes to consolidated financial statements. F-2 PHILLIPS-VAN HEUSEN CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
Feb. 1, 1998 Feb. 2, 1997 ASSETS Current Assets: Cash, including cash equivalents of $1,413 and $1,861. . . . . . . . . . . . . $ 11,748 $ 11,590 Trade receivables, less allowances of $2,911 and $3,401. . . . . . . . . . . . 88,656 91,806 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249,534 237,422 Other, including deferred taxes of $19,031 and $4,300. . . . . . . . . . . . . 35,080 22,140 Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385,018 362,958 Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 94,582 137,060 Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,467 120,324 Other Assets, including deferred taxes of $44,094 and $16,617 . . . . . . . . . . 64,392 37,094 $660,459 $657,436 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 20,000 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,233 36,355 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,202 55,754 Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . 9,857 10,157 Long-term debt classified as current debt. . . . . . . . . . . . . . . . . . . 138,929 Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 274,221 122,266 Long-Term Debt, less current portion. . . . . . . . . . . . . . . . . . . . . . . 100,118 189,398 Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,815 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 27,179,244 and 27,045,705. . . . . . . . . . . . . 27,179 27,046 Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,954 116,296 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,172 146,816 Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . . 220,305 290,158 $660,459 $657,436
See notes to consolidated financial statements. F-3 PHILLIPS-VAN HEUSEN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
1997 1996 1995 Operating activities: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(66,579) $ 18,530 $ 294 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 25,300 29,438 33,740 Write-off of property, plant and equipment. . . . . . . . . . . . . . . . 40,800 13,000 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (42,208) 8,214 3,363 Equity income in Pyramid Sportswear . . . . . . . . . . . . . . . . . . . (792) (900) (85) Changes in operating assets and liabilities: Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,150 18,060 (13,927) Income tax refund receivable. . . . . . . . . . . . . . . . . . . . . . . . 16,987 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,112) 39,351 16,315 Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . 34,038 (17,782) (83,897) Deferred landlord contributions . . . . . . . . . . . . . . . . . . . . . . (5,949) (5,001) (399) Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,998 (5,021) 808 Net Cash Provided (Used) By Operating Activities. . . . . . . . . . . . . . (8,354) 101,876 (30,788) Investing activities: Acquisition of the Apparel Group of Crystal Brands, Inc.. . . . . . . . . . . (114,503) Property, plant and equipment acquired. . . . . . . . . . . . . . . . . . . . (17,923) (22,578) (39,773) Investment in Pyramid Sportswear. . . . . . . . . . . . . . . . . . . . . . . (6,950) Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360 143 Net Cash Used By Investing Activities . . . . . . . . . . . . . . . . . . . (17,563) (22,435) (161,226) Financing activities: Proceeds from revolving line of credit. . . . . . . . . . . . . . . . . . . . 123,000 52,582 204,996 Payments on revolving line of credit and long-term borrowings . . . . . . . . (93,651) (134,302) (73,660) Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . 791 386 1,745 Cash dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,065) (4,050) (4,007) Net Cash Provided (Used) By Financing Activities. . . . . . . . . . . . . . 26,075 (85,384) 129,074 Increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . . . 158 (5,943) (62,940) Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . 11,590 17,533 80,473 Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,748 $ 11,590 $ 17,533
See notes to consolidated financial statements. F-4 PHILLIPS-VAN HEUSEN CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands, except share data)
Common Stock $1 par Additional Retained Stockholders' Shares Value Capital Earnings Equity January 29, 1995. . . . . . . . . . 26,610,310 $26,610 $112,801 $136,049 $275,460 Stock options exercised . . . . . 187,908 188 1,557 1,745 Net income. . . . . . . . . . . . 294 294 Cash dividends .. . . . . . . . . (4,007) (4,007) Investment in Pyramid Sportswear 181,134 181 1,619 1,800 January 28, 1996. . . . . . . . . . 26,979,352 26,979 115,977 132,336 275,292 Stock options exercised . . . . . 66,353 67 319 386 Net income. . . . . . . . . . . . 18,530 18,530 Cash dividends. . . . . . . . . . (4,050) (4,050) February 2, 1997. . . . . . . . . . 27,045,705 27,046 116,296 146,816 290,158 Stock options exercised . . . . . 133,539 133 658 791 Net loss. . . . . . . . . . . . . (66,579) (66,579) Cash dividends. . . . . . . . . . (4,065) (4,065) February 1, 1998. . . . . . . . . . 27,179,244 $ 27,179 $116,954 $ 76,172 $220,305
See notes to consolidated financial statements. F-5 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share data) Summary of Significant Accounting Policies Principles of Consolidation - The consolidated financial statements include the accounts of PVH and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from the estimates. Fiscal Year - Fiscal years are designated in the financial statements and notes by the calendar year in which the fiscal year commences. Accordingly, results for fiscal years 1997 and 1995 represent the 52 weeks ended February 1, 1998 and January 28, 1996, respectively. Fiscal year 1996 represents the 53 weeks ended February 2, 1997. Cash and Cash Equivalents - PVH considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Asset Impairments - PVH records impairment losses on long-lived assets (including goodwill) used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the related assets are less than the carrying amounts of those assets. Inventories - Inventories are stated at the lower of cost or market. Cost for apparel inventories of $90,999 (1997) and $90,151 (1996) is determined using the last-in, first-out method (LIFO). Cost for footwear and certain sportswear inventories is determined using the first-in, first-out method (FIFO). Property, Plant and Equipment - Depreciation is computed principally by the straight line method over the estimated useful lives of the various classes of property. Goodwill - Goodwill, net of accumulated amortization of $11,358 and $8,615 in 1997 and 1996, respectively, is being amortized principally by the straight line method over 40 years. Contributions from Landlords - PVH receives contributions from landlords for fixturing retail stores which the Company leases. Such amounts are amortized as a reduction of rent expense over the life of the related lease. Unamortized contributions are included in accrued expenses and other liabilities and amounted to $12,798 and $18,747 in 1997 and 1996, respectively. Fair Value of Financial Instruments - Using discounted cash flow analyses, PVH estimates that the fair value of all financial instruments approximates their carrying value, except as noted in the footnote entitled "Long-Term Debt". F-6 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Summary of Significant Accounting Policies (Continued) Stock-Based Compensation - PVH accounts for its stock options under the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure requirements of FASB Statement No. 123, "Accounting for Stock-Based Compensation". Advertising - Advertising costs are expensed as incurred and totalled $37,762 (1997), $19,427 (1996) and $21,136 (1995). Earnings Per Share In 1997, PVH adopted FASB Statement No. 128, "Earnings Per Share". This statement replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. PVH computed its basic and diluted earnings per share by dividing net income or loss by: 1997 1996 1995 Weighted Average Common Shares Outstanding for Basic Earnings Per Share 27,107,633 27,004,115 26,725,804 Impact of Dilutive Employee Stock Options 209,462 295,529 Total Shares for Diluted Earnings Per Share 27,107,633 27,213,577 27,021,333 Income Taxes Income taxes consist of: 1997 1996 1995 Federal: Current . . . . . . . . . . . . . . . $ 400 $(4,620) $(8,219) Deferred. . . . . . . . . . . . . . . (42,985) 7,959 2,995 State, foreign and local: Current . . . . . . . . . . . . . . . 562 2,450 1,936 Deferred. . . . . . . . . . . . . . . 777 255 368 $(41,246) $ 6,044 $(2,920) Taxes paid were $1,155 (1997), $1,262 (1996) and $3,371 (1995). In addition, PVH received an income tax refund of $16,987 in 1996. F-7 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Income Taxes (Continued) The approximate tax effect of items giving rise to the deferred income tax asset recognized in the Company's balance sheets is as follows:
1997 1996 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . $(18,427) $(18,349) Landlord contributions . . . . . . . . . . . . . . . . . . . . . 5,030 7,367 Facility and store closing, restructuring and other expenses . . . . . . . . . . . . . . . 27,295 415 Employee compensation and benefits . . . . . . . . . . . . . . . 10,302 9,243 Tax loss and credit carryforwards. . . . . . . . . . . . . . . . 31,179 17,231 Other-net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,746 5,010 $ 63,125 $ 20,917
A reconciliation of the statutory Federal income tax to the income tax expense (benefit) is as follows:
1997 1996 1995 Statutory 35% federal tax. . . . . . . . . . . . . . . . . . $(37,739) $ 8,601 $ (919) State, foreign and local income taxes, net of Federal income tax benefit . . . . . . . . . . . . . 805 1,463 1,454 Income of Puerto Rico Subsidiaries(1). . . . . . . . . . . . (3,258) (3,757) (3,298) Other-net. . . . . . . . . . . . . . . . . . . . . . . . . . (1,054) (263) (157) Income tax expense (benefit) . . . . . . . . . . . . . . . . $(41,246) $ 6,044 $(2,920)
(1) Exemption from Puerto Rico income tax expires in 1998. PVH anticipates this exemption will be extended through 2008. Inventories Inventories are summarized as follows:
1997 1996 Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,964 $ 16,670 Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,216 13,208 Finished goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . 218,354 207,544 $249,534 $237,422
Inventories would have been approximately $12,000 and $13,000 higher than reported at February 1, 1998 and February 2, 1997, respectively, if the FIFO method of inventory accounting had been used for all apparel. F-8 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Property, Plant and Equipment Property, plant and equipment, at cost, are summarized as follows:
Estimated Useful Lives 1997 1996 Land. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,646 $ 1,774 Buildings and building improvements . . . . . . . . . . 15-40 years 24,932 37,778 Machinery and equipment, furniture and fixtures and leasehold improvements. . . . . . . . . . . . . . . . . . . . . 5-15 years 187,671 233,884 214,249 273,436 Less: Accumulated depreciation and amortization . . . . . . . . . . . . . . . . 119,667 136,376 $ 94,582 $137,060
Long-Term Debt Long-term debt, exclusive of current portion, is as follows:
1997 1996 Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . $ 99,500 $ 40,000 7.75% Debentures. . . . . . . . . . . . . . . . . . . . . . . . . . . 99,448 99,442 7.75% Senior Notes. . . . . . . . . . . . . . . . . . . . . . . . . . 39,429 49,286 Other debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 670 670 239,047 189,398 Less: Long-term debt classified as current debt . . . . . . . . . . . . . . . . . . . . . . . . 138,929 Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,118 $189,398
PVH issued $100,000 of 7.75% Debentures due 2023 on November 15, 1993 with a yield to maturity of 7.80%. Interest is payable semi-annually. Based on current market conditions, PVH estimates that the fair value of these Debentures on February 1, 1998, using discounted cash flow analyses, was approximately $93,400. PVH issued a series of Senior Notes due 1996-2002 with an average interest rate of 7.75% to a group of investors on October 29, 1992. The average interest rate on these Notes was increased in 1996 to 8.25%. The notes are payable in seven equal annual installments which commenced November 1, 1996. Interest is payable semi-annually. PVH 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 PVH under each of the revolving credit and the letter of credit facility is $250,000, provided, however, that the aggregate maximum amount outstanding at any time under both facilities is $400,000. All outstanding borrowings and letters of credit under the credit agreement are due February 13, 1999. Interest on amounts borrowed under the revolving credit facility is payable quarterly at a spread over LIBOR or the F-9 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Long-Term Debt (Continued) prime rate, at the borrower's option, with the spread based on PVH's credit rating. A commitment fee of .25% is payable quarterly on the $250,000 revolving credit facility. The amount outstanding at February 1, 1998 and February 2, 1997 under the letter of credit facility was $125,078 and $99,115, respectively. Both the 7.75% Senior Notes and the revolving credit facility contain certain covenants which, due to the 1997 non-recurring charges, required PVH to obtain amendments to the debt agreements. PVH plans to take advantage of the favorable interest rate environment by issuing new long-term debt in the first quarter of 1998, and expects to use the net proceeds to repay the 7.75% Senior Notes and borrowings under the revolving credit facility. As a result, PVH sought and received the necessary amendments through May 1, 1998, by which time the new financings are expected to be in place. Since the amendments do not extend through a full year, the long-term portion of the 7.75% Senior Notes and all amounts due under the revolving credit facility have been shown as "Long-term debt classified as current debt" in PVH's consolidated balance sheet as of February 1, 1998. The weighted average interest rate on outstanding borrowings under the revolving credit facility at February 1, 1998 and February 2, 1997 was 6.4% and 6.2%, respectively. Interest paid was $20,784 (1997), $24,039 (1996) and $22,949 (1995). Scheduled maturities of long-term debt, including current portion, for the next five years are as follows: 1998-$9,857, 1999-$9,857, 2000-$9,857, 2001- $9,857 and 2002-$9,858. Investment in Pyramid Sportswear During the fourth quarter of 1995, PVH acquired 25% of Pyramid Sportswear ("Pyramid") for $6,950 in cash and $1,800 in the Company's common stock. PVH accounts for its investment in Pyramid under the equity method of accounting. Pyramid, headquarted in Sweden, designs, develops and sources Gant sportswear under a license from PVH and markets such sportswear in 35 countries around the world. In connection with this investment, PVH also acquired an option to purchase the remaining 75% of Pyramid beginning in 2000. Stockholders' Equity Preferred Stock Rights - On June 10, 1986, the Board of Directors declared a distribution of one Right (the "Rights") to purchase Series A Cumulative Participating Preferred Stock, par value $100 per share, for each outstanding share of common stock. As a result of subsequent stock splits, each outstanding share of common stock now carries with it one-fifth of one Right. Under certain circumstances, each Right will entitle the registered holder to acquire from the Company one one-hundredth (1/100) of a share of said Series A Preferred Stock at an exercise price of $100. The Rights will be exercisable, except in certain circumstances, commencing ten days following a public announcement that (i) a person or group has acquired or obtained the right to acquire 20% or more of the common stock, in a transaction not approved by the Board of Directors or (ii) a person or group has commenced or intends to commence a tender offer for 30% or more of the common stock (the "Distribution Date"). F-10 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Stockholders' Equity - (Continued) If PVH is the surviving corporation in a merger or other business combination then, under certain circumstances, each holder of a Right will have the right to receive upon exercise the number of shares of common stock having a market value equal to two times the exercise price of the Right. In the event PVH is not the surviving corporation in a merger or other business combination, or more than 50% of PVH's assets or earning power is sold or transferred, each holder of a Right will have the right to receive upon exercise the number of shares of common stock of the acquiring company having a market value equal to two times the exercise price of the Right. At any time prior to the close of business on the Distribution Date, PVH may redeem the Rights in whole, but not in part, at a price of $.05 per Right. During 1996, the rights were extended for a period of 10 years from the date of initial expiration and will expire on June 16, 2006. Stock Options - Under PVH's stock option plans, non-qualified and incentive stock options ("ISOs") may be granted. Options are granted at fair market value at the date of grant. ISOs and non-qualified options granted have a ten year duration. Generally, options are cumulatively exercisable in three installments commencing three years after the date of grant. Under APB Opinion No. 25, PVH does not recognize compensation expense because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant. Under FASB Statement No. 123, proforma information regarding net income and earnings per share is required as if the Company had accounted for its employee stock options under the fair value method of that Statement. For purposes of proforma disclosures, PVH estimated the fair value of stock options granted since 1995 at the date of grant using the Black-Scholes option pricing model. The estimated fair value of the options is amortized to expense over the options' vesting period. The following summarizes the assumptions used to estimate the fair value of stock options granted in each year and certain proforma information: 1997 1996 1995 Risk-free interest rate 6.49% 6.61% 6.05% Expected option life 7 Years 7 Years 7 Years Expected volatility 26.0% 30.6% 30.6% Expected dividends per share $ 0.15 $ 0.15 $ 0.15 Weighted average estimated fair value per share of options granted $ 5.43 $ 5.29 $ 6.11 Proforma net income (loss) $(68,242) $17,396 $ (127) Proforma basic and diluted net income (loss) per share $ (2.52) $ 0.65 $(0.00) As any options granted in the future will also be subject to the fair value proforma calculations, the proforma adjustments for 1997, 1996 and 1995 may not be indicative of future years. F-11 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Stockholders' Equity - (Continued) Other data with respect to stock options follows:
Option Price Weighted Average Shares Per Share Price Per Share Outstanding at January 29, 1995 . . . . . . . . 1,554,249 $ 4.75 - $36.25 $16.99 Granted. . . . . . . . . . . . . . . . . . . 568,390 10.75 - 17.50 15.02 Exercised. . . . . . . . . . . . . . . . . . 187,908 4.75 - 10.69 7.17 Cancelled. . . . . . . . . . . . . . . . . . 131,383 4.75 - 34.75 20.37 Outstanding at January 28, 1996 . . . . . . . . 1,803,348 4.75 - 36.25 17.14 Granted. . . . . . . . . . . . . . . . . . . 948,411 10.75 - 14.38 12.83 Exercised. . . . . . . . . . . . . . . . . . 66,353 4.75 - 8.75 5.81 Cancelled. . . . . . . . . . . . . . . . . . 727,866 6.88 - 36.25 26.07 Outstanding at February 2, 1997 . . . . . . . . 1,957,540 4.75 - 31.63 12.12 Granted. . . . . . . . . . . . . . . . . . . 817,250 12.81 - 15.68 14.23 Exercised. . . . . . . . . . . . . . . . . . 133,539 4.75 - 13.13 5.93 Cancelled. . . . . . . . . . . . . . . . . . 179,587 6.88 - 31.63 14.49 Outstanding at February 1, 1998 . . . . . . . . 2,461,664 $ 5.94 - $31.63 $12.98
Of the outstanding options at February 1, 1998, 434,466 shares have an exercise price below $12.25, 2,023,558 shares have an exercise price from $12.25 to $16.50 and 3,640 shares have an exercise price above $16.50. The weighted average remaining contractual life for all options outstanding at February 1, 1998 is 7.6 years. Of the outstanding options at February 1, 1998 and February 2, 1997, options covering 650,479 and 645,091 shares were exercisable at a weighted average price of $10.56 and $9.35, respectively. Stock options available for grant at February 1, 1998 and February 2, 1997 amounted to 1,704,250 and 311,496 shares, respectively. Leases PVH leases retail stores, manufacturing facilities, office space and equipment. The leases generally are renewable and provide for the payment of real estate taxes and certain other occupancy expenses. Retail store leases generally provide for the payment of percentage rentals based on store sales and other costs associated with the leased property. At February 1, 1998, minimum annual rental commitments under non- cancellable operating leases, including leases for new retail stores which had not begun operating at February 1, 1998, are as follows: 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,232 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,049 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,183 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,036 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,653 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . 48,174 Total minimum lease payments . . . . . . . . . . . . . . . . $232,327 F-12 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Leases (Continued) Rent expense, principally for real estate, is as follows:
1997 1996 1995 Minimum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65,177 $67,914 $69,988 Percentage and other . . . . . . . . . . . . . . . . . . . . . . . . 11,139 11,166 11,807 $76,316 $79,080 $81,795
Retirement and Benefit Plans Defined Benefit Plans - PVH has noncontributory, defined benefit pension plans covering substantially all U.S. employees meeting 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. It is PVH's policy to fund pension cost annually in an amount consistent with Federal law and regulations. The assets of the plans are principally invested in a mix of fixed income and equity investments. In addition, PVH also participates in multi-employer plans, which provide defined benefits to their union employees. A summary of the components of net pension cost for the defined benefit plans and the total contributions charged to pension expense for the multi-employer plans follows:
1997 1996 1995 Defined Benefit Plans: Service cost - benefits earned during the period. . . . . . . . . . . $ 2,004 $ 2,528 $2,145 Interest cost on projected benefit obligation . . . . . . . . . . . . 7,935 7,425 7,107 Actual gain on plan assets. . . . . . . . . . . . . . . . . . . . . . (19,772) (13,688) (19,533) Net amortization and deferral of actuarial gains. . . . . . . . . . . 11,259 5,354 12,028 Net pension cost of defined benefit plans. . . . . . . . . . . . . . . 1,426 1,619 1,747 Multi-employer plans . . . . . . . . . . . . . . . . . . . . . . . . . 213 253 219 Total pension expense. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,639 $ 1,872 $1,966 Significant rate assumptions used in determining pension obligations at the end of each year, as well as pension cost in the following year, were as follows: 1997 1996 1995 Discount rate used in determining projected benefit obligation . . . . . 7.25% 8.00% 7.50% Rate of increase in compensation levels. . . . . . . . . . . . . . . . . 4.00% 4.50% 4.00% Long-term rate of return on assets . . . . . . . . . . . . . . . . . . . 8.75% 8.75% 8.75%
F-13 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Retirement and Benefit Plans - (Continued) The following table sets forth the plans' funded status and amounts recognized for defined benefit plans in the Company's balance sheets:
1997 1996 Actuarial present value of benefit obligations: Vested benefit obligation. . . . . . . . . . . . . . . . . . . . . . . . $ 108,656 $ 91,379 Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . $ 110,171 $ 93,373 Plan assets at fair value. . . . . . . . . . . . . . . . . . . . . . . . . $ 124,663 $ 110,830 Less: projected benefit obligation for services rendered to date . . . . . (116,622) (101,065) Plan assets in excess of projected benefit obligation. . . . . . . . . . . 8,041 9,765 Unrecognized prior service cost. . . . . . . . . . . . . . . . . . . . . . 2,536 3,099 Unrecognized net actuarial gain. . . . . . . . . . . . . . . . . . . . . . (2,403) (3,665) Unrecognized net asset at adoption date of FASB Statement No. 87 (238) (305) Net pension asset recognized in the balance sheets . . . . . . . . . . . . $ 7,936 $ 8,894
Plan assets in excess of projected benefit obligation at February 1, 1998 and February 2, 1997 are net of $4,264 and $3,729, respectively for certain underfunded plans. PVH has an unfunded supplemental defined benefit plan covering 23 current and retired executives under which the participants will receive a predetermined amount during the 10 years following the attainment of age 65, provided that prior to the termination of employment with PVH, the participant has been in the plan for at least 10 years and has attained age 55. PVH does not intend to admit new participants in the future. At February 1, 1998 and February 2, 1997, $8,309 and $7,450, respectively, are included in other liabilities as the accrued cost of this plan. Savings and Retirement Plans - PVH has a savings and retirement plan (the "Associates Investment Plan") and a supplemental savings plan for the benefit of its eligible employees who elect to participate. Participants generally may elect to contribute up to 15% of their annual compensation, as defined, to the plans. PVH contributions to the plans are equal to 50% of the amounts contributed by participating employees with respect to the first 6% of compensation and were $1,959 (1997), $2,249 (1996) and $2,668 (1995). In accordance with the terms of the Associates Investment Plan, PVH matching contributions are invested in the Company's common stock. Post-Retirement Benefits - PVH and its domestic subsidiaries provide certain health care and life insurance benefits to retired employees. Employees become eligible for these benefits if they reach retirement age while working for the Company. Retirees contribute to the cost of this plan, which is unfunded. F-14 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Retirement and Benefit Plans - (Continued) Net post-retirement benefit cost includes the following components: 1997 1996 1995 Service cost $ 389 $ 687 $ 466 Interest cost 2,403 2,166 2,128 Amortization of net loss 284 44 37 Amortization of transition obligation 273 273 273 $3,349 $3,170 $2,904 The following reconciles the plan's accumulated post-retirement benefit with amounts recognized in the Company's balance sheets: 1997 1996 Accumulated post-retirement benefit obligation: Retirees receiving benefits $27,389 $21,505 Fully eligible active plan participants 2,547 2,132 Active plan participants not eligible for benefits 4,171 5,503 34,107 29,140 Unrecognized transition obligation (4,097) (4,370) Unrecognized net loss (8,689) (4,729) Post-retirement liability recognized in the balance sheets $21,321 $20,041 The weighted average annual assumed rate of increase in the cost of covered benefits (i.e., health care cost trend rate) is 7.0% for 1998 and is assumed to decrease gradually to 5.5% by 2010 and remain at that level thereafter. Increasing the assumed health care cost trend rate by one percentage point would increase the accumulated post-retirement benefit obligation as of February 1, 1998 by $3,391, and the aggregate of the service and interest cost components of net post-retirement benefit cost for 1997 by $303. The discount rate used in determining the accumulated post-retirement benefit obligation at February 1, 1998 and February 2, 1997 was 7.25% and 8.0%, respectively. Segment Data PVH manages and analyzes its operating results by its two vertically integrated business segments: (i) Apparel and (ii) Footwear and Related Products. In prior years, the Apparel segment included sales, income and assets related to apparel marketed by the Company's footwear division. In the fourth quarter of 1997, PVH adopted FASB Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information". In identifying its reportable segments under the provisions of Statement No. 131, PVH evaluated its operating divisions and product offerings. Under the aggregation criteria of Statement No. 131, PVH aggregated the results of its apparel divisions into the Apparel segment, which now excludes Bass apparel. The apparel segment derives revenues from marketing dresswear, sportswear and accessories, principally under the brand names Van Heusen, Izod, Izod Club, Gant and Geoffrey Beene. PVH's footwear business has been identified as the Footwear and Related Products segment. This segment derives revenues from marketing casual and weekend footwear, apparel and accessories under the Bass brand name. F-15 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Segment Data - (Continued) Sales for both segments occur principally in the United States. There are no inter-segment sales. The Bass apparel data for prior years has been reclassified for consistent presentation with the current year.
1997 1996 1995 Net Sales Apparel. . . . . . . . . . . . . . . . . . . . . . . . . . $ 911,047 $ 897,370 $1,006,701 Footwear and Related Products. . . . . . . . . . . . . . . 438,960 462,223 457,427 Total Net Sales. . . . . . . . . . . . . . . . . . . . . . $1,350,007 $1,359,593 $1,464,128 Operating Income (Loss) Apparel(1) . . . . . . . . . . . . . . . . . . . . . . . . $ (33,049) $ 30,021 $ 12,432 Footwear and Related Products(2) . . . . . . . . . . . . . (38,853) 32,888 21,026 Total Operating Income (Loss). . . . . . . . . . . . . . . (71,902) 62,909 33,458 Corporate Expenses. . . . . . . . . . . . . . . . . . . . . . (15,251) (15,171) (12,885) Interest Expense, net . . . . . . . . . . . . . . . . . . . . (20,672) (23,164) (23,199) Income (Loss) Before Taxes . . . . . . . . . . . . . . . . $ (107,825) $ 24,574 $ (2,626) Identifiable Assets Apparel. . . . . . . . . . . . . . . . . . . . . . . . . . $ 355,979 $ 381,274 $ 468,618 Footwear and Related Products. . . . . . . . . . . . . . . 152,518 143,631 165,390 Corporate. . . . . . . . . . . . . . . . . . . . . . . . . 151,962 132,531 115,047 $ 660,459 $ 657,436 $ 749,055 Depreciation and Amortization Apparel. . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,484 $ 16,105 $ 22,399 Footwear and Related Products. . . . . . . . . . . . . . . 6,561 5,780 7,074 Corporate. . . . . . . . . . . . . . . . . . . . . . . . . 8,255 7,553 4,267 $ 25,300 $ 29,438 $ 33,740 Identifiable Capital Expenditures Apparel. . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,103 $ 4,269 $ 20,555 Footwear and Related Products. . . . . . . . . . . . . . . 3,957 6,650 7,281 Corporate. . . . . . . . . . . . . . . . . . . . . . . . . 5,863 11,659 11,937 $ 17,923 $ 22,578 $ 39,773
(1) Operating income of the Apparel segment includes charges for facility and store closing, restructuring and other expenses of $78,465 (1997) and $25,000 (1995). (2) Operating income of the Footwear and Related Products segment includes charges for facility and store closing, restructuring and other expenses of $54,235 (1997) and $2,000 (1995). F-16 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Facility and Store Closing, Restructuring and Other Expenses During 1997 and 1995, the Company recorded pre-tax charges of $132,700 and $27,000 respectively, related principally to a series of actions the Company has taken to accelerate the execution of its ongoing strategies to build its brands. The initiatives related to the 1997 charges are as follows: Exiting all U.S. mainland footwear manufacturing with the closing of the Company's Wilton, Maine footwear manufacturing facility Exiting sweater manufacturing with the sale and liquidation of the Company's Puerto Rico sweater operations Restructuring plant, warehouse and distribution and other administrative areas to reduce product costs and operating expenses and improve efficiencies Closing an additional 150 underperforming retail outlet stores Repositioning the Gant brand in the United States to be consistent with its highly successful positioning in Europe Modifying a repositioning of the Bass brand, including the liquidation of a resulting excess inventory The cost components of the 1997 charges are as follows: Inventory markdowns included in cost of goods sold $ 46,000 Fixed asset write-offs 40,800 Termination benefits for approximately 2,150 employees 19,500 Lease and other obligations 19,100 Other 7,300 $132,700 As of February 1, 1998, approximately $84,900 had been charged against this reserve, of which approximately $26,600 related to inventory markdowns. The initiatives related to the 1995 charges were the closing of three domestic shirt manufacturing facilities, closing approximately 300 underperforming retail outlet stores and reorganizing the Company's management structure to enhance the Company's focus on its brands. Approximately $13,000 of the charges related to the write-off of fixed assets located in such factories and retail outlet stores. The remaining $14,000 related to termination benefits, including pension settlements and curtailments of $1,200, for approximately 1,250 employees. As of February 1, 1998, all of this reserve had been utilized. F-17 PHILLIPS-VAN HEUSEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Other Comments One of the Company's directors, Mr. Harry N.S. Lee, is a director of TAL Apparel Limited, an apparel manufacturer and exporter based in Hong Kong. During 1997, 1996 and 1995, the Company purchased approximately $26,500, $35,000 and $45,000, respectively, of products from TAL Apparel Limited and certain related companies. The Company is a party to certain litigation which, in management's judgement based in part on the opinion of legal counsel, will not have a material adverse effect on the Company's financial position. During 1997, 1996 and 1995, the Company paid a $0.0375 per share cash dividend each quarter on its common stock. Certain items in 1996 and 1995 have been reclassified to present them on a basis consistent with 1997. F-18 PHILLIPS-VAN HEUSEN CORPORATION SELECTED QUARTERLY FINANCIAL DATA - UNAUDITED (In thousands, except per share data)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1997 1996 1997(1) 1996 1997 1996 1997(2) 1996(3) Net sales. . . . . . . . . . . . . $285,925 $273,660 $313,458 $313,807 $413,643 $391,245 $336,981 $380,881 Gross profit . . . . . . . . . . . 98,968 93,097 94,188 105,325 139,766 129,709 79,120 120,945 Net income (loss). . . . . . . . . (4,540) (6,554) (33,285) 2,126 14,552 15,035 (43,306) 7,923 Net income (loss) per share: Basic(4) . . . . . . . . . . . . (0.17) (0.24) (1.23) 0.08 0.54 0.56 (1.59) 0.29 Diluted. . . . . . . . . . . . . (0.17) (0.24) (1.23) 0.08 0.53 0.55 (1.59) 0.29 Price range of common stock per share High. . . . . . . . . . . . . 14 5/8 13 3/8 15 3/4 14 1/2 15 7/8 11 3/4 14 1/2 15 1/8 Low . . . . . . . . . . . . . 11 1/2 9 5/8 12 3/8 11 13 1/2 10 3/8 11 1/2 10 3/4
(1) Net loss for the second quarter of 1997 includes a pre-tax charge of $57,000 for facility and store closing, restructuring and other expenses. (2) Net loss for the fourth quarter of 1997 includes a pre-tax charge of $75,700 for facility and store closing, restructuring and other expenses. (3) The fourth quarter of 1996 includes 14 weeks of operations. (4) Due to averaging the quarterly shares outstanding when computing basic earnings per share, basic earnings per share totalled for the four quarters of 1997 does not agree with the annual amount. F-19 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Stockholders and the Board of Directors Phillips-Van Heusen Corporation We have audited the accompanying consolidated balance sheets of Phillips- Van Heusen Corporation and subsidiaries as of February 1, 1998 and February 2, 1997, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended February 1, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Phillips-Van Heusen Corporation and subsidiaries at February 1, 1998 and February 2, 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 1, 1998 in conformity with generally accepted accounting principles. E&Y SIGNATURE STAMP New York, New York March 10, 1998 F-20 PHILLIPS-VAN HEUSEN CORPORATION TEN-YEAR FINANCIAL SUMMARY (In thousands, except per share data, percents and ratios)
1997(1) 1996(2) 1995(3) 1994(4) 1993 Summary of Operations Net sales Apparel. . . . . . . . . . . . . . . . . . . . . . . $ 911,047 $ 897,370 $1,006,701 $ 812,993 $ 757,452 Footwear and Related Products. . . . . . . . . . . . 438,960 462,223 457,427 442,472 394,942 1,350,007 1,359,593 1,464,128 1,255,466 1,152,394 Cost of goods sold and expenses. . . . . . . . . . . . 1,437,160 1,311,855 1,443,555 1,205,764 1,072,083 Interest expense, net. . . . . . . . . . . . . . . . . 20,672 23,164 23,199 12,793 16,679 Income (loss) before taxes . . . . . . . . . . . . . . (107,825) 24,574 (2,626) 36,909 63,632 Income tax expense (benefit) . . . . . . . . . . . . . (41,246) 6,044 (2,920) 6,894 20,380 Income (loss) from continuing operations . . . . . . . (66,579) 18,530 294 30,015 43,252 Loss from discontinued operations. . . . . . . . . . . Extraordinary loss, net of tax . . . . . . . . . . . . (11,394) Net income (loss) . . . . . . . . . . . . . . . . $ (66,579) $ 18,530 $ 294 $ 30,015 $ 31,858 Per Share Statistics(5) Basic Earnings Per Share: Continuing operations. . . . . . . . . . . . . . . . . $ (2.46) $ 0.69 $ 0.01 $ 1.13 $ 1.66 Discontinued operations. . . . . . . . . . . . . . . . Extraordinary loss . . . . . . . . . . . . . . . . . . (0.44) Net income (loss) . . . . . . . . . . . . . . . . $ (2.46) $ 0.69 $ 0.01 $ 1.13 $ 1.22 Diluted Earnings Per Share: Continuing operations. . . . . . . . . . . . . . . . . $ (2.46) $ 0.68 $ 0.01 $ 1.11 $ 1.60 Discontinued operations. . . . . . . . . . . . . . . . Extraordinary loss . . . . . . . . . . . . . . . . . . (0.42) Net income (loss) . . . . . . . . . . . . . . . . $ (2.46) $ 0.68 $ 0.01 $ 1.11 $ 1.18 Dividends paid per share . . . . . . . . . . . . . . . $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.15 Stockholders' equity per share.. . . . . . . . . . . . 8.11 10.73 10.20 10.35 9.33 Financial Position Current assets . . . . . . . . . . . . . . . . . . . . $ 385,018 $ 362,958 $ 444,664 $ 429,670 $ 418,702 Current liabilities. . . . . . . . . . . . . . . . . . 274,221 122,266 183,126 114,033 109,156 Working capital. . . . . . . . . . . . . . . . . . . . 110,797 240,692 261,538 315,637 309,546 Total assets . . . . . . . . . . . . . . . . . . . . . 660,459 657,436 749,055 596,284 554,771 Long-term debt . . . . . . . . . . . . . . . . . . . . 241,004 189,398 229,548 169,679 169,934 Convertible redeemable preferred stock . . . . . . . . Stockholders' equity . . . . . . . . . . . . . . . . . 220,305 290,158 275,292 275,460 246,799 Other Statistics Total debt to total capital (6). . . . . . . . . . . . 53.0% 43.1% 52.3% 38.2% 40.8% Market value of stockholders' equity . . . . . . . . . $328,000 $ 365,000 $ 270,000 $ 426,000 $ 949,000 Current ratio. . . . . . . . . . . . . . . . . . . . . 1.4 3.0 2.4 3.8 3.8 Average shares outstanding . . . . . . . . . . . . . . 27,108 27,004 26,726 26,563 26,142
(1) 1997 includes pre-tax charges of $132,700 for facility and store closing, restructuring and other expenses. (2) 1996 and 1990 include 53 weeks of operations. (3) 1995 includes the operations of Izod and Gant from date of acquisition, February 17, 1995, and includes pre-tax charges of $27,000 for facility and store closing, restructuring and other expenses. (4) 1994 includes pre-tax charges of $7,000 for restructuring and other expenses. (5) The earnings per share amounts for years prior to 1997 have been restated to comply with FASB Statement No. 128, "Earnings Per Share." (6) Total capital equals interest-bearing debt, preferred stock and stockholders' equity. F-21 PHILLIPS-VAN HEUSEN CORPORATION TEN-YEAR FINANCIAL SUMMARY (CONTINUED)
1992 1991 1990(2) 1989 1988 Summary of Operations Net sales Apparel. . . . . . . . . . . . . . . . . . . . . . . $ 709,361 $596,383 $536,352 $493,395 $460,342 Footwear and Related Products. . . . . . . . . . . . 333,204 307,717 269,963 239,541 180,696 1,042,565 904,100 806,315 732,936 641,038 Cost of goods sold and expenses. . . . . . . . . . . . 972,357 843,367 752,252 682,687 597,543 Interest expense, net. . . . . . . . . . . . . . . . . 15,727 16,686 18,884 17,555 16,109 Income before taxes. . . . . . . . . . . . . . . . . . 54,481 44,047 35,179 32,694 27,386 Income tax expense . . . . . . . . . . . . . . . . . . 16,600 12,910 8,795 8,502 6,565 Income from continuing operations. . . . . . . . . . . 37,881 31,137 26,384 24,192 20,821 Loss from discontinued operations. . . . . . . . . . . (152) Extraordinary loss, net of tax . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . $ 37,881 $ 31,137 $ 26,384 $ 24,192 $ 20,669 Per Share Statistics(5) Basic Earnings Per Share: Continuing operations. . . . . . . . . . . . . . . . . $ 1.50 $ 1.24 $ 1.00 $ 0.88 $ 0.70 Discontinued operations. . . . . . . . . . . . . . . . (0.01) Extraordinary loss . . . . . . . . . . . . . . . . . . - Net income (loss). . . . . . . . . . . . . . . . . . . $ 1.50 $ 1.24 $ 1.00 $ 0.88 $ 0.69 Diluted Earnings Per Share: Continuing operations. . . . . . . . . . . . . . . . . $ 1.42 $ 1.15 $ 0.95 $ 0.84 $ 0.68 Discontinued operations. . . . . . . . . . . . . . . . (0.01) Extraordinary loss . . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . $ 1.42 $ 1.15 $ 0.95 $ 0.84 $ 0.67 Dividends paid per share . . . . . . . . . . . . . . . $ 0.15 $ 0.1425 $ 0.14 $ 0.14 $ 0.14 Stockholders' equity per share.. . . . . . . . . . . . 8.14 4.52 3.38 2.53 1.79 Financial Position Current assets . . . . . . . . . . . . . . . . . . . . $ 410,522 $ 303,143 $ 285,315 $ 266,867 $ 265,039 Current liabilities. . . . . . . . . . . . . . . . . . 115,208 102,976 90,748 84,190 88,191 Working capital. . . . . . . . . . . . . . . . . . . . 295,314 200,167 194,567 182,677 176,848 Total assets . . . . . . . . . . . . . . . . . . . . . 517,362 398,969 376,790 333,108 323,133 Long-term debt . . . . . . . . . . . . . . . . . . . . 170,235 121,455 140,259 118,776 116,400 Convertible redeemable preferred stock . . . . . . . . 72,800 72,800 72,800 72,800 Stockholders' equity . . . . . . . . . . . . . . . . . 211,413 84,903 62,324 46,085 32,476 Other Statistics Total debt to total capital (6). . . . . . . . . . . . 46.8% 46.0% 53.2% 52.6% 55.1% Market value of stockholders' equity . . . . . . . . . $ 753,000 $392,000 $173,000 $132,000 $127,000 Current ratio. . . . . . . . . . . . . . . . . . . . . 3.6 2.9 3.1 3.2 3.0 Average shares outstanding . . . . . . . . . . . . . . 23,766 18,552 18,260 18,140 18,090
(1) 1997 includes pre-tax charges of $132,700 for facility and store closing, restructuring and other expenses. (2) 1996 and 1990 include 53 weeks of operations. (3) 1995 includes the operations of Izod and Gant from date of acquisition, February 17, 1995, and includes pre-tax charges of $27,000 for facility and store closing, restructuring and other expenses. (4) 1994 includes pre-tax charges of $7,000 for restructuring and other expenses. (5) The earnings per share amounts for years prior to 1997 have been restated to comply with FASB Statement No. 128, "Earnings Per Share." (6) Total capital equals interest-bearing debt, preferred stock and stockholders' equity. F-22 SCHEDULE II PHILLIPS-VAN HEUSEN CORPORATION VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Column A Column B Column C Column D Column E Additions Balance at Charged to Charged to Balance Beginning Costs and Other at End Description of Period Expense Accounts Deductions of Period Year Ended February 1, 1998 Deducted from asset accounts: Allowance for doubtful accounts. . . . . . . . . . . . $3,401 $ 492(a) $ 202(b) $1,184(c) $2,911 Year Ended February 2, 1997 Deducted from asset accounts: Allowance for doubtful accounts. . . . . . . . . . . . $5,363 $1,207(a) $ 958(b) $4,127(c) $3,401 Year Ended January 28, 1996 Deducted from asset accounts: Allowance for doubtful accounts. . . . . . . . . . . . $1,617 $ 913(a) $3,331(d) $ 498(c) $5,363
(a) Provisions for doubtful accounts. (b) Recoveries of doubtful accounts previously written off. (c) Primarily uncollectible accounts charged against the allowance provided therefor. (d) Primarily reserves acquired in connection with the acquisition of the Izod and Gant businesses from Crystal Brands. F-23 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following table lists all of the subsidiaries of the Company and the jurisdiction of incorporation of each subsidiary. Each subsidiary does business under its corporate name indicated in the table. Name State or Other Jurisdiction of Incorporation G. H. Bass Franchises Inc. Delaware G. H. Bass Caribbean, Inc. Delaware Caribe M&I Ltd. Cayman Islands GHB (Far East) Limited Hong Kong Phillips-Van Heusen (Far East) Ltd. Hong Kong Confecciones Imperio, S.A. Costa Rica Camisas Modernas, S.A. Guatemala G. H. Bass Comercio Exportacacao Ltda. Brazil PVH Retail Corp. Delaware The IZOD Gant Corporation Pennsylvania Phillips-Van Heusen Puerto Rico LLC Delaware BassNet, Inc. Delaware EXHIBIT 23 Consent of Independent Auditors We consent to 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, (vi) Registration Statement (Form S-8, No. 333-29765) which relates to the Phillips-Van Heusen Corporation 1997 Stock Option Plan. of Phillips-Van Heusen Corporation and in the related Prospectuses of our report dated March 10, 1998, with respect to the consolidated financial statements and schedules of Phillips-Van Heusen Corporation included in this Form 10-K for the year ended February 1, 1998. Our audits also included the financial statement schedule of Phillips-Van Heusen Corporation listed in Item 14(a)(2). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP New York, New York April 14, 1998
                        SEVENTH AMENDMENT


          SEVENTH AMENDMENT, dated as of January 30, 1998 (this
"Amendment"), among PHILLIPS-VAN HEUSEN CORPORATION (the
"Borrower"), the financial institutions party to the Credit
Agreement referred to below (the "Banks"), and BANKERS TRUST
COMPANY, as agent (in such capacity, the "Agent") for the Banks. 
All capitalized terms used herein and not otherwise defined shall
have the meanings specified in the Credit Agreement referred to
below.


                      W I T N E S S E T H :


          WHEREAS, the Borrower, the Banks and the Agent are
parties to a Credit Agreement, dated as of December 16, 1993 (as
modified, supplemented or amended prior to the date hereof, the
"Credit Agreement");

          WHEREAS, subject to the terms and conditions hereof,
the Banks and the Borrower have agreed to amend the Credit
Agreement as set forth herein; 

          NOW, THEREFORE, in consideration of the mutual premises
contained herein and other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:

          1.   Section 2.01(b)(ii) of the Credit Agreement is
hereby amended by deleting the reference to "$8,000,000" therein
and by inserting in lieu thereof a reference to "$14,000,000".

          2.   Section 8.05 of the Credit Agreement is hereby
amended by deleting the ratio "3.25:1.00" appearing opposite the
date of April 30, 1998 in the table therein and inserting in lieu
thereof the ratio "2.75:1.00".

          3.   Section 8.07 of the Credit Agreement is hereby
amended by inserting at the end thereof the following proviso:

          "; provided, that notwithstanding the
          foregoing, at any time on and after February
          2, 1998 and on or before May 3, 1998, the
          Borrower will not permit such ratio to exceed
          0.62 to 1."

          4.   Section 10 of the Credit Agreement is hereby
amended by (a) deleting the definition of "EBIT" in its entirety
and (b) inserting the following new definition in appropriate
alphabetical order: 

          "EBIT" shall mean, for any period, the sum of (i)
     Consolidated Net Income of the Borrower for such period,
     (ii) provisions for taxes based on income or profits to the
     extent such income or profits were included in computing
     Consolidated Net Income and (iii) consolidated interest
     expense (including amortization of original issue discount
     and non-cash interest payments or accruals and the interest
     component of capitalized lease obligations), net of interest
     income theretofore deducted from earnings in computing
     Consolidated Net Income for such period; provided, however,
     that EBIT shall be determined without giving effect to (a)
     the Borrower's $55,000,000 pre-tax restructuring charge
     reflected in its financial statements for the fiscal quarter
     ending on or about July 31, 1997, or any subsequent reversal
     of all or part of such restructuring charge, (b) the
     Borrower's $75,000,000 pre-tax restructuring charge
     reflected in its financial statements for the fiscal quarter
     ending on or about January 31, 1998, or any subsequent
     reversal of all or part of such restructuring charge, and
     (c) costs and expenses of up to $3,000,000 incurred by the
     Borrower in the fiscal quarter ending on or about April 30,
     1998 in connection with updating and modifying its computer
     systems to address the "Year 2000 Problem".

          5.   Section 10 of the Credit Agreement is hereby
further amended by deleting the reference to "$8,000,000" in
clause (i)(x) of the provision in the definition of "Standby
Letter of Credit" and by inserting in lieu thereof a reference to
"$14,000,000".

          6.   This Amendment shall become effective on the date
(the "Amendment Effective Date") on which (i) the Borrower and
the Required Banks shall have executed and delivered a
counterpart of this Amendment and (ii) the Borrower and the
holders of the 1992 Notes shall have entered into a waiver,
consent or amendment in respect of the 1992 Note Purchase
Agreements, which waiver, consent or amendment shall be in form
and substance reasonably satisfactory to the Agent and shall have
become effective in accordance with the terms of the 1992 Note
Purchase Agreements.

          7.   Except as expressly amended hereby, the terms and
conditions of the Credit Agreement shall remain unchanged and in
full force and effect.

          8.   This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall
be an original, but all of which shall together constitute one
and the same instrument.
                                2


          9.   THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW
YORK.


                        *   *   *   *   *













































                                3


          IN WITNESS WHEREOF, the parties hereto have caused
their duly authorized officers to execute and deliver this
Amendment as of the date first above written.


                         PHILLIPS-VAN HEUSEN CORPORATION



                         By                               
                           Title:


                         BANKERS TRUST COMPANY,
                           Individually, and as Agent


                         By                              
                           Title: 


                         THE CHASE MANHATTAN BANK



                         By                              
                           Title: 


                         CITIBANK, N.A.



                         By                              
                           Title: 
















                                4


                         THE BANK OF NEW YORK



                         By                              
                           Title:


                         CHEMICAL BANK



                         By                               
                           Title: 


                         BANK BOSTON



                         By                               
                           Title: 



                         CIBC, INC.



                         By                               
                           Title: 



                         UNION BANK



                         By                               
                           Title: 











                                5

 








                        PHILLIPS-VAN HEUSEN CORPORATION
                      ___________________________________


                           THIRD AMENDMENT AGREEMENT
                         Dated as of February 1, 1998


                                       to


                                 NOTE AGREEMENTS
                           Dated as of October 1, 1992


     Re:           $55,000,000 7.85% Series A Senior Notes
                              Due November 1, 2002
                                       and
                    $8,000,000 7.02% Series B Senior Notes
                              Due November 1, 1999
                                       and
                    $6,000,000 7.75% Series C Senior Notes
                              Due November 1, 2002






                      PHILLIPS-VAN HEUSEN CORPORATION
                  1290 Avenue of the Americas-11th Floor
                       New York, New York  10104


                        THIRD AMENDMENT AGREEMENT
                                    TO
                                NOTE AGREEMENTS
                       DATED AS OF OCTOBER 1, 1992


          Re:       $55,000,000 7.85% Series A Senior Notes
                             Due November 1, 2002
                                      and
                     $8,000,000 7.02% Series B Senior Notes
                             Due November 1, 1999
                                      and
                       $6,000,000 7.75% Series C Senior Notes
                             Due November 1, 2002



                                                                   Dated as of
                                                              February 1, 1998

To the Holders as
  defined hereinbelow

Ladies and Gentlemen:

      Reference is made to the separate Note Agreements each dated as of October
1, 1992 (the "Outstanding Note Agreements") between PHILLIPS-VAN HEUSEN
CORPORATION, a Delaware corporation (the "Company"), and each of the Purchasers
named on Schedule I thereto (the "Purchasers") as amended pursuant to that
certain First Amendment Agreement dated as of June 24, 1996 and that certain
Second Amendment Agreement dated as of July 15, 1997, pursuant to which the
Company issued and sold (i) $55,000,000 original aggregate principal amount of
its 7.85% Series A Senior Notes due November 1, 2002 (the "Series A Notes"), 
(ii) $8,000,000 original aggregate principal amount of its 7.02% Series B 
Senior Notes due November 1, 1999 (the "Series B Notes") and (iii) $6,000,000
original aggregate principal amount of its 7.75% Series C Senior Notes due 
November 1, 2002 (the "Series C Notes").  The Purchasers or transferees of 
such Purchasers are hereinafter collectively referred to as the "Holders." 
The Series A Notes, Series B Notes and Series C Notes are hereinafter 
collectively referred to as the "Outstanding Notes."

      The Company and the Holders now desire to amend the Outstanding Note
Agreements in the respects, but only in the respects, hereinafter set forth.


Phillips-Van Heusen Corporation          Third Amendment to Note Agreements



      Now, therefore, the Company and the Holders, in consideration of good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, do hereby agree as follows:

     SECTION 1.     AMENDMENTS TO THE OUTSTANDING NOTE AGREEMENTS.

     Section 1.1.  Sections 2.2 and 2.3 of the Existing Note Agreements are 
hereby amended to read in their entirety as follows:

           Section 2.2.   Prepayment with Premium.  (a) Subject to Sec. 2.2(b),
     in addition to the payments required by Sec. 2.1, upon compliance with Sec.
     2.3 the Company shall have the privilege, at any time and from time to
     time, of prepaying the outstanding Notes, either in whole or in part (but
     if in part then in a minimum aggregate principal amount of $1,000,000) by
     payment of the principal amount of the Notes, or portion thereof to be
     prepaid, and accrued interest thereon to the date of such prepayment,
     together with a premium equal to the Make-Whole Amount, determined for the
     date of prepayment as of the date three Business Days prior to the date of
     such prepayment pursuant to this Sec. 2.2(a).  Any prepayment of less than
     all of the outstanding Notes pursuant to this Sec. 2.2(a) shall be applied
     in accordance with Sec. 2.1(e).

           (b)  In addition to the payments required by Sec. 2.1, the Company
     agrees that within five (5) days of completion of any public or Rule 144A
     debt offering by the Company, the Company shall prepay and apply and there
     shall become due and payable on the principal indebtedness evidenced by the
     Notes an amount equal to 100% of the aggregate outstanding principal amount
     thereof together with accrued and unpaid interest thereon to the date of
     such prepayment, and in the case of any such prepayment on or prior to July
     31, 1998, together with a premium equal to the Modified Make-Whole Amount
     and in the case of any such prepayment thereafter, together with a premium
     equal to the Make-Whole Amount, in each case, determined for the date of
     such prepayment as of the date two Business Days prior to the date of such
     prepayment pursuant to this Sec. 2.2(b).

           Section 2.3.   Notice of Prepayments.  The Company will give notice
     of any prepayment of the Notes pursuant to Sec. 2.2 to each holder thereof
     not less than 30 days nor more than 60 days in the case of Sec. 2.2(a), and
     not less than 2 Business Days or more than 30 days in the case of Sec.
     2.2(b), before the date fixed for such prepayment specifying (i) such date,
     (ii) the principal amount of the holder's Notes to be prepaid on such date,
     (iii) that a premium may be payable, (iv) the date when such premium will
     be calculated, (v) the estimated premium, and (vi) the accrued interest
     applicable to the prepayment.  Such notice of prepayment shall also certify
     all facts, if any, which are conditions precedent to any such prepayment. 
     Notice of prepayment having been so given, the aggregate principal amount
     of the Notes specified in such notice, together with accrued interest
     thereon and the premium, if any, payable with respect thereto shall become
     due and payable on the prepayment date specified in said notice.  Not later
     than two Business Days prior to the prepayment date specified in such
     notice, the Company shall provide each holder of a Note written notice of
     the premium, if any, payable in connection with such prepayment and,
     whether or not any premium is payable, a reasonably detailed computation of
     the Make-Whole Amount or the Modified Make-Whole Amount, as the case may
     be.


                                       2

Phillips-Van Heusen Corporation          Third Amendment to Note Agreements



    Section 1.2.   Section 5.5 of the Existing Note Agreements is hereby amended
to read in its entirety as follows:

           Section 5.5.   Consolidated Net Worth.  The Company will at all times
     keep and maintain Consolidated Net Worth at an amount not less than the sum
     of:

                (i)  $150,000,000;

           plus

                (ii) 50% of the amount of any positive Consolidated Net Income
     for each fiscal year of the Company beginning with the fiscal year ending
     January 31, 1993 (except that in the case of the fiscal year ending January
     31, 1993, the period of calculation shall begin May 3, 1992) computed on a
     cumulative basis for the entire period beginning May 3, 1992 to and
     including the last day of the fiscal year immediately preceding the date of
     any determination hereunder (it being agreed that for the purposes of this
     clause (ii) of this Sec. 5.5, (a) Consolidated Net Income shall be deemed
     to be zero for any fiscal year (or the three fiscal-quarter period in the
     case of the fiscal year ending January 31, 1993) in which Consolidated Net
     Income was a deficit figure, and (b) the after tax restructuring charge in
     the amount of $48,000,000 taken by the Company in the fourth quarter of the
     fiscal year ended February 1, 1998 shall be added back to Consolidated Net
     Income to the extent deducted therefrom).

    Section 1.3.   Section 5.6 of the Existing Note Agreements is hereby amended
to read in its entirety as follows:

           Section 5.6.  Limitations on Debt; Interest Charges Coverage Ratio. 
     (a) The Company will not, and will not permit any Restricted Subsidiary to,
     create, assume or incur or in any manner be or become liable in respect of
     any Current Debt or Funded Debt, except:

           (1)  Funded Debt evidenced by the Notes;

           (2)  Funded Debt of the Company and its Restricted Subsidiaries
     outstanding as of October 1, 1992 and reflected on Annex B to Exhibit B
     hereto;

           (3)  additional Funded Debt of the Company and its Restricted
     Subsidiaries incurred subsequent to the First Amendment Agreement Closing
     Date;

           (4)  Current Debt of the Company or any Restricted Subsidiary;
     provided, however, that during the twelve-month period immediately
     preceding the date of any determination hereunder, there shall have been a
     period of thirty consecutive days during which the average daily amount of
     Current Debt of the Company and all Restricted Subsidiaries shall not
     exceed an amount equal to $25,000,000 plus the amount of Funded Debt which
     could have been incurred (in addition to any Funded Debt then outstanding)
     on each such day by the Company and all Restricted Subsidiaries pursuant to
     Sec. 5.6(a)(3) and Sec. 5.6(b)(3); and




                                       3

Phillips-Van Heusen Corporation          Third Amendment to Note Agreements



           (5)  Current Debt or Funded Debt of a Restricted Subsidiary to the
     Company or to a Wholly-owned Restricted Subsidiary.

     (b)   In addition to the restrictions contained in Sec. 5.6(a), the Company
shall not:

           (1)  permit Basket Obligations to exceed 15% of Consolidated Net
     Worth;

           (2)  create, assume or incur or in any manner become liable in
     respect of any Debt secured by a Lien described in Sec. 5.7(viii), if,
     after giving effect thereto, the sum of (i) Basket Obligations plus (ii)
     all Debt secured by Liens incurred pursuant to Sec. 5.7(a)(vii), would
     exceed 15% of Consolidated Net Worth; and

           (3)  permit the ratio of Funded Debt to Consolidated Total
     Capitalization for the respective periods set forth below to exceed the
     ratio set forth opposite such period:

                        PERIOD                               RATIO

           From the date hereof through and including       .55 to 1
           the fiscal year ending February 1, 1998

           From February 1, 1998 to and including           .60 to 1
           August 1, 1998
           and at all times thereafter:                     .45 to 1

           (c)  Any corporation which becomes a Restricted Subsidiary after the
     date hereof shall for all purposes of this Sec. 5.6 be deemed to have
     created, assumed or incurred at the time it becomes a Restricted Subsidiary
     all Debt of such corporation existing immediately after it becomes a
     Restricted Subsidiary.

           (d)  The Company will not permit the ratio of Net Income Available
     for Interest Charges to Interest Charges for the period of four consecutive
     fiscal quarters ending on or about the end of each month specified below to
     be less than the ratio set forth opposite such month:

                                  PERIOD                RATIO

                            April 1996                  1.25x
                            July 1996                   1.25x
                            October 1996                1.30x
                            February 1997               1.40x

                            April 1997                  1.70x
                            July 1997                   1.70x
                            October 1997                2.00x
                            January 1998                2.00x

                            April 1998                  1.50x
                            July 1998                   1.50x
                            October 1998 and each 
                              April, July, October and
                              January thereafter        2.50x


                                       4

Phillips-Van Heusen Corporation          Third Amendment to Note Agreements


     Section 1.4.   Section 8.1 of the Outstanding Note Agreements shall be and
is hereby amended as follows:

           a.   The definition of "Reinvestment Rate" included in the definition
     of "Make-Whole Amount" is hereby amended to read in its entirety as
     follows:

     "Reinvestment Rate" shall mean .50%, plus the yield
to maturity of the United States Treasury obligations
with a maturity (as reported on the applicable
Government PX Screen on the Bloomberg Financial Markets
Services Screens (or such other display as may replace
the Government PX Screen on Bloomberg Financial Markets
Services Screens) not more than three Business Days
immediately preceding the payment date) most nearly
equal to the remaining Weighted Average Life to Maturity
of the principal being prepaid (taking into account the
application of such prepayment required by Sec. 2.1). 
If such rate shall not have been so reported on the
applicable Government PX Screen on the Bloomberg
Financial Markets Services Screens (or its replacement),
the Reinvestment Rate in respect of such payment date
shall mean the mean of the yields to maturity of United
States Treasury obligations (as compiled by and
published in the statistical release designated
"H.15(519)" or its successor publication for each of the
two weeks immediately preceding the payment date) with
a constant maturity most nearly equal to the Weighted
Average Life to Maturity of the principal being prepaid
(taking into account the application of such prepayment
required by Sec. 2.1).  If no maturity exactly
corresponding to the Weighted Average Life to Maturity
shall appear therein, yields for the next longer and the
next shorter published maturities shall be calculated
pursuant to the foregoing sentence and the Reinvestment
Rate shall be interpolated from such yields on a
straight-line basis (rounding to the nearest month).  If
such rates shall not have been so published in
statistical release H.15(519) (or its successor
publication), the Reinvestment Rate in respect of such
determination date shall be calculated pursuant to the
next preceding sentence on the basis of the average of
the respective averages of the secondary market ask
rates, as of approximately 3:30 P.M., New York City
time, on the last Business Days of each of the two weeks
preceding the payment date, for the actively traded U.S.
Treasury security or securities with a maturity or
maturities most closely corresponding to the remaining
Weighted Average Life to Maturity, as reported by three
primary United States Government securities dealers in
New York City of national standing selected in good
faith by the Company.





                           5

Phillips-Van Heusen Corporation          Third Amendment to Note Agreements


           b.   The following definition of "Modified Make-Whole Amount" is
     hereby inserted in alphabetical order in Section 8.1:

     "Modified Make-Whole Amount" shall mean the
"Make-Whole Amount" determined by (a) substituting
"1.00%" for ".50%" in the definition of "Reinvestment
Rate", (b) using the expressed maturity dates of the
Notes and prepayments required pursuant to Sec. 2.1,
notwithstanding the mandatory prepayment pursuant to
Sec. 2.2(b) and (c) using the respective rates of
interest applicable to each series of Notes as set forth
in subparagraphs (a), (b) and (c) of Sec. 1.1, without
regard to any Adjusted Coupon Rates.

           c.   The definition of "Net Income Available for Interest Charges" is
     hereby amended to read in its entirety as follows:

     "Net Income Available for Interest Charges" for any
period shall mean the sum of (i) Consolidated Net Income
during such period plus (to the extent deducted in
determining Consolidated Net Income for such period),
(ii) all provisions for any Federal, state or other
income taxes made by the Company and its Restricted
Subsidiaries during such period, (iii) the one-time
restructuring charges of $55,000,000 taken in the second
quarter of the fiscal year ended February 1, 1998 and
$75,000,000 taken in the fourth quarter of the fiscal
year ended February 1, 1998, (iv) Interest Charges of
the Company and its Restricted Subsidiaries during such
period and (v) all expenses incurred by the Company and
its Restricted Subsidiaries in connection with
addressing year 2000 computer compliance in an amount
not to exceed $15,000,000 in the aggregate.

SECTION 2.     REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     Section 2.1.   To induce the Holders to execute and deliver this Third
Amendment Agreement, the Company represents and warrants (which representations
and warranties shall survive the execution and delivery of this Third Amendment
Agreement) to the Holders, as true and correct as of the date of execution and
delivery of this Third Amendment Agreement, that

           (a)  the Company and each Restricted Subsidiary is a corporation duly
     incorporated, validly existing and in good standing under the laws of its
     respective jurisdiction of incorporation;

           (b)  this Third Amendment Agreement has been duly authorized,
     executed and delivered by it and this Third Amendment Agreement constitutes
     the legal, valid and binding obligation, contract and agreement of the
     Company enforceable against it in accordance with its terms;

           (c)  each of the Outstanding Note Agreements and the Outstanding
     Notes, as amended by this Third Amendment Agreement, constitute the legal,
     valid and binding obligations, contracts and agreements of the Company
     enforceable against it in accordance with their respective terms;


                                       6

Phillips-Van Heusen Corporation          Third Amendment to Note Agreements


           (d)  the execution, delivery and performance by the Company of this
     Third Amendment Agreement (i) has been duly authorized by all requisite
     corporate action and, if required, shareholder action, (ii) does not
     require the consent or approval of any governmental or regulatory body or
     agency, and (iii) will not (A) violate or cause a default under (1) any
     provision of law, statute, rule or regulation or its certificate of
     incorporation or bylaws, (2) any order of any court or any rule, regulation
     or order of any other agency or government binding upon it, or (3) any
     provision of any material indenture, agreement or other instrument to which
     it is a party or by which its properties or assets are or may be bound, or
     (B) result in a breach or constitute (alone or with due notice or lapse of
     time or both) a default under any indenture, agreement or other instrument
     referred to in clause (iii)(A)(3) of this Sec. 2.1(d);

           (e)  as of the date hereof after giving effect to this Third
     Amendment Agreement, no Default or Event of Default has occurred which is
     continuing; and

           (f)  no consents or approvals are necessary from any other holder of
     any Indebtedness of the Company to give effect to this Third Amendment
     Agreement.

SECTION 3.     CONDITIONS PRECEDENT.

     Section 3.1.   This Third Amendment Agreement shall not become effective
until, and shall become effective when, each and every one of the following
conditions shall have been satisfied:

           (a)  executed counterparts of this Third Amendment Agreement, duly
     executed by the Company and the holders of at least 100% of the outstanding
     principal amount of the Outstanding Notes, shall have been delivered to the
     Holders;

           (b)  the representations and warranties of the Company set forth in
     Sec. 2 hereof are true and correct as of the date of execution and delivery
     of this Third Amendment Agreement; and

           (c)  the Company shall have paid the reasonable fees and expenses of
     Chapman and Cutler, counsel to the Holders, in connection with the
     negotiation, preparation, approval, execution and delivery of this Third
     Amendment Agreement as required by Sec. 9.4 of the Outstanding Note
     Agreements.

Upon receipt of all of the foregoing, this Third Amendment Agreement shall 
become effective.

SECTION 4.     MISCELLANEOUS.

     Section 4.1.   This Third Amendment Agreement shall be construed in
connection with and as part of each of the Outstanding Note Agreements, and all
terms, conditions and covenants contained in each of the Outstanding Note
Agreements shall be and remain in full force and effect.

     Section 4.2.   Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Third Amendment Agreement may refer to the Outstanding Note Agreements 
without making specific reference to this Third Amendment Agreement but 
nevertheless all such references shall include this Third Amendment 
Agreement unless the context otherwise requires.
                                       7


Phillips-Van Heusen Corporation          Third Amendment to Note Agreements


     Section 4.3.   The descriptive headings of the various Sections or parts of
this Third Amendment Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.

     Section 4.4.   This Third Amendment Agreement shall be governed by and
construed in accordance with New York law.

     Section 4.5.   This Third Amendment Agreement shall be binding upon the
Company, the Holders and their respective successors and assigns.

















































                                       8

Phillips-Van Heusen Corporation          Third Amendment to Note Agreements



     The execution hereof by you shall constitute a contract between us for the
uses and purposes hereinabove set forth, and this Third Amendment Agreement to
each of the Outstanding Note Agreements may be executed in any number of
counterparts, each executed counterpart constituting an original, but all
together only one agreement.

                                          PHILLIPS-VAN HEUSEN CORPORATION



                                          By                             
                                             Its














































                                       9

Phillips-Van Heusen Corporation          Third Amendment to Note Agreements



     The execution by each of the following Holders shall constitute its
acceptance of the Third Amendment Agreement and its confirmation that it holds
the Outstanding Notes set opposite its name as of the date of its execution and
delivery hereof.

Accepted as of February 1, 1998:
                                                  OUTSTANDING NOTES


THE EQUITABLE LIFE ASSURANCE SOCIETY           $8,571,429.81 Series A Notes
  OF THE UNITED STATES                         $4,285,714.91 Series A Notes
                                                 $4,000,000 Series B Notes
                                                 $6,000,000 Series C Notes


By________________________________
  Its



UNUM LIFE INSURANCE COMPANY OF                 $14,285,716.36 Series A Notes
  AMERICA



By________________________________
  Its


NATIONWIDE LIFE INSURANCE                      $5,714,285.71 Series A Notes
   COMPANY



By________________________________
  Its






















                                      10

Phillips-Van Heusen Corporation          Third Amendment to Note Agreements



EMPLOYERS LIFE INSURANCE COMPANY               $1,428,571.43 Series A Notes
  OF WAUSAU



By________________________________
  Its


LUTHERAN BROTHERHOOD                           $5,000,000.73 Series A Notes




By________________________________
  Its









































                                      11

 

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PHILLIPS-VAN HEUSEN CORPORATION FINANCIAL STATEMENTS INCLUDED IN ITS 10-K REPORT FOR THE YEAR ENDED FEBRUARY 1, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR FEB-01-1998 FEB-01-1998 11,748 0 91,567 2,911 249,534 385,018 94,582 0 660,459 274,221 100,118 0 0 27,179 193,126 660,459 1,350,007 1,350,007 937,965 937,965 499,195 0 20,672 (107,825) (41,246) (66,579) 0 0 0 (66,579) (2.46) (2.46) Property, plant and equipment is presented net of accumulated depreciation. Provision for doubtful accounts is included in other costs and expenses.
 

5 THE YEARS ENDED FEBRUARY 2, 1997 AND JANUARY 28, 1996 ARE PRESENTED TO REFLECT THE EPS DATA REQUIRED BY FAS128, WHICH WAS ADOPTED BY PHILLIPS-VAN HEUSEN CORPORATION FOR THE YEAR ENDED FEBRUARY 1, 1998. 1,000 YEAR YEAR FEB-02-1997 JAN-28-1996 FEB-02-1997 JAN-28-1996 11,590 17,533 0 0 95,207 115,380 3,401 5,514 237,422 276,773 362,958 444,664 137,060 143,398 0 0 657,436 749,055 122,266 183,126 189,398 229,548 0 0 0 0 27,046 26,979 263,112 248,313 657,436 749,055 1,359,593 1,464,128 1,359,593 1,464,128 910,517 987,921 910,517 987,921 401,338 455,634 0 0 23,164 23,199 24,574 (2,626) 6,044 (2,920) 18,530 294 0 0 0 0 0 0 18,530 294 0.69 0.01 0.68 0.01 Property, plant and equipment is presented net of accumulated depreciation. Provision for doubtful accounts is included in other costs and expenses.