SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 1, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-724
PHILLIPS-VAN HEUSEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1166910
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1290 Avenue of the Americas New York, New York 10104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (212) 541-5200
Indicate by check mark whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
The number of outstanding shares of common stock, par value $1.00 per
share, of Phillips-Van Heusen Corporation as of December 2, 1998: 27,274,084
shares.
PHILLIPS-VAN HEUSEN CORPORATION
INDEX
PART I -- FINANCIAL INFORMATION
Independent Accountants Review Report................................. 1
Condensed Consolidated Balance Sheets as of November 1, 1998 and
February 1, 1998...................................................... 2
Condensed Consolidated Statements of Operations for the thirteen
weeks and thirty-nine weeks ended November 1, 1998 and
November 2, 1997...................................................... 3
Condensed Consolidated Statements of Cash Flows for the
thirty-nine weeks ended November 1, 1998 and November 2, 1997......... 4
Notes to Condensed Consolidated Financial Statements.................. 5-6
Management's Discussion and Analysis of Results of Operations
and Financial Condition............................................... 7-13
PART II -- OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K............................. 14-16
Signatures............................................................ 17
Exhibit--Acknowledgment of Independent Accountants.................... 18
Exhibit--Financial Data Schedule...................................... 19
Independent Accountants Review Report
Stockholders and Board of Directors
Phillips-Van Heusen Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
Phillips-Van Heusen Corporation as of November 1, 1998, and the related
condensed consolidated statements of operations for the thirteen and thirty-
nine week periods ended November 1, 1998 and November 2, 1997, and the related
condensed consolidated statements of cash flows for the thirty-nine week
periods ended November 1, 1998 and November 2, 1997. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Phillips-Van Heusen Corporation
as of February 1, 1998, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the year then ended (not
presented herein) and in our report dated March 10, 1998, except for the long-
term debt note, which is as of April 22, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of February 1, 1998, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
ERNST & YOUNG LLP
New York, New York
November 17, 1998
-1-
Phillips-Van Heusen Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share data)
UNAUDITED AUDITED
November 1, February 1,
1998 1998
ASSETS
Current Assets:
Cash, including cash equivalents of $6,695 and $1,413 $ 11,070 $ 11,748
Trade receivables, less allowances of $2,323 and $2,911 125,969 88,656
Inventories 285,512 249,534
Other, including deferred taxes of $19,031 40,825 35,080
Total Current Assets 463,376 385,018
Property, Plant and Equipment 91,652 94,582
Goodwill 114,123 116,467
Other Assets, including deferred taxes of $44,659 and
$44,094 75,601 64,392
$744,752 $660,459
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 84,100 $ 7,900
Accounts payable 30,855 36,233
Accrued expenses 85,405 89,202
Total Current Liabilities 200,360 133,335
Long-Term Debt 248,709 241,004
Other Liabilities 67,768 65,815
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 27,237,213
and 27,179,244 27,237 27,179
Additional Capital 117,394 116,954
Retained Earnings 83,284 76,172
Total Stockholders' Equity 227,915 220,305
$744,752 $660,459
See accompanying notes.
-2-
Phillips-Van Heusen Corporation
Condensed Consolidated Statements of Operations
Unaudited
(In thousands, except per share data)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 1, November 2, November 1, November 2,
1998 1997 1998 1997
Net sales $374,392 $413,643 $976,528 $1,013,026
Cost of goods sold 246,329 273,527 636,894 677,945
Gross profit 128,063 140,116 339,634 335,081
Selling, general and administrative expenses 98,849 114,153 296,573 316,167
Year 2000 computer conversion expenses 2,125 6,375
Facility and store closing, restructuring
and other expenses 41,150
Income (loss) before interest, taxes and
extraordinary item 27,089 25,963 36,686 (22,236)
Interest expense, net 7,374 5,958 19,494 16,234
Income (loss) before taxes and
extraordinary item 19,715 20,005 17,192 (38,470)
Income tax expense (benefit) 5,699 5,453 4,940 (15,197)
Income (loss) before extraordinary item 14,016 14,552 12,252 (23,273)
Extraordinary loss on debt retirement,
net of tax benefit (1,060)
Net income (loss) $ 14,016 $ 14,552 $ 11,192 $ (23,273)
Basic net income (loss) per share:
Income (loss) before extraordinary item $ 0.51 $ 0.54 $ 0.45 $ (0.86)
Extraordinary loss, net of tax benefit (0.04)
Net income (loss) per share $ 0.51 $ 0.54 $ 0.41 $ (0.86)
Diluted net income (loss) per share:
Income (loss) before extraordinary item $ 0.51 $ 0.53 $ 0.45 $ (0.86)
Extraordinary loss, net of tax benefit (0.04)
Net income (loss) per share $ 0.51 $ 0.53 $ 0.41 $ (0.86)
In the second quarter of 1997, the Company recorded a non-recurring pre-tax
charge of $57,000 related to a series of actions the Company has taken to
accelerate the execution of its ongoing strategy to build its brands. Such
amount has been recorded in the statement of operations for the thirty-nine
weeks ended November 2, 1997 as follows:
Cost of goods sold $15,850
Facility and store closing and restructuring
and other expenses 41,150
57,000
Income tax benefit (20,200)
$36,800
See accompanying notes.
-3-
Phillips-Van Heusen Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited
(In thousands)
Thirty-Nine Weeks Ended
November 1, November 2,
1998 1997
OPERATING ACTIVITIES:
Net income (loss) $ 11,192 $(23,273)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization 19,199 19,297
Write-off of assets 18,800
Deferred income taxes (565) (19,988)
Equity income in Pyramid Sportswear (864) (756)
Changes in operating assets and liabilities:
Receivables (46,228) (52,505)
Inventories (35,977) (79,358)
Accounts payable and accrued expenses (10,182) 46,149
Other-net 1,004 10,088
Net Cash Used By Operating Activities (62,421) (81,546)
INVESTING ACTIVITIES:
Property, plant and equipment acquired (15,092) (12,882)
FINANCING ACTIVITIES:
Net proceeds from issuance of 9.5% senior
subordinated notes 145,104
Repayment of 7.75% senior notes (49,286)
Proceeds from revolving lines of credit 160,600 113,505
Payments on revolving lines of credit (176,000) (6,800)
Exercise of stock options 498 677
Cash dividends (4,081) (4,062)
Net Cash Provided By Financing Activities 76,835 103,320
Increase (decrease) in cash (678) 8,892
Cash at beginning of period 11,748 11,590
Cash at end of period $ 11,070 $ 20,482
See accompanying notes.
-4-
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
GENERAL
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not contain all
disclosures required by generally accepted accounting principles for complete
financial statements. Reference should be made to the annual financial
statements, including the notes thereto, included in the Company's Annual
Report to Stockholders for the year ended February 1, 1998.
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.
The results of operations for the thirty-nine weeks ended November 1, 1998 and
November 2, 1997 are not necessarily indicative of those for a full fiscal
year due, in part, to seasonal factors. The data contained in these financial
statements are unaudited and are subject to year-end adjustments; however, in
the opinion of management, all known adjustments (which consist only of normal
recurring accruals) have been made to present fairly the consolidated
operating results for the unaudited periods.
Certain reclassifications have been made to the condensed consolidated
financial statements for the thirteen and thirty-nine weeks ended November 2,
1997 to present that information on a basis consistent with the thirteen and
thirty-nine weeks ended November 1, 1998.
INVENTORIES
Inventories are summarized as follows:
November 1, February 1,
1998 1998
Raw materials $ 10,243 $ 15,964
Work in process 17,688 15,216
Finished goods 257,581 218,354
Total $285,512 $249,534
Inventories are stated at the lower of cost or market. Cost for apparel
inventories, excluding certain sportswear inventories, 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).
Inventories would have been approximately $10,900 and $12,200 higher than
reported at November 1, 1998 and February 1, 1998, respectively, if the FIFO
method of inventory accounting had been used for all apparel.
-5-
The final determination of cost of sales and inventories under the LIFO method
can only be made at the end of each fiscal year based on inventory cost and
quantities on hand. Interim LIFO determinations are based on management's
estimates of expected year-end inventory levels and costs. Such estimates are
subject to revision at the end of each quarter. Since estimates of future
inventory levels and costs are subject to external factors, interim financial
results are subject to year-end LIFO inventory adjustments.
EXTRAORDINARY LOSS
On April 22, 1998, PVH issued $150 million of 9.5% senior subordinated notes
due May 1, 2008 and used the net proceeds to retire its intermediate term
7.75% senior notes and to repay a portion of the borrowings under its prior
revolving credit facility. On the same day, PVH refinanced its revolving
credit facility by entering into a new $325 million senior secured credit
facility. In connection with the retirement of the intermediate term 7.75%
senior notes, the Company paid a yield maintenance premium of $1.4 million and
wrote off certain debt issue costs of $0.2 million. These items have been
classified as an extraordinary loss, net of tax benefit of $0.5 million, in
the first quarter of 1998.
FACILITY AND STORE CLOSING, RESTRUCTURING AND OTHER EXPENSES
On July 31, 1997, the Company announced that it would take a series of actions
to accelerate the execution of its ongoing strategy to build its brands.
Included in these actions were the closing of approximately 150 outlet stores,
repositioning the Gant brand in the United States to be consistent with its
highly successful positioning in Europe and Asia, exiting the sweater
manufacturing business and restructuring warehousing and distribution
facilities as well as other logistical and administrative areas in order to
reduce costs and improve efficiencies. As a result, the Company recorded a
non-recurring pre-tax charge of $57,000 ($36,800 after tax, or $1.36 a diluted
share) in the second quarter of 1997.
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 identifying its reportable segments under the provisions of FASB
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information", 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. This 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.
Sales for both segments occur principally in the United States. There are no
inter-segment sales. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" for additional segment data.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
In the second quarter of 1997, the Company recorded a non-recurring pre-tax
charge of $57 million related to a series of actions the Company has taken to
accelerate the execution of its ongoing strategy to build its brands. See
Notes to Condensed Consolidated Financial Statements.
The following statements of operations, segment data and discussion (where
noted) segregate this non-recurring charge from the Company's ongoing
operations.
(In thousands) Statements of Operations
Thirteen Weeks Ended Thirty-Nine Weeks Ended
11/1/98 11/2/97 11/1/98 11/2/97
Net sales $374,392 $413,643 $976,528 $1,013,026
Cost of goods sold (per page 3) 246,329 273,527 636,894 677,945
Non-recurring charge (15,850)
Gross profit before
non-recurring charge 128,063 140,116 339,634 350,931
SG&A expenses and non-recurring
charge 98,849 114,153 296,573 357,317
Non-recurring charge (41,150)
Selling, general and
administrative expenses
before non-recurring charge 98,849 114,153 296,573 316,167
Income before Year 2000
computer conversion expenses,
interest, taxes and
non-recurring charge 29,214 25,963 43,061 34,764
Year 2000 computer conversion
expenses 2,125 6,375
Income before interest, taxes
and non-recurring charge 27,089 25,963 36,686 34,764
Interest expense, net 7,374 5,958 19,494 16,234
Income tax expense before
non-recurring charge 5,699 5,453 4,940 5,003
Income from ongoing
operations before
non-recurring charge 14,016 14,552 12,252 13,527
Non-recurring charge, net
of tax benefit (36,800)
Extraordinary loss, net of
tax benefit (1,060)
Net income (loss) $ 14,016 $ 14,552 $ 11,192 $ (23,273)
-7-
(In thousands) Segment Data
Thirteen Weeks Ended Thirty-Nine Weeks Ended
11/1/98 11/2/97 11/1/98 11/2/97
Net sales-apparel $256,252 $284,963 $665,238 $ 680,086
Net sales-footwear and
related products 118,140 128,680 311,290 332,940
Total net sales $374,392 $413,643 $976,528 $1,013,026
Operating income-apparel $ 25,090 $ 25,431 $ 37,374 $ 32,258
Operating income-footwear
and related products 8,095 4,327 15,813 14,723
Total operating income 33,185 29,758 53,187 46,981
Corporate expenses (3,971) (3,795) (10,126) (12,217)
Income before Year 2000
computer conversion
expenses, non-recurring
charge, interest and taxes $ 29,214 $ 25,963 $ 43,061 $ 34,764
Excluding Year 2000 computer conversion expenses (net of tax benefit), diluted
earnings per share before extraordinary item for the thirteen and thirty-nine
weeks ended November 1, 1998 would have been $0.57 and $0.61, respectively.
Thirteen Weeks Ended November 1, 1998 Compared With Thirteen Weeks Ended
November 2, 1997
APPAREL SEGMENT
Net sales of the Company's apparel segment in the third quarter decreased to
$256.3 million in 1998 compared with $285.0 million last year, a 10.1%
decrease. This decrease resulted principally from the Company's planned
strategic initiatives to close underperforming retail outlet stores and divest
its sweater manufacturing business. It was also reflective of generally weak
retail conditions.
Gross profit on apparel sales was 33.5% in the current quarter compared with
33.3% last year.
Selling, general and administrative expenses as a percentage of apparel sales
was 23.7% in the current quarter compared with 24.4% last year. The improved
expense level relates principally to the tighter management of expenses and
the planned reduction in brand marketing expenditures against the prior year's
advertising launch for the Company's brands.
-8-
FOOTWEAR AND RELATED PRODUCTS SEGMENT
Net sales of the Company's footwear and related products segment in the third
quarter were $118.1 million in 1998 compared with $128.7 million last year, a
decrease of 8.2%. This decrease relates principally to generally weak retail
conditions, resulting in a reduction in sales at Bass' retail outlet stores.
Gross profit on footwear and related products sales was 35.5% in the third
quarter of 1998 compared with 35.2% last year.
Selling, general and administrative expenses as a percentage of footwear and
related products sales in the third quarter was 28.6% in 1998 compared with
31.9% in 1997. The decrease is due principally to the tighter management of
expenses and the planned reduction in brand marketing expenditures against the
prior year's advertising launch.
INTEREST EXPENSE
Interest expense in the third quarter was $7.4 million in 1998 compared with
$6.0 million last year. This increase resulted from higher debt levels
associated with funding the Company's 1997 restructuring initiatives and from
increased borrowing costs associated with the refinancings completed by the
Company in the current year's first quarter, which extended the maturities of
its long-term debt.
INCOME TAXES
Income tax expense in the third quarter of 1998 includes an adjustment to
bring the year-to-date tax rate to the full year estimated rate of 28.7%. The
1998 tax rate is higher than the full year 1997 rate of 23.9% (before non-
recurring charges) due to tax exempted income from operations in Puerto Rico
comprising a smaller percentage of 1998 pre-tax income than in the prior year,
due principally to the divestment of the Company's Puerto Rico sweater
manufacturing operations.
CORPORATE EXPENSES
Corporate expenses in the third quarter were $4.0 million in 1998 compared
with $3.8 million in 1997. Corporate expenses for the full year are expected
to approximate the 1997 total.
-9-
Thirty-Nine Weeks Ended November 1, 1998 Compared With Thirty-Nine Weeks Ended
November 2, 1997
APPAREL SEGMENT
Net sales of the Company's apparel segment in the first nine months were
$665.2 million in 1998, a decrease of 2.2% from the prior year's $680.1
million. This decrease resulted principally from the Company's planned
strategic initiatives to close underperforming retail outlet stores and divest
its sweater manufacturing business. This decrease was offset partially by a
7.5% increase in sales of wholesale branded apparel.
Gross profit on apparel sales was 33.7% in the first nine months of 1998
compared with 33.3% last year (before the non-recurring charge). Strength in
dress shirts, Van Heusen and Geoffrey Beene were the primary factors in this
increase.
Selling, general and administrative expenses as a percentage of apparel sales
in the first nine months was 28.1% in 1998 compared with 28.5% in 1997 (before
the non-recurring charge). The improved expense level relates principally to
the tighter management of expenses and the planned reduction in brand
marketing expenditures against the prior year's advertising launch for the
Company's brands.
FOOTWEAR AND RELATED PRODUCTS SEGMENT
Net sales of the Company's footwear and related products segment in the first
nine months were $311.3 million in 1998, a 6.5% decrease from $332.9 million
last year. This decrease resulted from the current quarter's sales reduction
at Bass' retail outlet stores noted above and Bass' sales and gross margins
being impacted negatively in the current year's first half by the unsuccessful
repositioning in Fall 1997 of the Bass brand to higher price points.
Gross profit on footwear and related products sales was 36.9% in the first
nine months of 1998 compared with 37.4% last year (before the non-recurring
charge). Bass' gross profit improved slightly in the current year's third
quarter compared with the prior year. However, this improvement was more than
offset by the negative impact in the first half of this year of the
unsuccessful repositioning noted above.
Selling, general and administrative expenses as a percentage of footwear and
related products sales in the first nine months was 31.8% in 1998 and 33.0% in
1997 (before the non-recurring charge). This improvement resulted from the
tighter management of expenses and the planned reduction in brand marketing
expenditures against the prior year's advertising launch.
INTEREST EXPENSE
Interest expense in the first nine months was $19.5 million in 1998 compared
with $16.2 million last year. This increase resulted from higher debt levels
associated with funding the Company's 1997 restructuring initiatives and from
increased borrowing costs associated with the refinancings completed by the
Company in the current year's first quarter, which extended the maturities of
its long-term debt.
-10-
INCOME TAXES
Income taxes in the first nine months were estimated at a rate of 28.7% in
1998 compared with last year's full year rate of 23.9% (before non-recurring
charges). The 1998 tax rate is higher due to tax exempted income from
operations in Puerto Rico comprising a smaller percentage of 1998 pre-tax
income than in the prior year, due principally to the divestment of the
Company's Puerto Rico sweater manufacturing operations.
CORPORATE EXPENSES
Corporate expenses in the first nine months were $10.1 million in 1998
compared with $12.2 million in 1997. The decrease relates to the timing of
certain expenses, as corporate expenses for the full year are expected to
approximate the 1997 total.
YEAR 2000
The Company incurred $2.1 million and $6.4 million of computer conversion
expenses in the current quarter and first nine months of 1998, respectively,
in connection with making its computer systems Year 2000 compliant. The
Company expects to incur additional Year 2000 computer conversion expenses of
approximately $2.1 million in the current year and $10.0 million in 1999. The
Company is utilizing both internal and external resources to remediate, or
replace, and test the software for Year 2000 modifications.
The Company has identified three phases of its Year 2000 Project:
(i) Inventory, (ii) Assessment and (iii) Remediation and Testing. The
Inventory and Assessment phases were completed in the first quarter of 1998.
As of December 1, 1998, significant progress has been made in the remediation
and testing phase. The Company anticipates completing the Year 2000 Project
by June 30, 1999.
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. The
Company presently believes that the Year 2000 issue will not pose significant
operational problems for its computer systems. The Company has also
communicated with its customers and suppliers in order to determine whether
the Year 2000 issue will impact the ability of those companies' computer
systems to interface with the Company's systems or will otherwise impact the
ability of those companies to transact business with the Company. The Company
is not aware of any such material issues with its customers and suppliers.
However, due to uncertainties inherent in the Year 2000 issue, the Company has
developed various courses of action to mitigate the effect of any unforeseen
disruptions resulting from non-compliance either by the Company's computer
systems, or those of other companies on which the Company's systems and
operations rely. Notwithstanding such contingency plans, if the required
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.
-11-
FACILITY AND STORE CLOSING, RESTRUCTURING AND OTHER EXPENSES
On July 31, 1997, the Company announced that it would take a series of actions
to accelerate the execution of its ongoing strategy to build its brands.
Included in these actions were the closing of approximately 150 outlet stores,
repositioning the Gant brand in the United States to be consistent with its
highly successful positioning in Europe and Asia, exiting the sweater
manufacturing business and restructuring warehousing and distribution
facilities as well as other logistical and administrative areas in order to
reduce costs and improve efficiencies. As a result, the Company recorded a
non-recurring pre-tax charge of $57 million ($36.8 million after tax or $1.36
a diluted share) in the second quarter of 1997. As of November 1, 1998, the
majority of this reserve has been utilized.
SEASONALITY
The Company's business is seasonal, with higher sales and income during its
third and fourth quarters, which coincide with the Company's two peak retail
selling seasons: the first running from the start of the back to school and
fall selling seasons beginning in August and continuing through September; the
second being the Christmas selling season beginning with the weekend following
Thanksgiving and continuing through the week after Christmas.
Also contributing to the strength of the third quarter is the high volume of
fall shipments to wholesale customers which are generally more profitable than
spring shipments. The slower spring selling season at wholesale combines with
retail seasonality to make the first quarter particularly weak.
LIQUIDITY AND CAPITAL RESOURCES
The seasonal nature of the Company's business typically requires the use of
cash to fund a build-up in the Company's inventory in the first half of each
fiscal year. During the third and fourth quarters, the Company's higher level
of sales tends to reduce its inventory and generate cash from operations.
Net cash used by operations in the first nine months was $62.4 million in 1998
and $81.5 million last year. The Company's seasonal inventory build-up was
less than in the prior year due principally to a lower Bass inventory build-up
than in the prior year. Partially offsetting this reduction in cash flow was
spending in 1998 associated with the Company's 1997 restructuring initiatives.
Capital spending in the first nine months was $15.1 million in 1998 compared
with $12.9 million last year. The Company anticipates a significant increase
in overall capital spending levels in 1998 due principally to the anticipated
consolidation of its New York City offices into one location in early 1999.
-12-
On April 22, 1998, the Company issued $150 million of 9.5% senior subordinated
notes due May 1, 2008, and used the net proceeds to retire its intermediate
term 7.75% senior notes and reduce its revolving credit debt. At the same
time, the Company re-syndicated and refinanced its revolving credit facility
with a new $325 million senior secured credit facility with a group of 12
banks. While these refinancings will increase the overall cost of the
Company's borrowings, the Company believes they should provide a secure
financial base which will allow the Company to focus its attention on the
execution of its strategic business plan. The new revolving credit facility
also includes a letter of credit facility with a sub-limit of $250 million
provided, however, that the aggregate maximum amount outstanding under both
the revolving credit facility and the letter of credit facility is $325
million. The Company believes that its borrowing capacity under these
facilities is adequate for its peak seasonal needs in the foreseeable future.
In addition, the refinancings have eliminated all long-term debt repayment
requirements for the next 10 years.
* * *
********************************************************************************
*
* SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF *
* 1995 *
* *
* Forward-looking statements in this Form 10-Q report, including, without *
* limitation, statements relating to the Company's plans, strategies, *
* objectives, expectations and intentions, are made pursuant to the safe harbor*
* provisions of the Private Securities Litigation Reform Act of 1995. *
* Investors are cautioned that such forward-looking statements 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; (iv) the timing and effectiveness of programs dealing *
* with the Year 2000 issue; and (v) other risks and uncertainties indicated *
* from time to time in the Company's filings with the Securities and Exchange *
* Commission. *
* *
********************************************************************************
-13-
Part II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
3.1 Certificate of Incorporation (incorporated by reference to Exhibit
5 to the Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 1977).
3.2 Amendment to Certificate of Incorporation, filed June 27, 1984
(incorporated by reference to Exhibit 3B to the Company's Annual
Report on Form 10-K for the fiscal year ended February 3, 1985).
3.3 Certificate of Designation of Series A Cumulative Participating
Preferred Stock, filed June 10, 1986 (incorporated by reference to
Exhibit A of the document filed as Exhibit 3 to the Company's
Quarterly Report as filed on Form 10-Q for the period ended May 4,
1986).
3.4 Amendment to Certificate of Incorporation, filed June 2, 1987
(incorporated by reference to Exhibit 3(c) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1988).
3.5 Amendment to Certificate of Incorporation, filed June 1, 1993
(incorporated by reference to Exhibit 3.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 30, 1994).
3.6 Amendment to Certificate of Incorporation, filed June 20, 1996
(incorporated by reference to Exhibit 3.1 to the Company's Report
on Form 10-Q for the period ended July 28, 1996).
3.7 By-Laws of Phillips-Van Heusen Corporation, as amended through
June 18, 1996 (incorporated by reference to Exhibit 3.2 to the
Company's Report on Form 10-Q for the period ended July 28, 1996).
4.1 Specimen of Common Stock certificate (incorporated by reference to
Exhibit 4 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1981).
4.2 Preferred Stock Purchase Rights Agreement (the "Rights Agreement"),
dated June 10, 1986 between PVH and The Chase Manhattan Bank, N.A.
(incorporated by reference to Exhibit 3 to the Company's Quarterly
Report as filed on Form 10-Q for the period ended May 4, 1986).
4.3 Amendment to the Rights Agreement, dated March 31, 1987 between PVH
and The Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 4(c) to the Company's Annual Report on Form 10-K for the
year ended February 2, 1987).
-14-
4.4 Supplemental Rights Agreement and Second Amendment to the Rights
Agreement, dated as of July 30, 1987, between PVH and The Chase
Manhattan Bank, N.A. (incorporated by reference to Exhibit (c)(4)
to the Company's Schedule 13E-4, Issuer Tender Offer Statement,
dated July 31, 1987).
4.5 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 April 22, 1998, among PVH, the group
of lenders party hereto, The Chase Manhattan Bank, as
Administrative Agent and Collateral Agent, and Citicorp USA, Inc.,
as Documentation Agent (incorporated by reference to Exhibit 4.6 to
the Company's report on Form 10-Q for the period ended May 3,
1998).
4.7 Indenture, dated as of April 22, 1998, with PVH as issuer and Union
Bank of California, N.A., as Trustee (incorporated by reference to
Exhibit 4.7 to the Company's report on Form 10-Q for the period
ended May 3, 1998).
4.8 Indenture, dated as of November 1, 1993, between PVH and The Bank
of New York, as Trustee (incorporated by reference to Exhibit 4.01
to the Company's Registration Statement on Form S-3 (Reg. No. 33-
50751) filed on October 26, 1993).
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).
-15-
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).
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 1998 (incorporated by reference to Exhibit 10.15 to the
Company's report on Form 10-Q for the period ending August 2,
1998).
15. Acknowledgement of Independent Accountants.
27. Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended November 1, 1998.
No reports have been filed on Form 8-K during the quarter covered by this
report.
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHILLIPS-VAN HEUSEN CORPORATION
Registrant
December 13, 1998 /s/ Emanuel Chirico
Emanuel Chirico, Controller
Vice President and
Chief Accounting Officer
-17-
Exhibit 15
November 17, 1998
Stockholders and Board of Directors
Phillips-Van Heusen Corporation
We are aware of the incorporation by reference in
(i) Post-Effective Amendment No. 2 to the Registration Statement (Form
S-8, No. 2-73803), which relates to the Phillips-Van Heusen Corporation
Employee Savings and Retirement Plan,
(ii) Registration Statement (Form S-8, No. 33-50841) and Registration
Statement (Form S-8, No. 33-59602), each of which relate to the
Phillips-Van Heusen Corporation Associates Investment Plan for Residents
of the Commonwealth of Puerto Rico,
(iii) Registration Statement (Form S-8, No. 33-59101), which relates to
the Voluntary Investment Plan of Phillips-Van Heusen Corporation
(Crystal Brands Division),
(iv) Post-Effective Amendment No. 4 to Registration Statement (Form S-8,
No. 2-72959), Post Effective Amendment No. 6 to Registration Statement
(Form S-8, No. 2-64564), and Post Effective Amendment No. 13 to
Registration Statement (Form S-8, No. 2-47910), each of which relate to
the 1973 Employee's Stock Option Plan of Phillips-Van Heusen
Corporation, and
(v) Registration Statement (Form S-8, No. 33-38698), Post-Effective
Amendment No. 1 to Registration Statement (Form S-8, No. 33-24057) and
Registration Statement (Form S-8, No. 33-60793), each of which relate to
the Phillips-Van Heusen Corporation 1987 Stock Option Plan,
(vi) Registration Statement (Form S-8, No. 333-29765) which relates to
the Phillips-Van Heusen Corporation 1997 Stock Option Plan,
of our reports dated November 17, 1998, August 19, 1998 and May 20, 1998
relating to the unaudited condensed consolidated interim financial statements
of Phillips-Van Heusen Corporation that are included in its Forms 10-Q for the
thirteen week periods ended November 1, 1998, August 19, 1998 and May 20,
1998.
Pursuant to Rule 436(c) of the Securities Act of 1933, our reports are a part
of the registration statements or post-effective amendments prepared or
certified by accountants within the meaning of Section 7 or 11 of the
Securities Act of 1933.
ERNST & YOUNG LLP
New York, New York
-18-
5
1,000
9-MOS
JAN-31-1999
NOV-01-1998
11,070
0
128,292
2,323
285,512
463,376
91,652
0
744,752
200,360
248,709
0
0
27,237
200,678
744,752
976,528
976,528
636,894
636,894
302,948
0
19,494
17,192
4,940
12,252
0
(1,060)
0
11,192
0.41
0.41
Property, plant and equipment is presented net of accumulated depreciation.
Provision for doubtful accounts is included in other costs and expenses.
NOTE: PVH adopted FASB Statement No. 128, "Earnings Per Share", in the fourth
quarter of 1997. The EPS data presented for the nine months ended November 2,
1997 would not change when computed under the guidance of this Statement.
