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 May 1, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-724
PHILLIPS-VAN HEUSEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1166910
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1290 Avenue of the Americas New York, New York 10104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (212) 541-5200
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that registrant was required to file such reports), and (2) has
been subject to such filing requirement for the past 90 days.
Yes X No
The number of outstanding shares of common stock, par value $1.00 per
share, of Phillips-Van Heusen Corporation as of May 31, 1994: 26,554,498
shares.
PHILLIPS-VAN HEUSEN CORPORATION
INDEX
PART I -- FINANCIAL INFORMATION
Independent Accountants' Review Report................................ 1
Consolidated Balance Sheets as of May 1, 1994 and
January 30, 1994...................................................... 2
Consolidated Statements of Income for the thirteen weeks
ended May 1, 1994 and May 2, 1993..................................... 3
Consolidated Statements of Cash Flows for the thirteen weeks ended
May 1, 1994 and May 2, 1993........................................... 4
Notes to Consolidated Financial Statements............................ 5-6
Management's Discussion and Analysis of Results of Operations
and Financial Condition............................................... 7-8
PART II -- OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K............................. 9-10
Exhibit--Computation of Earnings per Common Share..................... 11
Exhibit--Acknowledgment of Independent Accountants.................... 12
Signatures............................................................ 13
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 May 1, 1994, and the related condensed
consolidated statements of income and cash flows for the three-month periods
ended May 1, 1994 and May 2, 1993. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, which will
be performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Phillips-Van Heusen Corporation
as of January 30, 1994, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended (not presented
herein) and in our report dated March 17, 1994, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of January 30, 1994, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
ERNST & YOUNG
New York, New York
May 19, 1994
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Phillips-Van Heusen Corporation
Consolidated Balance Sheets
(In thousands, except share data)
UNAUDITED AUDITED
May 1, January 30,
1994 1994
ASSETS
Current Assets:
Cash, including cash equivalents of $41,792 and $66,064 $ 43,666 $ 68,070
Trade receivables, less allowances of $1,515 and $2,171 64,878 61,986
Other receivables 4,120 3,847
Inventories 272,872 269,871
Other, including deferred taxes of $5,727 15,510 14,928
Total Current Assets 401,046 418,702
Property, Plant and Equipment 111,452 109,506
Intangibles Applicable to Businesses Acquired 18,075 18,189
Other Assets, including deferred taxes of $4,608 8,417 8,374
$538,990 $554,771
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 32,177 $ 42,188
Accrued expenses 64,657 60,696
Accrued income taxes 151 6,027
Current portion of long-term debt 245 245
Total Current Liabilities 97,230 109,156
Long-Term Debt, less current portion 169,936 169,934
Other Liabilities 29,952 28,882
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 33,275,056
and 33,190,750 33,275 33,191
Additional Capital 118,870 118,360
Retained Earnings 263,534 269,055
415,679 420,606
Less: 6,728,576 shares of common stock held
in treasury--at cost (173,807) (173,807)
Total Stockholders' Equity 241,872 246,799
$538,990 $554,771
See accompanying notes.
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Phillips-Van Heusen Corporation
Consolidated Statements of Income
Unaudited
(In thousands, except per share amounts)
Thirteen Weeks
Ended
May 1, May 2,
1994 1993
Net sales $238,897 $221,924
Cost of goods sold 159,735 143,800
Gross profit 79,162 78,124
Selling, general and administrative expenses 81,371 77,228
(Loss) income before interest and taxes (2,209) 896
Interest expense, net 3,322 4,118
Loss before taxes (5,531) (3,222)
Income taxes (2,000) (1,014)
Net loss $ (3,531) $ (2,208)
Net loss per share $ (0.13) $ (0.08)
Cash dividends per share $ 0.0375 $ 0.0375
See accompanying notes.
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Phillips-Van Heusen Corporation
Consolidated Statements of Cash Flows
Unaudited
(In Thousands)
Thirteen Weeks Ended
May 1, May 2,
1994 1993
OPERATING ACTIVITIES:
Net Loss $ (3,531) $ (2,208)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 5,761 4,642
Other-net (879) (407)
1,351 2,027
Changes in operating assets and liabilities:
Receivables (3,165) (6,675)
Inventories (3,001) (28,291)
Accounts payable and accrued expenses (12,156) (7,519)
Other-net (582) 326
Net Cash Used By Operating Activities (17,553) (40,132)
INVESTING ACTIVITIES:
Plant and equipment acquired (8,158) (8,459)
Contributions from landlords 1,219 1,324
Other-net 1,484 1,735
Net Cash Used By Investing Activities (5,455) (5,400)
FINANCING ACTIVITIES:
Payments on long-term borrowings 0 (2)
Exercise of stock options 594 518
Payment of dividends (1,990) (1,951)
Net Cash Used By Financing Activities (1,396) (1,435)
DECREASE IN CASH (24,404) (46,967)
Cash at beginning of period 68,070 77,063
Cash at end of period $ 43,666 $ 30,096
See accompanying notes.
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PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not contain all
disclosures required by generally accepted accounting principles for complete
financial statements. Reference should be made to the annual financial
statements, including the footnotes thereto, included in the Company's Annual
Report to Stockholders for the year ended January 30, 1994.
The results of operations for the thirteen weeks ended May 1, 1994 and May 2,
1993 are not necessarily indicative of those for a full fiscal year because of
seasonal factors. The data contained in these financial statements are
unaudited and are subject to year-end adjustments; however, in the opinion of
management, all known adjustments (which consist only of normal recurring
accruals) have been made to present fairly the consolidated operating results
for the unaudited periods.
Certain reclassifications have been made to the segment information for the
quarter ended May 2, 1993 to present that information on a basis consistent
with the quarter ended May 1, 1994.
INVENTORIES
Inventories are summarized as follows:
May 1, January 30,
1994 1994
Raw materials $ 16,241 $ 16,710
Work in process 15,119 13,941
Finished goods 241,512 239,220
Total $272,872 $269,871
Inventories are stated at the lower of cost or market. Cost for the apparel
business is determined principally using the last-in first-out method (LIFO).
Cost for the footwear business is determined using the first-in first-out
method (FIFO). Inventories would have been $11,938 and $11,500 higher than
reported at May 1, 1994 and January 30, 1994, respectively, if the FIFO method
of inventory accounting had been used for the apparel business.
The determination of cost of sales and inventories under the LIFO method can
only be made at the end of each fiscal year based on inventory cost and
quantities on hand. Interim LIFO determinations are based on management's
estimates of expected year-end inventory levels and costs. Such estimates are
subject to revision at the end of each quarter. Since estimates of future
inventory levels and costs are subject to external factors, interim financial
results are subject to year-end LIFO inventory adjustments.
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SEGMENT DATA
The Company operates in two industry segments: (i) apparel - the manufacture,
procurement for sale and marketing of a broad range of men's, women's and
children's apparel to traditional wholesale accounts as well as through
Company-owned retail stores, and (ii) footwear - the manufacture, procurement
for sale and marketing of a broad range of men's, women's and children's shoes
to traditional wholesale accounts as well as through Company-owned retail
stores.
Operating income represents net sales less operating expenses. Excluded from
operating results of the segments are interest expense, net, corporate
expenses and income taxes.
Thirteen Weeks
Ended
May 1, May 2,
1994 1993
Net sales-apparel $159,103 $147,512
Net sales-footwear 79,794 74,412
Total net sales $238,897 $221,924
Operating loss-apparel $ (1,620) $ (2,244)
Operating income-footwear 1,917 4,844
Total operating income 297 2,600
Corporate expenses 2,506 1,704
Interest expense, net 3,322 4,118
Loss before taxes $ (5,531) $ (3,222)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Thirteen Weeks Ended May 1, 1994 Compared to Thirteen Weeks Ended
May 2, 1993
APPAREL
Net sales of the Company's apparel segment in the first quarter were $159.1
million in 1994 and $147.5 million last year, an increase of approximately
7.9%. Growth of the Company's retail operations and the expanded offering of
apparel in the Company's Bass stores accounted for this increase which was
offset, in part, by slower shirt sales to traditional wholesale customers.
Operating loss of the apparel segment was $1.6 million in the first quarter of
1994 compared to a loss of $2.2 million in the first quarter of 1993. This
improvement resulted from the sales increase noted above, a continuing expense
reduction program in the Company's retail stores and a decreased LIFO charge
from $1.5 million in last year's first quarter to $0.4 million in the current
quarter. Offsetting these improvements, in part, were reduced margins on
sales to traditional wholesale customers resulting from a weak dress shirt
market and costs incurred to expand the offering of apparel in the Company's
Bass stores.
FOOTWEAR
Net sales of the Company's footwear segment, conducted through its Bass
division, were $79.8 million in the first quarter of 1994 and $74.4 million
last year, an increase of approximately 7.2%. The principal reason for this
increase is a broadening of the footwear product assortment to more trend and
seasonal merchandise, including sandals and water-proof performance footwear.
Operating income of the footwear segment decreased to $1.9 million in the
first quarter of 1994 from $4.8 million in the first quarter of 1993. Margins
in the Company's Bass stores were negatively impacted in the current quarter
by promotional selling, resulting in large part from the decision to
accelerate markdowns to remove slower moving merchandise from inventory. In
addition, pricing pressure on sales to traditional wholesale customers of
Saddle and Buc shoes and Weejuns negatively impacted the current quarter's
margins.
INTEREST EXPENSE
Net interest expense was $3.3 million in the first quarter of 1994 compared
with $4.1 million last year. This decrease resulted from the Company's
issuance of $100 million of 7.75% Debentures due 2023 in the fourth quarter of
1993 and the use of the net proceeds to redeem higher cost long-term debt.
INCOME TAXES
Income tax was estimated at a rate of 36.2% for the first quarter and year of
1994 compared with last year's rates of 31.5% and 32.0% for the first quarter
and year, respectively. This increase in rate is due to normally taxed income
increasing more rapidly than tax exempt income from operations in Puerto Rico.
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CORPORATE EXPENSES
Corporate expenses were $2.5 million in the first quarter of 1994 compared to
$1.7 million in 1993. This increase is due to a general increase in spending
to support the Company's growth.
SEASONALITY
The Company's business is seasonal, with higher sales and income during its
third and fourth quarters. This reflects primarily the Company's
significantly higher sales and operating margins during the Company's two peak
retail selling seasons: the first running from the start of the summer
vacation period in late May and continuing through September; the second being
the Christmas selling season beginning with the weekend following Thanksgiving
and continuing through the week after Christmas.
Also contributing to the strength of the third quarter is the high volume of
fall shipments to wholesale customers which are more profitable than spring
shipments. The slower spring selling season at wholesale combined with retail
seasonality makes the first quarter particularly weak. As the Company
continues to expand its retail business, these seasonal differences are
expected to become more significant.
LIQUIDITY AND CAPITAL RESOURCES
The seasonal nature of the Company's business typically requires a build up in
the Company's working capital in the first half of each fiscal year. During
the third and fourth quarters, the Company typically generates sufficient cash
from operations to reduce its working capital.
Cash used by operations in the first quarter totalled $17.6 million in 1994
and $40.1 million last year. This improvement was achieved as a result of the
Company's focus on inventory management. Although the Company achieved a 7.6%
increase in sales from last year's first quarter, inventories are 4.9% lower
at the end of the current quarter compared to the end of last year's first
quarter.
For short-term liquidity, the Company has a revolving credit agreement under
which the Company may, at its option, borrow and repay amounts up to a maximum
of $85 million, except that for the Company's third quarter, during which
period its borrowings peak, the maximum amount available to the Company is
$100 million. While the Company does not presently have any outstanding
borrowings from its revolving credit facility, the Company anticipates
borrowing under this facility during the second and third quarters of the
current year. The Company believes the availability of this facility provides
it with adequate short-term liquidity for its seasonal borrowing needs.
Over the past several years, the Company has taken a number of steps to
strengthen its financial position. In 1992, the Company repurchased its
preferred stock with the net proceeds from the issuance of 6.4 million shares
of its common stock. The Company has also reduced the cost and extended the
maturity of its long-term debt with the net proceeds from the issuance of $69
million of 7.75% Senior Notes in 1992 and the issuance of $100 million of
7.75% Debentures in 1993.
The Company's ability to generate earnings has enabled it to reduce its long-
term debt (net of invested cash) as a percentage of total capital to 34.6% at
the end of the current quarter compared to 40.4% at the end of last year's
first quarter.
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Part II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
4.1 Specimen of Common Stock certificate (incorporated by reference to
Exhibit 4 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1981).
4.2 Preferred Stock Purchase Rights Agreement (the "Rights Agreement"),
dated June 10, 1986 between PVH and The Chase Manhattan Bank, N.A.
(incorporated by reference to Exhibit 3 to the Company's Quarterly
Report as filed on Form 10-Q for the period ended May 4, 1986).
4.3 Amendment to the Rights Agreement, dated March 31, 1987 between PVH
and The Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 4(c) to the Company's Annual Report on Form 10-K for the
year ended February 2, 1987).
4.4 Supplemental Rights Agreement and Second Amendment to the Rights
Agreement, dated as of July 30, 1987, between PVH and The Chase
Manhattan Bank, N.A. (incorporated by reference to Exhibit (c)(4)
to the Company's Schedule 13E-4, Issuer Tender Offer Statement,
dated July 31,1987).
4.5 Credit Agreement, dated as of December 16, 1993, among PVH, Bankers
Trust Company, The Chase Manhattan Bank, N.A., Citibank, N.A., The
Bank of New York, Chemical Bank and Philadelphia National Bank, and
Bankers Trust Company, as agent (incorporated by reference to
Exhibit 4.5 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1994).
4.6 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).
4.7 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 Sublease, dated as of August 5, 1987, between Telemundo Group, Inc.
and PVH (incorporated by reference to Exhibit 28.2 to the Company's
Report on Form 8-K filed on September 5, 1987).
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10.2 1987 Stock Option Plan, including all amendments through March 30,
1993 (incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 30,
1994).
10.3 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).
10.4 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).
10.5 Phillips-Van Heusen Corporation Special Severance Benefit Plan
(incorporated by reference to the Company's Report on Form 8-K
filed on January 16, 1987).
10.6 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 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).
10.10 Phillips-Van Heusen Corporation Supplemental Savings Plan, dated as
of January 1, 1991 and amended and restated as of January 1, 1992
(incorporated by reference to Exhibit 10.29 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 2, 1992).
11. Computation of Earnings per Common Share.
15. Consent of Independent Auditors.
(b) Reports on Form 8-K
No reports have been filed on Form 8-K during the quarter covered by this
report.
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Exhibit 11
PHILLIPS-VAN HEUSEN CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
Thirteen Weeks Ended
May 1, May 2,
1994 1993
Primary:
Net loss $(3,531) $(2,208)
Common shares and common share equivalents:
Weighted average number of shares outstanding 26,519 26,011
Shares issuable upon exercise of dilutive
common stock options, net of shares assumed
to be repurchased (at the average period
market price) out of proceeds obtained
therefrom 0 0
Total common shares and common share
equivalents 26,519 26,011
Net loss per common share and common share
equivalents $ (0.13) $ (0.08)
Fully diluted:
Net loss $(3,531) $(2,208)
Total common shares and common share
equivalents (see above) 26,519 26,011
Additional shares issuable upon
the exercise of dilutive common stock
options, net of shares assumed to be
repurchased (at the greater of average
period or period end market price) 0 0
Total common shares and common share
equivalents assuming full dilution 26,519 26,011
Net loss per common share and common
share equivalents (1) (1)
(1) Amounts not shown since results are not different from primary loss per
common share.
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Exhibit 15
May 19, 1994
Stockholders and Board of Directors
Phillips-Van Heusen Corporation
We are aware of the incorporation by reference in the Registration Statement
(Form S-3, No. 33-50751), Registration Statement (Form S-8, No. 33-59602),
Registration Statement (Form S-3, No. 33-46770), Registration Statement (Form
S-8, No. 33-38698), Post-Effective amendment No. 1 to the Registration
Statement (Form S-8, No. 33-24057), Post-Effective amendment No. 2 to the
Registration Statement (Form S-8, No. 2-73803), Post-Effective amendment No. 4
to the Registration Statement (Form S-8, No. 2-72959), Post-Effective
amendment No. 6 to the Registration Statement (Form S-8, No. 2-64564), and
Post-Effective amendment No. 13 to the Registration Statement (Form S-8, No.
2-47910), of Phillips-Van Heusen Corporation of our report dated May 19, 1994
relating to the unaudited condensed consolidated interim financial statements
of Phillips-Van Heusen Corporation which are included in its Form 10-Q for the
three month period ended May 1, 1994.
Pursuant to Rule 436(c) of the Securities Act of 1993, our report is not a
part of the registration statements or post-effective amendments prepared or
certified by accountants within the meaning of Section 7 or 11 of the
Securities Act of 1933.
ERNST & YOUNG
New York, New York
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHILLIPS-VAN HEUSEN CORPORATION
Registrant
June 8, 1994 /s/ Emanuel Chirico
Emanuel Chirico, Controller
Vice President and
Chief Accounting Officer
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