[PHILLIPS-VAN HEUSEN CORPORATION LETTERHEAD]
July 20, 2006
Mr. Michael Moran, Esq.
Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re:
Phillips-Van Heusen Corporation
Form 10-K for the year ended January 30, 2005
Filed April 14, 2005
File No. 1-07572
Dear Mr. Moran:
Reference is made to your letter of June 21, 2006. On behalf of Phillips-Van Heusen Corporation, set forth below are both the comment from your letter and our response.
Form 10-K for the Fiscal Year-End January 30, 2005
1.
We note your response to comment one of our letter dated May 5, 2006. We agree with your assessment regarding the importance of analyzing the future economic prospects of your divisions pursuant to SFAS no. 131. In this regard, we have reviewed your future economic performance data included in Exhibit C to your response. In this regard, we have calculated on average 10.5% and 7.5% higher future gross margin rates for your Dress Shirt Group when compared with your Sportswear Group and Izod Sportswear Division, respectively. We have noted similar material differences in the operating income percentages, for example we calculated on average 8.8% and 20% lower future operating income percentages for your Dress Shirt Group when compared with your Sportswear Group and Izod Sportswear Division, respectively. As you have pointed out your budget appears to have a low variance from actual resu lts. In this regard, we do not concur with your conclusion reached with respect to aggregating your Dress Shirt Group. Please revise your disclosures to separately present the Dress Shirt Group as a reportable segment.
Effective with our report on Form 10-Q for the quarter ending July 30, 2006, we will disaggregate the Wholesale segment into the Wholesale Dress Shirt segment and the Wholesale Sportswear and Related Products segment. Prior periods will be reclassified to conform to this change.
We will also amend our Form 10-K for the fiscal year ended January 29, 2006 and our Form 10-Q for the quarter ended April 30, 2006 to revise our segment footnote to disaggregate the Wholesale segment as described above.
The revised segment footnotes for both our Form 10-K for the fiscal year ended January 29, 2006 and our Form
10-Q for the quarter ended April 30, 2006 are as follows:
PROPOSED SEGMENT FOOTNOTE FOR AMENDED FORM 10-K
SEGMENT DATA
The Company manages it operations through its operating divisions, which are aggregated into five reportable segments: (i) Wholesale Dress Shirt, (ii) Wholesale Sportswear and Related Products, (iii) Retail Apparel and Related Products, (iv) Retail Footwear and Related Products and (v) Calvin Klein Licensing.
Michael Moran, Esq.
July 20, 2006
Page 2
Wholesale Dress Shirt Segment - This segment represents the results of the Company’s wholesale dress shirt division. This division derives revenues primarily from marketing dress shirts under the brand names Van Heusen, IZOD, Geoffrey Beene, Arrow, Kenneth Cole New York, Kenneth Cole Reaction, Calvin Klein Collection, ck Calvin Klein, Calvin Klein, BCBG Max Azria, BCBG Attitude, MICHAEL Michael Kors, Chaps, Sean John and Donald J. Trump Signature Collection to department, mid-tier department and specialty stores.
Wholesale Sportswear and Related Products Segment - The Company aggregates its wholesale sportswear divisions into the Wholesale Sportswear and Related Products segment. This segment derives revenues primarily from marketing sportswear under the brand names Van Heusen, IZOD, Geoffrey Beene, Arrow and Calvin Klein to department, mid-tier department and specialty stores. In addition, this segment includes the operations of the Company's G.H. Bass wholesale footwear division, which was exited at the end of 2003.
Retail Apparel and Related Products Segment - The Company aggregates its Van Heusen, Izod, Geoffrey Beene and Calvin Klein retail outlet divisions into the Retail Apparel and Related Products segment. This segment derives revenues principally from operating retail stores in the outlet channel of distribution which sell apparel and accessories under the brand names Van Heusen, IZOD, Geoffrey Beene and Calvin Klein. In addition, the Company aggregates the results of its Calvin Klein Collection Retail division into the Retail Apparel and Related Products segment. This division sells Calvin Klein Collection branded high-end collection apparel and accessories through the Company's own full price retail stores, which during 2003, 2004 and 2005 were located in New York City, Dallas and Paris. The stores in Dallas and Paris were closed in the fourth quarter of 2005.
Retail Footwear and Related Products Segment - This segment represents the results of the Company's Bass Retail division. This division derives revenues principally from operating retail stores, primarily in the outlet channel of distribution, which sell footwear, apparel and accessories under the Bass brand name.
Calvin Klein Licensing Segment - The Company aggregates the results of its Calvin Klein licensing and advertising divisions into the Calvin Klein Licensing segment. This segment derives revenues from licensing and similar arrangements worldwide relating to the use by third parties of the Calvin Klein Collection, ck Calvin Klein and Calvin Klein brands for a broad array of products and retail services.
Prior to the end of its fiscal 2005 year, the Company aggregated its divisions into two segments: (i) Calvin Klein Licensing segment and (ii) Apparel and Related Products segment. In the first quarter of 2006, the United States Securities and Exchange Commission (SEC) requested certain information from the Company in connection with an ordinary course review of the Company’s Annual Report on Form 10-K for fiscal 2004. In connection therewith, the SEC questioned the Company’s segment aggregation.
As a result of the communication with the SEC, the Company re-evaluated the way it aggregated its operating divisions into its reportable segments under FASB Statement No. 131. Therefore, the Apparel and Related Products segment has been disaggregated into the Wholesale Dress Shirt, Wholesale Sportswear and Related Products, Retail Apparel and Related Products, and Retail Footwear and Related Products segments described above. Prior year segment data has been reclassified for this change.
Michael Moran, Esq.
July 20, 2006
Page 3
The following tables present summarized information by segment:
2005 | 2004 | 2003 | |||||
Revenues - Wholesale Dress Shirt | |||||||
Net sales | $ 394,670 | $ 326,829 | $ 315,615 | ||||
Royalty and other revenues | 7,839 | 2,856 | 2,154 | ||||
Total | 402,509 | 329,685 | 317,769 | ||||
Revenues - Wholesale Sportswear and Related Products | |||||||
Net sales | 494,062 | 401,505 | 396,373 | ||||
Royalty and other revenues | 15,958 | 9,886 | 6,872 | ||||
Total | 510,020 | 411,391 | 403,245 | ||||
Revenues - Retail Apparel and Related Products | |||||||
Net sales | 556,355 | 467,019 | 416,292 | ||||
Royalty and other revenues | 7,387 | 7,380 | 5,202 | ||||
Total | 563,742 | 474,399 | 421,494 | ||||
Revenues - Retail Footwear and Related Products | |||||||
Net sales | 252,167 | 264,882 | 276,571 | ||||
Royalty and other revenues | 700 | 560 | - | ||||
Total | 252,867 | 265,442 | 276,571 | ||||
Revenues - Calvin Klein Licensing | |||||||
Net sales | - | - | 20,865 | ||||
Royalty and other revenues | 179,710 | 160,511 | 128,892 | ||||
Total | 179,710 | 160,511 | 149,757 | ||||
Total Revenues | |||||||
Net sales | 1,697,254 | 1,460,235 | 1,425,716 | ||||
Royalty and other revenues | 211,594 | 181,193 | 143,120 | ||||
Total(1) | $1,908,848 | $1,641,428 | $1,568,836 | ||||
Operating income - Wholesale Dress Shirt | $ 54,549 | $ 41,065 | $ 41,511 | ||||
Operating income - Wholesale Sportswear and Related Products | 81,024 | 39,621(2) | 23,896(5) | ||||
Operating income (loss) - Retail Apparel and Related Products | 27,710 | 12,587(3) | (3,864)(6) | ||||
Operating income - Retail Footwear and Related Products | 10,760 | 6,522(4) | 7,434(7) | ||||
Operating income - Calvin Klein Licensing | 74,751 | 63,204 | 15,025(8) | ||||
Corporate expenses(9) | 41,948 | 33,120 | 24,724 | ||||
Income before interest and taxes | $ 206,846 | $ 129,879 | $ 59,278 | ||||
(1)
No single customer accounted for greater than 10% of the Company's revenues in 2004 or 2003. In 2005, Federated acquired May. The combined company accounted for 13.7% of the Company's revenues in 2005, reported in the Wholesale Dress Shirt and the Wholesale Sportswear and Related Products segments.
Michael Moran, Esq.
July 20, 2006
Page 4
(2)
Operating income for the Wholesale Sportswear and Related Products segment in 2004 includes $12,643 of costs associated with exiting the wholesale footwear business and related costs.
(3)
Operating income for the Retail Apparel and Related Products segment in 2004 includes $985 of costs associated with the closing of certain retail outlet stores.
(4)
Operating income for the Retail Footwear and Related Products segment in 2004 includes $405 of costs associated with the closing of certain retail outlet stores.
(5)
Operating income for the Wholesale Sportswear and Related Products segment in 2003 includes $9,599 of costs associated with exiting the wholesale footwear business and related costs.
(6)
Operating loss for the Retail Apparel and Related Products segment in 2003 includes $7,899 of costs associated with the impairment and closing of certain retail outlet stores.
(7)
Operating income for the Retail Footwear and Related Products segment in 2003 includes $3,241 of costs associated with the impairment and closing of certain retail outlet stores.
(8)
Operating income for the Calvin Klein Licensing segment in 2003 includes $36,366 of costs related to the integration of Calvin Klein, which consist of (a) the operating losses of certain Calvin Klein businesses, principally relating to the men's and women's wholesale collection apparel businesses, which the Company has closed or licensed, and associated costs in connection therewith and (b) the costs of certain duplicative personnel and facilities incurred during the integration of various logistical and back office functions.
(9)
Corporate expenses represent overhead operating expenses that the Company does not allocate to its segments and include expenses for senior corporate management, corporate finance and information technology related to corporate infrastructure. Corporate expenses in 2004 and 2003 include a pre-tax gain of $743 and $3,496, respectively, related to the Company's sale of investments.
Michael Moran, Esq.
July 20, 2006
Page 5
2005 | 2004 | 2003 | |||
Identifiable Assets | |||||
Wholesale Dress Shirt | $ 129,630 | $ 119,928 | $ 88,068 | ||
Wholesale Sportswear and Related Products | 271,420 | 271,361 | 213,350 | ||
Retail Apparel and Related Products | 176,570 | 172,101 | 148,132 | ||
Retail Footwear and Related Products | 55,260 | 59,583 | 74,193 | ||
Calvin Klein Licensing | 684,125 | 651,612 | 627,613 | ||
Corporate | 430,434 | 274,997 | 287,927 | ||
Total | $1,747,439 | $1,549,582 | $1,439,283 | ||
Depreciation and Amortization | |||||
Wholesale Dress Shirt | $ 3,737 | $ 3,779 | $ 3,202 | ||
Wholesale Sportswear and Related Products | 6,781 | 5,432 | 4,816 | ||
Retail Apparel and Related Products | 13,288 | 11,101 | 10,033 | ||
Retail Footwear and Related Products | 5,366 | 5,805 | 6,076 | ||
Calvin Klein Licensing | 1,861 | 2,017 | 1,459 | ||
Corporate | 4,448 | 3,888 | 2,984 | ||
Total | $ 35,481 | $ 32,022 | $ 28,570 | ||
Identifiable Capital Expenditures | |||||
Wholesale Dress Shirt | $ 2,782 | $ 2,509 | $ 2,785 | ||
Wholesale Sportswear and Related Products | 6,271 | 7,926 | 3,015 | ||
Retail Apparel and Related Products | 20,534 | 26,383 | 16,701 | ||
Retail Footwear and Related Products | 3,607 | 5,946 | 5,877 | ||
Calvin Klein Licensing | 1,279 | 1,124 | 1,189 | ||
Corporate | 2,970 | 2,307 | 2,403 | ||
Total | $ 37,443 | $ 46,195 | $ 31,970 | ||
Assets related to the Company's segments are principally located in the United States.
Revenues for the Wholesale Dress Shirt, Wholesale Sportswear and Related Products, Retail Apparel and Related Products, and Retail Footwear and Related Products segments occurred principally in the United States. Revenues for the Calvin Klein Licensing segment occurred as follows:
2005 | 2004 | 2003 | |
Domestic | $ 84,284 | $ 71,797 | $ 81,497 |
Foreign | 95,426 | 88,714 | 68,260 |
Total | $179,710 | $160,511 | $149,757 |
PROPOSED SEGMENT FOOTNOTE FOR AMENDED FORM 10-Q
SEGMENT DATA
The Company manages it operations through its operating divisions, which are aggregated into five reportable segments (i) Wholesale Dress Shirt, (ii) Wholesale Sportswear and Related Products, (iii) Retail Apparel and Related Products, (iv) Retail Footwear and Related Products and (v) Calvin Klein Licensing.
Wholesale Dress Shirt Segment - This segment represents the results of the Company’s wholesale dress shirt division. This division derives revenues primarily from marketing dress shirts under the brand names Van Heusen, IZOD, Geoffrey Beene, Arrow, Kenneth Cole New York, Kenneth Cole Reaction, unlisted, A Kenneth Cole Production, Calvin Klein Collection, ck Calvin Klein, Calvin Klein, BCBG Max Azria, BCBG
Michael Moran, Esq.
July 20, 2006
Page 6
Attitude, MICHAEL Michael Kors, Chaps, Sean John and Donald J. Trump Signature Collection to department, mid-tier department and specialty stores.
Wholesale Sportswear and Related Products Segment - The Company aggregates its wholesale sportswear divisions into the Wholesale Sportswear and Related Products segment. This segment derives revenues primarily from marketing sportswear under the brand names Van Heusen, Izod, Geoffrey Beene, Arrow, Calvin Klein and, beginning in 2006, Donald J. Trump Signature Collection to department, mid-tier department and specialty stores.
Retail Apparel and Related Products Segment - The Company aggregates its Van Heusen, Izod, Geoffrey Beene and Calvin Klein retail outlet divisions into the Retail Apparel and Related Products segment. This segment derives revenues principally from operating retail stores in the outlet channel of distribution which sell apparel and accessories under the brand names Van Heusen, IZOD, Geoffrey Beene and Calvin Klein. In addition, the Company aggregates the results of its Calvin Klein Collection Retail division into the Retail Apparel and Related Products segment. This division sells Calvin Klein Collection branded high-end collection apparel and accessories through the Company's own full price retail stores, which were located in New York City, Dallas and Paris. The stores in Dallas and Paris were closed in the fourth quarter of 2005.
Retail Footwear and Related Products Segment - This segment represents the results of the Company's Bass Retail division. This division derives revenues principally from operating retail stores, primarily in the outlet channel of distribution, which sell footwear, apparel and accessories under the Bass brand name.
Calvin Klein Licensing Segment - The Company aggregates the results of its Calvin Klein licensing and advertising divisions into the Calvin Klein Licensing segment. This segment derives revenues from licensing and similar arrangements worldwide relating to the use by third parties of the Calvin Klein Collection, ck Calvin Klein and Calvin Klein brands for a broad array of products and retail services.
Prior to the end of its fiscal 2005 year, the Company aggregated its divisions into two segments: (i) Calvin Klein Licensing segment and (ii) Apparel and Related Products segment. In the first quarter of 2006, the United States Securities and Exchange Commission (SEC) requested certain information from the Company in connection with an ordinary course review of the Company’s Annual Report on Form 10-K for fiscal 2004. In connection therewith, the SEC questioned the Company’s segment aggregation.
As a result of the communication with the SEC, the Company re-evaluated the way it aggregated its operating divisions into its reportable segments under FASB Statement No. 131. Therefore, the Apparel and Related Products segment has been disaggregated into the Wholesale Dress Shirt, Wholesale Sportswear and Related Products, Retail Apparel and Related Products, and Retail Footwear and Related Products segments described above. Prior year segment data has been reclassified for this change.
Michael Moran, Esq.
July 20, 2006
Page 7
The following table presents summarized information by segment:
Thirteen Weeks Ended | ||
4/30/06 | 5/1/05 | |
Revenues - Wholesale Dress Shirt | ||
Net sales | $100,059 | $115,382 |
Royalty and other revenues | 2,125 | 1,817 |
Total | 102,184 | 117,199 |
Revenues - Wholesale Sportswear and Related Products | ||
Net sales | 163,252 | 135,854 |
Royalty and other revenues | 4,242 | 3,516 |
Total | 167,494 | 139,370 |
Revenues - Retail Apparel and Related Products | ||
Net sales | 133,884 | 117,587 |
Royalty and other revenues | 1,937 | 1,773 |
Total | 135,821 | 119,360 |
Revenues - Retail Footwear and Related Products | ||
Net sales | 56,993 | 54,292 |
Royalty and other revenues | 163 | 125 |
Total | 57,156 | 54,417 |
Revenues - Calvin Klein Licensing | ||
Royalty and other revenues | 43,783 | 41,763 |
Total Revenues | ||
Net sales | 454,188 | 423,115 |
Royalty and other revenues | 52,250 | 48,994 |
Total | $506,438 | $472,109 |
Operating income - Wholesale Dress Shirt | $ 6,779(1) | $ 20,687 |
Operating income - Wholesale Sportswear and Related Products | 35,405 | 23,615 |
Operating income - Retail Apparel and Related Products | 11,581 | 127 |
Operating income (loss) - Retail Footwear and Related Products | 541 | (5,086) |
Operating income - Calvin Klein Licensing | 49,961(2) | 16,955 |
Corporate expenses(3) | 21,204 | 8,669 |
Income before interest and taxes | $ 83,063 | $ 47,629 |
(1)
Operating income for the Wholesale Dress Shirt segment for the thirteen weeks ended April 30, 2006 includes $9,397 of costs associated with closing the Company’s manufacturing facility in Ozark, Alabama.
Michael Moran, Esq.
July 20, 2006
Page 8
(2)
Operating income for the Calvin Klein Licensing segment for the thirteen weeks ended April 30, 2006 includes a gain of $31,368 associated with the sale by a subsidiary of the Company of minority interests in certain entities that operate various Calvin Klein jeans and sportswear businesses in Europe and Asia.
(3)
Corporate expenses represent overhead operating expenses that the Company does not allocate to its segments and include expenses for senior corporate management, corporate finance and information technology related to corporate infrastructure. Additionally, beginning in 2006, the Company includes all stock-based compensation expenses in Corporate expenses. Corporate expenses for the thirteen weeks ended April 30, 2006 include $10,535 of costs resulting from the departure of Mark Weber, the Company’s former Chief Executive Officer.
Revenues for the Wholesale Dress Shirt, Wholesale Sportswear and Related Products, Retail Apparel and Related Products, and Retail Footwear and Related Products segments occurred principally in the United States. Revenues for the Calvin Klein Licensing segment occurred as follows:
Thirteen Weeks Ended | ||
4/30/06 | 5/1/05 | |
Domestic | $20,556 | $18,067 |
Foreign | 23,227 | 23,696 |
Total | $43,783 | $41,763 |
Please call the undersigned (212-381-3508) if you have any questions or comments or if we may be of further assistance in your review of our Form 10-K for the year ended January 30, 2005. Upon receiving notification of your acceptance of our proposed disclosures, we will begin the process to file our amended 10-K and 10-Q as discussed above.
Very truly yours,
/s/ Vincent A. Russo
Vincent A. Russo
Vice President, Controller and
Chief Accounting Officer
cc: Mr. Robert Babula, Staff Accountant