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 2, 1997 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 17, 1997 was approximately
$317,700,000.
Number of shares of Common Stock outstanding as of April 17, 1997:
27,063,489.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K
Document in which incorporated
Registrant's 1996 Annual Report to Stockholders Parts I and II
for the Fiscal Year Ended February 2, 1997
Registrant's Proxy Statement Part III
for the Annual Meeting of
Stockholders to be held on June 17, 1997
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PART I
Item 1. Business
General Overview
Phillips-Van Heusen Corporation (the "Company") is a vertically
integrated manufacturer, marketer and retailer of men's, women's and
children's apparel and footwear. The Company's products include shirts, shoes
and sweaters and, to a lesser extent, neckwear, furnishings, bottoms,
outerwear and leather and canvas accessories.
The Company owns four premier brands: "Van Heusen", "Bass", "Izod" and
"Gant". In addition, the Company markets "Geoffrey Beene" labeled designer
apparel under licensing agreements with that designer, and has a licensing
agreement to market "Jantzen" branded men's sweaters, knits and golf apparel.
Wholesale distribution consists of the marketing and sale of the
Company's products to major department and specialty stores, independent
retailers, chain stores and catalog merchants. The Company's wholesale
customers for branded and designer apparel include May Co., Federated,
Frederick Atkins, Mercantile, Belks, Mervyns, Dillard's, Dayton Hudson and
JCPenney. Wholesale customers for its private label shirts include JCPenney,
Mervyn's, Lord & Taylor, Bloomingdales and Sears, while wholesale customers
for the Company's private label sweaters and golf apparel include JCPenney,
Nordstrom and Sears. The Company's customers for footwear include Nordstrom,
May Co., Dillard's, Federated and Dayton Hudson. In 1996, no one customer
accounted for more than 10% of the Company's sales.
Through its retail operations, the Company sells its products directly to
consumers in 787 Company-owned stores located primarily in manufacturers'
outlet malls. The stores are operated in five different formats: Van Heusen,
Bass, Izod, Gant and Geoffrey Beene.
According to MRCA Information Services, "Van Heusen" is the best-selling
men's dress shirt and woven sport shirt brand in the United States, and
"Geoffrey Beene" is the best-selling men's designer dress shirt in the United
States. The Company believes it is one of the largest marketers of private
label dress shirts in the United States. Also, according to NPD Consumer
Purchase Panel, "Izod" is the best selling men's sweater brand in the United
States and, according to Footwear Market Insights, "Bass" is the leading brand
of high end casual shoes in the United States.
The Company believes 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 single company. In addition to marketing dress shirts, the
Company responded to the growing casualwear market in the United States by
acquiring the "Izod" and "Gant" labels in 1995, and expanding its major brand
product offerings to casualwear. Casualwear now represents approximately 85%
of total Company sales and it is expected that casualwear will continue to
increase as a percentage of the Company's sales. The Company is also a
leading supplier of sweaters and golf apparel.
In the decade prior to 1995, the Company's growth was driven by the
expansion of its factory outlet retail operations. It led, however, to a
significant over-expansion in that area of the Company's business. And that,
coupled with a weakening in outlet retail sales, led to a major downturn in
operating results beginning in 1994. To address the Company's over-expansion
in outlet retailing, during 1995 the Company initiated a plan to close some
300 stores. In 1996, these store closings began to eliminate the Company's
weakest and worst-trending stores, accelerated the realignment of the
Company's wholesale/retail sales mix and became an important source of cash
flow.
On February 17, 1995, the Company acquired the "Izod" and "Gant" brands
from Crystal Brands, Inc. In connection with the acquisition, the Company
acquired 88 outlet stores which marketed apparel under the acquired labels.
The Company converted 34 of these stores to stores which market apparel under
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either the "Izod" or "Gant" label, or to other store formats which the Company
operates and closed the other 54 stores. In addition, the Company converted
substantially all of its private label retail stores into stores which market
apparel under either the "Izod" or "Gant" label.
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; and its telephone number is
(212) 541-5200.
Apparel Business
The marketing of the Company's apparel products is currently conducted
principally under the following labels: "Van Heusen", "Bass", "Izod", "Izod
Club", "Gant" and "Geoffrey Beene". The Company also markets various private
label apparel products.
Van Heusen
"Van Heusen" is the best-selling men's dress shirt and woven sport shirt
brand in the United States, according to research conducted by MRCA
Information Services. In addition to the "Van Heusen" label, branded products
are marketed under the sub-brands "Players", "Corporate Casual", "Khaki
Classic", "Denim Classic", and "Modern Classic."
"Van Heusen" branded dress and sport shirts and sweaters are marketed at
wholesale in the moderate to better price range to major department stores and
men's specialty stores nationwide, including May Co., Frederick Atkins,
JCPenney, Younkers and Mervyns.
In 1996, the fashion component of dress shirts became more important. As
a result, a great deal of "Fridaywear" marketed previously under the sub-brand
"Corporate Casual" became a part of the Company's general fashion dress shirt
product lines. "Corporate Casual" dress shirts sales were approximately 8% of
total dress shirts sales in 1996.
Wholesale marketing of "Van Heusen" apparel also includes knit sport
shirts, sweaters and golf apparel which is marketed under the "Van Heusen
Players" label. Major customers include JCPenney and other fine stores.
Van Heusen outlet stores offer a full collection of first quality men's
traditional, classic and contemporary dress furnishings (including dress
shirts, belts, hosiery and neckwear), men's sportswear (including sports
shirts, sweaters and bottoms) and ladies sportswear (including coordinates and
separates) and men's and women's activewear. Other than men's dress shirts,
sport shirts and sweaters, such apparel is not marketed or produced for sale
to the Company's wholesale customers.
The product mix targeted for Van Heusen stores is intended to satisfy the
key apparel needs of men from dress furnishings to casualwear and of women for
casualwear. 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.
Bass
The Company's marketing of apparel under the "Bass" label began in 1992
and has been continuously updated and expanded since that time.
Until 1992, the Company's Bass outlet stores had marketed only footwear
and accessories. Since that time, the Company has introduced apparel
consistent with the Bass "lifestyle" into approximately 70% of its stores,
including children's apparel in 26% of its stores. The Company plans to
continue to expand the percentage of its stores carrying "Bass" apparel to
offer lifestyle apparel for the entire family.
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In 1996, Bass began to experiment with "full price" retail stores through
the opening of "Bass Lifestyle" stores in regional malls in Paramus, New
Jersey; Chicago, Illinois; and Atlanta, Georgia. These stores present "Bass"
as a casual lifestyle brand - with footwear, apparel and accessories working
together to enhance the brand's image.
Additionally, "Bass" casual dress shirts are marketed at wholesale to
major department stores, including Federated and Frederick Atkins, and are
sold in the upper moderate to better price range.
Izod
"Izod" branded apparel products consist of active inspired men's
sportswear, including "Izod" sweaters (the best-selling men's sweater brand in
the United States, according to the NPD Consumer Purchase Panel). These
products are marketed in the upper moderate to better price range to major
department stores, including JCPenney, May Co., Macy's, Mercantile and Belk's.
The Company's "Izod" outlet stores market Izod branded men's and women's
casual sportswear. Target customers are generally brand loyalists who expect
quality and fashion at reasonable prices.
Izod Club
"Izod Club" branded golf apparel products are marketed to thousands of
golf pro shops across America in the better price range. Products marketed in
the "Izod Club" men's and women's collections include knit shirts, sweaters,
bottoms, outerwear, windshirts, headwear and hosiery. Beginning with the 1996
Resort season, "Izod Club" products have been featured at Nordstrom locations
across the country. Izod Club developed a professional golf tournament
strategy in 1996, which will be highlighted by its management of the
merchandising efforts at the 1997 U.S. Open, USGA Senior's Open, and USGA
Women's Open.
Gant
"Gant" branded apparel consists of a lifestyle collection of men's better
sportswear, that includes woven and knit tops, bottoms and outerwear. "Gant"
represents a classic American offering of men's sportswear designed for
comfort and relaxed fit. "Gant's" style and quality place it in the better
price range of men's apparel. The collection is marketed through major
department stores, including Dillard's, Dayton Hudson, Belk's, Macy's and fine
specialty stores.
The Company's 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 casualwear products, all of which maintain detailed
construction and high quality fabrics.
Geoffrey Beene
The Company markets "Geoffrey Beene" labelled designer apparel under
three separate licensing agreements with that designer. One agreement permits
the Company to market "Geoffrey Beene" labelled dress shirts and sweaters
through 2001. Two other agreements, one for men's apparel, the other for
women's apparel, permit the Company to market "Geoffrey Beene" labelled
products in its retail stores through 2005 and 2008, respectively.
"Geoffrey Beene" dress shirts are the best-selling men's designer dress
shirts in the United States, according to MRCA Information Services.
Consistent with the increase in the demand for casual work attire, the Company
has also expanded its marketing of "Geoffrey Beene" casual dress shirts.
"Geoffrey Beene" dress shirts are sold in the upper moderate to better price
range to major department stores and men's specialty stores nationwide,
including Frederick Atkins, Federated and May Co.
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The Company's Geoffrey Beene stores offer a distinctive collection of
men's "Geoffrey Beene" labelled products, including 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 casualwear. The
merchandising strategy is focused on an upscale, fashion forward consumer in
the upper moderate price range.
Some Geoffrey Beene stores also offer "Geoffrey Beene" women's wear.
Stores offering these products carry a full line of women's casual apparel
bearing the designer's name.
Jantzen
On January 24, 1995, the Company entered into a licensing agreement to
market "Jantzen" branded men's sweaters, knits and golf apparel. The
licensing agreement expires January 31, 2000 but, under certain conditions,
the Company may extend the agreement for an additional five years. "Jantzen"
apparel products are sold in the moderate price range. Major customers for
"Jantzen" branded apparel are department and specialty stores including
Belk's, Federated, Dayton Hudson and Younkers. The Company believes that the
licensing agreement further strengthens the Company's position as the leading
sweater and golf apparel supplier in the United States.
Private Label Apparel
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. 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 services and 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 JCPenney,
Mervyns, Lord & Taylor, Bloomingdales and Sears. Private label sport shirts
are marketed to major retailers including K-Mart, Wal-Mart, Target, Sears and
JCPenney. Private label sweaters and golf apparel are marketed to traditional
department and specialty stores, national retail chains and catalog merchants,
including JCPenney and Sears. The Company also markets shirts to companies in
service industries, including major airlines and food chains. The Company
believes it is one of the largest marketers of private label dress shirts in
the United States.
During 1995, the Company ceased operating its Cape Isle Knitters and
Windsor Shirt private label retail stores, in large part by converting these
stores to other store formats which the Company operates. The Company plans
to market private label apparel only at wholesale for the foreseeable future.
Competition in the Apparel Industry
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. Competitive
pressures have been increased by the recent consolidations and closings of
major department store groups. Based on the variety of the apparel marketed
by the Company and the various channels of distribution it has developed, the
Company believes it is well-positioned in the industry, although the Company
has many diverse competitors in both manufacturing and retailing.
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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). Some of the larger sportswear competitors
include: Warnaco ("Chaps" brand); Nautica Enterprises ("Nautica" brand);
Polo/Ralph Lauren L.P. ("Polo" brand); Ashworth and Tommy Hilfiger. For
sweaters, the Company's brands compete for department store floor space with
private label sweaters. While several apparel manufacturers currently operate
outlet stores, the Company believes that none offers a similar selection of
product in the variety of formats offered by the Company. The Company's
retail stores also compete with department stores, specialty stores, chain
stores and catalogs.
Footwear Business
The Company's footwear business consists of the manufacture, procurement
for sale and marketing of a broad line of traditional men's, women's and
children's casual shoes under the "Bass" brand name in the moderate to better
price range. The Company also offers a line of men's dress shoes. Various
sub-brands are utilized, the most important ones being "Weejun" and "Sunjun".
"Bass" is the leading brand of high end casual shoes in the United States,
according to research conducted by Footwear Market Insights ("FMI"). Based on
the number of pairs sold, FMI's research shows "Bass" branded footwear with a
12.9% share of the high end casual shoe market.
Bass' traditional wholesale customers are major department stores and
specialty shoe stores throughout the United States, including Nordstrom,
Federated, May Co., Dillard's and Dayton Hudson. In 1992, Bass began
marketing its footwear internationally and is now selling footwear to
retailers in Europe, Canada, South America, the Middle East, Africa and Asia.
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 stores, located primarily in manufacturers' outlet
malls, typically carry an assortment of "Bass" shoes and accessories, in the
moderate to upper moderate price range, as well as complementary products not
sold to wholesale customers. Apparel is marketed in approximately 70% of the
Company's Bass stores. The Company also opened three "Bass Lifestyle" "full
price" stores in regional malls in 1996 to promote the brand's identity and
image.
Bass' merchandising strategy is focused on achieving an American classic
look that emphasizes the end-use of casual and weekend styles which represent
the "Bass Lifestyle" through classic and traditional design.
Competition in the Shoe Industry
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. The Company's
primary competitors include Dexter, Rockport, Timberland, Sperry and Sebago.
The Company believes, however, that it manufactures a more extensive line of
footwear for both genders and in a broader price range than any of its
competitors.
Currently, Bass outlet stores have few direct footwear competitors.
Dexter and, to an even lesser extent, Timberland are the most prominent casual
footwear companies that are competing in the outlet environment. However,
multi-branded outlet footwear retailers, such as U.S. Shoe and Famous
Footwear, compete on price and assortment. The Company's retail stores also
compete with department stores, specialty stores, chain stores and catalogs.
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Merchandise Design, Manufacturing and Product Procurement
The apparel and footwear merchandise manufactured by the Company as well
as the vast majority of its sourced products are planned and designed through
the efforts of its various merchandise/product development groups. These
groups consist of designers, product line builders and merchants who consider
consumer taste, fashion, history and the economic environment when creating a
product plan for a particular 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.
The process from initial design to finished product varies greatly, but
generally spans nine to 12 months prior to each selling season. 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 its electronic data interchange "EDI" system)
maximize its inventory flexibility and minimize production overruns. This EDI
system 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. 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 and sweaters are manufactured in the Company's domestic
apparel manufacturing facilities in Alabama, Arkansas and Puerto Rico. The
Company also operates facilities in Costa Rica, Guatemala and Honduras.
Additionally, the Company contracts for apparel merchandise with vendors
principally 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 Maine, Puerto Rico and the Dominican Republic. In
addition, the Company contracts for footwear merchandise which meets its
quality and cost requirements from overseas vendors, principally in Brazil and
the Far East.
The Company's foreign offices, located principally in Hong Kong, Taiwan,
the Philippines, Brazil and throughout Central America, enable the Company to
monitor the quality of the goods manufactured by, and the delivery 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 experienced no
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 for it 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. 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 considers its relations with its suppliers to be satisfactory.
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 (including quotas and duties) and
availability factors. 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, in part, 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
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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 1920's. While the Company believes that this
effort has helped create strong brand awareness and a high recognition factor
among American consumers and has contributed to the overall success of the
Company, the Company plans to increase its media marketing activities in an
aggressive fashion in 1997.
The Company advertises primarily in national print media, including
fashion, entertainment/human interest, business, men's, women's and sports
magazines. Brand awareness is further supplemented by the Company's co-op
advertising program 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.
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.
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 "Bass" 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 "Bass" name for footwear in
Hong Kong, Japan, Europe and Latin America. 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 this Gant licensee, Pyramid Sportswear, and has an option to purchase
the remaining 75% in the year 2000.) The Company also licenses the use of the
"Gant" name for outerwear and 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 licensing efforts under the "Izod" and "Gant"
trademarks.
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Retail Stores
As of February 2, 1997, the Company operated 787 stores in five different
formats: "Van Heusen", "Bass", "Izod", "Gant" and "Geoffrey Beene". The
Company's stores are located primarily in manufacturers' outlet malls. Store
layouts and designs differ among the five retail formats in order to maximize
the effectiveness of the product and pricing strategy directed toward each
format's specific target customer.
The Company is a leading operator of outlet mall stores. Other branded
apparel manufacturers who have entered the outlet mall sector include Ralph
Lauren, Liz Claiborne, Bugle Boy, Nine West, Jockey, Donna Karan, Sara Lee,
Jones New York, Nautica, Tommy Hilfiger, Calvin Klein and Anne Klein.
In the decade prior to 1995, the Company's growth was driven by the
expansion of its factory outlet retail operations. It led, however, to a
significant over-expansion in that area of the Company's business. And that,
coupled with a weakening in outlet retail sales, led to a major downturn in
operating results beginning in 1994. To address this over-expansion, during
1995 the Company initiated a plan to close some 300 stores. In 1996, these
store closings began to eliminate the Company's weakest and worst-trending
stores, accelerated the realignment of the Company's wholesale/retail sales
mix and became an important source of cash flow. Despite these closings, the
Company plans to continue selectively opening new stores in certain
manufacturers' outlet centers. However, since the Company already features
one or more of its store formats in the best-performing manufacturers' outlet
centers in the United States, and since the development and opening of new
manufacturers' outlet centers are occurring at a slower pace than in the past,
future store openings will be fewer than in recent years.
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 Department of Commerce. 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.
Employees
As of February 2, 1997, the Company employed approximately 9,550 persons
on a full-time basis and approximately 3,150 persons on a part-time basis.
Approximately 5% of the Company's 12,700 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.
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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 a lease
which expires on June 30, 1997, and 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. The following tables summarize the other
manufacturing facilities, warehouses and distribution centers, administrative
offices and retail stores of the Company as of February 2, 1997:
Apparel Business
Square Feet of
Floor Space (000's)
Owned Leased Total
Manufacturing Facilities . . . . . . . . . . . . . . 239 223 462
Warehouses and Distribution Centers. . . . . . . . . 1,728 148 1,876
Administrative . . . . . . . . . . . . . . . . . . . 16 315 331
Retail Stores. . . . . . . . . . . . . . . . . . . . 6 2,040 2,046
1,989 2,726 4,715
Footwear Business
Owned Leased Total
Manufacturing Facilities . . . . . . . . . . . . . . 274 150 424
Warehouses and Distribution Centers. . . . . . . . . 127 241 368
Administrative . . . . . . . . . . . . . . . . . . . 20 128 148
Retail Stores. . . . . . . . . . . . . . . . . . . . 8 1,413 1,421
429 1,932 2,361
Information with respect to minimum annual rental commitments under
leases in which the Company is a lessee is incorporated herein by reference to
the note entitled "Leases" in the Notes to Consolidated Financial Statements
incorporated by reference 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.
9
<PAGE>
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; President; Chief Executive Officer;
Director 48
Irwin W. Winter Executive Vice President and Chief Financial
Officer; Director 63
Allen E. Sirkin Vice Chairman 54
Mark Weber Vice Chairman 48
Michael J. Blitzer Senior Vice President 47
Emanuel Chirico Vice President and Controller 39
Mr. Bruce J. Klatsky has been employed by the Company in various
capacities over the last 25 years, and has been President of the Company since
1987. 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. Irwin W. Winter joined the Company in 1987 as Vice President, Finance
and Chief Financial Officer. Mr. Winter has served as a director of the
Company since 1987.
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. Mark Weber has been employed by the Company in various capacities
over the last 25 years, had been a Vice President of the Company since 1988
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 prior 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.
10
<PAGE>
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 which appears under the heading "Selected
Quarterly Financial Data" in the 1996 Annual Report to Stockholders, is
incorporated herein by reference. As of April 17, 1997, there were 1,763
stockholders of record of the Company's common stock.
Item 6. Selected Financial Data
Selected Financial Data which appears under the heading "Ten Year
Financial Summary" in the 1996 Annual Report to Stockholders, is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results
of Operations which appears under the heading "Financial Review" in the 1996
Annual Report to Stockholders, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements, which appear in the 1996 Annual
Report to Stockholders, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
11
<PAGE>
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 17, 1997.
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 17, 1997.
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 17, 1997.
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 17, 1997.
12
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) The following consolidated financial statements are incorporated by
reference in Item 8 of this report:
Consolidated Statements of Operations--Years Ended February 2, 1997,
January 28, 1996 and January 29, 1995
Consolidated Balance Sheets--February 2, 1997 and January 28, 1996
Consolidated Statements of Cash Flows--Years Ended February 2, 1997,
January 28, 1996 and January 29, 1995
Consolidated Statements of Changes in Stockholders' Equity--
Years Ended February 2, 1997, January 28, 1996 and January 29, 1995
Notes to Consolidated Financial Statements
(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).
13
<PAGE>
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 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 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).
4.13 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).
4.14 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).
14
<PAGE>
*10.1 1987 Stock Option Plan, including all amendments through June 13,
1995 (incorporated by reference to Exhibit 10.1 to the Company's
report on Form 10-Q for the period ended October 29, 1995).
*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 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).
*10.5 Phillips-Van Heusen Corporation Capital Accumulation Plan
(incorporated by reference to the Company's Report on Form 8-K
filed on January 16, 1987).
*10.6 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).
*10.7 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).
*10.8 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).
*10.9 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 July 1, 1995
(incorporated by reference to Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 28, 1996).
*10.11 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).
13. Sections of the 1996 Annual Report to Stockholders for the fiscal
year ended February 2, 1997 which are included in Parts I and II of
this Form 10-K. These sections are Selected Quarterly Financial
Data, Ten Year Financial Summary, Financial Review and the
consolidated financial statements.
21. Subsidiaries of the Company.
15
<PAGE>
23. Consent of Independent Auditors.
27. Financial Data Schedule
(b) Reports filed on Form 8-K filed during the fourth quarter of 1996:
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.
16
<PAGE>
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, President, Chief
Executive Officer and Director
Date: April 29, 1997
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, President, Chief Executive April 29, 1997
Bruce J. Klatsky Officer and Director (Principal
Executive Officer)
Irwin W. Winter Executive Vice President and April 29, 1997
Irwin W. Winter Chief Financial Officer
Emanuel Chirico Vice President and Controller April 29, 1997
Emanuel Chirico (Principal Accounting Officer)
Edward H. Cohen Director April 29, 1997
Edward H. Cohen
Estelle Ellis Director April 29, 1997
Estelle Ellis
Joseph B. Fuller Director April 29, 1997
Joseph B. Fuller
Maria Elena Lagomasino Director April 29, 1997
Maria Elena Lagomasino
Harry N.S. Lee Director April 29, 1997
Harry N.S. Lee
Bruce Maggin Director April 29, 1997
Bruce Maggin
Ellis E. Meredith Director April 29, 1997
Ellis E. Meredith
Steven L. Osterweis Director April 29, 1997
Steven L. Osterweis
William S. Scolnick Director April 29, 1997
William S. Scolnick
Peter J. Solomon Director April 29, 1997
Peter J. Solomon
17
<PAGE>
FORM 10-K-ITEM 14(a)(2)
PHILLIPS-VAN HEUSEN CORPORATION
INDEX TO FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule of Phillips-Van
Heusen Corporation and subsidiaries is included herein:
Schedule II - Valuation and Qualifying Accounts. . . . . . . . F-2
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
SCHEDULE II
PHILLIPS-VAN HEUSEN CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
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
Year Ended January 29, 1995
Deducted from asset accounts:
Allowance for doubtful
accounts. . . . . . . . . . . . $2,171 $ 509(a) $ 278(b) $1,341(c) $1,617
(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.
</TABLE>
F-2
<PAGE>
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
Tejidos De Coamo, Inc. Delaware
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
IZOD Gant Corp. Pennsylvania
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report on Form
10-K of Phillips-Van Heusen Corporation of our report dated March 11, 1997,
included in the 1996 Annual Report to Stockholders of Phillips-Van Heusen
Corporation.
Our audits also included the financial statement schedule of Phillips-Van Heusen
Corporation listed in Item 14(a). 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.
We also 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,
of Phillips-Van Heusen Corporation and in the related Prospectuses of our report
dated March 11, 1997, 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 2, 1997.
ERNST & YOUNG LLP
New York, New York
April 29, 1997
PHILLIPS-VAN HEUSEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,359,593 $1,464,128 $1,255,466
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . 910,517 987,921 845,655
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 449,076 476,207 409,811
Selling, general and administrative expenses . . . . . . . . . . . 401,338 428,634 353,109
Plant and store closing and restructuring expenses . . . . . . . . 27,000 7,000
Income before interest and taxes . . . . . . . . . . . . . . . . . 47,738 20,573 49,702
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . 23,164 23,199 12,793
Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . 24,574 (2,626) 36,909
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . 6,044 (2,920) 6,894
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,530 $ 294 $ 30,015
Net income per share . . . . . . . . . . . . . . . . . . . . . . . $ 0.69 $ 0.01 $ 1.11
Average shares outstanding . . . . . . . . . . . . . . . . . . . . 27,004 26,726 27,154
See notes to consolidated financial statements.
</TABLE>
1
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
Feb. 2, 1997 Jan. 28, 1996
<S> <C> <C>
ASSETS
Current Assets:
Cash, including cash equivalents of $1,861 and $8,474 . . . . . . . . . . . $ 11,590 $ 17,533
Trade receivables, less allowances of $3,401 and $5,514 . . . . . . . . . . 91,806 109,866
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237,422 276,773
Income tax refund receivable. . . . . . . . . . . . . . . . . . . . . . . . 16,987
Other, including deferred taxes of $4,300 and $9,801. . . . . . . . . . . . 22,140 23,505
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 362,958 444,664
Property, Plant and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . 137,060 143,398
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,324 119,914
Other Assets, including deferred taxes of $16,617 and $22,113. . . . . . . . . 37,094 41,079
$657,436 $749,055
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 20,000 $ 61,590
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,355 38,796
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,754 72,603
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . 10,157 10,137
Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . 122,266 183,126
Long-Term Debt, less current portion . . . . . . . . . . . . . . . . . . . . . 189,398 229,548
Other Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,614 61,089
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 27,045,705 and 26,979,352 . . . . . . . . . . . 27,046 26,979
Additional capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,296 115,977
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,816 132,336
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . 290,158 275,292
$657,436 $ 749,055
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,530 $ 294 $ 30,015
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 29,438 33,740 24,765
Amortization of contributions from landlords . . . . . . . . . . . . . (6,171) (7,584) (5,732)
Write-off of property, plant and equipment . . . . . . . . . . . . . . 13,000
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 8,214 3,363 (6,275)
Equity income in Pyramid Sportswear. . . . . . . . . . . . . . . . . . (1,250) (85)
Changes in operating assets and liabilities:
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,060 (13,927) (15,541)
Income tax refund receivable . . . . . . . . . . . . . . . . . . . . . . 16,987
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,351 16,315 14,627
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . (17,782) (83,897) 3,242
Other-net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,741) (3,183) 4,293
Net Cash Provided (Used) By Operating Activities . . . . . . . . . . . . 102,636 (41,964) 49,394
Investing activities:
Acquisition of the Apparel Group of Crystal Brands, Inc. . . . . . . . . . (114,503)
Property, plant and equipment acquired . . . . . . . . . . . . . . . . . . (22,578) (39,773) (53,140)
Investment in Pyramid Sportswear . . . . . . . . . . . . . . . . . . . . . (6,950)
Contributions from landlords . . . . . . . . . . . . . . . . . . . . . . . 2,685 7,800 15,310
Other-net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,302) 3,376 2,438
Net Cash Used By Investing Activities. . . . . . . . . . . . . . . . . . (23,195) (150,050) (35,392)
Financing activities:
Proceeds from revolving line of credit . . . . . . . . . . . . . . . . . . 52,582 204,996
Payments on revolving line of credit and long-term borrowings. . . . . . . (134,302) (73,660) (245)
Exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . 386 1,745 2,630
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,050) (4,007) (3,984)
Net Cash Provided (Used) By Financing Activities . . . . . . . . . . . . (85,384) 129,074 (1,599)
Increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . . . . . . (5,943) (62,940) 12,403
Cash at beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . 17,533 80,473 68,070
Cash at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 11,590 $ 17,533 $ 80,473
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
$1 par Additional Retained Treasury Stockholders'
Shares Value Capital Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C>
January 30, 1994 . . . . . . . . . 33,190,750 $33,191 $118,360 $269,055 $(173,807) $246,799
Stock options exercised. . . . . 148,471 148 2,493 2,641
Net income . . . . . . . . . . . 30,015 30,015
Cash dividends . . . . . . . . . (3,984) (3,984)
Retirement of treasury stock . . (6,728,576) (6,729) (8,041) (159,037) 173,807 -0-
Stock repurchased and cancelled (335) (11) (11)
January 29, 1995 . . . . . . . . . 26,610,310 26,610 112,801 136,049 -0- 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 -0- 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 $ -0- $290,158
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
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 the Company 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 year 1996 represent the 53 weeks ended February 2, 1997.
Fiscal years 1995 and 1994 represent the 52 weeks ended January 28, 1996, and
January 29, 1995, respectively.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
Asset Impairments - The Company 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 the apparel business is determined principally using the last-in,
first-out method (LIFO), except for certain sportswear inventories which are
determined using the first-in, first-out method (FIFO). Cost for the footwear
business is determined using FIFO.
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 $8,615 and $5,474
in 1996 and 1995, respectively, is being amortized principally by the straight
line method over 40 years.
Contributions from Landlords - The Company 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 $18,747 and $23,748 in 1996 and 1995,
respectively.
Fair Value of Financial Instruments - Using discounted cash flow analyses,
the Company estimates that the fair value of all financial instruments
approximates their carrying value, except as noted in the footnote entitled
"Long-Term Debt."
5
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Summary of Significant Accounting Policies (Continued)
Stock-Based Compensation - The Company accounts for its stock options
under the provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and has adopted the disclosure requirements of FASB Statement No.
123, "Accounting for Stock-Based Compensation."
Advertising - Advertising costs are expensed as incurred and totalled
$19,427 (1996), $21,136 (1995) and $18,532 (1994).
Net Income Per Share - Net income per share has been computed by dividing
net income by the weighted average number of shares outstanding during the
year and, in 1994, share equivalents applicable to dilutive stock options. In
1996 and 1995, share equivalents applicable to dilutive stock options were
immaterial and have been excluded from the net income per share calculations.
Acquisition
On February 17, 1995, the Company completed the acquisition of the Apparel
Group of Crystal Brands, Inc. (Izod and Gant) for $114,503 in cash, net of
cash acquired. This acquisition was accounted for as a purchase. The
acquired operations are included in the Company's consolidated financial
statements since February 17, 1995.
In connection with the acquisition, the Company acquired assets with a
fair value estimated to be $207,101 (including $104,504 of excess of cost over
net assets acquired) and assumed liabilities estimated to be $92,598.
If the acquisition had occurred on the first day of fiscal 1994 instead of
February 17, 1995, the Company's proforma consolidated results of operations
would have been:
1995 1994
Net sales $1,470,259 $1,486,476
Net income $ 231 $ 31,011
Net income per share $ 0.01 $ 1.14
Income Taxes
<TABLE>
<CAPTION>
Income taxes consist of:
1996 1995 1994
<S> <C> <C> <C>
Federal:
Current. . . . . . . . . . . . . . . . . . . . . . . . . $(4,620) $(8,219) $11,720
Deferred . . . . . . . . . . . . . . . . . . . . . . . . 7,959 2,995 (5,585)
State, foreign and local:
Current. . . . . . . . . . . . . . . . . . . . . . . . . 2,450 1,936 1,449
Deferred . . . . . . . . . . . . . . . . . . . . . . . . 255 368 (690)
$ 6,044 $(2,920) $ 6,894
</TABLE>
Taxes paid were $1,262 (1996), $3,371 (1995) and $12,766 (1994). In
addition, the Company received an income tax refund of $16,987 in 1996.
6
<PAGE>
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:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . $(18,349) $(14,574)
Landlord contributions. . . . . . . . . . . . . . . . . . . . 7,367 9,334
Plant and store closing and restructuring . . . . . . . . . . 415 7,555
Employee compensation and benefits. . . . . . . . . . . . . . 9,243 8,797
Tax loss and credit carryforwards . . . . . . . . . . . . . . 17,231 16,328
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . 5,010 4,474
$ 20,917 $ 31,914
A reconciliation of the statutory Federal income tax to the income tax
expense (benefit) is as follows:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory 35% federal tax . . . . . . . . . . . . . . . . $ 8,601 $ (919) $12,918
State, foreign and local income taxes,
net of Federal income tax benefit. . . . . . . . . . . . 1,463 1,454 1,845
Income of Puerto Rico Subsidiaries(1) . . . . . . . . . . (3,757) (3,298) (2,953)
Reversal of estimated tax liabilities(2). . . . . . . . . (4,100)
Other-net . . . . . . . . . . . . . . . . . . . . . . . . (263) (157) (816)
Income tax expense (benefit). . . . . . . . . . . . . . . $ 6,044 $(2,920) $ 6,894
</TABLE>
(1) Exemption from Puerto Rico income tax expires in 1998.
(2) During 1994, the Company reversed estimated tax liabilities which were no
longer deemed necessary.
During 1995 and 1994, the Company recognized tax benefits of $397 and $1,568,
respectively, related to the exercise of stock options. These benefits were
credited to additional capital.
Inventories
<TABLE>
<CAPTION>
Inventories are summarized as follows:
1996 1995
<S> <C> <C>
Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,670 $ 14,194
Work in process. . . . . . . . . . . . . . . . . . . . . . . . . . 13,208 13,145
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . 207,544 249,434
$237,422 $276,773
</TABLE>
Inventories would have been approximately $13,000 higher than reported at
February 2, 1997 and January 28, 1996, if the FIFO method of inventory
accounting had been used for the entire apparel business.
7
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
Property, Plant and Equipment
<CAPTION>
Property, plant and equipment, at cost, are summarized as follows:
1996 1995
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,774 $ 1,789
Buildings and building improvements. . . . . . . . . . . . . . . . 37,778 37,661
Machinery and equipment, furniture and
fixtures and leasehold improvements. . . . . . . . . . . . . . . 233,884 228,754
273,436 268,204
Less: Accumulated depreciation and amortization 136,376 124,806
$137,060 $143,398
Long-Term Debt
Long-term debt, exclusive of current portion, is as follows:
1996 1995
Revolving Credit Facilities. . . . . . . . . . . . . . . . . . . . $ 40,000 $ 70,000
7.75% Debentures . . . . . . . . . . . . . . . . . . . . . . . . . 99,442 99,435
7.75% Senior Notes . . . . . . . . . . . . . . . . . . . . . . . . 49,286 59,143
Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 670 970
$189,398 $229,548
</TABLE>
The Company 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, the Company estimates that the fair value
of these Debentures on February 2, 1997, using discounted cash flow analyses,
was approximately $86,066.
The Company 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 notes
are payable in seven equal annual installments which commenced November 1,
1996. Interest is payable semi-annually.
The Company has a credit agreement which includes a revolving credit
facility under which the Company may, at its option, borrow and repay amounts
within certain limits. The credit agreement also includes a letter of credit
facility. The total amount available to the Company under each of the
revolving credit and the letter of credit 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 the prime
rate or at LIBOR plus .25%. A commitment fee of .25% is payable quarterly on
the $250,000 revolving credit facility. The amount outstanding at February 2,
1997 and January 28, 1996 under the letter of credit facility was $99,115 and
$115,462, respectively.
8
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt (Continued)
The Company had a secondary revolving credit agreement in 1995 which has
not been renewed.
The weighted average interest rate on outstanding borrowings from the
revolving credit facility at February 2, 1997 and January 28, 1996 was 6.2%
and 6.0%, respectively.
Interest paid was $24,039 (1996), $22,949 (1995) and $14,131 (1994).
Scheduled maturities of long-term debt, including current portion, for the
next five years are as follows: 1997-$10,157, 1998-$10,182, 1999-$10,202,
2000-$9,857 and 2001-$9,857.
Investment in Pyramid Sportswear
During the fourth quarter of 1995, the Company acquired 25% of Pyramid
Sportswear ("Pyramid") for $6,950 in cash and $1,800 in the Company's common
stock. The Company 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 the Company and markets such
sportswear in 20 countries around the world. In connection with this
investment, the Company also acquired an option to purchase the remaining 75%
of Pyramid in the year 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").
If the Company 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.
9
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stockholders' Equity - (Continued)
In the event the Company is not the surviving corporation in a merger or
other business combination, or more than 50% of the Company'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, the
Company 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 the Company'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 two years after the date of grant for grants issued
prior to March 30, 1993, and commencing three years after the date of grant
for grants issued after March 30, 1993.
Under APB Opinion No. 25, the Company 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, the Company estimated the fair value
of stock options granted in 1996 and 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:
1996 1995
Risk-free interest rate 6.61% 6.05%
Expected option life 7 Years 7 Years
Expected volatility 30.6% 30.6%
Expected dividends per share $ 0.15 $ 0.15
Weighted average estimated fair
value per share of options granted $ 5.29 6.11
Proforma net income (loss) $17,396 $ (127)
Proforma net income (loss) per share $ 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 1996 and 1995 may
not be indicative of future years.
10
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
Stockholders' Equity - (Continued)
<CAPTION>
Other data with respect to stock options follows:
Option Price Weighted Average
Shares Per Share Price Per Share
<S> <C> <C> <C> <C>
Outstanding at January 30, 1994. . . . . . . . 1,558,460 $ 3.80 - $36.00 $14.87
Granted. . . . . . . . . . . . . . . . . . . . 196,907 15.25 - 36.25 27.76
Exercised. . . . . . . . . . . . . . . . . . . 148,471 4.75 - 22.38 7.23
Cancelled. . . . . . . . . . . . . . . . . . . 52,647 4.75 - 33.25 22.30
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
</TABLE>
Of the outstanding options at February 2, 1997, 574,155 shares have an
exercise price below $12.25, 1,365,635 shares have an exercise price from
$12.25 to $16.50 and 17,750 shares have an exercise price above $16.50. The
weighted average remaining contractual life for all options outstanding at
February 2, 1997 is 7.4 years.
Of the outstanding options at February 2, 1997 and January 28, 1996,
options covering 645,091 and 842,912 shares were exercisable at a weighted
average price of $9.35 and $11.07, respectively. Stock options available for
grant at February 2, 1997 and January 28, 1996 amounted to 311,496 and 532,041
shares, respectively.
Leases
The Company 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 2, 1997, minimum annual rental commitments under non-
cancellable operating leases, including leases for new retail stores which had
not begun operating at February 2, 1997, are as follows:
1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,020
1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,847
1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,577
2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,665
2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,219
Thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . 51,665
Total minimum lease payments. . . . . . . . . . . . . . . . . . $251,993
11
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Leases (Continued)
<TABLE>
Rent expense, principally for real estate, is as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Minimum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $67,914 $69,988 $56,089
Percentage and other. . . . . . . . . . . . . . . . . . . . . . . 11,166 11,807 10,435
$79,080 $81,795 $66,524
</TABLE>
Retirement and Benefit Plans
Defined Benefit Plans - The Company 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 the Company'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, the Company 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:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Defined Benefit Plans:
Service cost - benefits earned during the period . . . . . . . . . $ 2,528 $2,145 $2,294
Interest cost on projected benefit obligation. . . . . . . . . . . 7,425 7,107 2,922
Actual (gain) loss on plan assets. . . . . . . . . . . . . . . . . (13,688) (19,533) 1,854
Net amortization and deferral of actuarial gains (losses). . . . . 5,354 12,028 (3,048)
Net pension cost of defined benefit plans . . . . . . . . . . . . . 1,619 1,747 4,022
Multi-employer plans. . . . . . . . . . . . . . . . . . . . . . . . 253 219 214
Total pension expense . . . . . . . . . . . . . . . . . . . . . . . $ 1,872 $1,966 $4,236
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:
1996 1995 1994
Discount rate used in determining projected benefit obligation. . . . 8.00% 7.50% 8.75%
Rate of increase in compensation levels . . . . . . . . . . . . . . . 4.50% 4.00% 5.25%
Long-term rate of return on assets. . . . . . . . . . . . . . . . . . 8.75% 8.75% 8.75%
</TABLE>
12
<PAGE>
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:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation . . . . . . . . . . . . . . . . . . . . . . $ 91,379 $ 95,815
Accumulated benefit obligation. . . . . . . . . . . . . . . . . . . . $ 93,373 $ 98,087
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . $ 110,830 $ 103,797
Less: projected benefit obligation for services rendered to date. . . . (101,065) (106,568)
Plan assets in excess of (less than) projected benefit obligation . . . 9,765 (2,771)
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . 3,099 3,302
Unrecognized net actuarial (gain) loss. . . . . . . . . . . . . . . . . (3,665) 7,370
Unrecognized net asset at adoption date of FASB Statement No. 87 (305) (374)
Net pension asset recognized in the balance sheets. . . . . . . . . . . $ 8,894 $ 7,527
</TABLE>
The plan assets in excess of projected benefit obligation at February 2,
1997 includes $13,494 for certain overfunded plans.
The Company 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 the Company, the
participant has been in the plan for at least 10 years and has attained age
55. The Company does not intend to admit new participants in the future. At
February 2, 1997 and January 28, 1996, $7,450 and $6,696, respectively, are
included in other liabilities as the accrued cost of this plan.
Savings and Retirement Plans - The Company 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. Company 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 $2,249 (1996), $2,668 (1995) and $2,406 (1994).
In accordance with the terms of the Associates Investment Plan, Company
matching contributions are invested in the Company's common stock.
Post-Retirement Benefits - The Company 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.
13
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Retirement and Benefit Plans - (Continued)
Net post-retirement benefit cost includes the following components:
1996 1995 1994
Service cost $ 687 $ 466 $ 402
Interest cost 2,166 2,128 850
Amortization of net loss 44 37
Amortization of transition obligation 273 273 273
$3,170 $2,904 $1,525
The following reconciles the plan's accumulated post-retirement benefit with
amounts recognized in the Company's balance sheets:
1996 1995
Accumulated post-retirement benefit obligation:
Retirees receiving benefits $21,505 $22,877
Fully eligible active plan participants 2,132 2,104
Active plan participants not eligible for benefits 5,503 4,980
29,140 29,961
Unrecognized transition obligation (4,370) (4,643)
Unrecognized net loss (4,729) (6,432)
Post-retirement liability recognized in the
balance sheets $20,041 $18,886
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 1997 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 2, 1997 by $2,747, and the aggregate of the service
and interest cost components of net post-retirement benefit cost for 1996 by
$283. The discount rate used in determining the accumulated post-retirement
benefit obligation at February 2, 1997 and January 28, 1996 was 8.0% and 7.5%,
respectively.
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.
14
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
Segment Data (Continued)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net Sales
Apparel . . . . . . . . . . . . . . . . . . . . . . . . $1,007,533 $1,100,040 $ 883,949
Footwear. . . . . . . . . . . . . . . . . . . . . . . . 352,060 364,088 371,517
Total Net Sales . . . . . . . . . . . . . . . . . . . . $1,359,593 $1,464,128 $1,255,466
Operating Income
Apparel(1). . . . . . . . . . . . . . . . . . . . . . . $ 33,927 $ 7,948 $ 28,676
Footwear(2) . . . . . . . . . . . . . . . . . . . . . . 28,982 25,510 31,525
Total Operating Income. . . . . . . . . . . . . . . . . 62,909 33,458 60,201
Corporate Expenses . . . . . . . . . . . . . . . . . . . . (15,171) (12,885) (10,499)
Interest Expense, net. . . . . . . . . . . . . . . . . . . (23,164) (23,199) (12,793)
Income (Loss) Before Taxes. . . . . . . . . . . . . . . $ 24,574 $ (2,626) $ 36,909
Identifiable Assets
Apparel . . . . . . . . . . . . . . . . . . . . . . . . $ 381,274 $ 468,618 $ 307,111
Footwear. . . . . . . . . . . . . . . . . . . . . . . . 143,631 165,390 176,261
Corporate . . . . . . . . . . . . . . . . . . . . . . . 132,531 115,047 112,912
$ 657,436 $ 749,055 $ 596,284
Depreciation and Amortization
Apparel . . . . . . . . . . . . . . . . . . . . . . . . $ 18,723 $ 25,487 $ 18,433
Footwear. . . . . . . . . . . . . . . . . . . . . . . . 3,162 3,986 4,125
Corporate . . . . . . . . . . . . . . . . . . . . . . . 7,553 4,267 2,207
$ 29,438 $ 33,740 $ 24,765
Identifiable Capital Expenditures
Apparel . . . . . . . . . . . . . . . . . . . . . . . . $ 6,959 $ 23,627 $ 36,176
Footwear. . . . . . . . . . . . . . . . . . . . . . . . 3,960 4,209 6,152
Corporate . . . . . . . . . . . . . . . . . . . . . . . 11,659 11,937 10,812
$ 22,578 $ 39,773 $ 53,140
</TABLE>
(1) Operating income of the apparel segment includes charges for plant and
store closing and restructuring expenses of $25,000 (1995) and $7,000
(1994).
(2) Operating income of the footwear segment includes charges for store
closing and restructuring expenses of $2,000 in 1995.
Apparel inventories as of February 2, 1997 and January 28, 1996 of
$137,659 and $166,606, respectively, were determined principally using the
LIFO method.
15
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Plant and Store Closing and Restructuring Expenses
During 1995, the Company adopted and began to implement a plan designed to
reduce costs and realign the product distribution mix primarily within the
Company's apparel business. Significant components of the plan included the
closing of three domestic shirt manufacturing facilities, closing
approximately 300 unprofitable retail outlet stores and reorganizing the
Company's management structure which combines the Company's wholesale and
retail businesses into eight discrete operating units, each with total
marketing and profit responsibility for its brand. As a result, the Company
recorded a pre-tax charge during 1995 of $27,000 (approximately $26,000 has
been utilized as of February 2, 1997). Approximately $13,000 of this charge
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 impacted by this restructuring.
During 1994, the Company implemented a plan to restructure and consolidate
certain functions associated with its retail operations, and adopted a plan to
realign its wholesale apparel business into a dress shirt division and a
sportswear division. Also, in connection with the acquisition of the Izod and
Gant businesses, the Company adopted a plan to convert its private label
retail stores to stores which market branded apparel under the Izod and Gant
labels. As a result, the Company recorded a pre-tax charge of $7,000, of
which $3,300 was for the elimination of approximately 85 positions. As of
January 28, 1996, all of the 1994 reserve had been utilized in completing this
restructuring plan.
As part of its ongoing strategic and expense reduction initiatives, the
Company continues to evaluate its operations.
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 1996 and 1995, the Company purchased approximately $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
judgment based in part on the opinion of legal counsel, will not have a
material adverse effect on the Company's financial position.
During 1996, 1995 and 1994, the Company paid a $0.0375 per share cash
dividend each quarter on its common stock.
Certain items in 1995 and 1994 have been reclassified to present these
items on a basis consistent with 1996.
16
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
SELECTED QUARTERLY FINANCIAL DATA - UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1996 1995 1996 1995 1996 1995(1) 1996(2) 1995(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . $273,660 $282,987 $313,807 $349,493 $391,245 $448,007 $380,881 $383,641
Gross profit . . . . . . . . . . 93,097 97,404 105,325 119,597 129,709 139,055 120,945 120,151
Net income (loss). . . . . . . . (6,554) (3,360) 2,126 3,894 15,035 (4,374) 7,923 4,134
Net income (loss) per share (4). (0.24) (0.13) 0.08 0.15 0.56 (0.16) 0.29 0.15
Price range of common stock
per share
High . . . . . . . . . . . . 13 3/8 18 14 1/2 17 11 3/4 15 7/8 15 1/8 11 3/4
Low. . . . . . . . . . . . . 9 5/8 15 11 14 10 3/8 9 1/8 10 3/4 9 1/4
</TABLE>
(1) Net loss for the third quarter of 1995 includes a pre-tax charge of
$25,000 for plant and store closing and restructuring expenses.
(2) The fourth quarter of 1996 includes 14 weeks of operations.
(3) Net income for the fourth quarter of 1995 includes a pre-tax charge of
$2,000 for plant and store closing and restructuring expenses.
(4) Fully diluted net income per share has not been presented since the
results are not materially different from primary net income per share.
17
<PAGE>
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
Management of the Company has the responsibility for preparing the
accompanying financial statements and for their integrity and objectivity.
The statements have been prepared by management in conformity with generally
accepted accounting principles. The financial statements include some amounts
that are based on management's best estimates and judgements. Management also
prepared the other information in the annual report and is responsible for its
accuracy and consistency with the financial statements.
The Company maintains a system of internal accounting controls designed to
provide management with reasonable assurance that transactions are executed in
accordance with management's authorization and recorded properly. The concept
of reasonable assurance is based on the recognition that the cost of a system
of internal accounting control should not exceed the benefits derived and that
the evaluation of those factors requires estimates and judgements by
management. Further, because of inherent limitations in any system of
internal accounting control, errors or irregularities may occur and not be
detected. Nevertheless, management believes that a high level of internal
accounting control is maintained by the Company through the selection and
training of qualified personnel, the establishment and communication of
accounting and business policies, and its internal audit program.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with management and the Company's internal
auditors and independent auditors to review matters relating to the quality of
financial reporting and internal accounting control and the nature, extent and
results of their audits. The Company's internal auditors and independent
auditors have complete access to the Audit Committee.
SIGNATURE STAMP SIGNATURE STAMP
BRUCE J. KLATSKY IRWIN W. WINTER
Chairman, President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
18
<PAGE>
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 2, 1997 and January 28,
1996, 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 2, 1997. 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 2, 1997 and January 28, 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended February 2, 1997 in conformity with
generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, in
1996 the Company adopted Financial Accounting Standards Board Statement No.
123 "Accounting for Stock-Based Compensation."
E&Y SIGNATURE STAMP
New York, New York
March 11, 1997
19
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
TEN-YEAR FINANCIAL SUMMARY
(In thousands, except per share data, percents and ratios)
<TABLE>
<CAPTION>
1996(1) 1995(2) 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales
Apparel. . . . . . . . . . . . . . . . . . . . . . $1,007,533 $1,100,040 $ 883,949 $ 800,454 $ 709,361
Footwear . . . . . . . . . . . . . . . . . . . . . 352,060 364,088 371,517 351,940 333,204
1,359,593 1,464,128 1,255,466 1,152,394 1,042,565
Cost of goods sold and expenses. . . . . . . . . . . 1,311,855 1,443,555 1,205,764 1,072,083 972,357
Interest expense, net. . . . . . . . . . . . . . . . 23,164 23,199 12,793 16,679 15,727
Income (loss) before taxes . . . . . . . . . . . . . 24,574 (2,626) 36,909 63,632 54,481
Income tax expense (benefit) . . . . . . . . . . . . 6,044 (2,920) 6,894 20,380 16,600
Income from continuing operations. . . . . . . . . . 18,530 294 30,015 43,252 37,881
Income (loss) from discontinued operations . . . . .
Extraordinary loss, net of tax . . . . . . . . . . . (11,394)
Net income. . . . . . . . . . . . . . . . . . . $ 18,530 $ 294 $ 30,015 $ 31,858 $ 37,881
Per Share Statistics(4)
Income from continuing operations. . . . . . . . . . $ 0.69 $ 0.01 $ 1.11 $ 1.60 $ 1.42
Discontinued operations. . . . . . . . . . . . . . .
Extraordinary loss . . . . . . . . . . . . . . . . . (0.42) -
Net income. . . . . . . . . . . . . . . . . . . $ 0.69 $ 0.01 $ 1.11 $ 1.18 $ 1.42
Dividends paid per share . . . . . . . . . . . . . . $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.15
Stockholders' equity per share.. . . . . . . . . . . 10.73 10.20 10.35 9.33 8.14
Financial Position
Invested cash. . . . . . . . . . . . . . . . . . . .$ 1,861 $ 8,474 $ 68,586 $ 66,064 $ 75,862
Current assets . . . . . . . . . . . . . . . . . . . 362,958 444,664 429,670 418,702 410,522
Current liabilities. . . . . . . . . . . . . . . . . 122,266 183,126 114,033 109,156 115,208
Working capital. . . . . . . . . . . . . . . . . . . 240,692 261,538 315,637 309,546 295,314
Total assets . . . . . . . . . . . . . . . . . . . . 657,436 749,055 596,284 554,771 517,362
Long-term debt . . . . . . . . . . . . . . . . . . . 189,398 229,548 169,679 169,934 170,235
Convertible redeemable preferred stock . . . . . . .
Stockholders' equity . . . . . . . . . . . . . . . . 290,158 275,292 275,460 246,799 211,413
Other Statistics
Total debt to total capital (5). . . . . . . . . . . 43.1% 52.3% 38.2% 40.8% 46.8%
Net debt to net capital (6). . . . . . . . . . . . . 42.9% 51.5% 26.9% 29.7% 34.3%
Market value of stockholders' equity . . . . . . . . $ 365,000 $ 270,000 $ 426,000 $ 949,000 $ 753,000
Current ratio. . . . . . . . . . . . . . . . . . . . 3.0 2.4 3.8 3.8 3.6
Average shares and equivalents outstanding . . . . . 27,004 26,726 27,154 27,106 25,253
</TABLE>
(1) 1996 and 1990 include 53 weeks of operations.
(2) 1995 includes the operations of Izod and Gant from date of acquisition,
February 17, 1995, and includes a $27,000 pre-tax restructuring charge.
(3) 1987 includes the operations of G.H. Bass & Co. from date of
acquisition, August 21, 1987.
(4) Fully diluted net income per share has not been presented since the
results are either not materially different from primary net income
per share or are anti-dilutive.
(5) Total capital equals interest-bearing debt, preferred stock and
stockholders' equity.
(6) Net debt and net capital are total debt and total capital reduced by
invested cash.
20
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
TEN-YEAR FINANCIAL SUMMARY (CONTINUED)
<TABLE>
<CAPTION>
1991 1990(1) 1989 1988 1987(3)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales
Apparel. . . . . . . . . . . . . . . . . . . . . . $596,383 $536,352 $493,395 $460,342 $416,407
Footwear . . . . . . . . . . . . . . . . . . . . . 307,717 269,963 239,541 180,696 83,618
904,100 806,315 732,936 641,038 500,025
Cost of goods sold and expenses. . . . . . . . . . . 843,367 752,252 682,687 597,543 457,842
Interest expense, net. . . . . . . . . . . . . . . . 16,686 18,884 17,555 16,109 6,210
Income before taxes. . . . . . . . . . . . . . . . . 44,047 35,179 32,694 27,386 35,973
Income tax expense (benefit) . . . . . . . . . . . . 12,910 8,795 8,502 6,565 14,655
Income from continuing operations. . . . . . . . . . 31,137 26,384 24,192 20,821 21,318
Income (loss) from discontinued operations . . . . . (152) 8,691
Extraordinary loss, net of tax . . . . . . . . . . .
Net income. . . . . . . . . . . . . . . . . . . $ 31,137 $ 26,384 $ 24,192 $ 20,669 $ 30,009
Per Share Statistics(4)
Income from continuing operations. . . . . . . . . . $ 1.15 $ 0.95 $ 0.84 $ 0.68 $ 0.66
Discontinued operations. . . . . . . . . . . . . . . (0.01) 0.33
Extraordinary loss . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . $ 1.15 $ 0.95 $ 0.84 $ 0.67 $ 0.99
Dividends paid per share . . . . . . . . . . . . . . $ 0.1425 $ 0.14 $ 0.14 $ 0.14 $ 0.125
Stockholders' equity per share.. . . . . . . . . . . 4.52 3.38 2.53 1.79 1.24
Financial Position
Invested cash. . . . . . . . . . . . . . . . . . . . $ 5,326 $ 5,796 $ 3,551 $ 7,191 $ 8,979
Current assets . . . . . . . . . . . . . . . . . . . 303,143 285,315 266,867 265,039 258,135
Current liabilities. . . . . . . . . . . . . . . . . 102,976 90,748 84,190 88,191 86,741
Working capital. . . . . . . . . . . . . . . . . . . 200,167 194,567 182,677 176,848 171,394
Total assets . . . . . . . . . . . . . . . . . . . . 398,969 376,790 333,108 323,133 317,773
Long-term debt . . . . . . . . . . . . . . . . . . . 121,455 140,259 118,776 116,400 120,848
Convertible redeemable preferred stock . . . . . . . 72,800 72,800 72,800 72,800 72,800
Stockholders' equity . . . . . . . . . . . . . . . . 84,903 62,324 46,085 32,476 22,456
Other Statistics
Total debt to total capital (5). . . . . . . . . . . 46.0% 53.2% 52.6% 55.1% 56.9%
Net debt to net capital (6). . . . . . . . . . . . . 45.0% 52.2% 51.9% 53.7% 55.1%
Market value of stockholders' equity . . . . . . . . $392,000 $173,000 $132,000 $127,000 $ 86,000
Current ratio. . . . . . . . . . . . . . . . . . . . 2.9 3.1 3.2 3.0 3.0
Average shares and equivalents outstanding . . . . . 19,897 19,094 19,140 18,572 26,258
</TABLE>
(1) 1996 and 1990 include 53 weeks of operations.
(2) 1995 includes the operations of Izod and Gant from date of acquisition,
February 17, 1995, and includes a $27,000 pre-tax restructuring charge.
(3) 1987 includes the operations of G.H. Bass & Co. from date of
acquisition, August 21, 1987.
(4) Fully diluted net income per share has not been presented since the
results are either not materially different from primary net income
per share or are anti-dilutive.
(5) Total capital equals interest-bearing debt, preferred stock and
stockholders' equity.
(6) Net debt and net capital are total debt and total capital reduced by
invested cash.
21
FINANCIAL REVIEW
The Company's primary strategy lies in continuing to build the value of its
brands. We believe this is key to the long-term building of shareholder
value.
In the decade prior to 1995 our growth was driven by committing the majority
of our resources to a single channel of distribution - factory outlet
retailing. That tactic proved to be highly successful in growing the Company
and strengthening its balance sheet. It led, however, to a significant over-
expansion in that area of our business. And that, coupled with a weakening in
outlet retail sales, led to a major downturn in operating results beginning in
1994.
The year 1995 marked the beginning of a major change in the execution of our
business strategy, as the Company responded to that difficult situation with
three very significant initiatives:
1) Acquiring Izod and Gant in early 1995.
o The acquisition has provided a major broadening of our sportswear mix
and added two extremely important men's sportswear brands. It has been
the key component in bringing casualwear up to 85% of total Company
sales.
2) Reorganizing our operating structure from a wholesale/retail configuration
to one of brand marketing business units.
o This change, beginning in February 1996, has been remarkably successful
in placing a dedicated focus on the enhancement and placement of our
brands.
3) Developing a plan to close some 300 of our retail outlet stores (almost
one-third of the total).
o In 1996, these closings began to eliminate our weakest and worst-
trending stores, accelerated the realignment of our wholesale/retail
sales mix and became an important source of cash flow.
While bottom line results do not begin to reflect the accomplishments of 1996,
we believe the progress made in positioning our business for a major
turnaround is very real.
A consistent theme throughout this report is the strong emphasis on brand and
product development during 1996. The resulting upgraded product assortments
will find their way to department store shelves throughout 1997. It is our
intention to leverage these upgraded product assortments with a strong media
marketing program. We believe the combination of upgraded product, good shelf
space and much intensified consumer marketing will have a significant positive
impact on each of our brands beginning in 1997 and accelerating thereafter.
APPAREL
Net sales of the Company's apparel segment were $1.0 billion in 1996, $1.1
billion in 1995 and $883.9 million in 1994. The sales reduction in 1996 was
22
<PAGE>
expected and resulted from the absence of clearance sales associated with the
acquisition of the Izod and Gant brands as well as from strategic initiatives
to contract several areas of the Company's business - the elimination of the
Company's private label retail formats, the reduction of low margin private
label sales at the wholesale level and the previously discussed retail store
closings. The effect of these changes more than offset sales gains made this
year in the Company's branded product lines at wholesale. The 24.4% sales
growth in 1995 was attributable, principally, to the acquisition of Izod and
Gant.
Gross margin in apparel increased to 31.3% in 1996 compared with 30.9% in 1995
and 30.8% in 1994. There was a very distinct change in gross margin
comparisons between the first and second half of 1996:
Increase
1996 1995 (Decrease)
First Half 32.4% 32.7% (0.3)%
Second Half 30.6% 29.7% 0.9%
Year 31.3% 30.9% 0.4%
Improvement in the second half of 1996 compared with the comparable period in
1995 came, in large part, from the elimination/reduction of certain of the
less profitable businesses described above.
Two business units which performed poorly throughout the year were Somerset
Knitting Mills and Geoffrey Beene retail.
Somerset, which manufactures and markets sweaters, had made progress in 1995
by increasing its branded product mix and maximizing the use of its sweater
facilities in Puerto Rico. In 1996, the retail environment for sweaters
improved, and the Company's branded products moved further upscale with a much
greater emphasis on natural fiber, better goods. These changes, however, hurt
Somerset since its core acrylic product proved to be far less in demand and
margins weakened. As a result, all of the momentum which had been gained in
1995 was lost.
The weakness in Geoffrey Beene retail was reflected in significant markdowns
caused by an overassorted and poorly focused product mix. This was
exacerbated by too much poor real estate. While improvement in the coming
year will be challenging, we believe we've paved the way for improvement by
narrowing our product lines considerably, enhancing our designer focus and
closing our least productive stores.
Offsetting the poor performance in Somerset and Geoffrey Beene retail were
margin improvements throughout the Company's branded businesses - especially
Bass Apparel, where very significant progress was made in the further
advancement of the Bass lifestyle store. We anticipate that overall
improvement will continue as we focus increasing attention on upgrading our
product mix and adding a very considerable marketing thrust.
Selling, general and administrative expenses were 28.0% of sales in 1996
compared with 27.9% and 26.7%, respectively, in 1995 and 1994. Expense levels
increased in 1995 with the inclusion of the Izod and Gant businesses which,
while providing a higher level of gross margin, also have higher selling and
23
<PAGE>
marketing expenses. Looking ahead, these expense levels will likely increase
as a percentage of sales, in the short-term, as the Company embarks on a
program of major investment in a wide variety of marketing activities.
As our brands grow in size and profitability we anticipate that operating
margins should begin to expand as the improvement in gross margin continues
and expense levels flatten out.
FOOTWEAR
Net sales of the Company's footwear segment were $352.1 million in 1996,
$364.1 million in 1995 and $371.5 million in 1994, reflecting sales decreases
of 3.3% in 1996 and 2.0% in 1995. A major factor in the 1996 sales reduction
was the closing of underproductive outlet stores.
Gross margin in footwear was 37.7% in 1996 compared with 37.4% in 1995 and
37.1% in 1994. As in apparel, the gross margin comparison with the prior year
was very different in the second half of the year compared with the first
half:
Increase
1996 1995 (Decrease)
First Half 37.3% 38.7% (1.4)%
Second Half 38.1% 36.2% 1.9%
Year 37.7% 37.4% 0.3%
During the first half of the year, Bass experienced difficulties in the
restructuring of its Puerto Rico manufacturing operations. This was resolved
by mid-year with increasingly positive results as the year progressed. In
addition, a less promotional retail business in the second half of the year
contributed to the margin improvement.
Selling, general and administrative expenses were 29.5% of sales in 1996
compared with 29.8% in 1995 and 28.6% in 1994. A key feature of the 1995
expense level was a slowdown in retail sales per square foot with a
corresponding increase in in-store expense levels. This reversed itself in
1996 as retail sales improved.
Looking ahead, we anticipate that, as in apparel, gross margin improvement
should come from a combination of strong product development and much
intensified consumer marketing, which will cause an increase in expense
levels. Also, as in apparel, as Bass grows in size and profitability,
operating margins should improve as gross margin continues to improve and
expense levels flatten out.
RESTRUCTURING CHARGES
The Company recorded a $27 million pre-tax restructuring charge in 1995 to
provide for the closing of some 300 outlet stores, the closing of three
domestic shirt manufacturing facilities and the reorganization of PVH's
management structure. Approximately one-half of the charge related to non-
cash items.
24
<PAGE>
In 1994, the Company recorded a $7 million pre-tax restructuring charge to
realign its wholesale apparel business from four operating units into a dress
shirt division and a sportswear division. The 1995 reorganization referred to
above provided for the split-up of the sportswear division into separate brand
marketing units.
CORPORATE EXPENSES
Corporate expenses were $15.2 million in 1996 compared with $12.9 million in
1995 and $10.5 million in 1994. The increase in 1996 is attributable to an
increase in spending relating to information technology. The 1994 expense
level was unusually low, principally because of a reduction in the Company's
liability for its supplemental savings plan which is linked to the market
value of PVH common stock.
INTEREST EXPENSE
Interest expense was $23.2 in both 1996 and 1995. The Company's total debt
level at the beginning of 1995 was a relatively low $169.9 million and then
rose significantly with the acquisition of the Izod and Gant businesses early
in 1995. Total debt at year end 1995 was $301.3 million. The positive cash
flow in 1996 reduced that total debt to $219.6 million. As a result, average
debt in both years remained much the same - but with a very different
composition. Starting 1997 with $81.7 million less debt will have a very
positive impact on 1997 interest expense levels.
INCOME TAXES
The income tax expense rate for 1996 is 24.6% and reflects the relationship of
U.S. income taxed at normal rates to tax exempt income from operations in
Puerto Rico. In 1995, the Company's pre-tax loss of $2.6 million represented
a combination of pre-tax income earned in Puerto Rico and a U.S. tax loss.
Since the U.S. tax loss was available for carryback without limitation and the
Puerto Rico income was tax exempt, the net result was a tax benefit which
eliminated the full amount of the pre-tax loss.
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.
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.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table shows key cash flow elements over the last three years:
(In Thousands) 1996 1995 1994
Operating Activities
Income from operations $ 48,761 $ 42,728 $42,773
adjusted for non-cash items
Change in working capital 53,875 (84,692)(1) 6,621
102,636 (41,964) 49,394
Investment Activities
Acquisition of Izod and Gant (114,503)
Investment in Pyramid Sportswear (6,950)
Capital spending, net (19,893) (31,973) (37,830)
Other, net (3,302) 3,376 2,438
(23,195) (150,050) (35,392)
Financing Activities
Cash dividends (4,050) (4,007) (3,984)
Exercise of stock options 386 1,745 2,630
(3,664) (2,262) (1,354)
Increase (decrease) in cash
before net change in debt $ 75,777 ($194,276) $12,648
(1) Includes ($56,282) related to the acquisition of the Izod and Gant
businesses.
While the year 1995 was characterized as a year of major investment, 1996
marked the start of what we believe will be a period of positive free cash
flow. A major factor in 1996 was a reduction in working capital which, in
large part, resulted from the planned contraction of certain parts of our
business (discussed above). In addition, most of our ongoing businesses
improved their turn of working capital.
With the completion of several large capital spending projects in 1995,
including the new Jonesville Distribution Center, total capital spending in
1996 was reduced to $19.9 million from $32.0 million a year ago. Looking
ahead to 1997, we anticipate a modest increase over 1996 in overall capital
spending levels.
Total debt as a percentage of total capital was 43.1% at year end 1996
compared with 52.3% at year end 1995 and 38.2% at year end 1994. The higher
percentage of debt at year end 1995 came principally from the acquisition of
the Izod and Gant businesses, and was a temporary interruption of the prior
seven years of improving financial position.
26
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
Forward-looking statements in this Annual Report to Stockholders, including
without limitation, statements relating to the Company's plan, strategies,
objectives, expectations and intentions, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that such forward-looking statements involve risks and
uncertainties, including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to
change at any time at the discretion of the Company; (ii) the levels of sales
of the Company's apparel and footwear products, both to its wholesale
customers and in its retail stores, and the extent of discounts and
promotional pricing in which the Company is required to engage; (iii) the
Company's plans and results of operations will be affected by the Company's
ability to manage its growth and inventory; and (iv) other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission.
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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 2, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
(In thousands, except per share)
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-END> FEB-02-1997
<CASH> 11,590
<SECURITIES> 0
<RECEIVABLES> 95,207
<ALLOWANCES> 3,401
<INVENTORY> 237,422
<CURRENT-ASSETS> 362,958
<PP&E> 137,060<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 657,436
<CURRENT-LIABILITIES> 122,266
<BONDS> 189,398
0
0
<COMMON> 27,046
<OTHER-SE> 263,112
<TOTAL-LIABILITY-AND-EQUITY> 657,436
<SALES> 1,359,593
<TOTAL-REVENUES> 1,359,593
<CGS> 910,517
<TOTAL-COSTS> 1,311,855
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 23,164
<INCOME-PRETAX> 24,574
<INCOME-TAX> 6,044
<INCOME-CONTINUING> 18,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,530
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
<FN>
<F1>Property, plant and equipment is presented net of accumulated depreciation.
<F2>Provision for doubtful accounts is included in other costs and expenses.
</FN>
</TABLE>
