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 January 31, 1999 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.)
200 Madison Avenue
New York, New York 10016
(Address of principal executive offices)
212-381-3500
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, $1.00 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for at least 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the voting stock of registrant held by
nonaffiliates of the registrant as of April 1, 1999 was approximately
$185,000,000.
Number of shares of Common Stock outstanding as of April 1, 1999:
27,287,985.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K
Document in which incorporated
Registrant's Proxy Statement Part III
for the Annual Meeting of
Stockholders to be held on June 17, 1999
<PAGE>
* * *
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* *
* SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF*
* 1995 *
* *
* This Annual Report on Form 10-K contains certain forward-looking *
* statements within the meaning of Section 27A of the Securities Act of *
* 1933 and Section 21E of the Securities Exchange Act of 1934, including, *
* without limitation, statements relating to the Company's plans, strategies,*
* objectives, expectations and intentions, are made pursuant to the safe *
* harbor provisions of the Private Securities Litigation Reform Act of 1995. *
* Investors are cautioned that such forward-looking statements are *
* inherently subject to risks and uncertainties, many of which cannot be *
* predicted with accuracy, and some of which might not be anticipated, *
* including, without limitation, the following: (i) the Company's plans, *
* strategies, objectives, expectations and intentions are subject to change *
* at any time at the discretion of the Company; (ii) the levels of sales of *
* the Company's apparel and footwear products, both to its wholesale *
* customers and in its retail stores, and the extent of discounts and *
* promotional pricing in which the Company is required to engage; (iii) the *
* Company's plans and results of operations will be affected by the *
* Company's ability to manage its growth and inventory; (iv) the timing *
* and effectiveness of programs dealing with the Year 2000 issue; and *
* (v) other risks and uncertainties indicated from time to time in the *
* Company's filings with the Securities and Exchange Commission. *
* *
******************************************************************************
PART I
Item 1. Business
Unless the context otherwise requires, the term "Company" means Phillips-
Van Heusen Corporation ("PVH") and its subsidiaries ("Subsidiaries"). The
Company's fiscal year is based on the 52-53 week period ending on the Sunday
on or closest to January 31 and is designated by the calendar year in which
the fiscal year commences. The Company derives market share data information
used herein from various industry sources.
Overview
The Company is a leading marketer of men's, women's and children's apparel
and footwear, sold under four nationally recognized brand names -- Van Heusen,
Bass, Izod and Geoffrey Beene -- in the dress shirt, casual footwear, and
sportswear categories. From February 1995 until February 1999, the Company
had also owned a fifth nationally recognized brand, Gant. On February 26,
1999, the Company sold the Gant trademark and certain related assets
associated with the Company's Gant operations to Pyramid Sportswear AB, which
was the brand's international licensee.
The Company is brand focused and manages the design, sourcing and
manufacturing of substantially all of its products on a brand by brand basis.
The Company's products include both dress and sport shirts and casual shoes
and, to a lesser extent, sweaters, neckwear, furnishings, bottoms, outerwear
and leather and canvas accessories. Excluding Gant, approximately 20% of the
Company's net sales in fiscal 1998 were derived from sales of dress shirts,
33% from sales of footwear and related products and 47% from sales of other
apparel goods, primarily branded sportswear. The Company markets its products
at a wholesale level through national and regional department store chains and
also directly to consumers through its own retail stores, generally located in
factory outlet retail malls. The Company believes that marketing through the
wholesale channel provides the opportunity to build brand equity and
represents its core business, and views its retail business as a complement to
its strong branded positions in the wholesale market.
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Excluding sales of Gant products, the Company's Van Heusen, Bass, Izod and
Geoffrey Beene brands collectively accounted for approximately 93% of the
Company's net sales in fiscal 1998. The Company owns three of the four
brands, with sales of the fourth -- Geoffrey Beene -- being under licensing
agreements with that designer. In fiscal 1998, the Company began marketing
DKNY brand men's dress shirts under a licensing agreement with Donna Karan.
In addition, in March 1999, the Company entered into a licensing agreement
with Supreme International to market dress shirts under the John Henry and
Manhattan brands.
The Company's brands enjoy national recognition in their respective sectors
of the market and share a rich heritage with between 40 and 120 years of
operating history. In the United States, Van Heusen is the best selling men's
dress shirt brand, the best selling men's woven sport shirt brand and the best
selling men's sweater brand. Geoffrey Beene is the best selling men's
designer dress shirt brand in the United States. The Company believes that
its overall share of the United States men's dress shirt market, including its
branded, designer and private label offerings, is the largest of any company.
In the United States, Izod and Izod Club brand products include one of the
best selling men's sweater brands, one of the best selling men's basic knit
shirts and the number one ranked golf apparel brand in pro shops and resorts.
Bass is the leading brand of men's, women's and children's casual shoes at the
moderate price range in the United States.
The Company markets its four premier brands to different segments of the
market, appealing to varied demographic sectors and a broad spectrum of
consumers. This diversity of the Company's brands is intended to minimize
competition among the brands. The Van Heusen brand, designed to target the
moderate price range, appeals to a fashion sensitive 'middle American'
consumer. The typical Bass consumer is fashion conscious with a sense of
individuality, attitude and a youthful, spirited point of view. The Company's
Izod brand is 'active inspired', designed to sell on the main floor of
department stores largely in knitwear categories in the moderate to upper
moderate price range. Geoffrey Beene is targeted toward a more fashion-
forward consumer who is prepared to purchase apparel in the upper moderate
price range. The Company's products are designed to appeal to relatively
stable demographic sectors and generally are not reliant on rapidly changing
fashion trends.
The Company believes that because of its strong brands it is well-
positioned to capitalize on several trends that have affected the apparel and
footwear sectors in recent years. These include the stabilization of the
department store sector with a smaller number of stronger players, among which
the Company ranks its most important customers; the continued importance of
branding as a measure of product differentiation; and the stabilization of the
dress shirt sector after several years of modest decline.
Consistent with its strategy of developing its brands, the Company has
focused on the wholesale sector -- primarily department stores -- as the key
source of distribution for its products. The Company believes that the
wholesale channel generally, and department stores specifically, provide the
best means of promoting a fully conceptualized image for each of its brands
and of securing broad awareness of its products and image. The Company's
wholesale customers for branded and designer apparel include May Co.,
Federated, JC Penney, Dayton Hudson, Belk's and Saks, Inc. The Company's
customers for footwear include Federated, May Co., Dillard's, Dayton Hudson,
Belk's and Saks, Inc.
While focused on the wholesale sector, the Company also sells its products
directly to consumers in Company-owned stores located primarily in factory
outlet retail malls. At the end of fiscal 1998, the Company operated 666
stores, 26 of which are Gant stores which will close in fiscal 1999. The
remaining stores are operated in four formats, matching each of the Company's
premier brands -- Van Heusen, Bass, Izod and Geoffrey Beene. Van Heusen and
Bass, which have the broadest national recognition, followed by Izod, are in
the broadest range of malls. Geoffrey Beene stores are located in malls where
that brand has greater name recognition. Historically, the Company
participated in the significant expansion of the factory outlet mall sector,
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capitalizing on mall expansion to build a portfolio of approximately 1,000
stores and generate significant sales and cash flow growth. However, this
strategy left the Company reliant on mall growth rather than on brand and
market share development as the primary driver of expansion, contributing to a
deterioration in the quality and stability of earnings and failed to
strengthen the image and brand equity in its major businesses. Since 1995,
the Company has significantly reduced the number of its retail locations and
has closed its least profitable stores to optimize its portfolio. The
Company's retail presence remains an important complement to its strong
branded positions in the wholesale market, facilitating product
experimentation, the gathering of market intelligence and effective inventory
control.
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 200
Madison Avenue, New York, New York 10016; its telephone number is (212) 381-
3500.
Business
Apparel
Dress Shirts
The Company's dress shirts currently are marketed principally under the Van
Heusen and Geoffrey Beene brands. These two brands are the leaders in men's
dress shirts in their respective markets, with a combined unit market share in
the key United States department store sector of 30% in 1998, an increase of
four percentage points over the prior year. In addition, the Company markets
its dress shirts under the Bass and Etienne Aigner brands, as well as under
various private label names. In fiscal 1998, the Company began marketing DKNY
brand men's dress shirts under a licensing agreement with Donna Karan. In
addition, in March 1999, the Company entered into a licensing agreement with
Supreme International to market dress shirts under the John Henry and
Manhattan brands.
Van Heusen dress shirts have provided a strong foundation for the Company
for most of its 118-year history and now constitute the best-selling men's
dress shirt brand in the United States. The Van Heusen dress shirt is
marketed at wholesale in the moderate price range to major department stores
and men's specialty stores nationwide, including Federated, May Co., JC Penney
and Mervyns. Its primary competitors are 'Arrow' brand and private label
shirts.
The Company markets Geoffrey Beene men's dress shirts under a license
agreement with that designer, which expires in 2003, and which may be
extended, at the Company's option, through 2013. Geoffrey Beene dress shirts
are the best-selling men's designer dress shirts in the United States.
Geoffrey Beene dress shirts are sold in the upper moderate price range to
major department stores and men's specialty stores nationwide, including
Federated, May Co. and Saks, Inc. Geoffrey Beene dress shirts compete with
those of other designers, including 'Perry Ellis' and 'Ralph Lauren Polo'.
Bass dress shirts are marketed at wholesale to major department stores,
including Federated and Dayton Hudson, and are sold in the upper moderate
price range. DKNY dress shirts are sold in the better price range to major
department stores and men's specialty stores nationwide, including Federated,
May Co. and Saks, Inc. DKNY dress shirts are targeted to younger and more
contemporary customers.
Private label programs offer the retailer the ability to create its own
line of exclusive merchandise and give the retailer control over distribution
of the product. Private label represents an opportunistic business which
leverages the Company's strong design and sourcing expertise. The Company's
customers work with the Company's designers to develop shirts in the styles,
sizes and cuts which the customers desire to sell in their stores with their
particular store names or private labels. Private label programs offer the
3
consumer quality product and offer the retailer the opportunity to enjoy
higher margins and product exclusivity. Private label products, however, do
not have the same level of consumer recognition as branded products and
private label manufacturers do not generally provide retailers with the same
breadth of services and in-store sales and promotional support as branded
manufacturers. The Company markets at wholesale men's dress shirts under
private labels to major national retail chains and department stores,
including JC Penney, Sears, May Co., Target and Federated. The Company
believes it is one of the largest marketers of private label dress shirts in
the United States.
Sportswear
The Company's sportswear products are marketed principally under the Van
Heusen, Izod, Izod Club and Geoffrey Beene brands.
Van Heusen is the best-selling men's woven sport shirt brand and best-
selling men's sweater brand in the United States. Van Heusen apparel also
includes knit sport shirts and golf apparel. Like Van Heusen branded dress
shirts, Van Heusen branded sport shirts and sweaters are marketed at wholesale
in the moderate price range to major department stores and men's specialty
stores nationwide, including JC Penney, Mervyns, May Co. and Federated. The
Company believes that the main floor classification business in department
stores is becoming increasingly important and that there are few important
brands in that category. As a result, the Company believes that the success
of Van Heusen dress shirts in department stores where it is part of the
stores' classification offerings supports its presence in the department
stores' sportswear classification offerings and presents a significant
opportunity for further development.
The product mix targeted for Van Heusen outlet stores is intended to
satisfy the key apparel needs of men from dress furnishings to sportswear and
of women for sportswear. Van Heusen stores' merchandising strategy is focused
on achieving a classic and/or updated traditional look in a range of primarily
moderate price points. Target customers represent the broadest spectrum of
the American consumer.
Izod occupies a major presence in department stores as a main floor
lifestyle classification sportswear brand. Izod branded apparel products
consist of active inspired men's and women's sportswear, including Izod
sweaters (one of the best-selling men's sweater brands in the United States),
knitwear (one of the best-selling basic knit shirt brand in the United
States), slacks, fleecewear and microfiber jackets. These products are
marketed in the moderate to upper moderate price range in major department
store locations, including May Co., Federated, JC Penney, Saks, Inc. and
Belk's.
The Company continues to upgrade its growing product line from the core of
the pique knit shirt and has expanded its wholesale customer base
significantly. The Company has expanded the Izod brand to include apparel
appropriate for the fall and winter seasons, including long-sleeve knit
shirts, fleecewear and microfiber jackets.
The Company's Izod outlet stores market Izod branded men's and women's
active-inspired sportswear. Target customers are generally brand loyalists
who expect quality and fashion at reasonable prices.
Izod Club branded golf apparel is marketed principally to golf pro shops
and resorts across the United States in the better price range and is ranked
as the number one golf brand in that channel of distribution. Products
marketed in the Izod Club men's and women's collections include knit shirts,
sweaters, bottoms, outerwear, windshirts, headwear and hosiery. Izod Club
women's products have been sold since 1997 at Nordstrom stores and since 1998
at Dayton Hudson department stores. Izod Club has developed a professional
golf tournament strategy, which was highlighted by its management of the
4
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merchandising efforts at the 1998 U.S. Open. In addition, four of the top
women golf professionals on the LPGA tour wear Izod Club golf apparel, making
the Izod Club brand highly visible on the golf course and on televised LPGA
events.
The Company's Geoffrey Beene stores offer dress and sport shirts, neckwear,
furnishings, outerwear, bottoms and sportswear. Through their product mix,
the Geoffrey Beene stores seek to meet the full needs of men's wardrobes
(excluding suits) from dress furnishings to sportswear. The merchandising
strategy is focused on an upscale, fashion forward consumer who is prepared to
purchase apparel in the upper moderate price range. Most Geoffrey Beene
stores also offer a full line of women's casual apparel bearing the Geoffrey
Beene name. The Company offers Geoffrey Beene products in its stores under a
license agreement which expires in 2002 and is renewable, at the Company's
option, through 2011.
Geoffrey Beene products are styled to be more fashion-forward than the
Company's Van Heusen brand, and the Geoffrey Beene brand name recognition is
more geographically focused, versus the broader based familiarity with the Van
Heusen, Bass or Izod labels. In recognition of this, the Company has closed a
significant number of its Geoffrey Beene retail outlets in parts of the
country where brand recognition was not strong, which has resulted in a
substantial improvement in store productivity and inventory turn and a
significant increase in profitability.
Beginning in fiscal 1999, the Company plans to capitalize on the success of
Geoffrey Beene dress shirts by introducing Geoffrey Beene sportswear into the
men's classification departments of department stores.
The Company's extensive resources in both product development and sourcing
have permitted it to market successfully private label sport shirts to major
retailers, including Wal-Mart, Target and Sears. Private label golf apparel
is marketed to traditional department and specialty stores, national retail
chains and catalog merchants. The Company also markets private label shirts
to companies in service industries, including major airlines and food chains.
The Company believes it is one of the largest marketers of private label sport
shirts in the United States.
Footwear and Related Products
The Company manufactures, procures for sale and markets a broad range of
updated casual and dress casual shoes and related products for men, women and
children under the Bass brand. The brand has a long history of highly
recognizable and innovative products. Bass is the leading brand of men's,
women's and children's casual shoes at the moderate price range in the United
States.
With the continued trend to a more casual workplace, Bass is well-
positioned to deliver appropriate fashion products. Traditional and classic
footwear continues to be less important, while modern and updated styles take
over as fashion right. The brand's updated casual and dress casual footwear
assortments fit directly into this trend.
Bass' traditional wholesale customers are major department stores and
specialty shoe stores throughout the United States, including Federated, May
Co., Dillard's, Dayton Hudson, Belk's and Saks, Inc. Bass also markets its
footwear internationally and sells limited amounts of 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 factory outlet retail stores typically carry an
assortment of Bass shoes and accessories for men, women and children, in the
moderate price range, as well as complementary products not sold to wholesale
customers.
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Competition
The apparel industry is highly competitive due to its fashion orientation,
its mix of large and small producers, the flow of domestic and imported
merchandise and the wide diversity of retailing methods. The Company's
apparel wholesale divisions experience competition in branded, designer and
private label products. Some of the larger dress shirt competitors include:
Cluett American ('Arrow' brand); Salant Corporation ('Perry Ellis' brand);
Smart Shirt (private label shirt division of Kellwood); Capital Mercury
(private label shirts); and Oxford Industries (private label shirts). The
increase in the Company's dress shirts' market share is, in part, attributable
to the decrease in sales of the 'Arrow' brand of Cluett American. The
Geoffrey Beene brand has increased its lead in sales over other dress shirt
brands. Some of the larger sportswear competitors include: Warnaco ('Chaps'
brand); Supreme International ('Natural Issue' brand); Ashworth ('Cutter and
Buck' brand) and 'Arrow' sport shirts.
The shoe industry is characterized by fragmented competition.
Consequently, retailers and consumers have a wide variety of choices regarding
brands, style and price. However, over the years, Bass has maintained its
important position in the traditional casual footwear market, and few of its
competitors have the significant brand recognition of Bass. The Company's
primary competitors include Dexter, Rockport, Eastland, Sperry and Sebago.
The Company believes, however, that it manufactures a more extensive line of
footwear for both genders and children and in a broader price range than any
of its competitors.
Based on the variety of the apparel and footwear marketed by the Company,
the various channels of distribution it has developed, its logistics and
sourcing expertise, and the strength of the Company's brands, the Company
believes it is particularly well-positioned to compete in the apparel and
footwear industries.
Merchandise Design and Product Procurement
Each brand employs its own designers, product line builders and separate
merchandise product development groups, creating a structure that focuses on
the brand's special qualities and identity. These designers, product line
builders and merchants consider consumer taste, fashion trends and the
economic environment when creating a product plan for a particular season for
their brand. Each brand also employs sourcing specialists who focus on the
manufacturing and sourcing needs of the particular brand. In addition, the
Company operates a world-wide network providing technical support and quality
control to those sourcing specialists. The apparel and footwear merchandise
manufactured by the Company, as well as the vast majority of its sourced
products, are planned, designed and sourced through the efforts of its various
merchandise/product development and sourcing groups.
The process from initial design to finished product varies greatly, but
generally spans nine to 12 months prior to each selling season. Apparel and
footwear product lines are developed primarily for two major selling seasons,
spring and fall. However, certain Company product lines require more frequent
introductions of new merchandise. Raw materials and production commitments
are generally made four to 12 months prior to production and quantities are
finalized at that time. In addition, sales are monitored regularly at both
the retail and wholesale levels and modifications in production can be made
both to increase or reduce availability. The Company's substantial efforts in
the area of quick response to sales trends (through the expanded use of EDI)
enhance its inventory flexibility and reduce production overruns. EDI
provides a computer link between the Company and its wholesale customers that
enables both the customer and the Company to track sales, inventory and
shipments.
A portion of the Company's dress shirts are manufactured in the Company's
domestic apparel manufacturing facility in Alabama as well as in Costa Rica
and Honduras. However, most of the Company's dress shirts and substantially
all of its sportswear are sourced and manufactured to the Company's
specifications by independent manufacturers in the Far East, Middle East and
6
Caribbean areas who meet its quality and cost requirements. Footwear is
manufactured in the Company's factories located in Puerto Rico and the
Dominican Republic, as well as by independent manufacturers which meet its
quality and cost requirements, principally located in Brazil and the Far East.
The Company's foreign offices, located principally in Hong Kong, Taiwan,
the Philippines, Singapore and throughout Central America, enable the Company
to monitor the quality of the goods manufactured by, and the delivery
performance of, its suppliers. The Company continually seeks additional
suppliers throughout the world for its sourcing needs and places its orders in
a manner designed to limit the risk that a disruption of production at any one
facility could cause a serious inventory problem. The Company has not
experienced significant production delays or difficulties in importing goods.
The Company's purchases from its suppliers are effected through individual
purchase orders specifying the price and quantity of the items to be produced.
Generally, the Company does not have any long-term, formal arrangements with
any of the suppliers which manufacture its products. The Company believes
that it is the largest customer of many of its manufacturing suppliers and
that its long-standing relationships with its suppliers provide the Company
with a competitive advantage over its competitors. No single supplier is
critical to the Company's production needs, and the Company believes that an
ample number of alternative suppliers exist should the Company need to secure
additional or replacement production capacity.
The Company purchases raw materials, including shirting fabric, buttons,
thread, labels, yarn, piece goods and leather, from domestic and foreign
sources based on quality, pricing and availability (including quotas and
duties). The Company believes it is one of the largest procurers of shirting
fabric worldwide and purchases the majority of its shirting fabric from
overseas manufacturers, due, principally, to decreased domestic production.
The Company monitors factors affecting textile production and imports and
remains flexible in order to exploit advantages in obtaining materials from
different suppliers and different geographic regions. Rawhide leather for
Bass footwear is procured mainly from domestic suppliers. Bass monitors the
leather market and makes purchases on the spot market or through blanket
contracts with suppliers as price trends dictate. No single supplier of raw
materials is critical to the Company's production needs and the Company
believes that an ample number of alternative suppliers exist should the
Company need to secure additional or replacement raw materials.
Advertising and Promotion
The Company has used national advertising to communicate the Company's
marketing message since the 1920s. The Company advertises primarily in
national print media, including fashion, entertainment/human interest,
business, men's, women's and sports magazines. The Company continues its
efforts in cooperative advertising, as it believes that brand awareness and
in-store positioning are further supplemented by the Company's continuation of
such a program.
In the Company's retail sector, the Company relies upon local outlet mall
developers to promote traffic for their centers. Outlet center developers
employ multiple formats, including signage (highway billboards, off-highway
directional signs, on-site signage and on-site information centers), print
advertising (brochures, newspapers and travel magazines), direct marketing (to
tour bus companies and travel agents), radio and television, and special
promotions.
Trademarks
The Company has the exclusive right to use the Izod name in most countries,
the Van Heusen name in North, Central and South America as well as the
Philippines, and the exclusive worldwide right to use the Bass name for
footwear. The Company has registered or applied for registration of numerous
other trademarks for use on a variety of items of apparel and footwear and
related products and owns many foreign trademark registrations. It presently
has pending a number of applications for additional trademark registrations.
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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 licenses 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 Izod name for infants, toddlers and
children's clothing, 'big and tall' apparel and men's headwear and sleepwear
in the United States, and for men's and women's sportswear in Canada.
The Company plans to continue expanding its worldwide marketing efforts,
utilizing licenses and other techniques for all its brands, especially under
the Izod and Izod Club trademarks. A substantial portion of sales by its
domestic licensing partners are made to the Company's largest customers.
While the Company has significant control over its licensing partners'
products and advertising, it relies on its licensing partners for, among other
things, operational and financial control over their businesses. In addition,
failure by the Company to maintain its existing licensing alliances could
adversely affect the Company's financial condition and results of operations.
Although the Company believes in most circumstances it could replace existing
licensing partners if necessary, its inability to do so for any period of time
could adversely affect the Company's revenues both directly from reduced
licensing revenue received and indirectly from reduced sales of the Company's
other products. To the extent the equity and awareness of each of the
Company's brands grows, the Company expects to gain even greater opportunities
to build on its licensing efforts.
Tariffs and Import Restrictions
A substantial portion of the Company's products is manufactured by
contractors located outside the United States. These products are imported
and are subject to United States Customs laws, which impose tariffs as well as
import quota restrictions established by the United States government.
However, a significant portion of the Company's apparel products is imported
from its Caribbean Basin manufacturing facilities and is therefore eligible
for certain duty-advantaged programs commonly known as '9802 Programs' and
NAFTA benefits for imports from Mexico. 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 January 31, 1999, the Company employed approximately 7,550 persons on
a full-time basis and approximately 3,500 persons on a part-time basis.
Approximately 4% of the Company's 11,050 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 200 Madison
Avenue, New York, New York, occupying approximately 132,000 square feet under
a lease which expires on May 31, 2014. The Company also maintains
administrative offices in Bridgewater, New Jersey, where the Company occupies
a building of approximately 153,000 square feet under a lease which expires on
July 30, 2007 and in Portland, Maine, where the Company occupies a building of
approximately 99,000 square feet under a lease which expires on October 1,
2008. The following tables summarize the manufacturing facilities, warehouses
and distribution centers, administrative offices and retail stores of the
Company:
Apparel
Square Feet of
Floor Space (000's)
Owned Leased Total
Manufacturing Facilities . . . . . . . . . . . . . . 57 124 181
Warehouses and Distribution Centers. . . . . . . . . 1,769 123 1,892
Administrative . . . . . . . . . . . . . . . . . . . 16 333 349
Retail Stores. . . . . . . . . . . . . . . . . . . . 6 1,678 1,684
1,848 2,258 4,106
Footwear and Related Products
Owned Leased Total
Manufacturing Facilities . . . . . . . . . . . . . . 0 145 145
Warehouses and Distribution Centers. . . . . . . . . 179 57 236
Administrative . . . . . . . . . . . . . . . . . . . 20 123 143
Retail Stores. . . . . . . . . . . . . . . . . . . . 8 1,371 1,379
207 1,696 1,903
Information with respect to minimum annual rental commitments under leases
in which the Company is a lessee is included in the note entitled "Leases" in
the Notes to Consolidated Financial Statements included in Item 8 of this
report.
Item 3. Legal Proceedings
The Company is a party to certain litigation which, in the Company's
judgment based in part on the opinion of legal counsel, will not have a
material adverse effect on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
None.
9
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters
Certain information with respect to the market for the Company's common
stock, which is listed on the New York Stock Exchange, and related security
holder matters appears under the heading "Selected Quarterly Financial Data"
on page F-18 and under the heading "Ten Year Financial Summary" on pages F-20
and F-21. As of April 1, 1999, there were 1,448 stockholders of record of the
Company's common stock.
Item 6. Selected Financial Data
Selected Financial Data appears under the heading "Ten Year Financial
Summary" on pages F-20 and F-21.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Adjusted Statements of Operations
(In thousands) 1998 1997 1996
Net Sales $1,303,085 $1,350,007 $1,359,593
Cost of goods sold 856,160 891,965 910,517
Gross profit before non-recurring charges 446,925 458,042 449,076
SG&A expenses before Y2K costs and
non-recurring charges 394,940 412,495 401,338
Income before interest, taxes, Y2K costs
and non-recurring charges 51,985 45,547 47,738
Interest expense, net 26,112 20,672 23,164
Income before taxes, Y2K costs and
non-recurring charges 25,873 24,875 24,574
Income tax expense 6,696 5,954 6,044
Income from ongoing operations before
Y2K costs and non-recurring charges 19,177 18,921 18,530
Y2K costs, net of tax benefit (6,290)
Extraordinary loss on debt retirement,
net of tax benefit (1,060)
Non-recurring charges, net of tax benefit (85,500)
Net income (loss) $ 11,827 $ (66,579) $ 18,530
Adjusted Segment Data
(In thousands) 1998 1997 1996
Net sales-Apparel $ 896,863 $ 911,047 $ 897,370
Net sales-Footwear and Related Products 406,222 438,960 462,223
Total net sales $1,303,085 $1,350,007 $1,359,593
Operating income-Apparel $ 50,302 $ 45,416 $ 30,021
Operating income-Footwear and
Related Products 17,183 15,382 32,888
Total operating income $ 67,485 $ 60,798 $ 62,909
Corporate expenses (15,500) (15,251) (15,171)
Income-before interest, taxes, Y2K costs
and non-recurring charges $ 51,985 $ 45,547 $ 47,738
10
The foregoing adjusted statements of operations and segment data segregate
Year 2000 computer conversion costs (Y2K costs) and non-recurring charges from
the Company's ongoing operations.
The results of operations in 1998 include pre-tax Y2K costs of $8.5
million. The results of operations in 1997 include pre-tax non-recurring
charges of $132.7 million, relating principally to a series of actions the
Company has taken to accelerate the execution of its ongoing strategy to build
its brands. Such costs and charges have been shown as separate components of
selling, general and administrative expenses in the respective consolidated
financial statements, except for $46.0 million of non-recurring charges
related to inventory markdowns that was included in cost of goods sold.
The review which follows discusses PVH's results of operations before such
costs and charges.
Fiscal 1998 was very much a year of contrasts. We accomplished a great
deal toward our strategic goal of maximizing the value of our brands.
However, overall financial results were disappointing as our earnings were
relatively flat and we did not reach our current year financial goal of 15%
earnings growth.
On the plus side:
o Bass footwear recovered from its unsuccessful brand repositioning efforts
in 1997. Our Footwear and Related Products segment, in the early stages of
its financial turnaround, increased its operating income 12% over the prior
year. A major cost reduction program has been implemented allowing Bass to
return to its heritage positioning at moderate price points. And its new
lines for Spring and Fall, 1999 have been met with considerable enthusiasm
from its wholesale customers.
o Our Apparel segment recorded an 11% operating income improvement over the
prior year, led by the performance of our Dress Shirt group. Van Heusen
and Geoffrey Beene again increased their share of the department store
dress shirt market-to a combined 30% in 1998 compared with 26% in 1997 and
21% in 1996. In addition, our very successful introduction of DKNY dress
shirts, under a new license agreement with Donna Karan, adds a younger,
more contemporary component to our Dress Shirt group.
o The recently completed sale of the Gant brand to Pyramid Sportswear both
strengthens our financial position and optimizes our mix of sportswear
brands. It allows us to focus on our moderate to upper-moderate sportswear
brands-Van Heusen, Izod and Geoffrey Beene. We believe we can achieve the
same success in sportswear on the main floor of department stores that we
have realized in our dress shirt business. In addition, our 19% ownership
in Pyramid gives us an ongoing participation in the highly successful
international operations of Gant.
o The refinancing of our balance sheet early in 1998, together with our $100
million Debentures due 2023 provide a solid and secure financial base which
will allow us to focus our full attention on the execution of our strategic
business plan. However, the higher interest costs associated with this
refinancing partially offset the 14% increase in operating earnings
achieved this year.
Operating earnings in 1998 were negatively impacted by a Fall season which
began slowly and never fully recovered. The much-publicized unseasonably warm
weather was a key factor in the slow start of Fall. This, in turn, cut short
Fall's full price selling season and forced significant amounts of promotional
selling in the fourth quarter. This not only slowed retail sales,
particularly in the sportswear area, but also increased considerably the cost
of gross margin support to our wholesale customers.
11
<PAGE>
Still, we have managed our inventory well and are entering Spring 1999 with
clean inventory positions. Most importantly we believe we can build on the
successes we did have in 1998. The financial disappointments of the past Fall
season will not impede our plans for rebuilding our business, including
improved financial performance in 1999.
Results of Operations
PVH manages and analyzes its operating results by two vertically integrated
business segments: (i) Apparel and (ii) Footwear and Related Products.
Apparel
Net sales of the Apparel segment were $896.9 million in 1998 compared with
$911.0 million in 1997 and $897.4 million in 1996. The current year sales
decline resulted principally from our planned strategic initiatives to close
underperforming retail outlet stores and to divest our private label sweater
manufacturing business. At the same time, PVH's sales of wholesale branded
products increased 9% and 24% in 1998 and 1997, respectively, to $421.7
million in 1998 from $387.2 million in 1997 and $311.9 million in 1996. The
major areas of growth in both 1998 and 1997 were Van Heusen, Geoffrey Beene
and Izod.
Gross margin increased to 33.3% in 1998 from 32.9% in 1997 and 31.3% in
1996. The margin improvement was driven by our Dress Shirt business, which
benefited significantly from its manufacturing reconfiguration enabling it to
reduce product costs through our worldwide sourcing network. Offsetting a
substantial portion of this benefit was weaker sportswear gross margins
particularly at Gant and Izod. A weak Fall season driven initially by
unseasonably warm weather resulted in slow sales and increased promotions at
department stores, thereby significantly increasing the cost of markdown
allowances to our wholesale customers.
Selling, general and administrative expenses as a percentage of sales were
down slightly in 1998 to 27.7% compared with 27.9% in 1997 and 1996. The
current year decline relates to a decrease in 1998 advertising spending
compared with 1997 levels.
Operating income increased 10.8% in 1998 to $50.3 million compared with
$45.4 million in 1997 and $30.0 million in 1996 primarily resulting from the
performance of our Dress Shirt group. Our dress shirt leadership position
with the Van Heusen and Geoffrey Beene brands was further enhanced with the
very successful launch of DKNY dress shirts. In early 1999 we entered into an
agreement to license dress shirts for the John Henry and Manhattan brands,
which enables us to further leverage our dress shirt strengths and expertise.
Footwear and Related Products
Net sales of the Footwear and Related Products segment declined 7.5% to
$406.2 million in 1998 compared with $439.0 million in 1997 which was down 5%
from $462.2 million in 1996. The closing of underperforming retail outlet
stores was a factor in the Bass sales reduction in 1998 and 1997. However,
the larger negative factor was the disappointing results of our attempt to
reposition the Bass brand to higher price points in the second half of 1997.
This higher priced positioning did not meet with consumer support and resulted
in a significant inventory build-up, which carried into the second quarter of
1998. This situation negatively impacted both 1998 and 1997 sales and
operating income.
While Bass is in the early stages of a financial turnaround, operating
income increased 11.7% to $17.2 million in 1998 from $15.4 million in 1997,
albeit a substantial reduction from $32.9 million in 1996. The sales problem
described above resulted in a significant reduction in Bass' 1998 and 1997
gross profit contribution dollars compared with 1996 gross profit levels and
substantially lowered operating income in both years. We addressed this issue
aggressively by completely changing line management responsible for the Bass
business, closing our U.S. mainland manufacturing facility and redirecting the
sourcing of Bass product. We have lowered our costs considerably, enabling
12
Bass to be positioned at moderate price points, which we believe should enable
Bass to return to its historically high level of profitability. The Bass
price positioning misstep negatively impacted both 1997 and 1998 operating
income; however it is behind us as we begin 1999.
Gross margin was 36.1% in 1998 compared with 36.0% in 1997 and 36.3% in
1996. Gross margins were negatively impacted by higher inventory liquidation
markdowns in 1998 and 1997. Selling, general and administrative expenses as a
percentage of sales were 31.9% in 1998 down slightly compared with 32.5% in
1997 due to a decrease in 1998 advertising spending. Selling, general and
administrative expenses as a percentage of sales in 1996 was 29.2%. The
increase in 1997 was caused principally by higher advertising, design and
selling costs to support product presentation.
Corporate Expenses
Corporate expenses were $15.5 million in 1998 compared with $15.3 million
in 1997 and $15.2 million in 1996.
Interest Expense
Interest expense was $26.1 million in 1998 compared with $20.7 million and
$23.2 million in 1997 and 1996, respectively. The increase in 1998 reflects
the impact of funding the Company's 1997 restructuring initiatives as well as
the refinancings completed in the first quarter of 1998 which, while extending
maturities, also increased overall borrowing costs. A strong cash flow in
1996 resulted in lower debt levels during 1997, thereby reducing interest
expense in 1997.
Non-Recurring Charges
PVH recorded pre-tax non-recurring charges in 1997 of $132.7 million ($85.5
million after tax) relating principally to exiting the sweater manufacturing
business and U.S. mainland footwear manufacturing, consolidating and
contracting plant and warehouse and distribution facilities, closing
underperforming retail outlet stores, and modifying a repositioning of Bass.
Year 2000
The Year 2000 (Y2K) issue is the result of computer programs using two
digits rather than four to define the applicable year. Such computer systems
will be unable to interpret dates beyond the year 1999, which could cause a
system failure or other computer errors, leading to disruptions in operations.
PVH has initiated a comprehensive Y2K Project to address this issue and is
utilizing both internal and external resources to complete it.
The Company completed an assessment of Y2K requirements for the systems
supported by its Information Technology Department which included contacting
its software suppliers. The impacted systems, including those that are part
of the Company's data processing infrastructure, are now Y2K compliant as a
result of modification or replacement. The systems have been tested and are
in use. They have been fully implemented in all areas, except the Company
still needs to implement certain Y2K compliant retail systems for a number of
its retail outlet stores. In addition, the Company is addressing the Y2K
issue as it relates to its end user computing area. These are expected to be
compliant by June 30, 1999.
The Company has communicated with suppliers, equipment vendors, service
providers and customers to determine the extent to which it is vulnerable to
the failure of these parties to remedy any Y2K issues. Most of these parties
have stated that they intend to be Y2K compliant by 2000. In conjunction with
this, the Company has developed contingency plans for its major suppliers and
merchandise carriers, where feasible, to mitigate Y2K risks. The Company's
electronic commerce systems, used by many of its major customers, are Y2K
compliant and are being installed in accordance with each customer's schedule.
The total cost of the Y2K Project is estimated to be $22 million and is
being funded through operating cash flows. Of the total Project cost,
13
approximately $3 million is attributable to the purchase of new software,
which will be capitalized, with the remaining cost expensed as incurred.
PVH presently believes that the Y2K issue will not pose significant
operational problems for its computer systems. However, no assurance can be
given that this issue, as it relates to PVH's internal systems or those of
other companies on which it relies, will not have a material adverse impact on
PVH's operations.
Liquidity and Capital Resources
The following table shows key cash flow elements over the last three years:
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands)
<S> <C> <C> <C>
Operating Activities
Income from operations before non-recurring charges
and Y2K costs, adjusted for non-cash items..........$ 47,463 $ 41,205 $ 51,273
Change in working capital............................. 21,116 (15,099) 50,746
Cash flow before non-recurring charges................ 68,579 26,106 102,019
Non-recurring charges -- cash impact.................. (34,100) (34,100)
Y2K costs............................................. (8,500)
25,979 (7,994) 102,019
Investment Activities
Capital spending...................................... (38,213) (17,923) (22,578)
Financing Activities
Cash dividends........................................ (4,082) (4,065) (4,050)
Exercise of stock options............................. 838 791 386
Refinancing costs..................................... (5,132)
(8,376) (3,274) (3,664)
Increase (decrease) in cash before net change in debt.$ (20,610) $ (29,191) $ 75,777
</TABLE>
Cash flow before non-recurring charges and Y2K costs, as noted in the table
above was positive in each of the past three years. The cash outflow of $34.1
million in 1998 and 1997 relates to the 1997 restructuring initiatives
described above. At year-end 1998, the Company had, as a result of these
charges, tax loss and credit carryforwards of $44.2 million-which may be
utilized to offset some $113 million of future U.S. pre-tax income.
Capital spending in 1998 was $38.2 million compared with $17.9 million in
1997 and $22.6 million in 1996. The higher level of 1998 spending reflects
the expenditure of $20.7 million related to the consolidation of all New York
office space into a single location. Our new headquarters, at 200 Madison
Avenue, provides the Company with more square footage at an annual occupancy
cost savings of $500,000 or a 10% reduction compared with 1998 New York
occupancy costs. Capital expenditures for 1999 are anticipated at about $30
million.
On April 22, 1998 we issued $150 million of 9.5% Senior Subordinated Notes
due May 1, 2008, and used the proceeds to eliminate our intermediate term
senior notes and reduce our revolving credit debt and eliminate any debt
amortization over the next 10 years. At the same time, we re-syndicated our
revolving credit facility, which was scheduled to mature in early 1999, with a
new $325 million senior secured credit facility with a group of 12 banks.
These refinancings, while increasing our cost of debt capital, provide a
secure financial base and allow us to focus our attention on the execution of
our strategic business plan.
Total debt as a percentage of total capital was 54.0% at year-end 1998
compared with 53.0% and 43.1% at year-end 1997 and 1996, respectively.
14
On February 26, 1999 we completed the sale of Gant to Pyramid Sportswear,
the brand's international licensee. Sale proceeds net of employee severance
and liquidation costs, should approximate $65 million and will initially be
used to reduce debt. The combination of our strengthened capital structure
together with the added liquidity provided by this sale positions us to take
advantage of any investment opportunities which may arise.
Market Risk
The Company's debt at January 31, 1999 includes both variable rate short-
term debt and fixed rate long-term debt. Based on the amount of variable rate
short-term debt outstanding at January 31, 1999 and the average net amount of
such debt which the Company anticipates to be outstanding during 1999, the
Company believes that a change of 100 basis points in interest rates would not
have a material effect on the Company's financial position. The long-term
debt footnote to the Company's consolidated financial statements outlines the
principal amounts, interest rates, fair values and other terms required to
evaluate the expected sensitivity of interest rate changes on the fair value
of the Company's fixed rate long-term debt.
Seasonality
PVH'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.
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 PVH's plans, strategies,
objectives, expectations and intentions, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that such forward-looking statements are inherently subject to
risks and uncertainties, many of which cannot be predicted with accuracy, and
some of which might not be anticipated, including, without limitation, the
following: (i) PVH'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 PVH'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) PVH's
plans and results of operations will be affected by the Company's ability to
manage its growth and inventory; (iv) the timing and effectiveness of programs
dealing with the Year 2000 issue; and (v) other risks and uncertainties
indicated from time to time in PVH's filings with the Securities and Exchange
Commission.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to Quantitative and Qualitative Disclosures About
Market Risk appears under the heading "Market Risk" in Item 7.
Item 8. Financial Statements and Supplementary Data
See page F-1 for a listing of the consolidated financial statements and
supplementary data included in this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
15
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Executive Officers of the Registrant
The following table sets forth certain information concerning the Company's
Executive Officers:
Name Position Age
Bruce J. Klatsky Chairman and Chief Executive Officer;
Director 50
Mark Weber President and Chief Operating Officer;
Director 50
Emanuel Chirico Executive Vice President and
Chief Financial Officer 41
Irwin W. Winter Executive Vice President; Director 65
Allen E. Sirkin Vice Chairman 56
Michael J. Blitzer Vice Chairman 49
Mr. Bruce J. Klatsky has been employed by the Company in various capacities
over the last 27 years, and was President of the Company from 1987 to 1998.
Mr. Klatsky has served as a director of the Company since 1985 and was named
Chief Executive Officer in 1993 and Chairman of the Board of Directors in
1994.
Mr. Mark Weber has been employed by the Company in various capacities over
the last 27 years, had been a Vice President of the Company since 1988, was
Vice Chairman of the Company since 1995 and was named President and Chief
Operating Officer in 1998.
Mr. Emanuel Chirico has been employed by the Company as Vice President and
Controller since 1993. Mr. Chirico was named Executive Vice President and
Chief Financial Officer in 1998.
Mr. Irwin W. Winter joined the Company in 1987 as Vice President, Finance
and Chief Financial Officer. Mr. Winter was named Executive Vice President in
1995. He is retiring from the Company effective April 30, 1999.
Mr. Allen E. Sirkin has been employed by the Company since 1985. He served
as Chairman of the Company's Apparel Group since 1990 and was named Vice
Chairman of the Company in 1995.
Mr. Michael J. Blitzer has been employed by the Company in various
capacities over the last 19 years. Mr. Blitzer was named Vice Chairman of the
Company in 1998.
Additional 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,
1999.
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, 1999.
16
<PAGE>
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, 1999.
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, 1999.
17
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) See page F-1 for a listing of the consolidated financial statements
included in Item 8 of this report.
(a)(2) See page F-1 for a listing of financial statement schedules submitted
as part of this report.
(a)(3) The following exhibits are included in this report:
Exhibit
Number
3.1 Certificate of Incorporation (incorporated by reference to Exhibit
5 to the Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 1977).
3.2 Amendment to Certificate of Incorporation, filed June 27, 1984
(incorporated by reference to Exhibit 3B to the Company's Annual
Report on Form 10-K for the fiscal year ended February 3, 1985).
3.3 Certificate of Designation of Series A Cumulative Participating
Preferred Stock, filed June 10, 1986 (incorporated by reference to
Exhibit A of the document filed as Exhibit 3 to the Company's
Quarterly Report as filed on Form 10-Q for the period ended May 4,
1986).
3.4 Amendment to Certificate of Incorporation, filed June 2, 1987
(incorporated by reference to Exhibit 3(c) to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1988).
3.5 Amendment to Certificate of Incorporation, filed June 1, 1993
(incorporated by reference to Exhibit 3.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 30, 1994).
3.6 Amendment to Certificate of Incorporation, filed June 20, 1996
(incorporated by reference to Exhibit 3.1 to the Company's Report
on Form 10-Q for the period ended July 28, 1996).
3.7 By-Laws of Phillips-Van Heusen Corporation, as amended through
June 18, 1996 (incorporated by reference to Exhibit 3.2 to the
Company's Report on Form 10-Q for the period ended July 28, 1996).
4.1 Specimen of Common Stock certificate (incorporated by reference to
Exhibit 4 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1981).
4.2 Preferred Stock Purchase Rights Agreement (the "Rights Agreement"),
dated June 10, 1986 between PVH and The Chase Manhattan Bank, N.A.
(incorporated by reference to Exhibit 3 to the Company's Quarterly
Report as filed on Form 10-Q for the period ended May 4, 1986).
4.3 Amendment to the Rights Agreement, dated March 31, 1987 between PVH
and The Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 4(c) to the Company's Annual Report on Form 10-K for the
year ended February 2, 1987).
4.4 Supplemental Rights Agreement and Second Amendment to the Rights
Agreement, dated as of July 30, 1987, between PVH and The Chase
Manhattan Bank, N.A. (incorporated by reference to Exhibit (c)(4)
to the Company's Schedule 13E-4, Issuer Tender Offer Statement,
dated July 31, 1987).
18
<PAGE>
4.5 Notice of extension of the Rights Agreement, dated June 5, 1996,
from Phillips-Van Heusen Corporation to The Bank of New York
(incorporated by reference to Exhibit 4.13 to the Company's report
on Form 10-Q for the period ended April 28, 1996).
4.6 Credit Agreement, dated as of April 22, 1998, among PVH, the group
of lenders party hereto, The Chase Manhattan Bank, as
Administrative Agent and Collateral Agent, and Citicorp USA, Inc.,
as Documentation Agent (incorporated by reference to Exhibit 4.6 to
the Company's report on Form 10-Q for the period ended May 3,
1998).
4.7 Amendment No. 1, dated as of November 17, 1998, to the Credit
Agreement, dated as of April 22, 1998, among PVH, the group of
lenders party hereto, The Chase Manhattan Bank, as Administrative
Agent and Collateral Agent, and Citicorp USA, Inc., as
Documentation Agent.
4.8 Consent, Waiver and Amendment No. 2, dated as of February 23, 1999,
to the Credit Agreement, dated as of April 22, 1998, among PVH, the
group of lenders party hereto, The Chase Manhattan Bank, as
Administrative Agent and Collateral Agent, and Citicorp USA, Inc.,
as Documentation Agent.
4.9 Indenture, dated as of April 22, 1998, with PVH as issuer and Union
Bank of California, N.A., as Trustee (incorporated by reference to
Exhibit 4.7 to the Company's report on Form 10-Q for the period
ended May 3, 1998).
4.10 Indenture, dated as of November 1, 1993, between PVH and The Bank
of New York, as Trustee (incorporated by reference to Exhibit 4.01
to the Company's Registration Statement on Form S-3 (Reg. No. 33-
50751) filed on October 26, 1993).
*10.1 1987 Stock Option Plan, including all amendments through April 29,
1997 (incorporated by reference to Exhibit 10.1 to the Company's
report on Form 10-Q for the period ended May 4, 1997).
*10.2 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).
*10.3 Phillips-Van Heusen Corporation Capital Accumulation Plan
(incorporated by reference to the Company's Report on Form 8-K
filed on January 16, 1987).
*10.4 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).
*10.5 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).
*10.6 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).
*10.7 Agreement amending Phillips-Van Heusen Corporation Capital
Accumulation Plan with respect to Bruce J. Klatsky (incorporated by
reference to Exhibit 10.13 to the Company's report on Form 10-Q for
the period ended May 4, 1997).
19
*10.8 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).
*10.9 Phillips-Van Heusen Corporation Supplemental Savings Plan,
effective as of January 1, 1991 and amended and restated as of
April 29, 1997 (incorporated by reference to Exhibit 10.10 to the
Company's report on Form 10-Q for the period ended May 4, 1997).
*10.10 Non-Incentive Stock Option Agreement, dated as of December 3, 1993,
between the Company and Bruce J. Klatsky (incorporated by reference
to Exhibit 10.12 to the Company's Annual Report on Form 10-K for
the fiscal year ended January 29, 1995).
*10.11 Phillips-Van Heusen Corporation 1997 Stock Option Plan, effective
as of April 29, 1997 (incorporated by reference to Exhibit 10.14 to
the Company's report on Form 10-Q for the period ending August 3,
1997).
*10.12 Phillips-Van Heusen Corporation Senior Management Bonus Program for
fiscal year 1998 (incorporated by reference to Exhibit 10.15 to the
Company's report on Form 10-Q for the period ending August 2,
1998).
21. Subsidiaries of the Company.
23. Consent of Independent Auditors.
27. Financial Data Schedule
(b) Reports filed on Form 8-K filed during the fourth quarter of 1998:
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.
20
<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, Chief Executive
Officer and Director
Date: April 21, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
Bruce J. Klatsky Chairman, Chief Executive April 21, 1999
Bruce J. Klatsky Officer and Director (Principal
Executive Officer)
Mark Weber President, Chief Operating April 12, 1999
Mark Weber Officer and Director
Irwin W. Winter Executive Vice President and April 12, 1999
Irwin W. Winter Director
Emanuel Chirico Executive Vice President and April 21, 1999
Emanuel Chirico Chief Financial Officer
Vincent A. Russo Vice President and Controller April 12, 1999
Vincent A. Russo (Principal Accounting Officer)
Edward H. Cohen Director April 12, 1999
Edward H. Cohen
Joseph B. Fuller Director April 21, 1999
Joseph B. Fuller
Joel H. Goldberg Director April 13, 1999
Joel H. Goldberg
Marc Grosman Director April 13, 1999
Marc Grosman
Dennis F. Hightower Director April 13, 1999
Dennis F. Hightower
Maria Elena Lagomasino Director April 13, 1999
Maria Elena Lagomasino
Harry N.S. Lee Director April 13, 1999
Harry N.S. Lee
Bruce Maggin Director April 13, 1999
Bruce Maggin
Slyvia M. Rhone Director April 21, 1999
Slyvia M. Rhone
Peter J. Solomon Director April 12, 1999
Peter J. Solomon
21
FORM 10-K-ITEM 14(a)(1) and 14(a)(2)
PHILLIPS-VAN HEUSEN CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
14(a)(1) The following consolidated financial statements and supplementary
data are included in Item 8 of this report:
Consolidated Statements of Operations--Years Ended
January 31, 1999, February 1, 1998 and February 2, 1997 . . . . F-2
Consolidated Balance Sheets--January 31, 1999 and
February 1, 1998. . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Cash Flows--Years Ended
January 31, 1999, February 1, 1998 and February 2, 1997 . . . . F-4
Consolidated Statements of Changes in Stockholders'
Equity--Years Ended January 31, 1999, February 1, 1998
and February 2, 1997. . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements. . . . . . . . . . . . F-6
Selected Quarterly Financial Data . . . . . . . . . . . . . . . . F-18
Report of Ernst & Young LLP, Independent Auditors . . . . . . . . F-19
10 Year Financial Summary . . . . . . . . . . . . . . . . . . . . F-20
14(a)(2) The following consolidated financial statement schedule is included
herein:
Schedule II - Valuation and Qualifying Accounts. . . . . . . . F-22
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
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,303,085 $1,350,007 $1,359,593
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . 856,160 937,965 910,517
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446,925 412,042 449,076
Selling, general and administrative expenses. . . . . . . . . . . . . 394,940 412,495 401,338
Year 2000 computer conversion expenses. . . . . . . . . . . . . . . . 8,500
Facility and store closing, restructuring and
other expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 86,700
Income (loss) before interest, taxes and extraordinary item . . . . . 43,485 (87,153) 47,738
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . 26,112 20,672 23,164
Income (loss) before taxes and extraordinary item . . . . . . . . . . 17,373 (107,825) 24,574
Income tax expense (benefit). . . . . . . . . . . . . . . . . . . . . 4,486 (41,246) 6,044
Income (loss) before extraordinary item . . . . . . . . . . . . . . . 12,887 (66,579) 18,530
Extraordinary loss on debt retirement, net of tax benefit . . . . . . (1,060)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,827 $ (66,579) $ 18,530
Basic income (loss) per share:
Income (loss) before extraordinary item . . . . . . . . . . . . . . $ 0.47 $ (2.46) $ 0.69
Extraordinary loss on debt retirement, net of tax benefit . . . . . (0.04)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.43 $ (2.46) $ 0.69
Diluted income (loss) per share:
Income (loss) before extraordinary item . . . . . . . . . . . . . . $ 0.47 $ (2.46) $ 0.68
Extraordinary loss on debt retirement, net of tax benefit . . . . . (0.04)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.43 $ (2.46) $ 0.68
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
January 31, February 1,
1999 1998
<S> <C> <C>
ASSETS
Current Assets:
Cash, including cash equivalents of $4,399 and $1,413. . . . . . . . . . . . . $ 10,957 $ 11,748
Trade receivables, less allowances of $1,367 and $2,911. . . . . . . . . . . . 88,038 88,656
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232,695 249,534
Other, including deferred taxes of $10,611 and $19,031 . . . . . . . . . . . . 36,327 35,080
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368,017 385,018
Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 108,846 94,582
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,344 116,467
Other Assets, including deferred taxes of $52,167 and $44,094 . . . . . . . . . . 84,106 64,392
$674,313 $660,459
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,000 $ 7,900
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,851 36,233
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,835 89,202
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 132,686 133,335
Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248,723 241,004
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,016 65,815
Stockholders' Equity:
Preferred stock, par value $100 per share; 150,000 shares
authorized; no shares outstanding
Common stock, par value $1 per share; 100,000,000 shares
authorized; shares issued 27,287,985 and 27,179,244. . . . . . . . . . . . . 27,288 27,179
Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,683 116,954
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,917 76,172
Total Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . . 228,888 220,305
$674,313 $660,459
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Operating activities:
Income (loss) before extraordinary item . . . . . . . . . . . . . . . . . . . $ 12,887 $(66,579) $ 18,530
Adjustments to reconcile to net cash provided
(used) by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 25,442 25,300 29,438
Write-off of property, plant and equipment. . . . . . . . . . . . . . . . 40,800
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 3,996 (43,024) 4,205
Equity income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,152) (792) (900)
Changes in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,282) 3,150 18,060
Income tax refund receivable. . . . . . . . . . . . . . . . . . . . . . . . 16,987
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,839 (12,112) 39,351
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . (13,819) 28,905 (18,774)
Other-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,932) 16,358 (4,878)
Net Cash Provided (Used) By Operating Activities. . . . . . . . . . . . . . 25,979 (7,994) 102,019
Investing activities:
Property, plant and equipment acquired. . . . . . . . . . . . . . . . . . . . (38,213) (17,923) (22,578)
Financing activities:
Net proceeds from issuance of 9.5% senior
subordinated notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,104
Repayment of 7.75% senior notes . . . . . . . . . . . . . . . . . . . . . . . (49,286)
Extraordinary loss on debt retirement . . . . . . . . . . . . . . . . . . . . (1,631)
Proceeds from revolving line of credit. . . . . . . . . . . . . . . . . . . . 160,600 123,000 52,582
Payments on revolving line of credit. . . . . . . . . . . . . . . . . . . . . (240,100) (93,651) (134,302)
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . 838 791 386
Cash dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,082) (4,065) (4,050)
Net Cash Provided (Used) By Financing Activities. . . . . . . . . . . . . . 11,443 26,075 (85,384)
Increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . . . (791) 158 (5,943)
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . 11,748 11,590 17,533
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,957 $ 11,748 $ 11,590
</TABLE>
See notes to consolidated financial statements.
F-4
<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 Stockholders'
Shares Value Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
January 28, 1996. . . . . . . . . . 26,979,352 $26,979 $115,977 $132,336 $275,292
Stock options exercised . . . . . 66,353 67 319 386
Net income. . . . . . . . . . . . 18,530 18,530
Cash dividends. . . . . . . . . . (4,050) (4,050)
February 2, 1997. . . . . . . . . . 27,045,705 27,046 116,296 146,816 290,158
Stock options exercised . . . . . 133,539 133 658 791
Net loss. . . . . . . . . . . . . (66,579) (66,579)
Cash dividends. . . . . . . . . . (4,065) (4,065)
February 1, 1998. . . . . . . . . . 27,179,244 27,179 116,954 76,172 220,305
Stock options exercised . . . . . 108,741 109 729 838
Net income. . . . . . . . . . . . 11,827 11,827
Cash dividends. . . . . . . . . . (4,082) (4,082)
January 31, 1999. . . . . . . . . . 27,287,985 $27,288 $117,683 $ 83,917 $228,888
</TABLE>
See notes to consolidated financial statements.
F-5
<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 PVH and its subsidiaries. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
the estimates.
Fiscal Year - Fiscal years are designated in the financial statements and
notes by the calendar year in which the fiscal year commences. Accordingly,
results for fiscal years 1998 and 1997 represent the 52 weeks ended January
31, 1999 and February 1, 1998, respectively. Fiscal year 1996 represents the
53 weeks ended February 2, 1997.
Cash and Cash Equivalents - PVH considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
Asset Impairments - PVH records impairment losses on long-lived assets
(including goodwill) used in operations when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated to
be generated by the related assets are less than the carrying amounts of those
assets.
Inventories - Inventories are stated at the lower of cost or market. Cost
for certain apparel inventories of $91,414 (1998) and $90,999 (1997) is
determined using the last-in, first-out method (LIFO). Cost for footwear and
certain sportswear inventories is determined using the first-in, first-out
method (FIFO).
Property, Plant and Equipment - Depreciation is computed principally by
the straight line method over the estimated useful lives of the various
classes of property.
Goodwill - Goodwill, net of accumulated amortization of $14,481 and
$11,358 in 1998 and 1997, respectively, is amortized principally using the
straight line method over 40 years.
Contributions from Landlords - PVH receives contributions from landlords
primarily 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.
Fair Value of Financial Instruments - Using discounted cash flow analyses,
PVH estimates that the fair value of all financial instruments approximates
their carrying value, except as noted in the footnote entitled "Long-Term
Debt".
F-6
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Summary of Significant Accounting Policies (Continued)
Stock-Based Compensation - PVH accounts for its stock options under the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and complies with the disclosure requirements of FASB Statement No. 123,
"Accounting for Stock-Based Compensation".
Advertising - Advertising costs are expensed as incurred and totalled
$28,239 (1998), $37,762 (1997) and $19,427 (1996).
Earnings Per Share
PVH computed its basic and diluted earnings per share by dividing net
income or loss by:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Weighted Average Common Shares Outstanding
for Basic Earnings Per Share 27,217,634 27,107,633 27,004,115
Impact of Dilutive Employee Stock Options 94,903 209,462
Total Shares for Diluted Earnings Per Share 27,312,537 27,107,633 27,213,577
Income Taxes
Income taxes consist of:
1998 1997 1996
Federal:
Current . . . . . . . . . . . . . . . $ 336 $ 314
Deferred. . . . . . . . . . . . . . . $2,867 (43,630) 3,025
State, foreign and local:
Current . . . . . . . . . . . . . . . 1,061 1,442 1,525
Deferred. . . . . . . . . . . . . . . 558 606 1,180
$4,486 $(41,246) $ 6,044
</TABLE>
The deferred tax provision recorded in 1998 excludes $571 of tax benefit
related to the extraordinary loss on debt retirement.
Taxes paid were $2,197 (1998), $1,155 (1997) and $1,262 (1996). In
addition, PVH received an income tax refund of $16,987 in 1996.
F-7
<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>
1998 1997
<S> <C> <C>
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . $(12,163) $(18,427)
Landlord contributions . . . . . . . . . . . . . . . . . . . . . 3,772 5,030
Facility and store closing,
restructuring and other expenses . . . . . . . . . . . . . . . 6,428 27,295
Employee compensation and benefits . . . . . . . . . . . . . . . 10,807 10,302
Tax loss and credit carryforwards. . . . . . . . . . . . . . . . 44,200 31,179
Other-net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,734 7,746
$ 62,778 $ 63,125
</TABLE>
A reconciliation of the statutory Federal income tax to the income tax
expense (benefit) is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Statutory 35% federal tax. . . . . . . . . . . . . . . . . . $ 6,081 $(37,739) $ 8,601
State, foreign and local income taxes,
net of Federal income tax benefit. . . . . . . . . . . . . 942 805 1,463
Income of Puerto Rico Subsidiaries . . . . . . . . . . . . . (3,303) (3,258) (3,757)
Other-net. . . . . . . . . . . . . . . . . . . . . . . . . . 766 (1,054) (263)
Income tax expense (benefit) . . . . . . . . . . . . . . . . $ 4,486 $(41,246) $ 6,044
</TABLE>
Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,529 $ 15,964
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,834 15,216
Finished goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,332 218,354
$232,695 $249,534
</TABLE>
Inventories would have been approximately $8,400 and $12,000 higher than
reported at January 31, 1999 and February 1, 1998, respectively, if the FIFO
method of inventory accounting had been used for all apparel. During 1998,
certain inventories were reduced, resulting in the liquidation of LIFO
inventory layers. The effect of these inventory liquidations was to increase
net income by $2,000 in 1998.
F-8
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Property, Plant and Equipment
Property, plant and equipment, at cost, are summarized as follows:
<TABLE>
<CAPTION>
Estimated
Useful
Lives 1998 1997
<S> <C> <C> <C>
Land. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,495 $ 1,646
Buildings and building improvements . . . . . . . . . . 15-40 years 11,745 24,932
Machinery and equipment, furniture
and fixtures and leasehold
improvements. . . . . . . . . . . . . . . . . . . . . 5-15 years 224,479 187,671
237,719 214,249
Less: Accumulated depreciation
and amortization . . . . . . . . . . . . . . . . 128,873 119,667
$108,846 $ 94,582
</TABLE>
Long-Term Debt
Long-term debt, exclusive of current portion, is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . $ 91,600
9.5% Senior Subordinated Notes. . . . . . . . . . . . . . . . . . . . $149,268
7.75% Debentures. . . . . . . . . . . . . . . . . . . . . . . . . . . 99,455 99,448
7.75% Senior Notes. . . . . . . . . . . . . . . . . . . . . . . . . . 49,286
Other debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 670
$248,723 $241,004
</TABLE>
PVH issued $100,000 of 7.75% Debentures due 2023 on November 15, 1993 with
a yield to maturity of 7.80%. Interest is payable semi-annually. Based on
current market conditions, PVH estimates that the fair value of these
Debentures on January 31, 1999, using discounted cash flow analyses, was
approximately $88,100.
On April 22, 1998, PVH completed a refinancing of its Revolving Credit
Facility and its 7.75% Senior Notes by entering into a new $325,000 Senior
Secured Credit Facility with a group of banks and by issuing $150,000 of 9.5%
Senior Subordinated Notes due May 1, 2008. The net proceeds from the Senior
Subordinated Notes were used to retire the 7.75% Senior Notes and to repay a
portion of the amount due under PVH's prior Revolving Credit Facility. In
connection with the early retirement of the 7.75% Senior Notes, PVH paid a
yield maintenance premium of $1,446 and wrote off certain debt issue costs of
$185. These items have been classified as an extraordinary loss, net of tax
benefit of $571, in 1998.
F-9
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-Term Debt (Continued)
The 9.5% Senior Subordinated Notes have a yield to maturity of 9.58%, and
interest is payable semi-annually. Based on current market conditions, PVH
estimates that the fair value of these Notes on January 31, 1999, using
discounted cash flow analyses, was approximately $123,700. In connection with
the 9.5% Senior Subordinated Notes, PVH entered into an interest rate hedge
agreement. Due to an increase in interest rates between the date PVH entered
into the hedge agreement and the date the 9.5% Senior Subordinated Notes were
issued, PVH received $1,075, which is being amortized as a reduction of
interest expense over the life of the 9.5% Senior Subordinated Notes.
PVH's new $325,000 Credit Facility includes a revolving credit facility
which allows PVH, at its option, to borrow and repay amounts up to $325,000.
The Facility also includes a letter of credit facility with a sub-limit of
$250,000 provided, however, that the aggregate maximum amount outstanding
under both the revolving credit facility and the letter of credit facility is
$325,000. Interest is payable quarterly at a spread over LIBOR or the prime
rate, at the borrower's option, with the spread based on PVH's credit rating
and certain financial ratios. The Facility also provides for payment of a fee
on the unutilized portion of the Facility. All outstanding borrowings and
letters of credit under this credit facility are due April 22, 2003.
In connection with the 7.75% Debentures and the $325,000 Credit Facility,
substantially all of PVH's assets have been pledged as collateral.
The weighted average interest rate on outstanding revolving credit
borrowings at January 31, 1999 and February 1, 1998 was 7.1% and 6.4%,
respectively.
The amount outstanding under the letter of credit facility as of January
31, 1999 was $120,466.
Interest paid was $23,652 (1998), $20,784 (1997) and $24,039 (1996).
There are no scheduled maturities of long-term debt until 2008.
Stockholders' Equity
Preferred Stock Rights - On June 10, 1986, the Board of Directors declared
a distribution of one Right (the "Rights") to purchase Series A Cumulative
Participating Preferred Stock, par value $100 per share, for each outstanding
share of common stock. As a result of subsequent stock splits, each
outstanding share of common stock now carries with it one-fifth of one Right.
Under certain circumstances, each Right will entitle the registered holder
to acquire from the Company one one-hundredth (1/100) of a share of said
Series A Preferred Stock at an exercise price of $100. The Rights will be
exercisable, except in certain circumstances, commencing ten days following a
public announcement that (i) a person or group has acquired or obtained the
right to acquire 20% or more of the common stock, in a transaction not
approved by the Board of Directors or (ii) a person or group has commenced or
intends to commence a tender offer for 30% or more of the common stock (the
"Distribution Date").
F-10
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stockholders' Equity - (Continued)
If PVH is the surviving corporation in a merger or other business
combination then, under certain circumstances, each holder of a Right will
have the right to receive upon exercise the number of shares of common stock
having a market value equal to two times the exercise price of the Right.
In the event PVH is not the surviving corporation in a merger or other
business combination, or more than 50% of PVH's assets or earning power is
sold or transferred, each holder of a Right will have the right to receive
upon exercise the number of shares of common stock of the acquiring company
having a market value equal to two times the exercise price of the Right.
At any time prior to the close of business on the Distribution Date, PVH
may redeem the Rights in whole, but not in part, at a price of $.05 per Right.
During 1996, the rights were extended for a period of 10 years from the date
of initial expiration and will expire on June 16, 2006.
Stock Options - Under PVH's stock option plans, non-qualified and
incentive stock options ("ISOs") may be granted. Options are granted at fair
market value at the date of grant. ISOs and non-qualified options granted have
a ten year duration. Generally, options are cumulatively exercisable in three
installments commencing three years after the date of grant.
Under APB Opinion No. 25, PVH does not recognize compensation expense
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant. Under FASB Statement No.
123, proforma information regarding net income and earnings per share is
required as if the Company had accounted for its employee stock options under
the fair value method of that Statement.
For purposes of proforma disclosures, PVH estimated the fair value of
stock options granted since 1995 at the date of grant using the Black-Scholes
option pricing model. The estimated fair value of the options is amortized to
expense over the options' vesting period.
The following summarizes the assumptions used to estimate the fair value
of stock options granted in each year and certain proforma information:
1998 1997 1996
Risk-free interest rate 5.56% 6.49% 6.61%
Expected option life 7 Years 7 Years 7 Years
Expected volatility 29.9% 26.0% 30.6%
Expected dividends per share $ 0.15 $ 0.15 $ 0.15
Weighted average estimated fair
value per share of options granted $ 4.83 $ 5.43 $ 5.29
Proforma net income (loss) $9,994 $(68,242) $17,396
Proforma basic and diluted net income
(loss) per share $ 0.37 $ (2.52) $ 0.65
F-11
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stockholders' Equity - (Continued)
Other data with respect to stock options follows:
<TABLE>
<CAPTION>
Option Price Weighted Average
Shares Per Share Price Per Share
<S> <C> <C> <C> <C>
Outstanding at January 28, 1996 . . . . . . . . 1,803,348 $ 4.75 - $36.25 $17.14
Granted. . . . . . . . . . . . . . . . . . . 948,411 10.75 - 14.38 12.83
Exercised. . . . . . . . . . . . . . . . . . 66,353 4.75 - 8.75 5.81
Cancelled. . . . . . . . . . . . . . . . . . 727,866 6.88 - 36.25 26.07
Outstanding at February 2, 1997 . . . . . . . . 1,957,540 4.75 - 31.63 12.12
Granted. . . . . . . . . . . . . . . . . . . 817,250 12.81 - 15.68 14.23
Exercised. . . . . . . . . . . . . . . . . . 133,539 4.75 - 13.13 5.93
Cancelled. . . . . . . . . . . . . . . . . . 179,587 6.88 - 31.63 14.49
Outstanding at February 1, 1998 . . . . . . . . 2,461,664 5.94 - 31.63 12.98
Granted. . . . . . . . . . . . . . . . . . . 1,076,928 6.81 - 14.75 12.72
Exercised. . . . . . . . . . . . . . . . . . 108,741 5.94 - 12.25 7.70
Cancelled. . . . . . . . . . . . . . . . . . 304,278 6.88 - 22.38 13.16
Outstanding at January 31, 1999 . . . . . . . . 3,125,573 $ 6.38 - $31.63 $13.06
</TABLE>
Of the outstanding options at January 31, 1999, 372,808 shares have an
exercise price below $12.25, 2,750,445 shares have an exercise price from
$12.25 to $16.50 and 2,320 shares have an exercise price above $16.50. The
weighted average remaining contractual life for all options outstanding at
January 31, 1999 is 7.8 years.
Of the outstanding options at January 31, 1999 and February 1, 1998,
options covering 642,905 and 650,479 shares were exercisable at a weighted
average price of $11.89 and $10.56, respectively. Stock options available for
grant at January 31, 1999 and February 1, 1998 amounted to 717,822 and
1,704,250 shares, respectively.
Leases
PVH leases retail stores, manufacturing facilities, office space and
equipment. The leases generally are renewable and provide for the payment of
real estate taxes and certain other occupancy expenses. Retail store leases
generally provide for the payment of percentage rentals based on store sales
and other costs associated with the leased property.
At January 31, 1999, minimum annual rental commitments under non-
cancellable operating leases, including leases for new retail stores which had
not begun operating at January 31, 1999, are as follows:
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,006
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,269
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,799
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,405
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,738
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . 75,908
Total minimum lease payments . . . . . . . . . . . . . . . . $249,125
F-12
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Leases (Continued)
Rent expense, principally for real estate, is as follows:
1998 1997 1996
Minimum. . . . . . . . . . . . . . . . $61,402 $65,177 $67,914
Percentage and other . . . . . . . . . 11,139 11,139 11,166
$72,541 $76,316 $79,080
Retirement and Benefit Plans
PVH has noncontributory, defined benefit pension plans covering
substantially all U.S. employees meeting certain age and service requirements.
For those vested (after five years of service), the plans provide monthly
benefits upon retirement based on career compensation and years of credited
service. It is PVH's policy to fund pension cost annually in an amount
consistent with Federal law and regulations. The assets of the plans are
principally invested in a mix of fixed income and equity investments.
PVH and its domestic subsidiaries also provide certain postretirement
health care and life insurance benefits. 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.
In 1998, PVH adopted FASB Statement No. 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits". The disclosures for 1997 and
1996 have been restated to comply with the requirements of Statement No. 132
and to present the applicable data on a basis consistent with 1998.
Following is a reconciliation of the changes in the benefit obligation for
each of the last two years:
<TABLE>
<CAPTION>
Pension Plans Postretirement Plan
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Beginning of year $116,622 $101,065 $34,107 $29,140
Service cost 2,388 2,004 415 389
Interest cost 8,357 7,935 2,306 2,403
Benefit payments (6,240) (6,783) (2,499) (2,472)
Actuarial (gain) loss 5,863 12,401 (264) 4,520
Plan participants' contributions 127 127
Curtailment (gain) loss (264)
Special termination benefits 552
End of year $127,278 $116,622 $34,192 $34,107
</TABLE>
F-13
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Retirement and Benefit Plans - (Continued)
Following is a reconciliation of the fair value of the assets held by
PVH's pension plans for each of the last two years:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Beginning of year $124,663 $110,830
Actual return 15,088 19,772
Benefits paid (6,240) (6,783)
PVH contributions 490 844
End of year $134,001 $124,663
</TABLE>
Net benefit cost recognized in each of the last three years is as follows:
<TABLE>
<CAPTION>
Pension Plans Postretirement Plan
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 2,388 $ 2,004 $ 2,528 $ 415 $ 389 $ 687
Interest cost 8,357 7,935 7,425 2,306 2,403 2,166
Amortization of net loss 52 23 1 336 284 44
Amortization of transition
(asset) obligation (68) (68) (68) 273 273 273
Expected return on
plan assets (10,935) (9,031) (8,830)
Amortization of prior
service cost 462 563 563
256 1,426 1,619 3,330 3,349 3,170
Multiemployer plans 213 253
$ 256 $ 1,639 $ 1,872 $3,330 $3,349 $3,170
</TABLE>
Following is a reconciliation of the benefit obligation at the end of each
of the last two years to the amounts recognized on the balance sheet:
<TABLE>
<CAPTION>
Pension Postretirement
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Benefit obligation at year-end $127,278 $116,622 $34,192 $34,107
Unrecognized prior service cost (1,652) (2,536)
Unrecognized gains and (losses) 293 2,403 (8,052) (8,689)
Unrecognized transition asset
(obligation) 170 238 (3,824) (4,097)
Plan assets at fair value (134,001) (124,663)
(Asset) liability recognized on
the balance sheet $ (7,912) $ (7,936) $22,316 $21,321
</TABLE>
Included in the above disclosures are certain pension plans with projected
and accumulated benefit obligations in excess of plan assets of $4,664 and
$2,895, respectively, as of January 31, 1999, and $4,264 and $2,652,
respectively, as of February 1, 1998.
F-14
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Retirement and Benefit Plans - (Continued)
The assumed health care cost trend rate assumed for 1999 through 2009 is
6.0%. Thereafter, the rate assumed is 5.5%. If the assumed health care cost
trend rate increased or decreased by 1%, the aggregate effect on the service
and interest cost components of the net postretirement benefit cost for 1998
and on the postretirement benefit obligation at January 31, 1999 would be as
follows:
1% Increase 1% Decrease
Impact on service and interest cost $ 337 $ (281)
Impact on year-end benefit obligation $3,829 $(3,258)
Significant rate assumptions used in determining the benefit obligations
at the end of each year and benefit cost in the following year, were as
follows:
1998 1997
Discount rate 7.00% 7.25%
Rate of increase in compensation
levels (applies to pension plans only) 4.00% 4.00%
Long-term rate of return on assets 9.00% 8.75%
PVH has an unfunded supplemental defined benefit plan covering 23 current
and retired executives under which the participants will receive a
predetermined amount during the 10 years following the attainment of age 65,
provided that prior to the termination of employment with PVH, the participant
has been in the plan for at least 10 years and has attained age 55. At
January 31, 1999 and February 1, 1998, $9,357 and $8,309, respectively, are
included in other liabilities as the accrued cost of this plan.
PVH has a savings and retirement plan (the "Associates Investment Plan")
and a supplemental savings plan for the benefit of its eligible employees who
elect to participate. PVH contributions to the plans are equal to 50% of the
amounts contributed by participating employees with respect to the first 6% of
compensation and were $2,222 (1998), $1,959 (1997) and $2,249 (1996).
Segment Data
PVH manages and analyzes its operating results by its two vertically
integrated business segments: (i) Apparel and (ii) Footwear and Related
Products. In identifying its reportable segments, PVH evaluated its operating
divisions and product offerings. PVH aggregated the results of its apparel
divisions into the Apparel segment, which derives revenues from marketing
dresswear, sportswear and accessories, principally under the brand names Van
Heusen, Izod, Izod Club, Geoffrey Beene and Gant (see subsequent event
footnote). PVH's footwear business has been identified as the Footwear and
Related Products segment. This segment derives revenues from marketing casual
and weekend footwear, apparel and accessories under the Bass brand name.
F-15
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Segment Data - (Continued)
Sales for both segments occur principally in the United States.
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net Sales
Apparel. . . . . . . . . . . . . . . . . . . . . . . . . . $ 896,863 $ 911,047 $ 897,370
Footwear and Related Products. . . . . . . . . . . . . . . 406,222 438,960 462,223
Total Net Sales. . . . . . . . . . . . . . . . . . . . . . $1,303,085 $1,350,007 $1,359,593
Operating Income (Loss)
Apparel(1) . . . . . . . . . . . . . . . . . . . . . . . . $ 50,302 $ (33,049) $ 30,021
Footwear and Related Products(1) . . . . . . . . . . . . . 17,183 (38,853) 32,888
Total Operating Income (Loss). . . . . . . . . . . . . . . 67,485 (71,902) 62,909
Corporate Expenses. . . . . . . . . . . . . . . . . . . . . . (15,500) (15,251) (15,171)
Year 2000 Computer Conversion Expenses. . . . . . . . . . . . (8,500)
Interest Expense, net . . . . . . . . . . . . . . . . . . . . (26,112) (20,672) (23,164)
Income (Loss) Before Taxes
and Extraordinary Item . . . . . . . . . . . . . . . . . . $ 17,373 $ (107,825) $ 24,574
Identifiable Assets
Apparel. . . . . . . . . . . . . . . . . . . . . . . . . . $ 357,774 $ 355,979 $ 381,274
Footwear and Related Products. . . . . . . . . . . . . . . 122,051 152,518 143,631
Corporate. . . . . . . . . . . . . . . . . . . . . . . . . 194,488 151,962 132,531
$ 674,313 $ 660,459 $ 657,436
Depreciation and Amortization
Apparel. . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,533 $ 10,484 $ 16,105
Footwear and Related Products. . . . . . . . . . . . . . . 5,630 6,561 5,780
Corporate. . . . . . . . . . . . . . . . . . . . . . . . . 9,279 8,255 7,553
$ 25,442 $ 25,300 $ 29,438
Identifiable Capital Expenditures
Apparel. . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,653 $ 8,103 $ 4,269
Footwear and Related Products. . . . . . . . . . . . . . . 2,210 3,957 6,650
Corporate(2) . . . . . . . . . . . . . . . . . . . . . . . 30,350 5,863 11,659
$ 38,213 $ 17,923 $ 22,578
</TABLE>
(1) 1997 operating income includes charges for facility and store closing,
restructuring and other expenses of $78,465 for the Apparel segment and
$54,235 for the Footwear and Related Products segment.
(2) 1998 Corporate capital expenditures are related principally to the
relocation of PVH's New York City corporate headquarters.
F-16
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Facility and Store Closing, Restructuring and Other Expenses
During 1997, PVH recorded pre-tax charges of $132,700, related principally
to a series of actions the Company has taken to accelerate the execution of
its ongoing strategies to build its brands. The primary initiatives related
to the charges were the closing and restructuring of certain manufacturing and
warehouse facilities, closing underperforming retail outlet stores and
modifying a repositioning of Bass.
The cost components of the charges are as follows:
Inventory markdowns included in cost of goods sold $ 46,000
Fixed asset write-offs 40,800
Termination benefits for approximately 2,150 employees 19,500
Lease and other obligations 19,100
Other 7,300
$132,700
During 1997 and 1998, PVH charged approximately $84,900 and $38,000 to the
reserve, respectively, of which approximately $26,600 and $17,600 related to
inventory markdowns. As of January 31, 1999, approximately $9,800 remains in
this reserve to fund the completion of the 1997 initiatives.
Subsequent Event
On February 26, 1999, PVH sold the Gant trademark and certain related
assets associated with the Company's Gant operations for $71,000 in cash to
Pyramid Sportswear AB ("Pyramid"), which was the brand's international
licensee. Pyramid is a wholly-owned subsidiary of Pyramid Partners AB, in
which PVH has a minority interest. In connection with this transaction, PVH
expects to realize no gain or loss, after writing off certain assets
associated with its Gant operations, including goodwill. Sales of Gant
products in 1998 were $81,900.
Other Comments
One of PVH's directors, Mr. Harry N.S. Lee, is a director of TAL Apparel
Limited, an apparel manufacturer and exporter based in Hong Kong. During
1998, 1997 and 1996, the Company purchased approximately $26,700, $26,500 and
$35,000, respectively, of products from TAL Apparel Limited and certain
related companies.
The Company is a party to certain litigation which, in management's
judgement based in part on the opinion of legal counsel, will not have a
material adverse effect on the Company's financial position.
During 1998, 1997 and 1996, the Company paid a $0.0375 per share cash
dividend each quarter on its common stock.
Certain items in 1997 and 1996 have been reclassified to present them on a
basis consistent with 1998.
F-17
<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
1998(1) 1997 1998 1997(2) 1998 1997 1998 1997(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . $295,765 $285,925 $306,371 $313,458 $374,392 $413,643 $326,557 $336,981
Gross profit . . . . . . . . . . . 102,508 99,318 109,063 95,647 128,063 140,116 107,291 76,961
Income (loss) before
extraordinary item . . . . . . . (4,485) (4,540) 2,720 (33,285) 14,016 14,552 636 (43,306)
Net income (loss). . . . . . . . . (5,545) (4,540) 2,720 (33,285) 14,016 14,552 636 (43,306)
Income (loss) per share
before extraordinary item:
Basic(4) . . . . . . . . . . . . (0.16) (0.17) 0.10 (1.23) 0.51 0.54 0.02 (1.59)
Diluted. . . . . . . . . . . . . (0.16) (0.17) 0.10 (1.23) 0.51 0.53 0.02 (1.59)
Price range of common stock
per share
High. . . . . . . . . . . . . 13 3/8 14 5/8 15 1/8 15 3/4 13 3/4 15 7/8 11 5/16 14 1/2
Low . . . . . . . . . . . . . 11 3/16 11 1/2 12 12 3/8 6 1/2 13 1/2 6 1/16 11 1/2
(1) Net loss for the first quarter of 1998 includes an extraordinary loss, net of tax
benefit, related to the early retirement of debt.
(2) Net loss for the second quarter of 1997 includes a pre-tax charge of $57,000 for
facility and store closing, restructuring and other expenses.
(3) Net loss for the fourth quarter of 1997 includes a pre-tax charge of $75,700 for
facility and store closing, restructuring and other expenses.
(4) Due to averaging the quarterly shares outstanding when computing basic earnings per
share, basic earnings per share totalled for the four quarters of 1997 does not agree
with the annual amount.
</TABLE>
F-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 January 31, 1999 and February 1,
1998, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended January 31, 1999. 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 January 31, 1999 and February 1, 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended January 31, 1999 in conformity with
generally accepted accounting principles.
E&Y SIGNATURE STAMP
New York, New York
March 9, 1999
F-19
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
TEN-YEAR FINANCIAL SUMMARY
(In thousands, except per share data, percents and ratios)
<TABLE>
<CAPTION>
1998 1997(1) 1996(2) 1995(3) 1994(4)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales
Apparel. . . . . . . . . . . . . . . . . . . . . . . $ 896,863 $ 911,047 $ 897,370 $1,006,701 $ 812,993
Footwear and Related Products. . . . . . . . . . . . 406,222 438,960 462,223 457,427 442,473
1,303,085 1,350,007 1,359,593 1,464,128 1,255,466
Cost of goods sold and expenses. . . . . . . . . . . . 1,259,600 1,437,160 1,311,855 1,443,555 1,205,764
Income (loss) before interest, taxes
and extraordinary item . . . . . . . . . . . . . . . 43,485 (87,153) 47,738 20,573 49,702
Interest expense, net. . . . . . . . . . . . . . . . . 26,112 20,672 23,164 23,199 12,793
Income tax expense (benefit) . . . . . . . . . . . . . 4,486 (41,246) 6,044 (2,920) 6,894
Income (loss) before extraordinary item. . . . . . . . 12,887 (66,579) 18,530 294 30,015
Extraordinary loss, net of tax . . . . . . . . . . . . (1,060)
Net income (loss) . . . . . . . . . . . . . . . . $ 11,827 $ (66,579) $ 18,530 $ 294 $ 30,015
Per Share Statistics
Basic Earnings Per Share:
Before extraordinary item. . . . . . . . . . . . . . . $ 0.47 $ (2.46) $ 0.69 $ 0.01 $ 1.13
Extraordinary loss . . . . . . . . . . . . . . . . . . (0.04)
Net income (loss) . . . . . . . . . . . . . . . . $ 0.43 $ (2.46) $ 0.69 $ 0.01 $ 1.13
Diluted Earnings Per Share:
Before extraordinary item. . . . . . . . . . . . . . . $ 0.47 $ (2.46) $ 0.68 $ 0.01 $ 1.11
Extraordinary loss . . . . . . . . . . . . . . . . . . (0.04)
Net income (loss) . . . . . . . . . . . . . . . . $ 0.43 $ (2.46) $ 0.68 $ 0.01 $ 1.11
Dividends paid per share . . . . . . . . . . . . . . . $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.15
Stockholders' equity per share.. . . . . . . . . . . . 8.39 8.11 10.73 10.20 10.35
Financial Position
Current assets . . . . . . . . . . . . . . . . . . . . $ 368,017 $ 385,018 $ 362,958 $ 444,664 $ 429,670
Current liabilities. . . . . . . . . . . . . . . . . . 132,686 133,335 122,266 183,126 114,033
Working capital. . . . . . . . . . . . . . . . . . . . 235,331 251,683 240,692 261,538 315,637
Total assets . . . . . . . . . . . . . . . . . . . . . 674,313 660,459 657,436 749,055 596,284
Long-term debt . . . . . . . . . . . . . . . . . . . . 248,723 241,004 189,398 229,548 169,679
Convertible redeemable preferred stock . . . . . . . .
Stockholders' equity . . . . . . . . . . . . . . . . . 228,888 220,305 290,158 275,292 275,460
Other Statistics
Total debt to total capital (5). . . . . . . . . . . . 54.0% 53.0% 43.1% 52.3% 38.2%
Current ratio. . . . . . . . . . . . . . . . . . . . . 2.8 2.9 3.0 2.4 3.8
Average shares outstanding . . . . . . . . . . . . . . 27,218 27,108 27,004 26,726 26,563
(1) 1997 includes pre-tax charges of $132,700 for facility and store closing, restructuring and other expenses.
(2) 1996 and 1990 include 53 weeks of operations.
(3) 1995 includes the operations of Izod and Gant from date of acquisition, February 17, 1995, and includes pre-tax
charges of $27,000 for facility and store closing, restructuring and other expenses.
(4) 1994 includes pre-tax charges of $7,000 for restructuring and other expenses.
(5) Total capital equals interest-bearing debt, preferred stock and stockholders' equity.
</TABLE>
F-20
<PAGE>
PHILLIPS-VAN HEUSEN CORPORATION
TEN-YEAR FINANCIAL SUMMARY (CONTINUED)
<TABLE>
<CAPTION>
1993 1992 1991 1990(2) 1989
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales
Apparel. . . . . . . . . . . . . . . . . . . . . . . $ 757,452 $ 709,361 $596,383 $536,352 $493,395
Footwear and Related Products. . . . . . . . . . . . 394,942 333,204 307,717 269,963 239,541
1,152,394 1,042,565 904,100 806,315 732,936
Cost of goods sold and expenses. . . . . . . . . . . . 1,072,083 972,357 843,367 752,252 682,687
Income (loss) before interest, taxes
and extraordinary item . . . . . . . . . . . . . . . 80,311 70,208 60,733 54,063 50,249
Interest expense, net. . . . . . . . . . . . . . . . . 16,679 15,727 16,686 18,884 17,555
Income tax expense (benefit) . . . . . . . . . . . . . 20,380 16,600 12,910 8,795 8,502
Income (loss) before extraordinary item. . . . . . . . 43,252 37,881 31,137 26,384 24,192
Extraordinary loss, net of tax . . . . . . . . . . . . (11,394)
Net income (loss) . . . . . . . . . . . . . . . . $ 31,858 $ 37,881 $ 31,137 $ 26,384 $ 24,192
Per Share Statistics
Basic Earnings Per Share:
Before extraordinary item. . . . . . . . . . . . . . . $ 1.66 $ 1.50 $ 1.24 $ 1.00 $ 0.88
Extraordinary loss . . . . . . . . . . . . . . . . . . (0.44) -
Net income (loss). . . . . . . . . . . . . . . . . . . $ 1.22 $ 1.50 $ 1.24 $ 1.00 $ 0.88
Diluted Earnings Per Share:
Before extraordinary item. . . . . . . . . . . . . . . $ 1.60 $ 1.42 $ 1.15 $ 0.95 $ 0.84
Extraordinary loss . . . . . . . . . . . . . . . . . . (0.42)
Net income (loss) . . . . . . . . . . . . . . . . $ 1.18 $ 1.42 $ 1.15 $ 0.95 $ 0.84
Dividends paid per share . . . . . . . . . . . . . . . $ 0.15 $ 0.15 $ 0.1425 $ 0.14 $ 0.14
Stockholders' equity per share.. . . . . . . . . . . . 9.33 8.14 4.52 3.38 2.53
Financial Position
Current assets . . . . . . . . . . . . . . . . . . . . $ 418,702 $ 410,522 $303,143 $285,315 $266,867
Current liabilities. . . . . . . . . . . . . . . . . . 109,156 115,208 102,976 90,748 84,190
Working capital. . . . . . . . . . . . . . . . . . . . 309,546 295,314 200,167 194,567 182,677
Total assets . . . . . . . . . . . . . . . . . . . . . 554,771 517,362 398,969 376,790 333,108
Long-term debt . . . . . . . . . . . . . . . . . . . . 169,934 170,235 121,455 140,259 118,776
Convertible redeemable preferred stock . . . . . . . . 72,800 72,800 72,800
Stockholders' equity . . . . . . . . . . . . . . . . . 246,799 211,413 84,903 62,324 46,085
Other Statistics
Total debt to total capital (5). . . . . . . . . . . . 40.8% 46.8% 46.0% 53.2% 52.6%
Current ratio. . . . . . . . . . . . . . . . . . . . . 3.8 3.6 2.9 3.1 3.2
Average shares outstanding . . . . . . . . . . . . . . 26,142 23,766 18,552 18,260 18,140
(1) 1997 includes pre-tax charges of $132,700 for facility and store closing, restructuring and other expenses.
(2) 1996 and 1990 include 53 weeks of operations.
(3) 1995 includes the operations of Izod and Gant from date of acquisition, February 17, 1995, and includes pre-tax
charges of $27,000 for facility and store closing, restructuring and other expenses.
(4) 1994 includes pre-tax charges of $7,000 for restructuring and other expenses.
(5) Total capital equals interest-bearing debt, preferred stock and stockholders' equity.
</TABLE>
F-21
<PAGE>
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 January 31, 1999
Deducted from asset accounts:
Allowance for doubtful
accounts. . . . . . . . . . . . $2,911 $ 409(a) $ 441(b) $2,394(c) $1,367
Year Ended February 1, 1998
Deducted from asset accounts:
Allowance for doubtful
accounts. . . . . . . . . . . . $3,401 $ 492(a) $ 202(b) $1,184(c) $2,911
Year Ended February 2, 1997
Deducted from asset accounts:
Allowance for doubtful
accounts. . . . . . . . . . . . $5,363 $1,207(a) $ 958(b) $4,127(c) $3,401
</TABLE>
(a) Provisions for doubtful accounts.
(b) Recoveries of doubtful accounts previously written off.
(c) Primarily uncollectible accounts charged against the allowance provided
therefor.
F-22
<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
Phillips-Van Heusen (Far East) Ltd. Hong Kong
Confecciones Imperio, S.A. Costa Rica
Camisas Modernas, S.A. Guatemala
G. H. Bass Comercio
Exportacacao Ltda. Brazil
PVH Retail Corp. Delaware
The IZOD Corporation Pennsylvania
Phillips-Van Heusen Puerto Rico LLC Delaware
BassNet, Inc. Delaware
<PAGE>
EXHIBIT 23
Report and Consent of Independent Auditors
Our audits included the financial statement schedule of Phillips-Van Heusen
Corporation listed in Item 14(a)(2). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
We consent to the incorporation by reference in
(i) Post-Effective Amendment No. 2 to the Registration Statement (Form S-8,
No. 2-73803), which relates to the Phillips-Van Heusen Corporation Employee
Savings and Retirement Plan,
(ii) Registration Statement (Form S-8, No. 33-50841) and Registration
Statement (Form S-8, No. 33-59602), each of which relate to the Phillips-
Van Heusen Corporation Associates Investment Plan for Residents of the
Commonwealth of Puerto Rico,
(iii) Registration Statement (Form S-8, No. 33-59101), which relates to the
Voluntary Investment Plan of Phillips-Van Heusen Corporation (Crystal
Brands Division),
(iv) Post-Effective Amendment No. 4 to Registration Statement (Form S-8,
No. 2-72959), Post Effective Amendment No. 6 to Registration Statement
(Form S-8, No. 2-64564), and Post Effective Amendment No. 13 to
Registration Statement (Form S-8, No. 2-47910), each of which relate to the
1973 Employee's Stock Option Plan of Phillips-Van Heusen Corporation,
(v) Registration Statement (Form S-8, No. 33-38698), Post-Effective
Amendment No. 1 to Registration Statement (Form S-8, No. 33-24057) and
Registration Statement (Form S-8, No. 33-60793), each of which relate to
the Phillips-Van Heusen Corporation 1987 Stock Option Plan,
(vi) Registration Statement (Form S-8, No. 333-29765) which relates to the
Phillips-Van Heusen Corporation 1997 Stock Option Plan, and
(vii) Registration Statement (Form S-4, No. 333-57203), which relates to
the 9.5% Senior Subordinated Notes due 2008
of Phillips-Van Heusen Corporation and in the related Prospectuses of our
report dated March 9, 1999, with respect to the consolidated financial
statements and our report included in the preceding paragraph with respect to
the financial statement schedule of Phillips-Van Heusen Corporation included
in this Annual Report (Form 10-K) for the year ended January 31, 1999.
ERNST & YOUNG LLP
New York, New York
April 26, 1999
CONFORMED COPY
AMENDMENT No. 1, dated as of
November 17, 1998 (this "Amendment"), to the
Credit Agreement dated as of April 22, 1998
(the "Credit Agreement"), among Phillips-Van
Heusen Corporation, a Delaware corporation
(the "Borrower"), the lenders party thereto
(the "Lenders"), The Chase Manhattan Bank, a
New York banking corporation, as
administrative agent (in such capacity, the
"Administrative Agent") and collateral agent
(in such capacity, the "Collateral Agent"),
and Citicorp USA, Inc., as documentation
agent (in such capacity, the "Documentation
Agent").
A. Pursuant to the Credit Agreement, the Lenders
and the Issuing Bank have extended credit to the Borrower,
and have agreed to extend credit to the Borrower, in each
case pursuant to the terms and subject to the conditions set
forth therein.
B. The Borrower has requested that the Required
Lenders agree to amend certain provisions of the Credit
Agreement as provided herein.
C. The Required Lenders are willing so to amend
the Credit Agreement pursuant to the terms and subject to
the conditions set forth herein.
D. Capitalized terms used and not otherwise
defined herein shall have the meanings assigned to them in
the Credit Agreement.
Accordingly, in consideration of the mutual
agreements herein contained and other good and valuable
consideration, the sufficiency and receipt of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Amendment. (a) Section 5.03(b) of the
Credit Agreement is hereby amended by inserting immediately
after the words "containing a description of the Collateral"
in the ninth line therein, the words "that have been
reasonably required by the Collateral Agent".
<PAGE>
(b) Section 6.13 (Leverage Ratio) of the Credit
Agreement is hereby amended by deleting the second through
fourth lines of the table set forth therein and substituting
therefor the following:
Period Ratio
November 1, 1998 -- 4.75 to 1.00
October 31, 1999
November 1, 1999 -- 4.00 to 1.00
October 31, 2000
November 1, 2000 -- 3.25 to 1.00
October 31, 2001
(c) Section 6.14 (Consolidated Net Interest
Expense Coverage Ratio) of the Credit Agreement is hereby
amended by deleting the second through fourth lines of the
table set forth therein and substituting therefor the
following:
Period Ratio
November 1, 1998 -- 2.50 to 1.00
October 31, 1999
November 1, 1999 -- 2.75 to 1.00
October 31, 2000
November 1, 2000 -- 3.50 to 1.00
October 31, 2001
SECTION 2. Representations and Warranties.
The Borrower represents and warrants to the
Administrative Agent, to the Issuing Bank and to each
of the Lenders that:
(a) This Amendment has been duly authorized,
executed and delivered by the Borrower and constitutes
its legal, valid and binding obligation, enforceable in
accordance with its terms except as such enforceability
may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general
principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or
in equity).
2
<PAGE>
(b) Before and after giving effect to this
Amendment, the representations and warranties set
forth in Article III of the Credit Agreement are true
and correct in all material respects with the same
effect as if made on the date hereof, except to the
extent such representations and warranties expressly
relate to an earlier date.
(c) Before and after giving effect to this
Amendment, no Event of Default or Default has occurred
and is continuing.
SECTION 3. Conditions to Effectiveness. This
Amendment shall become effective as of the date first above
written when the Administrative Agent shall have received
counterparts of this Amendment that, when taken together,
bear the signatures of the Borrower and the Required
Lenders.
SECTION 4. Credit Agreement. Except as
specifically amended hereby, the Credit Agreement shall
continue in full force and effect in accordance with the
provisions thereof as in existence on the date hereof.
After the date hereof, any reference to the Credit
Agreement shall mean the Credit Agreement as amended
hereby.
SECTION 5. Loan Document. This Amendment shall
be a Loan Document for all purposes.
SECTION 6. Applicable Law. THIS AMENDMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
SECTION 7. Counterparts. This Amendment may be
executed in counterparts (and by different parties hereto
on different counterparts), each of which shall constitute
an original but all of which when taken together shall
constitute a single contract. Delivery of an executed
counterpart of a signature page of this Amendment by
telecopy shall be effective as delivery of a manually
executed counterpart of this Amendment.
SECTION 8. Expenses. The Borrower agrees to
reimburse the Administrative Agent for its out-of-pocket
expenses in connection with this Amendment, including the
reasonable fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Administrative Agent.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be duly executed by their
respective authorized officers as of the day and year first
written above.
PHILLIPS-VAN HEUSEN CORPORATION,
by
/s/ Pamela N. Hootkin
Name: Pamela N. Hootkin
Title: V.P. Treas & Secty
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent and Collateral Agent,
by
/s/ Barry K. Bergman
Name: Barry K. Bergman
Title: Vice President
CITICORP USA, INC., individually
and as Documentation Agent,
by
/s/ Allen Fisher
Name: Allen Fisher
Title: Managing Director
4
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 1, DATED AS OF
November 17, 1998
To Approve the Amendment:
Name of Institution Nationsbank, N.A.
by
/s/ Leesa C. Sluder
Name: Leesa C. Sluder
Title: Senior Vice President
To Approve the Amendment:
Name of Institution PNC Bank, National Association
by
/s/ Donald V. Davis
Name: Donald V. Davis
Title: Vice President
5
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 1, DATED AS OF
November 17, 1998
To Approve the Amendment:
Name of Institution Fleet Bank, N.A.
by
/s/ Stephen M. Leavenworth
Name: Stephen M. Leavenworth
Title: Vice President
To Approve the Amendment:
Name of Institution Bank Leumi USA
by
/s/ John Koenigsberg
Name: John Koenigsberg
Title: Vice President
by
/s/ Richard Silverstein
Name: Richard Silverstein
Title: Vice President
6
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 1, DATED AS OF
November 17, 1998
To Approve the Amendment:
Name of Institution Union Bank of California, N.A.
by
/s/ Terry Rocha
Name: Terry Rocha
Title: Vice President
To Approve the Amendment:
Name of Institution DG Bank Deutsche Genossenschaftsbank AG
by
/s/ Linda J. O'Connell
Name: Linda J. O'Connell
Title: Vice President
by
/s/ Ya-Roo Yang
Name: Ya-Roo Yang
Title: Assistant Treasurer
7
<PAGE>
SIGNATURE PAGE TO
AMENDMENT NO. 1, DATED AS OF
November 17, 1998
To Approve the Amendment:
Name of Institution The Bank of New York
by
/s/ Joanne M. Collett
Name: Joanne M. Collett
Title: Vice President
To Approve the Amendment:
Name of Institution BankBoston N.A.
by
/s/ Susan L. Pardus-Galland
Name: Susan L. Pardus-Galland
Title: Vice President
8
CONFORMED COPY
CONSENT, WAIVER AND AMENDMENT No. 2 dated as
of February 23, 1999 (this "Amendment"), to
the Credit Agreement dated as of April 22,
1998, as amended (the "Credit Agreement"),
among Phillips-Van Heusen Corporation, a
Delaware corporation (the "Borrower"), the
lenders party thereto (the "Lenders"), The
Chase Manhattan Bank, a New York banking
corporation, as administrative agent (in such
capacity, the "Administrative Agent") and
collateral agent (in such capacity, the
"Collateral Agent"), and Citicorp USA, Inc.,
as documentation agent (in such capacity, the
"Documentation Agent").
A. Pursuant to the Credit Agreement, the Lenders
and the Issuing Bank (such term and all other terms used but
not defined herein having the meanings assigned to such
terms in the Credit Agreement) have extended credit to the
Borrower, and have agreed to extend credit to the Borrower,
in each case pursuant to the terms and subject to the
conditions set forth therein.
B. The Borrower has advised the Lenders that the
Borrower intends to enter into the Asset Purchase Agreement
dated as of or about February 20, 1999 (the "Asset Purchase
Agreement"), with Pyramid Sportswear AB, a Swedish
corporation and wholly owned subsidiary of Pyramid Partners
AB, a Swedish corporation (the "Buyer"), the Assignment and
Assumption Agreement dated as of or about February 20, 1999
(the "Lease Assignment and Assumption Agreement"), between
the Borrower and Pyramid Sportswear Acquisition Corporation,
a Delaware corporation (the "Assignee"), and the related
Assignment and Assumption of Lease (the "Assignment and
Assumption Instrument" and, together with the Asset Purchase
Agreement and the Lease Assignment and Assumption Agreement,
the "Gant Sale Agreement"), between the Borrower and the
Assignee, pursuant to which the Borrower will sell, assign,
transfer and deliver to the Buyer or the Assignee, as the
case may be, for not less than $70,000,000 in cash proceeds
(the "Gant Sale") all the Borrower's right, title and
interest in (a) the trademarks "Gant", "Hugger" and
"Rugger", and all trademark rights, logos and designs
associated therewith (the "Trademarks"), and all Trademark
registrations and Trademark application files and records,
(b) certain license and distribution agreements associated
with the Trademarks (the "Assumed Contracts"), and all
rights, privileges and entitlements of the Borrower
thereunder, (c) certain inventory and pending orders for
inventory, (d) all equipment, telephones, telefax machines,
fixed assets, trade fixtures, leasehold improvements, cash
registers and furniture (excluding inventory) located in or
utilized in connection with or otherwise needed to operate
<PAGE>
the "flagship" Gant Store located on Fifth Avenue in New
York City (the "Gant Store"), (e) the existing telephone and
telefax numbers of the Gant Store, including any "800"
numbers, the domain names "Gant.com" and "GantUSA.com", and
the computer software constituting the web sites designated
by such domain names, (f) the Agreement of Lease dated
March 5, 1997, relating to the Gant Store, (g) copies of all
books and records relating to the assets of the Borrower
being sold thereunder, (h) all goodwill associated with such
assets, (i) all guarantees, warranties, indemnities and
similar rights of the Borrower with respect to any such
assets, (j) all rights, claims, credits, causes of action or
rights of set-off of the Borrower against third parties
relating to the assets being sold thereunder and (k) all
displays, shipping supplies, boxes and like materials and
promotional, advertising and sales materials located in the
Gant Store on the closing date of the Gant Sale.
C. The Borrower has requested that the Lenders
(a) consent to the consummation of the Gant Sale, (b) amend
certain provisions of the Credit Agreement and (c) grant
certain limited waivers of compliance by the Borrower with
certain provisions of the Credit Agreement.
D. The Required Lenders are willing to grant such
a consent, agree to such amendments and grant such waivers,
in each case pursuant to the terms and subject to the
conditions set forth herein.
Accordingly, in consideration of the mutual
agreements contained in this Amendment and other good and
valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. Consent. The Lenders hereby consent
to the consummation by the Borrower of the Gant Sale in
accordance with the Gant Sale Agreement with such changes
with respect to the Gant Sale as are not adverse to the
Lenders in any material respect.
SECTION 2. Waiver. The Lenders hereby (a) waive
compliance by the Borrower with Section 6.05(d) of the
Credit Agreement to the extent, but only to the extent,
2<PAGE>
necessary to permit the Gant Sale as consented to in
Section 1 above and (b) waive compliance with Section 6.09
of the Credit Agreement to the extent, but only to the
extent, necessary to permit the Gant Sale as consented to
in Section 1 above.
SECTION 3. Amendment to Section 1.01. The
definition of the term "Consolidated EBITDA" in
Section 1.01 of the Credit Agreement is hereby amended to
read in its entirety as follows:
"Consolidated EBITDA" means, for any four-fiscal-
quarter period, Consolidated Net Income for such
period, plus, without duplication and to the extent
deducted from revenues in determining Consolidated Net
Income for such period, the sum of (a) the aggregate
amount of Consolidated Net Interest Expense for such
period, (b) the aggregate amount of income tax expense
for such period, (c) all amounts attributable to
depreciation and amortization for such period, (d) a
one-time, non-recurring restructuring charge of
$132,700,000 taken in 1997, (e) one-time,
non-recurring charges not to exceed $8,500,000,
$10,000,000 and $1,500,000 taken or to be taken in
fiscal years 1998, 1999 and 2000, respectively, in
connection with the Borrower's "Year 2000 Project" (as
such term is defined in the confidential offering
memorandum prepared in connection with the private
placement of the Subordinated Debt) and (f) premiums
not to exceed $1,100,000 paid in connection with the
redemption by the Borrower of its 7.85% Series A
Senior Notes Due 2002, 7.02% Series B Senior Notes Due
1999 and 7.75% Series C Senior Notes Due 2002, all as
determined on a consolidated basis with respect to the
Borrower and the Subsidiaries in accordance with GAAP.
SECTION 4. Amendment to Section 6.04.
(a) Paragraph (a) of Section 6.04 of the Credit
Agreement is hereby amended to read in its entirety as
follows:
3
<PAGE>
"(a) investments by the Borrower in all or a
portion of the share capital of Pyramid Partners
not owned by the Borrower on the date hereof,
provided that (i) such share capital shall be
purchased (A) free of all Liens and encumbrances,
(B) in the exercise of the Borrower's preemptive
rights, rights of first refusal or similar rights
under the Shareholder Agreement dated as of or
about February 20, 1999, among Lennart Bjork,
Klas Kall, Staffan Wittmark, the Borrower and
LV Capital S.A., and (C) at a price corresponding
to a bona fide offer from a third party potential
purchaser, (ii) at the time of such investment
and after giving pro forma effect thereto, (A) no
Default or Event of Default shall have occurred
or be continuing and (B) the Borrower shall be in
compliance with Section 6.13, Section 6.14 and
Section 6.15 and (iii) the Borrower shall comply
with the applicable provisions of Section 5.11;".
(b) Paragraph (i) of Section 6.04 of the Credit
Agreement is hereby amended by deleting the word "and" at
the end thereof.
(c) Paragraph (j) of Section 6.04 of the Credit
Agreement is hereby amended to read in its entirety as
follows:
"(j) the Guarantee by the Borrower of the
obligations of Pyramid Sportswear Acquisition
Corporation under the Agreement of Lease dated
March 5, 1997, between Olympic Tower Associates, as
Landlord, and the Borrower, as Tenant, pursuant to the
Assignment and Assumption Agreement dated as of or
about February 20, 1999, between the Borrower and
Pyramid Sportswear Acquisition Corporation, and the
related Assignment and Assumption of Lease between the
Borrower and Pyramid Sportswear Acquisition
Corporation, provided that (i) the Borrower's
obligations with respect to such Guarantee shall not
exceed $12,000,000 at any time and (ii) such
Guarantee, unless otherwise terminated, shall
terminate upon the earlier of (A) April 30, 2009, and
(B) the date of any other termination of such lease;
and".
4<PAGE>
(d) Section 6.04 of the Credit Agreement is
hereby further amended by adding a paragraph (k) as
follows:
"(k) investments (other than those permitted by
paragraphs (a) through (j) above) in an aggregate
amount not to exceed $15,000,000 at any time
outstanding."
SECTION 5. Representations and Warranties. The
Borrower represents and warrants to the Administrative
Agent, to the Issuing Bank and to each of the Lenders that:
(a) This Amendment has been duly authorized,
executed and delivered by the Borrower and constitutes its
legal, valid and binding obligation, enforceable in
accordance with its terms except as such enforceability may
be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity
(regardless of whether such enforceability is considered in
a proceeding at law or in equity).
(b) Before and after giving effect to this
Amendment, the representations and warranties set forth in
Article III of the Credit Agreement are true and correct in
all material respects with the same effect as if made on
the date hereof, except to the extent such representations
and warranties expressly relate to an earlier date.
(c) The execution, delivery and performance by
the Borrower of this Amendment and the performance by the
Borrower of the Gant Sale Agreement (i) have been duly
authorized by all requisite corporate and, if required,
stockholder action and (ii) will not, and the use of the
cash proceeds from the Gant Sale will not, (A) violate
(x) any provision of law, statute, rule or regulation, or
of the certificate or articles of incorporation or other
constitutive documents or by-laws of the Borrower or any
Subsidiary, (y) any order of any Governmental Authority or
(z) any provision of any indenture, agreement or other
5
<PAGE>
instrument to which the Borrower or any Subsidiary is a
party or by which any of them or any of their property is
or may be bound or (B) be in conflict with, result in a
breach of or constitute (alone or with notice or lapse of
time or both) a default under, or give rise to any right to
accelerate or to require the prepayment, repurchase or
redemption of any obligation under any such indenture,
agreement or other instrument (other than certain repayment
or repurchase obligations that may arise pursuant to
Section 1014 of the Indenture dated April 22, 1998, under
which the Subordinated Debt was issued, in the event that
all net available proceeds from the Gant Sale are not
invested or committed to be invested within 365 days in
assets related to the business of the Borrower or applied
to permanently repay senior debt of the Borrower).
(d) Before and after giving effect to this
Amendment, no Event of Default or Default has occurred and
is continuing.
SECTION 6. Conditions to Effectiveness. This
Amendment shall become effective as of the date first above
written when (a) the Administrative Agent shall have
received counterparts of this Amendment that, when taken
together, bear the signatures of the Borrower and the
Required Lenders and (b) the representations and warranties
set forth in Section 5 of this Amendment shall be true and
correct.
SECTION 7. Credit Agreement. Except as
specifically amended hereby, the Credit Agreement shall
continue in full force and effect in accordance with the
provisions thereof as in existence on the date hereof.
After the date hereof, any reference to the Credit
Agreement shall mean the Credit Agreement as amended
hereby.
SECTION 8. Loan Document. This Amendment shall
be a Loan Document for all purposes.
SECTION 9. Applicable Law. THIS AMENDMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
6
<PAGE>
SECTION 10. Counterparts. This Amendment may be
executed in counterparts (and by different parties hereto
on different counterparts), each of which shall constitute
an original but all of which when taken together shall
constitute a single contract. Delivery of an executed
counterpart of a signature page of this Amendment by
telecopy shall be effective as delivery of a manually
executed counterpart of this Amendment.
SECTION 11. Expenses. The Borrower agrees to
reimburse the Administrative Agent for its out-of-pocket
expenses in connection with this Amendment, including the
reasonable fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be duly executed by their
respective authorized officers as of the day and year first
written above.
PHILLIPS-VAN HEUSEN CORPORATION,
by
/s/ Pamela N. Hootkin
Name: Pamela N. Hootkin
Title: V.P. Treas & Secty
7
<PAGE>
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent and Collateral Agent,
by
/s/ Margaret T. Lane
Name: Margaret T. Lane
Title: Vice President
CITICORP USA, INC., individually
and as Documentation Agent,
by
/s/ Allen Fisher
Name: Allen Fisher
Title: Managing Director
8
<PAGE>
SIGNATURE PAGE TO
CONSENT, WAIVER AND
AMENDMENT NO. 2, DATED AS OF
February 23, 1999
To Approve the Amendment:
Name of Institution The Chase Manhattan Bank
by
/s/ Margaret T. Lane
Name: Margaret T. Lane
Title: Vice President
9
<PAGE>
SIGNATURE PAGE TO
CONSENT, WAIVER AND
AMENDMENT NO. 2, DATED AS OF
February 23, 1999
To Approve the Amendment:
Name of Institution Citicorp USA
by
/s/ Allen Fisher
Name: Allen Fisher
Title: Managing Director
10
<PAGE>
SIGNATURE PAGE TO
CONSENT, WAIVER AND
AMENDMENT NO. 2, DATED AS OF
February 23, 1999
To Approve the Amendment:
Name of Institution Bank Leumi USA
by
/s/ John Koenigsberg
Name: John Koenigsberg
Title: Vice President
by
/s/ Richard Silverstein
Name: Richard Silverstein
Title: Senior Vice President
11
<PAGE>
SIGNATURE PAGE TO
CONSENT, WAIVER AND
AMENDMENT NO. 2, DATED AS OF
February 23, 1999
To Approve the Amendment:
Name of Institution The Bank of New York
by
/s/ Joanne M. Collett
Name: Joanne M. Collett
Title: Vice President
12
<PAGE>
SIGNATURE PAGE TO
CONSENT, WAIVER AND
AMENDMENT NO. 2, DATED AS OF
February 23, 1999
To Approve the Amendment:
Name of Institution BankBoston, N.A.
by
/s/ Nancy E. Fuller
Name: Nancy E. Fuller
Title: Director
13
<PAGE>
SIGNATURE PAGE TO
CONSENT, WAIVER AND
AMENDMENT NO. 2, DATED AS OF
February 23, 1999
To Approve the Amendment:
Name of Institution DG BANK Deutsche Genossenschaftsbank AG
by
/s/ Linda J. O'Connell
Name: Linda J. O'Connell
Title: Vice President
by
/s/ Rob T. Jokhai
Name: Rob T. Jokhai
Title: Assistant Vice President
14
<PAGE>
SIGNATURE PAGE TO
CONSENT, WAIVER AND
AMENDMENT NO. 2, DATED AS OF
February 23, 1999
To Approve the Amendment:
Name of Institution Fleet Bank, N.A.
by
/s/ Stephen M. Leavenworth
Name: Stephen M. Leavenworth
Title: Vice President
15
<PAGE>
SIGNATURE PAGE TO
CONSENT, WAIVER AND
AMENDMENT NO. 2, DATED AS OF
February 23, 1999
To Approve the Amendment:
Jackson National Life Insurance Company
By: PPM Finance, Inc.
Name of Institution Attorney-in-Fact
by
/s/ James Gurgone
Name: James Gurgone
Title: Vice President
16
<PAGE>
SIGNATURE PAGE TO
CONSENT, WAIVER AND
AMENDMENT NO. 2, DATED AS OF
February 23, 1999
To Approve the Amendment:
Name of Institution Nationsbank, N.A.
by
/s/ Leesa C. Sluder
Name: Leesa C. Sluder
Title: Senior Vice President
17
<PAGE>
SIGNATURE PAGE TO
CONSENT, WAIVER AND
AMENDMENT NO. 2, DATED AS OF
February 23, 1999
To Approve the Amendment:
Name of Institution PNC Bank, National Association
by
/s/ Donald V. Davis
Name: Donald V. Davis
Title: Vice President
18
<PAGE>
SIGNATURE PAGE TO
CONSENT, WAIVER AND
AMENDMENT NO. 2, DATED AS OF
February 23, 1999
To Approve the Amendment:
Name of Institution Standard Chartered Bank
by
/s/ Peter G.R. Dodds
Name: Peter G.R. Dodds
Title: Senior Credit Officer
by
/s/ Shafiq Ur Rahman
Name: Shafiq Ur Rahman
Title: Senior Vice President &
Global Account Manager
19
<PAGE>
SIGNATURE PAGE TO
CONSENT, WAIVER AND
AMENDMENT NO. 2, DATED AS OF
February 23, 1999
To Approve the Amendment:
Name of Institution Union Bank of California, N.A.
by
/s/ Terry Rocha
Name: Terry Rocha
Title: Vice President
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PHILLIPS-VAN HEUSEN CORPORATION FINANCIAL STATEMENTS INCLUDED IN ITS 10-K REPORT
FOR THE YEAR ENDED JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 10,957
<SECURITIES> 0
<RECEIVABLES> 89,405
<ALLOWANCES> 1,367
<INVENTORY> 232,695
<CURRENT-ASSETS> 368,017
<PP&E> 108,846<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 674,313
<CURRENT-LIABILITIES> 132,686
<BONDS> 248,723
0
0
<COMMON> 27,288
<OTHER-SE> 201,600
<TOTAL-LIABILITY-AND-EQUITY> 674,313
<SALES> 1,303,085
<TOTAL-REVENUES> 1,303,085
<CGS> 856,160
<TOTAL-COSTS> 856,160
<OTHER-EXPENSES> 403,440
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 26,112
<INCOME-PRETAX> 17,373
<INCOME-TAX> 4,486
<INCOME-CONTINUING> 12,887
<DISCONTINUED> 0
<EXTRAORDINARY> (1,060)
<CHANGES> 0
<NET-INCOME> 11,827
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
<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>
