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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 30, 2000

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 3, 2000 was approximately $202,000,000.

___________________________________

Number of shares of Common Stock outstanding as of April 3, 2000:

27,289,869.

____________________________________

DOCUMENTS INCORPORATED BY REFERENCE

Document

 

Location in Form 10-K

   

in which incorporated

Registrant's Proxy Statement

   

for the Annual Meeting of

 

Part III

Stockholders to be held on June 13, 2000

   

* * *

 

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Forward-looking statements in this Form 10-K report including, without limitation, statements relating to the Company's plans, strategies, objectives, expectations and intentions, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy, and some of which might not be anticipated, including, without limitation, the following: (i) the Company's plans, strategies, objectives, expectations and intentions are subject to change at any time at the discretion of the Company; (ii) the levels of sales of the Company's apparel and footwear products, both to its wholesale customers and in its retail stores, and the extent of discounts and promotional pricing in which the Company is required to engage, all of which can be affected by weather conditions, changes in the economy, fashion trends and other factors; (iii) the Company's plans and results of operations will be affected by the Company's ability to manage its growth and inventory; and (iv) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission.

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 generally 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. Its roster of brands includes Van Heusenâ , the number one dress shirt in America; G.H. Bass & Co.â , the leading brand of men's, women's and children's casual footwear; Geoffrey Beeneâ , the leading designer dress shirt label; DKNYâ dress shirts, the fastest growing dress shirt brand in American department stores; and IZODâ , a leading sportswear brand. The Company also markets dress shirts under the John Henryâ and Manhattanâ brands, and has just begun marketing FUBUâ dress shirts in the Spring of 2000.

The Company is brand focused, managing the design, sourcing and manufacturing of substantially all of its products on a brand by brand basis. The Company's products include dress, sport and knit shirts, casual shoes and, to a lesser extent, sweaters, neckwear, furnishings, bottoms, outerwear and leather and canvas accessories. Approximately 23% of the Company's net sales in fiscal 1999 were derived from sales of dress shirts, 30% 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

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outlet retail malls. The Company also presently markets Bass and Izod products through the Internet on a limited basis. 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.

The Company owns the Van Heusen (in the Americas), Bass and Izod brand trademarks. The Geoffrey Beene brand is licensed for dress shirts and men's and women's sportswear under agreements with Geoffrey Beene, Inc., the DKNY brand is licensed for dress shirts under an agreement with Donna Karan Studio, the John Henry and Manhattan brands are licensed for dress shirts under an agreement with Perry Ellis International and FUBU is licensed for dress shirts under an agreement with GTFM, LLC.

The Company's principal brands enjoy national recognition in their respective sectors of the market. In the United States, Van Heusen is the best-selling dress shirt brand and one of the best-selling men's woven sport shirt brands, and Geoffrey Beene is the best-selling designer dress shirt brand. The Company believes that it is the largest supplier of dress shirts, including its branded, designer and private label offerings, in the United States. Izod is one of the best-selling men's sweater brands and one of the best-selling men's basic knit shirts in the United States. Bass is a leading brand of men's, women's and children's casual shoes at the moderate price range in the United States. In addition, the Izod Club brand, which the Company owns and licenses to Oxford Industries, is a leading golf apparel brand in pro shops and resorts.

The Company markets its 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 designed for a more fashion-forward consumer and is targeted to 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.

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 its products include May Co., Federated, JC Penney, Belk's, Dillard'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 1999, the Company operated 646 stores. The stores are operated in four brand formats -- Van Heusen, Bass, Izod and Geoffrey Beene. Van Heusen and Bass, followed by Izod, are in the broadest range of malls. Geoffrey Beene stores are located in malls in

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geographic areas where that brand has greater name recognition. The Company believes its retail presence is 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, Geoffrey Beene, DKNY, John Henry, Manhattan and FUBU brands. The Van Heusen and Geoffrey Beene brands are the leaders in men's dress shirts in their respective categories, with a combined 1999 unit share in the key United States department store sector of 30%, while the DKNY brand increased its share to 3% from less than 1% in 1998. In addition, the Company markets its dress shirts under the Etienne Aigner brand and through private label programs.

Van Heusen brand dress shirts have provided a strong foundation for the Company for most of its history and now constitute the best-selling 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, Saks, Inc., Belk's and Mervyns. Its primary competitors are 'Arrow' brand and private label shirts.

The Company markets Geoffrey Beene brand 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 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, Dayton's, May Co. and Saks, Inc.

DKNY brand 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. John Henry brand dress shirts are sold in the moderate price range, primarily to Sears. Manhattan brand dress shirts are sold in the lower price range to discount chains, including Wal-Mart and K- Mart. FUBU brand dress shirts, which are now first being introduced, are sold in the better price range to department stores, including Federated and JC Penney.

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

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customers work with the Company's designers to develop shirts in the styles, sizes and cuts which the customers desire to sell in their stores with their particular store names or private labels. Private label programs offer the consumer quality product and offer the retailer the opportunity to enjoy higher margins and product exclusivity. Private label products, however, do not have the same level of consumer recognition as branded products and private label manufacturers do not generally provide retailers with the same breadth of services and in-store sales and promotional support as branded manufacturers. The Company markets at wholesale dress shirts under private labels to major national retail chains and department stores, including JC Penney, Sears, May Co. 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 and Geoffrey Beene brands.

Van Heusen is one of the best-selling men's woven sport shirt brands in the United States. Van Heusen apparel also includes knit sport shirts, sweaters 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., Belk's 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 the Company's Van Heusen 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 sweaters, knitwear, slacks, fleecewear and microfiber jackets. Izod men's sweaters and knit shirts are among the best selling products in their categories in the United States. Izod 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 grow its Izod product line beyond the core of the pique knit shirt and, as a result, 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 stores offer men's and women's golf apparel appropriate for playing the game and sportswear suitable for business and casual

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occasions. The product assortments cater to men and women with fashionable, classic taste, and are marketed in the moderate to upper moderate price category.

Geoffrey Beene brand sportswear is marketed at wholesale under the same license agreement as Geoffrey Beene dress shirts. Products are marketed in the upper moderate price range in department and men's specialty stores, including Federated and Daytons, and include men's sport shirts and knit tops.

The Company's Geoffrey Beene stores offer men's and women's apparel and accessories. Men's apparel is comprised of dress shirts and furnishings, as well as casual and dress casual sportswear, while the women's product mix is a combination of casual and dress casual sportswear. The merchandising strategy is focused on an upscale, fashion forward consumer who is prepared to purchase apparel in the upper moderate price range. 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.

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. The Company also markets private label sport 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 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 a 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, the Company believes Bass is well-positioned to deliver appropriate fashion products. Modern and contemporary styled footwear is leading the market while traditional and classic styles of footwear continue to be less important. The Bass 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, Belk's and Saks, Inc. The Company also markets its Bass footwear internationally to retailers in Europe, Canada, South America, the Middle East, Africa and Asia. All Bass footwear is designed in-house to maintain tight control of the styling and quality offered by the brand.

The Company's Bass stores typically carry a modified assortment of Bass footwear from its wholesale lines, as well as styles not available in the wholesale lines in the moderate price range. The stores also carry apparel and accessories for men, women and children and other complementary products not sold to wholesale customers.

 

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Competition

The apparel industry is highly competitive due to its fashion orientation, its mixture of large and small producers, the flow of domestic and imported merchandise and the wide diversity of retailing methods. 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). Some of the larger sportswear competitors include: Warnaco ('Chaps' brand); Supreme International ('Natural Issue' brand), 'Arrow' sport shirts and various private label competitors, including Smart Shirt and Capital Mercury.

The footwear 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 casual footwear market, while extending the brand's offerings in modern, contemporary casual and dress casual styles. Few of its competitors have the overall men's and women's brand recognition of Bass. The Company's primary competitors include Dexter, Timberland, Rockport and Sperry. The Company believes, however, that it has 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

The Company employs separate teams of designers, product line builders and merchandise product development groups for each of its brands, creating a structure that focuses on the brand's special qualities and identity. These designers, product line builders and product developers consider consumer taste, fashion trends and the economic environment when creating a product plan for a particular season for their brand. The Company also employs sourcing specialists for each brand who focus on the manufacturing and sourcing needs of the particular brand. In addition, the Company operates a world-wide network of foreign offices and buying agents for purposes of providing technical support and quality control to those sourcing specialists. The 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 inventories.

 

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A portion of the Company's dress shirts are manufactured in the Company's domestic apparel manufacturing facility in Alabama as well as Company- owned facilities 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 Caribbean areas who meet its quality and cost requirements. Footwear is manufactured by independent manufacturers which meet the Company's quality and cost requirements, principally located in Italy, the Far East and Brazil.

The Company's foreign offices, located principally in Hong Kong, China, Taiwan, the Philippines, Central America and the Asian Subcontinent 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 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. 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 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.

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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 Van Heusen name in North, Central and South America as well as in the Philippines, the exclusive worldwide right to use the Bass name for footwear and the exclusive worldwide right to use the Izod name for apparel. The Company has registered or applied for registration of these and numerous other trademarks for use on a variety of items of apparel and footwear and related products and owns many foreign trademark registrations. The Company regards its trademarks and other proprietary rights as valuable assets and believes that they have significant value in the marketing of its products.

Licensing

The Company has various agreements under which it licenses the use of its brand names. The Company 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, pants, sleepwear, eyeglasses, neckwear, belts and small leather goods 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, men's headwear, eyeglasses and sleepwear in the United States, and for men's and women's sportswear in Canada. The Company licenses the use of the Izod Club name for men's and women's golf apparel in the United States and sublicenses the FUBU name for neckwear.

The Company plans to continue expanding its worldwide marketing efforts, utilizing licensing and other techniques for all its brands, especially under the Izod trademark. 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. 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.

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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 for textiles and apparel established by the United States government. In addition, a portion of the Company's apparel products are imported from Central America and Mexico and are 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 30, 2000, the Company employed approximately 6,200 persons on a full-time basis and approximately 3,600 persons on a part-time basis. Approximately 4% of the Company's 9,800 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 South 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

93

150

Warehouses and Distribution Centers

1,769

103

1,872

Administrative

16

331

347

Retail Stores

6

1,620

1,626

       
 

1,848

2,147

3,995

       

Footwear and Related Products

 
       
 

Owned

Leased

Total

       

Warehouses and Distribution Centers

179

2

181

Administrative

20

116

136

Retail Stores

8

1,416

1,424

       
 

207

1,534

1,741

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, 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.

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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 appear under the heading "Selected Quarterly Financial Data" on page F-19 and under the heading "Ten Year Financial Summary" on pages F-21 and F-22. As of April 3, 2000, there were 1,335 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-21 and F-22.

Item 7. Management's Discussion and Analysis of Financial Condition and

Results of Operations

The following adjusted statements of operations and segment data segregate pre-tax non-recurring charges of $132.7 million incurred in 1997 from the Company's ongoing operations. The non-recurring charges related principally to a series of actions the Company had taken to accelerate the execution of its ongoing strategy to build its brands. Such charges have been shown as separate components of selling, general and administrative expenses in the 1997 consolidated income statement 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 the Company's results of operations before such charges.

 

 

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    Adjusted Statements of Operations   

(In thousands)

1999

1998

1997

       

Net sales

$1,271,490

$1,303,085

$1,350,007

Cost of goods sold

820,464

856,160

891,965

       

Gross profit before 1997 non-recurring charges

451,026

446,925

458,042

       

SG&A expenses before 1997 non-recurring charges

394,216

394,940

412,495

Year 2000 computer conversion costs

8,500

8,500

       

Income before interest, taxes and

     

1997 non-recurring charges

48,310

43,485

45,547

Interest expense, net

22,430

26,112

20,672

       

Income before taxes and 1997

     

non-recurring charges

25,880

17,373

24,875

Income tax expense

9,007

4,486

5,954

       

Income from ongoing operations before

     

1997 non-recurring charges

16,873

12,887

18,921

       

Extraordinary loss on debt retirement,

     

net of tax benefit

(1,060)

 

1997 non-recurring charges, net of tax benefit

(85,500)

       

Net income (loss)

$ 16,873

$ 11,827

$ (66,579)

 
 
 

        Adjusted Segment Data       

 

1999

1998

1997

       

Net sales-Apparel - Ongoing Businesses

$ 804,944

$ 773,215

$ 754,922

Net sales-Apparel - Businesses Exited(1)

80,848

123,648

156,125

Net sales-Total Apparel

885,792

896,863

911,047

       

Net sales-Footwear and Related Products

385,698

406,222

438,960

       

Total net sales

$1,271,490

$1,303,085

$1,350,007

       

Operating income-Apparel

$ 55,626

$ 50,302

$ 45,416

Operating income-Footwear and Related Products

18,687

17,183

15,382

       

Total operating income

74,313

67,485

60,798

Corporate expenses

(26,003)

(24,000)

(15,251)

       

Income before interest, taxes and

     

1997 non-recurring charges

$ 48,310

$ 43,485

$ 45,547

(1) Includes the Gant and Izod Club businesses along with the private label sweater business for 1997.

 

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Fiscal 1999 was a year of progress and strategic alignment for each of our brands. The Company's overall strategic objective, to market its nationally known brands in the moderate to upper moderate price segment through multiple channels of distribution while earning appropriate financial returns, is on track and moving forward.

This past year saw the Company exit two businesses which neither fit within this overall strategic framework nor had prospects of earning appropriate and consistent levels of profitability.

During the year the Company expanded the scope of its dress shirt operations, leveraging its considerable strength and expertise in this area by adding three strong labels through the signing of new licensing agreements for John Henry and Manhattan in March and FUBU in June. Each of these brands adds both channel and consumer diversification to a dress shirt division which already markets Van Heusen, the number one dress shirt brand in America, Geoffrey Beene, the number one designer dress shirt brand in America and DKNY, the fastest growing dress shirt brand in America.

From an overall operating standpoint, each of the Company's divisions exhibited progress in both market position and improved profitability, while cash flow was also a major highlight for the year.

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The accomplishments of 1999 are far reaching and we believe set the stage for future growth and profitability in each component of our business.

Results Of Operations

The Company 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, excluding sales from exited businesses, were $804.9 million in 1999 compared with $773.2 million in 1998, or up 4%. This compares with $754.9 million in 1997. The increase in 1999 resulted from an increase in dress shirt sales which included the John Henry and Manhattan brands which the Company began selling in the second quarter of 1999, and the continued growth of the DKNY business. The sales increases in 1999 and 1998 were partially offset by the planned closure of 101 underperforming retail outlet stores during the three year period ended January 30, 2000. At the same time, the Company's sales of wholesale branded products, excluding exited businesses, increased 12% and 11% in 1999 and 1998, respectively, with Van Heusen, Geoffrey Beene and Izod contributing to the improvement.

Gross margin increased to 34.2% in 1999 from 33.3% in 1998 and 32.9% in 1997. The margin improvement was shared by each division with the exception of the businesses exited - Gant and Izod Club. The dress shirt business continued to benefit from the manufacturing reconfiguration and re- sourcing initiatives it began a number of years ago. Sportswear margins benefited from both strong sell-throughs during the year as well as improved sourcing costs. Selling, general and administrative expenses as a percentage of sales were relatively flat in 1999 at 27.9% compared with 27.7% in 1998 and 27.9% in 1997.

14

 

Operating income increased 10.6% in 1999 to $55.6 million from $50.3 million in 1998 which was up 10.8% from $45.4 million in 1997. In 1999, Geoffrey Beene, Izod and Van Heusen experienced significant operating income margin improvements which were partially offset by negative performances at Gant and Izod Club, which were exited during 1999.

Our dress shirt leadership position with the Van Heusen and Geoffrey Beene brands continues and has been joined by strong first full year sales of DKNY dress shirts. The licensing of the John Henry, Manhattan and FUBU brands in 1999 should enable us to further leverage our dress shirt strengths and expertise.

Footwear and Related Products

Net sales of the Footwear and Related Products segment declined 5% to $385.7 million in 1999 from $406.2 million in 1998 compared with $439.0 million in 1997. Sales in 1999 were lower than 1998 levels which were artificially fueled by high levels of promotional and inventory clearance activity. The planned closing of 30 underperforming retail outlet stores during the three year period ended January 30, 2000 was also a factor in the Bass sales reductions in 1999 and 1998.

As a result of the improved sales mix, gross margin was up almost 200 basis points to 38.0% in 1999 from 36.1% in 1998 compared with 36.0% in 1997. Selling, general and administrative expenses as a percentage of sales increased to 33.2% in 1999 from 31.9% in 1998 and 32.5% in 1997. The increase in 1999 was principally the result of a lack of sales leverage as actual spending was down 1.2%, or $1.6 million for the year.

Bass continued its profit improvement with an 8.7% increase in operating income to $18.7 million, up from $17.2 million in 1998 and $15.4 million in 1997. While sales declined in 1999, the substantial reduction in promotional and inventory clearance activity resulted in a significant increase in gross margin as a percent of sales. The positive impact on gross margin stemming from the closure of Bass' two remaining manufacturing facilities began to be realized in the second half of 1999, but the full benefit is expected to be felt in 2000 and beyond.

Corporate Expenses

Corporate expenses were $26.0 million in 1999 compared with $24.0 million in 1998 and $15.3 million in 1997. The increased expense level versus 1997 is principally due to the $8.5 million of year 2000 computer conversion costs incurred in each of 1999 and 1998.

Interest Expense

Interest expense in 1999 was $22.4 million, down from $26.1 million in 1998 compared with $20.7 million in 1997. The reduction in 1999 was the result of the receipt of the proceeds from the sale of Gant early in the year and tight working capital management throughout the year. 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.

15

 

Income Taxes

The income tax expense rate was 34.8% in 1999, up from 25.8% in 1998 and 23.9% in 1997. The increase in 1999 resulted principally from closing Bass' manufacturing operations in Puerto Rico, which resulted in a higher percentage of pre-tax income being subject to U.S. tax. The full impact of this closing on the effective tax rate will be felt in 2000, during which time the Company believes its effective tax rate will increase to approximately 38.0%.

Non-Recurring Charges

The Company recorded pre-tax non-recurring charges in 1997 of $132.7 million ($85.5 million after tax) relating principally to exiting the private label sweater manufacturing business and United States mainland footwear manufacturing, consolidating and contracting plant and warehouse and distribution facilities, closing underperforming retail outlet stores, and modifying a repositioning of Bass.

Liquidity and Capital Resources

Cash provided by operating activities significantly improved in 1999 and 1998 even after funding Year 2000 computer conversion costs of $8.5 million in each of 1999 and 1998, and funding of the 1997 restructuring initiatives of $9.8 million in 1999 and $34.1 million in each of 1998 and 1997. As a result of these restructuring charges, the Company has tax loss and credit carryforwards of approximately $34 million which will be able to shelter future pre-tax income over the next several years.

Capital spending in 1999 was $31.3 million compared with $38.2 million in 1998 and $17.9 million in 1997. The higher level of 1998 spending relates 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 2000 are anticipated at approximately $30 million.

Total debt as a percentage of total capital was 50.7% at year-end 1999 compared with 54.0% at year-end 1998 and 53.0% at year-end 1997. Debt net of invested cash, as a percentage of net capital was 39.0% at year-end 1999 versus 53.6% and 52.9% at year-end 1998 and 1997, respectively.

On February 26, 1999, we completed the sale of Gant to Pyramid Sportswear AB, which was the brand's international licensee. Sale proceeds, net of employee severance and liquidation costs, were approximately $65.3 million, a portion of which was used to reduce debt, with the balance invested in short-term instruments. Additionally, the exiting of the Izod Club business generated cash flow as working capital was liquidated. The combination of the added liquidity provided by these transactions, our strengthened capital structure and internally generated cash provides capital availability for investment opportunities which we believe will yield enhanced shareholder returns.

Market Risk

Financial instruments held by the Company include cash equivalents and long-term debt. Based on the amount of cash equivalents held by the Company

16

at January 30, 2000 and the average net amount of cash equivalents which the Company anticipates holding during 2000, 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

The Company's business is seasonal, with higher sales and income in the second half of the year, 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 second half 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.

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.

17

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

51

Mark Weber

President and Chief Operating Officer;

 
 

Director

51

Emanuel Chirico

Executive Vice President and

 
 

Chief Financial Officer

42

Allen E. Sirkin

Vice Chairman

57

Michael J. Blitzer

Vice Chairman

50

     

Mr. Bruce J. Klatsky has been employed by the Company in various capacities over the last 28 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 28 years, was named Vice Chairman of the Company in 1995 and was named President and Chief Operating Officer in 1998.

Mr. Emanuel Chirico joined the Company as Vice President and Controller in 1993. Mr. Chirico was named Executive Vice President and Chief Financial Officer in 1998.

Mr. Allen E. Sirkin has been employed by the Company since 1985. He has served as Vice Chairman of the Company since 1995.

Mr. Michael J. Blitzer has been employed by the Company in various capacities since 1980. Mr. Blitzer was named Senior Vice President in 1995 and 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 13, 2000.

 

18

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 13, 2000.

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 13, 2000.

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 13, 2000.

 

 

 

19

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).

   

20

 

4.2

Preferred Stock Purchase Rights Agreement (the "Rights Agreement"), dated June 10, 1986 between PVH and The Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit 3 to the Company's Quarterly Report as filed on Form 10-Q for the period ended May 4, 1986).

   

4.3

Amendment to the Rights Agreement, dated March 31, 1987 between PVH and The Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit 4(c) to the Company's Annual Report on Form 10-K for the year ended February 2, 1987).

   

4.4

Supplemental Rights Agreement and Second Amendment to the Rights Agreement, dated as of July 30, 1987, between PVH and The Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit (c)(4) to the Company's Schedule 13E-4, Issuer Tender Offer Statement, dated July 31, 1987).

   

4.5

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 (incorporated by reference to Exhibit 4.7 to the Company's report on Form 10-K for the year ended January 31, 1999).

   

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 (incorporated by reference to Exhibit 4.8 to the Company's report on Form 10-K for the year ended January 31, 1999).

   

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).

21

 

*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).

   

*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).

   

22

 

*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).

   

*10.13

Phillips-Van Heusen Corporation Senior Management Bonus Program for fiscal year 1999 (incorporated by reference to Exhibit 10.13 to the Company's report on Form 10-Q for the period ending August 1, 1999).

   

*10.14

Phillips-Van Heusen Corporation Long-Term Incentive Plans for the 21 month period ending February 4, 2001 and the 33 month period ending February 3, 2002.

   

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 1999:

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.

 

23

 

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: /s/ Bruce J. Klatsky

 

Bruce J. Klatsky

 

Chairman, Chief Executive

 

Officer and Director

   
 

Date: April 4, 2000

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 4, 2000

Bruce J. Klatsky

Officer and Director

 
 

(Principal Executive Officer)

 
     

Mark Weber

President, Chief Operating

April 4, 2000

Mark Weber

Officer and Director

 
     

Emanuel Chirico

Executive Vice President and

April 13, 2000

Emanuel Chirico

Chief Financial Officer

 
     

Vincent A. Russo

Vice President and Controller

April 4, 2000

Vincent A. Russo

(Principal Accounting Officer)

 
     

Edward H. Cohen

Director

April 10, 2000

Edward H. Cohen

   
     

Joseph B. Fuller

Director

April 12, 2000

Joseph B. Fuller

   
     

Joel H. Goldberg

Director

April 4, 2000

Joel H. Goldberg

   
     

Marc Grosman

Director

April 5, 2000

Marc Grosman

   
     

Dennis F. Hightower

Director

April 5, 2000

Dennis F. Hightower

   
     

Maria Elena Lagomasino

Director

April 14, 2000

Maria Elena Lagomasino

   
     

Harry N.S. Lee

Director

April 6, 2000

Harry N.S. Lee

   
     

Bruce Maggin

Director

April 5, 2000

Bruce Maggin

   
     

Peter J. Solomon

Director

April 4, 2000

Peter J. Solomon

   

24

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 30, 2000, January 31, 1999 and February 1, 1998

F-2

     
 

Consolidated Balance Sheets--January 30, 2000 and

 
 

January 31, 1999

F-3

     
 

Consolidated Statements of Cash Flows--Years Ended

 
 

January 30, 2000, January 31, 1999 and February 1, 1998

F-4

     
 

Consolidated Statements of Changes in Stockholders'

 
 

Equity--Years Ended January 30, 2000, January 31, 1999

 
 

And February 1, 1998

F-5

     
 

Notes to Consolidated Financial Statements

F-6

     
 

Selected Quarterly Financial Data

F-19

     
 

Report of Ernst & Young LLP, Independent Auditors

F-20

     
 

10 Year Financial Summary

F-21

     

 

 

14(a)(2)

The following consolidated financial statement schedule is included herein:

 

 

Schedule II - Valuation and Qualifying Accounts

F-23

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

 

PHILLIPS-VAN HEUSEN CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

1999

1998

1997

       

Net sales

$1,271,490

$1,303,085

$1,350,007

Cost of goods sold

820,464

856,160

937,965

       

Gross profit

451,026

446,925

412,042

Selling, general and administrative expenses

394,216

394,940

412,495

Year 2000 computer conversion costs

8,500

8,500

Facility and store closing, restructuring

     

and other expenses

86,700

Income (loss) before interest, taxes and

     

extraordinary item

48,310

43,485

(87,153)

       

Interest expense, net

22,430

26,112

20,672

       

Income (loss) before taxes and extraordinary

     

item

25,880

17,373

(107,825)

Income tax expense (benefit)

9,007

4,486

(41,246)

       

Income (loss) before extraordinary item

16,873

12,887

(66,579)

       

Extraordinary loss on debt retirement, net

     

of tax benefit

(1,060)

       

Net income (loss)

$ 16,873

$ 11,827

$ (66,579)

       

Basic and diluted income (loss) per share:

     

Income (loss) before extraordinary item

$ 0.62

$ 0.47

$ (2.46)

       

Extraordinary loss on debt retirement, net

     

of tax benefit

(0.04)

       

Net income (loss)

$ 0.62

$ 0.43

$ (2.46)

       

See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

F-2

 

PHILLIPS-VAN HEUSEN CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

     
 

January 30,

January 31,

 

2000

1999

     

ASSETS

   

Current Assets:

   

Cash, including cash equivalents of $94,543 and $4,399

$ 94,821

$ 10,957

Trade receivables, less allowances of $2,305 and $1,367

66,422

88,038

Inventories

222,976

232,695

Other, including deferred taxes of $23,052 and $10,611

41,751

36,327

Total Current Assets

425,970

368,017

Property, Plant and Equipment

106,122

108,846

Goodwill

83,578

113,344

Other Assets, including deferred taxes of $31,800 and $52,167

58,078

84,106

     
 

$673,748

$674,313

     

LIABILITIES AND STOCKHOLDERS' EQUITY

   

Current Liabilities:

   

Notes payable

 

$ 20,000

Accounts payable

$ 39,858

44,851

Accrued expenses

84,722

67,835

Total Current Liabilities

124,580

132,686

Long-Term Debt

248,784

248,723

Other Liabilities

58,699

64,016

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 27,289,869 and 27,287,985

27,290

27,288

Additional capital

117,697

117,683

Retained earnings

96,698

83,917

     

Total Stockholders' Equity

241,685

228,888

     
 

$673,748

$674,313

 

See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

F-3

 

PHILLIPS-VAN HEUSEN CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

1999

1998

1997

Operating activities:

     

Income (loss) before extraordinary item

$ 16,873

$ 12,887

$(66,579)

Adjustments to reconcile to net cash provided

     

(used) by operating activities:

     

Depreciation and amortization

19,417

25,442

25,300

Write-off of property, plant and equipment

   

40,800

Deferred income taxes

8,193

3,996

(43,024)

Equity income

(1,080)

(1,152)

(792)

       

Changes in operating assets and liabilities:

     

Receivables

21,616

(9,282)

3,150

Inventories

26,931

16,839

(12,112)

Accounts payable and accrued expenses

5,849

(13,819)

28,905

Acquisition of inventory associated with

     

license agreement

(17,212)

   

Other-net

(6,607)

(8,932)

16,358

       

Net Cash Provided (Used) By Operating Activities

73,980

25,979

(7,994)

       

Investing activities:

     

Sale of Gant trademark, net of related costs

65,251

   

Property, plant and equipment acquired

(31,291)

(38,213)

(17,923)

       

Net Cash Provided (Used) By Investing Activities

33,960

(38,213)

(17,923)

       

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

41,600

160,600

123,000

Payments on revolving line of credit

(61,600)

(240,100)

(93,651)

Exercise of stock options

16

838

791

Cash dividends

(4,092)

(4,082)

(4,065)

       

Net Cash Provided (Used) By Financing Activities

(24,076)

11,443

26,075

       

Increase (decrease) in cash

83,864

(791)

158

Cash at beginning of period

10,957

11,748

11,590

       

Cash at end of period

$ 94,821

$ 10,957

$ 11,748

 

See notes to consolidated financial statements.

 

 

F-4

 

PHILLIPS-VAN HEUSEN CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(In thousands, except share data)

 

 

 

    Common Stock   

     
 

Shares

$1 par

Value

Additional

Capital

Retained

Earnings

Stockholders'

Equity

           
           

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

Stock options exercised

1,884

2

14

 

16

Net income

     

16,873

16,873

Cash dividends

(4,092)

(4,092)

           

January 30, 2000

27,289,869

$27,290

$117,697

$ 96,698

$241,685

 

 

See notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-5

 

PHILLIPS-VAN HEUSEN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

Summary of Significant Accounting Policies

Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from the estimates.

Fiscal Year - Fiscal years are designated in the financial statements and notes by the calendar year in which the fiscal year commences. Accordingly, results for fiscal years 1999, 1998 and 1997 represent the 52 weeks ended January 30, 2000, January 31, 1999 and February 1, 1998, respectively.

Cash and Cash Equivalents - The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Asset Impairments - The Company records impairment losses on long- lived assets (including goodwill) 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 $97,358 (1999) and $91,414 (1998) is determined using the last-in, first-out method (LIFO). Cost for footwear and other apparel 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 $11,530 and $14,481 in 1999 and 1998, respectively, is amortized principally using the straight line method over 40 years. The reduction in goodwill in 1999 resulted from the sale of the Gant trademark as explained in the footnote entitled "Acquisition and Disposition of Businesses".

Contributions from Landlords - The Company 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.

 

 

F-6

 

PHILLIPS-VAN HEUSEN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Summary of Significant Accounting Policies (Continued)

Fair Value of Financial Instruments - Using discounted cash flow analyses, the Company estimates that the fair value of all financial instruments approximates their carrying value, except as noted in the footnote entitled "Long-Term Debt".

Stock-Based Compensation - The Company accounts for its stock options under the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure requirements of FASB Statement No. 123, "Accounting for Stock-Based Compensation".

Advertising - Advertising costs are expensed as incurred and totalled

$26,922 (1999), $28,239 (1998) and $37,762 (1997).

Earnings Per Share

The Company computed its basic and diluted earnings per share by dividing net income or loss by:

 

1999

1998

1997

       

Weighted Average Common Shares Outstanding

     

for Basic Earnings Per Share

27,288,692

27,217,634

27,107,633

       

Impact of Dilutive Employee Stock Options

14,103

94,903

       

Total Shares for Diluted Earnings Per Share

27,302,795

27,312,537

27,107,633

Income Taxes

Income taxes consist of:

 

1999

1998

1997

Federal:

     

Current

   

$ 336

Deferred

$6,870

$2,867

(43,630)

State, foreign and local:

     

Current

814

1,061

1,442

Deferred

1,323

558

606

       
 

$9,007

$4,486

$(41,246)

The deferred tax provision recorded in 1998 excludes $571 of tax benefit related to the extraordinary loss on debt retirement.

Taxes paid were $1,135 (1999), $2,197 (1998) and $1,155 (1997).

 

 

F-7

 

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:

 

1999

1998

     

Depreciation

$(10,555)

$(12,163)

Landlord contributions

2,014

3,772

Facility and store closing,

   

restructuring and other expenses

 

6,428

Employee compensation and benefits

15,498

10,807

Tax loss and credit carryforwards

34,190

44,200

Other-net

13,705

9,734

     
 

$ 54,852

$ 62,778

 

A reconciliation of the statutory Federal income tax to the income tax expense (benefit) is as follows:

 

1999

1998

1997

       

Statutory 35% federal tax

$ 9,058

$ 6,081

$(37,739)

State, foreign and local income taxes,

     

net of Federal income tax benefit

1,391

942

805

Income of Puerto Rico Subsidiaries

(1,874)

(3,303)

(3,258)

Other-net

432

766

(1,054)

       

Income tax expense (benefit)

$ 9,007

$ 4,486

$(41,246)

Inventories

Inventories are summarized as follows:

 

1999

1998

     

Raw materials

$ 10,868

$ 8,529

Work in process

11,995

12,834

Finished goods

200,113

211,332

     
 

$222,976

$232,695

Inventories would have been approximately $5,600 and $8,400 higher than reported at January 30, 2000 and January 31, 1999, respectively, if the FIFO method of inventory accounting had been used for all apparel. During 1999 and 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 $750 and $2,000 in 1999 and 1998, respectively.

F-8

PHILLIPS-VAN HEUSEN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Property, Plant and Equipment

Property, plant and equipment, at cost, are summarized as follows:

 

Estimated

   
 

Useful

   
 

Lives

1999

1998

       
       

Land

 

$ 1,495

$ 1,495

Buildings and building improvements

15-40 years

19,861

19,283

Machinery and equipment, furniture

     

and fixtures and leasehold

     

improvements

3-15 years

220,817

216,941

       
   

242,173

237,719

Less: Accumulated depreciation

     

and amortization

 

136,051

128,873

   

$106,122

$108,846

Long-Term Debt

Long-term debt is as follows:

 

1999

1998

     

9.5% Senior Subordinated Notes

$149,321

$149,268

7.75% Debentures

99,463

99,455

 

$248,784

$248,723

The Company issued $100,000 of 7.75% Debentures due 2023 on November 15, 1993 with a yield to maturity of 7.80%. Interest is payable semi- annually. Based on current market conditions, the Company estimates that the fair value of these Debentures on January 30, 2000, using discounted cash flow analyses, was approximately $77,600.

In 1998, the Company refinanced certain debt by entering into a $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. In connection with this refinancing, the Company paid a yield maintenance premium of $1,446 and wrote off debt issue costs of $185. These items were classified as an extraordinary loss, net of tax benefit of $571, in 1998.

 

 

 

 

 

 

F-9

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, the Company estimates that the fair value of these Notes on January 30, 2000, using discounted cash flow analyses, was approximately $114,300. In connection with the 9.5% Senior Subordinated Notes, in 1998 the Company entered into an interest rate hedge agreement. Due to an increase in interest rates between the date the Company entered into the hedge agreement and the date the 9.5% Senior Subordinated Notes were issued, the Company received $1,075, which is being amortized as a reduction of interest expense over the life of the 9.5% Senior Subordinated Notes.

The Company's $325,000 Credit Facility includes a revolving credit facility which allows the Company, 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 the Company'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 the Company's assets have been pledged as collateral.

The weighted average interest rate on outstanding revolving credit borrowings at January 31, 1999 was 7.1%.

The amount outstanding under the letter of credit facility as of January 30, 2000 was $136,016.

Interest paid was $22,647 (1999), $23,652 (1998) and $20,784 (1997).

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

PHILLIPS-VAN HEUSEN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Stockholders' Equity (Continued)

If the Company is the surviving corporation in a merger or other business combination then, under certain circumstances, each holder of a Right will have the right to receive upon exercise the number of shares of common stock having a market value equal to two times the exercise price of the Right.

In the event the Company is not the surviving corporation in a merger or other business combination, or more than 50% of the Company's assets or earning power is sold or transferred, each holder of a Right will have the right to receive upon exercise the number of shares of common stock of the acquiring company having a market value equal to two times the exercise price of the Right.

At any time prior to the close of business on the Distribution Date, the Company may redeem the Rights in whole, but not in part, at a price of $.05 per Right. During 1996, the rights were extended for a period of 10 years from the date of initial expiration and will expire on June 16, 2006.

Stock Options - Under the Company's stock option plans, non- qualified and incentive stock options ("ISOs") may be granted. Options are granted at fair market value at the date of grant. ISOs and non-qualified options granted have a ten year duration. Generally, options are cumulatively exercisable in three installments commencing three years after the date of grant.

Under APB Opinion No. 25, the Company does not recognize compensation expense because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant. Under FASB Statement No. 123, proforma information regarding net income and earnings per share is required as if the Company had accounted for its employee stock options under the fair value method of that Statement.

For purposes of proforma disclosures, the Company estimated the fair value of stock options granted since 1995 at the date of grant using the Black-Scholes option pricing model, and the estimated fair value of the options is then 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:

 

1999

1998

1997

       

Risk-free interest rate

5.78%

5.56%

6.49%

Expected option life

7 Years

7 Years

7 Years

Expected volatility

28.1%

29.9%

26.0%

Expected dividends per share

$ 0.15

$ 0.15

$ 0.15

Weighted average estimated fair

     

value per share of options granted

$ 3.50

$ 4.83

$ 5.43

       

Proforma net income (loss)

$14,789

$9,994

$(68,242)

Proforma basic and diluted net income

     

(loss) per share

$ 0.54

$ 0.37

$ (2.52)

F-11

PHILLIPS-VAN HEUSEN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Stockholders' Equity (Continued)

Other data with respect to stock options follows:

   

Option Price

Weighted Average

 

Shares

Per Share

Price Per Share

           

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

Granted

725,750

7.50 -

9.94

9.80

Exercised

1,884

8.75 -

8.75

8.75

Cancelled

280,992

8.06 -

15.13

12.03

         

Outstanding at January 30, 2000

3,568,447

$ 6.38

$31.63

$12.48

Of the outstanding options at January 30, 2000, 1,002,256 shares have an exercise price below $12.25, 2,563,871 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 30, 2000 is 6.9 years.

Of the outstanding options at January 30, 2000 and January 31, 1999, options covering 932,255 and 642,905 shares were exercisable at a weighted average price of $12.82 and $11.89, respectively. Stock options available for grant at January 30, 2000 and January 31, 1999 amounted to 122,222 and 717,822 shares, respectively.

Leases

The Company leases retail stores, manufacturing facilities, office space and equipment. The leases generally are renewable and provide for the payment of real estate taxes and certain other occupancy expenses. Retail store leases generally provide for the payment of percentage rentals based on store sales and other costs associated with the leased property.

At January 30, 2000, minimum annual rental commitments under non- cancellable operating leases, including leases for new retail stores which had not begun operating at January 30, 2000, are as follows:

 

2000

$ 55,591

 

2001

45,293

 

2002

35,281

 

2003

27,260

 

2004

19,474

 

Thereafter

58,325

 

Total minimum lease payments

$241,224

F-12

 

PHILLIPS-VAN HEUSEN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Leases (Continued)

Rent expense is as follows:

   

1999

1998

1997

         
 

Minimum

$59,954

$61,402

$65,177

 

Percentage and other

9,222

11,139

11,139

         
   

$69,176

$72,541

$76,316

Retirement and Benefit Plans

The Company has noncontributory, defined benefit pension plans covering substantially all U.S. employees meeting certain age and service requirements. For those vested (after five years of service), the plans provide monthly benefits upon retirement based on career compensation and years of credited service. It is the Company's policy to fund pension cost annually in an amount consistent with Federal law and regulations. The assets of the plans are principally invested in a mix of fixed income and equity investments.

The Company 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.

Following is a reconciliation of the changes in the benefit obligation for each of the last two years:

   

  Pension Plans

Postretirement Plan

   

1999

1998

1999

1998

           
 

Beginning of year

$127,278

$116,622

$34,192

$34,107

 

Service cost

2,553

2,388

463

415

 

Interest cost

8,921

8,357

2,381

2,306

 

Benefit payments

(7,683)

(6,240)

(2,293)

(2,499)

 

Actuarial (gain) loss

(15,135)

5,863

(3,292)

(264)

 

Plan participants' contributions

   

93

127

 

Curtailment (gain)

(58)

(264)

   
 

Special termination benefits

552

           
 

End of year

$115,876

$127,278

$31,544

$34,192

 

 

 

 

 

 

 

 

 

F-13

 

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 the Company's pension plans for each of the last two years:

   

1999

1998

       
 

Beginning of year

$134,001

$124,663

 

Actual return

16,801

15,088

 

Benefits paid

(7,683)

(6,240)

 

Company contributions

899

490

       
 

End of year

$144,018

$134,001

Net benefit cost recognized in each of the last three years is as follows:

   

     Pension Plans         

  Postretirement Plan 

   

1999

1998

1997

1999

1998

1997

               
 

Service cost, including

           
 

expenses

$ 2,713

$ 2,388

$ 2,004

$ 463

$ 415

$ 389

 

Interest cost

8,921

8,357

7,935

2,381

2,306

2,403

 

Amortization of net loss

140

52

23

448

336

284

 

Amortization of transition

           
 

(asset) obligation

(63)

(68)

(68)

273

273

273

 

Expected return on

           
 

plan assets

(11,441)

(10,935)

(9,031)

     
 

Amortization of prior

           
 

service cost

437

462

563

   

707

256

1,426

3,565

3,330

3,349

 

Multiemployer plans

213

   

$ 707

$ 256

$ 1,639

$3,565

$3,330

$3,349

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:

   

    Pension    

  Postretirement 

   

1999

1998

1999

1998

           
 

Benefit obligation at year-end

$115,876

$127,278

$31,544

$34,192

 

Unrecognized prior service cost

(800)

(1,652)

   
 

Unrecognized gains (losses)

21,133

293

(4,800)

(8,052)

 

Unrecognized transition asset

       
 

(obligation)

107

170

(3,551)

(3,824)

 

Plan assets at fair value

(144,018)

(134,001)

           
 

(Asset) liability recognized on

       
 

the balance sheet

$ (7,702)

$ (7,912)

$23,193

$22,316

Included in the above disclosures are certain pension plans with projected and accumulated benefit obligations in excess of plan assets of $3,412 and $2,445, respectively, as of January 30, 2000, and $4,664 and $2,895, respectively, as of January 31, 1999.

F-14

PHILLIPS-VAN HEUSEN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Retirement and Benefit Plans - (Continued)

The assumed health care cost trend rate assumed for 2000 through 2010 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 1999 and on the postretirement benefit obligation at January 30, 2000 would be as follows:

   

1% Increase

1% Decrease

       
 

Impact on service and interest cost

$ 356

$ (301)

 

Impact on year-end benefit obligation

$3,620

$(3,016)

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:

   

1999

1998

       
 

Discount rate

8.25%

7.00%

 

Rate of increase in compensation

   
 

levels (applies to pension plans only)

4.75%

4.00%

 

Long-term rate of return on assets

9.00%

9.00%

The Company has an unfunded supplemental defined benefit plan covering 23 current and retired executives under which the participants will receive a predetermined amount during the 10 years following the attainment of age 65, provided that prior to the termination of employment with the Company, the participant has been in the plan for at least 10 years and has attained age 55. At January 30, 2000 and January 31, 1999, $10,484 and $9,357, respectively, are included in other liabilities as the accrued cost of this plan.

The Company has a savings and retirement plan (the "Associates Investment Plan") and a supplemental savings plan for the benefit of its eligible employees who elect to participate. The Company matches a portion of employee contributions to the plans. Matching contributions were $2,488 (1999), $2,222 (1998) and $1,959 (1997).

Segment Data

The Company 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, the Company evaluated its operating divisions and product offerings. The Company 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, Geoffrey Beene, John Henry, Manhattan, DKNY and FUBU. The Company's footwear business has been identified as the Footwear and Related Products segment. This segment derives revenues from marketing casual footwear, apparel and accessories under the Bass brand name.

F-15

PHILLIPS-VAN HEUSEN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Segment Data - (Continued)

Sales for both segments occur principally in the United States.

 

1999

1998

1997

       

Net Sales

     

Apparel

$ 885,792

$ 896,863

$ 911,047

Footwear and Related Products

385,698

406,222

438,960

Total Net Sales

$1,271,490

$1,303,085

$1,350,007

Operating Income (Loss)

     

Apparel(1)

$ 55,626

$ 50,302

$ (33,049)

Footwear and Related Products(1)

18,687

17,183

(38,853)

Total Operating Income (Loss)

74,313

67,485

(71,902)

Corporate Expenses(2)

(26,003)

(24,000)

(15,251)

Interest Expense, net

(22,430)

(26,112)

(20,672)

Income (Loss) Before Taxes

     

and Extraordinary Item

$ 25,880

$ 17,373

$ (107,825)

       

Identifiable Assets

     

Apparel

$ 295,002

$ 357,774

$ 355,979

Footwear and Related Products

114,554

122,051

152,518

Corporate

264,192

194,488

151,962

 

$ 673,748

$ 674,313

$ 660,459

       

Depreciation and Amortization

     

Apparel

$ 6,583

$ 10,533

$ 10,484

Footwear and Related Products

4,033

5,630

6,561

Corporate

8,801

9,279

8,255

 

$ 19,417

$ 25,442

$ 25,300

       
       

Identifiable Capital Expenditures

     

Apparel

$ 9,700

$ 5,653

$ 8,103

Footwear and Related Products

3,732

2,210

3,957

Corporate(3)

17,859

30,350

5,863

 

$ 31,291

$ 38,213

$ 17,923

 

(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) Corporate expenses in each of 1999 and 1998 include $8,500 of Year 2000

computer conversion costs.

(3) 1998 Corporate capital expenditures are related principally to the

relocation of the Company's New York City corporate headquarters.

 

 

 

 

F-16

PHILLIPS-VAN HEUSEN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Facility and Store Closing, Restructuring and Other Expenses

During 1997, the Company 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

One of the actions contemplated in the original plan was the closing of a designated footwear facility. In the second quarter of 1999, the Company announced the closing of its footwear manufacturing and warehousing operations in the Caribbean. As a result of this closure, the footwear facility originally designated for closure is now operationally required, and so the Company will not close this facility. The cost of closing the Caribbean facilities of approximately $5,000 approximates the cost to close the footwear facility designated in the Company's original plan. As such, there was no net effect on net income.

As of January 30, 2000, all other significant initiatives contemplated by the 1997 charges have been completed and charged to the reserve according to the original plan. During 1999, 1998 and 1997, inventory markdowns of approximately $1,800, $17,600 and $26,600 respectively, were charged to the reserve.

Acquisition and Disposition of Businesses

On March 12, 1999, the Company entered into a license agreement to market dress shirts under the John Henry and Manhattan brands. In connection therewith, the Company acquired $17,212 of inventory from the licensor.

On February 26, 1999, the Company 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 the Company has a minority interest. Subsequent to February 26, 1999, the Company terminated its Gant operations in order to liquidate Gant's working capital and close the Gant division. The Company completed this process in the fourth quarter of 1999, at which time the Company determined that the proceeds exceeded the costs of exiting the Gant business, including the write-off of related goodwill and other assets, by $5,767.

 

 

F-17

 

PHILLIPS-VAN HEUSEN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 

Acquisition and Disposition of Businesses (Continued)

On November 3, 1999, the Company announced it had entered into agreements with Oxford Industries, Inc. to license the Izod Club trademark and sell substantially all of the related assets of the Company's Izod Club division. The Company closed its Izod Club division in the fourth quarter of 1999. In connection with closing this division, the Company incurred $5,667 of expenses, principally for severance pay and other employee termination costs.

The gain on the sale of the Gant assets and the expenses incurred in closing the Izod Club division have been included in selling, general and administrative expenses.

Other Comments

One of the Company's directors, Mr. Harry N.S. Lee, is a director of TAL Apparel Limited, an apparel manufacturer and exporter based in Hong Kong. During 1999, 1998 and 1997, the Company purchased approximately $13,429, $26,700 and $26,500, 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 1999, 1998 and 1997, the Company paid a $0.0375 per share cash dividend each quarter on its common stock.

Certain items in 1998 and 1997 have been reclassified to present them on a basis consistent with 1999.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-18

 

PHILLIPS-VAN HEUSEN CORPORATION

SELECTED QUARTERLY FINANCIAL DATA - UNAUDITED

(In thousands, except per share data)

 

 

 1st Quarter 

  2nd Quarter 

  3rd Quarter 

    4th Quarter   

 

1999

1998(1)

1999

1998

1999

1998

1999

1998

                 

Net sales

$289,699

$295,765

$316,790

$306,371

$368,041

$374,392

$296,960

$326,557

Gross profit

100,808

102,508

111,784

109,063

128,802

128,063

109,632

107,291

Income (loss) before

               

extraordinary item

(4,625)

(4,485)

3,573

2,720

15,293

14,016

2,632

636

Net income (loss)

(4,625)

(5,545)

3,573

2,720

15,293

14,016

2,632

636

                 

Basic and diluted

               

income (loss) per

               

share before

               

extraordinary item

(0.17)

(0.16)

0.13

0.10

0.56

0.51

0.10

0.02

                 

Price range of common

               

stock per share

               

High

8 15/16

13 3/8

10 5/8

15 1/8

10 1/8

13 3/4

8 9/16

11 5/16

Low

5 3/8

11 3/16

8 5/16

12

7 5/16

6 1/2

6 13/16

6 1/16

 

(1) Net loss for the first quarter of 1998 includes an extraordinary loss, net of tax

benefit, related to the early retirement of debt.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-19

 

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 30, 2000 and January 31, 1999, 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 30, 2000. Our audits also included the financial statement schedule included in Item 14(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 30, 2000 and January 31, 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 30, 2000 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

 

 

E&Y SIGNATURE STAMP

New York, New York

March 7, 2000

 

 

 

 

 

 

 

 

 

 

 

 

F-20

 

PHILLIPS-VAN HEUSEN CORPORATION

TEN YEAR FINANCIAL SUMMARY

(In thousands, except per share data, percents and ratios)

 

1999

1998

1997(1)

1996(2)

1995(3)

Summary of Operations

         

Net sales

         

Apparel

$ 885,792

$ 896,863

$ 911,047

$ 897,370

$1,006,701

Footwear and Related Products

385,698

406,222

438,960

462,223

457,427

 

1,271,490

1,303,085

1,350,007

1,359,593

1,464,128

Cost of goods sold and expenses

1,223,180

1,259,600

1,437,160

1,311,855

1,443,555

Income (loss) before interest, taxes

         

and extraordinary item

48,310

43,485

(87,153)

47,738

20,573

Interest expense, net

22,430

26,112

20,672

23,164

23,199

Income tax expense (benefit)

9,007

4,486

(41,246)

6,044

(2,920)

Income (loss) before extraordinary item

16,873

12,887

(66,579)

18,530

294

Extraordinary loss, net of tax

(1,060)

Net income (loss)

$ 16,873

$ 11,827

$ (66,579)

$ 18,530

$ 294

           

Per Share Statistics

         

Basic Earnings Per Share:

         

Before extraordinary item

$ 0.62

$ 0.47

$ (2.46)

$ 0.69

$ 0.01

Extraordinary loss

(0.04)

Net income (loss)

$ 0.62

$ 0.43

$ (2.46)

$ 0.69

$ 0.01

           

Diluted Earnings Per Share:

         

Before extraordinary item

$ 0.62

$ 0.47

$ (2.46)

$ 0.68

$ 0.01

Extraordinary loss

(0.04)

Net income (loss)

$ 0.62

$ 0.43

$ (2.46)

$ 0.68

$ 0.01

           

Dividends paid per share

$ 0.15

$ 0.15

$ 0.15

$ 0.15

$ 0.15

Stockholders' equity per share

8.86

8.39

8.11

10.73

10.20

           

Financial Position

         

Current assets

$ 425,970

$ 368,017

$ 385,018

$ 362,958

$ 444,664

Current liabilities

124,580

132,686

133,335

122,266

183,126

Working capital

301,390

235,331

251,683

240,692

261,538

Total assets

673,748

674,313

660,459

657,436

749,055

Long-term debt

248,784

248,723

241,004

189,398

229,548

Convertible redeemable preferred stock

         

Stockholders' equity

241,685

228,888

220,305

290,158

275,292

           

Other Statistics

         

Total debt to total capital (5)

50.7%

54.0%

53.0%

43.1%

52.3%

Net debt to net capital (6)

39.0%

53.6%

52.9%

42.9%

51.5%

Current ratio

3.4

2.8

2.9

3.0

2.4

Average shares outstanding

27,289

27,218

27,108

27,004

26,726

(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.

(6) Net debt and net capital are total debt and total capital reduced by invested cash.

F-21

PHILLIPS-VAN HEUSEN CORPORATION

TEN YEAR FINANCIAL SUMMARY (CONTINUED)

 

1994(4)

1993

1992

1991

1990(2)

Summary of Operations

         

Net sales

         

Apparel

$ 812,993

$ 757,452

$ 709,361

$ 596,383

$536,352

Footwear and Related Products

442,473

394,942

333,204

307,717

269,963

 

1,255,466

1,152,394

1,042,565

904,100

806,315

Cost of goods sold and expenses

1,205,764

1,072,083

972,357

843,367

752,252

Income (loss) before interest, taxes

         

and extraordinary item

49,702

80,311

70,208

60,733

54,063

Interest expense, net

12,793

16,679

15,727

16,686

18,884

Income tax expense (benefit)

6,894

20,380

16,600

12,910

8,795

Income (loss) before extraordinary item

30,015

43,252

37,881

31,137

26,384

Extraordinary loss, net of tax

(11,394)

Net income (loss)

$ 30,015

$ 31,858

$ 37,881

$ 31,137

$ 26,834

           

Per Share Statistics

         

Basic Earnings Per Share:

         

Before extraordinary item

$ 1.13

$ 1.66

$ 1.50

$ 1.24

$ 1.00

Extraordinary loss

(0.44)

Net income (loss)

$ 1.13

$ 1.22

$ 1.50

$ 1.24

$ 1.00

           

Diluted Earnings Per Share:

         

Before extraordinary item

$ 1.11

$ 1.60

$ 1.42

$ 1.15

$ 0.95

Extraordinary loss

(0.42)

Net income (loss)

$ 1.11

$ 1.18

$ 1.42

$ 1.15

$ 0.95

           

Dividends paid per share

$ 0.15

$ 0.15

$ 0.15

$ 0.1425

$ 0.14

Stockholders' equity per share

10.35

9.33

8.14

4.52

3.38

           

Financial Position

         

Current assets

$ 429,670

$ 418,702

$ 410,522

$ 303,143

$285,315

Current liabilities

114,033

109,156

115,208

102,976

90,748

Working capital

315,637

309,546

295,314

200,167

194,567

Total assets

596,284

554,771

517,362

398,969

376,790

Long-term debt

169,679

169,934

170,235

121,455

140,259

Convertible redeemable preferred stock

     

72,800

72,800

Stockholders' equity

275,460

246,799

211,413

84,903

62,324

           

Other Statistics

         

Total debt to total capital (5)

38.2%

40.8%

46.8%

46.0%

53.2%

Net debt to net capital (6)

26.9%

29.7%

34.3%

45.0%

52.2%

Current ratio

3.8

3.8

3.6

2.9

3.1

Average shares outstanding

26,563

26,142

23,766

18,552

18,260

(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.

(6) Net debt and net capital are total debt and total capital reduced by invested cash.

F-22

 

 

SCHEDULE II

PHILLIPS-VAN HEUSEN CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)

 

 

          Column A       

 Column B

Column C

Column D

Column E

   

Additions

   

 

Description

Balance at

Beginning

of Period

Charged to

Costs and

Expense

Charged to

Other

Accounts

 

Deductions

Balance

at End

of Period

           

Year Ended January 30, 2000

         
           

Deducted from asset accounts:

         

Allowance for doubtful

         

accounts

$1,367

$1,130(a)

$ 271(b)

$ 463(c)

$2,305

           

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

           
           
           
           

 

 

 

 

 

 

 

 

 

(a) Provisions for doubtful accounts.

(b) Recoveries of doubtful accounts previously written off.

(c) Primarily uncollectible accounts charged against the allowance provided therefor.

 

 

F-23

 

 

 

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

   

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

   

PVH Retail Corp.

Delaware

   

The IZOD Corporation

Pennsylvania

   

Phillips-Van Heusen Puerto Rico LLC

Delaware

   

BassNet, Inc.

Delaware

   

izod.com inc.

Delaware

   

ROPA PVH MEXICANA, CAMISAS Y DISEÑOS, S.A. DE C.V.

Mexico

   

G.H. Bass Caribbean LLC

Delaware

 

 

 

EXHIBIT 23

 

Consent of Independent Auditors

 

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 7, 2000, 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 30, 2000.

 

 

ERNST & YOUNG LLP

New York, New York

April 3, 2000