<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JULY 4, 1998
Commission file number: 1-5256
V. F. CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1180120
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
628 GREEN VALLEY ROAD, SUITE 500
GREENSBORO, NORTH CAROLINA 27408
(Address of principal executive offices)
(336) 547-6000
(Registrant's telephone number, including area code)
1047 NORTH PARK ROAD
WYOMISSING, PENNSYLVANIA 19610
(Former address of principal executive offices, prior to July 7, 1998)
Indicate by check mark whether the 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
the past 90 days. YES /X/ NO / /
On August 1, 1998, there were 121,468,772 shares of Common Stock outstanding.
1
<PAGE> 2
VF CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income -
Three months and six months ended July 4, 1998 and
July 5, 1997................................................. 3
Consolidated Balance Sheets - July 4, 1998,
January 3, 1998 and July 5, 1997............................. 4
Consolidated Statements of Cash Flows -
Six months ended July 4, 1998 and
July 5, 1997................................................. 5
Notes to Consolidated Financial Statements................... 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 9
PART II - OTHER INFORMATION
Item 5 - Discretionary Voting for 1999 Annual Meeting
of Shareholders............................................. 11
Item 6 - Exhibits and Reports on Form 8-K............................ 11
</TABLE>
2
<PAGE> 3
VF CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- -------------------------------
JULY 4 JULY 5 JULY 4 JULY 5
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 1,350,319 $ 1,255,549 $ 2,676,524 $ 2,518,330
COSTS AND OPERATING EXPENSES
Cost of products sold 894,363 827,899 1,767,343 1,672,843
Marketing, administrative
and general expenses 298,527 286,953 608,439 577,495
Other operating (income) expense 1,361 337 1,760 489
----------- ----------- ----------- -----------
1,194,251 1,115,189 2,377,542 2,250,827
----------- ----------- ----------- -----------
OPERATING INCOME 156,068 140,360 298,982 267,503
OTHER INCOME (EXPENSE)
Interest income 1,457 3,356 3,259 7,592
Interest expense (15,699) (12,543) (30,595) (25,161)
Miscellaneous, net 151 108 507 (693)
----------- ----------- ----------- -----------
(14,091) (9,079) (26,829) (18,262)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 141,977 131,281 272,153 249,241
INCOME TAXES 55,196 52,377 107,266 100,151
----------- ----------- ----------- -----------
NET INCOME $ 86,781 $ 78,904 $ 164,887 $ 149,090
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE
Basic $ 0.70 $ 0.61 $ 1.33 $ 1.15
Diluted 0.69 0.60 1.31 1.13
CASH DIVIDENDS PER COMMON SHARE $ 0.20 $ 0.19 $ 0.40 $ 0.38
</TABLE>
See notes to consolidated financial statements.
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VF CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 4 JANUARY 3 JULY 5
1998 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 70,211 $ 124,094 $ 78,648
Accounts receivable, less
allowances: Jul 4 - $48,179;
Jan 3 - $39,576; Jul 5 - $41,234 854,915 587,934 731,093
Inventories:
Finished products 525,292 434,000 462,264
Work in process 193,994 166,947 177,847
Materials and supplies 180,741 173,808 152,917
---------- ---------- ----------
900,027 774,755 793,028
Other current assets 149,299 114,683 124,992
---------- ---------- ----------
Total current assets 1,974,452 1,601,466 1,727,761
PROPERTY, PLANT AND EQUIPMENT 1,647,119 1,568,952 1,591,767
Less accumulated depreciation 896,571 862,962 867,725
---------- ---------- ----------
750,548 705,990 724,042
INTANGIBLE ASSETS 929,460 814,332 828,489
OTHER ASSETS 251,910 200,994 189,879
---------- ---------- ----------
$3,906,370 $3,322,782 $3,470,171
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 419,166 $ 24,191 $ 40,376
Current portion of long-term debt 802 450 450
Accounts payable 327,175 301,103 299,863
Accrued liabilities 471,520 440,164 469,801
---------- ---------- ----------
Total current liabilities 1,218,663 765,908 810,490
LONG-TERM DEBT 517,682 516,226 516,733
OTHER LIABILITIES 170,991 143,813 167,133
REDEEMABLE PREFERRED STOCK 55,313 56,341 57,229
DEFERRED CONTRIBUTIONS TO EMPLOYEE
STOCK OWNERSHIP PLAN (23,291) (26,275) (28,941)
---------- ---------- ----------
32,022 30,066 28,288
COMMON SHAREHOLDERS' EQUITY
Common Stock 121,528 121,225 62,915
Additional paid-in capital 791,833 744,108 710,725
Foreign currency translation (39,522) (36,110) (26,745)
Retained earnings 1,093,173 1,037,546 1,200,632
---------- ---------- ----------
1,967,012 1,866,769 1,947,527
---------- ---------- ----------
$3,906,370 $3,322,782 $3,470,171
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
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VF CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
JULY 4 JULY 5
1998 1997
---------- ----------
<S> <C> <C>
OPERATIONS
Net income $ 164,887 $ 149,090
Adjustments to reconcile net income to
cash provided by operations:
Depreciation 65,198 66,105
Amortization of intangible assets 16,115 13,880
Other, net (4,566) (21,643)
Changes in current assets and liabilities:
Accounts receivable (210,526) (155,530)
Inventories (25,770) (73,273)
Accounts payable (14,252) (14,521)
Other, net (35,792) 45,532
---------- ----------
Cash provided (used) by operations (44,706) 9,640
INVESTMENTS
Capital expenditures (105,503) (77,671)
Business acquisitions (235,303) 0
Other, net 18,480 (679)
---------- ----------
Cash invested (322,326) (78,350)
FINANCING
Increase in short-term borrowings 382,667 24,551
Proceeds from long-term debt 1,000 0
Payments of long-term debt (532) (1,229)
Purchase of Common Stock (58,580) (134,964)
Cash dividends paid (50,481) (50,320)
Proceeds from issuance of stock 38,361 37,407
Other, net 714 1,284
---------- ----------
Cash provided (used) by financing 313,149 (123,271)
---------- ----------
NET CHANGE IN CASH AND EQUIVALENTS (53,883) (191,981)
CASH AND EQUIVALENTS - BEGINNING OF YEAR 124,094 270,629
---------- ----------
CASH AND EQUIVALENTS - END OF PERIOD $ 70,211 $ 78,648
========== ==========
</TABLE>
See notes to consolidated financial statements
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VF CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months ended July
4, 1998 are not necessarily indicative of results that may be expected for the
year ending January 2, 1999. For further information, refer to the consolidated
financial statements and notes included in the Company's Annual Report on Form
10-K for the year ended January 3, 1998.
NOTE B - EARNINGS PER COMMON SHARE
Earnings per share amounts for 1997 have been restated in accordance with
Statement of Financial Accounting Standards No. 128, Earnings per Share.
Earnings per share are computed as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Second Quarter Six Months
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income $ 86,781 $ 78,904 $164,887 $149,090
Less Preferred Stock dividends and redemption
premium 1,554 1,158 3,139 2,268
-------- -------- -------- --------
Net income available for Common Stock $ 85,227 $ 77,746 $161,748 $146,822
======== ======== ======== ========
Weighted average Common Stock outstanding 121,643 127,386 121,447 127,656
======== ======== ======== ========
Basic earnings per share $ 0.70 $ 0.61 $ 1.33 $ 1.15
Diluted earnings per share:
Net income $ 86,781 $ 78,904 $164,887 $149,090
Increased ESOP expense if Preferred Stock were
converted to Common Stock 290 312 579 624
-------- -------- -------- --------
Net income available for Common Stock
and dilutive securities $ 86,491 $ 78,592 $164,308 $148,466
======== ======== ======== ========
Weighted average Common Stock outstanding 121,643 127,386 121,447 127,656
Additional Common Stock resulting from
dilutive securities:
Preferred Stock 2,867 2,966 2,878 2,978
Stock options 1,495 1,212 1,404 1,078
-------- -------- -------- --------
Weighted average Common Stock and dilutive
securities outstanding 126,005 131,564 125,729 131,712
======== ======== ======== ========
Diluted earnings per share $ 0.69 $ 0.60 $ 1.31 $ 1.13
</TABLE>
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NOTE C - CAPITAL
The Company declared a two-for-one stock split in November 1997. References in
this report to per share and average amounts have been restated, but numbers of
shares presented are based on the actual amounts outstanding.
At July 4, 1998, there were 300,000,000 authorized shares of Common Stock, no
par value - stated capital $1 per share. At July 4, 1998, there were 121,528,272
shares outstanding, excluding 15,021,670 treasury shares. At January 3, 1998 and
July 5, 1997, there were 121,225,298 and 62,914,669 shares outstanding,
excluding 13,910,519 and 4,139,641 treasury shares, respectively.
There are 25,000,000 authorized shares of Preferred Stock, $1 par value. Of
these shares, 2,000,000 were designated as Series A, of which none have been
issued, and 2,105,263 shares were designated and issued as 6.75% Series B
Preferred Stock, of which 1,791,504 shares were outstanding at July 4, 1998,
1,824,820 at January 3, 1998 and 1,853,570 at July 5, 1997.
NOTE D - ACQUISITIONS
On January 8, 1998, the Company acquired the common stock of Bestform Group,
Inc. for $184.3 million in cash, plus repayment of $44.4 million in debt.
Effective June 20, 1998, the Company acquired a majority interest in VF Japan, a
joint venture to manufacture and market Wrangler branded jeanswear in Japan.
These acquisitions have been accounted for as purchases, and accordingly,
operating results have been included in the financial statements from the dates
of acquisition. The net assets of these two companies are included based on
preliminary allocations of the purchase prices, with approximately $132 million
representing intangible assets. Final asset and liability valuations are not
expected to have a material effect on the financial statements.
The following pro forma results of operations assume that these businesses had
been acquired at the beginning of 1997 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Second Quarter Six Months
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 1,376,633 $ 1,378,450 $ 2,725,931 $ 2,739,205
Net income 86,373 82,531 163,997 154,578
Earnings per common share:
Basic $ 0.70 $ 0.64 $ 1.32 $ 1.19
Diluted 0.68 0.62 1.30 1.17
</TABLE>
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NOTE E - NEW ACCOUNTING STANDARDS
Effective January 4, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Comprehensive income consists
of net income from operations, plus certain changes in assets and liabilities
that are not included in net income but are instead reported within a separate
component of shareholders' equity under generally accepted accounting
principles. The Company's comprehensive income was as follows (in thousands):
<TABLE>
<CAPTION>
Second Quarter Six Months
------------------------ --------------------------
1998 1997 1998 1997
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net income as reported $ 86,781 $ 78,904 $ 164,887 $ 149,090
Other comprehensive income:
Foreign currency translation adjustments,
net of income taxes (230) (13,373) (3,412) (33,173)
-------- -------- --------- ---------
Comprehensive income $ 86,551 $ 65,531 $ 161,475 $ 115,917
======== ======== ========= =========
</TABLE>
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 1999. Because of the Company's
limited use of derivatives, management does not anticipate that the adoption of
the new Statement will have a significant effect on net income or the financial
position of the Company.
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VF CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated sales increased 8% for the quarter and 6% for the six
months ended July 4, 1998, compared with the comparable periods of 1997. Also,
in the translation of foreign currencies into the U.S. dollar, a stronger U.S.
dollar in 1998 reduced sales comparisons by 1% in each period in 1998 (and
earnings by $.01 and $.03 per share, respectively).
Sales in the Company's growth categories - - jeanswear, domestic intimate
apparel, workwear and daypacks, where marketing efforts are focused to achieve
sales increases - - advanced 14% in the quarter and 13% in the six months, due
in part to the recently acquired companies. Domestic jeanswear sales increased
4% in the quarter and 6% year-to-date, particularly in the Lee and Riders
brands. Intimate apparel sales increased from the acquisition of Bestform Group,
Inc. (Bestform) and the continuing growth of the Vassarette brand. Total
international sales for our jeanswear and intimate apparel businesses were flat
for the quarter but declined for the six months due to the effects of a stronger
U.S. dollar in translating foreign currencies. Sales declined in knitwear in
both periods due to difficult market conditions.
Gross margins were 33.8% of sales in the quarter and 34.0% in the six months,
compared with 34.1% and 33.6% in the 1997 periods. Margins continue to improve
in most businesses due to the continuing shift to lower cost sourcing, lower raw
material costs and improved operating efficiencies.
Marketing, administrative and general expenses were 22.1% of sales during the
quarter and 22.7% in the six months, compared with 22.9% in both 1997 periods.
Overall marketing and administrative expenses as a percent of sales have
declined during 1998 through cost savings efforts even though the Company has
continued its advertising spending above historical spending levels to support
and build its brands. In addition, the Company has continued to incur
significant costs to implement shared services and common systems.
Net interest expense increased in 1998 due to increased short-term borrowings
related to the acquisition of Bestform in January 1998.
The effective income tax rate for the six months of 1998 was 39.4%, based on the
expected rate for the year, compared with 40.2% in the prior year.
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FINANCIAL CONDITION AND LIQUIDITY
The financial condition of the Company is reflected in the following:
<TABLE>
<CAPTION>
JULY 4 JANUARY 3 JULY 5
1998 1998 1997
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Working capital $755.8 $835.6 $917.3
Current ratio 1.6 to 1 2.1 to 1 2.1 to 1
Debt to total capital 32.3% 22.5% 22.3%
</TABLE>
Accounts receivable balances at the end of the second quarter of 1998 include
those of Bestform and VF Japan. Excluding these acquisitions, receivables are
higher at the end of the second quarter than at year-end due to seasonal sales
patterns.
Inventories at the end of the second quarter of 1998 include those of Bestform
and VF Japan. Excluding these acquisitions, inventories are higher than at the
end of 1997 due to seasonal sales patterns and 3% higher than at the end of the
second quarter of 1997 due to sales growth expectations.
Intangible assets increased during 1998 due to the acquisitions of Bestform and
VF Japan.
The increase in short-term borrowings relates to the acquisition of Bestform in
January 1998.
During the first six months of 1998, the Company repurchased 1,171,000 shares of
its Common Stock in open market transactions for a total cost of $58.6 million.
Under its current authorization from the Board of Directors, the Company may
repurchase up to an additional 4.1 million Common Shares.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements included herein are "forward-looking statements" within the
meaning of the federal securities laws. This includes statements concerning
plans and objectives of management relating to the Company's operations or
economic performance, and assumptions related thereto. In addition, the Company
and its representatives may from time to time make other oral or written
statements that are also forward-looking statements.
These forward-looking statements are made based on management's expectations and
beliefs concerning future events impacting the Company and therefore involve a
number of risks and uncertainties. Management cautions that forward-looking
statements are not guarantees and that actual results could differ materially
from those expressed or implied in the forward-looking statements.
Important factors that could cause the actual results of operations or financial
condition of the Company to differ include, but are not necessarily limited to,
the overall level of consumer spending for apparel; changes in trends in the
segments of the market in which the Company competes; the financial strength of
the retail industry; actions of competitors that may impact the Company's
business; and the impact of unforeseen economic changes in the markets where the
Company competes, such as changes in interest rates, currency exchange rates,
inflation rates, recession, and other external economic and political factors
over which the Company has no control.
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PART II - OTHER INFORMATION
Item 5 - Discretionary Voting for 1999 Annual Meeting of Shareholders
Pursuant to Rule 14a-4 promulgated under the Securities Exchange Act of 1934, as
recently amended, in connection with the Company's 1999 Annual Meeting of
Shareholders, the execution of a proxy solicited by the Company shall confer on
the designated proxyholder discretionary voting authority to vote the shares on
any matter for which the Company has not received notice on or prior to February
1, 1999.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial data schedule as of July 4, 1998
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for
the three months ended July 4, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
V.F. CORPORATION
----------------
(Registrant)
By: /s/ Robert K. Shearer
---------------------------
Robert K. Shearer
Vice President - Finance
(Chief Financial Officer)
Date: August 11, 1998
By: /s/ Timothy R. Wheeler
---------------------------
Timothy R. Wheeler
Vice President - Controller
(Chief Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN FORM 10-Q FOR JULY 4, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 70,211
<SECURITIES> 0
<RECEIVABLES> 903,094
<ALLOWANCES> 48,179
<INVENTORY> 900,027
<CURRENT-ASSETS> 1,974,452
<PP&E> 1,647,119
<DEPRECIATION> 896,571
<TOTAL-ASSETS> 3,906,370
<CURRENT-LIABILITIES> 1,218,663
<BONDS> 517,682
32,022
0
<COMMON> 121,528
<OTHER-SE> 1,845,484
<TOTAL-LIABILITY-AND-EQUITY> 3,906,370
<SALES> 2,676,524
<TOTAL-REVENUES> 2,676,524
<CGS> 1,767,343
<TOTAL-COSTS> 1,767,343
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,595
<INCOME-PRETAX> 272,153
<INCOME-TAX> 107,266
<INCOME-CONTINUING> 164,887
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164,887
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.31
</TABLE>
