<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 APRIL 3, 1999
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)
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 May 1, 1999, there were 119,852,507 shares of Common Stock outstanding.
<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 ended April 3, 1999 and
April 4, 1998....................................... 3
Consolidated Balance Sheets - April 3, 1999,
January 2, 1999 and April 4, 1998................... 4
Consolidated Statements of Cash Flows -
Three months ended April 3, 1999 and
April 4, 1998....................................... 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 4 - Submission of Matters to a Vote of Security Holders 12
Item 6 - Exhibits and Reports on Form 8-K................... 12
</TABLE>
<PAGE> 3
VF CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 3 APRIL 4
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $ 1,358,244 $ 1,326,205
COSTS AND OPERATING EXPENSES
Cost of products sold 890,774 872,980
Marketing, administrative and general expenses 310,544 309,912
Other operating expense 2,974 399
----------- -----------
1,204,292 1,183,291
OPERATING INCOME 153,952 142,914
OTHER INCOME (EXPENSE)
Interest Income 2,013 1,802
Interest expense (16,665) (14,896)
Miscellaneous, net (169) 356
----------- -----------
(14,821) (12,738)
INCOME BEFORE INCOME TAXES 139,131 130,176
INCOME TAXES 53,565 52,070
----------- -----------
NET INCOME $ 85,566 $ 78,106
=========== ===========
EARNINGS PER COMMON SHARE
Basic $ 0.70 $ 0.63
Diluted 0.69 0.62
CASH DIVIDENDS PER COMMON SHARE $ 0.21 $ 0.20
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
VF CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 3 JANUARY 2 APRIL 4
1999 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 88,780 $ 63,208 $ 69,716
Accounts receivable, less
allowances:
Apr 3 - $51,022; Jan 2 - $52,011;
Apr 4 - $43,088 835,072 705,734 728,708
Inventories:
Finished products 639,925 552,729 540,713
Work in process 194,546 185,929 179,781
Materials and supplies 192,584 215,349 167,594
----------- ----------- -----------
1,027,055 954,007 888,088
Other current assets 143,948 125,203 140,230
----------- ----------- -----------
Total current assets 2,094,855 1,848,152 1,826,742
PROPERTY, PLANT & EQUIPMENT 1,745,334 1,711,131 1,613,329
Less accumulated depreciation 946,079 935,040 890,480
----------- ----------- -----------
799,255 776,091 722,849
INTANGIBLE ASSETS 971,902 951,562 911,125
OTHER ASSETS 272,555 260,861 229,221
----------- ----------- -----------
$ 4,138,567 $ 3,836,666 $ 3,689,937
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 474,278 $ 244,910 $ 253,516
Current portion of long-term debt 933 969 787
Accounts payable 337,138 341,126 285,669
Accrued liabilities 496,548 446,001 521,877
----------- ----------- -----------
Total current liabilities 1,308,897 1,033,006 1,061,849
LONG-TERM DEBT 520,074 521,657 516,840
OTHER LIABILITIES 176,236 181,750 157,237
REDEEMABLE PREFERRED STOCK 53,565 54,344 55,756
DEFERRED CONTRIBUTIONS TO EMPLOYEE
STOCK OWNERSHIP PLAN (18,803) (20,399) (24,740)
----------- ----------- -----------
34,762 33,945 31,016
COMMON SHAREHOLDERS' EQUITY
Common Stock 119,408 119,466 121,608
Additional paid-in capital 814,646 801,511 773,585
Accumulated other comprehensive income (45,252) (25,639) (39,292)
Retained earnings 1,209,796 1,170,970 1,067,094
----------- ----------- -----------
Total common shareholders' equity 2,098,598 2,066,308 1,922,995
----------- ----------- -----------
$ 4,138,567 $ 3,836,666 $ 3,689,937
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
VF CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
APRIL 3 APRIL 4
1999 1998
--------- ---------
<S> <C> <C>
OPERATIONS
Net income $ 85,566 $ 78,106
Adjustments to reconcile net
income to cash provided by operations:
Depreciation 32,150 33,817
Amortization of intangible assets 8,252 8,044
Other, net 12 6,842
Changes in current assets and liabilities:
Accounts receivable (101,052) (117,011)
Inventories (8,344) (23,237)
Accounts payable (24,079) (27,247)
Other, net 21,711 47,368
--------- ---------
Cash provided by operations 14,216 6,682
INVESTMENTS
Capital expenditures (48,730) (39,446)
Business acquisitions (116,039) (228,155)
Other, net (1,380) 840
--------- ---------
Cash invested (166,149) (266,761)
FINANCING
Increase in short-term borrowings 212,655 229,757
Payment of long-term debt (1,553) (52)
Purchase of Common Stock (20,142) (23,179)
Cash dividends paid (26,023) (25,213)
Proceeds from issuance of stock 11,139 23,895
Other, net 1,429 493
--------- ---------
Cash provided by financing 177,505 205,701
--------- ---------
NET CHANGE IN CASH AND EQUIVALENTS 25,572 (54,378)
CASH AND EQUIVALENTS - BEGINNING OF YEAR 63,208 124,094
--------- ---------
CASH AND EQUIVALENTS - END OF PERIOD $ 88,780 $ 69,716
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
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 three months ended
April 3, 1999 are not necessarily indicative of results that may be expected for
the year ending January 1, 2000. 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 2, 1999.
NOTE B - ACQUISITIONS
During the first quarter of 1999, the Company acquired a majority interest in
the business of its former licensee for the Wrangler and JanSport brands in
Chile, Peru and Bolivia. The Company also acquired the operating assets of
Fibrotek Industries, Inc. and the common stock of Todd Uniform, Inc. and of
Horace Small Holdings Corporation. These acquisitions for an aggregate cost of
$116.0 million 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 companies are included based on preliminary
allocations of the purchase prices, with approximately $47 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 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
First Quarter
-------------
1999 1998
---- ----
<S> <C> <C>
Net sales $ 1,431,378 $ 1,382,777
Net income 84,925 77,262
Earnings per common share:
Basic $ .70 $ .62
Diluted .69 .61
</TABLE>
6
<PAGE> 7
NOTE C - BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
First Quarter
-------------
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Net sales:
Apparel $ 1,111,841 $ 1,088,514
All Other 246,403 237,691
----------- -----------
Consolidated net sales $ 1,358,244 $ 1,326,205
=========== ===========
Segment profit:
Apparel $ 167,581 $ 157,292
All Other 22,003 17,642
----------- -----------
Total segment profit 189,584 174,934
Interest, net (14,652) (13,094)
Amortization of intangible assets (8,252) (8,044)
Corporate and other expenses (27,549) (23,620)
----------- -----------
Consolidated income before income taxes $ 139,131 $ 130,176
=========== ===========
</TABLE>
NOTE D - EARNINGS PER SHARE
Earnings per share are computed as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
First Quarter
-------------
1999 1998
-------- --------
<S> <C> <C>
Basic earnings per share:
Net income $ 85,566 $ 78,106
Less Preferred Stock dividends and redemption
premium 1,880 1,585
-------- --------
Net income available for Common Stock $ 83,686 $ 76,521
======== ========
Weighted average Common Stock outstanding 119,388 121,251
======== ========
Basic earnings per share $ .70 $ .63
Diluted earnings per share:
Net income $ 85,566 $ 78,106
Increased ESOP expense if Preferred Stock were
converted to Common Stock 266 289
-------- --------
Net income available for Common Stock
and dilutive securities $ 85,300 $ 77,817
======== ========
Weighted average Common Stock outstanding 119,388 121,251
Additional Common Stock resulting from
dilutive securities:
Preferred Stock 2,776 2,890
Stock options and other 1,006 1,311
Weighted average Common Stock and dilutive -------- --------
securities outstanding 123,170 125,452
======== ========
Diluted earnings per share $ .69 $ .62
</TABLE>
7
<PAGE> 8
NOTE E - 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>
First Quarter
-------------
1999 1998
-------- --------
<S> <C> <C>
Net income as reported $ 85,566 $ 78,106
Other comprehensive income:
Foreign currency translation adjustments,
net of income taxes (19,613) (3,182)
-------- --------
Comprehensive income $ 65,953 $ 74,924
======== ========
</TABLE>
NOTE F - CAPITAL
At April 3, 1999, there were 300,000,000 authorized shares of Common Stock, no
par value - stated capital $1 per share. At April 3, 1999, there were
119,408,296 shares outstanding, excluding 17,808,713 treasury shares. At January
2, 1999 and April 4, 1998, there were 119,466,101 and 121,607,566 shares
outstanding, excluding 17,367,269 and 14,397,870 treasury shares, respectively.
For financial accounting purposes, treasury shares presented above include
shares of VF Common Stock held in trust for deferred compensation plans, as
follows: 245,049 shares at April 3, 1999 and 232,899 shares at January 2, 1999.
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 1,734,893 shares were outstanding at April 3, 1999,
1,760,119 at January 2, 1999 and 1,805,868 at April 4, 1998.
8
<PAGE> 9
VF CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated sales increased 2% for the quarter ended April 3, 1999, compared
with the comparable period of 1998.
Sales in the Company's "growth" category - - jeanswear, domestic intimate
apparel, workwear and daypacks, where investments are focused to achieve sales
increases - - advanced by $58 million or 6%, including acquisitions. Domestic
jeanswear sales advanced 3% in the quarter, primarily from Wrangler branded
products in the discount channel of distribution. Domestic intimate apparel
sales advanced 7%, with continuing growth in the Vassarette brand and in private
label. International jeans and workwear sales advanced in 1999, due primarily to
businesses acquired since the end of the 1998 quarter. Sales in the Company's
"maintenance" category - - knitwear, international intimates, playwear and
swimwear businesses, where efforts are focused on increased profitability - -
declined by $26 million or 9% in 1999 due primarily to the discontinuation of
the Company's licensed mass market playwear business.
Gross margins were 34.4% of sales in the quarter, compared with 34.2% in the
1998 period. 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 declined to 22.9% of sales during
the quarter, compared with 23.4% in 1998. The Company is benefiting from
coalition consolidation savings, while higher spending in information systems
was offset by lower advertising spending.
Other operating expense consists of goodwill amortization expense, offset by net
royalty income. Royalty income declined in 1999 from the conversion of certain
formerly licensed businesses to owned operations.
Net interest expense increased in 1999 due to higher short-term borrowings in
1999.
The effective income tax rate for the three months of 1999 was 38.5%, based on
the expected rate for the year, compared with 40.0% in the 1998 quarter. The
expected rate for 1999 is consistent with the rate for the full year 1998.
FINANCIAL CONDITION AND LIQUIDITY
The financial condition of the Company is reflected in the following:
<TABLE>
<CAPTION>
APRIL 3 JANUARY 2 APRIL 4
1999 1999 1998
------- ------- -------
(Dollars in millions)
<S> <C> <C> <C>
Working capital $ 786.0 $ 815.1 $ 764.9
Current ratio 1.6 to 1 1.8 to 1 1.7 to 1
Debt to total capital 32.2% 27.1% 28.6%
</TABLE>
Accounts receivable balances at the end of the first quarter of 1999 include
those of businesses acquired. Excluding these acquisitions, receivables are
comparable to the prior year level and are higher than at the end of 1998 due to
seasonal sales patterns.
9
<PAGE> 10
Inventories at the end of the first quarter of 1999 include those of businesses
acquired. Excluding these acquisitions, inventories are slightly higher than at
the end of 1998 due to seasonal sales patterns and also 4% higher than at the
end of the first quarter of 1998.
Intangible assets increased during 1999 due to four business acquisitions during
the first quarter.
The increase in short-term borrowings relates to higher seasonal working capital
requirements and to the 1999 business acquisitions.
During the first quarter of 1999, the Company repurchased 429,000 shares of its
Common Stock in open market transactions for a total cost of $20.1 million.
Under its current authorization from the Board of Directors, the Company may
repurchase up to an additional 1.5 million common shares.
YEAR 2000 READINESS STATEMENT
The Year 2000 issue relates to computer systems that will not properly recognize
date-sensitive information when the year changes to 2000. A Year 2000 issue that
is not properly addressed could result in a system failure or miscalculations.
While the Company's products are not directly affected by the Year 2000 problem,
its computer systems and equipment, as well as the systems and equipment of its
vendors, service providers and customers, may be affected.
Senior management of the Company has established a task force to address Year
2000 issues and regularly reviews its progress with the Board of Directors. The
task force activities relate to four broad business categories: (1)
infrastructure; (2) applications software; (3) processors embedded in machinery
and equipment used in the Company's manufacturing, distribution and
administrative operations; and (4) significant third party vendors, service
providers and customers. Actions common to evaluation of Year 2000 issues in
each of these business categories include:
* Inventorying all date-sensitive systems and equipment
* Assessing compliance and assigning priorities to items identified as
not being compliant
* Repairing or replacing items identified as not being compliant
* Testing converted systems and equipment
Infrastructure: This category relates to mainframe, personal computer and
network hardware, as well as operating system software. Approximately 85% of the
actions required for this category have been completed at April 3, 1999.
Substantially all hardware and related operating systems are expected to be
fully compliant by the end of the second quarter of 1999. The testing phase is
ongoing as hardware or system software is remediated, upgraded or replaced and
is scheduled to be substantially complete by the end of the second quarter.
Applications software: This refers to computer software programs, whether
internally developed or purchased from outside parties. Approximately 90% of
such software systems are compliant at April 3, 1999. Substantially all of the
remaining software is expected to be fully compliant by the end of the second
quarter of 1999; the balance is expected to be fully compliant by the end of the
third quarter of 1999. The testing phase is scheduled to be completed for all
critical applications during the third quarter of 1999.
Processors: The Company has completed the inventory of all processors embedded
in the Company's critical manufacturing, distribution and administrative
equipment. The compliance assessment is expected to be completed during the
second quarter of 1999. The hardware or software is remediated, upgraded or
replaced as Year 2000 issues are noted. The testing phase is ongoing and is
scheduled to be substantially completed during the second quarter of 1999.
10
<PAGE> 11
Third Parties: The Company has initiated formal communications with all of its
significant vendors, service providers and customers to determine the extent to
which the Company is vulnerable to those third parties' failure to remediate
their own Year 2000 issues. The communication and evaluation process is ongoing
and includes visits with certain critical third parties through the third
quarter of 1999.
In addition, contingency plans to mitigate the possible disruption of business
operations are being developed as the testing phase and third party assessments
are completed. Contingency plans will be substantially completed during the
third quarter of 1999 and will continue to be evaluated and modified as
additional information becomes available.
The Company expects substantially all of its critical systems to be compliant by
the middle of 1999, with remaining systems compliant by the end of the third
quarter. However, it is possible that all Year 2000 problems may not be
identified or corrected or that third parties with which the Company has
significant relationships will not resolve all of their Year 2000 issues. With
the investigation and remediation of Year 2000 issues as scheduled, the Company
expects to reduce significantly the level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
material third party relationships. Also, since the Company conducts business
with numerous vendors, has numerous manufacturing and distribution facilities
around the world and has a broad customer base, the Company believes that the
possibility of significant interruptions of normal operations should be reduced.
Nevertheless, if there were serious systems failures by the Company or its third
party relationships, they could have a material adverse effect on the Company's
financial position or results of operations.
The estimated total cost of resolving the Year 2000 issues, including internal
personnel and outside vendors and consultants, is approximately $27 million over
the period 1997 through 1999, of which $23 million has been spent through April
3, 1999. These costs are being expensed as incurred.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements included herein are "forward-looking statements" within the
meaning of the federal securities laws. This includes any 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; the Company's ability, and the ability of its suppliers and customers,
to adequately address the Year 2000 computer issue; 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.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company held on April 20, 1999, the
following three nominees to the Board of Directors were elected to serve until
the 2002 Annual Meeting:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Ursula F. Fairbairn 104,016,922 744,680
Barbara S. Feigin 104,028,577 733,025
Mackey J. McDonald 103,751,517 1,010,085
</TABLE>
The proposal to reapprove certain material terms of the Company's Executive
Incentive Compensation Plan was approved by the shareholders. The vote was
101,289,915 for, 2,847,355 against, and 624,332 abstaining. Also, the proposal
to amend and reapprove the 1996 Stock Compensation Plan was approved by the
shareholders. The vote was 97,159,649 for, 6,895,867 against, and 706,086
abstaining.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial data schedule as of April 3, 1999
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the three months ended April 3, 1999.
12
<PAGE> 13
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: May 7, 1999
By: /s/ Timothy R. Wheeler
---------------------
Timothy R. Wheeler
Vice President - Controller
(Chief Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements included in Form 10-Q for April 3, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
<CASH> 88,780
<SECURITIES> 0
<RECEIVABLES> 886,094
<ALLOWANCES> 51,022
<INVENTORY> 1,027,055
<CURRENT-ASSETS> 2,094,855
<PP&E> 1,745,334
<DEPRECIATION> 946,079
<TOTAL-ASSETS> 4,138,567
<CURRENT-LIABILITIES> 1,308,897
<BONDS> 520,074
34,762
0
<COMMON> 119,408
<OTHER-SE> 1,979,190
<TOTAL-LIABILITY-AND-EQUITY> 4,138,567
<SALES> 1,358,244
<TOTAL-REVENUES> 1,358,244
<CGS> 890,774
<TOTAL-COSTS> 890,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,665
<INCOME-PRETAX> 139,131
<INCOME-TAX> 53,565
<INCOME-CONTINUING> 85,566
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,566
<EPS-PRIMARY> .70
<EPS-DILUTED> .69
</TABLE>
