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 1, 2000 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 April 29, 2000, there were 114,187,382 shares of the registrant's Common Stock outstanding. VF CORPORATION INDEX
PAGE NO. PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Statements of Income - Three months ended April 1, 2000 and April 3,1999........................... 3 Consolidated Balance Sheets - April 1, 2000, January 1, 2000 and April 3, 1999........................................... 4 Consolidated Statements of Cash Flows - Three months ended April 1, 2000 and April 3, 1999............................................................... 5 Notes to Consolidated Financial Statements.................................. 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 9 Item 3 - Quantitative and Qualitative Disclosures about Market Risk................. 10 PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders........................ 11 Item 6 - Exhibits and Reports on Form 8-K........................................... 11
2 VF CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED APRIL 1 APRIL 3 2000 1999 NET $1,366,748 $1,358,244 SALES COSTS AND OPERATING EXPENSES Cost of products sold 904,784 890,774 Marketing, administrative and general expenses 314,418 310,544 Other operating expense, net 3,562 2,974 ---------- --------- 1,222,764 1,204,292 ---------- --------- OPERATING INCOME 143,984 153,952 OTHER INCOME (EXPENSE) Interest income 1,302 2,013 Interest expense (17,526) (16,665) Miscellaneous, net 1,370 (169) ---------- ---------- (14,854) (14,821) ---------- ---------- INCOME BEFORE INCOME TAXES 129,130 139,131 INCOME TAXES 48,553 53,565 ---------- ---------- NET INCOME $ 80,577 $ 85,566 ========== ========== EARNINGS PER COMMON SHARE Basic $0.69 $0.70 Diluted 0.68 0.69 CASH DIVIDENDS PER COMMON SHARE $0.22 $0.21
See notes to consolidated financial statements. 3 VF CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
APRIL 1 JANUARY 1 APRIL 3 2000 2000 1999 ----------- ----------- ----------- ASSETS CURRENT ASSETS Cash and equivalents $ 81,246 $ 79,861 $ 88,780 Accounts receivable, less allowances: April 1 - $54,381; Jan 1 - $54,477; April 3 - $51,022 819,381 732,502 835,072 Inventories: Finished products 562,706 575,617 639,925 Work in process 207,765 171,275 194,546 Materials and supplies 197,467 217,148 192,584 ----------- ----------- ----------- 967,938 964,040 1,027,055 Other current assets 104,640 101,013 143,948 ----------- ----------- ----------- Total current assets 1,973,205 1,877,416 2,094,855 PROPERTY, PLANT AND EQUIPMENT 1,821,828 1,814,062 1,745,334 Less accumulated depreciation 1,033,016 1,009,640 946,079 ----------- ----------- ----------- 788,812 804,422 799,255 INTANGIBLE 980,235 992,463 971,902 ASSETS OTHER ASSETS 350,678 352,213 272,555 ----------- ----------- ----------- $ 4,092,930 $ 4,026,514 $ 4,138,567 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ 418,780 $ 408,932 $ 474,278 Current portion of long-term debt 4,725 4,751 933 Accounts payable 315,284 332,666 337,138 Accrued liabilities 435,145 367,124 496,548 ----------- ----------- ----------- Total current liabilities 1,173,934 1,113,473 1,308,897 LONG-TERM DEBT 517,140 517,834 520,074 OTHER LIABILITIES 198,205 194,113 176,236 REDEEMABLE PREFERRED STOCK 50,380 51,544 53,565 DEFERRED CONTRIBUTIONS TO EMPLOYEE STOCK OWNERSHIP PLAN (12,612) (14,268) (18,803) ----------- ----------- ----------- 37,768 37,276 34,762 COMMON SHAREHOLDERS' EQUITY Common Stock, stated value $1; shares authorized, 300,000,000; shares outstanding: April 1 - 114,195,782; Jan 1 - 116,204,655; April 3 - 119,408,296 114,196 116,205 119,408 Additional paid-in capital 831,932 831,054 814,646 Accumulated other comprehensive income (66,708) (64,756) (45,252) Retained earnings 1,286,463 1,281,315 1,209,796 ----------- ----------- ----------- Total common shareholders' equity 2,165,883 2,163,818 2,098,598 ----------- ----------- ----------- $ 4,092,930 $ 4,026,514 $ 4,138,567 =========== =========== ===========
See notes to consolidated financial statements. 4 VF CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED ----------------------------- APRIL 1 APRIL 3 2000 1999 ------------ ------------ OPERATIONS Net income $ 80,577 $ 85,566 Adjustments to reconcile net income to cash provided by operations: Depreciation 33,636 32,150 Amortization of intangible assets 8,477 8,252 Other, net 3,569 1,983 Changes in current assets and liabilities: Accounts receivable (91,631) (101,052) Inventories (8,313) (8,344) Accounts payable (15,171) (24,079) Other, net 66,601 21,711 ------------ ------------ Cash provided by operations 77,745 16,187 INVESTMENTS Capital expenditures (24,377) (48,730) Business acquisitions 0 (116,039) Other, net 15,226 (1,380) ------------ ------------ Cash invested (9,151) (166,149) FINANCING Increase in short-term borrowings 9,867 212,655 Payment of long-term debt (600) (1,553) Purchase of Common Stock (50,285) (20,142) Cash dividends paid (26,099) (26,023) Proceeds from issuance of stock 418 11,139 Other, net 766 1,429 ------------ ------------ Cash provided by financing (65,933) 177,505 EFFECT OF FOREIGN CURRENCY RATE CHANGES ON CASH (1,276) (1,971) ------------ ------------ NET CHANGE IN CASH AND EQUIVALENTS 1,385 25,572 CASH AND EQUIVALENTS - BEGINNING OF YEAR 79,861 63,208 ------------ ------------ CASH AND EQUIVALENTS - END OF PERIOD $ 81,246 $ 88,780 ============ ============
See notes to consolidated financial statements. 5 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 1, 2000 are not necessarily indicative of results that may be expected for the year ending December 30, 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 1, 2000. NOTE B - ACQUISITIONS The Company completed several acquisitions during 1999. The following unaudited pro forma results of operations for the first quarter of 1999 assume that each of these acquisitions had occurred at the beginning of 1999 (in thousands, except per share amounts): Net sales $ 1,408,720 Net income 83,223 Earnings per common share: Basic $ .68 Diluted .67
The Company accrued various restructuring charges in connection with the acquired businesses. The charges relate to severance, closure of manufacturing and distribution facilities, and lease and contract termination costs. Cash payments related to these actions will be substantially completed during 2000. The charges are summarized as follows (in thousands):
Facilities Lease and Exit Contract Severance Costs Termination Total Accrual at beginning of 2000 $ 3,699 $ 1,414 $15,730 $20,843 Cash payments (590) (322) (6,302) (7,214) ------- ------- ------------- ------- Estimated remaining costs $ 3,109 $ 1,092 $ 9,428 $13,629 ======= ========= =========== =======
Subsequent to the end of the first quarter of 2000, the Company acquired the trademark rights to the CHIC brand name, and the rights to the H.I.S. brand name outside of Europe, from Chic by H.I.S., Inc. The Company also entered into a letter of intent to acquire from Chic by H.I.S., Inc. its majority interest in H.I.S. Sportswear AG (which markets H.I.S. products in Europe), subject to regulatory approvals and the successful completion of a proposed tender offer that would result in the Company owning more than 75% of the shares of H.I.S. Sportswear AG. Also subsequent to the end of the quarter, the Company entered into a definitive agreement to acquire the Eastpak backpack and daypack business from Sunbeam Corporation subject to regulatory approval and satisfaction of other customary conditions. In addition, the Company entered into a definitive agreement for the acquisition of The North Face, Inc., subject to successful completion of a tender offer for shares of The North Face, Inc., regulatory approval and satisfaction of other customary conditions. The aggregate purchase price of these businesses, including repayment of debt, is expected to be approximately $300 million. The Company expects that combined annualized sales from these acquisitions will be approximately $500 million. 6 NOTE C - BUSINESS SEGMENT INFORMATION
First Quarter --------------------- 2000 1999 --------- -------- (In thousands) Net sales: Consumer Apparel $1,082,221 $ 1,111,841 $ Occupational Apparel 169,154 126,872 All Other 115,373 119,531 --------- -------- Consolidated net sales $1,366,748 $ 1,358,244 ========= ======== Segment profit: Consumer Apparel $ 168,988 $ 167,581 Occupational Apparel 15,621 19,115 All Other 618 2,888 --------- -------- Total segment profit 185,227 189,584 Interest, net (16,224) (14,652) Amortization of intangible assets (8,613) (8,252) Corporate and other expenses (31,260) (27,549) --------- -------- Consolidated income before income $ 129,130 $ 139,131 taxes ========= ========
NOTE D - EARNINGS PER SHARE Earnings per share are computed as follows (in thousands, except per share amounts):
First Quarter --------------------- 2000 1999 --------- -------- Basic earnings per share: Net income $ 80,577 $ 85,566 Less Preferred Stock dividends and Redemption premium 1,186 1,880 --------- -------- Net income available for Common Stock $ 79,391 $ 83,686 ========= ======== Weighted average Common Stock outstanding 115,353 119,388 ========= ======== Basic earnings per share $0.69 $0.70 ========= ======== Diluted earnings per share: Net income $ 80,577 $ 85,566 Increased ESOP expense if Preferred Stock were converted to Common Stock 237 266 --------- -------- Net income available for Common Stock and dilutive securities $ 80,340 $ 85,300 ========= ======== Weighted average Common Stock outstanding 115,353 119,388 Additional Common Stock resulting from dilutive securities: Preferred Stock 2,611 2,776 Stock options and other 482 1,006 --------- -------- Weighted average Common Stock and dilutive securities outstanding 118,446 123,170 ========= ======== Diluted earnings per share $0.68 $0.69 ========= ========
7 Outstanding options to purchase 7.9 million shares of Common Stock have been excluded from the computation of diluted earnings per share for the three months of 2000 because the option exercise prices were greater than the average market price of the Common Stock. 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):
First Quarter --------------------- 2000 1999 --------- -------- Net income as reported $ 80,577 $ 85,566 Other comprehensive income: Foreign currency translation adjustments, net of income taxes (1,952) (19,613) --------- -------- Comprehensive income $ 78,625 $ 65,953 ========= ========
The impact in foreign currency translation adjustments in both periods was due to the strengthening of the U.S. dollar in relation to the currencies of most European countries where the Company has operations. NOTE F - CAPITAL Common shares outstanding are net of shares held in treasury, and in substance retired, of 23,139,897 at April 1, 2000, 21,136,952 at January 1, 2000 and 17,808,713 at April 3, 1999. In addition, 334,723, 306,698 and 245,049 shares of VF Common Stock held in trust for deferred compensation plans are treated for financial accounting purposes as treasury stock at each of the respective dates. 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 1,631,738 shares were outstanding at April 1, 2000, 1,669,444 at January 1, 2000 and 1,734,893 at April 3, 1999. NOTE G - RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which will be effective for the Company in 2001. Management anticipates that, due to its limited use of derivative instruments, the adoption of the Statement will not have a significant effect on the Company. 8 VF CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Consolidated sales increased 1% for the quarter ended April 1, 2000, compared with the same period in 1999. In translating foreign currencies to the U.S. dollar, a stronger U.S. dollar reduced sales comparisons in 2000 by $21 million (and earnings by $.01 per share). Gross margins were 33.8% of sales in the quarter, compared with 34.4% in the 1999 period, due to nonrecurring cost reduction efforts and lower margins in recently acquired businesses. Marketing, administrative and general expenses were flat at 23.0% of sales during the quarter, compared with 22.9% in 1999. Excluding nonrecurring charges related to administrative cost reductions, expenses would have been 22.8% of sales. Other operating expense includes amortization of intangible assets and net royalty income. For the three months in 2000, amortization of intangible assets increased due to the 1999 acquisitions. Net interest expense increased in 2000 due to higher average short-term borrowings to support acquisitions, as well as higher short-term borrowing rates in 2000. The effective income tax rate for the three months of 2000 was 37.6%, based on the expected rate for the year, compared with 38.5% in the 1999 quarter. The lower tax rate for 2000 is due to an expected reduction in foreign operating losses with no current tax benefit. Net income declined 6%, and earnings per share declined 1% including the benefit of the Company's share repurchase program. INFORMATION BY BUSINESS SEGMENT The Consumer Apparel segment consists of jeanswear, women's intimate apparel and swimwear, and children's apparel businesses. Overall, segment sales decreased 3% for the first quarter 2000 compared with the comparable period of 1999. Domestic jeans sales rose 4% in the quarter, with strong increases in the Company's Mass Market and Western businesses, partially offset by a decline in Lee sales. International jeans sales declined 8%, reflecting current jeans market conditions in our primary markets of the United Kingdom, Italy and Germany. Domestic intimate apparel sales declined 11%, with increases in the Vanity Fair, Lily of France and Bestform branded businesses offset primarily by lower Private Label sales. Playwear achieved record results in the quarter, with sales up 15%, reflecting increases in the Healthtex, Lee and Nike brands. Segment profit increased 1% for the first quarter of 2000, compared with the comparable period of 1999, due primarily to increased profits in domestic jeanswear offset by reduced profits in international businesses. The Occupational Apparel segment includes the Company's industrial, career and safety apparel businesses. Sales increased 33% in the first quarter 2000 over the comparable period of 1999 reflecting acquisitions made in early to mid-1999. Segment profit is lower in the first quarter of 2000, with lower gross margins and higher operating expenses as a percent of sales. Improved operating results are expected in the second half of 2000 as the acquired businesses are transitioned to the Company's lower cost manufacturing and other processes. 9 The All Other segment includes the Company's knitwear, daypack and backpack businesses. Sales decreased 4% for the first quarter 2000 from the comparable period of 1999. Due to the seasonal nature of this segment, first quarter profitability is not necessarily indicative of expected full year results. FINANCIAL CONDITION AND LIQUIDITY The financial condition of the Company is reflected in the following:
April 1 January 1 April 3 2000 2000 1999 ------- --------- ------- (Dollars in millions) Working capital $ 799.3 $ 763.9 $ 786.0 Current ratio 1.7 to 1 1.7 to 1 1.6 to 1 Debt to total capital 30.3% 30.1% 32.2%
Accounts receivable balances at the end of the first quarter of 2000 are 2% lower than the prior year level despite higher sales, and are higher than at the end of 1999 due to seasonal patterns. Inventories at the end of the first quarter of 2000 are 6% lower than at the end of the first quarter of 1999 because of improved inventory levels at several businesses. Inventories are slightly higher than at the end of 1999 due to seasonal patterns. During the first three months of 2000, the Company repurchased 2.0 million shares of its Common Stock in open market transactions for a total cost of $50.3 million. Under its current authorization from the Board of Directors, the Company may repurchase up to an additional 6.0 million common shares. For information regarding the Company's exposure to certain market risks, see Item 7A, Quantitative and Qualitative Disclosures about Market Risk, in the annual report on Form 10-K for fiscal 1999. There have been no significant changes in the Company's market risk exposures since year-end. CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS From time to time, the Company and its representatives may make oral or written statements, including statements in this quarterly report, that constitute "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. 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 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. 10 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 25, 2000, the following four nominees to the Board of Directors were elected to serve until the 2003 Annual Meeting:
Votes For Votes Withheld Erskine B. Bowles 102,722,242 753,286 Robert J. Hurst 102,431,617 1,043,911 W. Alan McCollough 102,339,416 1,136,112 M. Rust Sharp 101,665,311 1,810,217
Item 6 - Exhibits and Reports on Form 8-K (a) Exhibit 27 - Financial data schedule as of April 1, 2000 (b) Reports on Form 8-K - There were no reports on Form 8-K filed for the three months ended April 1, 2000. 11 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 8, 2000 By: /s/ Peter E. Keene ---------------------------- Peter E. Keene Vice President - Controller (Chief Accounting Officer) 12