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 SEPTEMBER 29, 2001
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 October 19, 2001, there were 110,970,087 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 and nine months ended September 29, 2001 and
September 30, 2000 .......................................... 3
Consolidated Balance Sheets - September 29, 2001,
December 30, 2000 and September 30, 2000 .................... 4
Consolidated Statements of Cash Flows -
Nine months ended September 29, 2001 and
September 30, 2000 .......................................... 5
Notes to Consolidated Financial Statements .................. 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 12
Item 3 - Quantitative and Qualitative Disclosures about Market Risk ..... 14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings .............................................. 15
Item 6 - Exhibits and Reports on Form 8-K ............................... 15
2
VF CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT 30 SEPT 30
SEPT 29 2000 SEPT 29 2000
2001 (RESTATED) 2001 (RESTATED)
---- ---------- ---- ----------
NET SALES $ 1,477,196 $ 1,599,864 $ 4,223,453 $ 4,285,373
COSTS AND OPERATING EXPENSES
Cost of products sold 970,631 1,056,262 2,789,080 2,821,309
Marketing, administrative
and general expenses 313,314 349,784 950,759 985,915
Other operating expense, net 2,676 5,482 10,969 12,789
----------- ----------- ----------- -----------
1,286,621 1,411,528 3,750,808 3,820,013
----------- ----------- ----------- -----------
OPERATING INCOME 190,575 188,336 472,645 465,360
OTHER INCOME (EXPENSE)
Interest income 1,621 1,859 5,138 4,371
Interest expense (23,320) (24,440) (72,421) (62,451)
Miscellaneous, net 218 (408) (1,437) 3,992
----------- ----------- ----------- -----------
(21,481) (22,989) (68,720) (54,088)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING POLICY 169,094 165,347 403,925 411,272
INCOME TAXES 65,534 61,986 153,498 154,315
----------- ----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING POLICY 103,560 103,361 250,427 256,957
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE
IN ACCOUNTING POLICY FOR REVENUE RECOGNITION,
NET OF INCOME TAXES -- -- -- (6,782)
----------- ----------- ----------- -----------
NET INCOME $ 103,560 $ 103,361 $ 250,427 $ 250,175
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE - BASIC
Income before cumulative effect of change
in accounting policy $ 0.92 $ 0.90 $ 2.21 $ 2.22
Net income 0.92 0.90 2.21 2.16
EARNINGS PER COMMON SHARE - DILUTED
Income before cumulative effect of change
in accounting policy $ 0.90 $ 0.88 $ 2.17 $ 2.18
Net income 0.90 0.88 2.17 2.12
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 111,309 114,013 111,611 114,500
Diluted 114,563 116,988 115,144 117,525
CASH DIVIDENDS PER COMMON SHARE $ 0.23 $ 0.22 $ 0.69 $ 0.66
See notes to consolidated financial statements.
3
VF CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
SEPT 30
SEPT 29 DECEMBER 30 2000
2001 2000 (RESTATED)
---- ---- ----------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 133,080 $ 118,891 $ 232,933
Accounts receivable, less allowances:
Sept 29 - $51,302; Dec 30 - $54,918
Sept 30 - $58,900 777,944 716,299 854,736
Inventories:
Finished products 757,490 710,158 763,634
Work in process 164,713 194,194 221,356
Materials and supplies 165,382 220,086 203,099
----------- ----------- -----------
1,087,585 1,124,438 1,188,089
Other current assets 150,497 150,468 129,123
----------- ----------- -----------
Total current assets 2,149,106 2,110,096 2,404,881
PROPERTY, PLANT AND EQUIPMENT 1,858,939 1,865,326 1,862,405
Less accumulated depreciation 1,139,461 1,089,311 1,069,263
----------- ----------- -----------
719,478 776,015 793,142
INTANGIBLE ASSETS 1,068,443 1,101,876 1,122,075
OTHER ASSETS 396,941 370,169 382,418
----------- ----------- -----------
$ 4,333,968 $ 4,358,156 $ 4,702,516
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 113,916 $ 147,005 $ 358,809
Current portion of long-term debt 6,340 113,999 115,621
Accounts payable 264,826 340,127 353,598
Accrued liabilities 489,937 405,069 468,848
----------- ----------- -----------
Total current liabilities 875,019 1,006,200 1,296,876
LONG-TERM DEBT 904,218 905,036 905,827
OTHER LIABILITIES 216,498 214,590 219,849
REDEEMABLE PREFERRED STOCK 46,340 48,483 49,024
DEFERRED CONTRIBUTIONS TO EMPLOYEE
STOCK OWNERSHIP PLAN (3,248) (7,966) (9,491)
----------- ----------- -----------
43,092 40,517 39,533
COMMON SHAREHOLDERS' EQUITY
Common Stock, stated value $1; shares
authorized, 300,000,000; shares outstanding;
Sept 29 - 110,757,334; Dec 30 - 112,258,556;
Sept 30 - 113,597,762 110,757 112,259 113,598
Additional paid-in capital 878,577 833,441 832,389
Accumulated other comprehensive income (loss) (90,611) (87,875) (94,806)
Retained earnings 1,396,418 1,333,988 1,389,250
----------- ----------- -----------
Total common shareholders' equity 2,295,141 2,191,813 2,240,431
----------- ----------- -----------
$ 4,333,968 $ 4,358,156 $ 4,702,516
=========== =========== ===========
See notes to consolidated financial statements.
4
VF CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
-----------------
SEPT 30
SEPT 29 2000
2001 (RESTATED)
---- ----------
OPERATIONS
Net income $ 250,427 $ 250,175
Adjustments to reconcile net income
to cash provided by operations:
Cumulative effect of change in accounting policy -- 6,782
Restructuring costs (5,620) --
Depreciation 100,880 102,365
Amortization of intangible assets 27,193 26,378
Other, net (23,009) 8,164
Changes in current assets and liabilities:
Accounts receivable (62,352) (129,975)
Inventories 29,061 (121,042)
Accounts payable (70,080) (21,312)
Other, net 91,831 95,440
--------- ---------
Cash provided by operations 338,331 216,975
INVESTMENTS
Capital expenditures (59,584) (96,581)
Business acquisitions (3,557) (270,393)
Other, net 20,926 1,973
--------- ---------
Cash invested (42,215) (365,001)
FINANCING
Increase in short-term borrowings (26,011) (47,034)
Proceeds from long-term debt -- 495,185
Payment of long-term debt (108,095) (1,273)
Purchase of Common Stock (109,497) (64,236)
Cash dividends paid (79,545) (78,107)
Proceeds from issuance of Common Stock 37,707 708
Other, net 3,991 3,226
--------- ---------
Cash (used) provided by financing (281,450) 308,469
EFFECT OF FOREIGN CURRENCY RATE CHANGES ON CASH (477) (7,371)
--------- ---------
NET CHANGE IN CASH AND EQUIVALENTS 14,189 153,072
CASH AND EQUIVALENTS - BEGINNING OF YEAR 118,891 79,861
--------- ---------
CASH AND EQUIVALENTS - END OF PERIOD $ 133,080 $ 232,933
========= =========
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. Similarly, the 2000 year-end consolidated balance
sheet was derived from audited financial statements but does not include all
disclosures required by generally accepted accounting principles. 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 nine months ended September 29, 2001 are not necessarily
indicative of results that may be expected for the year ending December 29,
2001. 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 December 30, 2000.
During the fourth quarter of 2000, the Company changed its accounting policy for
recognizing sales in accordance with the SEC's Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements. The cumulative effect of this
change in policy on net income of $6.8 million, or $.06 per share, was reported
as a charge as of the beginning of 2000. As a result, the Company has restated
its financial statements for each of the first three quarters of 2000.
NOTE B - ACQUISITIONS
The Company completed several acquisitions during 2000. The following pro forma
results of operations for the third quarter and nine months of 2000 (restated)
assume that each of these acquisitions had occurred at the beginning of 2000 (in
thousands, except per share amounts):
Third Nine
Quarter Months
2000 2000
---- ----
Net sales $ 1,622,653 $ 4,459,713
Income before cumulative effect of change in
accounting policy 103,935 226,532
Earnings per common share, before
cumulative effect of change in accounting
policy:
Basic $0.90 $1.95
Diluted 0.89 1.92
The Company accrued various restructuring charges in connection with the
businesses acquired in 1999 and 2000. These charges relate to severance, closure
of manufacturing and distribution facilities, and lease and contract termination
costs. Substantially all cash payments related to these actions will be
completed during 2002. Activity in the accrual accounts is summarized as follows
(in thousands):
6
Facilities Lease and
Exit Contract
Severance Costs Termination Total
--------- ----- ----------- -----
Balance, December 30, 2000 $ 3,222 $ 839 $ 11,977 $ 16,038
Additional accrual 2,400 720 400 3,520
Cash payments (1,430) (822) (5,092) (7,344)
------- --------- ----------- ---------
Balance, September 29, 2001 $ 4,192 $ 737 $ 7,285 $12,214
======= ========= =========== =========
In late 2000, the Company acquired 85% of the outstanding shares of H.I.S
Sportswear AG, which markets H.I.S products in Europe. During the third quarter
of 2001, the Company acquired an additional 12% of the outstanding shares of
H.I.S Sportswear AG.
NOTE C - 2000 RESTRUCTURING ACCRUAL
Activity in the 2000 restructuring accrual is summarized as follows (in
thousands):
Facilities Lease and
Exit Contract
Severance Costs Termination Total
--------- ----- ----------- -----
Balance, December 30, 2000 $ 20,391 $ 1,461 $ 15,541 $ 37,393
Reduction of accrual (625) -- (4,495) (5,120)
Cash payments (13,373) (887) (3,042) (17,302)
-------- -------- -------- --------
Balance, September 29, 2001 $ 6,393 $ 574 $ 8,004 $ 14,971
======== ======== ======== ========
The above $5.1 million reduction of accrual relates primarily to a change in
contract terms arising in 2001.
The restructuring actions are proceeding according to plan, and the anticipated
benefits are being realized. Remaining severance and other cash payments will be
made into 2002.
NOTE D - CAPITAL
Common shares outstanding are net of shares held in treasury, and in substance
retired, of 28,143,352 at September 29, 2001, 25,139,897 at December 30, 2000
and 23,709,897 at September 30, 2000. In addition, 300,753, 311,608 and 375,833
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 1,500,881 shares were outstanding at September 29,
2001, 1,570,301 at December 30, 2000 and 1,587,812 at September 30, 2000.
7
NOTE E - BUSINESS SEGMENT INFORMATION
Financial information for the Company's reportable segments is as follows (in
thousands):
Third Quarter Nine Months
------------- -----------
2000 2000
2001 (Restated) 2001 (Restated)
---- ---------- ---- ----------
Net sales:
Consumer Apparel $ 1,043,486 $ 1,120,609 $ 3,093,227 $ 3,186,265
Occupational Apparel 115,575 153,410 409,311 485,833
All Other 318,135 325,845 720,915 613,275
----------- ----------- ----------- -----------
Consolidated net sales $ 1,477,196 $ 1,599,864 $ 4,223,453 $ 4,285,373
=========== =========== =========== ===========
Segment profit:
Consumer Apparel $ 158,373 $ 184,091 $ 452,491 $ 506,166
Occupational Apparel 5,003 591 29,647 25,432
All Other 57,834 39,190 83,993 47,598
----------- ----------- ----------- -----------
Total segment profit 221,210 223,872 566,131 579,196
Interest, net (21,699) (22,581) (67,283) (58,080)
Amortization of intangible assets (8,739) (8,890) (27,193) (26,378)
Corporate and other expenses (21,678) (27,054) (67,730) (83,466)
----------- ----------- ----------- -----------
Income before income taxes and cumulative
Effect of change in accounting policy $ 169,094 $ 165,347 $ 403,925 $ 411,272
=========== =========== =========== ===========
NOTE F - 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):
Third Quarter Nine Months
------------- --------------------------
2000 2000
2001 (Restated) 2001 (Restated)
---- ---------- ---- ----------
Net income as reported $ 103,560 $ 103,361 $ 250,427 $ 250,175
Other comprehensive income (loss):
Foreign currency translation adjustments,
net of income taxes (2,506) (12,574) (4,081) (30,050)
Unrealized gains (losses) on marketable
securities, net of income taxes (925) -- (602) --
Derivative hedging contracts, net of
income taxes 1,109 -- 1,947 --
--------- --------- --------- ---------
Comprehensive income $ 101,238 $ 90,787 $ 247,691 $ 220,125
========= ========= ========= =========
8
Accumulated other comprehensive income (loss) for 2001 is summarized as follows
(in thousands):
Foreign
Currency Marketable Hedging
Translation Securities Contracts Total
----------- ---------- --------- -----
Balance, December 30, 2000 $(88,146) $ 271 $ -- $(87,875)
Other comprehensive income (loss) (4,081) (602) 1,947 (2,736)
-------- -------- -------- --------
Balance, September 29, 2001 $(92,227) $ (331) $ 1,947 $(90,611)
======== ======== ======== ========
NOTE G - EARNINGS PER SHARE
Earnings per share are computed as follows (in thousands, except per share
amounts):
Third Quarter Nine Months
------------- -----------
2000 2000
2001 (Restated) 2001 (Restated)
---- ---------- ---- ----------
Basic earnings per share:
Net income $ 103,560 $ 103,361 $250,427 $250,175
Less Preferred Stock dividends and
redemption premium 1,240 950 4,199 3,149
--------- --------- -------- --------
Net income available for Common Stock $ 102,320 $ 102,411 $246,228 $247,026
========= ========= ======== ========
Weighted average Common
Stock outstanding 111,309 114,013 111,611 114,500
========= ========= ======== ========
Basic earnings per share $0.92 $0.90 $2.21 $2.16
========= ========= ======== ========
Diluted earnings per share:
Net income $ 103,560 $ 103,361 $250,427 $250,175
Increased ESOP expense if Preferred Stock
were converted to Common Stock 213 236 638 711
--------- --------- -------- --------
Net income available for Common Stock
and dilutive securities $ 103,347 $ 103,125 $249,789 $249,464
========= ========= ======== ========
Weighted average Common Stock outstanding 111,309 114,013 111,611 114,500
Additional Common Stock resulting from
dilutive securities:
Preferred Stock 2,402 2,541 2,434 2,577
Stock options and other 852 434 1,099 448
--------- --------- -------- --------
Weighted average Common Stock and
dilutive securities outstanding 114,563 116,988 115,144 117,525
========= ========= ======== ========
Diluted earnings per share $0.90 $0.88 $2.17 $2.12
========= ========= ======== ========
9
Outstanding options to purchase 6.8 million shares and 5.4 million shares of
Common Stock have been excluded from the computation of diluted earnings per
share for the third quarter and the nine months of 2001, respectively, because
the option exercise prices were greater than the average market price of the
Common Stock. Similarly, options to purchase 8.1 million shares and 7.0 million
shares of Common Stock were excluded for the third quarter and nine months of
2000, respectively.
NOTE H - RECENT ACCOUNTING PRONOUNCEMENTS
Effective at the beginning of the first quarter of 2001, the Company adopted
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, and related amendments. This Statement requires that all derivatives
be recognized as assets or liabilities on the balance sheet and measured at
their fair value. Changes in the fair value of derivatives are recognized in
either net income or in other comprehensive income, depending on the designated
purpose of the derivative.
Due to the limited use of derivative instruments prior to 2001, the effect of
adopting this Statement at the beginning of the first quarter of 2001 was not
significant. Derivatives outstanding at the beginning of the year, all of which
expired in the first quarter, were not designated as hedges, so unrealized gains
of $.6 million at the beginning of 2001 were recorded in cost of products sold.
Beginning in 2001, the Company expanded its use of foreign currency forward
exchange contracts to hedge against the effects of exchange rate fluctuations on
forecasted cash flows. The Company does not use derivative financial instruments
for trading or speculative purposes. Use of hedging contracts allows the Company
to reduce its overall exposure to exchange rate movements, since gains and
losses on these contracts will offset losses and gains on the transactions being
hedged. The Company formally documents all hedged transactions and hedging
instruments, and assesses, both at the inception of the contract and on an
ongoing basis, whether the hedging instruments are effective in offsetting
changes in cash flows of the hedged transactions. The Company hedges an average
of 50% of its significant foreign currency cash flows relating to inventory
purchases and sales, operating expenses and intercompany royalty payments
anticipated for the following twelve months. During the nine months of 2001, the
Company recognized additional net gains of $4.7 million, primarily in cost of
products sold, for hedging contracts that had matured. The total notional value
of foreign exchange contracts outstanding at September 29, 2001 was $150.1
million. At that date, the Company had net deferred gains of $3.0 million
included in accumulated other comprehensive income, which amount is expected to
be reclassified to net income during the next twelve months as the hedged
transactions are recognized in earnings.
In the third quarter of 2001, the Financial Accounting Standards Board issued
Statement No. 142, Goodwill and Other Intangible Assets. The Statement is
effective for the Company at the beginning of 2002 and may not be applied
retroactively to financial statements of prior periods. Under this Statement,
goodwill, including previously existing goodwill, and intangible assets with
indefinite useful lives will not be amortized but must be tested at least
annually for impairment. Other intangible assets will be amortized over their
estimated useful lives. The new Statement also requires an initial test for
impairment of existing goodwill and intangible assets where the existing
carrying value exceeds its fair value. Any transitional impairment determined
upon adoption of the new Statement must be recognized as the cumulative effect
of a change in accounting principle in the statement of income. The Company
currently has $1,068 million of net intangible assets arising from numerous
acquisitions over the years. Management is currently evaluating the effects of
the Statement on these intangible assets. Because of the extensive effort needed
to comply with adoption of the new rules, it is not practicable at this date to
reasonably estimate all of the effects on our financial statements. However,
based on our analysis performed to-date, we believe that the substantial
10
majority of our amortization expense of $35.9 million ($.31 per share) for the
fiscal year 2000 and $27.2 million ($.24 per share) for the nine months ended
September 29, 2001 will not be required in future years.
The Financial Accounting Standards Board also recently issued Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement
establishes accounting standards for the recognition and measurement of
long-lived assets held for use or held for disposal. This Statement, required to
be adopted by the beginning of 2002, is not expected to have a material impact
on the financial position, results of operations or cash flows of the Company.
11
VF CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated sales decreased 8% for the third quarter and 1% for the nine months
ended September 29, 2001, compared with the same periods in 2000. Overall for
the quarter and nine months, sales declined in most businesses, except for the
European jeanswear and outdoor businesses, with a higher percentage decline
following the tragic events of September 11. Sales comparisons benefited by $22
million of incremental sales in the 2001 quarter and $205 million in the 2001
nine months related to businesses acquired in 2000. Partially offsetting this
were sales of $27 million in the 2000 quarter and $80 million in the 2000 nine
months related to Wrangler Japan and occupational apparel product lines exited
in the fourth quarter of 2000. Also, in translating foreign currencies to the
U.S. dollar, a stronger U.S. dollar reduced sales comparisons by $8 million in
the quarter and $29 million in the nine months and reduced earnings per share by
$.02 for the nine months of 2001.
Gross margins were 34.3% of sales in the 2001 quarter and 34.0% for the nine
months, compared with 34.0% and 34.2% in the same 2000 periods. Gross margins
increased in the quarter due to higher gross margins earned in the outdoor,
occupational apparel and knitwear businesses. Gross margins in the quarter also
benefited from reversal of certain 2000 restructuring accruals. This was offset
in part by lower margins in domestic jeanswear and intimate apparel. Gross
margins were lower for the nine months primarily as a result of downtime
incurred in domestic jeanswear manufacturing plants to help align inventory
levels with expected sales volumes.
Marketing, administrative and general expenses were 21.2% of sales in the
quarter and 22.5% in the nine months of 2001, compared with 21.9% and 23.0% in
the 2000 periods. Expenses as a percent of sales declined in most business units
due to expense controls and elimination of businesses at the end of 2000 that
had a higher level of such expenses as a percent of sales.
Other operating expense, which includes amortization of intangible assets and
net royalty income, decreased in the quarter and nine months due to higher net
royalty income in the third quarter of 2001.
Net interest expense increased in 2001 due to higher average borrowings to
acquire several businesses in 2000, as well as higher overall interest rates on
the Company's debt.
The effective income tax rate for the nine months of 2001 was 38.0%, based on
the expected rate for the year, compared with 37.5% in the prior year. The
increase in rate is due to an expected increase in foreign operating losses with
no tax benefit.
Income before the cumulative effect of a change in accounting policy was flat
for the quarter and decreased by 3% in the nine months of 2001. Earnings in the
2001 periods included $.03 per share from the reversal of certain 2000
restructuring accruals. Diluted earnings per share increased by 2% in the
quarter and were flat for the nine months, reflecting the benefit of the
Company's share repurchase program. Acquisitions completed in 2000 had a $.06
accretive effect on earnings per share for the nine months of 2001 compared with
the 2000 period and are expected to contribute $.12 to earnings per share for
the full year 2001 compared with 2000.
12
INFORMATION BY BUSINESS SEGMENT
The Consumer Apparel segment consists of jeanswear, women's intimate apparel,
swimwear and the children's apparel businesses. Overall, this segment's sales
decreased by 7% for the quarter and 3% for the nine months of 2001, compared
with the 2000 periods. Domestic jeans sales decreased 8% in the quarter and 3%
in the nine months, with decreases in the Company's Mass Market, Lee and Western
businesses in the third quarter and Lee and Western businesses in the nine
months. European jeanswear sales increased 14% in the quarter and 16% in the
nine months, including the acquisition of H.I.S in late 2000. Total
international jeanswear sales, including the negative effects of foreign
currency translation, declined 3% in the quarter and were flat in the nine
months, including the H.I.S business and the exit of the Wrangler business in
Japan. Domestic intimate apparel sales decreased 4% in the quarter and increased
1% in the nine months, with decreases in the quarter primarily in the Vassarette
and private label businesses. Sales declined in the quarter and nine months in
international intimate apparel. Sales also declined 12% on an aggregate basis in
the quarter and nine months in the Company's domestic swimwear and playwear
businesses, both of which sell primarily to the department store channel, which
is currently the weakest channel for retail apparel sales. Segment profit
declined in both 2001 periods due to expenses related to downtime in domestic
jeanswear manufacturing facilities to align inventories and lower profits in our
swimwear, playwear and Latin American jeanswear businesses primarily related to
the volume declines.
The Occupational Apparel segment includes the Company's industrial, career and
safety apparel businesses. Excluding businesses exited in 2000, sales declined
19% in the quarter and 10% in the nine months, due to workforce reductions in
the manufacturing sector that has impacted our workwear uniform sales. Segment
profit has improved in the most recent quarter from benefits of restructuring
actions taken in 2000 and elimination of losses of discontinued product lines.
The All Other segment includes the Company's knitwear, daypack and outdoor
businesses. Sales decreased 2% for the quarter due to a decline in the private
label knitwear business. Sales in the quarter for The North Face and Eastpak,
both acquired in May 2000, were up slightly, with first quality sales in both
brands up significantly. Sales increased 18% in the nine months due to the 2000
acquired companies being included for the full 2001 period. Operating margins
nearly doubled in the Outdoor businesses. Segment profit also increased in our
knitwear business due to lower cost sourcing, although difficult market
conditions and pricing pressures continue in the knitwear industry.
Management will continue to evaluate its underperforming units and, particularly
considering the current economic environment, its overall cost structure. Any
actions resulting from this evaluation could have a significant impact on
operating results.
FINANCIAL CONDITION AND LIQUIDITY
The financial condition of the Company is reflected in the following:
September 30
September 29 December 30 2000
2001 2000 (Restated)
---- ---- ----------
(Dollars in millions)
Working capital $1,274.1 $1,103.9 $1,108.0
Current ratio 2.5 to 1 2.1 to 1 1.9 to 1
Debt to total capital 30.9% 34.7% 38.1%
13
Accounts receivable at the end of the third quarter of 2001 are lower than at
the same period in 2000 due to the decrease in sales during the quarter and an
improvement in the number of day's sales outstanding. Receivables are higher
than at the end of 2000 due to seasonal sales patterns.
Inventories at the end of the third quarter of 2001 are 8% lower than at the
comparable date in 2000. Excluding businesses acquired and exited in the last
half of 2000, inventory balances at September 29, 2001 were 9% lower. Management
had forecasted a reduction in inventories by as much as $100 million by the end
of 2001. This target was achieved by the end of the third quarter, and
management is committed to maintain this $100 million reduction at year-end.
This reduction in inventories was a significant factor in the $121 million
increase in cash provided by operations in 2001. Inventories are 3% lower than
at the end of 2000.
Accounts payable declined compared with the third quarter of 2000 and with
year-end 2000 due to reduced inventory purchases at most businesses resulting
from inventory reduction efforts. In addition, accounts payable balances
declined compared with the prior year due to disposal of the Wrangler Japan
business, which had a higher relative level of payables than the average VF
operating business.
Accrued liabilities at the end of the quarter are higher than year-end due to
seasonal patterns.
During the first nine months of 2001, the Company made $108.1 million of
scheduled long-term debt payments. There are no significant long-term debt
payments due in 2002.
The Company repurchased 1.0 million shares of its Common Stock in open market
transactions during each of the first three quarters of 2001 at a total cost of
$109.5 million. Under its current authorization from the Board of Directors, the
Company may repurchase up to an additional 1.0 million common shares. Depending
on other opportunities that may arise, the Company intends to repurchase
approximately 1.0 million shares over the remainder of the year. Subsequent to
quarter-end, the Board of Directors approved an authorization for the Company to
repurchase up to an additional 10 million 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 2000. There have been no significant
changes in the Company's market risk exposures since year-end.
OUTLOOK
Since the events of mid-September, the normal rhythm of the Company's business
at retail has been considerably disrupted. The Company expects sales to remain
under pressure, as consumers continue to be cautious in their spending,
particularly on apparel. Should the current trend in sales continue, fourth
quarter sales could decline more than 10%. Therefore, margins are also likely to
be below prior year levels due to aggressive actions to manage capacity and
inventories. Primarily as a result of downtime, fourth quarter earnings per
share could be down more than 35% from prior year levels. Marketing,
administrative and general expenses in the fourth quarter should be lower than
the prior year due in part to the 2001 benefit of the businesses exited at the
end of 2000.
Management expects cash flow from operations to range from $450-500 million for
the year and capital expenditures to be about $100 million, which would be below
the 2000 level. Net interest expense should be approximately $90 million for the
year.
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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 under "Outlook," 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; competitive conditions in
and financial strength of the retail industry; actions of competitors and
customers that may impact the Company's business; completion of software
developed by outside vendors and the related implementation of the Company's
common systems project; 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.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company is a party to litigation arising in the ordinary course of its
business. In management's opinion, there are no pending claims or litigation,
the outcome of which would have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 10 (a) - Form of Change in Control Agreement with Certain
Senior Management of the Company or its Subsidiaries
Exhibit 10 (b) - Form of Change in Control Agreement with Certain
Management of the Company or its Subsidiaries
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for the
three months ended September 29, 2001.
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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: October 23, 2001
By: /s/ Robert A. Cordaro
------------------------------
Robert A. Cordaro
Vice President - Controller
(Chief Accounting Officer)
16