SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended OCTOBER 1, 1994 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- --------------- 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 no.) 1047 NORTH PARK ROAD WYOMISSING, PA 19610 (Address of principal executive offices) (610) 378-1151 (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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- On October 29, 1994, there were 64,726,684 shares of Common Stock outstanding. -1- VF CORPORATION INDEX
PAGE NO. PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Statements of Income - Three months and nine months ended October 1, 1994 and October 2, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Balance Sheets - October 1, 1994, January 1, 1994 and October 2, 1993 . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows - Nine months ended October 1, 1994 and October 2, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 7 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-2- VF CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED ----------------------------- ---------------------------- OCTOBER 1 OCTOBER 2 OCTOBER 1 OCTOBER 2 1994 1993 1994 1993 ----------- ----------- ----------- ------------ NET SALES $1,373,037 $1,152,842 $3,682,396 $3,222,897 COSTS AND OPERATING EXPENSES Cost of products sold 930,960 797,798 2,497,532 2,217,081 Marketing, administrative and general expenses 274,097 235,115 786,868 680,151 ---------- ---------- ---------- ---------- 1,205,057 1,032,913 3,284,400 2,897,232 ---------- ---------- ---------- ---------- OPERATING INCOME 167,980 119,929 397,996 325,665 OTHER INCOME (EXPENSE) Interest income 2,104 28,603 6,592 33,962 Interest expense (21,234) (18,451) (62,004) (54,666) Miscellaneous, net (2,731) 987 (10,881) 3,185 ---------- ---------- ---------- ---------- (21,861) 11,139 (66,293) (17,519) ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 146,119 131,068 331,703 308,146 INCOME TAXES 58,315 54,253 132,085 122,871 ---------- ---------- ---------- ---------- NET INCOME $ 87,804 $ 76,815 $ 199,618 $ 185,275 ========== ========== ========== ========== EARNINGS PER COMMON SHARE Primary $1.34 $1.18 $3.05 $2.86 Fully diluted 1.31 1.15 2.98 2.79 CASH DIVIDENDS PER COMMON SHARE $0.32 $0.30 $0.96 $0.90
See notes to consolidated financial statements. -3- VF CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
OCTOBER 1 JANUARY 1 OCTOBER 2 1994 1994 1993 ----------- ----------- ----------- ASSETS CURRENT ASSETS Cash and equivalents $ 54,757 $ 151,564 $ 36,539 Accounts receivable, less allowances: Oct. 1 - $36,028; Jan. 1 - $28,808; Oct. 2 - $32,896 752,120 511,887 628,751 Inventories: Finished products 550,082 486,045 566,849 Work in process 148,311 119,582 129,265 Materials and supplies 168,353 173,140 147,759 ---------- ---------- ---------- 866,746 778,767 843,873 Other current assets 79,473 57,962 71,312 ---------- ---------- ---------- Total current assets 1,753,096 1,500,180 1,580,475 PROPERTY, PLANT AND EQUIPMENT 1,399,604 1,250,023 1,270,676 Less accumulated depreciation 629,188 537,264 556,963 ---------- ---------- ---------- 770,416 712,759 713,713 INTANGIBLE ASSETS 914,743 575,359 535,410 OTHER ASSETS 101,576 89,050 133,563 ---------- ---------- ---------- $3,539,831 $2,877,348 $2,963,161 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ 343,479 $ 35,648 $ 39,613 Current portion of long-term debt 109,237 110,119 52,927 Accounts payable 281,377 246,503 240,443 Accrued liabilities 407,056 267,578 352,876 --------- ------- ------- Total current liabilities 1,141,149 659,848 685,859 LONG-TERM DEBT 517,449 527,573 633,634 OTHER LIABILITIES 158,266 126,978 126,868 REDEEMABLE PREFERRED STOCK 62,520 63,309 63,494 DEFERRED CONTRIBUTION TO EMPLOYEE STOCK OWNERSHIP PLAN (43,858) (47,760) (48,839) ---------- ---------- ---------- 18,662 15,549 14,655 COMMON SHAREHOLDERS' EQUITY Common Stock 64,734 64,489 64,440 Additional paid-in capital 552,254 543,165 540,029 Foreign currency translation adjustments 595 (12,865) (15,298) Retained earnings 1,086,722 952,611 912,974 ---------- ---------- ---------- 1,704,305 1,547,400 1,502,145 ---------- ---------- ---------- $3,539,831 $2,877,348 $2,963,161 ========== ========== ==========
See notes to consolidated financial statements. -4- VF CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED ------------------------- OCTOBER 1 OCTOBER 2 1994 1993 ---------- ---------- OPERATIONS Net income $ 199,618 $ 185,275 Adjustments to reconcile net income to cash provided by operations: Depreciation 94,893 82,222 Amortization of intangible assets 23,615 13,215 Other, net 3,925 (19,352) Changes in current assets and liabilities: Accounts receivable (189,051) (140,214) Inventories 17,668 (104,212) Accounts payable 3,354 (6,167) Other, net 100,801 88,565 --------- --------- Cash provided by operations 254,823 99,332 INVESTMENTS Capital expenditures (97,454) (143,998) Sale of outlet facilities - 62,000 Business acquisitions (494,751) - Other, net 5,339 (27,811) --------- --------- Cash invested (586,866) (109,809) FINANCING Increase (decrease) in short-term borrowings 305,413 (84,933) Proceeds from long-term debt 99,207 98,557 Payment of long-term debt (115,307) (235,002) Proceeds from sale of Common Stock - 231,900 Cash dividends paid (65,247) (61,130) Other, net 11,170 11,304 --------- --------- Cash provided (used) by financing 235,236 (39,304) NET CHANGE IN CASH AND EQUIVALENTS (96,807) (49,781) CASH AND EQUIVALENTS - BEGINNING OF YEAR 151,564 86,320 --------- --------- CASH AND EQUIVALENTS - END OF PERIOD $ 54,757 $ 36,539 ========= =========
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 nine months ended October 1, 1994 are not necessarily indicative of results that may be expected for the year ending December 31, 1994. For further information, refer to the consolidated financial statements and notes included in the Corporation's Annual Report on Form 10-K for the year ended January 1, 1994. NOTE B - EARNINGS PER COMMON SHARE Primary earnings per share are computed by dividing net income, after deducting preferred dividends, by the weighted average number of common shares outstanding. Fully diluted earnings per share assume the conversion of Preferred Stock and the exercise of stock options that have a dilutive effect. NOTE C - CAPITAL There are 150,000,000 authorized shares of Common Stock, no par value - stated capital $1 a share. At October 1, 1994, there were 64,734,134 shares outstanding, excluding 1,770,575 treasury shares. At January 1, 1994 and October 2, 1993, there were 64,488,660 and 64,440,443 shares outstanding, excluding 1,769,131 and 1,769,159 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 2,024,953 shares were outstanding at October 1, 1994, 2,050,491 at January 1, 1994 and 2,056,501 at October 2, 1993. NOTE D - ACQUISITIONS On January 4, 1994, the Corporation acquired H.H. Cutler Company for a total consideration of $154.7 million. Also on January 19, 1994, the Corporation acquired Nutmeg Industries, Inc. for a total consideration of $352.2 million. The acquisitions have been accounted for as purchases, and accordingly, operating results of the companies have been included in the consolidated financial statements since the dates of acquisition. The following pro forma results of operations assume that these acquisitions had occurred at the beginning of 1993:
THIRD QUARTER NINE MONTHS 1993 1993 ------------- ----------- (In thousands, except per share amounts) Net sales $1,286,840 $3,520,661 Net income 78,672 176,057 Earnings per common share: Primary $1.21 $2.72 Fully diluted 1.18 2.65
-6- VF CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Consolidated net sales increased 19% for the third quarter and 14% for the nine months compared with the 1993 periods. Approximately $101 million and $249 million of the respective increases represent sales of divisions acquired since the 1993 periods, with the remainder due primarily to unit volume growth in existing divisions. Net income increased 14% for the quarter and 8% for the nine months. The 1993 third quarter included a $15.0 million charge for writedown of assets and a $26.3 million gain from an income tax settlement. During 1994, the Corporation was reorganized into five new business groups consisting of Jeanswear, Decorated Knitwear, Intimate Apparel, Playwear and Specialty Apparel. Sales and operating profit by business group are summarized as follows:
THIRD QUARTER NINE MONTHS ---------------------------------------- -------------------------------------- 1993 PERCENT 1993 PERCENT 1994 (RESTATED) CHANGE 1994 (RESTATED) CHANGE ---------- ---------- ------- ---------- ---------- ------- (In thousands) (In thousands) NET SALES Jeanswear $ 692,632 $ 637,864 9% $1,900,101 $1,816,422 5% Decorated Knitwear 202,150 125,294 61 447,823 267,779 67 Intimate Apparel 184,583 165,438 12 531,634 499,235 7 Playwear 107,269 55,176 94 266,681 152,381 75 Specialty Apparel 186,403 169,070 10 536,157 487,080 10 ---------- ---------- ---- ---------- ---------- ---- $1,373,037 $1,152,842 19% $3,682,396 $3,222,897 14% ========== ========== ==== ========== ========== ==== OPERATING PROFIT Jeanswear $ 105,183 $ 90,508 16% $ 276,139 $ 241,412 14% Decorated Knitwear 20,477 (1,326) 100+ 12,495 (6,584) 100+ Intimate Apparel 16,670 14,500 15 46,807 45,831 2 Playwear 12,103 5,345 100+ 26,156 14,056 86 Specialty Apparel 22,719 20,156 13 65,151 58,204 12 ---------- ---------- ---- ---------- ---------- ---- 177,152 129,183 37% 426,748 352,919 21% ==== ==== CORPORATE EXPENSES (9,172) (9,254) (28,752) (27,254) INTEREST, NET (19,130) 10,152 (55,412) (20,704) OTHER INCOME (EXPENSE) (2,731) 987 (10,881) 3,185 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES $ 146,119 $ 131,068 $ 331,703 $ 308,146 ========== ========== ========== ==========
-7- The Jeanswear business group consists of the Lee and Wrangler divisions in the United States (except for preschool sizes classified in Playwear) and in international markets, primarily in Europe. This business group also includes Girbaud, which designs and markets licensed products in the United States under the Marithe & Francois Girbaud label. Sales and operating profit for both the quarter and nine months increased strongly for Lee and Wrangler in both domestic and international markets. Sales and profits declined at Girbaud, however, where consumer resistance to premium-priced jeans has impacted performance since mid-1993. The Decorated Knitwear business group includes Bassett-Walker, Nutmeg, Cutler sports apparel and JanSport imprinted apparel. The 1994 sales increase is due to the addition of Nutmeg and Cutler, both newly acquired in January 1994. Sales and profits increased at Bassett-Walker for the quarter and nine months, representing a recovery from industry conditions in 1993 characterized by overcapacity and related pricing weakness. The third quarter of 1993 included a $15.0 million charge for a reduction in fleece and T-shirt capacity. The Intimate Apparel business group includes the operations of Vanity Fair Mills and Barbizon domestically and the intimate apparel divisions in Europe. Quarterly and nine month sales increased at most business units in the group. The Playwear business group consists of Healthtex, the playwear and sleepwear operations of Cutler and the preschool sizes of Lee and Wrangler in the United States. Playwear sales and profits increased due to the acquisition of Cutler and increases in existing divisions. The Specialty Apparel business group consists of the Red Kap and Jantzen divisions and JanSport equipment. The group's sales and operating profit increases in the quarter and nine months resulted from growth at Red Kap and JanSport equipment. Overall, gross margins increased to 32.2% of sales during the third quarter and nine months, from 30.8% and 31.2% in the 1993 periods. The 1993 third quarter included a $15.0 million capacity writedown. The increases in both 1994 periods were due primarily to improved efficiencies in the Jeanswear group. Marketing, administrative and general expenses were 20.0% and 21.4% of sales during the third quarter and nine months of 1994, respectively, compared with 20.4% and 21.1% in the 1993 periods. Interest income in the 1993 quarter included $26.3 million related to settlement of income tax issues of an acquired company. Excluding this, net interest expense increased due to higher short-term borrowings related to the Nutmeg and Cutler acquisitions. The increase in miscellaneous expense results from higher goodwill amortization related to these acquisitions. The effective income tax rate for the nine months of 1994 was 39.8%, compared with 39.9% for the 1993 period, based on the expected effective rate for the year. The third quarter of 1993 included the cumulative effect of the increase in the United States corporate income tax rate, which was retroactive to the beginning of the year. -8- FINANCIAL CONDITION AND LIQUIDITY The financial condition of the Corporation is reflected in the following:
OCTOBER 1 JANUARY 1 OCTOBER 2 1994 1994 1993 --------- --------- --------- (Dollars in millions) Working capital $611.9 $840.3 $894.6 Current ratio 1.5 to 1 2.3 to 1 2.3 to 1 Total debt to capitalization 36.3% 30.3% 32.4%
Days' sales outstanding in accounts receivable are consistent at each balance sheet date. Inventories are higher than at the comparable date in the prior year due to the acquisitions of Nutmeg and Cutler in January 1994, partially offset by reductions at existing divisions. Inventories increased from year-end 1993 due to the acquisitions and to meet seasonal requirements. Short-term borrowings were used to finance the January 1994 purchases of Nutmeg and Cutler. In addition, the Corporation used short-term borrowings to fund the January 1994 redemption of $100.0 million of 8.00% notes due in 1997. The redeemed notes were refinanced with 10 year, 7.60% notes in April 1994. The $100.0 million of 9.40% notes due in 1996 were called for redemption in October and, accordingly, are classified as a current obligation at October 1, 1994. In October 1994, the existing revolving credit agreements totaling $750 million were replaced by a single $750 million unsecured revolving credit agreement with a group of banks. The agreement, expiring in October 1999, requires a .12% fee on the unused portion and is available to support commercial paper borrowings and for general corporate purposes. -9- PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibit 11 - Computation of earnings per share for the three months and nine months ended October 1, 1994 and October 2, 1993. Exhibit 27 - Financial data schedule as of October 1, 1994. (b) Reports on Form 8-K - There were no reports on Form 8-K filed for the three months ended October 1, 1994. -10- 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) /s/ G. G. JOHNSON ------------------------- G. G. JOHNSON Vice President-Finance Date: November 10, 1994 (Chief Financial Officer) /s/ R. K. SHEARER ------------------------- R.K. SHEARER Vice President/Controller (Chief Accounting Officer) -11- EXHIBIT INDEX The following is an index of the exhibits included in this Report:
Item No. Exhibit --- ------- 11 Computation of earnings per share for the three months and nine months ended October 1, 1994 and October 2, 1993. 27 Financial Data Schedule as of October 1, 1994.