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 28, 1996
Commission file number: 1-5256
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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 and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
---- ----
On October 26, 1996, there were 63,714,232 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 SEPTEMBER 28, 1996
AND SEPTEMBER 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CONSOLIDATED BALANCE SHEETS - SEPTEMBER 28, 1996,
DECEMBER 30, 1995 AND SEPTEMBER 30, 1995 . . . . . . . . . . . . . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
NINE MONTHS ENDED SEPTEMBER 28, 1996 AND
SEPTEMBER 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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
------------------------------- -------------------------------
SEPTEMBER 28 SEPTEMBER 30 SEPTEMBER 28 SEPTEMBER 30
1996 1995 1996 1995
----------- ------------ ----------- ------------
NET SALES $ 1,380,919 $ 1,332,102 $ 3,760,039 $ 3,791,625
COSTS AND OPERATING EXPENSES
Cost of products sold 934,561 919,550 2,536,845 2,589,319
Marketing, administrative and
general expenses 279,962 277,062 816,725 823,313
Other operating (income) expense 404 1,978 (457) 3,318
----------- ----------- ----------- -----------
1,214,927 1,198,590 3,353,113 3,415,950
----------- ----------- ----------- -----------
OPERATING INCOME 165,992 133,512 406,926 375,675
OTHER INCOME (EXPENSE)
Interest income 2,406 4,439 8,653 8,805
Interest expense (15,850) (20,674) (49,754) (59,754)
Miscellaneous, net 601 1,372 (1,031) (1,645)
----------- ----------- ----------- -----------
(12,843) (14,863) (42,132) (52,594)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 153,149 118,649 364,794 323,081
INCOME TAXES 62,101 48,931 147,924 130,173
----------- ----------- ----------- -----------
NET INCOME $ 91,048 $ 69,718 $ 216,870 $ 192,908
=========== =========== ============ ===========
EARNINGS PER COMMON SHARE
Primary $1.42 $1.08 $3.36 $2.98
Fully diluted 1.39 1.05 3.29 2.91
CASH DIVIDENDS PER COMMON SHARE $0.36 $0.34 $1.08 $1.02
See notes to consolidated financial statements.
3
VF CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 28 DECEMBER 30 SEPTEMBER 30
1996 1995 1995
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and equivalents $ 212,097 $ 84,075 $ 64,144
Accounts receivable, less allowances: Sept. 28 - $40,714;
Dec. 30 - $34,621; Sept. 30 - $29,181 752,045 629,506 770,133
Inventories:
Finished products 422,997 514,688 669,693
Work in process 176,175 139,721 148,536
Materials and supplies 151,620 187,498 189,915
---------- ---------- -----------
750,792 841,907 1,008,144
Other current assets 114,657 112,149 77,750
---------- ---------- -----------
Total current assets 1,829,591 1,667,637 1,920,171
PROPERTY, PLANT AND EQUIPMENT 1,517,866 1,490,384 1,497,265
Less accumulated depreciation 798,554 740,504 724,204
---------- ---------- -----------
719,312 749,880 773,061
INTANGIBLE ASSETS 873,552 887,606 901,758
OTHER ASSETS 155,966 141,948 131,891
---------- ---------- -----------
$3,578,421 $3,447,071 $ 3,726,881
========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 28,030 $ 229,945 $ 357,049
Current portion of long-term debt 101,015 2,715 2,333
Accounts payable 321,051 276,598 309,696
Accrued liabilities 494,585 359,062 385,551
---------- ---------- -----------
Total current liabilities 944,681 868,320 1,054,629
LONG-TERM DEBT 527,073 614,217 615,095
OTHER LIABILITIES 181,696 169,392 177,341
REDEEMABLE PREFERRED STOCK 58,498 60,667 61,036
DEFERRED CONTRIBUTIONS TO EMPLOYEE STOCK OWNERSHIP PLAN (33,055) (37,031) (38,408)
---------- ---------- -----------
25,443 23,636 22,628
COMMON SHAREHOLDERS' EQUITY
Common Stock 63,548 63,439 63,925
Additional paid-in capital 638,191 593,976 589,409
Foreign currency translation 7,199 20,483 22,744
Retained earnings 1,190,590 1,093,608 1,181,110
---------- ---------- -----------
1,899,528 1,771,506 1,857,188
---------- ---------- -----------
$3,578,421 $3,447,071 $ 3,726,881
========== ========== ===========
See notes to consolidated financial statements.
4
VF CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
---------------------------------
SEPTEMBER 28 SEPTEMBER 30
1996 1995
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OPERATIONS
Net income $ 216,870 $ 192,908
Adjustments to reconcile net income to cash provided by operations:
Depreciation 99,348 101,636
Amortization of intangible assets 21,076 24,759
Other, net (12,269) (1,707)
Changes in current assets and liabilities:
Accounts receivable (134,529) (136,921)
Inventories 90,955 (198,171)
Accounts payable 45,015 14,644
Other, net 148,406 91,319
------------ ----------
Cash provided by operations 474,872 88,467
INVESTMENTS
Capital expenditures (105,270) (113,140)
Business acquisitions (20,362) (12,004)
Other, net 47,167 2,620
------------ ----------
Cash invested (78,465) (122,524)
FINANCING
Increase (decrease) in short-term borrowings (200,353) 34,078
Proceeds from long-term debt 15,556 98,718
Payment of long-term debt (4,243) (2,613)
Purchase of Common Stock (48,682) (57,443)
Cash dividends paid (71,710) (68,176)
Other, net 41,047 33,895
------------ ----------
Cash provided (used) by financing (268,385) 38,459
------------ ----------
NET CHANGE IN CASH AND EQUIVALENTS 128,022 4,402
CASH AND EQUIVALENTS - BEGINNING OF YEAR 84,075 59,742
------------ ----------
CASH AND EQUIVALENTS - END OF PERIOD $ 212,097 $ 64,144
============ ==========
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
September 28, 1996 are not necessarily indicative of results that may be
expected for the year ending January 4, 1997. For further information, refer
to the consolidated statements and notes included in the Company's Annual
Report on Form 10-K for the year ended December 30, 1995.
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 September 28, 1996, there were 63,547,672 shares
outstanding, excluding 2,199,352 treasury shares. At December 30, 1995 and
September 30, 1995, there were 63,438,933 and 63,924,913 shares outstanding,
excluding 1,376,976 and 784,411 treasury shares, respectively.
There are 25,000,000 authorized shares of Preferred Stock, $1 par value. Of
these shares, 2,000,000 were designated as Series A, of which none have been
issued, and 2,105,263 shares were designated and issued as 6.75% Series B
Preferred Stock, of which 1,894,678 shares were outstanding at September 28,
1996, 1,964,942 at December 30, 1995 and 1,976,884 at September 30, 1995.
6
VF CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales increased 4% for the third quarter but decreased 1% for the first
nine months of 1996 compared with the same periods of 1995. Earnings per share
increased by 31% for the quarter and 13% for the first nine months of 1996.
The increase in sales in the third quarter resulted primarily from an increase
in unit sales. On a year-to-date basis, however, unit sales are behind the
1995 period. Operating margin improvements during the third quarter resulted
from better utilization of manufacturing capacity and lower SG&A expenses as a
percent of sales, resulting from the actions taken during the fourth quarter of
1995.
Sales and operating income by business group are summarized as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------------------
SEPTEMBER 28 SEPTEMBER 30 PERCENT SEPTEMBER 28 SEPTEMBER 30 PERCENT
1996 1995 CHANGE 1996 1995 CHANGE
------------ ------------ ------- ------------ ------------ -------
(In thousands) (In thousands)
NET SALES
Jeanswear $ 744,519 $ 682,697 9% $2,029,538 $ 1,998,069 2%
Decorated Knitwear 190,008 202,027 (6) 449,586 432,868 4
Intimate Apparel 163,539 181,459 (10) 481,235 552,177 (13)
Playwear 110,441 107,574 3 274,512 286,632 (4)
Specialty Apparel 172,412 158,345 9 525,168 521,879 1
---------- ---------- ---- ---------- ----------- ----
$1,380,919 $1,332,102 4% $3,760,039 $ 3,791,625 (1)%
========== ========== ==== ========== =========== ====
OPERATING INCOME
Jeanswear $ 106,172 $ 89,745 18% $ 292,702 $ 272,421 7%
Decorated Knitwear 23,998 19,750 22 32,687 10,169 100+
Intimate Apparel 15,573 13,079 19 31,974 46,096 (31)
Playwear 7,736 5,566 39 10,266 19,297 (47)
Specialty Apparel 18,617 16,752 11 62,884 61,183 3
---------- ---------- ---- ---------- ----------- ----
172,096 144,892 19% 430,513 409,166 5%
==== ====
OTHER OPERATING INCOME (EXPENSE) (404) (1,978) 457 (3,318)
CORPORATE EXPENSES (5,700) (9,402) (24,044) (30,173)
---------- ---------- ---------- -----------
OPERATING INCOME $ 165,992 $ 133,512 24% $ 406,926 $ 375,675 8%
========== ========== ==== ========== =========== ====
7
The Jeanswear business group includes the Lee, Wrangler, Rustler, Riders and
Girbaud brands in the United States and the Lee and Wrangler brands in
international markets, primarily in Europe. Despite modest declines in sales
in the first six months of 1996, sales rebounded in the third quarter, with
increases experienced both domestically and in international markets. Lower
per unit manufacturing costs resulted in increases to operating margins, and
operating expense reductions resulting from actions taken in late 1995 helped
to offset the impact of additional advertising spending both domestically and
abroad for the quarter and nine month periods.
The sales decrease in the Decorated Knitwear business group in the third
quarter resulted from reduced unit volumes in decorated and undecorated fleece.
The benefits of additional and more balanced production volume in manufacturing
plants, as well as improvements in operating margins within the sports apparel
businesses, resulted in better profitability within this category for the first
nine months of the year.
The Intimate Apparel business group includes the Vanity Fair and Vassarette
brands as well as a private label business domestically. The Company also has
intimate apparel operations in Europe, primarily in France and Spain. The
decline in sales for the quarter and nine months resulted from reductions in
sales unit volume both in the United States and in Europe. The third quarter
increase in operating income resulted from improved domestic margins related to
a more favorable mix of offshore production and an improved sales mix.
The Playwear business group consists of the Healthtex brand, the preschool
sizes of Lee and Wrangler, and products imprinted with characters licensed from
The Walt Disney Company and others. The operating margin improvement in the
third quarter resulted from an improved sales mix and a better balance of
manufacturing capacity to needs.
The Specialty Apparel business group includes Red Kap occupational apparel,
Jantzen swim and casual apparel and JanSport brand equipment. Sales and
profits remained relatively stable during the first half of the year. During
the third quarter, sales and operating income increased due to higher sales
unit volume.
Gross margins improved to 32.3% of sales in the quarter and 32.5% in the nine
months of 1996, compared with 31.0% and 31.7% in 1995. These increases
resulted from lower manufacturing costs attributable to the cost reduction
initiatives of late 1995 and lower inventory write-down requirements.
Marketing, administrative and general expenses were 20.3% of sales during the
quarter and 21.7% for the nine month period, compared with 20.8% and 21.7%,
respectively, in 1995. For the current quarter and first nine months of 1996,
marketing expenses increased as a percent of sales due to higher advertising,
but administrative and general expenses declined in amount and as a percent of
sales, resulting from the cost reduction initiatives of late 1995.
Net interest expense declined in 1996 due to improved cash flows from
operations, primarily from lower inventory levels, resulting in a significant
reduction in the Company's short-term borrowings.
The effective income tax rate in 1996 was 40.6% for the quarter and nine
months, compared with 41.2% and 40.3%, respectively, in 1995. The effective
rate is based on the expected effective rate for the year.
8
FINANCIAL CONDITION AND LIQUIDITY
The financial condition of the Company is reflected in the following:
SEPTEMBER 28 DECEMBER 30 SEPTEMBER 30
1996 1995 1995
------------ ----------- ------------
(Dollars in millions)
Working capital $884.9 $799.3 $865.5
Current ratio 1.9 to 1 1.9 to 1 1.8 to 1
Debt to total capital 25.7% 32.3% 34.4%
Days sales outstanding in accounts receivable are consistent with the level at
the end of 1995 and have improved slightly from the level at the end of the
1995 third quarter.
The significant reduction in inventories from the 1995 third quarter resulted
from specific efforts to reduce inventories while maintaining required service
levels.
Short-term borrowings declined during the first nine months of 1996 due to
strong cash flow from operations resulting from reduced inventory levels. In
September 1996, the Company called for redemption $100 million of 1999 notes.
These notes, classified as a current obligation, were redeemed in October 1996.
During the second quarter of 1996, the Company purchased 692,000 shares of its
Common Stock in open market transactions, completing its authorization from the
Board of Directors to purchase up to three million shares. In July 1996, the
Board authorized the purchase of an additional five million shares. During the
third quarter, the Company purchased 123,700 shares of its Common Stock in
connection with the new authorization.
On August 2, 1996, the Company acquired the common stock of Bulwark Protective
Apparel Inc. for $20.4 million. Bulwark, based in Edmonton, Alberta, is
Canada's leading manufacturer and marketer of premium flame retardant apparel
for the petrochemical, chemical and utility industries throughout North
America.
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 September 28, 1996 and September
30, 1995.
Exhibit 27 - Financial data schedule as of September 28, 1996.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the quarter ended September 28, 1996.
9
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/ Gerard G. Johnson
--------------------------
Gerard G. Johnson
Vice President - Finance
(Chief Financial Officer)
Date: November 6, 1996
By: /s/ Robert K. Shearer
--------------------------
Robert K. Shearer
Vice President - Controller
(Chief Accounting Officer)
10