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 OCTOBER 4, 1997
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)
1047 NORTH PARK ROAD
WYOMISSING, PENNSYLVANIA 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 November 1, 1997, there were 61,086,738 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 4, 1997 and
September 28, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets - October 4, 1997,
January 4, 1997 and September 28, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Nine months ended October 4, 1997 and
September 28, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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 4 SEPTEMBER 28 OCTOBER 4 SEPTEMBER 28
1997 1996 1997 1996
--------------- ---------------- ---------------- ----------------
NET SALES $ 1,416,906 $ 1,380,919 $ 3,935,236 $ 3,760,039
COSTS AND OPERATING EXPENSES
Cost of products sold 929,595 934,561 2,602,438 2,536,845
Marketing, administrative
and general expenses 296,940 279,962 874,435 816,725
Other operating (income) expense 719 404 1,208 (457)
--------------- ---------------- ---------------- ----------------
1,227,254 1,214,927 3,478,081 3,353,113
--------------- ---------------- ---------------- ----------------
OPERATING INCOME 189,652 165,992 457,155 406,926
OTHER INCOME (EXPENSE)
Interest income 2,689 2,406 10,281 8,653
Interest expense (12,721) (15,850) (37,882) (49,754)
Miscellaneous, net 1,494 601 801 (1,031)
--------------- ---------------- ---------------- ----------------
(8,538) (12,843) (26,800) (42,132)
--------------- ---------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES 181,114 153,149 430,355 364,794
INCOME TAXES 72,422 62,101 172,573 147,924
--------------- ---------------- ---------------- ----------------
NET INCOME $ 108,692 $ 91,048 $ 257,782 $ 216,870
=============== ================ ================ ================
EARNINGS PER COMMON SHARE
Primary $1.72 $1.42 $4.01 $3.36
Fully diluted 1.67 1.39 3.91 3.29
CASH DIVIDENDS PER COMMON SHARE $0.38 $0.36 $1.14 $1.08
See notes to consolidated financial statements.
3
VF CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
OCTOBER 4 JANUARY 4 SEPTEMBER 28
1997 1997 1996
(UNAUDITED) (UNAUDITED)
-------------- --------------- --------------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 57,404 $ 270,629 $ 212,097
Accounts receivable, less
allowances: Oct 4 - $43,880;
Jan 4 - $40,253; Sept 28 - $40,714 747,873 592,942 752,045
Inventories:
Finished products 452,847 394,962 422,997
Work in process 181,167 168,774 176,175
Materials and supplies 133,210 167,087 151,620
------------- -------------- --------------
767,224 730,823 750,792
Other current assets 119,967 111,932 114,657
------------- -------------- --------------
Total current assets 1,692,468 1,706,326 1,829,591
PROPERTY, PLANT AND EQUIPMENT 1,597,745 1,543,351 1,517,866
Less accumulated depreciation 885,046 821,827 798,554
------------- -------------- --------------
712,699 721,524 719,312
INTANGIBLE ASSETS 826,775 863,930 873,552
OTHER ASSETS 190,726 157,755 155,966
------------- -------------- --------------
$ 3,422,668 $ 3,449,535 $ 3,578,421
============= ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 22,312 $ 17,528 $ 28,030
Current portion of long-term debt 461 1,298 101,015
Accounts payable 288,882 320,056 321,051
Accrued liabilities 531,110 427,385 494,585
------------- -------------- --------------
Total current liabilities 842,765 766,267 944,681
LONG-TERM DEBT 516,558 519,058 527,073
OTHER LIABILITIES 167,752 164,077 181,696
REDEEMABLE PREFERRED STOCK 56,799 58,092 58,498
DEFERRED CONTRIBUTIONS TO EMPLOYEE
STOCK OWNERSHIP PLAN (27,604) (31,698) (33,055)
------------- -------------- --------------
29,195 26,394 25,443
COMMON SHAREHOLDERS' EQUITY
Common Stock 61,225 63,908 63,548
Additional paid-in capital 725,267 668,554 638,191
Foreign currency translation (31,255) 6,428 7,199
Retained earnings 1,111,161 1,234,849 1,190,590
------------- -------------- --------------
1,866,398 1,973,739 1,899,528
------------- -------------- --------------
$ 3,422,668 $ 3,449,535 $ 3,578,421
============= ============== ==============
See notes to consolidated financial statements.
4
VF CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
-----------------------------------------------
OCTOBER 4 SEPTEMBER 28
1997 1996
-------------- ----------------
OPERATIONS
Net income $ 257,782 $ 216,870
Adjustments to reconcile net income to
cash provided by operations:
Depreciation 98,814 99,348
Amortization of intangible assets 20,656 21,076
Other, net (15,117) (12,269)
Changes in current assets and liabilities:
Accounts receivable (174,848) (134,529)
Inventories (48,686) 90,955
Accounts payable (25,207) 45,015
Other, net 116,128 148,406
-------------- ----------------
Cash provided by operations 229,522 474,872
INVESTMENTS
Capital expenditures (105,010) (105,270)
Business acquisitions (5,797) (20,362)
Other, net (3,030) 47,167
-------------- ----------------
Cash invested (113,837) (78,465)
FINANCING
Increase (decrease) in short-term borrowings 6,838 (200,353)
Proceeds from long-term debt --- 15,556
Payment of long-term debt (1,250) (4,243)
Purchase of Common Stock (310,100) (48,682)
Cash dividends paid (74,894) (71,710)
Proceeds from issuance of stock 48,842 40,015
Other, net 1,654 1,032
-------------- ----------------
Cash used by financing (328,910) (268,385)
-------------- ----------------
NET CHANGE IN CASH AND EQUIVALENTS (213,225) 128,022
CASH AND EQUIVALENTS - BEGINNING OF YEAR 270,629 84,075
-------------- ----------------
CASH AND EQUIVALENTS - END OF PERIOD $ 57,404 $ 212,097
============== ================
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 4, 1997 are not necessarily indicative of results that may be expected
for the year ending January 3, 1998. 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 4, 1997.
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.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," which establishes new standards for computations of
earnings per share. The Statement will be effective for periods ending after
December 15, 1997, with prior periods restated at that time to comply with the
new standards. If the Statement had been effective for the periods ended
October 4, 1997 and September 28, 1996, there would have been no significant
change in earnings per share as presented in the accompanying Consolidated
Statements of Income.
NOTE C - CAPITAL
There are 150,000,000 authorized shares of Common Stock, no par value - stated
capital $1 a share. At October 4, 1997, there were 61,225,408 shares
outstanding, excluding 6,058,041 treasury shares. At January 4, 1997 and
September 28, 1996, there were 63,907,874 and 63,547,672 shares outstanding,
excluding 2,399,323 and 2,199,352 treasury shares, respectively.
Subsequent to the end of the third quarter, the Board of Directors declared a
2-for-1 split of the Company's Common Stock, payable to shareholders of record
on November 4, 1997, with additional shares to be distributed on November 24,
1997. Share and per share data in this document have not been restated for
this stock split.
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 1,839,640 shares were outstanding at October 4, 1997,
1,881,515 at January 4, 1997 and 1,894,678 at September 28, 1996.
NOTE D - DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into short-term foreign currency forward exchange contracts
to manage exposures related to certain anticipated foreign currency cash flows.
Gains and losses are included in operating income currently. The amounts of
the contracts, and related gains and losses, are not material.
6
VF CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The sales dollar increases of 3% for the quarter and 5% for the nine month
periods ended October 4, 1997 resulted from increases in unit sales. If
foreign currency exchange rates had remained consistent with the same periods
in 1996, the sales increase for the quarter would have been 5% and for the nine
months would have been 6%.
The sales increases for both the quarter and nine month periods were
broad-based. Sales of domestic jeanswear increased during the quarter and nine
months, with particularly strong increases driven by our Wrangler, Riders and
Timber Creek brands in the nine months. U.S. intimate apparel also contributed
significantly to the sales increase, with strong sales of the Vassarette brand
in the quarter and nine months. Our workwear business also posted higher sales
resulting from unit volume growth, aided by the August 1996 acquisition of
Bulwark Protective Apparel. Total international sales for both our jeanswear
and intimate apparel businesses were down for the quarter and nine months, due
primarily to the effects of foreign currency translation and to weak retail
conditions in several key European markets.
Gross margins improved to 34.4% of sales in the quarter and 33.9% in the nine
months of 1997, compared with 32.3% and 32.5% in 1996. The margin improvement
resulted from lower raw material costs, lower cost sourcing and improved
operating efficiencies.
Marketing, administrative and general expenses were 21.0% of sales during the
quarter and 22.2% during the nine month period, compared with 20.3% and 21.7%,
respectively, in 1996. The increases were due to higher levels of advertising
and other promotional expenses in the Company's targeted growth areas of
domestic jeanswear, intimate apparel and daypacks. These advertising and
promotional expenses totaled $226 million during the first nine months of 1997,
a 19% increase over the prior year period. Management has committed to invest
a significant portion of the savings resulting from the manufacturing, selling
and administrative cost reduction initiatives of the past two years in
increased advertising and other actions to support and build its brands.
Net interest expense declined significantly in 1997 due to a higher level of
cash and reduced short and long-term borrowings.
The effective income tax rate for the nine months of 1997 was 40.1%, compared
with 40.6% in the prior year, based on the expected rate for the year. The
rate is lower for 1997 due to higher income before taxes and reduced foreign
operating losses for which no tax benefit is recognized.
Earnings per share in 1997 advanced 21% over the prior year quarter and 19%
over the prior year nine months. The effects of a stronger U.S. dollar on
foreign currency translation reduced earnings by $.06 and $.12 per share
during the quarter and nine month period, respectively.
7
FINANCIAL CONDITION AND LIQUIDITY
The financial condition of the Company is reflected in the following:
OCTOBER 4 JANUARY 4 SEPTEMBER 28
1997 1997 1996
--------------- -------------- --------------
(Dollars in millions)
Working capital $849.7 $940.1 $884.9
Current ratio 2.0 to 1 2.2 to 1 1.9 to 1
Debt to total capital 22.4% 21.4% 25.7%
Accounts receivable balances are higher than at the end of 1996 due to seasonal
sales patterns, with days sales outstanding in accounts receivable consistent
for all dates presented. Inventories at the end of the third quarter of both
1997 and 1996 are comparable, but higher than at the end of 1996 due to
seasonal patterns.
Cash flow from operations for the first nine months of 1997 is comparable to
historical averages. Cash flow from operations for the 1996 period was
unusually high due to a reduction in inventory; more typically, inventory
would build during this period of the year.
During the third quarter, the Company acquired the Brittania trademarks and
acquired a majority interest in a joint venture to market Lee brand jeanswear
in Chile, Peru and Bolivia.
During the third quarter, the Company accelerated its Common Stock repurchase
program. During the first nine months of 1997, the Company repurchased 3.7
million shares of its Common Stock in open market transactions for a total cost
of $310.1 million. Management intends to continue to repurchase shares during
the remainder of the year using its free cash flow. Under its current
authorization from the Board of Directors, the Company may repurchase up to an
additional 1.0 million Common Shares.
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
8
industry; actions of competitors that may impact the Company's business;
timely completion of the Company's cost reduction initiatives; 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
Reference is made to Item 3, Legal Proceedings, in the Company's Form 10-K and
to "Other Matters" included in Management's Discussion and Analysis of
Operations and Financial Condition in the Company's Annual Report for the year
ended January 4, 1997. On October 13, 1997, the "acid wash" litigation was
settled for an amount that is immaterial to the Company's financial position
and results of operations.
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 4, 1997 and September 28,
1996.
Exhibit 27 - Financial data schedule as of October 4, 1997.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the three months ended October 4, 1997.
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 14, 1997
By: /s/ Robert K. Shearer
--------------------------
Robert K. Shearer
Vice President - Controller
(Chief Accounting Officer)
10