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 4, 1998
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 May 2, 1998, there were 121,670,346 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 ended April 4, 1998 and
April 5, 1997 ................................................3
Consolidated Balance Sheets - April 4, 1998,
January 3, 1998 and April 5, 1997 ............................4
Consolidated Statements of Cash Flows -
Three months ended April 4, 1998 and
April 5, 1997 ................................................5
Notes to Consolidated Financial Statements ...................6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ..........................8
PART II - OTHER INFORMATION
Item 2 - Changes in the Rights of the Company's Security Holders .........10
Item 4 - Submission of Matters to a Vote of Security Holders .............10
Item 6 - Exhibits and Reports on Form 8-K ................................10
2
VF CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
APRIL 4 APRIL 5
1998 1997
---- ----
NET SALES $ 1,326,205 $ 1,262,781
COSTS AND OPERATING EXPENSES
Cost of products sold 872,980 844,944
Marketing, administrative
and general expenses 309,912 290,542
Other operating (income) expense 399 152
----------- -----------
1,183,291 1,135,638
----------- -----------
OPERATING INCOME 142,914 127,143
OTHER INCOME (EXPENSE)
Interest income 1,802 4,236
Interest expense (14,896) (12,618)
Miscellaneous, net 356 (801)
----------- -----------
(12,738) (9,183)
----------- -----------
INCOME BEFORE INCOME TAXES 130,176 117,960
INCOME TAXES 52,070 47,774
----------- -----------
NET INCOME $ 78,106 $ 70,186
=========== ===========
EARNINGS PER COMMON SHARE
Basic $ 0.63 $ 0.54
Diluted 0.62 0.53
CASH DIVIDENDS PER COMMON SHARE $ 0.20 $ 0.19
See notes to consolidated financial statements.
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VF CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
APRIL 4 JANUARY 3 APRIL 5
1998 1998 1997
---- ---- ----
ASSETS
CURRENT ASSETS
Cash and equivalents $ 69,716 $ 124,094 $ 219,745
Accounts receivable, less
allowances: Apr 4 - $43,088;
Jan 3 - $39,576; Apr 5 - $42,175 728,708 587,934 682,247
Inventories:
Finished products 540,713 434,000 436,148
Work in process 179,781 166,947 165,469
Materials and supplies 167,594 173,808 141,570
----------- ----------- -----------
888,088 774,755 743,187
Other current assets 140,230 114,683 115,750
----------- ----------- -----------
Total current assets 1,826,742 1,601,466 1,760,929
PROPERTY, PLANT AND EQUIPMENT 1,613,329 1,568,952 1,566,074
Less accumulated depreciation 890,480 862,962 840,467
----------- ----------- -----------
722,849 705,990 725,607
INTANGIBLE ASSETS 911,125 814,332 842,596
OTHER ASSETS 229,221 200,994 185,315
----------- ----------- -----------
$ 3,689,937 $ 3,322,782 $ 3,514,447
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 253,516 $ 24,191 $ 24,641
Current portion of long-term debt 787 450 1,277
Accounts payable 285,669 301,103 291,011
Accrued liabilities 521,877 440,164 485,877
----------- ----------- -----------
Total current liabilities 1,061,849 765,908 802,806
LONG-TERM DEBT 516,840 516,226 517,616
OTHER LIABILITIES 157,237 143,813 164,248
REDEEMABLE PREFERRED STOCK 55,756 56,341 57,661
DEFERRED CONTRIBUTIONS TO EMPLOYEE
STOCK OWNERSHIP PLAN (24,740) (26,275) (30,306)
----------- ----------- -----------
31,016 30,066 27,355
COMMON SHAREHOLDERS' EQUITY
Common Stock 121,608 121,225 64,010
Additional paid-in capital 773,585 744,108 681,555
Foreign currency translation (39,292) (36,110) (13,372)
Retained earnings 1,067,094 1,037,546 1,270,229
----------- ----------- -----------
1,922,995 1,866,769 2,002,422
----------- ----------- -----------
$ 3,689,937 $ 3,322,782 $ 3,514,447
=========== =========== ===========
See notes to consolidated financial statements.
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VF CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
APRIL 4 APRIL 5
1998 1997
---- ----
OPERATIONS
Net income $ 78,106 $ 70,186
Adjustments to reconcile net income to
cash provided by operations:
Depreciation 33,817 32,546
Amortization of intangible assets 8,044 6,949
Other, net 6,842 (23,043)
Changes in current assets and liabilities:
Accounts receivable (117,011) (102,073)
Inventories (23,237) (19,821)
Accounts payable (27,247) (25,265)
Other, net 47,368 64,623
--------- ---------
Cash provided by operations 6,682 4,102
INVESTMENTS
Capital expenditures (39,446) (41,370)
Business acquisitions (228,155) 0
Other, net 840 499
--------- ---------
Cash invested (266,761) (40,871)
FINANCING
Increase (decrease) in short-term borrowings 229,757 8,364
Payment of long-term debt (52) (78)
Purchase of Common Stock (23,179) (10,178)
Cash dividends paid (25,213) (25,247)
Proceeds from issuance of stock 23,895 12,325
Other, net 493 699
--------- ---------
Cash provided (used) by financing 205,701 (14,115)
--------- ---------
NET CHANGE IN CASH AND EQUIVALENTS (54,378) (50,884)
CASH AND EQUIVALENTS - BEGINNING OF YEAR 124,094 270,629
--------- ---------
CASH AND EQUIVALENTS - END OF PERIOD $ 69,716 $ 219,745
========= =========
See notes to consolidated financial statements.
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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 4, 1998 are not necessarily indicative of results that may be expected for
the year ending January 2, 1999. 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 3, 1998.
NOTE B - EARNINGS PER COMMON SHARE
Earnings per share amounts for 1997 have been restated in accordance with
Statement of Financial Accounting Standards No. 128, Earnings per Share.
Earnings per share are computed as follows (in thousands, except per share
amounts):
First Quarter
1998 1997
---- ----
Basic earnings per share:
Net income $ 78,106 70,186
Less Preferred Stock dividends and redemption
premium 1,585 1,151
-------- --------
Net income available for Common Stock $ 76,521 $ 69,035
======== ========
Weighted average Common Stock outstanding 121,251 127,926
======== ========
Basic earnings per share $ 0.63 $ 0.54
Diluted earnings per share:
Net income $ 78,106 $ 70,186
Increased ESOP expense if Preferred Stock were
converted to Common Stock 289 316
-------- --------
Net income available for Common Stock
and dilutive securities $ 77,817 $ 69,870
======== ========
Weighted average Common Stock outstanding 121,251 127,926
Additional Common Stock resulting from dilutive
securities:
Preferred Stock 2,890 2,988
Stock options 1,311 942
-------- --------
Weighted average Common Stock and dilutive
securities outstanding 125,452 131,856
======== ========
Diluted earnings per share $ 0.62 $ 0.53
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NOTE C - CAPITAL
The Company declared a two-for-one stock split in November 1997. References in
this report to per share amounts have been restated, but numbers of shares
presented are based on the actual amounts outstanding.
At April 4, 1998, there were 150,000,000 authorized shares of Common Stock, no
par value - stated capital $1 a share. At April 4, 1998, there were 121,607,566
shares outstanding, excluding 14,397,870 treasury shares. At January 3, 1998 and
April 5, 1997, there were 121,225,298 and 64,009,905 shares outstanding,
excluding 13,910,519 and 2,539,948 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 1,805,868 shares were outstanding at April 4, 1998,
1,824,820 at January 3, 1998 and 1,867,558 at April 5, 1997.
NOTE D - ACQUISITION
On January 8, 1998, the Company acquired the common stock of Bestform Group,
Inc. for $184.3 million in cash, plus repayment of $44.4 million in debt. This
acquisition has been accounted for as a purchase, and accordingly, operating
results have been included in the financial statements from the date of
acquisition. The net assets of Bestform are included based on a preliminary
allocation of the purchase price, with approximately $109 million representing
intangible assets. Final asset and liability valuations are not expected to have
a material effect on the financial statements.
The following pro forma results of operations assume that Bestform had been
acquired at the beginning of 1997 (in thousands, except per share amounts):
First Quarter
1997
----
Net sales $1,337,377
Net income 72,297
Earnings per common share:
Basic $0.56
Diluted 0.55
NOTE E - COMPREHENSIVE INCOME
Effective January 4, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting 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 standards.
The Company's comprehensive income was as follows (in thousands):
First Quarter
1998 1997
---- ----
Net income as reported $78,106 $ 70,186
Other comprehensive income:
Foreign currency translation adjustments,
net of income taxes (3,182) (19,800)
------- --------
Comprehensive income $74,924 $ 50,386
======= ========
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VF CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated sales increased 5% for the quarter ended April 5, 1998, compared
with the first quarter of 1997. Businesses acquired since last year's first
quarter increased sales by 6%. In the translation of foreign currencies into the
U.S. dollar, a stronger U.S. dollar reduced sales comparisons by 2% (and
earnings by $.02 per share).
Domestic intimate apparel sales increased from the acquisition of Bestform
Group, Inc. (Bestform) and the continuing growth of the Vassarette brand. Sales
of domestic jeanswear increased during the quarter, particularly in the Lee,
Riders and Timber Creek brands. Total international sales for both our jeanswear
and intimate apparel businesses declined for the quarter due to the effects of a
stronger U.S. dollar in translating foreign currencies and to weak retail
conditions in several key European markets. Sales also declined in knitwear due
to difficult market conditions.
Gross margins improved to 34.2% of sales in the quarter, compared with 33.1% in
the 1997 period. The margin improvement occurred in most businesses and resulted
from the continuing shift to lower cost sourcing, lower raw material costs and
improved operating efficiencies.
Marketing, administrative and general expenses were 23.4% of sales during the
quarter, compared with 23.0% in 1997. Marketing expenses as a percent of sales
in the last two years have been above historical spending levels as management
has increased advertising and other efforts to support and build its brands. In
addition, expenses have increased as a percent of sales due to the
implementation of shared services and common systems.
Net interest expense increased in 1998 due to a reduced level of cash and
increased short-term borrowings related to the acquisition of Bestform in
January 1998.
The effective income tax rate for the three months of 1998 was 40.0%, based on
the expected rate for the year, compared with 40.5% in the prior year.
FINANCIAL CONDITION AND LIQUIDITY
The financial condition of the Company is reflected in the following:
APRIL 4 JANUARY 3 APRIL 5
1998 1998 1997
---- ---- ----
(Dollars in millions)
Working capital $764.9 $835.6 $958.1
Current ratio 1.7 to 1 2.1 to 1 2.2 to 1
Debt to total capital 28.6% 22.5% 21.3%
8
Accounts receivable balances at the end of the first quarter of 1998 are higher
than at the comparable date in 1997 and at year-end 1997 due primarily to the
acquisition of Bestform. In addition, first quarter balances are higher than
year-end balances due to seasonal sales patterns. Days sales outstanding are
consistent for all dates presented.
Inventories at the end of the first quarter of 1998 include those of Bestform.
Excluding Bestform, inventories are consistent with the 1997 year-end level and
6% higher than the level at the end of the first quarter of 1997 due primarily
to sales growth expectations.
Intangible assets increased during 1998 due to the acquisition of Bestform.
The increase in short-term borrowings relates to the acquisition of Bestform in
January 1998.
During the first quarter of 1998, the Company repurchased 487,000 shares of its
Common Stock in open market transactions for a total cost of $23.2 million.
Under its current authorization from the Board of Directors, the Company may
repurchase up to an additional 4.7 million Common Shares.
The Company announced subsequent to the end of the quarter the formation of a
majority-owned subsidiary to manufacture and market Wrangler products in Japan.
The transaction is expected to close near the end of the second quarter.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements included herein are "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. 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 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.
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PART II - OTHER INFORMATION
Item 2 - Changes in the Rights of the Company's Security Holders
In October 1997, the Board of Directors adopted a new Shareholder Rights Plan to
replace the former rights plan which expired on January 25, 1998. Under the new
Plan, the Company declared a dividend of one Right for each share of VF Common
Stock outstanding on January 25, 1998. The Rights become exercisable ten days
after an outside party acquires, or makes an offer for, 15% or more of the
Common Stock. Once exercisable, each Right will entitle its holder to buy 1/100
share of Series A Preferred Stock for $175. If the Company is involved in a
merger or other business combination or an outside party acquires 15% or more of
the Common Stock, each Right will be modified to entitle its holder (other than
the acquirer) to purchase common stock of the acquiring company or, in certain
circumstances, VF Common Stock having a market value of twice the exercise price
of the Right. In some circumstances, Rights other than those held by an acquirer
may be exchanged for one share of VF Common Stock. The Rights, which expire in
January 2008, may be redeemed at $.01 per right prior to their becoming
exercisable.
Item 4 - Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company held on April 21, 1998, the
following three nominees to the Board of Directors were elected to serve until
the 2001 Annual Meeting:
Votes For Votes Withheld
--------- --------------
Robert D. Buzzell 99,523,392 4,277,122
Edward E. Crutchfield 98,781,099 5,019,415
George Fellows 98,632,589 5,167,925
In addition, the proposal to increase the number of shares of Common Stock that
the Company is authorized to issue from 150 million to 300 million was approved
by the shareholders. The vote was 96,504,447 for, 6,935,040 against and 361,027
abstaining.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 3(A) - Articles of Amendment with Respect to
Designation of Series A Participating Cumulative Preferred
Stock (Incorporated by reference to Exhibit 3(C) to Form 10-K
for the fiscal year ended January 3, 1998)
Exhibit 3(B) - Article Fifth of the Amended and Restated
Articles of Incorporation
Exhibit 4(A) - Rights Agreement, dated as of October 22, 1997,
between the Company and First Chicago Trust Company of New
York (Incorporated by reference to Exhibit 4(F) to Form 10-K
for the fiscal year ended January 3, 1998)
Exhibit 27 - Financial data schedule as of April 4, 1998
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the three months ended April 4, 1998.
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)
By: /s/ Gerard G. Johnson
----------------------
Gerard G. Johnson
Vice President - Finance
(Chief Financial Officer)
Date: May 15, 1998
By: /s/ Robert K. Shearer
--------------------------------
Robert K. Shearer
Vice President - Controller
(Chief Accounting Officer)
11