1
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 JUNE 30, 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 July 28, 2001, there were 111,991,017 shares of the registrant's Common Stock
outstanding.
2
VF CORPORATION
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income -
Three months and six months ended June 30, 2001 and
July 1, 2000........................................................... 3
Consolidated Balance Sheets - June 30, 2001,
December 30, 2000 and July 1, 2000..................................... 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 2001 and
July 1, 2000........................................................... 5
Notes to Consolidated Financial Statements............................. 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... 11
Item 3 - Quantitative and Qualitative Disclosures about Market Risk............. 13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings ...................................................... 14
Item 6 - Exhibits and Reports on Form 8-K........................................ 14
2
3
VF CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
--------------------------- ----------------------------
July 1 July 1
June 30 2000 June 30 2000
2001 (Restated) 2001 (Restated)
------------ ------------ ------------ -------------
Net Sales $ 1,322,958 $ 1,330,325 $ 2,746,257 $ 2,685,509
Costs and Operating Expenses
Cost of products sold 876,043 867,466 1,818,449 1,765,047
Marketing, administrative
and general expenses 307,776 321,713 637,445 636,131
Other operating expense 4,198 3,745 8,293 7,307
------------ ------------ ------------ -------------
1,188,017 1,192,924 2,464,187 2,408,485
------------ ------------ ------------ -------------
Operating Income 134,941 137,401 282,070 277,024
Other Income (Expense)
Interest income 1,508 1,210 3,517 2,512
Interest expense (24,176) (20,485) (49,101) (38,011)
Miscellaneous, net (906) 3,030 (1,655) 4,400
------------ ------------ ------------ -------------
(23,574) (16,245) (47,239) (31,099)
------------ ------------ ------------ -------------
Income Before Income Taxes and Cumulative
Effect of Change in Accounting Policy 111,367 121,156 234,831 245,925
Income Taxes 41,986 45,411 87,964 92,329
------------ ------------ ------------ -------------
Income Before Cumulative Effect of Change
in Accounting Policy 69,381 75,745 146,867 153,596
Cumulative Effect on Prior Years of Change
in Accounting Policy for Revenue Recognition,
Net of Income Taxes - - - (6,782)
------------ ------------ ------------ -------------
Net Income $ 69,381 $ 75,745 $ 146,867 $ 146,814
============ ============ ============ =============
Earnings Per Common Share - Basic
Income before cumulative effect of change
in accounting policy $0.61 $0.65 $1.29 $1.32
Net income 0.61 0.65 1.29 1.26
Earnings Per Common Share - Diluted
Income before cumulative effect of change
in accounting policy $0.60 $0.64 $1.27 $1.30
Net income 0.60 0.64 1.27 1.24
Weighted Average Shares Outstanding
Basic 111,571 114,125 111,762 114,743
Diluted 115,375 117,283 115,436 117,865
Cash Dividends Per Common Share $0.23 $0.22 $0.46 $0.44
See notes to consolidated financial statements.
3
4
VF CORPORATION
Consolidated Balance Sheets
(Unaudited)
(In thousands)
July 1
June 30 December 30 2000
2001 2000 (Restated)
------------- -------------- --------------
ASSETS
Current Assets
Cash and equivalents $ 100,400 $ 118,891 $ 98,388
Accounts receivable, less allowances:
June 30 - $54,782; Dec 30 - $54,918;
July 1 - $58,789 723,007 716,299 817,119
Inventories:
Finished products 851,911 710,158 767,977
Work in process 185,926 194,194 220,277
Materials and supplies 175,649 220,086 204,214
------------- -------------- --------------
1,213,486 1,124,438 1,192,468
Other current assets 156,462 150,468 120,328
------------- -------------- --------------
Total current assets 2,193,355 2,110,096 2,228,303
Property, Plant and Equipment 1,860,316 1,865,326 1,832,643
Less accumulated depreciation 1,118,751 1,089,311 1,043,273
------------- -------------- --------------
741,565 776,015 789,370
Intangible Assets 1,078,501 1,101,876 1,125,307
Other Assets 394,746 370,169 360,977
------------- -------------- --------------
$ 4,408,167 $ 4,358,156 $ 4,503,957
============= ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 272,325 $ 147,005 $ 745,691
Current portion of long-term debt 7,656 113,999 105,199
Accounts payable 290,099 340,127 365,335
Accrued liabilities 426,980 405,069 437,419
------------- -------------- --------------
Total current liabilities 997,060 1,006,200 1,653,644
Long-term Debt 904,469 905,036 417,521
Other Liabilities 228,006 214,590 203,672
Redeemable Preferred Stock 46,921 48,483 49,783
Deferred Contributions to Employee
Stock Ownership Plan (4,769) (7,966) (11,039)
------------- -------------- --------------
42,152 40,517 38,744
Common Shareholders' Equity
Common Stock, stated value $1; shares 111,468 112,259 114,195
authorized, 300,000,000; shares
outstanding;
June 30 - 111,468,229; Dec 30 -
112,258,556;
July 1 - 114,194,967
Additional paid-in capital 870,274 833,441 832,218
Accumulated other comprehensive income (loss) (98,765) (87,875) (82,490)
Retained earnings 1,353,503 1,333,988 1,326,453
------------- -------------- --------------
Total common shareholders' equity 2,236,480 2,191,813 2,190,376
------------- -------------- --------------
$ 4,408,167 $ 4,358,156 $ 4,503,957
============= ============== ==============
See notes to consolidated financial statements.
4
5
VF CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
------------------------
July 1
June 30 2000
2001 (Restated)
----------- ----------
Operations
Net income $ 146,867 $ 146,814
Adjustments to reconcile net income
to cash provided by operations:
Cumulative effect of accounting change - 6,782
Depreciation 67,924 67,281
Amortization of intangible assets 18,454 17,488
Other, net (4,550) 6,712
Changes in current assets and
liabilities:
Accounts receivable (15,509) (80,115)
Inventories (101,780) (127,951)
Accounts payable (43,921) (17,584)
Other, net 28,093 54,830
----------- ----------
Cash provided by operations 95,578 74,257
Investments
Capital expenditures (43,547) (55,353)
Business acquisitions - (241,879)
Other, net 7,251 9,016
----------- ----------
Cash invested (36,296) (288,216)
Financing
Increase in short-term borrowings 128,527 336,829
Payment of long-term debt (106,986) (843)
Purchase of Common Stock (72,723) (50,285)
Cash dividends paid (53,163) (52,123)
Proceeds from issuance of stock 32,234 593
Other, net (2,225) 1,988
----------- ----------
Cash (used) provided by financing (74,336) 236,159
Effect of Foreign Currency Rate Changes on Cash (3,437) (3,673)
----------- ----------
Net Change in Cash and Equivalents (18,491) 18,527
Cash and Equivalents - Beginning of Year 118,891 79,861
----------- ----------
Cash and Equivalents - End of Period $ 100,400 $ 98,388
=========== ==========
See notes to consolidated financial statements.
5
6
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 six months ended June 30, 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.
NOTE B - ACQUISITIONS
The Company completed several acquisitions during 2000. The following pro forma
results of operations for the second quarter and six months of 2000 (restated)
assume that each of these acquisitions had occurred at the beginning of 2000 (in
thousands, except per share amounts):
Second Six
Quarter Months
2000 2000
---------- ----------
Net sales $ 1,386,126 $ 2,837,060
Income before cumulative effect of change
in accounting policy 58,862 122,597
Earnings per common share, before
cumulative effect of change in
accounting policy:
Basic $0.51 $1.05
Diluted 0.50 1.04
The Company accrued various restructuring charges in connection with the
businesses acquired in 1999 and 2000. The 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 by the end of the year. Activity in the accrual accounts is summarized
as follows (in thousands):
Facilities Lease and
Exit Contract
Severance Costs Termination Total
------------- ------------ ------------- -----------
Balance, December 30, 2000 $ 3,222 $ 839 $ 11,977 $ 16,038
Additional accrual 1,100 720 - 1,820
Cash payments (1,316) (746) (5,080) (7,142)
------- --------- ---------- ---------
Balance, June 30, 2001 $ 3,006 $ 813 6,897 $ 10,716
======= ========= ======== =========
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. The Company currently
has a tender offer in effect to purchase the remaining outstanding shares.
6
7
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 (191) - - (191)
Cash payments (11,181) ( 474) ( 1,557) (13,212)
-------- ---------- ---------- --------
Balance, June 30, 2001 $ 9,019 $ 987 $ 13,984 $23,990
======== ========== ========== ========
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 - BUSINESS SEGMENT INFORMATION
Financial information for the Company's reportable segments is as follows (in
thousands):
Second Quarter Six Months
------------------------ ---------------------------
2000 2000
2001 (Restated) 2001 (Restated)
--------- ---------- ----------- -----------
Net sales:
Consumer Apparel $ 970,493 $ 994,842 $ 2,049,741 $ 2,065,656
Occupational Apparel 135,319 164,265 293,736 332,423
All Other 217,146 171,218 402,780 287,430
--------- ---------- ----------- -----------
Consolidated net sales $1,322,958 $ 1,330,325 $ 2,746,257 $ 2,685,509
========== ========== =========== ===========
Segment profit:
Consumer Apparel $ 135,167 $ 156,222 $ 294,118 $ 322,075
Occupational Apparel 10,781 9,398 24,644 24,841
All Other 20,451 8,838 26,159 8,408
--------- ---------- ----------- -----------
Total segment profit 166,399 174,458 344,921 355,324
Interest, net (22,668) (19,275) (45,584) (35,499)
Amortization of intangible assets (9,208) (8,875) (18,454) (17,488)
Corporate and other expenses (23,156) (25,152) (46,052) (56,412)
--------- ---------- ----------- -----------
Income before income taxes and cumulative
effect of change in accounting
policy $ 111,367 $ 121,156 $ 234,831 $ 245,925
========= ========== =========== ===========
7
8
NOTE E - EARNINGS PER SHARE
Earnings per share are computed as follows (in thousands, except per share
amounts):
Second Quarter Six Months
------------------------- ---------------------------
2000 2000
2001 (Restated) 2001 (Restated)
---------- ---------- ----------- -----------
Basic earnings per share:
Net income $ 69,381 $ 75,745 $ 146,867 $ 146,814
Less Preferred Stock dividends and
redemption premium 1,496 1,013 2,959 2,199
---------- ---------- ----------- -----------
Net income available for Common Stock $ 67,885 $ 74,732 $ 143,908 $ 144,615
========== ========== =========== ===========
Weighted average Common
Stock outstanding 111,571 114,125 111,762 114,743
========== ========== =========== ===========
Basic earnings per share $0.61 $0.65 $1.29 $1.26
========== ========== =========== ===========
Diluted earnings per share:
Net income $ 69,381 $ 75,745 $ 146,867 $ 146,814
Increased ESOP expense if Preferred
Stock were converted to Common Stock 213 238 413 475
---------- ---------- ----------- -----------
Net income available for Common Stock
and dilutive securities $ 69,168 $ 75,507 $ 146,454 $ 146,339
========== ========== =========== ===========
Weighted average Common Stock
outstanding 111,571 114,125 111,762 114,743
Additional Common Stock resulting from
dilutive securities:
Preferred Stock 2,420 2,579 2,450 2,595
Stock options and other 1,384 579 1,224 527
---------- ---------- ----------- -----------
Weighted average Common Stock and
dilutive securities outstanding 115,375 117,283 115,436 117,865
========== ========== =========== ===========
Diluted earnings per share $0.60 $0.64 $1.27 $1.24
========== ========== =========== ===========
Outstanding options to purchase 3.6 million shares and 4.7 million shares of
Common Stock have been excluded from the computation of diluted earnings per
share for the second quarter and the six months of 2001, respectively, because
the option exercise prices were greater than the average market price of the
Common Stock. Similarly, options to purchase 5.1 million shares and 6.5 million
shares of Common Stock were excluded for the second quarter and six months of
2000, respectively.
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):
8
9
Second Quarter Six Months
------------------------- -------------------------
(Restated) (Restated)
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net income as reported $ 69,381 $ 75,745 $ 146,867 $ 146,814
Other comprehensive income (loss):
Foreign currency translation
adjustments, net of income taxes (1,575) (15,524) (15,166) (17,476)
Unrealized gains (losses) on
marketable securities, net of
income taxes 323 - 83 -
Derivative hedging contracts, net of
income taxes 838 - 4,193 -
---------- ---------- ---------- ----------
Comprehensive income $ 68,967 $ 60,221 $ 135,977 $ 129,338
========== ========== ========== ==========
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) (15,166) 83 4,193 (10,890)
----------- ----------- ---------- ----------
Balance, June 30, 2001 $ (103,312) $ 354 $ 4,193 $ (98,765)
=========== =========== ========== ==========
The impact of foreign currency translation adjustments was due to the
strengthening of the U.S. dollar in relation to the currencies of most European
countries where the Company has operations.
NOTE G - CAPITAL
Common shares outstanding are net of shares held in treasury, and in substance
retired, of 27,140,946 at June 30, 2001, 25,139,879 at December 30, 2000 and
23,139,897 at July 1, 2000. In addition, 302,508, 311,608 and 344,608 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 1,519,713 shares were outstanding at June 30, 2001,
1,570,301 at December 30, 2000 and 1,612,398 at July 1, 2000.
NOTE H - RECENT ACCOUNTING PRONOUNCEMENTS
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.
9
10
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 six months of 2001, the
Company recognized additional net gains of $1.9 million, primarily in cost of
products sold, for hedging contracts that had matured. The total notional value
of foreign exchange contracts outstanding at June 30, 2001 was $57.0 million. At
that date, the Company had net deferred gains of $6.5 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.
On June 29, 2001, the Financial Accounting Standards Board issued Statement No.
141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible
Assets, which are required to be adopted by the Company at the beginning of
2002. Management is currently evaluating the effects of these Statements.
10
11
VF CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated sales decreased slightly for the second quarter and increased 2%
for the six months ended June 30, 2001, compared with the comparable periods in
2000. Sales comparisons benefited by $63 million of incremental sales in the
2001 quarter and $183 million in the 2001 six months related to businesses
acquired in 2000. Partially offsetting this were sales of $27 million in the
2000 quarter and $53 million in the 2000 six 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 $6 million in the quarter and $21 million in
the six months and reduced earnings per share by $.01 for the six months of
2001.
Gross margins were 33.8% of sales in both the 2001 quarter and six months,
compared with 34.8% and 34.3% in the same 2000 periods. Gross margins declined
in both 2001 periods due to expenses for downtime incurred primarily in domestic
jeanswear manufacturing plants to help align inventory levels with expected
sales volumes. Margins were also lower at the Company's swimwear and children's
playwear marketing units. Also impacting the overall comparisons were the higher
gross margins earned in the Outdoor businesses, which include The North Face and
Eastpak businesses acquired near the end of the second quarter of 2000.
Marketing, administrative and general expenses were 23.3% of sales in the
quarter and 23.2% in the six months of 2001, compared with 24.2% and 23.7% in
the 2000 periods. Expenses as a percent of sales declined in most business
units. Also impacting the comparison is the higher level of expenses as a
percent of sales at The North Face and Eastpak, which sell to upper tier
distribution channels that traditionally require higher levels of marketing
expenditures.
Other operating expense, which includes amortization of intangible assets and
net royalty income, increased in 2001 due to amortization of intangible assets
related to the businesses acquired in 2000.
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 short and long-term debt.
The effective income tax rate for the first half of both 2001 and 2000 was
37.5%, based on the expected rate for the year.
Income before the cumulative effect of a change in accounting policy decreased
by 8% in the quarter and 4% in the first six months of 2001, while diluted
earnings per share decreased by 6% and 2%, respectively, reflecting the benefit
of the Company's share repurchase program. The 2000 acquisitions had a $.01
dilutive effect on earnings per share for the first half of 2001 compared with
the 2000 period. These acquisitions are expected to contribute $.12 to earnings
per share for the full year 2001 compared with 2000.
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 2% for the quarter and 1% for the first six months of 2001,
compared with the 2000 periods. Domestic jeans sales were flat in the quarter
and six months, with increases in the Company's Mass Market business offset by a
decline in the Western business in the first quarter and a decline in the Lee
brand in the second quarter. International jeanswear sales, including the
negative effects of foreign currency translation, were flat in the quarter and
six months, with the addition of the H.I.S business acquired in late 2000
offsetting elimination of the Wrangler business
11
12
in Japan. Domestic intimate apparel sales increased 3% in the quarter and 4% in
the six months, with increases in the Vanity Fair, Lily of France and private
label businesses. Sales declined in the quarter and six months in international
intimate apparel. Sales also declined approximately 18% in the quarter and 13%
in the six 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.
The Occupational Apparel segment includes the Company's industrial, career and
safety apparel businesses. Sales decreased during the quarter and six months due
to weakness in the domestic workwear market and the exit of regional catalog,
linens and other product lines in the fourth quarter of 2000. Although still
below historical levels, segment profit has improved in the most recent quarter
from elimination of losses of discontinued product lines and benefits of
restructuring actions taken.
The All Other segment includes the Company's knitwear, daypack and outdoor
businesses. Sales increased due to the acquisitions of The North Face and
Eastpak in May 2000. Segment profit increased in 2001 in the JanSport business
and in the acquired 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. Due to the seasonal nature
of the businesses comprising this segment, the low level of profitability in the
first six months of a year is not necessarily indicative of expected full year
results.
The decline in corporate and other expenses results from higher expenses in the
prior year related to cost reduction efforts and lower shared services and
information systems expenses in the 2001 periods.
Management will continue to evaluate its underperforming units. Any actions
resulting from this evaluation could have an impact on operating results.
FINANCIAL CONDITION AND LIQUIDITY
The financial condition of the Company is reflected in the following:
July 1
June 30 December 30 2000
2001 2000 (Restated)
---- ---- ---------
(Dollars in millions)
Working capital $1,196.3 $1,103.9 $574.7
Current ratio 2.2 to 1 2.1 to 1 1.3 to 1
Debt to total capital 34.6% 34.7% 36.7%
Accounts receivable at the end of the second quarter of 2001 are lower than at
the same period in 2000 due to 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 second quarter of 2001 are 2% higher than at the
comparable date in 2000, which is an improvement over the 14% year-over-year
increase at the end of the first quarter. Excluding businesses acquired in the
last half of 2000, inventory balances at June 2001 were flat. Management
believes that the Company is on target to reduce inventories by as much as $100
million by the end of 2001. Inventories are 8% higher than at the end of 2000
due to seasonal sales patterns.
Accounts payable declined compared with the second quarter of 2000 and with
year-end 2000 due to reduced
12
13
inventory purchases at domestic jeanswear and other business units in the
current period as part of their 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 level of payables than the
average VF operating business.
Total long-term debt increased with the issuance of $500.0 million of five and
ten year notes in September 2000. Proceeds from these debt obligations were used
to repay short-term borrowings. During the first six months of 2001, the Company
made $107.0 million of scheduled long-term debt payments.
During each of the first two quarters of 2001, the Company repurchased 1.0
million shares of its Common Stock in open market transactions. The total cost
was $72.7 million. Under its current authorization from the Board of Directors,
the Company may repurchase up to an additional 2.0 million common shares.
Depending on other opportunities that may arise, the Company intends to
repurchase approximately 1.0 million shares per quarter over the remainder of
the year.
Looking forward to the balance of 2001, sales in the second half could be down
slightly from the prior year, reflecting continued slow retail traffic and
conservative inventory planning by many of our customers. Management expects
some improvement in earnings per share in the second half, so that full year
earnings per share would be flat to up slightly over the prior year levels
(before restructuring charges and change in accounting policy).
Improved operating margins in the third and fourth quarters should reflect the
continued turnaround in the Company's Imagewear business, the benefits of
actions taken in 2000 to improve profitability and positive earnings
contributions from the 2000 acquisitions.
Continuing, management expects cash flow from operations to range from $450-500
million and capital expenditures to be comparable with the 2000 level. The
excess cash flow will be directed toward share repurchases and debt reduction.
Net interest expense should be less than $95 million for the year.
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.
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, 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 the financial strength of the retail industry; actions of competitors that
may impact the Company's business; receipt and integration of software developed
by outside vendors; 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.
13
14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company is a party to litigation arising in the ordinary course of its
business. In addition, the Company, its subsidiary, The North Face, Inc., and
certain of The North Face's former and current officers and directors have been
named parties in various purported shareholder actions in California, Colorado
and Delaware, including Eng v. Cason, et al., Civil Action No. 810726-0
(California Superior Court, Alameda County), Markus, et al. v. The North Face,
Inc., Civil Action No. 99-Z-473 (United States District Court for the District
of Colorado), and Polacheck v. VF Corporation, et al. (Court of Chancery,
Delaware). The actions allege, among other things, self-dealing, breach of
fiduciary duties and violations of federal and state laws. On April 30, 2001,
the United States District Court granted final approval of the settlement of the
Markus action. On June 26, 2001, the California Superior Court approved the
settlement of the Eng action. The North Face has reached an agreement with
plaintiffs to settle the Polacheck action. 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 - 1996 Stock Compensation Plan, as amended
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for the
three months ended June 30, 2001.
14
15
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: August 8, 2001
By: /s/ Robert A. Cordaro
-----------------------
Robert A. Cordaro
Vice President - Controller
(Chief Accounting Officer)
15