1 QUARTERLY RESULTS OF OPERATIONS In thousands, Earnings Per Common Share except per share ---------------------------- Dividends Per amounts Net Sales Gross Profit Net Income Primary Fully Diluted Common Share - ---------------------------------------------------------------------------------------------------------------------------------- 1993 First quarter $1,016,644 $323,226 $52,729 $.83 $.81 $.30 Second quarter 1,053,411 327,546 55,731 .85 .83 .30 Third quarter 1,152,842 355,044 76,815* 1.18* 1.15* .30 Fourth quarter 1,097,507 339,727 61,140 .94 .92 .32 - ---------------------------------------------------------------------------------------------------------------------------------- $4,320,404 $1,345,543 $246,415 $3.80 $3.71 $1.22 - ---------------------------------------------------------------------------------------------------------------------------------- 1992 First quarter $817,592 $261,770 $43,692 $.73 $.71 $.27 Second quarter 852,544 269,203 46,202 .77 .75 .27 Third quarter 1,125,294 368,215 76,556 1.29 1.25 .27 Fourth quarter 1,029,019 321,535 70,581** 1.18** 1.14** .30 - ---------------------------------------------------------------------------------------------------------------------------------- $3,824,449 $1,220,723 $237,031 $3.97 $3.85 $1.11 - ---------------------------------------------------------------------------------------------------------------------------------- 1991 First quarter $613,308 $193,978 $28,529 $.48 $.47 $.25 Second quarter 654,010 201,471 30,651 .52 .50 .25 Third quarter 834,844 258,272 53,753 .92 .89 .25 Fourth quarter 850,271 258,925 48,397 .83 .79 .27 - ---------------------------------------------------------------------------------------------------------------------------------- $2,952,433 $912,646 $161,330 $2.75 $2.62 $1.02 - ---------------------------------------------------------------------------------------------------------------------------------- * Interest income relating to settlement of income tax examinations increased net income by $15.1 million ($.24 per share). ** A refund of prior years' income taxes and related interest income increased net income by $14.4 million ($.24 per share), and recognition of cumulative postretirement benefits reduced net income by $4.1 million ($.07 per share). VF CORPORATION -22- 2 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS Management of VF Corporation has prepared the accompanying financial statements and is responsible for their content. We believe the statements accurately report the financial position and operating results of the Corporation, on a basis consistent with generally accepted accounting principles and management's best estimates and judgments. Other financial information in this report is consistent with these financial statements. Management has established a system of internal control which we believe reasonably assures that assets are safeguarded and that financial information is accurately reported. Inherent in all systems of internal control are limitations based on the recognition that the costs of such systems should be related to the benefits to be derived. The internal control system is routinely challenged by management, the independent auditors and our internal audit staff to determine whether the internal control system continues to function effectively. Significant auditor recommendations have been reviewed and adopted when appropriate. The Audit Committee of the Board of Directors meets periodically with the independent and internal auditors to discuss the scope and findings of audit work performed, the impact of financial reporting issues and the adequacy of the internal control system. The independent auditors and internal auditors have full access to the Committee, with and without the presence of management, to discuss any appropriate matters. /s/ L. R. PUGH - -------------- L. R. Pugh Chairman and Chief Executive Officer /s/ G. G. JOHNSON - ----------------- G. G. Johnson Vice President-Finance and Chief Financial Officer /s/ R. K. SHEARER - ----------------- R. K. Shearer Controller and Chief Accounting Officer REPORT OF ERNST & YOUNG INDEPENDENT AUDITORS Board of Directors and Shareholders VF Corporation We have audited the accompanying consolidated balance sheets of VF Corporation as of January 1, 1994 and January 2, 1993, and the related consolidated statements of income, cash flows, and common shareholders' equity for each of the three fiscal years in the period ended January 1, 1994. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of VF Corporation at January 1, 1994 and January 2, 1993, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended January 1, 1994 in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG - ----------------- Reading, Pennsylvania February 4, 1994 VF CORPORATION -23- 3 CONSOLIDATED STATEMENTS OF INCOME In thousands, except per share amounts Fiscal year ended January 1, 1994 January 2, 1993 January 4, 1992 - ------------------------------------------------------------------------------------------------------------------------- Net Sales $4,320,404 $3,824,449 $2,952,433 Costs and Operating Expenses Cost of products sold 2,974,861 2,603,726 2,039,787 Marketing, administrative and general expenses 913,734 791,343 608,592 - ------------------------------------------------------------------------------------------------------------------------- 3,888,595 3,395,069 2,648,379 - ------------------------------------------------------------------------------------------------------------------------- Operating Income 431,809 429,380 304,054 Other Income (Expense) Interest income 35,284 17,453 13,432 Interest expense (72,671) (71,068) (68,587) Miscellaneous, net 5,565 8 14,298 - ------------------------------------------------------------------------------------------------------------------------- (31,822) (53,607) (40,857) - ------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 399,987 375,773 263,197 Income Taxes 153,572 138,742 101,867 - ------------------------------------------------------------------------------------------------------------------------- Net Income $246,415 $237,031 $161,330 - ------------------------------------------------------------------------------------------------------------------------- Earnings Per Common Share Primary $3.80 $3.97 $2.75 Fully diluted 3.71 3.85 2.62 Cash Dividends Per Common Share $1.22 $1.11 $1.02 Average Number of Common Shares Outstanding 64,011 58,608 57,152 - ------------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements. SALES AND OPERATING PROFIT BY BUSINESS GROUP (UNAUDITED) In thousands Fiscal year ended January 1, 1994 January 2, 1993 January 4, 1992 - ------------------------------------------------------------------------------------------------------------------------- Net Sales Jeanswear $2,097,509 $1,896,258 $1,371,978 Casual/Sportswear 638,986 652,571 505,804 Intimate Apparel 436,500 420,200 452,899 International 641,827 420,278 272,524 Other Apparel 505,582 435,142 349,228 - ------------------------------------------------------------------------------------------------------------------------- $4,320,404 $3,824,449 $2,952,433 - ------------------------------------------------------------------------------------------------------------------------- Operating Profit Jeanswear $266,680 $274,256 $173,640 Casual/Sportswear 24,265 52,184 37,889 Intimate Apparel 40,214 53,425 42,289 International 70,891 34,253 35,937 Other Apparel 67,842 46,483 42,103 - ------------------------------------------------------------------------------------------------------------------------- 469,892 460,601 331,858 Corporate Expenses (38,083) (31,221) (27,804) Interest, net (37,387) (53,615) (55,155) Other Income, net 5,565 8 14,298 - ------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes $399,987 $375,773 $263,197 - ------------------------------------------------------------------------------------------------------------------------- VF CORPORATION -24- 4 MANAGEMENT'S ANALYSIS OF OPERATIONS The primary objective of VF Corporation is to provide long-term growth in shareholder value through superior operating performance and sound investment strategies. In 1991 and 1992, our results surpassed Corporate objectives of 10% growth in sales and earnings. And while sales growth exceeded our 10% objective in 1993, restructuring charges and a difficult knitwear industry environment prevented the Corporation from attaining our earnings growth target for this year. RESULTS OF OPERATIONS Net sales in 1993 were up 13% over 1992 and 46% over 1991. These sales increases resulted primarily from unit volume growth within existing divisions. Less than 20% of the sales growth during the period 1991 to 1993 represented sales from acquired companies. Gross margins were 31.1% of sales in 1993, compared with 31.9% in 1992 and 30.9% in 1991. While the 1993 gross margin percentage was below 1992, it is comparable with the Corporation's historical results. The 1993 percent was lower than the 1992 level due to a provision for capacity reduction in knitwear and significantly reduced margins at Girbaud. Marketing and administrative expenses increased to 21.1% of sales in 1993, from 20.7% and 20.6% in 1992 and 1991, respectively. The inclusion of the newly acquired international intimate apparel divisions in 1993, which have historically maintained higher marketing spending levels, accounted for the increase in 1993. Interest income in 1993 included $24.4 million and in 1992 $8.3 million related to refunds of prior years' income taxes. Excluding these unusual items, interest income and expense were relatively flat during the three year period. The increase in miscellaneous income (net) in 1993 over 1992 resulted from the inclusion in 1992 of a $6.6 million provision representing the cumulative charge for postretirement benefits under Financial Accounting Standards No. 106. The 1993 amount was below 1991 due to lower tenant income on outlet stores sold during 1993 and higher goodwill amortization expense in 1993. The effective income tax rate was 38.4% in 1993, 36.9% in 1992 and 38.7% in 1991. The 1993 rate included the effect of the 1% increase in the United States corporate income tax rate. The 1992 rate was reduced by a $9.2 million refund of prior years' taxes. OPERATING RESULTS BY BUSINESS GROUP Sales in the Jeanswear business group, which includes the Wrangler, Lee, Rustler, Riders and Marithe and Francois Girbaud brands in the United States, increased by 11% in 1993 over 1992 and 53% over 1991 levels. Jeanswear operating margins increased substantially during 1992, primarily due to improvements at Lee. However, provisions for reorganization at Girbaud, after a year of reduced sales and earnings, pushed Jeanswear operating margins in 1993 below the two prior years. The Casual/Sportswear business group consists of Bassett-Walker, Jantzen and JanSport. Industry-wide overcapacity in fleece and T-shirts in 1993 prompted a provision for the reduction of knitwear production capacity at Bassett-Walker and otherwise contributed to reduced operating results in this division. Sales and operating profit increased at Jantzen and JanSport during the three year period. Sales at Vanity Fair, the largest division in the Intimate Apparel group, grew in each of the three years, largely due to growth of the Vassarette brand and increases in private label sales. The 1992 decline in sales in this group was due to the reclassification of Modern Globe to Casual/Sportswear. Operating margins in the Intimate Apparel group were reduced in 1993 due to manufacturing difficulties at Vanity Fair resulting from a shift in product mix. Operating margins were lower in 1991 than in 1992 as a result of cost inefficiencies related to Vanity Fair's rapid growth. The International business group includes all international operations, presently represented by jeanswear and intimate apparel. In 1992, VF entered the intimate apparel market in Europe through the acquisitions of Valero in January and Vivesa and JBE in December. Valero accounted for a substantial portion of the 1992 sales increase in this group, and in 1993 the three intimate apparel companies represented more than half of the increase in sales from 1991. Jeanswear includes both Lee and Wrangler jeanswear operations, primarily in Europe. Jeanswear sales increased in 1993 and 1992 from higher unit volume in existing operations and the opening of new subsidiaries. Jeanswear operating profit increased significantly in 1993, returning to the 1991 level as a percent of sales. Operating profit of the International group in 1992 was lower as a percent of sales due to additional advertising costs within the jeanswear operations and the inclusion of Valero, which reported a nominal operating profit. Operating margins of the international intimate apparel companies are lower than the jeanswear companies. Red Kap and Healthtex are the major components of the Other Apparel group. Sales have increased during the three year period at Red Kap, partly due to the late 1991 acquisition of WorkWear, and at Healthtex, which was acquired in early 1991. The primary factor in the improved operating margin in this category in 1993 versus 1992 was the substantial profit turnaround at Healthtex. The decline in the operating margin in 1992 from 1991 reflected the effects on Red Kap of a difficult economic climate within the nation's manufacturing sector. VF CORPORATION -25- 5 CONSOLIDATED BALANCE SHEETS In thousands January 1, 1994 January 2, 1993 - ----------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and equivalents $151,564 $86,320 Accounts receivable, less allowances of $28,808 in 1993 and $30,275 in 1992 511,887 493,030 Inventories 778,767 742,474 Deferred income taxes 38,138 21,788 Other current assets 19,824 21,961 - ----------------------------------------------------------------------------------------------------------------- Total current assets 1,500,180 1,365,573 Property, Plant and Equipment 712,759 711,087 Intangible Assets 575,359 554,703 Other Assets 89,050 81,017 - ----------------------------------------------------------------------------------------------------------------- $2,877,348 $2,712,380 - ----------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings $35,648 $125,822 Current portion of long-term debt 110,119 54,195 Accounts payable 246,503 248,592 Accrued liabilities 267,578 255,393 - ----------------------------------------------------------------------------------------------------------------- Total current liabilities 659,848 684,002 Long-term Debt 527,573 767,641 Other Liabilities 126,978 95,248 Redeemable Preferred Stock 63,309 63,900 Deferred Contribution to Employee Stock Ownership Plan (47,760) (52,382) - ----------------------------------------------------------------------------------------------------------------- 15,549 11,518 Common Shareholders' Equity Common Stock, stated value $1; shares authorized 150,000,000; shares outstanding, 64,488,660 in 1993 and 59,519,239 in 1992 64,489 59,519 Additional paid-in capital 543,165 301,336 Foreign currency translation adjustments (12,865) 4,244 Retained earnings 952,611 788,872 - ----------------------------------------------------------------------------------------------------------------- 1,547,400 1,153,971 - ----------------------------------------------------------------------------------------------------------------- $2,877,348 $2,712,380 - ----------------------------------------------------------------------------------------------------------------- *See notes to consolidated financial statements. VF CORPORATION -26- 6 MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITION In managing its capital structure, VF balances financial leverage with equity capital to reduce its overall cost of capital, while providing the flexibility to pursue investment opportunities that may become available. In January 1993, the Corporation sold 4.6 million shares of Common Stock. While proceeds were specifically used to repay short-term borrowings that temporarily financed the business acquisitions completed during 1992, the offering provided additional flexibility within the Corporation's overall capital structure. It is management's goal to maintain a debt to capital ratio of less than 40%. Our debt to capital ratio was within these guidelines at the end of 1993, at 30.3%. At the end of 1992, this ratio was 44.8%. However, on a pro forma basis, assuming the equity offering had occurred as of year-end 1992, the ratio was 33.9%. Despite our goal to maintain the debt ratio below 40%, we will exceed this level if warranted by appropriate investment opportunities. BALANCE SHEET The increase in total assets in 1993 was less than the volume growth in our businesses. This was due to several factors, including controls over working capital, the sale of certain outlet store facilities that are now being leased, and the sale of our yarn making facilities. Accounts receivable and inventories at the end of 1992 included those of the two newly acquired international intimate apparel companies, purchased on December 30, 1992. However, due to the date of acquisition, operating results of these new divisions were not included in the Corporation's 1992 reported numbers. Excluding the receivables of those divisions at the end of 1992, the increase in accounts receivable in 1993 was consistent with the growth in sales during the period. On a similar basis, the increase in inventories in 1993 was at a rate less than the growth in sales. Short-term borrowings at January 2, 1993 totaled $357.7 million, which include $231.9 million classified as long-term debt due to their repayment in January 1993 from the proceeds of the sale of VF Common Stock. Short-term borrowings were further reduced by the end of 1993 by cash generated from operations during the year. LIQUIDITY AND CASH FLOW The Corporation maintains a relatively liquid financial position. Because the increase in working capital in 1993 over 1992 was less than the growth in sales, the current ratio improved to 2.3 to 1 in 1993 versus 2.0 to 1 in 1992. Cash provided by operations of $294 million in 1993 was comparable to the amount in 1991 of $287 million. Cash provided in 1992 was substantially lower at $123 million due to increases in inventories and accounts receivable that were not proportionate to volume growth. Capital expenditures in 1993 were comparable to 1992 at $209 million and $207 million, respectively. The increase in spending over the 1991 level of $111 million was required to support the capacity needs resulting from growth, particularly in the domestic jeanswear operations. Capital expenditures in 1994, which should approximate the 1993 level, are expected to be funded by operations. In addition, the Corporation's strong financial position provides substantial unused borrowing capacity to meet other investment opportunities that may arise. Dividends totaled $1.22 per common share in 1993, compared with $1.11 in 1992 and $1.02 in 1991. The dividend payout rate was 32% in 1993, 28% in 1992 and 37% in 1991. The indicated annual dividend rate for 1994 is $1.28 per share. VF has paid dividends on its Common Stock annually since 1941 and intends to maintain a long-term payout rate of 30%. OTHER MATTERS The Corporation is a defendant in an action initiated in 1990 alleging infringement of a patent allegedly relating to a process, commonly called "acid wash", used in the production of certain denim garments. Similar actions have been brought against other denim apparel manufacturers. The Corporation is vigorously contesting the action and believes that it has numerous substantive defenses. No trial date has been set. Based on currently available information and the advice of counsel, management is not in a position to determine the likelihood of the outcome of the action with certainty. Notwithstanding, management believes at this time that the outcome will not have a material impact on the financial position of the Corporation. VF CORPORATION -27- 7 CONSOLIDATED STATEMENTS OF CASH FLOWS In thousands Fiscal year ended January 1, 1994 January 2, 1993 January 4, 1992 - ----------------------------------------------------------------------------------------------------------------------------------- Operations Net income $246,415 $237,031 $161,330 Adjustments to reconcile net income to cash provided by operations: Depreciation 106,678 90,866 76,292 Amortization of intangible assets 19,087 17,415 14,699 Other (3,177) (19,215) (1,124) Changes in current assets and liabilities: Accounts receivable (24,094) (95,027) (18,342) Inventories (41,797) (160,511) (55,317) Accounts payable 421 48,608 95,767 Other, net (9,782) 3,893 13,867 - ----------------------------------------------------------------------------------------------------------------------------------- Cash provided by operations 293,751 123,060 287,172 Investments Capital expenditures (209,494) (207,202) (110,762) Business acquisitions (17,629) (133,857) (60,806) Sale of outlet facilities 62,000 - - Other, net 45,840 8,513 10,476 - ----------------------------------------------------------------------------------------------------------------------------------- Cash invested (119,283) (332,546) (161,092) Financing Increase (decrease) in short-term borrowings (86,756) 55,751 (27,632) Proceeds from long-term debt 98,557 331,900 100,325 Payment of long-term debt (283,560) (231,708) (51,656) Sale of Common Stock 232,068 - - Cash dividends paid (82,831) (69,552) (62,712) Other 13,298 47,123 15,872 - ----------------------------------------------------------------------------------------------------------------------------------- Cash provided (used) by financing (109,224) 133,514 (25,803) - ----------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Equivalents 65,244 (75,972) 100,277 Cash and Equivalents - Beginning of Year 86,320 162,292 62,015 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Equivalents - End of Year $151,564 $86,320 $162,292 - ----------------------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements. VF CORPORATION -28- 8 CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY Common Additional Foreign Currency Retained In thousands Stock Paid-in Capital Translation Earnings - ---------------------------------------------------------------------------------------------------------------- Balance December 29, 1990 $57,013 $222,482 $16,968 $526,663 Net income - - - 161,330 Cash dividends: Common Stock - - - (58,346) Series B Preferred Stock - - - (4,366) Exercise of stock options, net of shares surrendered 687 17,505 - (944) Foreign currency translation adjustments - - (914) - - ---------------------------------------------------------------------------------------------------------------- Balance January 4, 1992 57,700 239,987 16,054 624,337 Net income - - - 237,031 Cash dividends: Common Stock - - - (65,217) Series B Preferred Stock - - - (4,335) Exercise of stock options, net of shares surrendered 1,819 61,349 - (2,944) Foreign currency translation adjustments - - (11,810) - - ---------------------------------------------------------------------------------------------------------------- Balance January 2, 1993 59,519 301,336 4,244 788,872 Net income - - - 246,415 Cash dividends: Common Stock - - - (78,540) Series B Preferred Stock - - - (4,291) Tax benefit from Preferred Stock dividends - - - 1,180 Redemption of Preferred Stock - - - (264) Sale of Common Stock 4,600 227,468 - - Exercise of stock options, net of shares surrendered 370 14,361 - (761) Foreign currency translation adjustments, less deferred income taxes of $6,927 - - (17,109) - - ---------------------------------------------------------------------------------------------------------------- Balance January 1, 1994 $64,489 $543,165 $(12,865) $952,611 - ---------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements. VF CORPORATION -29- 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Corporation's principal business is designing, manufacturing and marketing high quality jeanswear, casual/sportswear, intimate apparel and other apparel. The Corporation's customers are primarily department, discount and specialty stores. NOTE A - ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of all wholly owned subsidiaries after elimination of intercompany transactions and profits. Inventories are stated at the lower of cost or market. Inventories stated on the last-in, first-out basis represent 32% of total 1993 and 30% of 1992 inventories. Remaining inventories are valued using the first-in, first-out method. Property and Depreciation: Property, plant and equipment are stated at cost. Depreciation is computed principally by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes. Intangible Assets represent the excess of costs over net tangible assets of businesses acquired, less accumulated amortization of $140.0 million and $120.9 million in 1993 and 1992. These assets are amortized on the straight-line method over five to forty years. Income Taxes: The Corporation adopted FASB Statement No. 109, "Accounting for Income Taxes," at the beginning of 1993. Since the effect of adopting the new Statement was not significant, prior year financial statements have not been restated. Earnings Per 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 B - ACQUISITIONS In December 1993, the Corporation acquired the principal operating assets of Central Corsetera, S.A. for $17.6 million. During 1992, the Corporation acquired the common stock of The Valero Group (Valero), Vives Vidal, S.A. (Vivesa) and Jean Bellanger Enterprises (JBE) for an aggregate purchase price of $150.9 million. These companies manufacture and market branded intimate apparel primarily in France and Spain. In 1991, the Corporation acquired the principal operating assets of Healthtex childrenswear, Barbizon intimate apparel and WorkWear occupational apparel for an aggregate purchase price of $60.2 million. All acquisitions have been accounted for as purchases, and accordingly, operating results of these companies have been included in the consolidated financial statements since the dates of acquisition. In January 1994, the Corporation acquired the common stock of H.H. Cutler Company for $154.7 million. Also in January 1994, the Corporation acquired the common stock of Nutmeg Industries, Inc. for $352.2 million. Both companies manufacture and market licensed sports apparel. NOTE C - INVENTORIES In thousands 1993 1992 - ---------------------------------------------------------------- Finished products $486,045 $438,525 Work in process 119,582 133,034 Materials and supplies 173,140 170,915 - ---------------------------------------------------------------- $778,767 $742,474 - ---------------------------------------------------------------- The current cost of inventories stated on the last-in, first-out method is not significantly different from their value determined under the first-in, first-out method. NOTE D - PROPERTY, PLANT AND EQUIPMENT In thousands 1993 1992 - ---------------------------------------------------------------- Land $40,612 $50,838 Buildings 346,656 370,421 Machinery and equipment 862,755 820,332 - ---------------------------------------------------------------- 1,250,023 1,241,591 Less accumulated depreciation 537,264 530,504 - ---------------------------------------------------------------- $712,759 $711,087 - ---------------------------------------------------------------- NOTE E - ACCRUED LIABILITIES In thousands 1993 1992 - ---------------------------------------------------------------- Income taxes $41,270 $39,891 Compensation 48,633 53,258 Insurance 27,345 21,757 Other 150,330 140,487 - ---------------------------------------------------------------- $267,578 $255,393 - ---------------------------------------------------------------- VF CORPORATION -30- 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE F - LONG-TERM DEBT In thousands 1993 1992 - --------------------------------------------------------------------------------------------------------- Revolving credit agreement $ - $231,900 8.86% to 8.88% notes, due 1993 - 50,000 9.40% notes, due 1996 100,000 100,000 8.00% notes, due 1997 100,000 100,000 9.50% notes, due 1999 100,000 100,000 9.50% notes, due 2001 100,000 100,000 6.63% notes, due 2003 100,000 - 9.25% debentures, due 2022 100,000 100,000 Capital leases and other 37,692 39,936 - --------------------------------------------------------------------------------------------------------- 637,692 821,836 Less current portion 110,119 54,195 - --------------------------------------------------------------------------------------------------------- $527,573 $767,641 - --------------------------------------------------------------------------------------------------------- The scheduled payments of long-term debt are $2.6 million in 1995, $102.2 million in 1996, $1.8 million in 1997 and $.7 million in 1998. The 1997 notes were called for redemption in January 1994 and, accordingly, are classified as a current obligation. The Corporation paid interest of $70.3 million in 1993, $68.1 million in 1992 and $65.2 million in 1991. The Corporation maintains unsecured revolving credit agreements with banks totaling $750 million, which support commercial paper borrowings and are otherwise available for general corporate purposes. One of these agreements, which provides $250 million of the total available credit, requires a commitment fee of .125% and expires in October 1994 with a one year term loan option. The agreement that provides the remaining $500 million of credit requires an .18% fee on the unused portion and extends to October 1997. At January 1, 1994, there were no borrowings under these agreements. Borrowings at the end of 1992 totaled $320.0 million, which were reduced by $231.9 million in January 1993 with proceeds from the sale of VF Common Stock. The fair value of the Corporation's long-term debt exceeded its recorded amount by $51.8 million at January 1, 1994 and by $38.0 million at January 2, 1993. The fair value of the Corporation's short-term borrowings approximates its recorded amount. Fair value is based on quoted market prices or values of comparable borrowings. NOTE G - OTHER LIABILITIES In thousands 1993 1992 - --------------------------------------------------------------------------------------------------------- Deferred income taxes $60,446 $51,505 Deferred compensation 30,782 18,970 Other 35,750 24,773 - --------------------------------------------------------------------------------------------------------- $126,978 $95,248 - --------------------------------------------------------------------------------------------------------- NOTE H - BENEFIT PLANS The Corporation sponsors a noncontributory defined benefit pension plan covering substantially all full-time domestic employees. Benefits are based on employees' compensation and years of service. The Corporation annually contributes amounts, as determined by an actuary, that provide the plan with sufficient assets to meet future benefit payments. Plan assets consist principally of common stocks, corporate obligations and U.S. government obligations. The effect of the defined benefit plan on income is as follows: In thousands 1993 1992 1991 - --------------------------------------------------------------------------------------------------------- Service cost-benefits earned during the year $10,337 $8,568 $8,343 Interest cost on projected benefit obligation 22,148 18,934 16,750 Actual return on plan assets (34,895) (19,646) (42,530) Net amortization and deferral 12,574 (1,884) 23,448 - --------------------------------------------------------------------------------------------------------- Pension expense $10,164 $5,972 $6,011 - --------------------------------------------------------------------------------------------------------- The funded status of the defined benefit plan is as follows: In thousands 1993 1992 - --------------------------------------------------------------------------------------------------------- Present value of vested benefits $265,457 $203,763 - --------------------------------------------------------------------------------------------------------- Present value of accumulated benefits $285,390 $217,087 - --------------------------------------------------------------------------------------------------------- Plan assets at fair value $289,324 $254,191 Present value of projected benefits 332,656 241,514 - --------------------------------------------------------------------------------------------------------- Funded status (43,332) 12,677 Unrecognized net loss 42,147 978 Unrecognized net asset (20,580) (24,958) Unrecognized prior service cost 33,169 19,371 - --------------------------------------------------------------------------------------------------------- Pension asset recorded in Other Assets $11,404 $8,068 - --------------------------------------------------------------------------------------------------------- The projected benefit obligation was determined using an assumed discount rate of 7.5% in 1993 and 9.0% in 1992 and 1991. The assumption for compensation increases was 5.0% in 1993 and 5.5% in 1992 and 1991, and for return on plan assets was 8.75% in 1993 and 1992 and 8.5% in 1991. The Corporation also sponsors an Employee Stock Ownership Plan (ESOP) as part of a 401(k) savings plan covering most domestic salaried employees. Contributions made by the Corporation to the 401(k) plan are based on a specified percentage of employee contributions. Cash contributions by the Corporation were $4.5 million in 1993, $4.0 million in 1992 and $4.1 million in 1991. Plan expense was $6.0 million for 1993 and 1992 and $6.5 million for 1991, after giving effect to tax-deductible dividends on the Series B Preferred Stock of $4.3 million in 1993 and 1992 and $4.4 million in 1991. In accordance with FASB Statement No. 109, tax benefits on ESOP dividends are credited to retained earnings beginning in 1993. VF CORPORATION -31- 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE I - CAPITAL Common shares outstanding are net of shares held in treasury of 1,769,131 in 1993, 1,766,832 in 1992 and 1,702,891 in 1991. In January 1993, the Corporation issued 4,600,000 shares of Common Stock in a public offering. The net proceeds were used to repay borrowings incurred to purchase Valero, Vivesa and JBE. (See Note B.) There are 25,000,000 authorized shares of Preferred Stock, $1 par value. As of January 1, 1994, 2,000,000 shares are designated as Series A Preferred Stock, of which none have been issued. In addition, 2,105,263 shares are designated as 6.75% Series B Preferred Stock, which were purchased by the ESOP. There were 2,050,491 shares of Series B Preferred Stock outstanding at January 1, 1994, 2,069,965 shares outstanding at January 2, 1993 and 2,090,597 shares at January 4, 1992, after share redemptions. Each outstanding share of Common Stock has one preferred stock purchase right attached. The rights become exercisable ten days after an outside party acquires, or makes an offer for, 20% or more of the Common Stock. Each right entitles its holder to buy 1/100 share of Series A Preferred Stock for $100. Once exercisable, if the Corporation is involved in a merger or other business combination or an outside party acquires 20% or more of the Common Stock, each right will be modified to entitle its holder (other than the acquiror) 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 acquiror may be exchanged for one share of VF Common Stock or 1/100 share of Series A Preferred Stock. The rights, which expire on January 13, 1998, may be redeemed at $.01 per right prior to their becoming exercisable. NOTE J - REDEEMABLE PREFERRED STOCK Each share of Series B Preferred Stock has a redemption value of $30.88 plus cumulative accrued dividends, is convertible into 8/10 share of Common Stock and is entitled to one vote per share along with the Common Stock. The trustee for the ESOP may convert the preferred shares to Common Stock at any time or may cause the Corporation to redeem the preferred shares under certain circumstances. The Series B Preferred Stock also has preference in liquidation over all other stock issues. The ESOP's purchase of the preferred shares was funded by a loan of $65.0 million from the Corporation that bears interest at 9.8% and is payable in increasing installments through 2004. Interest related to this loan was $5.7 million in 1993, $6.0 million in 1992 and $6.2 million in 1991. Principal and interest obligations on the loan are satisfied as the Corporation makes contributions to the savings plan and dividends are paid on the Preferred Stock. As principal payments are made on the loan, shares of Preferred Stock are allocated to participating employees' accounts within the ESOP. The fair value of the Series B Preferred Stock at January 1, 1994, based on a valuation by an independent financial consulting firm, exceeds its recorded amount by $12.4 million. NOTE K - STOCK OPTIONS The Corporation has granted nonqualified and incentive stock options under two stock option plans at prices not less than fair market value on the date of grant. Options become exercisable one year after the date of grant and expire ten years after the date of grant unless otherwise specified by the Board of Directors. Changes in the status of the stock option plans are summarized as follows: Shares Shares Under Available Option for Option - ---------------------------------------------------------------------------------- Balance January 2, 1993 3,594,111 56,346 Options granted 47,275 (47,275) Options exercised at $13.03 to $35.90 per share (366,720) - Options cancelled (88,271) 88,271 - ---------------------------------------------------------------------------------- Balance January 1, 1994 3,186,395 97,342 - ---------------------------------------------------------------------------------- Options exercisable at January 1, 1994 at $13.03 to $57.20 per share 3,153,395 - ---------------------------------------------------------------------------------- In December 1993, the Board of Directors adopted an amendment to the 1991 stock option plan, subject to shareholder approval at the April 1994 Annual Meeting, that would increase the number of shares available for future option grants by three million shares. As of January 1, 1994, there are an additional 981,896 options that have been granted at $45.20 per share, subject to shareholder approval of the increase in available shares. VF CORPORATION -32- 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE L - INCOME TAXES The provision for income taxes is computed based on the following amounts of income before income taxes: In thousands 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------------- Domestic $356,109 $363,732 $235,991 Foreign 43,878 12,041 27,206 - --------------------------------------------------------------------------------------------------------------------------------- $399,987 $375,773 $263,197 - --------------------------------------------------------------------------------------------------------------------------------- The provision for income taxes consists of: In thousands 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------------- Current: Federal $125,966 $111,501 $86,506 Foreign 17,863 17,404 9,886 State 13,806 15,973 11,760 - --------------------------------------------------------------------------------------------------------------------------------- 157,635 144,878 108,152 Deferred, primarily federal (4,063) (6,136) (6,285) - --------------------------------------------------------------------------------------------------------------------------------- $153,572 $138,742 $101,867 - --------------------------------------------------------------------------------------------------------------------------------- The reasons for the difference between income taxes computed by applying the statutory federal income tax rate and income tax expense in the financial statements are as follows: In thousands 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------------- Tax at federal statutory rate $139,995 $127,763 $89,487 State income taxes, net of federal tax benefit 8,974 10,542 7,762 Amortization of intangible assets 4,234 4,781 4,069 Tax refund - (9,208) - Other, net 369 4,864 549 - --------------------------------------------------------------------------------------------------------------------------------- $153,572 $138,742 $101,867 - --------------------------------------------------------------------------------------------------------------------------------- Deferred income tax liabilities and assets consist of the following: In thousands 1993 - --------------------------------------------------------------------------------------------------------------------------------- Depreciation $62,731 Inventories 22,141 Unremitted foreign earnings 16,341 Other 7,317 - --------------------------------------------------------------------------------------------------------------------------------- Deferred income tax liabilities $108,530 - --------------------------------------------------------------------------------------------------------------------------------- Employee benefits $21,699 Other accrued expenses 44,872 Inventories 14,278 Operating loss carryforwards 10,135 Foreign currency translation 6,927 - --------------------------------------------------------------------------------------------------------------------------------- 97,911 Valuation allowance (6,733) - --------------------------------------------------------------------------------------------------------------------------------- Deferred income tax assets $91,178 - --------------------------------------------------------------------------------------------------------------------------------- Income taxes paid were $152.1 million in 1993, $145.0 million in 1992 and $94.0 million in 1991. Interest income in 1993 includes $24.4 million and in 1992 includes $8.3 million relating to settlements of tax examinations of acquired companies. NOTE M - LEASES The Corporation leases certain facilities and equipment under noncancelable operating leases. Rental expense was $46.9 million in 1993, $30.2 million in 1992 and $24.6 million in 1991. Future minimum lease payments are $43.2 million, $37.2 million, $28.3 million, $19.9 million and $16.8 million for the years 1994 through 1998 and $64.9 million thereafter. NOTE N - OPERATIONS BY GEOGRAPHIC AREA In thousands 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------------- Net sales: United States $3,678,577 $3,404,171 $2,679,909 Foreign 641,827 420,278 272,524 - --------------------------------------------------------------------------------------------------------------------------------- $4,320,404 $3,824,449 $2,952,433 - --------------------------------------------------------------------------------------------------------------------------------- Operating profit: United States $399,001 $426,348 $295,921 Foreign 70,891 34,253 35,937 - --------------------------------------------------------------------------------------------------------------------------------- 469,892 460,601 331,858 Corporate expenses (38,083) (31,221) (27,804) Interest, net (37,387) (53,615) (55,155) Other income, net 5,565 8 14,298 - --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes $399,987 $375,773 $263,197 - --------------------------------------------------------------------------------------------------------------------------------- Identifiable assets: United States $2,178,754 $2,122,334 $1,769,253 Foreign 562,053 503,324 167,438 Corporate 136,541 86,722 190,222 - --------------------------------------------------------------------------------------------------------------------------------- $2,877,348 $2,712,380 $2,126,913 - --------------------------------------------------------------------------------------------------------------------------------- Foreign operations are conducted primarily in Europe. Foreign operations located elsewhere are not significant. Corporate assets consist primarily of cash and cash equivalents. VF CORPORATION -33- 13 FINANCIAL SUMMARY In thousands, except per share amounts 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------- Summary of Operations Net sales $4,320,404 $3,824,449 $2,952,433 $2,612,613 Cost of products sold 2,974,861 2,603,726 2,039,787 1,874,590 - ---------------------------------------------------------------------------------------------------- Gross profit 1,345,543 1,220,723 912,646 738,023 Marketing, administrative and general expenses 913,734 791,343 608,592 530,770 - ---------------------------------------------------------------------------------------------------- Operating income 431,809 429,380 304,054 207,253 Interest, net (37,387) (53,615) (55,155) (64,938) Miscellaneous, net 5,565 8 14,298 769 - ---------------------------------------------------------------------------------------------------- Income before income taxes 399,987 375,773 263,197 143,084 Income taxes 153,572 138,742 101,867 61,960 - ---------------------------------------------------------------------------------------------------- Net income $246,415 $237,031 $161,330 $81,124 - ---------------------------------------------------------------------------------------------------- Per share of Common Stock 1 Earnings-primary $3.80 $3.97 $2.75 $1.35 Dividends 1.22 1.11 1.02 1.00 Average number of common shares outstanding 64,011 58,608 57,152 57,122 Net income as % of average common shareholders' equity 16.9% 23.0% 18.8% 9.9% Net income as % of average total assets 8.5% 9.7% 8.0% 4.1% - ---------------------------------------------------------------------------------------------------- Financial Position Accounts receivable, net $511,887 $493,030 $333,073 $301,032 Inventories 778,767 742,474 537,027 436,657 Total current assets 1,500,180 1,365,573 1,071,109 824,249 Property, plant and equipment, net 712,759 711,087 577,019 537,178 Total assets 2,877,348 2,712,380 2,126,913 1,852,829 Total current liabilities 659,848 684,002 510,776 351,462 Long-term debt 527,573 767,641 583,209 585,142 Common shareholders' equity 1,547,400 1,153,971 938,078 823,126 - ---------------------------------------------------------------------------------------------------- Other Statistics Working capital $840,332 $681,571 $560,333 $472,787 Current ratio 2.3 2.0 2.1 2.3 Total debt to capital ratio 2 30.3% 44.8% 42.2% 44.9% Dividends $82,831 $69,552 $62,712 $61,133 Purchase of Common Stock 29,950 Income retained in the business 163,584 167,479 98,618 (9,959) Capital expenditures (excluding acquisitions) 209,494 207,202 110,762 110,143 Depreciation and amortization 125,765 108,281 90,991 97,850 - ---------------------------------------------------------------------------------------------------- Market Data Market price range 1 $56 1/2-39 1/2 $57 1/2-38 1/2 $41 1/2-17 5/8 $34 1/4-11 5/8 Book value per common share 1 23.99 19.39 16.26 14.44 Price earnings ratio-high-low 14.9-10.4 14.5-9.7 15.1-6.4 25.4-8.6 Rate of payout 3 32.1% 28.0% 37.1% 74.1% - ---------------------------------------------------------------------------------------------------- 1 Per share computations and market price ranges have been adjusted to reflect two-for-one stock splits in April 1986 and December 1983. 2 Capital is defined as common shareholders' equity plus short- and long-term debt. 3 Dividends per share divided by earnings per share. VF CORPORATION -34- 14 1989 1988 1987 1986 1985 1984 1983 - ------------------------------------------------------------------------------------------------------------------------ $2,532,711 $2,516,107 $2,573,762 $1,544,574 $1,481,182 $1,167,356 $1,100,956 1,753,476 1,751,577 1,758,773 1,002,856 951,368 742,959 707,931 - ------------------------------------------------------------------------------------------------------------------------ 779,235 764,530 814,989 541,718 529,814 424,397 393,025 466,371 459,929 456,383 278,175 239,825 191,589 177,535 - ------------------------------------------------------------------------------------------------------------------------ 312,864 304,601 358,606 263,543 289,989 232,808 215,490 (38,908) (38,232) (50,631) (18,319) (19,338) 1,875 4,607 9,789 8,561 5,770 4,219 1,466 5,948 5,704 - ------------------------------------------------------------------------------------------------------------------------ 283,745 274,930 313,745 249,443 272,117 240,631 225,801 107,734 101,270 134,051 112,985 132,700 115,885 106,400 - ------------------------------------------------------------------------------------------------------------------------ $176,011 $173,660 $179,694 $136,458 $139,417 $124,746 $119,401 - ------------------------------------------------------------------------------------------------------------------------ $2.72 $2.55 $2.65 $2.16 $2.25 $1.96 $1.82 .91 .85 .75 .66 .58 .52 .43 64,803 68,165 67,793 63,068 61,963 63,706 65,584 17.4% 16.8% 19.8% 21.5% 28.4% 29.8% 33.9% 9.3% 9.1% 9.4% 12.3% 16.2% 19.7% 23.1% - ------------------------------------------------------------------------------------------------------------------------ $319,981 $266,399 $285,370 $267,368 $148,423 $135,750 $102,912 507,451 422,801 493,024 465,988 208,745 175,812 154,183 873,532 786,466 912,038 877,064 436,804 378,017 401,121 513,927 482,248 507,106 488,898 315,538 304,067 157,784 1,889,764 1,759,862 1,925,656 1,897,782 860,193 807,675 567,161 325,057 231,024 463,993 452,876 145,052 188,774 102,953 637,549 302,348 322,888 437,558 124,280 153,294 44,351 819,777 1,095,383 980,591 831,249 554,223 441,370 399,911 - ------------------------------------------------------------------------------------------------------------------------ $548,475 $555,442 $448,045 $424,188 $291,752 $189,243 $298,168 2.7 3.4 2.0 1.9 3.0 2.0 3.9 47.3% 22.9% 35.7% 45.4% 23.1% 34.1% 13.0% $57,313 $57,958 $50,862 $42,124 $36,026 $32,607 $27,881 395,213 47,940 (276,515) 115,702 128,832 94,334 103,391 44,199 91,520 125,294 64,137 90,817 60,775 53,142 30,714 59,643 91,029 88,934 89,689 54,966 50,075 26,842 20,091 - ------------------------------------------------------------------------------------------------------------------------ $38 3/8-27 3/4 $33 7/8-24 3/4 $48 1/4-22 $36-24 $27-13 $16 1/4-10 7/8 $20 5/8-9 1/8 14.14 16.05 14.43 12.30 8.91 7.14 6.09 14.1-10.2 13.3-9.7 18.2-8.3 16.7-11.1 12.0-5.8 8.3-5.5 11.4-5.0 33.5% 33.3% 28.3% 30.6% 25.8% 26.3% 23.4% - ------------------------------------------------------------------------------------------------------------------------ VF CORPORATION -35- 15 INVESTOR INFORMATION Common Stock Listed on the New York Stock Exchange and Pacific Stock Exchange-Trading symbol VFC Shareholders of Record As of February 1, 1994, there were 8,229 shareholders of record. Dividend Policy Quarterly dividends on VF Corporation Common Stock, when declared, are usually paid on or about the 20th day of March, June, September and December. Dividend Reinvestment Plan The Plan is offered to shareholders by First Chicago Trust Company of New York. The Plan provides for automatic dividend reinvestment and voluntary cash contributions for the purchase of additional shares of VF Corporation Common Stock. Questions concerning general Plan information should be directed to the Office of the Vice President/Secretary of VF Corporation. Dividend Direct Deposit Shareholders may have their dividends deposited into their savings or checking account at any bank that is a member of the Automated Clearing House (ACH) system. A brochure describing this service may be obtained by contacting First Chicago or VF Corporation. Quarterly Common Stock Price Information The high and low sales prices for the periods indicated were as follows: 1993 1992 1991 - ---------------------------------------------------------------------------------- High Low High Low High Low - ---------------------------------------------------------------------------------- First quarter $56 1/2 $44 3/4 $46 7/8 $38 1/2 $27 $17 5/8 Second quarter 51 3/4 45 3/4 47 7/8 40 1/2 31 7/8 25 Third quarter 47 1/4 40 3/8 50 1/4 43 35 3/8 28 Fourth quarter 46 1/4 39 1/2 57 1/2 45 1/8 41 1/2 33 1/2 - ---------------------------------------------------------------------------------- -36-