1
Exhibit 13
VF Corporation Management's Discussion and Analysis of
Operations and Financial Condition
Analysis of Operations
The Company's record sales and earnings over the last three years reflect the
successful results from investments in our product categories targeted for
growth and improvement in our businesses focused on enhancing profitability. The
decisions to balance our manufacturing base with lower cost offshore locations
and to reorganize the Company into six product-based coalitions have resulted in
cost reductions and increased efficiency in both domestic and international
businesses. We have reinvested a significant portion of the savings from these
actions in (1) promotional spending to support and build our brands, (2)
investments in technology and (3) expansion of our offshore manufacturing base.
Finally, the acquisition of Bestform Group, Inc. in 1998, the conversion of
licensed international businesses into owned businesses, and other domestic and
international business acquisitions have also contributed to the improved
operating results.
The Company classifies all of its businesses into two categories: a "growth"
category where investments are made to support top line growth and a
"maintenance" category where efforts are focused on increased profitability. In
the growth category businesses, which include jeanswear, domestic intimate
apparel, workwear and daypacks, sales advanced by $456 million in 1998,
including acquisitions. The rate of sales increase in this category was 12% over
1997. Sales in the Company's maintenance category, which includes our knitwear,
international intimates, playwear and swimwear businesses, declined by $199
million in 1998 due to lower sales of knitwear products and the elimination of
unprofitable product lines.
Net sales in 1997 increased by 2% over 1996. Unit sales in 1997 increased by 1%
over 1996, and the impact of changes in product mix and pricing increased sales
by 2%. Offsetting these increases was the impact of a stronger U.S. dollar in
1997, which in translating foreign currencies into U.S. dollars had the effect
of reducing total sales by 1% (and earnings by $.07 per share).
Gross margins were 34.5% of sales in 1998, compared with 34.1% in 1997 and 32.7%
in 1996. The margin improvement over the last two years resulted from the
continuing shift to lower cost sourcing, lower raw material costs and increased
operating efficiencies.
For the United States market, VF manufactures its products in owned domestic
plants and offshore plants, primarily in Mexico. In addition, VF contracts the
sewing of products from independent contractors mostly located outside of the
U.S. There has been a shift over the last three years toward a more balanced
sourcing mix, with more products being manufactured in and contracted from lower
cost facilities in Mexico and the Caribbean Basin. The amount of domestic sales
derived from products sewn outside the United States has increased to 57% by the
end of 1998 from approximately 30% during 1995. Similarly, in foreign markets,
sourcing is being shifted from higher cost owned plants located primarily in
Western Europe to lower cost owned and contracted production in locations
outside of Western Europe.
Marketing, administrative and general expenses were 21.9% of sales in 1998,
compared with 22.5% and 21.8% in 1997 and 1996, respectively. Expenses declined
as a percent of sales in 1998 due to the benefits of the coalition
consolidations and other cost reduction initiatives, partially offset by higher
spending on information systems. The increase in 1997 resulted from higher
marketing spending, primarily advertising, compared with 1996.
Other operating income and expense includes goodwill amortization expense,
offset by net royalty income. Amortization of goodwill increased in 1998
primarily from acquisitions completed during the year, and net royalty income
declined in 1998 from the conversion of certain formerly licensed businesses to
owned operations.
2
Net interest expense increased in 1998 due to higher short-term borrowings
related to the 1998 business acquisitions. In addition, interest income includes
$10.5 million in 1997 and $2.6 million in 1996 relating to settlements of prior
years' tax examinations.
The effective income tax rate was 38.5% in 1998, 40.1% in 1997 and 41.1% in
1996. The effective rate declined in 1998 and 1997 due to a reduction in foreign
operating losses with no current tax benefit. Also in 1998, the effective rate
was reduced by lower state income taxes and higher tax-free income from
investments funding compensation plans.
Analysis of Financial Condition
In managing its capital structure, VF balances financial leverage with equity to
reduce its overall cost of capital, while providing the flexibility to pursue
investment opportunities that may become available. It is management's goal to
maintain a debt to capital ratio of less than 40%. Our debt to capital ratio
remains within these guidelines: 27.1% at the end of 1998 and 22.5% at the end
of 1997.
Balance Sheets
Increases in accounts receivable and inventories at the end of 1998 result
primarily from the 1998 acquisitions. In addition, the increase in inventories
reflects a higher average cost per unit due to a higher fashion content.
Intangible assets and short-term borrowings increased during 1998 due to the
acquisitions completed during the year.
Liquidity and Cash Flow
Working capital was $815.1 million and the current ratio was 1.8 to 1 at the end
of 1998, compared with $835.6 million and 2.1 to 1 at the end of 1997.
Cash provided by operations was $432.7 million in 1998, $454.7 million in 1997
and $711.5 million in 1996. The record level in 1996 resulted from reductions in
accounts receivable due to the timing of the year-end, historically low
inventory levels and an increase in current liabilities during 1996.
Capital expenditures were $189.1 million in 1998, compared with $154.3 million
and $138.7 million in 1997 and 1996, respectively. Capital expenditures relate
to expansion of offshore manufacturing capacity and investments in information
systems. Capital expenditures in 1999 are expected to remain at the 1998 level
and are expected to be funded by cash flows from operations.
Beginning in late 1994 and continuing through 1998, the Company purchased 19.0
million shares of its Common Stock in open market transactions. During 1998, 3.2
million shares were purchased at a cost of $147.4 million, and 9.1 million
shares were purchased during 1997 for $391.7 million. Under its current
authorization from the Board of Directors, the Company may purchase up to an
additional 2.0 million shares.
Cash dividends totaled $.81 per common share in 1998, compared with $.77 in 1997
and $.73 in 1996. The dividend payout rate was 26% in 1998, compared with 28% in
1997 and 31% in 1996. The indicated annual dividend rate for 1999 is $.84 per
share. VF has paid dividends on its Common Stock annually since 1941 and intends
to maintain a long-term payout rate of 30%.
The Company's strong financial position, including existing cash balances,
unused credit lines and a low debt ratio, provides substantial capacity to meet
investment opportunities that may arise.
Foreign Currency Exposures
Over 16% of our 1998 sales and operating income were derived from foreign
operations. In addition, a growing percentage of the total product needs to
support our domestic businesses are manufactured in foreign countries. VF's
financial position and operating results can be influenced by economic
conditions in countries where VF conducts business and by changing foreign
currency exchange rates. Management monitors foreign currency exposures and may
in the ordinary course of business enter into foreign currency forward exchange
contracts related to specific foreign
3
currency transactions or anticipated cash flows. These contracts are generally
for periods of less than six months and are not material. VF does not hedge the
translation of foreign currencies into the U.S. dollar.
A new common currency, the Euro, was created effective January 1, 1999 to
eventually replace eleven separate currencies of countries within the European
Union. The introduction of the Euro is not expected to have a significant impact
on the Company's operating results.
Year 2000 Update
The Year 2000 issue relates to computer systems that will not properly recognize
date-sensitive information when the year changes to 2000. A Year 2000 issue that
is not properly addressed could result in a system failure or miscalculations.
While the Company's products are not directly affected by the Year 2000 problem,
its computer systems and equipment, as well as the systems and equipment of its
vendors, service providers and customers, may be affected.
Senior management of the Company has established a task force to address Year
2000 issues and regularly reviews its progress with the Board of Directors. The
task force activities relate to four broad business categories: (1)
infrastructure; (2) applications software; (3) processors embedded in machinery
and equipment used in the Company's manufacturing, distribution and
administrative operations; and (4) significant third party vendors, service
providers and customers. Actions common to evaluation of Year 2000 issues in
each of these business categories include:
- - Inventorying all date-sensitive systems and equipment
- - Assessing compliance and assigning priorities to items identified as not being
compliant
- - Repairing or replacing items identified as not being compliant
- - Testing converted systems and equipment
Infrastructure: This category relates to all mainframe, personal computer and
network hardware, as well as operating system software. Approximately 75% of the
actions required for this category have been completed at January 2, 1999. All
such components are expected to be fully compliant during the second quarter of
1999. The testing phase is ongoing as hardware or system software is remediated,
upgraded or replaced and is scheduled to be completed during the second quarter
of 1999.
Applications software: This refers to all computer software programs, whether
internally developed or purchased from outside parties. Approximately 90% of
such software systems are compliant at January 2, 1999, and all software is
expected to be fully compliant during the second quarter of 1999. The testing
phase has begun and is scheduled to be completed for all critical applications
during the second quarter of 1999.
Processors: The Company is currently taking an inventory of all processors
embedded in the Company's manufacturing, distribution and administrative
equipment. This assessment is expected to be completed during the first quarter
of 1999. As Year 2000 issues are noted, the hardware or software is remediated,
upgraded or replaced. The testing phase is ongoing and is scheduled to be
completed during the second quarter of 1999.
Third Parties: The Company has initiated formal communications with all of its
significant vendors, service providers and customers to determine the extent to
which the Company is vulnerable to those third parties' failure to remediate
their own Year 2000 issues. The communication and evaluation process is ongoing
and will include visits to certain critical third parties through the second
quarter of 1999.
In addition, contingency plans are being developed and will evolve as the
testing phase and third party assessments are completed.
Although the Company expects its critical systems to be compliant by the middle
of 1999, it is possible that all Year 2000 problems may not be identified or
corrected or that third parties with which the Company has significant
relationships will not resolve all of their Year 2000 issues. However, with the
investigation and remediation of Year
4
2000 issues as scheduled, the Company expects to reduce significantly the level
of uncertainty about the Year 2000 problem and, in particular, about the Year
2000 compliance and readiness of its material third party relationships. Also,
since the Company conducts business with numerous vendors, has numerous
manufacturing and distribution facilities around the world and has a broad
customer base, the Company believes that the possibility of significant
interruptions of normal operations should be reduced. Nevertheless, if there
were serious systems failures by the Company or its third party relationships,
they could have a material adverse effect on the Company's financial position or
results of operations.
The estimated total cost of resolving the Year 2000 issues, including internal
personnel and outside vendors and consultants, is approximately $25 million over
the period 1997 through 1999, of which $22 million has been spent through
January 2, 1999. These costs are being expensed as incurred.
Cautionary Statement on Forward-Looking Statements
From time to time, the Company may make oral or written statements, including
statements in this Annual 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; the financial strength of
the retail industry; actions of competitors that may impact the Company's
business; the Company's ability, and the ability of its suppliers and customers,
to adequately address the Year 2000 computer issue; 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.
5
VF CORPORATION
CONSOLIDATED BALANCE SHEETS
JANUARY 2 JANUARY 3
In thousands 1999 1998
----------- -----------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 63,208 $ 124,094
Accounts receivable, less allowances of
$52,011 in 1998 and $39,576 in 1997 705,734 587,934
Inventories 954,007 774,755
Deferred income taxes 99,608 94,750
Other current assets 25,595 19,933
----------- -----------
Total current assets 1,848,152 1,601,466
PROPERTY, PLANT AND EQUIPMENT 776,091 705,990
INTANGIBLE ASSETS 951,562 814,332
OTHER ASSETS 260,861 200,994
----------- -----------
$ 3,836,666 $ 3,322,782
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 244,910 $ 24,191
Current portion of long-term debt 969 450
Accounts payable 341,126 301,103
Accrued liabilities 446,001 440,164
----------- -----------
Total current liabilities 1,033,006 765,908
LONG-TERM DEBT 521,657 516,226
OTHER LIABILITIES 181,750 143,813
REDEEMABLE PREFERRED STOCK 54,344 56,341
DEFERRED CONTRIBUTIONS TO EMPLOYEE STOCK OWNERSHIP PLAN (20,399) (26,275)
----------- -----------
33,945 30,066
COMMON SHAREHOLDERS' EQUITY
Common Stock, stated value $1; shares authorized 300,000,000;
shares outstanding, 119,466,101 in 1998 and 121,225,298 in 1997 119,466 121,225
Additional paid-in capital 801,511 744,108
Accumulated other comprehensive income (25,639) (36,110)
Retained earnings 1,170,970 1,037,546
----------- -----------
Total common shareholders' equity 2,066,308 1,866,769
----------- -----------
$ 3,836,666 $ 3,322,782
=========== ===========
See notes to consolidated financial statements.
1
6
VF CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEAR ENDED
---------------------------------------------
JANUARY 2 JANUARY 3 JANUARY 4
In thousands, except per share amounts 1999 1998 1997
----------- ----------- -----------
NET SALES $ 5,478,807 $ 5,222,246 $ 5,137,178
COSTS AND OPERATING EXPENSES
Cost of products sold 3,586,686 3,440,611 3,458,166
Marketing, administrative and general expenses 1,198,854 1,175,598 1,122,076
Other operating expense (income) 9,098 964 (347)
----------- ----------- -----------
4,794,638 4,617,173 4,579,895
----------- ----------- -----------
OPERATING INCOME 684,169 605,073 557,283
OTHER INCOME (EXPENSE)
Interest income 6,411 23,818 13,406
Interest expense (62,282) (49,695) (62,793)
Miscellaneous, net 3,300 6,684 512
----------- ----------- -----------
(52,571) (19,193) (48,875)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 631,598 585,880 508,408
INCOME TAXES 243,292 234,938 208,884
----------- ----------- -----------
NET INCOME $ 388,306 $ 350,942 $ 299,524
=========== =========== ===========
EARNINGS PER COMMON SHARE
Basic $ 3.17 $ 2.76 $ 2.32
Diluted 3.10 2.70 2.28
CASH DIVIDENDS PER COMMON SHARE $ .81 $ .77 $ .73
See notes to consolidated financial statements.
2
7
VF CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FISCAL YEAR ENDED
--------------------------------------
JANUARY 2 JANUARY 3 JANUARY 4
1999 1998 1997
--------- --------- ---------
In thousands
NET INCOME $ 388,306 $ 350,942 $ 299,524
OTHER COMPREHENSIVE INCOME
Foreign currency translation, net
of income taxes 10,471 (42,538) (14,055)
--------- --------- ---------
COMPREHENSIVE INCOME $ 398,777 $ 308,404 $ 285,469
========= ========= =========
See notes to consolidated financial statements.
3
8
VF CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED
---------------------------------------
JANUARY 2 JANUARY 3 JANUARY 4
In thousands 1999 1998 1997
--------- --------- ---------
OPERATIONS
Net income $ 388,306 $ 350,942 $ 299,524
Adjustments to reconcile net income
to cash provided by operations:
Depreciation 128,495 128,734 132,440
Amortization of intangible assets 32,890 27,518 28,138
Other, net 31,161 (9,396) (18,239)
Changes in current assets and liabilities:
Accounts receivable (48,771) (9,972) 25,270
Inventories (52,406) (55,677) 110,807
Accounts payable (17,013) (12,587) 43,196
Other, net (29,983) 35,099 90,318
--------- --------- ---------
Cash provided by operations 432,679 454,661 711,454
INVESTMENTS
Capital expenditures (189,059) (154,262) (138,747)
Business acquisitions (299,900) (16,003) (24,284)
Other, net (16,943) (13,578) 36,887
--------- --------- ---------
Cash invested (505,902) (183,843) (126,144)
FINANCING
Increase (decrease) in short-term borrowings 212,457 8,745 (213,746)
Proceeds from long-term debt 4,132 -- 15,556
Payment of long-term debt (2,998) (1,253) (111,522)
Purchase of Common Stock (147,398) (391,651) (61,483)
Cash dividends paid (101,660) (100,141) (97,036)
Proceeds from issuance of Common Stock 45,689 64,964 67,819
Other, net 2,115 1,983 1,656
--------- --------- ---------
Cash provided (used) by financing 12,337 (417,353) (398,756)
--------- --------- ---------
NET CHANGE IN CASH AND EQUIVALENTS (60,886) (146,535) 186,554
CASH AND EQUIVALENTS - BEGINNING OF YEAR 124,094 270,629 84,075
--------- --------- ---------
CASH AND EQUIVALENTS - END OF YEAR $ 63,208 $ 124,094 $ 270,629
========= ========= =========
See notes to consolidated financial statements.
4
9
VF CORPORATION
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE RETAINED
In thousands STOCK CAPITAL INCOME EARNINGS
----------- ----------- ------------- -----------
BALANCE DECEMBER 30, 1995 $ 63,439 $ 593,976 $ 20,483 $ 1,093,608
Net income -- -- -- 299,524
Cash dividends:
Common Stock -- -- -- (93,020)
Series B Preferred Stock -- -- -- (4,016)
Tax benefit from Preferred Stock dividends -- -- -- 827
Redemption of Preferred Stock -- -- -- (1,218)
Restricted Common Stock -- 23 -- --
Purchase of treasury shares (1,015) -- -- (60,468)
Exercise of stock options,
net of shares surrendered 1,484 74,555 -- (388)
Foreign currency translation, net of
$7,568 deferred income taxes -- -- (14,055) --
----------- ----------- ----------- -----------
BALANCE JANUARY 4, 1997 63,908 668,554 6,428 1,234,849
Net income -- -- -- 350,942
Cash dividends:
Common Stock -- -- -- (96,337)
Series B Preferred Stock -- -- -- (3,804)
Tax benefit from Preferred Stock dividends -- -- -- 700
Redemption of Preferred Stock -- -- -- (1,855)
Restricted Common Stock 9 (520) -- 601
Purchase of treasury shares (5,239) -- -- (386,412)
Exercise of stock options,
net of shares surrendered 1,457 76,074 -- (48)
Foreign currency translation, net of
$22,905 deferred income taxes -- (42,538) --
Two-for-one stock split 61,090 -- -- (61,090)
----------- ----------- ----------- -----------
BALANCE JANUARY 3, 1998 121,225 744,108 (36,110) 1,037,546
(continued)
5
10
VF CORPORATION
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
(continued)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE RETAINED
In thousands STOCK CAPITAL INCOME EARNINGS
----------- ----------- ------------- -----------
BALANCE JANUARY 3, 1998 $ 121,225 $ 744,108 $ (36,110) $ 1,037,546
Net income -- -- -- 388,306
Cash dividends:
Common Stock -- -- -- (97,943)
Series B Preferred Stock -- -- -- (3,717)
Tax benefit from Preferred Stock dividends -- -- -- 568
Redemption of Preferred Stock -- -- -- (2,763)
Restricted Common Stock 19 208 -- (37)
Purchase of treasury shares (3,223) -- -- (144,175)
Common Stock held in trust for
deferred compensation plans (233) -- -- (6,728)
Exercise of stock options,
net of shares surrendered 1,678 57,195 -- (87)
Foreign currency translation, net of
$5,638 deferred income taxes -- -- 10,471 --
----------- ----------- ----------- -----------
BALANCE JANUARY 2, 1999 $ 119,466 $ 801,511 $ (25,639) $ 1,170,970
=========== =========== =========== ===========
See notes to consolidated financial statements.
6
11
VF CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 2, 1999
NOTE A - ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of VF Corporation and all majority 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 method represent 48% of total 1998 inventories and 53% in
1997. 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 by the straight-line method over the estimated useful
lives of the assets, ranging up to 40 years for buildings and 10 years for
machinery and equipment.
INTANGIBLE ASSETS represent the excess of costs over the fair value of net
tangible assets of businesses acquired, less accumulated amortization of $243.5
million and $208.3 million in 1998 and 1997. These assets are amortized on the
straight-line method over ten to forty years.
The Company's policy is to evaluate intangible assets for possible impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. This evaluation is based on a number of
factors, including a business unit's expectations for operating income and
undiscounted cash flows that will result from the use of such assets.
ADVERTISING COSTS are expensed as incurred and were $287.5 million in 1998,
$309.3 million in 1997 and $271.4 million in 1996.
OTHER COMPREHENSIVE INCOME consists of certain changes in assets and liabilities
that are not included in Net Income but are instead reported under generally
accepted accounting principles within a separate component of Common
Shareholders' Equity. All amounts in Accumulated Other Comprehensive Income
relate to foreign currency translation and are net of income taxes at a 35%
rate.
STOCK SPLIT: During 1997, the Company declared a two-for-one stock split. Common
Stock increased and Retained Earnings decreased by $61.1 million, representing
the stated value of additional shares issued. Amounts presented in the
Consolidated Statements of Common Shareholders' Equity are based on actual share
amounts outstanding for each period presented.
USE OF ESTIMATES: In preparing financial statements in accordance with generally
accepted accounting principles, management makes estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimates.
7
12
NOTE B - ACQUISITIONS
On January 8, 1998, the Company acquired the stock of Bestform Group, Inc. for
$184.3 million in cash, plus repayment of $44.4 million of debt. Bestform is a
manufacturer and marketer of intimate apparel in the United States. The Company
also acquired three other businesses during 1998 for an aggregate cost of $76.1
million. Intangible assets related to these acquisitions totaled $166.2 million.
The following unaudited pro forma results of operations assume that these
acquisitions had occurred at the beginning of 1997:
1998 1997
----------- -----------
In thousands, except per
share amounts
Net sales $ 5,587,378 $ 5,733,355
Net income 388,743 361,238
Earnings per common share:
Basic $ 3.17 $ 2.84
Diluted 3.10 2.78
During the years 1996 and 1997, the Company acquired a total of four businesses,
primarily related to jeanswear products, for an aggregate cost of $40.3 million,
of which $28.6 million represents intangible assets.
All acquisitions have been accounted for as purchases, and accordingly the
purchase prices have been allocated to the net assets acquired based on fair
values at the dates of acquisition. The excess of cost over fair value of the
purchased businesses has been allocated to intangible assets and is being
amortized primarily over 40 years. Operating results of these businesses have
been included in the consolidated financial statements since the dates of
acquisition.
NOTE C - INVENTORIES
1998 1997
-------- --------
In thousands
Finished products $552,729 $434,000
Work in process 185,929 166,947
Materials and supplies 215,349 173,808
-------- --------
$954,007 $774,755
======== ========
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.
8
13
NOTE D - PROPERTY, PLANT AND EQUIPMENT
1998 1997
---------- ----------
In thousands
Land $ 45,296 $ 44,786
Buildings 443,619 437,903
Machinery and equipment 1,222,216 1,086,263
---------- ----------
1,711,131 1,568,952
Less accumulated depreciation 935,040 862,962
---------- ----------
$ 776,091 $ 705,990
========== ==========
NOTE E - SHORT-TERM BORROWINGS
The weighted average interest rate for short-term borrowings from banks was 5.8%
at the end of 1998 and 10.5% at the end of 1997.
The Company maintains an unsecured revolving credit agreement with a group of
banks for $750.0 million that supports commercial paper borrowings and is
otherwise available for general corporate purposes. The agreement, which extends
to October 1999, requires a .12% facility fee per year and contains various
financial covenants, including minimum net worth and debt ratio requirements. At
January 2, 1999, there was $180.0 million outstanding under the agreement.
NOTE F - ACCRUED LIABILITIES
1998 1997
-------- --------
In thousands
Income taxes $ 70,112 $ 86,244
Compensation 103,769 84,425
Insurance 18,605 62,153
Other 253,515 207,342
-------- --------
$446,001 $440,164
======== ========
9
14
NOTE G - LONG-TERM DEBT
1998 1997
-------- --------
In thousands
9.50% notes, due 2001 $100,000 $100,000
6.63% notes, due 2003 100,000 100,000
7.60% notes, due 2004 100,000 100,000
6.75% notes, due 2005 100,000 100,000
9.25% debentures, due 2022 100,000 100,000
Other 22,626 16,676
-------- --------
522,626 516,676
Less current portion 969 450
-------- --------
$521,657 $516,226
======== ========
The scheduled payments of long-term debt are $4.2 million in 2000, $115.8
million in 2001, $.2 million in 2002 and $100.2 million in 2003. The Company
paid interest of $59.5 million in 1998, $48.0 million in 1997 and $62.6 million
in 1996.
NOTE H - OTHER LIABILITIES
1998 1997
-------- --------
In thousands
Deferred compensation $151,436 $113,727
Deferred income taxes 11,512 --
Other 18,802 30,086
-------- --------
$181,750 $143,813
======== ========
NOTE I - BENEFIT PLANS
The Company sponsors a noncontributory defined benefit pension plan covering
substantially all full-time domestic employees. The effect of the defined
benefit plan on income is as follows:
1998 1997 1996
-------- -------- --------
In thousands
Service cost - benefits earned during the year $ 19,738 $ 16,726 $ 17,160
Interest cost on projected benefit obligation 36,370 33,577 31,060
Expected return on plan assets (45,270) (34,771) (30,947)
Amortization of:
Transition asset (3,068) (4,378) (4,378)
Prior service cost 5,179 4,987 4,987
-------- -------- --------
Pension expense $ 12,949 $ 16,141 $ 17,882
======== ======== ========
10
15
The following provides a reconciliation of the changes in fair value of the
plan's assets and benefit obligation, based on a September 30 valuation date,
plus the funded status at the end of each year:
1998 1997
--------- ---------
In thousands
Fair value of plan assets, beginning of year $ 526,087 $ 405,000
Actual return on plan assets 28,013 115,805
Company contributions 20,400 27,000
Benefits paid (20,909) (21,718)
--------- ---------
Fair value of plan assets, end of year 553,591 526,087
--------- ---------
Benefit obligation, beginning of year 473,940 411,295
Service cost 19,738 16,726
Interest cost 36,370 33,577
Plan amendments 19,005 2,896
Actuarial loss 22,333 31,164
Benefits paid (20,909) (21,718)
--------- ---------
Benefit obligation, end of year 550,477 473,940
--------- ---------
Funded status, end of year 3,114 52,147
Unrecognized net actuarial (gain) loss 2,107 (37,483)
Unrecognized prior service cost 29,943 16,117
Unrecognized net transition asset -- (3,068)
--------- ---------
Pension asset recorded in Other Assets $ 35,164 $ 27,713
========= =========
The projected benefit obligation was determined using an assumed discount rate
of 6.8% in 1998, 7.5% in 1997 and 8.0% in 1996. The assumption for compensation
increases was 4.0% in 1998 and 4.5% in 1997 and 1996, and the assumption for
return on plan assets was 8.8% in each year.
The Company sponsors an Employee Stock Ownership Plan (ESOP) as part of a 401(k)
savings plan covering most domestic salaried employees. Contributions made by
the Company to the 401(k) plan are based on a specified percentage of employee
contributions. Cash contributions by the Company were $6.5 million in 1998, $5.7
million in 1997 and $5.5 million in 1996. Plan expense was $5.5 million in 1998
and 1997 and $5.7 million in 1996, after giving effect to tax-deductible
dividends on the Series B Preferred Stock of $3.7 million in 1998, $3.8 million
in 1997 and $4.0 million in 1996.
The Company sponsors a nonqualified supplemental retirement pension plan. The
actuarially determined projected benefit obligation at the end of 1998 was $41.2
million, of which $20.2 million is accrued in Other Liabilities. The Company
also sponsors other savings and retirement plans for certain domestic and
foreign employees. Expense for these plans totaled $10.5 million in 1998, $9.1
million in 1997 and $9.6 million in 1996.
11
16
NOTE J - CAPITAL
Common shares outstanding are net of shares held in treasury of 17,134,370 in
1998, 13,910,519 in 1997 and 4,798,646 in 1996. In addition, 232,899 shares of
VF Common Stock held in trust for deferred compensation plans, at a cost of $7.0
million, are treated for financial accounting purposes as treasury shares at the
end of 1998.
There are 25,000,000 authorized shares of Preferred Stock, $1 par value. As of
January 2, 1999, 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 1,760,119 shares of Series B Preferred Stock outstanding at January
2, 1999, 1,824,820 outstanding at January 3, 1998 and 1,881,515 outstanding at
January 4, 1997, 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, 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.
NOTE K - REDEEMABLE PREFERRED STOCK
Each share of Series B Preferred Stock has a redemption value of $30.88 plus
cumulative accrued dividends, is convertible into 1.6 shares of Common Stock and
is entitled to two votes 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 Company 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 Company that bears interest at 9.80% and is payable in
increasing installments through 2002. Interest related to this loan was $3.3
million in 1998, $3.9 million in 1997 and $4.4 million in 1996. Principal and
interest obligations on the loan are satisfied as the Company 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. At the end of
1998, 1,099,474 shares of Preferred Stock had been allocated to participating
employees' accounts.
12
17
NOTE L - STOCK OPTIONS
The Company has granted nonqualified stock options to officers, directors and
key employees under a stock compensation plan 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. Activity in the
stock compensation plan is summarized as follows:
SHARES UNDER WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
------------ ----------------
Balance December 30, 1995 9,524,098 $24.49
Options granted 1,965,400 34.49
Options exercised (2,982,576) 22.87
Options canceled (342,450) 24.86
---------- ------
Balance January 4, 1997 8,164,472 26.21
Options exercised (2,521,346) 25.78
Options canceled (131,510) 29.88
---------- ------
Balance January 3, 1998 5,511,616 28.21
Options granted 1,940,000 43.30
Options exercised (1,680,000) 27.26
Options canceled (69,310) 25.41
---------- ------
Balance January 2, 1999 5,702,306 $33.65
==========
Stock options outstanding at January 2, 1999 are summarized as follows:
RANGE OF WEIGHTED AVERAGE WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
-------- ----------- ---------------- --------------
$ 6-10 16,600 1.9 years $ 8.09
16-20 65,220 2.6 years 17.75
21-25 765,896 5.5 years 23.41
26-30 1,609,290 5.4 years 27.27
31-35 1,329,100 7.9 years 34.49
40-45 1,916,200 9.1 years 43.30
- --------- ---------- ---------- -------
$ 6-45 5,702,306 7.2 years $ 33.65
==========
All above options are exercisable, except for those granted in 1998. There are
3,604,194 shares available for future grants of stock options and restricted
stock, of which no more than 1,162,676 may be grants of restricted stock.
13
18
NOTE L - STOCK OPTIONS (CONTINUED)
The Company does not recognize compensation expense for stock options granted at
fair market value, as permitted by the accounting standards. However, had
compensation expense been determined based on the fair value of the options on
the grant dates, the Company's net income would have been reduced by $9.7
million ($.08 per share) in 1998, $9.0 million ($.07 per share) in 1997 and $6.9
million ($.06 per share) in 1996.
The fair value of options granted during 1998 was $8.78 per share and of options
granted during 1996 was $7.97 per share. Fair value is estimated based on the
Black-Scholes option-pricing model with the following assumptions for grants in
1998 and 1996: dividend yield of 2.0% in 1998 and 2.5% in 1996; expected
volatility of 20%; risk-free interest rates of 5.4% in 1998 and 6.5% in 1996;
and expected lives of 4 years in 1998 and 5 years in 1996.
The Company has granted to key employees 47,832 shares of restricted stock that
vest in the year 2005. Compensation equal to the market value of shares at the
date of grant is amortized to expense over the vesting period.
NOTE M - INCOME TAXES
The provision for income taxes is computed based on the following amounts of
income before income taxes:
1998 1997 1996
-------- -------- --------
In thousands
Domestic $582,128 $514,028 $433,959
Foreign 49,470 71,852 74,449
-------- -------- --------
$631,598 $585,880 $508,408
======== ======== ========
The provision for income taxes consists of:
1998 1997 1996
--------- --------- ---------
In thousands
Current:
Federal $ 172,019 $ 201,924 $ 179,217
Foreign 35,082 46,466 43,493
State 17,084 19,553 15,894
--------- --------- ---------
224,185 267,943 238,604
Deferred, primarily federal 19,107 (33,005) (29,720)
--------- --------- ---------
$ 243,292 $ 234,938 $ 208,884
========= ========= =========
14
19
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:
1998 1997 1996
--------- --------- ---------
In thousands
Tax at federal statutory rate $ 221,059 $ 205,058 $ 177,943
State income taxes,
net of federal tax benefit 11,105 12,709 10,331
Amortization of intangible assets 7,916 7,084 7,091
Foreign operating losses
with no current benefit 4,715 4,033 7,109
Other, net (1,503) 6,054 6,410
--------- --------- ---------
$ 243,292 $ 234,938 $ 208,884
========= ========= =========
Deferred income tax assets and liabilities consist of the following:
1998 1997
--------- ---------
In thousands
Deferred income tax assets:
Employee benefits $ 55,645 $ 50,917
Inventories 16,780 10,450
Other accrued expenses 110,730 95,841
Operating loss carryforwards 38,083 36,323
Foreign currency translation 13,806 19,444
--------- ---------
235,044 212,975
Valuation allowance (34,249) (32,506)
--------- ---------
$ 200,795 $ 180,469
========= =========
Deferred income tax liabilities:
Depreciation $ 59,288 $ 47,311
Other 39,857 26,657
--------- ---------
$ 99,145 $ 73,968
========= =========
The Company has $95.2 million of foreign operating loss carryforwards expiring
at various dates; a valuation allowance has been provided where it is more
likely than not that the deferred tax assets relating to certain of those loss
carryforwards will not be realized. Income taxes paid were $215.2 million in
1998, $230.1 million in 1997 and $177.4 million in 1996. Interest income
includes $10.5 million in 1997 and $2.6 million in 1996 relating to settlements
of prior years' tax examinations.
15
20
NOTE N - BUSINESS SEGMENT INFORMATION
The Company designs and manufactures apparel products marketed primarily under
Company-owned brand names. Customers are primarily department, discount and
specialty stores throughout the world.
The Company manages its businesses through separate marketing companies that
support specific brands. Manufacturing and product sourcing needs are met by
groups that support individual or in some cases several different product types.
These operations have been aggregated into two reportable segments based on
product type, method of distribution and economic characteristics. The "Apparel"
segment includes jeanswear and related products, women's intimate and sportswear
apparel, and children's apparel. The "All Other" segment consists of the
Company's knitwear, workwear, daypack and backpack operations, which have
different product, customer or economic characteristics than those in the
Apparel segment.
Management evaluates the operating performance of each of its marketing
companies based on their income from operations. Accounting policies used for
segment reporting are consistent with those stated in Note A, except that
interest income and expense and amortization of intangible assets are not
allocated to individual segments and inventories are valued on a first-in,
first-out basis. Corporate and other expenses include expenses incurred in and
directed by the Corporate offices that are not allocated to specific business
units. Segment assets are those used directly in the operations of each business
unit, such as accounts receivable, inventories and property, plant and
equipment. Corporate assets include investments and deferred income taxes.
Financial information for the Company's reportable segments is as follows:
1998 1997 1996
----------- ----------- -----------
In thousands
Net sales:
Apparel $ 4,313,082 $ 3,963,869 $ 3,931,780
All Other 1,165,725 1,258,377 1,205,398
----------- ----------- -----------
Consolidated net sales $ 5,478,807 $ 5,222,246 $ 5,137,178
=========== =========== ===========
Segment profit:
Apparel $ 693,638 $ 574,384 $ 487,381
All Other 119,674 146,143 141,171
----------- ----------- -----------
Total segment profit 813,312 720,527 628,552
Interest, net (55,871) (25,877) (49,387)
Amortization of intangible assets (32,890) (27,518) (28,138)
Corporate and other expenses (92,953) (81,252 (42,619)
----------- ----------- -----------
Consolidated income before income taxes $ 631,598 $ 585,880 $ 508,408
=========== =========== ===========
16
21
1998 1997 1996
---------- ---------- ----------
In thousands
Segment assets:
Apparel $1,858,873 $1,506,035 $1,481,116
All Other 624,889 638,628 622,801
---------- ---------- ----------
Total segment assets 2,483,762 2,144,663 2,103,917
Cash and equivalents 63,208 124,094 270,629
Intangible assets 951,562 814,332 863,930
Corporate assets 338,134 239,693 211,059
---------- ---------- ----------
Consolidated assets $3,836,666 $3,322,782 $3,449,535
========== ========== ==========
Depreciation expense:
Apparel $ 83,382 $ 81,199 $ 84,043
All Other 37,934 41,624 43,653
Corporate 7,179 5,911 4,744
---------- ---------- ----------
Consolidated depreciation expense $ 128,495 $ 128,734 $ 132,440
========== ========== ==========
Capital expenditures:
Apparel $ 129,532 $ 109,458 $ 93,664
All Other 30,842 32,677 31,099
Corporate 28,685 12,127 13,984
---------- ---------- ----------
Consolidated capital expenditures $ 189,059 $ 154,262 $ 138,747
========== ========== ==========
Information by geographic area is presented below, with sales based on the
location of the customer:
1998 1997 1996
---------- ---------- ----------
In thousands
Net sales:
United States $4,552,785 $4,368,474 $4,203,675
Foreign, primarily Europe 926,022 853,772 933,503
---------- ---------- ----------
Consolidated net sales $5,478,807 $5,222,246 $5,137,178
========== ========== ==========
Long-lived assets, primarily property, plant and equipment:
United States $ 672,534 $ 615,404 $ 639,482
Mexico 60,400 41,055 17,214
Other foreign, primarily Europe 83,842 73,253 79,892
---------- ---------- ----------
Total long-lived assets $ 816,776 $ 729,712 $ 736,588
========== ========== ==========
17
22
Worldwide sales by product category are as follows:
1998 1997 1996
---------- ---------- ----------
In thousands
Jeanswear and related products $2,962,790 $2,888,967 $2,885,232
Intimate apparel 965,782 648,937 650,197
Knitwear 506,365 614,798 601,303
Other 1,043,870 1,069,544 1,000,446
---------- ---------- ----------
Total $5,478,807 $5,222,246 $5,137,178
========== ========== ==========
Sales to one domestic discount store group comprise 12.3% of consolidated sales
in 1998, 11.1% in 1997 and 10.3% in 1996.
NOTE O - LEASES
The Company leases certain facilities and equipment under noncancelable
operating leases. Rental expense was $64.3 million in 1998, $66.2 million in
1997 and $67.0 million in 1996. Future minimum lease payments are $53.7 million,
$45.4 million, $37.3 million, $28.1 million and $22.3 million for the years 1999
through 2003 and $35.0 million thereafter.
NOTE P - EARNINGS PER SHARE
1998 1997 1996
-------- -------- --------
In thousands, except per
share amounts
Basic earnings per share:
Net income $388,306 $350,942 $299,524
Less Preferred Stock dividends
and redemption premium 5,912 5,003 4,363
-------- -------- --------
Net income available for Common Stock $382,394 $345,939 $295,161
======== ======== ========
Weighted average Common Stock outstanding 120,744 125,504 127,292
======== ======== ========
Basic earnings per share $ 3.17 $ 2.76 $ 2.32
======== ======== ========
18
23
1998 1997 1996
-------- -------- --------
In thousands, except per
share amounts
Diluted earnings per share:
Net income $388,306 $350,942 $299,524
Increased ESOP expense if Preferred Stock
were converted to Common Stock 1,136 1,227 1,318
-------- -------- --------
Net income available for Common Stock and
dilutive securities $387,170 $349,715 $298,206
======== ======== ========
Weighted average Common Stock outstanding 120,744 125,504 127,292
Additional Common Stock resulting from dilutive securities:
Preferred Stock 2,854 2,955 3,056
Stock options and other 1,397 1,261 730
-------- -------- --------
Weighted average Common Stock
and dilutive securities outstanding 124,995 129,720 131,078
======== ======== ========
Diluted earnings per share $ 3.10 $ 2.70 $ 2.28
======== ======== ========
NOTE Q - FINANCIAL INSTRUMENTS
The carrying amount and fair value of financial instruments included in the
balance sheets are as follows:
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Financial liabilities: In thousands
Short-term borrowings $244,910 $244,910 $ 24,191 $ 24,191
Long-term debt 522,626 552,476 516,676 543,976
Series B Preferred Stock 54,344 132,008 56,341 137,915
The fair value of the Company's short-term and long-term debt is estimated based
on quoted market prices or values of comparable borrowings. The fair value of
the Series B Preferred Stock is based on a valuation by an independent financial
consulting firm.
The Company enters into short-term foreign currency forward exchange contracts
to manage exposures related to specific foreign currency transactions or
anticipated cash flows. Changes in the fair values of these contracts are
recognized currently in operating income. The amounts of the contracts, and
related gains and losses, are not material. In addition, the Company has entered
into an interest rate swap contract expiring in October 1999 related to $100
million of the long-term debt. Net cash flows of the swap contract are included
in Interest Expense. The fair value of these foreign currency and swap
19
24
financial instruments approximates their carrying value.
20
25
VF Corporation Quarterly Results of Operations (Unaudited)
In thousands, Earnings Per Common Share Dividends Per
except per share amounts Net Sales Gross Profit Net Income Basic Diluted Common Share
- ----------------------------------------------------------------------------------------------------------------------
1998
First quarter $1,326,205 $ 453,225 $ 78,106 $ .63 $ .62 $ .20
Second quarter 1,350,319 455,956 86,781 .70 .69 .20
Third quarter 1,458,780 514,108 119,615 .98 .96 .20
Fourth quarter 1,343,503 468,832 103,804 .86 .84 .21
- ----------------------------------------------------------------------------------------------------------------------
$5,478,807 $1,892,121 $ 388,306 $3.17 $3.10 $ .81
1997
First quarter $1,262,781 $ 417,837 $ 70,186 $ .54 $ .53 $ .19
Second quarter 1,255,549 427,650 78,904 .61 .60 .19
Third quarter 1,416,906 487,311 108,692 .86 .84 .19
Fourth quarter 1,287,010 448,837 93,160 .75 .74 .20
- ----------------------------------------------------------------------------------------------------------------------
$5,222,246 $1,781,635 $ 350,942 $2.76 $2.70 $ .77
1996
First quarter $1,158,123 $ 380,517 $ 55,930 $ .43 $ .43 $ .18
Second quarter 1,220,997 396,319 69,892 .54 .53 .18
Third quarter 1,380,919 446,358 91,048 .71 .69 .18
Fourth quarter 1,377,139 455,818 82,654 .64 .63 .19
- ----------------------------------------------------------------------------------------------------------------------
$5,137,178 $1,679,012 $ 299,524 $2.32 $2.28 $ .73
26
VF Corporation Financial Summary
- -------------------------------------------------------------------------------------------------------------------
In thousands, except per share amounts 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net sales $ 5,478,807 $ 5,222,246 $ 5,137,178
Cost of products sold 3,586,686 3,440,611 3,458,166
- -------------------------------------------------------------------------------------------------------------------
Gross margin 1,892,121 1,781,635 1,679,012
Marketing, administrative and other 1,207,952 1,176,562 1,121,729
- -------------------------------------------------------------------------------------------------------------------
Operating income 684,169 605,073 557,283
Interest, net (55,871) (25,877) (49,387)
Miscellaneous, net 3,300 6,684 512
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 631,598 585,880 508,408
Income taxes 243,292 234,938 208,884
- -------------------------------------------------------------------------------------------------------------------
Net income $ 388,306 $ 350,942 $ 299,524
- -------------------------------------------------------------------------------------------------------------------
Per share of Common Stock(1)
Earnings - basic $ 3.17 $ 2.76 $ 2.32
Earnings - diluted 3.10 2.70 2.28
Dividends .81 .77 .73
Average number of common shares outstanding 120,744 125,504 127,292
Net income as % of average common shareholders' equity 19.7% 18.2% 16.2%
Net income as % of average total assets 10.2% 10.1% 8.6%
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Accounts receivable, net $ 705,734 $ 587,934 $ 592,942
Inventories 954,007 774,755 730,823
Total current assets 1,848,152 1,601,466 1,706,326
Property, plant and equipment, net 776,091 705,990 721,524
Total assets 3,836,666 3,322,782 3,449,535
Total current liabilities 1,033,006 765,908 766,267
Long-term debt 521,657 516,226 519,058
Common shareholders' equity 2,066,308 1,866,769 1,973,739
- -------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS
Working capital $ 815,146 $ 835,558 $ 940,059
Current ratio 1.8 2.1 2.2
Debt to capital ratio(2) 27.1% 22.5% 21.4%
Dividends $ 101,660 $ 100,141 $ 97,036
Purchase of Common Stock 147,398 391,651 61,483
Cash provided by operations 432,679 454,661 711,454
Capital expenditures (excluding acquisitions) 189,059 154,262 138,747
Depreciation and amortization 161,385 156,252 160,578
- -------------------------------------------------------------------------------------------------------------------
MARKET DATA
Market price range(1) $54 11/16-33 7/16 $48 1/4-32 1/4 $34 15/16-23 13/16
Book value per common share(1) 17.30 15.40 15.44
Price earnings ratio -high-low 17.3 - 10.5 17.5 - 11.7 15.1 - 10.3
Rate of payout(3) 25.6% 27.9% 31.5%
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
In thousands, except per share amounts 1995 1994
- -------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net sales $ 5,062,299 $ 4,971,713
Cost of products sold 3,577,555 3,387,295
- -------------------------------------------------------------------------------------------------
Gross margin 1,484,744 1,584,418
Marketing, administrative and other 1,137,354 1,053,912
- -------------------------------------------------------------------------------------------------
Operating income 347,390 530,506
Interest, net (66,217) (70,984)
Miscellaneous, net 2,962 (3,861)
- -------------------------------------------------------------------------------------------------
Income before income taxes 284,135 455,661
Income taxes 126,844 181,125
- -------------------------------------------------------------------------------------------------
Net income $ 157,291 $ 274,536
- -------------------------------------------------------------------------------------------------
Per share of Common Stock(1)
Earnings - basic $ 1.20 $ 2.10
Earnings - diluted 1.19 2.05
Dividends .69 .65
Average number of common shares outstanding 127,486 129,240
Net income as % of average common shareholders' equity 8.8% 16.8%
Net income as % of average total assets 4.4% 7.9%
- -------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Accounts receivable, net $ 629,506 $ 613,337
Inventories 841,907 801,338
Total current assets 1,667,637 1,551,166
Property, plant and equipment, net 749,880 767,011
Total assets 3,447,071 3,335,608
Total current liabilities 868,320 912,332
Long-term debt 614,217 516,700
Common shareholders' equity 1,771,506 1,734,009
- -------------------------------------------------------------------------------------------------
OTHER STATISTICS
Working capital $ 799,317 $ 638,834
Current ratio 1.9 1.7
Debt to capital ratio(2) 32.3% 32.7%
Dividends $ 92,038 $ 88,223
Purchase of Common Stock 86,251 27,878
Cash provided by operations 323,656 479,401
Capital expenditures (excluding acquisitions) 155,206 132,908
Depreciation and amortization 167,721 158,511
- -------------------------------------------------------------------------------------------------
MARKET DATA
Market price range(1) $28 9/16-23 3/8 $26 7/8-22 1/8
Book value per common share(1) 13.96 13.51
Price earnings ratio -high-low 23.8 - 19.5 12.8 - 10.5
Rate of payout(3) 57.5% 31.0%
- -------------------------------------------------------------------------------------------------
(1) Per share computations and market price ranges have been adjusted to reflect
a two-for-one stock split in November 1997.
(2) Capital is defined as common shareholders' equity plus short-term and long -
term debt.
(3) Dividends per share divided by earnings per share.
27
VF Corporation Investor Information
Common Stock
Listed on the New York Stock Exchange and Pacific Exchange - trading symbol VFC.
Shareholders of Record
As of February 24, 1999, there were 7,043 shareholders of record.
Dividend Policy
Quarterly dividends on VF Corporation Common Stock, when declared, are 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 - Administration, General Counsel and 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:
1998 1997 1996
High Low High Low High Low
First quarter $53 1/4 $40 3/4 $35 11/16 $32 1/2 $28 3/8 $23 13/16
Second quarter 54 11/16 49 11/16 43 5/8 32 1/4 31 11/16 26 7/8
Third quarter 52 1/4 36 5/8 48 1/4 42 9/16 31 3/16 26 1/4
Fourth quarter 50 11/16 33 7/16 47 3/16 41 11/16 34 15/16 29 1/2