Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
ANALYSIS OF OPERATIONS
Consolidated sales rose 1% to a record $5,551 million in 1999. The sales
increase in 1999 was primarily due to the acquisitions of occupational apparel
businesses in late 1998/early 1999 and jeanswear businesses in South America,
offset in part by a slowdown of jeanswear sales in Europe and in the mid-tier
channel in the U.S. Sales in 1998 rose 5% over the 1997 level, due primarily to
the acquisition of Bestform Group, Inc., a major manufacturer and marketer of
women's intimate apparel.
Gross margins were 34.1% of sales in 1999, compared with 34.5% in 1998 and
34.1% in 1997. Margins were favorably impacted during the last two years from
the continuing shift to lower cost sourcing, lower raw material costs and
increased operating efficiencies. However, in 1999 this was offset by lower
gross margins in the domestic Lee jeanswear, European jeanswear and workwear
businesses. In jeanswear, these reductions resulted from lower than anticipated
volume and the resulting impact in expense absorption, as well the need to
reduce inventory levels closer to demand. In workwear, lower margins resulted
from the newly acquired companies.
For the United States market, VF manufactures its products in owned
domestic plants and offshore plants, primarily in Mexico. In addition, VF
contracts production 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 each year so
that now 65% is sourced from international locations. 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 22.2% of sales in
1999, compared with 21.9% and 22.5% in 1998 and 1997, respectively. Expenses as
a percent of sales increased in 1999 primarily due to fixed short-term expenses
on a lower sales level in European jeanswear. This increase was partially offset
by lower advertising spending.
Other operating income and expense includes goodwill amortization expense,
offset by net royalty income. In each of the last two years, amortization of
goodwill increased from acquisitions completed during those years, and net
royalty income declined from the conversion of certain formerly licensed
businesses to owned operations.
Net interest expense increased in each of the last two years due to higher
short-term borrowings related to the business acquisitions. Interest income
includes $3.0 million in 1999 and $10.5 million in 1997 related to settlements
of prior years' tax examinations.
The effective income tax rate was 38.5% in 1999 and 1998 and 40.1% in
1997. The effective rate declined in 1998 due to a reduction in foreign
operating losses with no current tax benefit, lower state income taxes and
higher tax-free income attributable to investments that fund certain deferred
compensation plans.
Information by Business Segment The Consumer Apparel segment consists of
jeanswear, women's intimate apparel and swimwear, and children's apparel
businesses. Overall, segment sales were relatively flat in 1999. Record sales in
mass market domestic jeanswear sold in the discount channel and sales in the
newly acquired Latin American jeanswear businesses offset declines reported in
the Lee branded domestic business and in European jeanswear businesses. The
decline in Lee was due to softness in retail sales in mid-tier department stores
in the U.S., and the decline in Europe was due to a consumer shift away from
basic jeans products to alternative fabrics and stylings. Segment profit in 1999
declined due to lower
[16]
sales in Lee, lower sales in Europe, European jeanswear consolidation efforts
that created operating difficulties, and a $6 million charge to close the
Jantzen women's sportswear division. In 1998, segment sales advanced due to the
acquisition of Bestform and growth in all categories of domestic jeanswear,
offset in part by the elimination of unprofitable children's playwear product
lines. Segment profit in 1998 increased due to the acquisition of Bestform and
higher profitability in domestic jeanswear, existing intimate apparel businesses
and children's playwear, offset in part by a modest decline in European
jeanswear.
The Occupational Apparel segment includes the Company's industrial, career
and safety apparel businesses. Sales increased in 1999 over the prior two years
due to one acquisition in the latter part of 1998 and three acquisitions in
early 1999. Segment profit as a percent of sales declined from 1997 and 1998 due
to the lower level of profitability of the acquired businesses and to systems,
distribution and other costs incurred to integrate these new businesses into
VF's existing infrastructure.
The All Other segment includes the Company's knitwear, daypack and
backpack businesses. The decline in sales and segment profit over the last two
years is due to difficult market conditions existing in the knitwear market.
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: 30.1% at the end of 1999 and 27.1% at the end
of 1998.
BALANCE SHEETS Accounts receivable increased in 1999 due to higher December
sales and slightly higher days sales outstanding in the recently acquired
companies. Inventories increased slightly in 1999 due to balances at recently
acquired companies being higher than historic VF levels. Excluding businesses
acquired in 1999, inventories declined by 6%.
Intangible assets increased during 1999 due to the acquisitions completed
during the year. Other assets increased during 1999 due to an increase in
deferred income tax assets over the 1998 level and an increase in life insurance
contracts and other investment securities underlying the Company's deferred
compensation and retirement programs.
The deficit in the Accumulated Other Comprehensive Income component of
Common Shareholders' Equity increased during 1999 due to foreign currency
translation adjustments resulting from the strengthening of the U.S. dollar in
relation to the currencies of most European countries where the Company has
operations.
LIQUIDITY AND CASH FLOWS Working capital was $763.9 million and the current
ratio was 1.7 to 1 at the end of 1999, compared with $815.1 million and 1.8 to 1
at the end of 1998. The decline in 1999 was due to an increase in short-term
borrowings.
The primary source of liquidity is the Company's strong cash flow provided
by operations, which was $423.4 million in 1999, $429.3 million in 1998 and
$460.7 million in 1997.
Capital expenditures were $150.1 million in 1999, compared with $189.1
million and $154.3 million in 1998 and 1997, respectively. Capital expenditures
relate to expansion of offshore manufacturing capacity, primarily in jeanswear,
investments in information systems and ongoing capital improvements in our
worldwide manufacturing and other facilities. Capital expenditures in 2000 are
expected to be less than the 1999 level and to be funded by cash flow from
operations.
[17]
During 1999, the Company purchased 4.0 million shares of its Common Stock
in open market transactions at a cost of $149.1 million. During 1998, the
Company purchased 3.2 million shares for $147.4 million. Under its current
authorization from the Board of Directors, the Company may purchase up to an
additional 8.0 million shares. Depending on the level of acquisition
opportunities during 2000, the Company intends to continue to invest available
cash flow to repurchase shares.
Cash dividends totaled $.85 per common share in 1999, compared with $.81
in 1998 and $.77 in 1997. The dividend payout rate was 28% in 1999, compared
with 26% in 1998 and 28% in 1997. The indicated annual dividend rate for 2000 is
$.88 per share. VF has paid dividends on its Common Stock annually since 1941
and intends to maintain a long-term payout rate of 30%.
Looking ahead to 2000, operating results should benefit from steps taken
to improve profitability in the Lee domestic business, the European jeanswear
businesses and the recently acquired companies. Next year will bring continued
investments in systems and technology, as well as expenses related to further
reducing our product cost and operating cost structure. The combined effect of
these actions indicates that earnings in 2000 may be flat with 1999 and that
cash flow from operations should exceed $500 million. With our strong financial
position, unused credit lines and additional borrowing capacity, the Company has
substantial liquidity and flexibility to meet investment opportunities that may
arise.
EURO CURRENCY CONVERSION Effective January 1, 1999, 11 of the 15 member
countries of the European Union established fixed conversion rates between their
existing currencies and a single new currency, the "euro." During a transition
period through June 2002, business transactions can be conducted in both the
euro and the legacy currencies. After that date, the euro will be the sole
currency of the participating countries. Approximately 11% of the Company's 1999
sales were generated in the European Union.
Management is evaluating the many areas involved with introduction of the
euro, including information technology systems. As of January 1, 2000,
substantially all of these systems were euro compliant, with the remainder
expected to be compliant by the end of 2000. Management is also evaluating the
strategic implications of adoption of the euro, including pricing and
distribution of the Company's products. Although this evaluation is ongoing, it
is likely that the euro will lead to a more uniform pricing in all European
markets, including those that have not adopted the euro as their common
currency.
The Company is unable to determine the financial impact of the conversion
on its operations, if any, because the impact will depend on the competitive
situations that exist in the various regional markets. However, management
believes that the conversion to the euro will not have a material effect on the
Company's results of operations or financial position. All costs relating to the
conversion to the euro, which are not significant, are being expensed as
incurred.
YEAR 2000 UPDATE The Year 2000 issue relates to computer systems that may
not properly recognize date-sensitive information when the year changed to 2000.
Since entering the year 2000, the Company has not experienced any disruptions to
its business, nor is it aware of any significant Year 2000 issues impacting its
suppliers and customers. The Company will continue to monitor its critical
systems over the next several months but does not anticipate any exposures from
its internal systems or from the activities of its suppliers and customers. The
total cost of resolving the Year 2000 issues, including internal personnel and
outside vendors and consultants, was $26 million over the period 1997 through
1999, which was expensed as incurred.
RISK MANAGEMENT The Company is exposed to a variety of market risks in the
ordinary course of business, including the effects of changes in interest rates,
foreign currency exchange rates and the
[18]
value of marketable securities. The Company regularly assesses these potential
risks and has policies and procedures to manage these risks.
The Company limits its risk from interest rate fluctuations on its net
income and cash flows by managing its mix of long-term borrowings at fixed
interest rates and short-term borrowings at variable interest rates. The Company
may also use derivative instruments to minimize its interest rate risk. The
primary interest rate exposure, which is not significant, relates to short-term
domestic and foreign borrowings. These borrowings averaged $430 million during
1999 and $245 million during 1998. In addition, at the end of 1998, the Company
had an interest rate swap contract related to $100 million of long-term debt.
This swap expired in October 1999.
The Company has assets and liabilities in foreign subsidiaries that are
subject to fluctuations in foreign currency exchange rates. Investments in these
primarily European subsidiaries are considered to be long-term investments, and
accordingly, the Company uses a functional currency other than the U.S. dollar.
The Company does not hedge these net investments and does not hedge the
translation of foreign currency operating results into the U.S. dollar. In
addition, a growing percentage of the total product needs to support our
domestic businesses are manufactured in Company-owned plants in foreign
countries or by foreign contractors. The Company's primary foreign currency
exposures relate to the euro and to the Mexican peso. Management monitors
foreign currency exposures and may in the ordinary course of business enter into
foreign currency forward exchange contracts related to specific foreign currency
transactions or anticipated cash flows occurring within twelve months. The
amount of these contracts, and related gains and losses, are not material. There
are no financial instruments held for trading or speculative purposes.
The Company is exposed to changes in the overall investment securities
markets because amounts accrued under various nonqualified deferred compensation
plans are based on market values of investment funds that are selected by the
plans' participants. Changes in the market values of the participants'
underlying investment selections expose the Company to risks of stock market
fluctuations. This securities market risk is hedged by the Company's investments
in a portfolio of variable life insurance contracts and other securities that
substantially mirror the investment selections underlying the deferred
compensation liabilities. Increases and decreases in deferred compensation
liabilities are substantially offset by corresponding increases and decreases in
the market value of the Company-owned investment securities, resulting in an
insignificant net exposure to the Company's operating results and financial
position.
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; 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.
[19]
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
- ---------------------------------------------------------------------------------------------------------------------------
1999
First quarter $1,358,244 $ 467,470 $ 85,566 $ .70 $ .69 $ .21
Second quarter 1,364,830 461,935 79,582 .65 .64 .21
Third quarter 1,464,856 502,913 103,896 .87 .85 .21
Fourth quarter 1,363,686 462,178 97,198 .82 .81 .22
- ---------------------------------------------------------------------------------------------------------------------------
$5,551,616 $1,894,496 $ 366,242 $ 3.04 $ 2.99 $ .85
===========================================================================================================================
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
===========================================================================================================================
[20]
CONSOLIDATED STATEMENTS OF INCOME
In thousands, except per share amounts Fiscal year ended January 1, 2000 January 2, 1999 January 3, 1998
- ------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 5,551,616 $ 5,478,807 $ 5,222,246
Costs and Operating Expenses
Cost of products sold 3,657,120 3,586,686 3,440,611
Marketing, administrative and general expenses 1,230,009 1,198,854 1,175,598
Other operating expense, net 11,855 9,098 964
- ------------------------------------------------------------------------------------------------------------------------------
4,898,984 4,794,638 4,617,173
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income 652,632 684,169 605,073
Other Income (Expense)
Interest income 8,936 6,411 23,818
Interest expense (71,426) (62,282) (49,695)
Miscellaneous, net 5,434 3,300 6,684
- ------------------------------------------------------------------------------------------------------------------------------
(57,056) (52,571) (19,193)
- ------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 595,576 631,598 585,880
Income Taxes 229,334 243,292 234,938
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 366,242 $ 388,306 $ 350,942
==============================================================================================================================
Earnings Per Common Share
Basic $ 3.04 $ 3.17 $ 2.76
Diluted 2.99 3.10 2.70
Cash Dividends Per Common Share $ .85 $ .81 $ .77
==============================================================================================================================
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In thousands Fiscal year ended January 1, 2000 January 2, 1999 January 3, 1998
- -----------------------------------------------------------------------------------------------------------
Net Income $ 366,242 $ 388,306 $ 350,942
Other Comprehensive Income
Foreign currency translation,
net of income taxes (39,117) 10,471 (42,538)
- -----------------------------------------------------------------------------------------------------------
Comprehensive Income $ 327,125 $ 398,777 $ 308,404
===========================================================================================================
See notes to consolidated financial statements.
[21]
CONSOLIDATED BALANCE SHEETS
In thousands January 1, 2000 January 2, 1999
- --------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and equivalents $ 79,861 $ 63,208
Accounts receivable, less allowances of
$54,477 in 1999 and $52,011 in 1998 732,502 705,734
Inventories 964,040 954,007
Deferred income taxes 74,067 99,608
Other current assets 26,946 25,595
- --------------------------------------------------------------------------------------------------
Total current assets 1,877,416 1,848,152
PROPERTY, PLANT AND EQUIPMENT 804,422 776,091
INTANGIBLE ASSETS 992,463 951,562
OTHER ASSETS 352,213 260,861
- --------------------------------------------------------------------------------------------------
$ 4,026,514 $ 3,836,666
==================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 408,932 $ 244,910
Current portion of long-term debt 4,751 969
Accounts payable 332,666 341,126
Accrued liabilities 367,124 446,001
- --------------------------------------------------------------------------------------------------
Total current liabilities 1,113,473 1,033,006
LONG-TERM DEBT 517,834 521,657
OTHER LIABILITIES 194,113 181,750
REDEEMABLE PREFERRED STOCK 51,544 54,344
DEFERRED CONTRIBUTIONS TO EMPLOYEE STOCK OWNERSHIP PLAN (14,268) (20,399)
- --------------------------------------------------------------------------------------------------
37,276 33,945
COMMON SHAREHOLDERS' EQUITY
Common Stock, stated value $1; shares
authorized, 300,000,000; shares outstanding,
116,204,655 in 1999 and 119,466,101 in 1998 116,205 119,466
Additional paid-in capital 831,054 801,511
Accumulated other comprehensive income (64,756) (25,639)
Retained earnings 1,281,315 1,170,970
- --------------------------------------------------------------------------------------------------
Total common shareholders' equity 2,163,818 2,066,308
- --------------------------------------------------------------------------------------------------
$ 4,026,514 $ 3,836,666
==================================================================================================
See notes to consolidated financial statements.
[22]
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands Fiscal year ended January 1, 2000 January 2, 1999 January 3, 1998
- -------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net income $ 366,242 $ 388,306 $ 350,942
Adjustments to reconcile net income
to cash provided by operations:
Depreciation 134,335 128,495 128,734
Amortization of intangible assets 33,097 32,890 27,518
Other, net 5,341 27,764 (3,405)
Changes in current assets and liabilities:
Accounts receivable (12,379) (48,771) (9,972)
Inventories 43,655 (52,406) (55,677)
Accounts payable (21,414) (17,013) (12,587)
Other, net (125,516) (29,983) 35,099
- -------------------------------------------------------------------------------------------------------------------------------
Cash provided by operations 423,361 429,282 460,652
INVESTMENTS
Capital expenditures (150,076) (189,059) (154,262)
Business acquisitions (156,587) (299,900) (16,003)
Other, net (13,114) (16,943) (13,578)
- -------------------------------------------------------------------------------------------------------------------------------
Cash invested (319,777) (505,902) (183,843)
FINANCING
Increase in short-term borrowings 145,768 212,457 8,745
Proceeds from long-term debt 1,032 4,132 --
Payment of long-term debt (3,269) (2,998) (1,253)
Purchase of Common Stock (149,075) (147,398) (391,651)
Cash dividends paid (104,302) (101,660) (100,141)
Proceeds from issuance of Common Stock 25,323 45,689 64,964
Other, net 1,269 2,115 1,983
- -------------------------------------------------------------------------------------------------------------------------------
Cash provided (used) by financing (83,254) 12,337 (417,353)
EFFECT OF FOREIGN CURRENCY RATE CHANGES ON CASH (3,677) 3,397 (5,991)
- -------------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND EQUIVALENTS 16,653 (60,886) (146,535)
CASH AND EQUIVALENTS - BEGINNING OF YEAR 63,208 124,094 270,629
- -------------------------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS - END OF YEAR $ 79,861 $ 63,208 $ 124,094
===============================================================================================================================
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMMON
SHAREHOLDERS' EQUITY
Common Additional Accumulated Other Retained
In thousands Stock Paid-in Capital Comprehensive Income Earnings
- -------------------------------------------------------------------------------------------------------------------------------
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)
Purchase of treasury shares (5,239) -- -- (386,412)
Exercise of stock options,
net of shares surrendered 1,457 76,074 -- (48)
Restricted Common Stock 9 (520) -- 601
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
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)
Purchase of treasury shares (3,223) -- -- (144,175)
Exercise of stock options,
net of shares surrendered 1,678 57,195 -- (87)
Restricted Common Stock 19 208 -- (37)
Common Stock held in trust for
deferred compensation plans (233) -- -- (6,728)
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
Net income -- -- -- 366,242
Cash dividends:
Common Stock -- -- -- (100,755)
Series B Preferred Stock -- -- -- (3,547)
Tax benefit from Preferred Stock dividends -- -- -- 437
Redemption of Preferred Stock -- -- -- (3,284)
Purchase of treasury shares (4,000) -- -- (145,075)
Exercise of stock options,
net of shares surrendered 793 29,209 -- (131)
Restricted Common Stock 20 334 -- (56)
Common Stock held in trust for
deferred compensation plans (74) -- -- (3,486)
Foreign currency translation, net of
$21,063 deferred income taxes -- -- (39,117) --
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE JANUARY 1, 2000 $ 116,205 $ 831,054 $ (64,756) $ 1,281,315
===============================================================================================================================
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 42% of total 1999 inventories and 48% in
1998. 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 $270.5
million and $243.5 million in 1999 and 1998. These assets are amortized on the
straight-line method over 10 to 40 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. An impairment loss may be recorded if
undiscounted future cash flows, net of income tax payments, are not expected to
be adequate to recover the assets' carrying value.
REVENUE RECOGNITION: Sales are recorded when products are shipped to customers,
net of discounts and allowances.
Advertising Costs are expensed as incurred and were $257.6 million in 1999,
$287.5 million in 1998 and $309.3 million in 1997.
STOCK-BASED COMPENSATION: Compensation expense is recorded for the excess, if
any, of the market price of VF Common Stock at the date of grant over the amount
the employee must pay for the stock.
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.
RECLASSIFICATIONS: Certain amounts in prior years have been reclassified to
conform with the current year presentation.
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.
NOTE B ACQUISITIONS
In 1999, the Company acquired the common stock of Horace Small Holdings
Corporation of Delaware, Inc., a manufacturer and marketer of occupational
apparel, for $57.7 million in cash, plus repayment of $23.3 million in debt. The
Company also acquired two other workwear and four jeanswear businesses for an
aggregate cost of $78.4 million, plus additional contingent consideration if
future earnings targets are attained. Intangible assets related to these
acquisitions totaled $87.4 million. The Company accrued various restructuring
charges in connection with certain of these businesses. The charges relate to
severance, closure of manufacturing and distribution facilities, and lease and
contract termination costs. Cash payments related to these actions will be
substantially completed during 2000. Charges are summarized as follows (in
thousands):
Facilities Lease and
Exit Contract
Severance Costs Termination Total
Restructuring accrual $ 5,061 $ 1,622 $ 17,948 $ 24,631
Cash payments (1,362) (208) (2,218) (3,788)
-------- -------- -------- --------
Estimated remaining costs $ 3,699 $ 1,414 $ 15,730 $ 20,843
======== ======== ======== ========
During 1998, the Company acquired Bestform Group, Inc. for $184.3 million in
cash, plus repayment of $44.4 million in debt. The Company also acquired three
other businesses in 1998 for an aggregate cost of $76.1 million and three
businesses in 1997 for an aggregate cost of $16.0 million. Intangible assets
related to these acquisitions totaled $168.5 million in 1998 and $10.0 million
in 1997.
The following unaudited pro forma results of operations assume that
acquisitions during the last two years had occurred at the beginning of 1998:
In thousands, except per share amounts 1999 1998
------------- -------------
Net sales $ 5,614,028 $ 5,826,443
Net income 363,097 383,933
Earnings per common share:
Basic $ 3.01 $ 3.13
Diluted 2.96 3.06
============= =============
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 over periods from 19 to 40 years. Operating results of these
businesses have been included in the consolidated financial statements since the
dates of acquisition.
NOTE C INVENTORIES
In thousands 1999 1998
-------- --------
Finished products $575,617 $552,729
Work in process 171,275 185,929
Materials and supplies 217,148 215,349
-------- --------
$964,040 $954,007
======== ========
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.
[25]
NOTE D PROPERTY, PLANT AND EQUIPMENT
In thousands 1999 1998
---------- ----------
Land $ 46,626 $ 45,296
Buildings 478,372 443,619
Machinery and equipment 1,289,064 1,222,216
---------- ----------
1,814,062 1,711,131
Less accumulated depreciation 1,009,640 935,040
---------- ----------
$ 804,422 $ 776,091
========== ==========
NOTE E SHORT-TERM BORROWINGS
In thousands 1999 1998
-------- --------
Commercial paper $319,033 $ --
Banks 89,899 244,910
-------- --------
$408,932 $244,910
======== ========
The weighted average interest rate for short-term borrowings was 6.5% at the end
of 1999 and 5.8% at the end of 1998. 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 July 2004, requires an .08%
facility fee per year and contains various financial covenants, including a debt
to net worth requirement. At January 1, 2000, there were no borrowings under the
agreement.
NOTE F ACCRUED LIABILITIES
In thousands 1999 1998
-------- --------
Income taxes $ 59,242 $ 70,112
Compensation 71,798 103,769
Other 236,084 272,120
-------- --------
$367,124 $446,001
======== ========
NOTE G LONG-TERM DEBT
In thousands 1999 1998
-------- --------
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 22,585 22,626
-------- --------
522,585 522,626
Less current portion 4,751 969
-------- --------
$517,834 $521,657
======== ========
The scheduled payments of long-term debt are $114.0 million in 2001, $.5 million
in 2002, $100.4 million in 2003 and $100.4 million in 2004. The Company paid
interest of $73.4 million in 1999, $59.5 million in 1998 and $48.0 million in
1997.
NOTE H OTHER LIABILITIES
In thousands 1999 1998
-------- --------
Deferred compensation $179,321 $151,436
Deferred income taxes -- 11,512
Other 14,792 18,802
-------- --------
$194,113 $181,750
======== ========
NOTE I BENEFIT PLANS
The Company sponsors a noncontributory defined benefit pension plan covering
substantially all full-time domestic employees and a nonqualified supplemental
defined benefit pension plan covering key employees. The effect of the defined
benefit plans on income is as follows:
In thousands 1999 1998 1997
-------- -------- --------
Service cost - benefits earned
during the year $ 22,174 $ 20,391 $ 17,264
Interest cost on projected
benefit obligation 41,166 38,584 35,934
Expected return on plan assets (50,692) (45,270) (34,771)
Amortization of:
Transition asset -- (3,068) (4,378)
Prior service cost 5,359 5,667 5,475
Actuarial (gain) loss (831) 610 391
-------- -------- --------
Pension expense $ 17,176 $ 16,914 $ 19,915
======== ======== ========
The following provides a reconciliation of the changes in fair value of the
pension plans' assets and benefit obligations, based on a September 30 valuation
date, plus the funded status at the end of each year:
In thousands 1999 1998
--------- ---------
Fair value of plan assets, beginning of year $ 553,591 $ 526,087
Actual return on plan assets 112,848 28,013
Company contributions 24,000 20,400
Benefits paid (23,144) (20,909)
--------- ---------
Fair value of plan assets, end of year 667,295 553,591
--------- ---------
Benefit obligations, beginning of year 591,726 503,340
Service cost 22,174 20,391
Interest cost 41,166 38,584
Plan amendments -- 22,427
Actuarial (gain) loss (44,831) 29,019
Benefits paid (24,385) (22,035)
--------- ---------
Benefit obligations, end of year 585,850 591,726
--------- ---------
Funded status, end of year 81,445 (38,135)
Unrecognized net actuarial (gain) loss (88,095) 17,825
Unrecognized prior service cost 29,911 35,269
--------- ---------
Pension asset, net $ 23,261 $ 14,959
========= =========
Amount included in:
Other Assets $ 47,633 $ 35,164
Other Liabilities (24,372) (20,205)
--------- ---------
$ 23,261 $ 14,959
========= =========
[26]
For the unfunded supplemental defined benefit pension plan, the projected
benefit obligation and the accumulated benefit obligation were $50.2 million and
$37.6 million, respectively, at the end of 1999 and $41.2 million and $27.9
million, respectively, at the end of 1998. To support these benefit liabilities,
the Company has purchased life insurance contracts and other investment
securities. These securities are held in irrevocable trusts and are included in
Other Assets. The cash value of life insurance and the market value of other
investments, which approximates cost, was $27.9 million in 1999 and $23.7
million in 1998.
The projected benefit obligation was determined using an assumed discount
rate of 7.8% in 1999, 6.8% in 1998 and 7.5% in 1997. The assumption for
compensation increases was 4.0% in 1999 and 1998 and 4.5% in 1997, 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 $6.9 million in
1999, $6.5 million in 1998 and $5.7 million in 1997. Plan expense was $5.2
million in 1999 and $5.5 million in 1998 and 1997, after giving effect to
dividends on the Series B Preferred Stock of $3.5 million in 1999, $3.7 million
in 1998 and $3.8 million in 1997.
The Company also sponsors other savings and retirement plans for certain
domestic and foreign employees. Expense for these plans totaled $6.2 million in
1999, $6.5 million in 1998 and $5.8 million in 1997.
NOTE J CAPITAL
Common shares outstanding are net of shares held in treasury, and in substance
retired, of 21,136,952 in 1999, 17,134,370 in 1998 and 13,910,519 in 1997. In
addition, 306,698 shares of VF Common Stock at the end of 1999 and 232,899
shares at the end of 1998 are held in trust for deferred compensation plans.
These shares are treated for financial accounting purposes as treasury shares at
a cost of $10.5 million and $7.0 million, respectively.
There are 25,000,000 authorized shares of Preferred Stock, $1 par value. As
of January 1, 2000, 2,000,000 shares are designated as Series A Preferred Stock,
of which none has 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 1,669,444 shares of Series B Preferred Stock outstanding at
January 1, 2000, 1,760,119 outstanding at January 2, 1999 and 1,824,820
outstanding at January 3, 1998, 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 $2.6
million in 1999, $3.3 million in 1998 and $3.9 million in 1997. 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
1999, 1,207,392 shares of Preferred Stock had been allocated to participating
employees' accounts.
NOTE L STOCK OPTION PLAN
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:
Weighted
Shares Average
Under Exercise
Options Price
---------- ----------
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
Options granted 1,975,400 43.20
Options exercised (795,400) 31.87
Options canceled (250,810) 32.88
---------- ----------
Balance January 1, 2000 6,631,496 $ 36.74
========== ==========
[27]
Stock options outstanding at January 1, 2000 are summarized as follows:
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
- -------- ----------- ----------- --------
$ 6 - 10 8,900 .9 years $ 8.09
16 - 20 44,220 1.9 years 17.95
21 - 25 641,616 4.6 years 23.49
26 - 30 1,179,510 4.7 years 27.01
31 - 35 1,127,900 6.9 years 34.48
40 - 45 3,629,350 8.6 years 43.25
--------- --- ------
$ 6 - 45 6,631,496 7.2 years $36.74
========= === ======
All above options are exercisable, except for those granted in 1999. There
are 4,646,983 shares available for future grants of stock options and stock
awards, of which no more than 1,030,053 may be grants of restricted stock
awards.
Since all stock options are granted at market value, compensation expense is
not required. 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 $11.9 million ($.10 per share) in 1999, $9.7 million ($.08
per share) in 1998 and $9.0 million ($.07 per share) in 1997.
The fair value of options granted during 1999 was $9.97 per share and of
options granted during 1998 was $8.78 per share. Fair value is estimated based
on the Black-Scholes option-pricing model with the following assumptions for
grants in 1999 and 1998: dividend yield of 2.0%; expected volatility of 26% in
1999 and 20% in 1998; risk-free interest rates of 4.8% in 1999 and 5.4% in 1998;
and expected lives of 4 years.
The Company has granted to key employees 67,367 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. Expense for
these shares was $.3 million in 1999 and $.2 million in 1998 and 1997.
In 1999, the Company granted stock awards to certain key employees under a
new stock award plan, which replaced a portion of the cash incentive
compensation for those employees. The stock awards entitle the participants to
the right to receive shares of VF Common Stock, with the number of shares to be
earned based on the three year total shareholder return of VF Common Stock
compared with a peer group of other major apparel companies. Shares earned at
the end of each three year period are issued to participants in the following
year, unless they elect to defer receipt of the shares. A total of 44,962 shares
of VF Common Stock were earned for the three year performance period ended in
1999. At the end of 1999, there are 34,062 stock awards outstanding for the
performance period ending in 2000 and 34,062 for the performance period ending
in 2001. Compensation expense equal to the market value of the shares to be
issued is recognized ratably over each three year performance period. In 1999,
expense of $2.0 million was recognized for this plan.
NOTE M INCOME TAXES
The provision for income taxes is computed based on the following amounts of
income before income taxes:
In thousands 1999 1998 1997
-------- -------- --------
Domestic $567,545 $582,128 $514,028
Foreign 28,031 49,470 71,852
-------- -------- --------
$595,576 $631,598 $585,880
======== ======== ========
The provision for income taxes consists of:
In thousands 1999 1998 1997
--------- --------- ---------
Current:
Federal $ 175,052 $ 174,346 $ 201,924
Foreign 14,113 35,082 46,466
State 19,607 14,757 19,553
--------- --------- ---------
208,772 224,185 267,943
Deferred, primarily federal 20,562 19,107 (33,005)
--------- --------- ---------
$ 229,334 $ 243,292 $ 234,938
========= ========= =========
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 1999 1998 1997
--------- --------- ---------
Tax at federal statutory rate $ 208,452 $ 221,059 $ 205,058
State income taxes,
net of federal tax benefit 12,744 9,592 12,709
Amortization of intangible assets 8,241 7,916 7,084
Foreign operating losses
with no current benefit 11,608 4,715 4,033
Other, net (11,711) 10 6,054
--------- --------- ---------
$ 229,334 $ 243,292 $ 234,938
========= ========= =========
Deferred income tax assets and liabilities consist of the following:
In thousands 1999 1998
--------- ---------
Deferred income tax assets:
Employee benefits $ 51,582 $ 62,564
Inventories 19,990 16,780
Other accrued expenses 79,767 103,811
Operating loss carryforwards 71,911 38,083
Foreign currency translation 34,869 13,806
--------- ---------
258,119 235,044
Valuation allowance (46,526) (34,249)
--------- ---------
Deferred income tax assets 211,593 200,795
--------- ---------
Deferred income tax liabilities:
Depreciation 56,103 59,288
Other 25,244 39,857
--------- ---------
Deferred income tax liabilities 81,347 99,145
--------- ---------
Net deferred income tax assets $ 130,246 $ 101,650
========= =========
Amount included in:
Current Assets $ 74,067 $ 99,608
Other Assets 56,179 13,554
Other Liabilities -- (11,512)
--------- ---------
$ 130,246 $ 101,650
========= =========
[28]
The Company has $141.8 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 $228.0 million
in 1999, $215.2 million in 1998 and $230.1 million in 1997. Interest income
includes $3.0 million in 1999 and $10.5 million in 1997 relating to settlements
of prior years' tax examinations.
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 three reportable segments. The
"Consumer Apparel" segment includes jeanswear and related products, women's
intimate apparel and swimwear, and children's apparel, all having similar
characteristics of economic performance, product type, production process,
method of distribution and class of customer. The "Occupational Apparel" segment
is distinguished from the Consumer Apparel segment because of a different class
of customer. The "All Other" segment consists of the Company's knitwear, daypack
and backpack operations, which have different product or economic
characteristics than those in the other segments. The Occupational Apparel
segment is separately reportable for 1999 because of recent acquisitions;
accordingly, prior years' segment information has been restated to conform to
the 1999 presentation.
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
inventories are valued on a first-in, first-out basis and that interest income
and expense and amortization of intangible assets are not allocated to
individual segments. 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:
In thousands 1999 1998 1997
----------- ----------- -----------
Net sales:
Consumer Apparel $ 4,276,809 $ 4,313,082 $ 3,963,869
Occupational Apparel 640,227 482,931 461,940
All Other 634,580 682,794 796,437
----------- ----------- -----------
Consolidated net sales $ 5,551,616 $ 5,478,807 $ 5,222,246
=========== =========== ===========
Segment profit:
Consumer Apparel $ 629,127 $ 693,638 $ 574,384
Occupational Apparel 79,164 80,988 72,626
All Other 57,715 38,686 73,517
----------- ----------- -----------
Total segment profit 766,006 813,312 720,527
Interest, net (62,490) (55,871) (25,877)
Amortization of intangible assets (33,097) (32,890) (27,518)
Corporate and other expenses (74,843) (92,953) (81,252)
----------- ----------- -----------
Consolidated income before
income taxes $ 595,576 $ 631,598 $ 585,880
=========== =========== ===========
Segment assets:
Consumer Apparel $ 1,783,225 $ 1,858,873 $ 1,506,035
Occupational Apparel 379,004 247,734 217,239
All Other 332,850 377,155 421,389
----------- ----------- -----------
Total segment assets 2,495,079 2,483,762 2,144,663
Cash and equivalents 79,861 63,208 124,094
Intangible assets 992,463 951,562 814,332
Corporate assets 459,111 338,134 239,693
----------- ----------- -----------
Consolidated assets $ 4,026,514 $ 3,836,666 $ 3,322,782
=========== =========== ===========
Depreciation expense:
Consumer Apparel $ 89,313 $ 83,382 $ 81,199
Occupational Apparel 14,958 11,769 11,631
All Other 23,555 26,165 29,993
Corporate 6,509 7,179 5,911
----------- ----------- -----------
Consolidated depreciation expense $ 134,335 $ 128,495 $ 128,734
=========== =========== ===========
Capital expenditures:
Consumer Apparel $ 97,196 $ 129,532 $ 109,458
Occupational Apparel 20,845 19,362 16,821
All Other 8,358 11,480 15,856
Corporate 23,677 28,685 12,127
----------- ----------- -----------
Consolidated capital expenditures $ 150,076 $ 189,059 $ 154,262
=========== =========== ===========
Information by geographic area is presented below, with sales based on the
location of the customer:
In thousands 1999 1998 1997
---------- ---------- ----------
Net sales:
United States $4,605,624 $4,552,785 $4,368,474
Foreign, primarily Europe 945,992 926,022 853,772
---------- ---------- ----------
Consolidated net sales $5,551,616 $5,478,807 $5,222,246
========== ========== ==========
Long-lived assets, primarily
property, plant and equipment:
United States $ 650,577 $ 634,231 $ 596,125
Mexico 71,627 60,400 41,055
Other foreign, primarily Europe 83,029 83,842 73,253
---------- ---------- ----------
Total long-lived assets $ 805,233 $ 778,473 $ 710,433
========== ========== ==========
[29]
Worldwide sales by product category are as follows:
In thousands 1999 1998 1997
---------- ---------- ----------
Jeanswear and related products $2,936,196 $2,962,790 $2,888,967
Intimate apparel 981,798 965,782 648,937
Occupational apparel 640,227 482,931 461,940
Knitwear 453,103 506,365 614,798
Other 540,292 560,939 607,604
---------- ---------- ----------
Total $5,551,616 $5,478,807 $5,222,246
========== ========== ==========
Sales to one domestic discount store group comprise 13.0% of consolidated
sales in 1999, 12.3% in 1998 and 11.1% in 1997.
NOTE O LEASES
The Company leases certain facilities and equipment under
noncancelable operating leases. Rental expense was $59.3 million
in 1999, $64.3 million in 1998 and $66.2 million in 1997. Future minimum lease
payments are $54.7 million, $44.2 million, $35.3 million, $28.0 million and
$20.4 million for the years 2000 through 2004 and $43.1 million thereafter.
NOTE P EARNINGS PER SHARE
In thousands, except per share amounts 1999 1998 1997
-------- -------- --------
Basic earnings per share:
Net income $366,242 $388,306 $350,942
Less Preferred Stock dividends
and redemption premium 6,394 5,912 5,003
-------- -------- --------
Net income available for
Common Stock $359,848 $382,394 $345,939
-------- -------- --------
Weighted average Common
Stock outstanding 118,538 120,744 125,504
-------- -------- --------
Basic earnings per share $ 3.04 $ 3.17 $ 2.76
======== ======== ========
Diluted earnings per share:
Net income $366,242 $388,306 $350,942
Increased ESOP expense if
Preferred Stock were converted
to Common Stock 1,036 1,136 1,227
-------- -------- --------
Net income available for
Common Stock and dilutive
securities $365,206 $387,170 $349,715
-------- -------- --------
Weighted average Common
Stock outstanding 118,538 120,744 125,504
Additional Common Stock
resulting from dilutive securities:
Preferred Stock 2,724 2,854 2,955
Stock options and other 996 1,397 1,261
-------- -------- --------
Weighted average Common
Stock and dilutive securities
outstanding 122,258 124,995 129,720
-------- -------- --------
Diluted earnings per share $ 2.99 $ 3.10 $ 2.70
======== ======== ========
Outstanding options to purchase 2.1 million shares of Common Stock have been
excluded from the computation of diluted earnings per share in 1999 because the
option exercise prices were greater than the average market price of the Common
Stock.
NOTE Q FINANCIAL INSTRUMENTS
The carrying amount and fair value of financial instruments included in the
balance sheets are as follows:
In thousands 1999 1998
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Financial liabilities:
Short-term borrowings $408,932 $408,932 $244,910 $244,910
Long-term debt 522,585 507,297 522,626 552,476
Series B Preferred Stock 51,544 80,133 54,344 132,008
======== ======== ======== ========
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. The fair value of foreign currency
financial instruments approximates their carrying value.
[30]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
VF Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, cash flows and common
shareholders' equity present fairly, in all material respects, the financial
position of VF Corporation and its subsidiaries at January 1, 2000 and January
2, 1999, and the results of their operations and their cash flows for each of
the three fiscal years in the period ended January 1, 2000, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
[PricewaterhouseCoopers LLP]
PricewaterhouseCoopers LLP
Greensboro, North Carolina
February 3, 2000
[31]
VF CORPORATION FINANCIAL SUMMARY
In thousands, except per share amounts 1999 1998 1997
----------- ----------- -----------
Summary of Operations
Net sales $ 5,551,616 $ 5,478,807 $ 5,222,246
Cost of products sold 3,657,120 3,586,686 3,440,611
----------- ----------- -----------
Gross margin 1,894,496 1,892,121 1,781,635
Marketing, administrative and other 1,241,864 1,207,952 1,176,562
----------- ----------- -----------
Operating income 652,632 684,169 605,073
Interest, net (62,490) (55,871) (25,877)
Miscellaneous, net 5,434 3,300 6,684
----------- ----------- -----------
Income before income taxes 595,576 631,598 585,880
Income taxes 229,334 243,292 234,938
----------- ----------- -----------
Net income $ 366,242 $ 388,306 $ 350,942
----------- ----------- -----------
Per share of Common Stock(1)
Earnings - basic $ 3.04 $ 3.17 $ 2.76
Earnings - diluted 2.99 3.10 2.70
Dividends .85 .81 .77
Average number of common shares outstanding 118,538 120,744 125,504
Net income as % of average common shareholders' equity 17.3% 19.7% 18.2%
Net income as % of average total assets 8.9% 10.2% 10.1%
=========== =========== ===========
Financial Position
Accounts receivable, net $ 732,502 $ 705,734 $ 587,934
Inventories 964,040 954,007 774,755
Total current assets 1,877,416 1,848,152 1,601,466
Property, plant and equipment, net 804,422 776,091 705,990
Total assets 4,026,514 3,836,666 3,322,782
Total current liabilities 1,113,473 1,033,006 765,908
Long-term debt 517,834 521,657 516,226
Common shareholders' equity 2,163,818 2,066,308 1,866,769
=========== =========== ===========
Other Statistics
Working capital $ 763,943 $ 815,146 $ 835,558
Current ratio 1.7 1.8 2.1
Debt to capital ratio(2) 30.1% 27.1% 22.5%
Dividends $ 104,302 $ 101,660 $ 100,141
Purchase of Common Stock 149,075 147,398 391,651
Cash provided by operations 423,361 429,282 460,652
Capital expenditures (excluding acquisitions) 150,076 189,059 154,262
Depreciation and amortization 167,432 161,385 156,252
=========== =========== ===========
Market Data
Market price range(1) $55-27 7/16 $54 11/16-33 7/16 $48 1/4-32 1/4
Book value per common share(1) 18.62 17.30 15.40
Price earnings ratio - high-low 18.1-9.0 17.3-10.5 17.5-11.7
Rate of payout(3) 28.0% 25.6% 27.9%
=========== =========== ===========
In thousands, except per share amounts 1996 1995
----------- -----------
Summary of Operations
Net sales $ 5,137,178 $ 5,062,299
Cost of products sold 3,458,166 3,577,555
----------- -----------
Gross margin 1,679,012 1,484,744
Marketing, administrative and other 1,121,729 1,137,354
----------- -----------
Operating income 557,283 347,390
Interest, net (49,387) (66,217)
Miscellaneous, net 512 2,962
----------- -----------
Income before income taxes 508,408 284,135
Income taxes 208,884 126,844
----------- -----------
Net income $ 299,524 $ 157,291
----------- -----------
Per share of Common Stock(1)
Earnings - basic $ 2.32 $ 1.20
Earnings - diluted 2.28 1.19
Dividends .73 .69
Average number of common shares outstanding 127,292 127,486
Net income as % of average common shareholders' equity 16.2% 8.8%
Net income as % of average total assets 8.6% 4.4%
=========== ===========
Financial Position
Accounts receivable, net $ 592,942 $ 629,506
Inventories 730,823 841,907
Total current assets 1,706,326 1,667,637
Property, plant and equipment, net 721,524 749,880
Total assets 3,449,535 3,447,071
Total current liabilities 766,267 868,320
Long-term debt 519,058 614,217
Common shareholders' equity 1,973,739 1,771,506
=========== ===========
Other Statistics
Working capital $ 940,059 $ 799,317
Current ratio 2.2 1.9
Debt to capital ratio(2) 21.4% 32.3%
Dividends $ 97,036 $ 92,038
Purchase of Common Stock 61,483 86,251
Cash provided by operations 711,454 323,656
Capital expenditures (excluding acquisitions) 138,747 155,206
Depreciation and amortization 160,578 167,721
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Market Data
Market price range(1) $34 15/16-23 13/16 $28 9/16-23 3/8
Book value per common share(1) 15.44 13.96
Price earnings ratio - high-low 15.1-10.3 23.8-19.5
Rate of payout(3) 31.5% 57.5%
=========== ===========
(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.
[32]
INVESTOR INFORMATION
COMMON STOCK
Listed on the New York Stock Exchange and Pacific Exchange - trading symbol VFC.
SHAREHOLDERS OF RECORD
As of February 18, 2000, there were 6,974 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.
QUARTERLY COMMON STOCK PRICE INFORMATION
The high and low sales prices for the periods indicated were as follows:
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
High Low High Low High Low
- --------------------------------------------------------------------------------------------------------
First quarter $50 13/16 $40 7/8 $53 1/4 $40 3/4 $35 11/16 $32 1/2
Second quarter 55 37 1/2 54 11/16 49 11/16 43 5/8 32 1/4
Third quarter 43 3/8 30 52 1/4 36 5/8 48 1/4 42 9/16
Fourth quarter 32 5/8 27 7/16 50 11/16 33 7/16 47 3/16 41 11/16