EXHIBIT 13
VF CORPORATION
QUARTERLY RESULTS OF OPERATIONS
In thousands, except per share amounts
EARNINGS PER COMMON SHARE
FULLY DIVIDENDS PER
NET SALES GROSS PROFIT NET INCOME PRIMARY DILUTED COMMON SHARE
---------- ------------ ---------- ------- ------- -------------
1995
FIRST QUARTER $1,187,587 $ 388,439 $ 57,953 $ .89 $ .87 $ .34
SECOND QUARTER 1,271,936 400,924 65,237 1.01 .99 .34
THIRD QUARTER 1,332,102 412,552 69,718 1.08 1.05 .34
FOURTH QUARTER 1,270,674 282,829 (35,617)* (0.57)* (0.57)* .36
---------------------------------------------------------------------------------------------
$5,062,299 $1,484,744 $157,291 $2.41 $2.37 $1.38
=============================================================================================
1994
First Quarter $1,123,035 $ 362,612 $ 52,898 $ .81 $ .79 $ .32
Second Quarter 1,186,324 380,175 58,916 .90 .88 .32
Third Quarter 1,373,037 442,077 87,804 1.34 1.31 .32
Fourth Quarter 1,289,317 399,554 74,918 1.15 1.12 .34
---------------------------------------------------------------------------------------------
$4,971,713 $1,584,418 $274,536 $4.20 $4.10 $1.30
=============================================================================================
1993
First Quarter $1,016,644 $ 323,226 $ 52,729 $ .83 $ .81 $ .30
Second Quarter 1,053,411 327,546 55,731 .85 .83 .30
Third Quarter 1,152,842 355,044 76,815** 1.18** 1.15** .30
Fourth Quarter 1,097,507 339,727 61,140 .94 .92 .32
---------------------------------------------------------------------------------------------
$4,320,404 $1,345,543 $246,415 $3.80 $3.71 $1.22
=============================================================================================
* Special charges reduced net income by $155.9 million ($1.61 per share).
See Note M.
** Interest income relating to settlement of income tax examinations
increased net income by $15.1 million ($.24 per share).
19
VF CORPORATION
SALES AND OPERATING INCOME BY BUSINESS GROUP (Unaudited)
In thousands Fiscal year ended DECEMBER 30, 1995 December 31, 1994 January 1, 1994
- ---------------------------------------------------------------------------------------------------------------------
NET SALES
Jeanswear $2,664,930 $2,547,131 $2,418,533
Decorated Knitwear 619,932 623,272 392,002
Intimate Apparel 729,149 724,462 668,995
Playwear 371,717 367,508 196,245
Specialty Apparel 676,571 709,340 644,629
- ---------------------------------------------------------------------------------------------------------------------
$5,062,299 $4,971,713 $4,320,404
=====================================================================================================================
OPERATING INCOME
Jeanswear $ 311,688 $ 372,392 $ 310,165
Decorated Knitwear 8,039 32,423 3,853
Intimate Apparel (778) 60,349 57,318
Playwear 2,745 36,457 18,344
Specialty Apparel 72,421 75,851 80,212
- ---------------------------------------------------------------------------------------------------------------------
394,115 577,472 469,892
OTHER OPERATING (EXPENSE) INCOME (6,064) (8,297) 2,671
CORPORATE EXPENSES (40,661) (38,669) (38,083)
- ---------------------------------------------------------------------------------------------------------------------
$ 347,390 $ 530,506 $ 434,480
=====================================================================================================================
20
VF CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEAR ENDED
-------------------------------------------
DECEMBER 30 DECEMBER 31 JANUARY 1
In thousands, except per share amounts 1995 1994 1994
---------- ---------- ----------
NET SALES $5,062,299 $4,971,713 $4,320,404
COSTS AND OPERATING EXPENSES
Cost of products sold 3,577,555 3,387,295 2,974,861
Marketing, administrative and general expenses 1,131,290 1,045,615 913,734
Other operating expense (income) 6,064 8,297 (2,671)
---------- ---------- ----------
4,714,909 4,441,207 3,885,924
---------- ---------- ----------
OPERATING INCOME 347,390 530,506 434,480
OTHER INCOME (EXPENSE)
Interest income 11,085 9,296 35,284
Interest expense (77,302) (80,280) (72,671)
Miscellaneous, net 2,962 (3,861) 2,894
---------- ---------- ----------
(63,255) (74,845) (34,493)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 284,135 455,661 399,987
INCOME TAXES 126,844 181,125 153,572
---------- ---------- ----------
NET INCOME $ 157,291 $ 274,536 $ 246,415
========== ========== ==========
EARNINGS PER COMMON SHARE
Primary $2.41 $4.20 $3.80
Fully diluted 2.37 4.10 3.71
CASH DIVIDENDS PER COMMON SHARE $1.38 $1.30 $1.22
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 63,743 64,620 64,011
See notes to consolidated financial statements.
20
VF CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 30 DECEMBER 31
In thousands 1995 1994
---------- ----------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 84,075 $ 59,742
Accounts receivable, less allowances of
$34,621 in 1995 and $32,794 in 1994 629,506 613,337
Inventories 841,907 801,338
Deferred income taxes 84,952 48,388
Other current assets 27,197 28,361
---------- ----------
Total current assets 1,667,637 1,551,166
PROPERTY, PLANT AND EQUIPMENT 749,880 767,011
INTANGIBLE ASSETS 887,606 911,285
OTHER ASSETS 141,948 106,146
---------- ----------
$3,447,071 $3,335,608
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 229,945 $ 321,161
Current portion of long-term debt 2,715 2,773
Accounts payable 276,598 291,088
Accrued liabilities 359,062 297,310
---------- ----------
Total current liabilities 868,320 912,332
LONG-TERM DEBT 614,217 516,700
OTHER LIABILITIES 169,392 152,871
REDEEMABLE PREFERRED STOCK 60,667 62,195
DEFERRED CONTRIBUTIONS TO EMPLOYEE STOCK OWNERSHIP PLAN (37,031) (42,499)
---------- ----------
23,636 19,696
COMMON SHAREHOLDERS' EQUITY
Common Stock, stated value $1; shares authorized 150,000,000; shares
outstanding, 63,438,933 in 1995 and 64,164,524 in 1994 63,439 64,165
Additional paid-in capital 593,976 552,927
Foreign currency translation 20,483 4,557
Retained earnings 1,093,608 1,112,360
---------- ----------
1,771,506 1,734,009
---------- ----------
$3,447,071 $3,335,608
========== ==========
See notes to consolidated financial statements.
22
VF CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 30 DECEMBER 31 JANUARY 1
In thousands 1995 1994 1994
----------- ----------- ---------
OPERATIONS
Net income $ 157,291 $ 274,536 $ 246,415
Adjustments to reconcile net income
to cash provided by operations:
Depreciation 134,039 126,902 106,678
Amortization of intangible assets 33,682 31,609 19,087
Other, net (15,048) (4,973) (3,177)
Changes in current assets and liabilities:
Accounts receivable (2,045) (45,519) (24,094)
Inventories (31,881) 72,061 (41,797)
Accounts payable (18,623) 14,559 421
Other, net 66,241 10,226 (9,782)
--------- --------- ---------
Cash provided by operations 323,656 479,401 293,751
INVESTMENTS
Capital expenditures (155,206) (132,908) (209,494)
Business acquisitions (12,004) (494,751) (17,629)
Sale of outlet facilities - - 62,000
Other, net 4,216 1,053 45,840
--------- --------- ---------
Cash invested (162,994) (626,606) (119,283)
FINANCING
Increase (decrease) in short-term borrowings (92,655) 282,739 (86,756)
Proceeds from long-term debt 98,718 99,207 98,557
Payment of long-term debt (3,123) (222,718) (283,560)
Sale of Common Stock - - 232,068
Purchase of Common Stock (86,251) (27,878) -
Cash dividends paid (92,038) (88,223) (82,831)
Other, net 39,020 12,256 13,298
--------- --------- ---------
Cash provided (used) by financing (136,329) 55,383 (109,224)
--------- --------- ---------
NET CHANGE IN CASH AND EQUIVALENTS 24,333 (91,822) 65,244
CASH AND EQUIVALENTS - BEGINNING OF YEAR 59,742 151,564 86,320
--------- --------- ---------
CASH AND EQUIVALENTS - END OF YEAR $ 84,075 $ 59,742 $ 151,564
========= ========= =========
See notes to consolidated financial statements.
24
VF CORPORATION
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
ADDITIONAL FOREIGN
COMMON PAID-IN CURRENCY RETAINED
In thousands STOCK CAPITAL TRANSLATION EARNINGS
------- ---------- ----------- ----------
BALANCE JANUARY 2, 1993 $59,519 $301,336 $ 4,244 $ 788,872
Net income - - - 246,415
Cash dividends:
Common Stock - - - (78,540)
Series B Preferred Stock - - - (4,291)
Tax benefit from Preferred Stock dividends - - - 1,180
Redemption of Preferred Stock - - - (264)
Sale of Common Stock 4,600 227,468 - -
Exercise of stock options,
net of shares surrendered 370 14,361 - (761)
Foreign currency translation, less
deferred income taxes of $6,927 - - (17,109) -
------- -------- ------- ----------
BALANCE JANUARY 1, 1994 64,489 543,165 (12,865) 952,611
Net income - - - 274,536
Cash dividends:
Common Stock - - - (83,994)
Series B Preferred Stock - - - (4,229)
Tax benefit from Preferred Stock dividends - - 1,082
Redemption of Preferred Stock - - - (284)
Purchase of treasury shares (588) - - (27,290)
Exercise of stock options,
net of shares surrendered 264 9,762 - (72)
Foreign currency translation, less
deferred income taxes of $9,381 - - 17,422 -
------- -------- ------- ----------
BALANCE DECEMBER 31, 1994 64,165 552,927 4,557 1,112,360
CONTINUED . . .
26
VF CORPORATION
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
(continued)
ADDITIONAL FOREIGN
COMMON PAID-IN CURRENCY RETAINED
In thousands STOCK CAPITAL TRANSLATION EARNINGS
-------- --------- ----------- ----------
BALANCE DECEMBER 31, 1994 $64,165 $552,927 $ 4,557 $1,112,360
Net income - - - 157,291
Cash dividends:
Common Stock - - - (87,907)
Series B Preferred Stock - - - (4,131)
Tax benefit from Preferred Stock dividends - - - 955
Redemption of Preferred Stock - - - (507)
Restricted stock 5 (230) - 248
Purchase of treasury shares (1,720) - - (84,531)
Exercise of stock options,
net of shares surrendered 989 41,279 - (170)
Foreign currency translation, less
deferred income taxes of $8,576 - - 15,926 -
------- -------- ------- ----------
BALANCE DECEMBER 30, 1995 $63,439 $593,976 $20,483 $1,093,608
======= ======== ======= ==========
26
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
VF Corporation
We have audited the accompanying consolidated balance sheet of VF Corporation
as of December 30, 1995, and the related consolidated statements of income,
cash flows, and common shareholders' equity for the year then ended. The
financial statements of VF Corporation as of December 31, 1994 and for the
years ended December 31, 1994 and January 1, 1994 were audited by other
auditors, whose report dated February 8, 1995 expressed an unqualified opinion
on those statements. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of VF Corporation
at December 30, 1995, and the consolidated results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
February 8, 1996
27
VF CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 1995
VF Corporation's principal business is designing, manufacturing and marketing
high quality branded jeanswear, knitwear, intimate apparel, children's playwear
and other apparel. Jeanswear and related products represent over one-half of
consolidated sales and earnings and approximately one-half of total assets.
The Company's customers are primarily department, discount and specialty stores
throughout the world. One domestic discount store group comprises 10.5% of
consolidated sales in 1995.
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 basis represent 33% of total 1995 and 1994 inventories.
Remaining inventories are valued using the first-in, first-out method.
PROPERTY AND DEPRECIATION: Property, plant and equipment are stated at cost.
Depreciation is computed principally by the straight-line method for financial
reporting purposes and by accelerated methods for income tax purposes.
INTANGIBLE ASSETS represent the excess of costs over the fair value of net
tangible assets of businesses acquired, less accumulated amortization of $208.4
million and $174.0 million in 1995 and 1994. These assets are amortized on the
straight-line method over five to forty years.
The Company's policy has been to record an impairment loss against intangible
assets when it is determined that the carrying amount of such assets is not
recoverable. This evaluation, performed at least annually, 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.
Effective for fiscal 1996, the Company will adopt Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. This Statement requires
long-lived assets to be evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable, and provides specific measurement guidelines. The Company does
not expect this Statement to have a material effect on its 1996 consolidated
results of operations.
ADVERTISING COSTS are expensed as incurred and were $230.6 million in 1995,
$218.9 million in 1994 and $199.8 million in 1993.
EARNINGS PER SHARE: Primary earnings per share are computed by dividing net
income, after deducting preferred dividends, by the weighted average number of
common shares outstanding. Fully diluted
28
earnings per share assume the conversion of Preferred Stock and the exercise of
stock options that have a dilutive effect.
STOCK-BASED EMPLOYEE BENEFIT PLANS: Compensation expense is not recorded for
stock options granted at fair market value. For grants of restricted stock,
compensation equal to the market value of shares at the date of grant is
deferred and amortized to expense over the vesting period.
RECLASSIFICATIONS: Net royalty income and amortization of intangible assets
are included in Other Operating Expense (Income) for 1995. Prior year amounts
have been reclassified to conform with this 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 January 1995, the Company acquired for $12.0 million an 80% interest in a
company that manufactures and markets Lee branded products in Mexico. In
January 1994, the Company acquired the common stock of H.H. Cutler Company for
a total consideration of $154.7 million and the common stock of Nutmeg
Industries, Inc. for a total consideration of $352.2 million, of which $349.1
million related to intangible assets of these companies. Both companies
manufacture and market licensed apparel. In December 1993, the Company
acquired for $17.6 million the principal operating assets of a company that
manufactures and markets Belcor branded intimate apparel in Spain.
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 companies have
been included in the consolidated financial statements since the dates of
acquisition.
NOTE C - INVENTORIES
1995 1994
-------- --------
(In thousands)
Finished products $514,688 $473,646
Work in process 139,721 139,255
Materials and supplies 187,498 188,437
-------- --------
$841,907 $801,338
======== ========
The current cost of inventories stated on the last-in, first-out method (see
Note A) is not significantly different from their value determined under the
first-in, first-out method.
28
NOTE D - PROPERTY, PLANT AND EQUIPMENT
1995 1994
---------- ----------
(In thousands)
Land $ 42,605 $ 42,745
Buildings 389,135 391,250
Machinery and equipment 1,058,644 969,857
---------- ----------
1,490,384 1,403,852
Less accumulated depreciation 740,504 636,841
---------- ----------
$ 749,880 $ 767,011
========== ==========
NOTE E - SHORT-TERM BORROWINGS
1995 1994
---------- ----------
(In thousands)
Commercial paper $ 143,070 $ 216,703
Banks 86,875 104,458
---------- ----------
$ 229,945 $ 321,161
========== ==========
The weighted average interest rate was 6.62% at the end of 1995 and 6.16% at
the end of 1994.
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 1999, requires a .12% facility fee per year and contains various
financial covenants, including minimum net worth and debt ratio requirements.
At December 30, 1995, there were no borrowings under the agreement.
NOTE F - ACCRUED LIABILITIES
1995 1994
---------- ----------
(In thousands)
Income taxes $ 44,182 $ 43,220
Compensation 49,583 64,147
Insurance 50,805 38,940
Special charges 66,277 -
Other 148,215 151,003
---------- ----------
$ 359,062 $ 297,310
========== ==========
29
NOTE G - LONG-TERM DEBT
1995 1994
-------- --------
(In thousands)
9.50% notes, due 1999 $100,000 $100,000
9.50% notes, due 2001 100,000 100,000
6.63% notes, due 2003 100,000 100,000
7.60% notes, due 2004 100,000 100,000
6.75% notes, due 2005 100,000 -
9.25% debentures, due 2022 100,000 100,000
Capital leases and other 16,932 19,473
-------- --------
616,932 519,473
Less current portion 2,715 2,773
-------- --------
$614,217 $516,700
======== ========
The scheduled payments of long-term debt are $2.2 million in 1997, $1.1 million
in 1998, $100.8 million in 1999 and $2.3 million in 2000. The Company paid
interest of $74.4 million in 1995, $83.1 million in 1994 and $70.3 million in
1993.
NOTE H - OTHER LIABILITIES
1995 1994
-------- --------
(In thousands)
Deferred income taxes $ 59,191 $ 64,830
Deferred compensation 76,834 49,283
Other 33,367 38,758
-------- --------
$169,392 $152,871
======== ========
NOTE I - BENEFIT PLANS
The Company sponsors a noncontributory defined benefit pension plan covering
substantially all full-time domestic employees. Benefits are based on
employees' compensation and years of service. The Company annually contributes
amounts, as determined by an actuary, that provide the plan with sufficient
assets to meet future benefit payments. Plan assets consist principally of
common stocks, U.S. government obligations and corporate obligations.
29
The effect of the defined benefit plan on income is as follows:
1995 1994 1993
-------- -------- --------
(In thousands)
Service cost - benefits earned during the year $ 14,660 $ 16,230 $ 10,337
Interest cost on projected benefit obligation 26,409 25,639 22,148
Actual return on plan assets (68,659) (5,193) (34,895)
Net amortization and deferral 44,606 (18,124) 12,574
-------- -------- --------
Pension expense $ 17,016 $ 18,552 $ 10,164
======== ======== ========
The funded status of the defined benefit plan, based on a September 30
valuation date, is as follows:
1995 1994
-------- --------
(In thousands)
Present value of vested benefits $307,952 $251,540
======== ========
Present value of accumulated benefits $333,846 $273,037
======== ========
Plan assets at fair value $358,051 $286,554
Present value of projected benefits 392,112 313,150
-------- --------
Funded status (34,061) (26,596)
Unrecognized net loss 31,526 22,468
Unrecognized net asset (11,824) (16,202)
Unrecognized prior service cost 23,195 28,182
-------- --------
Pension asset recorded in Other Assets $ 8,836 $ 7,852
======== ========
The projected benefit obligation was determined using an assumed discount rate
of 7.75% in 1995, 8.25% in 1994 and 7.50% in 1993. The assumption for
compensation increases was 5.00% in each year, and the assumption for return on
plan assets was 8.75% 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 $5.8 million in
1995, $5.6 million in 1994 and $4.5 million in 1993. Plan expense was $6.2
million in 1995, $6.4 million for 1994 and $6.0 million for 1993, after giving
effect to tax-deductible dividends on the Series B Preferred Stock of $4.1
million in 1995, $4.2 million in 1994 and $4.3 million in 1993.
The Company sponsors other savings and profit sharing plans for certain
domestic and foreign employees. Expense for these plans totaled $13.3 million
in 1995, $9.7 million in 1994 and $7.7 million in 1993.
30
NOTE J - CAPITAL
Common shares outstanding are net of shares held in treasury of 1,376,976 in
1995, 2,358,675 in 1994 and 1,769,131 in 1993. During 1995, 2,700,000 treasury
shares were retired.
There are 25,000,000 authorized shares of Preferred Stock, $1 par value. As of
December 30, 1995, 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 1,964,942 shares of Series B Preferred Stock outstanding at December
30, 1995, 2,014,427 shares outstanding at December 31, 1994 and 2,050,491
shares outstanding at January 1, 1994, after share redemptions.
Each outstanding share of Common Stock has one preferred stock purchase right
attached. The rights become exercisable ten days after an outside party
acquires, or makes an offer for, 20% or more of the Common Stock. Each right
entitles its holder to buy 1/100 share of Series A Preferred Stock for $100.
Once exercisable, if the Company is involved in a merger or other business
combination or an outside party acquires 20% or more of the Common Stock, each
right will be modified to entitle its holder (other than the acquiror) to
purchase common stock of the acquiring company or, in certain circumstances, VF
Common Stock having a market value of twice the exercise price of the right.
In some circumstances, rights other than those held by an acquiror may be
exchanged for one share of VF Common Stock or 1/100 share of Series A Preferred
Stock. The rights, which expire on January 13, 1998, may be redeemed at $.01
per right prior to their becoming exercisable.
NOTE 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 8/10 share of Common Stock
and is entitled to one vote per share along with the Common Stock. The trustee
for the ESOP may convert the preferred shares to Common Stock at any time or
may cause the 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 2003. Interest related to this loan was $4.9
million in 1995, $5.3 million in 1994 and $5.7 million in 1993. 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.
NOTE L - STOCK OPTIONS
The Company has granted to officers, directors and key employees nonqualified
stock options under two stock option plans at prices not less than fair market
value on the date of grant. Options become exercisable one year after the date
of grant and expire ten years after the date of grant unless otherwise
specified by the Board of Directors.
30
Changes in the status of the stock option plans are summarized as follows:
SHARES
SHARES UNDER AVAILABLE FOR
OPTION OPTION
------------ -------------
Balance January 1, 1994 4,168,291 2,115,446
Options granted 1,015,475 (1,015,475)
Options exercised at $13.03 to $45.20 per share (265,408) -
Options canceled (178,870) 174,869
--------- ----------
Balance December 31, 1994 4,739,488 1,274,840
Options granted 1,088,775 (1,088,775)
Options exercised at $16.19 to $48.00 per share (992,710) -
Options canceled (73,504) 69,100
--------- ----------
Balance December 30, 1995 4,762,049 255,165
========= ==========
Options exercisable at December 30, 1995 at $16.19 to $57.20 per share 3,673,274
=========
The Company has granted to a key employee 5,130 shares of restricted stock that
vest in 2006. The Company has 300,000 shares available for future grants under
the 1995 Key Employee Restricted Stock Plan.
NOTE M - SPECIAL CHARGES
During the fourth quarter of 1995, the Company recorded special charges
totaling $155.9 million ($1.61 per share) to address changes in consumer buying
habits and the increasingly competitive retail environment that have occurred
in the apparel industry. These charges are aimed at reducing the Company's
overall cost structure, including both manufacturing and administrative costs,
through the closure of higher cost manufacturing facilities and personnel
reductions in administrative positions. In addition, included in the charges
are provisions related to better align inventories to existing retailer and
consumer requirements.
These actions affect approximately 7,800 of the Company's employees in
manufacturing and headquarters locations throughout North America and Europe.
Charges related to personnel reductions, including severance and related
benefits, total $46.9 million. As of December 30, 1995, 1,969 employees have
been terminated and $6.7 million of termination benefits have been paid. The
remainder of the employees included in the cost reduction initiatives are
generally located at manufacturing facilities and will work through the plant
closing transition periods that will end in early 1996. At that time, the
remaining cash payments to employees of $40.2 million will be made.
Of the remaining $109.0 million of special provisions, $49.1 million
represents charges that require an outlay of cash, including lease and other
contract terminations related to the plan for cost reduction. Of this amount,
$23.0 million has been paid through December 30, 1995, with the remaining
payments to be made principally in 1996. The noncash charges of $59.9 million
represent asset write-offs for closed manufacturing facilities and business and
inventory realignments.
30
The special charges were recorded in the consolidated statement of income as
follows: Cost of Products Sold - $109.8 million; Marketing, Administrative and
General - $41.7 million; Miscellaneous and Other Operating Expense - $4.4
million.
NOTE N - INCOME TAXES
The provision for income taxes is computed based on the following amounts of
income before income taxes:
1995 1994 1993
-------- -------- --------
(In thousands)
Domestic $261,437 $409,806 $356,109
Foreign 22,698 45,855 43,878
-------- -------- --------
$284,135 $455,661 $399,987
======== ======== ========
The provision for income taxes consists of:
1995 1994 1993
-------- -------- --------
(In thousands)
Current:
Federal $136,863 $149,000 $125,966
Foreign 32,535 24,649 17,863
State 11,299 12,978 13,806
-------- -------- --------
180,697 186,627 157,635
Deferred, primarily federal (53,853) (5,502) (4,063)
-------- -------- --------
$126,844 $181,125 $153,572
======== ======== ========
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:
1995 1994 1993
-------- -------- --------
(In thousands)
Tax at federal statutory rate $ 99,448 $159,481 $139,995
State income taxes, net of federal tax benefit 7,344 8,436 8,974
Amortization of intangible assets 7,319 7,126 4,234
Foreign operating losses
with no current benefit 11,169 2,302 2,210
Other, net 1,564 3,780 (1,841)
-------- -------- --------
$126,844 $181,125 $153,572
======== ======== ========
31
Deferred income tax assets and liabilities consist of the following:
1995 1994
-------- --------
(In thousands)
Deferred income tax assets:
Employee benefits $ 39,567 $ 27,758
Other accrued expenses 82,453 51,095
Inventories 19,603 18,748
Operating loss carryforwards 27,018 12,988
-------- --------
168,641 110,589
Valuation allowance (22,154) (10,866)
-------- --------
$146,487 $ 99,723
======== ========
Deferred income tax liabilities:
Depreciation $ 62,473 $ 65,767
Inventories 22,492 21,207
Foreign currency translation 11,030 2,454
Unremitted foreign earnings 11,373 12,812
Other 6,349 11,520
-------- --------
$113,717 $113,760
======== ========
The Company has $64.2 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 $172.0 million in
1995; $177.0 million in 1994 and $152.1 million in 1993. Interest income in
1993 includes $24.4 million relating to settlements of tax examinations of
acquired companies.
NOTE O - OPERATIONS BY GEOGRAPHIC AREA
1995 1994 1993
---------- ---------- ----------
(In thousands)
Net sales:
United States $4,192,435 $4,209,090 $3,678,577
Foreign 869,864 762,623 641,827
---------- ---------- ----------
$5,062,299 $4,971,713 $4,320,404
========== ========== ==========
Operating income:
United States $ 328,878 $ 493,922 $ 406,414
Foreign 59,173 75,253 66,149
---------- ---------- ----------
388,051 569,175 472,563
Corporate expenses (40,661) (38,669) (38,083)
Interest, net (66,217) (70,984) (37,387)
Miscellaneous, net 2,962 (3,861) 2,894
---------- ---------- ----------
Income before income taxes $ 284,135 $ 455,661 $ 399,987
========== ========== ==========
31
1995 1994 1993
---------- ---------- ----------
Identifiable assets:
United States $2,672,864 $2,632,079 $2,178,754
Foreign 684,426 610,543 562,053
Corporate 89,781 92,986 136,541
---------- ---------- ----------
$3,447,071 $3,335,608 $2,877,348
========== ========== ==========
Foreign operations are conducted primarily in Europe. Foreign operations
located elsewhere are not significant. Corporate assets consist primarily of
cash and cash equivalents. The 1995 special charges (Note M) were incurred as
follows: United States - $127.1 million; Foreign - $22.9 million; Corporate
- - $2.9 million; Miscellaneous - $3.0 million.
NOTE P - LEASES
The Company leases certain facilities and equipment under noncancelable
operating leases. Rental expense was $70.4 million in 1995, $55.5 million in
1994 and $46.9 million in 1993. Future minimum lease payments are $47.8
million, $37.7 million, $29.2 million, $22.8 million and $21.6 million for the
years 1996 through 2000 and $60.4 million thereafter.
NOTE Q - FINANCIAL INSTRUMENTS
The following represents the carrying amount and fair value of financial
instruments included in the balance sheets:
DECEMBER 30, 1995 DECEMBER 31, 1994
----------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- -------- ---------- --------
(In thousands) (In thousands)
Financial liabilities:
Short-term borrowings $229,945 $229,945 $321,161 $321,161
Long-term debt 614,217 668,108 516,700 506,900
Series B Preferred Stock 60,667 82,921 62,195 78,361
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.
31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
ANALYSIS OF OPERATIONS
Following increases in sales and net income during the first half of 1995, VF's
sales declined in the second half, reflecting a general slowdown in the United
States in retail sales. To address the changes that are taking place in
overall retail conditions and specifically within apparel, we accelerated our
long-term strategy of achieving greater balance in lower cost manufacturing and
aggressively addressing our total cost structure. Accordingly, during the
fourth quarter of 1995, we recorded special charges of $155.9 million ($1.61
per share) to implement these cost reduction initiatives. These charges
included costs to close a number of higher cost domestic manufacturing
facilities and to effect reductions in selling and administrative expenses,
primarily from personnel reductions at domestic and international division
headquarters locations. In addition, the special charges included provisions
to better align inventories with the existing consumer and retail environment.
A significant portion of the anticipated savings from these actions is expected
to be invested in increased advertising and other actions to support and build
our brands.
Net sales in 1995 increased by 2% over 1994, resulting primarily from flat unit
sales, modest pricing increases and the impact of a weaker U.S. dollar in
translating foreign currencies. Sales in 1994 increased 15% over the 1993
level, with approximately one-half of the increase resulting from the January
1994 acquisitions of H.H. Cutler Company (Cutler) and Nutmeg Industries, Inc.
(Nutmeg) and the balance resulting primarily from unit volume growth in
existing businesses.
Gross margins were 29.3% of sales in 1995, compared with 31.9% in 1994 and
31.1% in 1993. Excluding special charges included in cost of products sold of
$109.8 million, gross margins were 31.5% of sales in 1995. The remaining
margin decline in 1995 results from provisions for inventory write-downs and
manufacturing plant downtime in certain divisions, generally reflecting the
slowdown in sales in the United States. The increase in 1994 over 1993 is due
to higher
21
margins in the Jeanswear business group resulting from manufacturing
efficiencies. In addition, margins in 1993 were impacted by a provision for
capacity reduction in knitwear.
Marketing, administrative and general expenses were 22.3% of sales in 1995,
compared with 21.0% and 21.1% in 1994 and 1993, respectively. Excluding
special charges of $41.7 million in 1995, expenses were 21.5% of sales. The
increase in 1995, after excluding the special charges, was due to increased
advertising and other marketing expenses on lower than expected sales.
Other operating income and expense consists of net royalty income and
amortization of goodwill. Royalty income increased over the three year period,
while amortization of goodwill increased in 1994 and 1995 with the January 1994
acquisitions of Cutler and Nutmeg.
Interest expense declined slightly in 1995 due to a lower borrowing level.
Interest expense increased in 1994 due to higher borrowings incurred to fund
the acquisitions of Cutler and Nutmeg, offset in part by lower interest rates.
Interest income in 1993 included $24.4 million related to a refund of prior
years' income taxes.
The effective income tax rate was 44.6% in 1995, 39.7% in 1994 and 38.4% in
1993. The rate increase in 1995 over 1994 was due to a higher level of foreign
operating losses with no current tax benefit. The increase in 1994 over 1993
resulted from higher nondeductible goodwill amortization arising from the 1994
acquisitions.
OPERATING RESULTS BY BUSINESS GROUP
The Jeanswear business group includes the Lee and Wrangler divisions in the
United States and in international markets. Also included is the Girbaud
division, which designs and markets licensed products in the United States
under the Marithe & Francois Girbaud(R) label. International sales growth in
1995 and 1994 was at a higher rate than in the United States. Operating income
in 1995 includes $54.8 million of special charges related to both domestic and
international
21
operations. The margin improvement in 1994 resulted from increased
manufacturing efficiencies and reduced use of outside contractors in domestic
divisions.
The Decorated Knitwear business group consists of Bassett-Walker, JanSport
imprinted apparel and, with their acquisitions in 1994, Cutler Sports Apparel
and Nutmeg. Operating income in 1995 includes $28.7 million in special
charges. The 1994 sales and profit increase resulted from the additions of
Cutler and Nutmeg and improvements in our basic fleece and T-shirt business.
In addition, 1993 operating results for this group included a $15.0 million
provision for reduction of knitwear production capacity at Bassett-Walker.
The Intimate Apparel business group includes the operations of Vanity Fair
Mills domestically and the intimate apparel divisions in Europe. Sales of the
business group were flat in 1995. The operating loss in 1995 includes $45.4
million in special charges, as well as declines in operating income in both our
domestic and international businesses. The sales increase in 1994 was due to
growth in our domestic branded and private label businesses.
The Playwear business group consists of Healthtex, the Cutler playwear and
sleepwear operations and the preschool sizes of Lee and Wrangler. Growth in
playwear sales from the 1993 level resulted from the acquisition of Cutler in
1994. Operating income in the business group in 1995 was impacted by $12.7
million in special charges, as well as lower profits due to continued pricing
pressures at retail in this product category. Growth in profits in 1994
included the newly acquired Cutler business and increased profit contributions
at other units.
Red Kap, Jantzen and the equipment division of JanSport are the larger
components of the Specialty Apparel group. While sales grew in each division
during 1994, sales for the group in 1995 were lower due to discontinuation of
the Jantzen men's sportswear and sweater businesses. Included in operating
income in 1995 are $6.9 million in special charges. Profits increased at each
company in 1994, with the exception of Jantzen which incurred a charge for
discontinuing its men's businesses.
23
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 was within these guidelines: 32.3% at the end of 1995 and 32.7% at the
end of 1994. Despite our stated goal, we will exceed this level if warranted by
appropriate investment opportunities.
.BALANCE SHEETS.
Accounts receivable increased due to higher sales in late 1995. Inventories
are higher at the end of 1995, reflecting the anticipation of increased sales
that did not materialize in the last half of the year. Total interest-bearing
debt was comparable at the end of each year.
Over 15% of our 1995 sales and operating income were derived from international
locations. 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. VF does not hedge the translation of foreign
currencies into the U.S. dollar, but we do enter into foreign currency forward
contracts to minimize the effect of fluctuating foreign currencies on cash
flows from foreign operations. These contracts are not material.
LIQUIDITY AND CASH FLOW
Working capital increased in 1995, and the current ratio increased to 1.9 to 1
from 1.7 to 1 in 1994. Included in current liabilities in 1995 is $66.3
million related to the 1995 special charges, substantially all of which is
expected to be paid during 1996.
23
Cash provided by operations of $324 million in 1995 was lower than 1994 because
of lower net income and an increase in working capital. The 1994 amount was
significantly higher than prior years due to higher net income and reduced
working capital requirements.
Capital expenditures were $155 million in 1995, compared with $133 million and
$209 million in 1994 and 1993, respectively. Capital expenditures in 1996
should be comparable with the 1995 level and are expected to be funded by cash
flows from operations. In addition, the Company's strong financial position
provides substantial unused borrowing capacity to meet other investment
opportunities that may arise.
Beginning in late 1994 and continuing through 1995, the Company purchased
2,308,000 shares of its Common Stock in open market transactions for a total of
$114.1 million pursuant to an authorization from the Board of Directors to
purchase up to three million shares.
Dividends totaled $1.38 per common share in 1995, compared with $1.30 in 1994
and $1.22 in 1993. The dividend payout rate increased to 57% due to lower 1995
earnings, compared with a payout rate of 31% in 1994 and 32% in 1993. The
indicated annual dividend rate for 1996 is $1.44 per share. VF has paid
dividends on its Common Stock annually since 1941 and intends to maintain a
long-term payout rate of 30%.
OTHER MATTERS
The Company is a defendant in an action initiated in 1990 alleging infringement
of a patent allegedly relating to a process, commonly called "acid wash," used
in the production of certain denim garments. Similar actions have been brought
against other denim apparel manufacturers. The Company is vigorously
contesting the action and believes that it has numerous substantive defenses.
No trial date has been set. Based on currently available information and the
advice of counsel, management is not in a position to determine the likelihood
of the outcome of the action with certainty. Notwithstanding, management
believes at this time that the outcome will not have a material impact on the
financial position of the Company.
25
VF CORPORATION 1995 FINANCIAL SUMMARY
In thousands, except per share amounts 1995 1994 1993 1992 1991
---------- --------- ---------- --------- ----------
SUMMARY OF OPERATIONS
Net sales $5,062,299 $4,971,713 $4,320,404 $3,824,449 $2,952,433
Cost of products sold 3,577,555 3,387,295 2,974,861 2,603,726 2,039,787
------------------------------------------------------------------------------------------------------------------------------
Gross profit 1,484,744 1,584,418 1,345,543 1,220,723 912,646
Marketing, administrative and other 1,137,354 1,053,912 911,063 788,216 604,774
------------------------------------------------------------------------------------------------------------------------------
Operating income 347,390 530,506 434,480 432,507 307,872
Interest, net (66,217) (70,984) (37,387) (53,615) (55,155)
Miscellaneous, net 2,962 (3,861) 2,894 (3,119) 10,480
------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 284,135 455,661 399,987 375,773 263,197
Income taxes 126,844 181,125 153,572 138,742 101,867
------------------------------------------------------------------------------------------------------------------------------
Net income $ 157,291 $ 274,536 $ 246,415 $ 237,031 $ 161,330
------------------------------------------------------------------------------------------------------------------------------
Per share of Common Stock (1)
Earnings - primary $ 2.41 $ 4.20 $ 3.80 $ 3.97 $ 2.75
Dividends 1.38 1.30 1.22 1.11 1.02
Average number of common shares
outstanding 63,743 64,620 64,011 58,608 57,152
Net income as % of average common 8.8% 16.8% 16.9% 23.0% 18.8%
shareholders' equity
Net income as % of average total assets 4.4% 7.9% 8.5% 9.7% 8.0%
------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Accounts receivable, net $ 629,506 $ 613,337 $ 511,887 $ 493,030 $ 333,073
Inventories 841,907 801,338 778,767 742,474 537,027
Total current assets 1,667,637 1,551,166 1,500,180 1,365,573 1,071,109
Property, plant and equipment, net 749,880 767,011 712,759 711,087 577,019
Total assets 3,447,071 3,335,608 2,877,348 2,712,380 2,126,913
Total current liabilities 868,320 912,332 659,848 684,002 510,776
Long-term debt 614,217 516,700 527,573 767,641 583,209
Common shareholders' equity 1,771,506 1,734,009 1,547,400 1,153,971 938,078
------------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS
Working capital $ 799,317 $ 638,834 $ 840,332 $ 681,571 $ 560,333
Current ratio 1.9 1.7 2.3 2.0 2.1
Debt to total capital ratio (2) 32.3% 32.7% 30.3% 44.8% 42.2%
Dividends $ 92,038 $ 88,223 $ 82,831 $ 69,552 $ 62,712
Purchase of Common Stock 86,251 27,878 - - -
Cash provided by operations 323,656 479,401 293,751 123,060 287,172
Capital expenditures (excluding 155,206 132,908 209,494 207,202 110,762
acquisitions)
Depreciation and amortization 167,721 158,511 125,765 108,281 90,991
------------------------------------------------------------------------------------------------------------------------------
MARKET DATA
Market price range (1) $57-1/8--46-3/4 $53-3/4--44-1/4 $56-1/2--39-1/2 $57-1/2--38-1/2 $41-1/2--17-5/8
Book value per common share (1) 27.92 27.02 23.99 19.39 16.26
Price earnings ratio -- high-low 23.7 - 19.4 12.8 - 10.5 14.9 - 10.4 14.5 - 9.7 15.1 - 6.4
Rate of payout (3) 57.3% 31.0% 32.1% 28.0% 37.1%
------------------------------------------------------------------------------------------------------------------------------
(1) Per share computations and market price ranges have been
adjusted to reflect two-for-one stock split in April 1986.
(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