e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2011
Commission file number: 1-5256
V. F. CORPORATION
(Exact name of registrant as specified in its charter)
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Pennsylvania
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23-1180120 |
(State or other jurisdiction of
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(I.R.S. employer |
incorporation or organization)
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identification number) |
105 Corporate Center Boulevard
Greensboro, North Carolina 27408
(Address of principal executive offices)
(336) 424-6000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2)
has been subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). YES o NO þ
On
April 30, 2011, there were 109,398,482 shares of the registrants Common Stock outstanding.
VF CORPORATION
Table of Contents
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31 |
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2
Part I Financial Information
Item 1 Financial Statements (Unaudited)
VF CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended March |
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2011 |
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2010 |
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Net Sales |
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$ |
1,937,124 |
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$ |
1,730,086 |
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Royalty Income |
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21,675 |
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19,793 |
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Total Revenues |
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1,958,799 |
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1,749,879 |
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Costs and Operating Expenses |
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Cost of goods sold |
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1,033,856 |
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932,203 |
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Marketing, administrative and general expenses |
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650,300 |
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594,416 |
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1,684,156 |
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1,526,619 |
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Operating Income |
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274,643 |
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223,260 |
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Other Income (Expense) |
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Interest income |
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966 |
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494 |
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Interest expense |
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(15,940 |
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(20,499 |
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Miscellaneous, net |
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(1,931 |
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6,423 |
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(16,905 |
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(13,582 |
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Income Before Income Taxes |
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257,738 |
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209,678 |
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Income Taxes |
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56,318 |
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46,219 |
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Net Income |
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201,420 |
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163,459 |
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Net (Income) Loss Attributable to Noncontrolling |
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Interests |
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(717 |
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57 |
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Net Income Attributable to VF Corporation |
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$ |
200,703 |
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$ |
163,516 |
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Earnings Per Common Share Attributable to VF Corporation Common Stockholders |
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Basic |
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$ |
1.85 |
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$ |
1.48 |
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Diluted |
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1.82 |
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1.46 |
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Cash Dividends Per Common Share |
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$ |
0.63 |
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$ |
0.60 |
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See notes to consolidated financial statements.
3
VF CORPORATION
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)
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March |
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December |
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March |
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2011 |
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2010 |
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2010 |
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ASSETS |
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Current Assets |
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Cash and equivalents |
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$ |
672,963 |
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$ |
792,239 |
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$ |
718,634 |
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Accounts receivable, less allowance for doubtful accounts of: |
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892,294 |
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773,083 |
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787,682 |
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March 2011 - $47,365; Dec. 2010 - $44,599 |
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March 2010 - $59,351 |
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Inventories: |
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Finished products |
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938,437 |
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843,230 |
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764,167 |
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Work in process |
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79,362 |
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78,226 |
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69,515 |
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Materials and supplies |
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165,515 |
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149,238 |
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118,500 |
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1,183,314 |
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1,070,694 |
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952,182 |
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Other current assets |
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201,457 |
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190,044 |
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192,275 |
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Total current assets |
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2,950,028 |
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2,826,060 |
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2,650,773 |
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Property, Plant and Equipment |
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1,700,871 |
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1,663,299 |
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1,602,996 |
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Less accumulated depreciation |
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1,085,499 |
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1,060,391 |
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1,001,137 |
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615,372 |
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602,908 |
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601,859 |
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Intangible Assets |
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1,556,791 |
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1,490,925 |
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1,529,538 |
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Goodwill |
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1,187,107 |
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1,166,638 |
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1,363,059 |
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Other Assets |
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383,840 |
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371,025 |
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326,979 |
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$ |
6,693,138 |
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$ |
6,457,556 |
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$ |
6,472,208 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current Liabilities |
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Short-term borrowings |
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$ |
40,052 |
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$ |
36,576 |
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$ |
48,525 |
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Current portion of long-term debt |
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2,722 |
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2,737 |
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202,690 |
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Accounts payable |
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429,541 |
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510,998 |
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296,437 |
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Accrued liabilities |
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564,531 |
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559,164 |
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512,415 |
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Total current liabilities |
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1,036,846 |
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1,109,475 |
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1,060,067 |
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Long-term Debt |
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935,244 |
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935,882 |
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937,826 |
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Other Liabilities |
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594,601 |
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550,880 |
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649,449 |
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Commitments and Contingencies |
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Stockholders Equity |
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Common stock, stated value $1; shares
authorized, 300,000,000; shares outstanding: |
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109,014 |
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107,938 |
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109,981 |
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March 2011 - 109,013,967; Dec. 2010 - 107,938,105 |
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March 2010 - 109,980,912 |
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Additional paid-in capital |
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2,159,204 |
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2,081,367 |
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1,938,184 |
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Accumulated other comprehensive income (loss) |
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(202,203 |
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(268,594 |
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(246,241 |
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Retained earnings |
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2,059,492 |
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1,940,508 |
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2,024,856 |
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Total equity attributable to VF Corporation |
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4,125,507 |
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3,861,219 |
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3,826,780 |
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Noncontrolling interests |
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940 |
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100 |
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(1,914 |
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Total stockholders equity |
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4,126,447 |
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3,861,319 |
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3,824,866 |
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$ |
6,693,138 |
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$ |
6,457,556 |
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$ |
6,472,208 |
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See notes to consolidated financial statements.
4
VF CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
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Three Months |
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Ended March |
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2011 |
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2010 |
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Net Income |
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$ |
201,420 |
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$ |
163,459 |
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Other Comprehensive Income (Loss): |
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Foreign currency translation |
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Gains (losses) arising during the period |
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96,695 |
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(74,763 |
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Less income tax effect |
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(19,659 |
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11,237 |
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Defined benefit pension plans |
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Amortization of net deferred actuarial loss |
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10,764 |
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11,372 |
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Amortization of prior service cost |
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863 |
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987 |
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Less income tax effect |
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(4,181 |
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(4,770 |
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Derivative financial instruments |
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Gains (losses) arising during the period |
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(26,170 |
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20,841 |
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Less income tax effect |
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10,080 |
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(8,030 |
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Reclassification to net income for (gains)
losses realized |
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(2,910 |
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9,247 |
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Less income tax effect |
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1,124 |
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(3,562 |
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Marketable securities |
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Gains (losses) arising during the period |
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(825 |
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|
942 |
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Reclassification to net income for (gains)
losses recognized |
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847 |
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Less income tax effect |
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(237 |
) |
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Other comprehensive income (loss) |
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66,391 |
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(36,499 |
) |
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Foreign currency translation gains attributable
to noncontrolling interests |
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123 |
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9 |
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Other comprehensive income (loss)
including noncontrolling interests |
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66,514 |
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(36,490 |
) |
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Comprehensive Income |
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267,934 |
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|
126,969 |
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Comprehensive (Income) Loss Attributable
to Noncontrolling Interests |
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(840 |
) |
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48 |
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Comprehensive Income Attributable to
VF Corporation |
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$ |
267,094 |
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$ |
127,017 |
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See notes to consolidated financial statements.
5
VF CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
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Three Months Ended March |
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2011 |
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2010 |
|
Operating Activities |
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Net income |
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$ |
201,420 |
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$ |
163,459 |
|
Adjustments to reconcile net income to cash provided (used)
by operating activities: |
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Depreciation |
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30,096 |
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27,396 |
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Amortization of intangible assets |
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|
9,776 |
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9,978 |
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Other amortization |
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5,069 |
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|
3,695 |
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Stock-based compensation |
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13,702 |
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|
14,774 |
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Pension funding under expense |
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10,817 |
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|
10,324 |
|
Other, net |
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2,615 |
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|
27,410 |
|
Changes in operating assets and liabilities,
net of acquisitions: |
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Accounts receivable |
|
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(101,628 |
) |
|
|
(25,230 |
) |
Inventories |
|
|
(101,511 |
) |
|
|
3,867 |
|
Other current assets |
|
|
726 |
|
|
|
(4,373 |
) |
Accounts payable |
|
|
(94,167 |
) |
|
|
(74,409 |
) |
Accrued compensation |
|
|
(64,313 |
) |
|
|
(31,548 |
) |
Accrued income taxes |
|
|
14,651 |
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|
26,213 |
|
Accrued liabilities |
|
|
8,922 |
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|
58,312 |
|
Other assets and liabilities |
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|
30,960 |
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|
|
(25,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by operating activities |
|
|
(32,865 |
) |
|
|
184,154 |
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(33,607 |
) |
|
|
(17,339 |
) |
Business acquisitions, net of cash acquired |
|
|
|
|
|
|
(29,111 |
) |
Trademarks acquisition |
|
|
(55,500 |
) |
|
|
|
|
Software purchases |
|
|
(7,256 |
) |
|
|
(701 |
) |
Other, net |
|
|
53 |
|
|
|
(2,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used by investing activities |
|
|
(96,310 |
) |
|
|
(49,637 |
) |
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Net increase in short-term borrowings |
|
|
3,427 |
|
|
|
2,837 |
|
Payments on long-term debt |
|
|
(550 |
) |
|
|
(1,061 |
) |
Purchase of Common Stock |
|
|
(2,453 |
) |
|
|
(118,001 |
) |
Cash dividends paid |
|
|
(68,475 |
) |
|
|
(66,224 |
) |
Proceeds from issuance of Common Stock, net |
|
|
46,036 |
|
|
|
52,394 |
|
Tax benefits of stock option exercises |
|
|
8,384 |
|
|
|
1,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used by financing activities |
|
|
(13,631 |
) |
|
|
(128,386 |
) |
|
|
|
|
|
|
|
|
|
Effect of Foreign Currency Rate Changes on Cash |
|
|
23,530 |
|
|
|
(19,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Equivalents |
|
|
(119,276 |
) |
|
|
(12,915 |
) |
|
|
|
|
|
|
|
|
|
Cash and Equivalents Beginning of Year |
|
|
792,239 |
|
|
|
731,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents End of Period |
|
$ |
672,963 |
|
|
$ |
718,634 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
6
VF CORPORATION
Consolidated Statements of Stockholders Equity
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VF Corporation Stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
Non- |
|
|
|
Common |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Retained |
|
|
controlling |
|
|
|
Stock |
|
|
Capital |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Interests |
|
Balance, December 2009 |
|
$ |
110,285 |
|
|
$ |
1,864,499 |
|
|
$ |
(209,742 |
) |
|
$ |
2,050,109 |
|
|
$ |
(1,866 |
) |
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
571,362 |
|
|
|
2,150 |
|
Common Stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(264,281 |
) |
|
|
|
|
Purchase of treasury stock |
|
|
(5,023 |
) |
|
|
|
|
|
|
|
|
|
|
(401,925 |
) |
|
|
|
|
Stock compensation plans, net |
|
|
2,815 |
|
|
|
216,868 |
|
|
|
|
|
|
|
(4,072 |
) |
|
|
|
|
Common Stock held in trust for
deferred compensation plans |
|
|
(139 |
) |
|
|
|
|
|
|
|
|
|
|
(10,685 |
) |
|
|
|
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(240 |
) |
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
(65,398 |
) |
|
|
|
|
|
|
56 |
|
Defined benefit pension plans |
|
|
|
|
|
|
|
|
|
|
(155 |
) |
|
|
|
|
|
|
|
|
Derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
4,464 |
|
|
|
|
|
|
|
|
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
2,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 2010 |
|
|
107,938 |
|
|
|
2,081,367 |
|
|
|
(268,594 |
) |
|
|
1,940,508 |
|
|
|
100 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,703 |
|
|
|
717 |
|
Common Stock dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68,475 |
) |
|
|
|
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation plans, net |
|
|
1,111 |
|
|
|
77,837 |
|
|
|
|
|
|
|
(10,213 |
) |
|
|
|
|
Common Stock held in trust for
deferred compensation plans |
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
(3,031 |
) |
|
|
|
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
77,036 |
|
|
|
|
|
|
|
123 |
|
Defined benefit pension plans |
|
|
|
|
|
|
|
|
|
|
7,446 |
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
(17,876 |
) |
|
|
|
|
|
|
|
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
(215 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 2011 |
|
$ |
109,014 |
|
|
$ |
2,159,204 |
|
|
$ |
(202,203 |
) |
|
$ |
2,059,492 |
|
|
$ |
940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
7
VF CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Note A Basis of Presentation
VF Corporation (and its subsidiaries, collectively known as VF) uses a 52/53 week fiscal year
ending on the Saturday closest to December 31 of each year. For presentation purposes herein, all
references to periods ended March 2011, December 2010 and March 2010 relate to the fiscal periods
ended on April 2, 2011, January 1, 2011 and April 3, 2010, respectively.
The accompanying unaudited consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the
information and notes required by generally accepted accounting principles (GAAP) in the United
States of America for complete financial statements. Similarly, the December 2010 consolidated
balance sheet was derived from audited financial statements but does not include all disclosures
required by GAAP. In the opinion of management, the accompanying unaudited consolidated financial
statements contain all normal and recurring adjustments necessary to fairly present the
consolidated financial position, results of operations and cash flows of VF for the interim periods
presented. Operating results for the three months ended March 2011 are not necessarily indicative
of results that may be expected for any other interim period or for the year ending December 31,
2011. For further information, refer to the consolidated financial statements and notes included
in VFs Annual Report on Form 10-K for the year ended December 2010 (2010 Form 10-K).
Certain prior year amounts, none of which are material, have been reclassified to conform with the
2011 presentation.
Note B Change in Accounting Principle
VF has historically valued inventories using both the first-in, first out (FIFO) and last-in,
first-out (LIFO) methods. At the end of December 2010, approximately 25% of total inventories
were valued using the LIFO method. On January 2, 2011, VF changed its method of accounting for
inventories previously on the LIFO method to the FIFO method. This change is preferable because
the FIFO inventory valuation (i) better reflects the current value of inventories on our
Consolidated Balance Sheets, (ii) provides for a single
inventory valuation method for all
business units globally, and (iii) enhances comparability with the reporting of our peers.
The effect of retrospectively applying this change in accounting principle on previously reported
financial statements was not material and therefore those periods have not been restated. The
impact of this change on the Consolidated Statement of Income for the first quarter of 2011 was as
follows:
8
|
|
|
|
|
|
|
Increase/ |
In thousands, except per share amounts |
|
(Decrease) |
Cost of goods sold |
|
$ |
(8,027 |
) |
Income before income taxes |
|
|
8,027 |
|
Income tax expense |
|
|
3,160 |
|
Net income |
|
|
4,867 |
|
|
|
|
|
|
Basic earnings per common share attributable to VF Corporation
Common Stockholders |
|
$ |
0.04 |
|
Diluted earnings per common share attributable to VF
Corporation Common Stockholders |
|
|
0.04 |
|
The impact of this change in accounting principle on the Consolidated Balance Sheet as of
January 2, 2011 was as follows:
|
|
|
|
|
In thousands |
|
Increase |
Inventories |
|
$ |
8,027 |
|
Accrued liabilities |
|
|
3,160 |
|
Retained earnings |
|
|
4,867 |
|
The impact of accounting for inventory on a LIFO instead
of FIFO basis, had we not made this change in accounting principle, would not have been
material to our financial position, results of operations, cash flows and net earnings per common
share attributable to VF Corporation Common Stockholders for the quarter ended March 2011.
Note C Asset Acquisition
On March 30, 2011, VF paid $55.5 million in cash to acquire the trademarks and related intellectual
property of Rock and Republic Enterprises, Inc. (Rock and Republic). We have accounted for this
transaction as an asset acquisition and recorded the purchase price as an indefinite-lived
intangible asset. The total purchase price of these assets is
expected to be approximately $57.0 million plus expenses. The
final purchase price will be determined after all
contingencies have been resolved, which should occur by the end of 2011.
Rock and Republic jeanswear and related products will be offered through a licensing and wholesale
distribution arrangement with Kohls department store. Operating results will be reported as part
of the Jeanswear Coalition.
Note D Sale of Accounts Receivable
VF has an agreement with a financial institution to sell selected trade accounts receivable on a
nonrecourse basis. This agreement allows VF to have up to $237.5 million of accounts receivable
held by the financial institution at any point in time. After the sale, VF continues to service
and collect these accounts receivable on behalf of the financial institution but does not retain
any other interests in the receivables. At the end of March 2011, December 2010 and March 2010,
accounts receivable in the Consolidated Balance Sheets had been reduced by $140.1 million, $112.3
million and $116.0 million, respectively, related to balances sold under this program. During the
first quarter of 2011, VF sold $259.0 million of accounts receivable at their stated amounts, less
a funding fee of $0.5 million, which was recorded in Miscellaneous Expense. Net proceeds of this
program are recognized as part of the
9
change in accounts receivable in cash provided by operating
activities in the Consolidated Statements of Cash Flows.
Note E Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2011 |
|
|
December 2010 |
|
|
|
Weighted |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Net |
|
|
|
Average |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Carrying |
|
Dollars in thousands |
|
Life |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amount |
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
19 years |
|
$ |
451,154 |
|
|
$ |
117,024 |
|
|
$ |
334,130 |
|
|
$ |
337,307 |
|
License agreements |
|
24 years |
|
|
180,043 |
|
|
|
54,162 |
|
|
|
125,881 |
|
|
|
127,741 |
|
Trademarks and other |
|
8 years |
|
|
13,385 |
|
|
|
9,124 |
|
|
|
4,261 |
|
|
|
4,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible
assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
464,272 |
|
|
|
469,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,092,519 |
|
|
|
1,021,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,556,791 |
|
|
$ |
1,490,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets are amortized using the following methods: customer relationships
accelerated methods; license agreements accelerated and straight-line methods; trademarks and
other straight-line method.
Indefinite-lived intangible assets increased in the first quarter of 2011 due to the $55.5 million
acquisition of the Rock and Republic trademark as discussed in Note C.
Amortization of intangible assets for the first quarter of 2011 was $9.8 million and is expected to
be $37.4 million for the year 2011. Estimated amortization expense for the years 2012 through 2015
is $34.6 million, $33.0 million, $31.9 million and $30.5 million, respectively.
Note F Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor & |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contemporary |
|
|
|
|
In thousands |
|
Action Sports |
|
|
Jeanswear |
|
|
Imagewear |
|
|
Sportswear |
|
|
Brands |
|
|
Total |
|
Balances, December
2010 |
|
$ |
574,747 |
|
|
$ |
235,513 |
|
|
$ |
56,703 |
|
|
$ |
157,314 |
|
|
$ |
142,361 |
|
|
$ |
1,166,638 |
|
Currency translation |
|
|
16,508 |
|
|
|
3,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,469 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 2011 |
|
$ |
591,255 |
|
|
$ |
239,474 |
|
|
$ |
56,703 |
|
|
$ |
157,314 |
|
|
$ |
142,361 |
|
|
$ |
1,187,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 2010 are net of cumulative impairment charges recorded as follows:
Outdoor & Action Sports $43.4 million, Sportswear $58.5 million and Contemporary Brands
$195.2 million.
10
Note G Pension Plans
VFs pension cost was composed of the following components:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March |
|
In thousands |
|
2011 |
|
|
2010 |
|
Service cost benefits earned during the year |
|
$ |
5,182 |
|
|
$ |
4,083 |
|
Interest cost on projected benefit obligations |
|
|
19,705 |
|
|
|
19,108 |
|
Expected return on plan assets |
|
|
(22,416 |
) |
|
|
(19,172 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
Net deferred actuarial loss |
|
|
10,764 |
|
|
|
11,372 |
|
Prior service cost |
|
|
863 |
|
|
|
987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
14,098 |
|
|
$ |
16,378 |
|
|
|
|
|
|
|
|
During the first quarter of 2011, VF made contributions totaling $4.9 million to its defined
benefit pension plans. VF currently anticipates making additional
contributions totaling $6.1
million during the remainder of 2011.
Note H Business Segment Information
VFs businesses are grouped into product categories, and by brands within those product categories,
for internal financial reporting used by management. These groupings of businesses within VF are
referred to as coalitions and are the basis for VFs reportable business segments. Financial
information for VFs reportable segments is as follows:
11
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March |
|
In thousands |
|
2011 |
|
|
2010 |
|
Coalition revenues: |
|
|
|
|
|
|
|
|
Outdoor & Action Sports |
|
$ |
788,215 |
|
|
$ |
678,562 |
|
Jeanswear |
|
|
679,243 |
|
|
|
622,065 |
|
Imagewear |
|
|
246,808 |
|
|
|
221,298 |
|
Sportswear |
|
|
111,894 |
|
|
|
102,177 |
|
Contemporary Brands |
|
|
111,916 |
|
|
|
104,089 |
|
Other |
|
|
20,723 |
|
|
|
21,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total coalition revenues |
|
$ |
1,958,799 |
|
|
$ |
1,749,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalition profit: |
|
|
|
|
|
|
|
|
Outdoor & Action Sports |
|
$ |
143,905 |
|
|
$ |
127,027 |
|
Jeanswear |
|
|
123,126 |
|
|
|
106,808 |
|
Imagewear |
|
|
36,898 |
|
|
|
22,812 |
|
Sportswear |
|
|
7,430 |
|
|
|
7,168 |
|
Contemporary Brands |
|
|
9,684 |
|
|
|
8,452 |
|
Other |
|
|
(2,074 |
) |
|
|
(1,225 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total coalition profit |
|
|
318,969 |
|
|
|
271,042 |
|
|
|
|
|
|
|
|
|
|
Corporate and other expenses |
|
|
(46,257 |
) |
|
|
(41,359 |
) |
Interest, net |
|
|
(14,974 |
) |
|
|
(20,005 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
257,738 |
|
|
$ |
209,678 |
|
|
|
|
|
|
|
|
Note I Capital and Accumulated Other Comprehensive Income (Loss)
Common stock outstanding is net of shares held in treasury and, in substance, retired. There were
19,243,471 treasury shares at March 2011, 19,099,644 at December 2010 and 15,518,019 at March 2010.
The excess of the cost of treasury shares acquired over the $1 per share stated value of Common
Stock is deducted from Retained Earnings. In addition, 253,610 shares of VF Common Stock at March
2011, 246,860 shares at December 2010 and 244,069 shares at March 2010 were held in connection with
deferred compensation plans. These shares, having a cost of $11.4 million, $10.7 million and $10.2
million at the respective dates, are treated as treasury shares for financial reporting purposes.
There are 25,000,000 authorized shares of Preferred Stock, $1 par value, of which none are
outstanding.
Comprehensive income includes net income and specified components of other comprehensive income
(OCI). OCI consists of changes in assets and liabilities that are not included in net income
under GAAP but are instead deferred and accumulated within a separate component of stockholders
equity in the balance sheet. VFs comprehensive income is presented in the Consolidated Statements
of Comprehensive Income. The deferred components of other comprehensive income (loss) are
reported, net of related income taxes, in Accumulated Other Comprehensive Income (Loss) in
Stockholders Equity, as follows:
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March |
|
|
December |
|
|
March |
|
In thousands |
|
2011 |
|
|
2010 |
|
|
2010 |
|
Foreign currency translation |
|
$ |
71,309 |
|
|
$ |
(5,727 |
) |
|
$ |
(3,855 |
) |
Defined benefit pension plans |
|
|
(258,679 |
) |
|
|
(266,125 |
) |
|
|
(258,381 |
) |
Derivative financial instruments |
|
|
(19,592 |
) |
|
|
(1,716 |
) |
|
|
12,316 |
|
Marketable securities |
|
|
4,759 |
|
|
|
4,974 |
|
|
|
3,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
income (loss) |
|
$ |
(202,203 |
) |
|
$ |
(268,594 |
) |
|
$ |
(246,241 |
) |
|
|
|
|
|
|
|
|
|
|
Note J Stock-based Compensation
During the first quarter of 2011, VF granted options to purchase 925,635 shares of Common Stock at
an exercise price of $95.56, equal to the market value of VF Common Stock on the option grant date.
The options vest in equal annual installments over a three year period. The fair value of these
options was estimated using a lattice valuation model, with the following assumptions: expected
volatility ranging from 27% to 38%, with a weighted average of 34%; expected term of 5.6 to 7.5
years; expected dividend yield of 3.1%; and a risk-free interest rate ranging from 0.2% at six
months to 3.5% at 10 years. The resulting weighted average fair value of these options at the
grant date was $24.99 per option.
Also during the first quarter of 2011, VF granted 241,751 performance-based restricted stock units
that entitle the recipients to receive shares of VF Common Stock at the end of a three year
performance period. The actual number of shares that will be earned, if any, will be based on VFs
performance over that period. The fair value of VFs Common Stock at the date the units were
granted was $95.23 per share.
VF also
granted, during the first quarter of 2011, 19,000 shares of restricted VF Common Stock and 15,000 restricted stock units with
a fair value at the grant date of $86.51 per share. These shares and units will vest in 2015,
assuming continuation of employment by the grantees through the vesting date.
Note K Income Taxes
The effective income tax rate was 22.0% in the first quarter of 2010, compared with 21.9% in the
first quarter of 2011. The tax rates in both periods were lowered by discrete items. The first quarter of 2010
included a $13.0 million income tax benefit related to refund claims in a foreign jurisdiction. The first quarter 2011 income tax rate included $8.2 million in tax benefits related to settlements of prior years
tax audits and $2.8 million of tax benefits related to the realization of unrecognized tax benefits resulting from
expiration of statutes of limitations. In addition, the first quarter 2011 rate benefited from a higher percentage of income in lower tax rate jurisdictions compared with the 2010 quarter. The effective tax rate
for the full year 2010 was 23.6% (24.9% on earnings before the goodwill and intangible asset impairment charge).
VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax
returns in numerous states and foreign jurisdictions. In the United States, the Internal Revenue
Service (IRS) commenced an examination during 2010 of tax years 2007, 2008 and 2009. During the
first quarter of 2011, VF settled with the IRS its examination of tax years 2004, 2005 and 2006.
VF is currently subject to examination by various state tax authorities. While the outcome of any
one examination is not expected to have a material impact on the Companys consolidated financial
statements, the Company regularly assesses the outcomes of both ongoing and future examinations to
ensure the Companys provision for income taxes is sufficient. Management believes that some of
these audits and negotiations will conclude during the next 12 months.
13
During the first three months of 2011, the amount of unrecognized tax benefits and associated
interest decreased by $15.4 million, primarily due to the audit settlements during the quarter. Of
the $15.4 million net decrease, $8.7 million favorably impacted the effective tax rate in the first
quarter. Management believes that it is reasonably possible that the amount of unrecognized income
tax benefits may decrease during the next 12 months by
approximately $8.6 million related to the completion of audits and other settlements with
tax authorities and the expiration of statutes of limitations. Of the
$8.6 million, $4.9 million would reduce income tax expense.
Note L Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March |
|
In thousands, except per share amounts |
|
2011 |
|
|
2010 |
|
Earnings per share basic: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
201,420 |
|
|
$ |
163,459 |
|
Net (income) loss attributable to noncontrolling interests |
|
|
(717 |
) |
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to VF Corporation |
|
$ |
200,703 |
|
|
$ |
163,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Common Stock outstanding |
|
|
108,222 |
|
|
|
110,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share attributable to VF
Corporation common stockholders |
|
$ |
1.85 |
|
|
$ |
1.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted: |
|
|
|
|
|
|
|
|
Net income attributable to VF Corporation |
|
$ |
200,703 |
|
|
$ |
163,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Common Stock outstanding |
|
|
108,222 |
|
|
|
110,259 |
|
Incremental shares from stock options and other dilutive
securities |
|
|
1,818 |
|
|
|
1,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average Common Stock outstanding |
|
|
110,040 |
|
|
|
111,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share attributable to VF
Corporation common stockholders |
|
$ |
1.82 |
|
|
$ |
1.46 |
|
|
|
|
|
|
|
|
Outstanding options to purchase 1.0 million and 3.8 million shares of Common Stock for the
quarters ended March 2011 and March 2010, respectively, were excluded from the computations of
diluted earnings per share because the effect of their inclusion would have been antidilutive. In
addition, 0.3 million performance-based restricted stock units were excluded from the computation
of diluted earnings per share for each of the quarters ended March 2011 and 2010 because these
units are subject to performance-based vesting conditions that had not been achieved by the end of
those periods.
Note M Fair Value Measurements
14
Fair value is the price that would be received from the sale of an asset or paid to transfer a
liability (i.e., an exit price) in the principal or most advantageous market in an orderly
transaction between market participants. In determining fair value, the accounting standards
distinguish between (i) market data obtained or developed from independent sources (i.e.,
observable data inputs) and (ii) a reporting entitys own data and assumptions that market
participants would use in pricing an asset or liability (i.e., unobservable data inputs).
Financial assets and financial liabilities measured and reported at fair value are classified in a
three level hierarchy that prioritizes the inputs used in the valuation process. The hierarchy is
based on the observability and objectivity of the pricing inputs, as follows:
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities. |
|
|
Level 2 Significant directly observable data (other than Level 1 quoted prices) or
significant indirectly observable data through corroboration with observable market data.
Inputs would normally be (i) quoted prices in active markets for similar assets or
liabilities, (ii) quoted prices in inactive markets for identical or similar assets or
liabilities or (iii) information derived from or corroborated by observable market data. |
|
|
Level 3 Prices or valuation techniques that require significant unobservable data
inputs. Inputs would normally be a reporting entitys own data and judgments about
assumptions that market participants would use in pricing the asset or liability. |
The fair value measurement level for an asset or liability is based on the lowest level of any
input that is significant to the fair value measurement. Valuation techniques maximize the use of
observable inputs and minimize the use of unobservable inputs.
The following table summarizes the classes of financial assets and financial liabilities measured
and recorded at fair value on a recurring basis at the dates indicated:
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using: |
|
|
|
|
|
|
Quoted Prices |
|
Significant |
|
|
|
|
|
|
|
|
in Active |
|
Other |
|
Significant |
|
|
Total |
|
Markets for |
|
Observable |
|
Unobservable |
|
|
Fair |
|
Identical Assets |
|
Inputs |
|
Inputs |
In thousands |
|
Value |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
March 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
336,584 |
|
|
$ |
336,584 |
|
|
$ |
|
|
|
$ |
|
|
Time deposits |
|
|
118,411 |
|
|
|
118,411 |
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
|
18,771 |
|
|
|
|
|
|
|
18,771 |
|
|
|
|
|
Investment securities |
|
|
192,939 |
|
|
|
158,740 |
|
|
|
34,199 |
|
|
|
|
|
Other marketable securities |
|
|
10,183 |
|
|
|
10,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
|
55,469 |
|
|
|
|
|
|
|
55,469 |
|
|
|
|
|
Deferred compensation |
|
|
226,396 |
|
|
|
|
|
|
|
226,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
437,229 |
|
|
$ |
437,229 |
|
|
$ |
|
|
|
$ |
|
|
Time deposits |
|
|
93,254 |
|
|
|
93,254 |
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
|
18,568 |
|
|
|
|
|
|
|
18,568 |
|
|
|
|
|
Investment securities |
|
|
182,673 |
|
|
|
147,380 |
|
|
|
35,293 |
|
|
|
|
|
Other marketable securities |
|
|
12,388 |
|
|
|
12,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
|
28,815 |
|
|
|
|
|
|
|
28,815 |
|
|
|
|
|
Deferred compensation |
|
|
212,011 |
|
|
|
|
|
|
|
212,011 |
|
|
|
|
|
Derivative instruments represent unrealized gains or losses on foreign currency forward
exchange contracts, which are the differences between (i) the functional currency value of the
foreign currency to be received or paid at the contracts settlement date and (ii) the functional
currency value to be sold or purchased at the forward exchange rate at the balance sheet dates.
VF purchases investment securities that substantially mirror the liabilities in VFs nonqualified
deferred compensation plans. These securities, held in an irrevocable trust, consist of mutual
funds (classified as Level 1) and a separately managed fixed income fund (classified as Level 2).
Fair value of the separately managed fixed income fund included in investment securities is its
daily net asset value. Fair value of the deferred compensation liabilities is the amount payable
to plan participants, based on the fair value of participant-directed investment selections.
The carrying value of all other financial assets and financial liabilities is their cost, which may
differ from fair value. At March 2011 and December 2010, the carrying value of VFs cash held as
demand deposits, accounts receivable, life insurance contracts, short-term borrowings, accounts
payable and accrued liabilities approximated their fair value. At March 2011 and December 2010,
the carrying
16
value of VFs long-term debt, including the current portion, was $938.0 million and
$938.6 million, respectively, compared with fair value of $1,026.5 million and $1,025.1 million at
those dates. Fair value for long-term debt was estimated based on quoted market prices or values
of comparable borrowings.
Note N Derivative Financial Instruments and Hedging Activities
Summary of derivative instruments All of VFs derivative instruments are forward exchange
contracts and meet the criteria for hedge accounting at the inception of the hedging relationship.
However, derivative instruments that are cash flow hedges of forecasted cash receipts are
dedesignated as hedges near the end of their term and do not qualify for hedge accounting after the
date of dedesignation. The notional amounts of outstanding derivative contracts at March 2011,
December 2010 and March 2010 totaled $1.4 billion, $1.1 billion and $922 million, respectively,
consisting of contracts hedging primarily exposures to the euro, British pound, Mexican peso,
Polish zloty and Canadian dollar. Derivative contracts have maturities ranging from one month to
20 months. The following table presents outstanding derivatives on an individual contract basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivatives |
|
|
Fair Value of Derivatives |
|
|
|
with Unrealized Gains |
|
|
with Unrealized Losses |
|
|
|
March |
|
|
December |
|
|
March |
|
|
March |
|
|
December |
|
|
March |
|
In thousands |
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
Foreign exchange
contracts
designated as
hedging instruments |
|
$ |
17,974 |
|
|
$ |
18,389 |
|
|
$ |
34,887 |
|
|
$ |
55,116 |
|
|
$ |
27,916 |
|
|
$ |
8,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts not
designated as
hedging instruments |
|
|
797 |
|
|
|
179 |
|
|
|
43 |
|
|
|
353 |
|
|
|
899 |
|
|
|
716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
$ |
18,771 |
|
|
$ |
18,568 |
|
|
$ |
34,930 |
|
|
$ |
55,469 |
|
|
$ |
28,815 |
|
|
$ |
8,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding derivatives have been included in the Consolidated Balance Sheets and classified
as current or noncurrent based on the derivatives maturity dates, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
March 2011 |
|
December 2010 |
|
March 2010 |
Other current assets |
|
$ |
16,936 |
|
|
$ |
15,296 |
|
|
$ |
32,111 |
|
Accrued current liabilities |
|
|
(50,265 |
) |
|
|
(25,440 |
) |
|
|
(7,337 |
) |
Other assets (noncurrent) |
|
|
1,835 |
|
|
|
3,272 |
|
|
|
2,819 |
|
Other liabilities
(noncurrent) |
|
|
(5,204 |
) |
|
|
(3,375 |
) |
|
|
(1,410 |
) |
Fair value hedges VF enters into derivative contracts to hedge intercompany loans
between a domestic company and a foreign subsidiary or between two foreign subsidiaries having
different functional currencies. VFs Consolidated Statements of Income include the following
effects related to fair value hedging:
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Location |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Gain |
|
|
|
|
|
|
|
|
|
Location of |
|
|
|
|
(Loss) on |
|
Gain (Loss) |
|
Hedged Items |
|
Gain (Loss) |
|
Gain (Loss) on |
Fair Value |
|
Derivatives |
|
on Derivatives |
|
in Fair Value |
|
Recognized |
|
Related Hedged |
Hedging |
|
Recognized |
|
Recognized |
|
Hedge |
|
on Related |
|
Items Recognized |
Relationships |
|
in Income |
|
in Income |
|
Relationships |
|
Hedged Items |
|
in Income |
Quarter ended March 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange |
|
Miscellaneous income (expense) |
|
$ |
(1,230 |
) |
|
Advances intercompany |
|
Miscellaneous income (expense) |
|
$ |
970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange |
|
Miscellaneous income (expense) |
|
$ |
7,033 |
|
|
Advances intercompany |
|
Miscellaneous income (expense) |
|
$ |
(7,042 |
) |
Cash flow hedges VF uses derivative contracts to hedge a portion of the exchange risk
for its forecasted inventory purchases and production costs and for its forecasted cash receipts
arising from sales of inventory. In addition, VF hedges the receipt in its domestic companies of
forecasted intercompany royalties from its foreign subsidiaries. As discussed below in derivative
contracts not designated as hedges, cash flow hedges of forecasted cash receipts are dedesignated
as hedges when the sale is recorded, and hedge accounting is not applied after that date.
The effects of cash flow hedging included in VFs Consolidated Statements of Income and
Consolidated Statements of Comprehensive Income are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of |
|
|
Gain (Loss) Reclassified |
|
|
|
Gain (Loss) on Derivatives |
|
|
Gain (Loss) |
|
|
from Accumulated |
|
Cash Flow |
|
Recognized in OCI |
|
|
Reclassified from |
|
|
OCI into Income |
|
Hedging |
|
Quarter Ended March |
|
|
Accumulated |
|
|
Quarter Ended March |
|
Relationships |
|
2011 |
|
|
2010 |
|
|
OCI into Income |
|
|
2011 |
|
|
2010 |
|
Foreign exchange |
|
$ |
(26,182 |
) |
|
$ |
20,841 |
|
|
Net sales |
|
$ |
(396 |
) |
|
$ |
(969 |
) |
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
5,142 |
|
|
|
(6,954 |
) |
|
|
|
|
|
|
|
|
|
|
Miscellaneous income (expense) |
|
|
(1,945 |
) |
|
|
(1,295 |
) |
Interest rate |
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
29 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(26,182 |
) |
|
$ |
20,841 |
|
|
|
|
|
|
$ |
2,830 |
|
|
$ |
(9,189 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment hedges In limited instances, VF may choose to hedge the risk of
changes in its investment in foreign subsidiaries. Changes in the fair value of derivatives
designated as net investment hedges, except for any ineffective portion, are reported as a component of OCI and
deferred in Accumulated OCI, along with the foreign currency translation adjustments on that
investment. Upon settlement of net investment hedges, cash flows are classified in investing
activities in the Consolidated Statements of Cash Flows. The effects of net investment hedging
included in VFs Consolidated Statements of Income and
Consolidated Statements of Comprehensive Income were not material for
the quarters ended March 2011 or March 2010.
18
There were no significant amounts recognized in earnings related to ineffective hedging during the
quarters ended March 2011 or March 2010.
At March 2011, Accumulated OCI included $29.9 million of net deferred pretax losses for foreign
exchange contracts that are expected to be reclassified to earnings during the next 12 months. The
amounts reclassified to earnings will depend on exchange rates when the outstanding derivative
contracts are settled.
In addition, VF entered into an interest rate swap derivative contract in 2003 to hedge the
interest rate risk for issuance of long-term debt due in 2033. The contract was terminated
concurrent with the issuance of the debt, with the realized gain deferred in Accumulated OCI. The
remaining pretax deferred gain of $2.6 million in Accumulated OCI at March 2011 will be
reclassified into earnings over the remaining term of the debt.
Derivative contracts not designated as hedges As noted in a preceding section, cash flow
hedges of forecasted cash receipts are dedesignated as hedges when the sales are recognized. At
that time, the amount of unrealized hedging gain or loss is recognized in net sales, and hedge
accounting is not applied after the date of dedesignation. These derivatives remain outstanding
and serve as an economic hedge of foreign currency exposures related to the ultimate collection of
the trade receivables. During the period that hedge accounting is not applied, changes in the fair
value of the derivative contracts are recognized directly in earnings. For the three months ended
March 2011 and March 2010, VF recorded net losses of less than $1 million in Miscellaneous Income
(Expense) for derivatives not designated as hedging instruments, effectively offsetting the net
remeasurement gains on the related accounts receivable.
Note O Recently Issued Accounting Standards
There is no new accounting guidance issued by the FASB but not yet adopted that is expected to have
a significant effect on VFs consolidated financial position, results of operations or disclosures.
Note P Subsequent Event
VFs Board of Directors declared a quarterly cash dividend of $0.63 per share, payable on June 20,
2011 to shareholders of record on June 10, 2011.
19
Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations
Overview
|
|
|
Highlights of the First Quarter of 2011 |
|
|
Revenues grew to a record $1,958.8 million, an increase of 12% from the 2010
quarter, with strong growth across all of our coalitions. |
|
|
|
International revenues rose 20% and represented 36% of Total Revenues in the
quarter. |
|
|
|
Our business in Asia continued its rapid growth, with revenues up 52% in the
quarter. |
|
|
|
Our direct-to-consumer business grew 10% in the quarter, driven by new store
openings, a 31% increase in e-commerce revenues and comp store growth. |
|
|
|
Gross margin reached a record 47.2%. |
|
|
|
Operating margin rose to 14.0%, with growth in operating income in all of our
coalitions. |
|
|
|
Earnings per share increased by 25% to $1.82 from $1.46 in the 2010 quarter.
(All per share amounts are presented on a diluted basis.) |
|
|
|
Our balance sheet remains strong with cash of $673 million, a debt to total
capital ratio of 19.2% and a net debt to total capital ratio of 6.9%. VF has over $1.3
billion of available liquidity under committed bank credit lines. There are no significant
debt service payments required until 2017. |
|
|
|
We purchased the trademarks of Rock and Republic Enterprises, Inc. (Rock and
Republic) for $55.5 million. |
Analysis of Results of Operations
|
|
|
Consolidated Statements of Income |
The following table presents a summary of the changes in our Total Revenues from 2010:
|
|
|
|
|
|
|
First Quarter |
|
|
|
2011 |
|
|
|
Compared |
|
In millions |
|
with 2010 |
|
Total revenues 2010 |
|
$ |
1,750 |
|
Impact of foreign currency translation |
|
|
7 |
|
Organic growth |
|
|
197 |
|
Acquisition in prior year (to anniversary date) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
Total revenues 2011 |
|
$ |
1,959 |
|
|
|
|
|
Revenues increased 12% in the first quarter of 2011, led by 16% growth in our Outdoor & Action
Sports businesses. In addition, revenues in our Jeanswear, Imagewear, Sportswear and Contemporary
Brands businesses increased 9%, 12%, 10% and 8%, respectively, over the 2010 quarter. Additional
details on revenues are provided in the section titled Information by Business Segment.
The impact of foreign currency translation is created when a foreign entitys financial statements
are translated from its functional currency into the U.S. dollar, VFs reporting currency. The
majority of our international business is conducted in Europe/euro-based countries. However, the
current quarter impact of translating these euro-based revenues into the U.S. dollar was minimal as
the weighted average translation rate was a slightly stronger $1.37 per euro for the first three
months of 2011, compared with $1.38 during the
first three months of 2010. Accordingly, the primary reason for the $7 million positive revenue
comparison of the 2011 quarter over the 2010 quarter is due to the weaker U.S. dollar in relation
to functional currencies other than the euro.
20
The following table presents the percentage relationship to Total Revenues for components of our
Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
2011 |
|
|
2010 |
|
Gross margin (total revenues less cost
of goods sold) |
|
|
47.2 |
% |
|
|
46.7 |
% |
Marketing, administrative and general
expenses |
|
|
33.2 |
|
|
|
34.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
14.0 |
% |
|
|
12.8 |
% |
|
|
|
|
|
|
|
The gross margin percentage in the first quarter of 2011 benefitted by (i) 0.6% from
restructuring expenses incurred during the first quarter of 2010 to reduce product costs that did
not recur in 2011 and (ii) 0.4% due to a change in inventory accounting policy as discussed in Note
B to the Consolidated Financial Statements. These benefits were partially offset by higher product
costs that were not fully recovered through pricing actions.
The ratio of Marketing, Administrative and General Expenses as a percentage of Total Revenues in
the first quarter of 2011 improved over the 2010 quarter due to increased leverage of operating
expenses on higher revenues. This improvement was partially offset by an 18% increase in marketing
investments that negatively impacted the current quarter ratio by 0.2% compared with the 2010
quarter.
Interest expense decreased $4.6 million in the first quarter of 2011 from the comparable period in
2010 due to the payment of $200.0 million 8.5% notes that matured in the third quarter of 2010.
Average interest-bearing debt outstanding totaled $979 million for the first three months of 2011
and $1,187 million for the comparable period of 2010. The weighted average interest rate on total
outstanding debt was 6.3% for the first three months of 2011 and 6.7% for the comparable period of
2010.
VF recognized Miscellaneous Expense of $1.9 million in the first quarter of 2011, compared with
Miscellaneous Income of $6.4 million for the comparable 2010 quarter. The change is primarily due
to the first quarter of 2010 including a $5.7 million gain from remeasuring our previous 50%
investment in the Vans Mexico joint venture as part of acquiring the remaining 50% interest.
The effective income tax rate was 22.0% in the
first quarter of 2010, compared with 21.9% in the first
quarter of 2011. The tax rates in both periods were lowered by discrete items. The first quarter of 2010
included a $13.0 million income tax benefit related to refund claims in a foreign jurisdiction, representing a
reduction in the first quarter 2010 rate of 6.2%. The first quarter 2011 income tax rate included $8.2 million
in tax benefits related to settlements of prior years tax audits and $2.8 million of tax benefits related to the
realization of unrecognized tax benefits resulting from expiration of statutes of limitations, together
representing a reduction in the rate of 4.3%. In addition, the first quarter 2011 rate benefited from a higher
percentage of income in lower tax rate jurisdictions compared with the 2010 quarter.
The effective tax rate for the
full year 2010 was 23.6% (24.9% on earnings before the goodwill and
intangible asset impairment charge). The 2010 tax rate included favorable impacts of 2.7% from prior years
refund claims, tax credits and expirations of statutes of limitations. We expect the 2011 annual effective tax
rate to be approximately 25%. This projected 2011 rate includes the favorable impacts of the first quarter
2011 discrete items mentioned above, representing a reduction in the rate of approximately 1.0%. The 2011
full year tax rate is also expected to benefit from a higher percentage of earnings in lower tax rate
jurisdictions compared with 2010.
Net Income Attributable to VF Corporation for the first quarter of 2011 increased to $200.7
million, compared with $163.5 million in the 2010 quarter. Earnings Per Share Attributable to VF
Corporation increased to $1.82 per share from $1.46 per share. The increase resulted primarily
from improved operating performance, as discussed in the Information by Business Segment section
below. The first quarter of
21
2011 also benefited by $0.10 per share due to the income tax benefits mentioned above, $0.04 per
share from the change in inventory accounting method and $0.02 per share from the impact of
translating foreign currencies into a weaker U.S. dollar. The first quarter of 2010 included a
benefit of $0.11 per share relating to tax refund claims that was substantially offset by $0.09 per
share in restructuring expenses.
|
|
Information by Business Segment |
VFs businesses are grouped into product categories, and by brands within those product categories,
for management and internal financial reporting purposes. These groupings of businesses within VF
are referred to as coalitions. These coalitions are the basis for VFs reportable business
segments.
See Note H to the Consolidated Financial Statements for a summary of our results of operations by
coalition, along with a reconciliation of Coalition Profit to Income Before Income Taxes.
The following table presents a summary of the changes in our Total Revenues by coalition for the
first quarter of 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
Outdoor & |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contemporary |
|
|
|
|
In millions |
|
Action Sports |
|
|
Jeanswear |
|
|
Imagewear |
|
|
Sportswear |
|
|
Brands |
|
|
Other |
|
Total revenues 2010 |
|
$ |
679 |
|
|
$ |
622 |
|
|
$ |
221 |
|
|
$ |
102 |
|
|
$ |
104 |
|
|
$ |
22 |
|
Impact of foreign currency
translation |
|
|
3 |
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic growth |
|
|
101 |
|
|
|
54 |
|
|
|
25 |
|
|
|
10 |
|
|
|
8 |
|
|
|
(1 |
) |
Acquisition in prior year
(to anniversary date) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues 2011 |
|
$ |
788 |
|
|
$ |
679 |
|
|
$ |
247 |
|
|
$ |
112 |
|
|
$ |
112 |
|
|
$ |
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a summary of the changes in our Coalition Profit by coalition for
the first quarter of 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
Outdoor & |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contemporary |
|
|
|
|
In millions |
|
Action Sports |
|
|
Jeanswear |
|
|
Imagewear |
|
|
Sportswear |
|
|
Brands |
|
|
Other |
|
Coalition profit 2010 |
|
$ |
127 |
|
|
$ |
107 |
|
|
$ |
23 |
|
|
$ |
7 |
|
|
$ |
8 |
|
|
$ |
(1 |
) |
Impact of foreign currency
translation |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations |
|
|
16 |
|
|
|
15 |
|
|
|
14 |
|
|
|
|
|
|
|
2 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalition profit 2011 |
|
$ |
144 |
|
|
$ |
123 |
|
|
$ |
37 |
|
|
$ |
7 |
|
|
$ |
10 |
|
|
$ |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following section discusses the change in revenues and profitability by coalition:
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
Dollars in millions |
|
2011 |
|
|
2010 |
|
|
Percent Change |
|
Coalition revenues |
|
$ |
788.2 |
|
|
$ |
678.6 |
|
|
|
16.2 |
% |
Coalition profit |
|
|
143.9 |
|
|
|
127.0 |
|
|
|
13.3 |
% |
Operating margin |
|
|
18.3 |
% |
|
|
18.7 |
% |
|
|
|
|
The increase in Outdoor & Action Sports Coalition Revenues in the first quarter of 2011 was
driven by global unit volume gains from the two largest brands in this Coalition, The North
Faceâ and Vansâ, whose
revenues increased by 17% and
20%, respectively. The Kiplingâ, Reefâ and
Napapijriâ brands also reported higher revenues of 29%, 18% and 9%, respectively,
over the 2010 quarter. Coalition Revenues in our Americas businesses rose 12% and international
revenues were up 21%. During the 2011 quarter, direct-to-consumer revenues for our Outdoor &
Action Sports businesses increased 12%, with double-digit growth in The North
Faceâ, Vansâ and Kipling brand retail businesses. We
continued to open new stores and expand our e-commerce business within this coalition in the first
quarter of 2011.
Operating margin decreased in 2011 reflecting (i) a 25% increase in marketing investments that
negatively impacted the operating margin comparison in the first quarter of 2011 by 0.4% and (ii)
lower gross margins, partially offset by the increased leverage of operating expenses on higher
revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
Dollars in millions |
|
2011 |
|
|
2010 |
|
|
Percent Change |
|
Coalition revenues |
|
$ |
679.2 |
|
|
$ |
622.1 |
|
|
|
9.2 |
% |
Coalition profit |
|
|
123.1 |
|
|
|
106.8 |
|
|
|
15.3 |
% |
Operating margin |
|
|
18.1 |
% |
|
|
17.2 |
% |
|
|
|
|
Our domestic jeanswear revenues increased 5% in the first quarter of 2011 over the
2010 quarter with growth across our mass market, Leeâ and western
businesses. International jeanswear revenues increased 17% with Asia revenues rising
60% and Mexico, Latin America and Canada revenues all increasing by more than 20%.
European jeanswear revenues in the first quarter of 2011 were flat with the 2010 quarter.
The improvement in operating margin resulted from (i) the 2010 quarter including
restructuring actions that negatively impacted operating margin by 1.3% and (ii) increased
leverage of operating expenses on higher revenues in the 2011 quarter. These improvements
were partially offset by higher product costs in our jeanswear businesses that were not
fully recovered through pricing actions.
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
Dollars in millions |
|
2011 |
|
|
2010 |
|
|
Percent Change |
|
Coalition revenues |
|
$ |
246.8 |
|
|
$ |
221.3 |
|
|
|
11.5 |
% |
Coalition profit |
|
|
36.9 |
|
|
|
22.8 |
|
|
|
61.8 |
% |
Operating margin |
|
|
15.0 |
% |
|
|
10.3 |
% |
|
|
|
|
The Imagewear Coalition consists of VFs Image business (occupational apparel and uniforms)
and Licensed Sports business (licensed high profile sports and lifestyle apparel).
Image business revenues increased 14% in the first quarter of 2011, driven primarily by growth in
our flame-resistant apparel business and the continued success of the quick response customer
service model in our occupational apparel business that allows us to capitalize on replenishment
opportunities. Revenues in our Licensed Sports business increased 9%, driven by higher volume in
our licensed National Football League business. Operating margins improved primarily due to a
favorable mix of business and increased leverage of operating expenses on higher revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
Dollars in millions |
|
2011 |
|
|
2010 |
|
|
Percent Change |
|
Coalition revenues |
|
$ |
111.9 |
|
|
$ |
102.2 |
|
|
|
9.5 |
% |
Coalition profit |
|
|
7.4 |
|
|
|
7.2 |
|
|
|
3.7 |
% |
Operating margin |
|
|
6.6 |
% |
|
|
7.0 |
% |
|
|
|
|
Nauticaâ brand revenues increased 6% in the first quarter of 2011,
driven by an increase in the brands wholesale business due primarily to special programs
and higher distressed sales. Our Kiplingâ brand revenues in the U.S.
increased 46%, reflecting growth in the wholesale channel, including the continuing success
of our exclusive handbag and accessories program with Macys, Inc., as well as strong
growth in the direct-to-consumer channel.
A slight decrease in operating margin in the first quarter of 2011 resulted primarily from higher
product costs in the Nauticaâ wholesale channel, partially offset by increased
leverage of operating expenses on higher revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
Dollars in millions |
|
2011 |
|
|
2010 |
|
|
Percent Change |
|
Coalition revenues |
|
$ |
111.9 |
|
|
$ |
104.1 |
|
|
|
7.5 |
% |
Coalition profit |
|
|
9.7 |
|
|
|
8.5 |
|
|
|
14.6 |
% |
Operating margin |
|
|
8.7 |
% |
|
|
8.1 |
% |
|
|
|
|
Domestic revenues for the coalition rose 3% due to double-digit revenue growth in our
Splendidâ, Ella Mossâ
and John Varvatosâ brands.
Global 7 For All Mankindâ revenues increased 2% in the 2011 quarter, with 19%
growth in Europe and Asia revenues nearly doubling. International revenues for the Contemporary
Brands Coalition grew 26%. Global direct-to-consumer revenues for this coalition increased 41%,
with growth coming from new stores, comp store and e-commerce revenues.
24
The operating margin in the first quarter of 2011, compared with the 2010 quarter, increased
slightly due to improved mix of business, partially offset by additional investments in new 7 For
All Mankindâ stores.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
Dollars in millions |
|
2011 |
|
|
2010 |
|
|
Percent Change |
|
Revenues |
|
$ |
20.7 |
|
|
$ |
21.7 |
|
|
|
(4.4 |
)% |
Profit (loss) |
|
|
(2.1 |
) |
|
|
(1.2 |
) |
|
|
69.3 |
% |
Operating
margin |
|
|
(10.0 |
)% |
|
|
(5.6 |
)% |
|
|
|
|
The Other business segment includes the VF Outlet business, which is a group of VF-operated outlet
stores in the United States that sell VF products and other branded products that provide a broader
selection of merchandise to attract consumer traffic. Revenues and profits of VF products are
reported as part of the operating results of the applicable coalitions, while revenues and profits
of non-VF products are reported in this business segment.
|
|
Reconciliation of Coalition Profit to Income Before Income Taxes: |
There are two types of costs necessary to reconcile total Coalition Profit, as discussed in the
preceding paragraphs, to consolidated Income Before Income Taxes. These costs are (i) Corporate
and Other Expenses, discussed below, and (ii) Interest, Net, which was discussed in the previous
Consolidated Statements of Income section.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
|
|
Dollars in millions |
|
2011 |
|
|
2010 |
|
|
Percent Change |
|
Corporate and Other Expenses |
|
$ |
(46.3 |
) |
|
$ |
(41.4 |
) |
|
|
11.8 |
% |
Interest, Net |
|
|
(15.0 |
) |
|
|
(20.0 |
) |
|
|
(25.0 |
)% |
Corporate and Other Expenses include any corporate headquarters costs and other expenses that
have not been allocated to the coalitions for internal management reporting. Other expenses
include the defined benefit pension plan cost other than service cost, development costs for
management information systems, costs of maintaining and enforcing certain VF trademarks and
miscellaneous consolidating adjustments.
The increase in Corporate and Other Expenses in the first quarter of 2011 resulted from (i) the
first quarter of 2010 including a $5.7 million gain on the acquisition of Vans Mexico and (ii)
higher levels of corporate spending and information systems costs in the 2011 quarter due to the
overall growth of our businesses. These changes were partially offset by the inventory accounting
change that positively impacted the first quarter of 2011 by $8.0 million.
Analysis of Financial Condition
Accounts Receivable at March 2011 were 13% higher than the March 2010 balance and 15% higher than
the December 2010 balance due to growth in wholesale revenues near the end of the first quarter of
2011 compared with the 2010 periods and the impact of foreign currency translation. These
increases were partially offset by an increase in accounts receivable balances sold under the sale
agreement. See Note D to the Consolidated Financial Statements.
Inventories at March 2011 increased 24% over the March 2010 balance and 11% over the December 2010
balance, reflecting higher product costs, the advance purchase of core basic inventory to secure
lower costs, the impact of foreign currency translation and higher unit volumes to support our
revenue growth. Inventory days, computed on a forward-looking basis, were comparable at the end of
each of the periods.
Property, Plant and Equipment was higher at March 2011 than at December 2010 and March 2010,
resulting from capital spending in excess of depreciation expense during those periods.
25
Total Intangible Assets and Goodwill at March 2011 were higher than December 2010 due to the Rock
and Republic trademarks acquisition. Total Intangible Assets and Goodwill were lower at March 2011
than March 2010 due to the impairment charge taken in the fourth quarter of 2010, partially offset
by the Rock and Republic trademarks acquisition. The increase in Total Intangible Assets and
Goodwill at March 2011 over December 2010 and March 2010 resulting from the impact of foreign
currency translation was primarily offset by amortization.
Other Assets increased at March 2011 and December 2010 over March 2010 due to an increase in
deferred income taxes, resulting primarily from the goodwill and intangible asset impairment charge
discussed above.
Short-term Borrowings at March 2011 consisted of $40.1 million under international borrowing
agreements. Short-term borrowings fluctuate throughout the year in relation to working capital
requirements and other investing and financing activities. See the Liquidity and Cash Flows
section below for a discussion of these items.
Total Long-term Debt at March 2011 and December 2010 was lower than at March 2010 due to the
payment of $200.0 million 8.5% notes upon their maturity in the third quarter of 2010.
The changes in Accounts Payable between March 2011, December 2010 and March 2010 were driven by the
timing of inventory purchases and payments to vendors at the respective dates.
The increase in Accrued Liabilities at March 2011 over March 2010 resulted primarily from higher
unrealized losses on hedging contracts. The change in Accrued Liabilities from December 2010 to
March 2011 was minimal, with higher levels of unrealized losses on hedging contracts and accrued
income taxes at March 2011 offset by lower incentive compensation accruals.
Other Liabilities at March 2011 and December 2010 declined from March 2010 due to lower pension and
deferred tax liabilities. Lower pension liabilities at March 2011 and December 2010 resulted from
an improvement in the funded status of our defined benefit pension plans, primarily due to our
contribution of $100.0 million to the domestic qualified pension plan in the fourth quarter of
2010.
The financial condition of VF is reflected in the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March |
|
|
December |
|
|
March |
|
Dollars in millions |
|
2011 |
|
|
2010 |
|
|
2010 |
|
Working capital |
|
$ |
1,913.2 |
|
|
$ |
1,716.6 |
|
|
$ |
1,590.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio |
|
|
2.8 to 1 |
|
|
|
2.5 to 1 |
|
|
|
2.5 to 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt to total capital ratio |
|
|
19.2 |
% |
|
|
20.2 |
% |
|
|
23.7 |
% |
For the ratio of debt to total capital, debt is defined as short-term and long-term borrowings, and
total capital is defined as debt plus stockholders equity. Our ratio of net debt to total
capital, with net debt defined as debt less cash and equivalents, was 6.9% at March 2011.
On an annual basis, VFs primary source of liquidity is its cash flow from operations. Cash from
operations is primarily dependent on the level of Net Income and changes in accounts receivable,
inventories, accounts
26
payable and other working capital components. Our cash from operations is typically lower in the
first half of the year as we build working capital to service our operations in the second half of
the year. Cash from operations is substantially higher in the fourth quarter of the year as we
collect accounts receivable arising from our seasonally higher wholesale sales in the third
quarter. In addition, cash flows from our direct-to-consumer businesses are significantly higher
in the fourth quarter of the year.
For the quarter ended March 2011, cash used by operating activities was $32.9 million, compared
with $184.2 million of cash provided by operating activities in the comparable 2010 period. While
our net income increased by $38.0 million in the first quarter of 2011 over the 2010 quarter,
operating cash flow was negatively impacted by increases in accounts receivable and inventory as
discussed in the Balance Sheets section above.
VF has an agreement with a financial institution to sell selected trade accounts receivable on a
nonrecourse basis. This agreement allows VF to have up to $237.5 million of accounts receivable
held by the financial institution at any point in time. At the end of March 2011, accounts
receivable in the Consolidated Balance Sheet had been reduced by $140.1 million related to balances
sold under this program, an increase of $27.8 million from the amounts sold as of the end of 2010.
We rely on our continued strong cash generation to finance our ongoing operations. In addition, VF
has significant existing liquidity from its available cash balances and debt capacity, supported by
its strong credit rating. At the end of March 2011, $983.3 million was available for borrowing
under VFs $1.0 billion senior unsecured committed domestic revolving bank credit facility, with
$16.7 million of standby letters of credit issued under this agreement. Also at the end of March
2011, 250 million (U.S. dollar equivalent of $355.4 million) was available for
borrowing under VFs senior unsecured international revolving bank credit facility.
VFs liquidity position is also enhanced by its favorable credit agency ratings, which allow for
access to additional capital at competitive rates. At the end of the first quarter of 2011, VFs
long-term debt ratings were A minus by Standard & Poors Ratings Services and A3 by Moodys
Investors Service, and commercial paper ratings were A-2 and Prime-2, respectively, by those
rating agencies. Both agencies have a stable outlook for VF. Existing long-term debt agreements
do not contain acceleration of maturity clauses based solely on changes in credit ratings.
However, for the $600.0 million of senior notes issued in 2007, if there were a change in control
of VF and, as a result of the change in control, the notes were rated below investment grade by
recognized rating agencies, then VF would be obligated to repurchase the notes at 101% of the
aggregate principal amount of notes repurchased, plus any accrued and unpaid interest.
Investing activities in the first quarter of 2011 included the Rock and Republic trademarks
acquisition and capital spending, primarily related to the opening of new stores and distribution
network costs. We expect that capital spending could reach $225 million for the full year 2011,
reflecting the need for office and distribution space for our expanding international and domestic
outdoor businesses as well as an accelerated retail store opening plan. This spending will be
funded by operating cash flows.
During the first quarter of 2011, VF repurchased 28,130 of its own shares at a cost of $2.5 million
(average price of $87.19 per share). VF repurchased 1.5 million shares at a cost of $118.0 million
(average price of $78.67 per share) in the first quarter of 2010. All shares repurchased in the
first quarter of 2011, and 25,200 of the shares repurchased in the first quarter of 2010, were in
connection with VFs deferred compensation plans. The total remaining authorization for share
repurchase approved by the VF Board of Directors is 6.5 million shares as of the end of March 2011.
VF will continue to evaluate future share repurchases considering funding required for business
acquisitions, our Common Stock price and levels of stock option exercises.
27
Managements Discussion and Analysis in our 2010 Form 10-K provided a table summarizing VFs
contractual obligations and commercial commitments at the end of 2010 that would require the use of
funds. Since the filing of our 2010 Form 10-K, there have been no material changes, except as
noted below, relating to VFs contractual obligations and commercial commitments that will require
the use of funds:
|
|
|
Inventory purchase obligations representing binding commitments to purchase finished
goods, raw materials and sewing labor in the ordinary course of business increased by
approximately $520 million at the end of March 2011 due to the seasonality of our
businesses. |
Management believes that VFs cash balances and funds provided by operating activities, as well as
unused bank credit lines, additional borrowing capacity and access to equity markets, taken as a
whole, provide (i) adequate liquidity to meet all of its current and long-term obligations when
due, (ii) adequate liquidity to fund capital expenditures and to maintain our dividend payout
policy and (iii) flexibility to meet investment opportunities that may arise.
Critical Accounting Policies and Estimates
We have chosen accounting policies that we believe are appropriate to accurately and fairly report
VFs operating results and financial position in conformity with generally accepted accounting
principles (GAAP) in the United States. We apply these accounting policies in a consistent
manner. Our significant accounting policies are summarized in Note A to the Consolidated Financial
Statements included in our 2010 Form 10-K.
The application of these accounting policies requires that we make estimates and assumptions about
future events and apply judgments that affect the reported amounts of assets, liabilities,
revenues, expenses, contingent assets and liabilities, and related disclosures. These estimates,
assumptions and judgments are based on historical experience, current trends and other factors
believed to be reasonable under the circumstances. We evaluate these estimates and assumptions and
may retain outside consultants to assist in our evaluation. If actual results ultimately differ
from previous estimates, the revisions are included in results of operations in the period in which
the actual amounts become known.
The accounting policies that involve the most significant estimates, assumptions and management
judgments used in preparation of our consolidated financial statements, or are the most sensitive
to change from outside factors, are discussed in Managements Discussion and Analysis in our 2010
Form 10-K. There have been no material changes in these policies, except as disclosed in Note B to
the Consolidated Financial Statements.
Cautionary Statement on Forward-Looking Statements
From time to time, we may make oral or written statements, including statements in this Quarterly
Report, that constitute forward-looking statements within the meaning of the federal securities
laws. These include statements concerning plans, objectives, projections and expectations relating
to VFs operations or economic performance, and assumptions related thereto. Forward-looking
statements are made based on our expectations and beliefs concerning future events impacting VF and
therefore involve a number of risks and uncertainties. We caution that forward-looking statements
are not guarantees and actual results could differ materially from those expressed or implied in
the forward-looking statements.
Potential risks and uncertainties that could cause the actual results of operations or financial
condition of VF to differ materially from those expressed or implied by forward-looking statements
in this Quarterly Report on Form 10-Q include the overall level of consumer spending on apparel;
the level of consumer confidence; fluctuations in the price, availability and quality of raw
materials and contracted products; disruption and volatility in the global capital and credit
markets; VFs reliance on a small number of large customers; the
28
financial strength of VFs customers; changing fashion trends and consumer demand; increasing
pressure on margins; VFs ability to implement its growth strategy; VFs ability to grow its
international and direct-to-consumer businesses; VFs ability to successfully integrate and grow
acquisitions; VFs ability to maintain the strength and security of its information technology
systems; stability of VFs manufacturing facilities and foreign suppliers; continued use by VFs
suppliers of ethical business practices; VFs ability to accurately forecast demand for products;
continuity of members of VFs management; VFs ability to protect trademarks and other intellectual
property rights; maintenance by VFs licensees and distributors of the value of VFs brands;
foreign currency fluctuations; and legal, regulatory, political and economic risks in international
markets. More information on potential factors that could affect VFs financial results is
included from time to time in VFs public reports filed with the Securities and Exchange
Commission, including VFs Annual Report on Form 10-K.
Item 3 Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes in VFs market risk exposures from what was disclosed in
Item 7A in our 2010 Form 10-K.
Item 4 Controls and Procedures
Disclosure controls and procedures:
Under the supervision of our Chief Executive Officer and Chief Financial Officer, a Disclosure
Committee comprising various members of management has evaluated the effectiveness of the
disclosure controls and procedures at VF and its subsidiaries as of the end of the period covered
by this Quarterly Report (the Evaluation Date). Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded as of the Evaluation Date that such controls and
procedures were effective.
Changes in internal control over financial reporting:
There have been no changes during the last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, VFs internal control over financial reporting.
Part II Other Information
Item 1A Risk Factors
There have been no material changes to our risk factors from those disclosed in our 2010 Form 10-K.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer purchases of equity securities:
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number |
|
|
|
Total |
|
|
Weighed |
|
|
Shares Purchased |
|
|
of Shares that May |
|
|
|
Number |
|
|
Average |
|
|
as Part of Publicly |
|
|
Yet be Purchased |
|
|
|
of Shares |
|
|
Price Paid |
|
|
Announced Plans |
|
|
Under the Plan or |
|
Fiscal Period |
|
Purchased |
|
|
per Share |
|
|
or Programs |
|
|
Programs (1) |
|
January 2 January 29, 2011 |
|
|
12,600 |
|
|
$ |
83.11 |
|
|
|
12,600 |
|
|
|
6,554,345 |
|
January 30 February 26, 2011 |
|
|
12,700 |
|
|
|
89.60 |
|
|
|
12,700 |
|
|
|
6,541,645 |
|
February 27 April 2, 2011 |
|
|
2,830 |
|
|
|
94.53 |
|
|
|
2,830 |
|
|
|
6,538,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
28,130 |
|
|
|
|
|
|
|
28,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the quarter, 28,130 shares of Common Stock were purchased in connection with
VFs deferred compensation plans. We will continue to evaluate future share repurchases
considering funding required for business acquisitions, our Common Stock price and levels
of stock option exercises. |
Item 6 Exhibits
|
|
|
|
|
10.1 |
|
|
Credit Agreement, dated October 15, 2007 |
|
|
|
|
10.2 |
|
|
International Credit Agreement dated October 26, 2007, by and among VF Investments S.a.r.l.,
VF Europe BVBA, and VF International S.a.g.l., as Borrowers; VF Corporation, as Guarantor;
and the Lenders party thereto |
|
|
|
|
10.3 |
|
|
2004 Mid-Term Incentive Plan, a subplan under the 1996 Stock Compensation Plan |
|
|
|
|
18.1 |
|
|
Preferability letter of independent registered public accounting firm |
|
|
|
|
31.1 |
|
|
Certification of the principal executive officer, Eric C. Wiseman, pursuant to 15 U.S.C.
Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
31.2 |
|
|
Certification of the principal financial officer, Robert K. Shearer, pursuant to 15 U.S.C.
Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
32.1 |
|
|
Certification of the principal executive officer, Eric C. Wiseman, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
32.2 |
|
|
Certification of the principal financial officer, Robert K. Shearer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
101.INS
|
|
XBRL Instance Document* |
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document* |
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document* |
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document* |
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document* |
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document* |
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
V.F. CORPORATION
(Registrant)
|
|
|
By: |
/s/ Robert K. Shearer
|
|
|
|
Robert K. Shearer |
|
|
|
Senior Vice President and
Chief Financial Officer
(Chief Financial Officer) |
|
|
|
|
|
|
|
|
|
|
Date: May 12, 2011 |
By: |
/s/ Bradley W. Batten
|
|
|
|
Bradley W. Batten |
|
|
|
Vice President - Controller
(Chief Accounting Officer) |
|
|
31