SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

V. F. CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania		23-1180120
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		identification number)

105 Corporate Center Boulevard
Greensboro, North Carolina 27408
(Address of principal executive offices)

(336) 424-6000
(Registrant’s 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 is an accelerated filer (as defined in Rule 12b-2 of the Securities and Exchange Act of 1934). YES þ NO o

On July 30, 2005, there were 111,653,536 shares of the registrant’s Common Stock outstanding.

 

 

		Page No.
Part I — Financial Information
Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Income: Three months and six months ended June 2005 and June 2004			3
Consolidated Balance Sheets: June 2005, December 2004 and June 2004			4
Consolidated Statements of Cash Flows: Six months ended June 2005 and June 2004			5
Notes to Consolidated Financial Statements			6
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3 - Quantitative and Qualitative Disclosures about Market Risk			25
Item 4 - Controls and Procedures			25
Part II — Other Information
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds			26
Item 6 – Exhibits			26
Signatures			27
AGREEMENT WITH TERRY L. LAY FORMER VICE PRESIDENT OF VF CORPORATION
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER, SECTION 906
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER, SECTION 906

Part I — Financial Information

Item 1 — Financial Statements (Unaudited)

VF CORPORATION

Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)

		Three Months Ended June								Six Months Ended June
		2005				2004				2005				2004
Net Sales		$	1,435,831			$	1,269,537			$	2,999,474			$	2,702,206
Costs and Operating Expenses
Cost of goods sold			841,221				769,708				1,755,645				1,648,101
Marketing, administrative and general expenses			445,813				371,785				909,485				763,796
Royalty income and other			(9,873	)			(11,368	)			(23,222	)			(24,608	)
Gain on sale of VF Playwear			—				(10,363	)			—				(7,417	)
			1,277,161				1,119,762				2,641,908				2,379,872
Operating Income			158,670				149,775				357,566				322,334
Other Income (Expense)
Interest income			2,041				1,914				5,057				3,761
Interest expense			(18,490	)			(18,570	)			(37,164	)			(37,198	)
Miscellaneous, net			(137	)			(489	)			(18	)			1,118
			(16,586	)			(17,145	)			(32,125	)			(32,319	)
Income Before Income Taxes			142,084				132,630				325,441				290,015
Income Taxes			42,097				42,542				102,586				96,053
Net Income		$	99,987			$	90,088			$	222,855			$	193,962
Earnings Per Common Share
Basic		$	0.90			$	0.82			$	2.00			$	1.77
Diluted			0.88				0.80				1.95				1.73
Weighted Average Shares Outstanding
Basic			110,254				109,655				111,008				109,192
Diluted			113,277				112,642				114,102				112,078
Cash Dividends Per Common Share		$	0.27			$	0.26			$	0.54			$	0.52

See notes to consolidated financial statements.

VF CORPORATION

Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)

		June				December				June
		2005				2004				2004
ASSETS
Current Assets
Cash and equivalents		$	249,517			$	485,507			$	177,382
Accounts receivable, less allowances of:
June 2005 - $63,733; Dec. 2004 - $60,790; June 2004 - $78,011			792,747				751,582				763,013
Inventories:
Finished products			943,890				744,517				852,877
Work in process			91,594				99,669				110,152
Materials and supplies			141,064				129,062				131,091
			1,176,548				973,248				1,094,120
Other current assets			199,363				168,231				148,465
Total current assets			2,418,175				2,378,568				2,182,980
Property, Plant and Equipment			1,544,884				1,539,490				1,578,771
Less accumulated depreciation			985,297				967,236				984,578
			559,587				572,254				594,193
Intangible Assets			754,717				639,520				702,229
Goodwill			1,094,562				1,031,594				970,369
Other Assets			399,511				382,342				368,270
		$	5,226,552			$	5,004,278			$	4,818,041
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Short-term borrowings		$	256,090			$	42,830			$	271,112
Current portion of long-term debt			301,585				401,232				101,150
Accounts payable			384,757				369,937				379,699
Accrued liabilities			519,005				558,215				443,344
Total current liabilities			1,461,437				1,372,214				1,195,305
Long-term Debt			559,181				556,639				858,569
Other Liabilities			565,579				536,131				525,281
Commitments and Contingencies
Redeemable Preferred Stock			24,626				26,053				27,151
Common Stockholders’ Equity
Common Stock, stated value $1; shares authorized, 300,000,000; shares outstanding:
June 2005 - 111,094,795; Dec. 2004 - 111,388,353; June 2004 - 109,998,241			111,095				111,388				109,998
Additional paid-in capital			1,162,505				1,087,641				1,030,919
Accumulated other comprehensive income (loss)			(133,028	)			(113,071	)			(134,759	)
Retained earnings			1,475,157				1,427,283				1,205,577
Total common stockholders’ equity			2,615,729				2,513,241				2,211,735
		$	5,226,552			$	5,004,278			$	4,818,041

See notes to consolidated financial statements.

VF CORPORATION

Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

		Six Months Ended June
		2005				2004
Operating Activities
Net income		$	222,855			$	193,962
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation			47,633				47,670
Amortization of intangible assets			7,876				3,405
Other amortization			8,327				7,410
Provision for doubtful accounts			6,475				6,783
Pension funding in excess of expense			(34,638	)			(30,146	)
Other, net			(8,844	)			7,144
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			(36,288	)			(63,281	)
Inventories			(190,535	)			(93,804	)
Accounts payable			13,673				20,946
Accrued liabilities and other			(3,019	)			42,893
Cash provided by operating activities			33,515				142,982
Investing Activities
Capital expenditures			(50,722	)			(34,867	)
Business acquisitions, net of cash acquired			(211,301	)			(614,560	)
Software purchases			(9,484	)			(4,616	)
Sale of VF Playwear business			6,667				4,417
Other, net			12,670				3,860
Cash used by investing activities			(252,170	)			(645,766	)
Financing Activities
Increase in short-term borrowings			212,525				169,613
Payments on long-term debt			(100,743	)			(708	)
Purchase of Common Stock			(116,066	)			—
Cash dividends paid			(61,309	)			(58,011	)
Proceeds from issuance of Common Stock			63,805				60,709
Other, net			(191	)			(456	)
Cash provided (used) by financing activities			(1,979	)			171,147
Net Cash Used by Discontinued Operations			—				(3,136	)
Effect of Foreign Currency Rate Changes on Cash			(15,356	)			(2,630	)
Net Change in Cash and Equivalents			(235,990	)			(337,403	)
Cash and Equivalents — Beginning of Year			485,507				514,785
Cash and Equivalents — End of Period		$	249,517			$	177,382

See notes to consolidated financial statements.

VF CORPORATION

Notes to Consolidated Financial Statements
(Unaudited)

Note A — Basis of Presentation

VF Corporation and its consolidated subsidiaries (“VF”) operate and report using a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year. Similarly, the fiscal second quarter ends on the Saturday closest to June 30. For presentation purposes herein, all references to periods ended June 2005, December 2004 and June 2004 relate to the fiscal periods ended on July 2, 2005, January 1, 2005 and July 3, 2004, respectively.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. Similarly, the 2004 year-end consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals unless otherwise disclosed) considered necessary for a fair statement of financial position, results of operations and cash flows have been included. Operating results for the three months and the six months ended June 2005 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2005. For further information, refer to the consolidated financial statements and notes included in VF’s Annual Report on Form 10-K for the year ended December 2004 (“2004 Form 10-K”).

Certain prior year amounts have been reclassified to conform with the 2005 presentation.

Note B — Stock-based Compensation

Stock-based compensation is accounted for under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees (“Opinion No. 25”). For stock option grants, compensation expense is not required in the financial statements under this standard because all options have an exercise price equal to the market value of the underlying common stock at the date of grant. For grants of performance-based restricted stock units, compensation expense equal to the market value of the shares expected to be issued is recognized over the three year performance period being measured. For restricted stock grants, compensation expense equal to the market value of the shares at the date of grant is recognized over the vesting period.

FASB Statement No. 123, Accounting for Stock-Based Compensation (“Statement No. 123”) modified Opinion No. 25 by (i) requiring that compensation expense be recognized for the fair value of stock options, either in the basic financial statements or disclosed on a pro forma basis in a note to the financial statements, and (ii) changing the measurement of compensation expense for performance-based stock units to a grant date fair value model. VF has elected to continue to recognize and measure compensation expense for stock options and other stock-based compensation in the basic financial statements under Opinion No. 25 and to provide pro forma disclosures of compensation expense recognized on the fair value method under Statement No. 123.

During the first three months of 2005, VF granted options for 2,408,000 shares of common stock at an exercise price equal to the market value of VF common stock on the date of grant, and accordingly, no compensation expense was recognized in the financial statements for these options. VF has historically used the Black-Scholes model in determining the fair value of stock options and the related pro forma expense disclosures. Beginning with stock options granted in the first quarter of 2005, VF began using a lattice

valuation model as management believes it results in a more accurate estimate of the options’ fair value. The fair value of the options granted in 2005 was estimated, with the assistance of an independent valuation firm, using the following assumptions: (i) expected dividend yield of 2.2%, (ii) expected volatility ranging from 19.0% to 30.0%, with a weighted average of 22.6%, based on a combination of historical and implied volatility, (iii) risk-free interest rates ranging from 2.8% to 4.1% and (iv) an expected average life of 6.3 years for groups of optionees having different expected exercise behavior. The resulting weighted average fair value of these options at the date of grant was $13.04 per option.

Also during the first quarter of 2005, VF granted 300,400 performance-based restricted stock units and 10,000 other restricted stock units, each having a grant date fair value per unit of $54.80.

The pro forma impact of applying the fair value method of Statement No. 123 for the second quarter and the six months of 2005 and 2004 is as follows:

		Three Months Ended June								Six Months Ended June
(In thousands, except per share amounts)		2005				2004				2005				2004
Net income, as reported		$	99,987			$	90,088			$	222,855			$	193,962
Add back employee compensation expense for performance-based restricted stock units and stock grants included in reported net income, net of income taxes			3,955				1,659				7,562				3,032
Less total stock-based employee compensation expense determined under the fair value method, net of income taxes			(7,193	)			(3,455	)			(18,982	)			(11,035	)
Pro forma net income		$	96,749			$	88,292			$	211,435			$	185,959
Net income per common share:
Basic — as reported		$	0.90			$	0.82			$	2.00			$	1.77
Basic — pro forma			0.87				0.80				1.90				1.69
Diluted — as reported		$	0.88			$	0.80			$	1.95			$	1.73
Diluted — pro forma			0.85				0.78				1.85				1.66

FASB Statement No. 123(Revised), Share-Based Payment (“Statement No. 123(R)”) was issued in late 2004. This Statement replaces Statement No. 123 and Opinion No. 25. Statement No. 123(R) requires the fair value of all share-based awards to employees, including grants of employee stock options, to be recognized as expense in the financial statements over the requisite service periods of the awards. The pro forma disclosures previously permitted under Statement No. 123 will no longer be an alternative to recognizing compensation expense for stock options in the financial statements. The SEC has issued a rule that amends the effective date of Statement No. 123(R) for publicly held companies such that it must be adopted by VF no later than the first quarter of 2006.

Statement No. 123(R) provides three alternative methods of adoption. VF may elect to recognize compensation expense for options granted prior to but not vested as of the date of adoption, in which case prior periods would remain unchanged and pro forma disclosures would continue to be provided for those periods. If this method were selected, a noncash charge at the date of adoption for the cumulative effect of applying the new rules for all unvested stock options would be recorded. Secondly, VF may elect to restate all prior periods presented by recognizing compensation expense equal to the amounts previously included in

the pro forma disclosures. As a third method, VF may elect during 2005 to adopt the new rules retroactive to the beginning of 2005 by recording the cumulative effect of applying the new rules for all unvested stock options at that date and restating all previously reported 2005 interim periods by recognizing compensation expense equal to the amounts previously included in the pro forma disclosures. VF is currently evaluating the transition methods and financial impact of adopting Statement No. 123(R).

Note C — Acquisitions

VF acquired the common stock of Reef Holdings Corporation (“Reef “) on April 14, 2005 for a total cost of $187.2 million, including repayment of short-term working capital borrowings. Reef designs and markets surf-inspired products, including sandals, apparel, shoes and accessories under the ReefÒ brand. This acquisition is consistent with VF’s strategy of acquiring strong lifestyle brands with superior growth potential to which VF can leverage its significant apparel expertise. In its most recent fiscal year, Reef had sales of $75 million. The purchase price of Reef was allocated to net tangible and intangible assets. Acquired intangible assets consisted primarily of the ReefÒ trademark, license agreements and customer relationships. While the trademark was assigned an indefinite life, the intangible assets related to the license agreements and customer relationships are being amortized over their estimated useful lives. The excess purchase price was recorded as goodwill and was attributed to expected growth rates and profitability of the acquired company.

VF acquired substantially all of the net assets of Holoubek, Inc. (“Holoubek”) on January 3, 2005 for a total cost of $26.3 million, consisting of $23.8 million in cash and $2.5 million in notes payable over a five-year period. In addition, a maximum of $2.5 million in contingent consideration is payable upon the occurrence of certain events through January 2009. Holoubek has rights to manufacture and market certain apparel products, including t-shirts and fleece, under license from Harley-Davidson Motor Company, Inc. The Holoubek business had sales of $39 million in its most recent fiscal year. The purchase price was allocated to net tangible and intangible assets acquired. The intangible assets acquired consisted of the license agreement and customer relationships, which are being amortized over their estimated useful lives.

During the second quarter of 2004, VF acquired the Vans, Napapijri and Kipling businesses (collectively, the “2004 Acquisitions”). Operating results of Reef and Holoubek (together, the “2005 Acquisitions”) and the 2004 Acquisitions have been included in the consolidated financial statements since their respective dates of acquisition. Unaudited pro forma results of operations for VF are presented below assuming that the 2004 acquisition of Vans had occurred at the beginning of 2004. Pro forma operating results for the Reef, Holoubek, Napapijri and Kipling businesses are not included because these acquisitions are not material to VF’s results of operations.

		Three Months Ended June				Six Months Ended June
(In thousands, except per share amounts)		2004				2004
Net sales		$	1,349,939			$	2,868,087
Net income			43,486				151,787
Earnings per common share
Basic		$	0.39			$	1.38
Diluted			0.39				1.35

Pro forma financial information is not necessarily indicative of VF’s operating results if the acquisition had been effected at the date indicated, nor is it necessarily indicative of future operating results. Amounts do not include any marketing leverage, operating efficiencies or cost savings that VF believes are achievable.

Activity in the restructuring accruals related to the 2004 Acquisitions is summarized as follows:

						Facilities				Lease and Contract
(In thousands)		Severance				Exit Costs				Terminations				Total
Balance, December 2004		$	3,895			$	811			$	1,417			$	6,123
Additional accrual			2,133				1,917				3,787				7,837
Cash payments			(3,706	)			(170	)			(245	)			(4,121	)
Balance, June 2005		$	2,322			$	2,558			$	4,959			$	9,839

Note D — Intangible Assets

						June 2005												December 2004
		Weighted				Gross								Net				Net
		Average				Carrying				Accumulated				Carrying				Carrying
(Dollars in thousands)		Life *				Amount				Amortization				Amount				Amount
Amortizable intangible assets:
License agreements		24 years				$	146,925			$	12,768			$	134,157			$	107,280
Customer relationships		22 years					90,718				5,426				85,292				68,508
Other		4 years					12,134				7,536				4,598				5,465
Amortizable intangible assets, net															224,047				181,253
Indefinite-lived intangible assets:
Trademarks and tradenames															530,670				458,267
Intangible assets, net														$	754,717			$	639,520

Amortization expense of intangible assets for the second quarter and the first six months of 2005 was $4.2 million and $7.9 million, respectively. Estimated amortization expense for the remainder of 2005 is $8.7 million and for the years 2006 through 2009 is $16.7 million, $16.5 million, $13.4 million and $11.8 million, respectively.

Note E — Goodwill

						Outdoor
						Apparel and				Intimate
(In thousands)		Jeanswear				Equipment				Apparel				Imagewear				Sportswear				Total
Balance, December 2004		$	198,620			$	444,946			$	117,592			$	56,246			$	214,190			$	1,031,594
Adjustments to purchase price allocation			—				6,222				—				—				(494	)			5,728
2005 Acquisitions			—				74,000				—				—				—				74,000
Currency translation			(4,582	)			(12,112	)			—				—				—				(16,694	)
Other			—				—				(66	)			—				—				(66	)
Balance, June 2005		$	194,038			$	513,056			$	117,526			$	56,246			$	213,696			$	1,094,562

Note F — Sale of Businesses

In May 2004, VF sold the trademarks and certain operating assets of its children’s playwear business (“VF Playwear”) for cash and notes totaling $17.1 million. VF retained all inventories and other working capital and continued to ship products through the end of the third quarter of 2004. Under the sale agreement, VF agreed to purchase $150.0 million of branded childrenswear from the purchaser over a 10 year period for sale in VF’s outlet stores.

VF recorded a net gain on disposal of VF Playwear of $10.4 million ($0.06 per diluted share) and $7.4 million ($0.04 per diluted share) in the second quarter and six months of 2004, respectively. VF Playwear contributed sales of $21.8 million and $55.8 million in the respective 2004 periods. VF Playwear had total operating profit (including the net gain on disposition) of $8.0 million and $3.9 million in the respective 2004 periods.

Assets and liabilities of VF Playwear included in the Consolidated Balance Sheets are summarized as follows:

		June				December				June
(In thousands)		2005				2004				2004
Accounts receivable, net		$	—			$	4,363			$	5,482
Inventories			—				—				24,226
Other current assets, primarily deferred income taxes			3,363				4,181				3,585
Property, plant and equipment, net			—				6,249				10,982
		$	3,363			$	14,793			$	44,275
Accounts payable		$	—			$	—			$	7,790
Accrued liabilities			9,058				15,129				10,704
		$	9,058			$	15,129			$	18,494

During the second quarter of 2005, VF sold substantially all remaining assets and entered into sublease agreements for most remaining leased facilities. At June 2005, Accrued Liabilities related primarily to VF’s anticipated remaining obligations on formerly occupied leased facilities.

In the first quarter of 2005, VF contributed its John VarvatosÒ luxury sportswear business to a new subsidiary, with VF owning an 80% interest and Mr. Varvatos owning 20%.

Note G — Pension Plans

VF’s net periodic pension cost is comprised of the following components:

		Three Months Ended June								Six Months Ended June
(In thousands)		2005				2004				2005				2004
Service cost — benefits earned during the period		$	5,135			$	5,717			$	10,270			$	11,037
Interest cost on projected benefit obligations			15,338				14,960				30,676				29,353
Expected return on plan assets			(15,935	)			(15,173	)			(31,870	)			(29,376	)
Amortization of:
Prior service cost			870				1,060				1,740				1,841
Actuarial loss			5,366				5,443				10,732				13,671
Net periodic pension cost		$	10,774			$	12,007			$	21,548			$	26,526

In the first six months of 2005, VF made a $55.0 million discretionary contribution to its qualified pension plan and made additional contributions totaling $1.2 million to fund benefit payments for the Supplemental Executive Retirement Plan (“SERP”). VF currently anticipates making an additional $1.7 million of contributions during the remainder of 2005 to fund benefit payments for the SERP.

Note H — Business Segment Information

Financial information for VF’s reportable segments is as follows:

		Three Months Ended June								Six Months Ended June
(In thousands)		2005				2004				2005				2004
Coalition sales:
Jeanswear		$	596,606			$	586,047			$	1,303,327			$	1,294,327
Outdoor Apparel and Equipment			296,688				145,737				578,984				270,316
Intimate Apparel			223,016				234,807				450,292				484,227
Imagewear			180,697				173,433				367,865				346,465
Sportswear			127,254				104,728				279,016				246,380
Other			11,570				24,785				19,990				60,491
Net sales		$	1,435,831			$	1,269,537			$	2,999,474			$	2,702,206
Coalition profit:
Jeanswear		$	93,065			$	85,003			$	212,274			$	207,338
Outdoor Apparel and Equipment			42,438				21,543				74,832				35,445
Intimate Apparel			13,600				35,242				37,128				70,498
Imagewear			24,609				21,233				54,899				43,078
Sportswear			19,270				515				46,171				13,702
Other			(92	)			8,590				(639	)			4,418
Total coalition profit			192,890				172,126				424,665				374,479
Corporate and other expenses			(34,357	)			(22,840	)			(67,117	)			(51,027	)
Interest, net			(16,449	)			(16,656	)			(32,107	)			(33,437	)
Income before income taxes		$	142,084			$	132,630			$	325,441			$	290,015

VF’s reportable segments were revised in 2004, as discussed in Note R to the Consolidated Financial Statements included in the 2004 Form 10-K. In addition, beginning in 2005, responsibility for the Earl Jean business was transferred from the Sportswear coalition to the Jeanswear coalition, and there was a change in the method of allocation of certain internal costs. Accordingly, business segment information presented for interim periods of 2004 has been reclassified to conform with the current year’s presentation.

Note I — Capital and Comprehensive Income (Loss)

Common stock outstanding is net of shares held in treasury, and in substance retired, of 3,029,627 at June 2005, 1,098,172 at December 2004 and 1,172,188 at June 2004. In addition, 266,942 shares of VF Common Stock at June 2005, 256,088 shares at December 2004 and 245,247 shares at June 2004 were held in trust for deferred compensation plans. These shares are treated for financial accounting purposes as treasury stock at each of the respective dates.

There are 25,000,000 authorized shares of Preferred Stock, $1 par value. Of these shares, 2,000,000 were designated as Series A, of which none have been issued, and 2,105,263 shares were designated and issued as 6.75% Series B Redeemable Preferred Stock, of which 797,611 shares were outstanding at June 2005, 843,814 at December 2004 and 889,904 at June 2004.

Activity in 2005 in the Series B Preferred Stock, Common Stock, Additional Paid-in Capital and Retained Earnings accounts is summarized as follows:

		Preferred				Common				Additional				Retained
(In thousands)		Stock				Stock				Paid-in Capital				Earnings
Balance, December 2004		$	26,053			$	111,388			$	1,087,641			$	1,427,283
Net income			—				—				—				222,855
Cash dividends:
Common Stock			—				—				—				(60,455	)
Series B Redeemable Preferred Stock			—				—				—				(836	)
Conversion of Preferred Stock			(1,427	)			74				—				1,353
Purchase of treasury shares			—				(2,000	)			—				(114,066	)
Stock compensation plans, net			—				1,633				74,864				(977	)
Balance, June 2005		$	24,626			$	111,095			$	1,162,505			$	1,475,157

Other comprehensive income consists of certain changes in assets and liabilities that are not included in Net Income under generally accepted accounting principles but are instead reported within a separate component of Common Stockholders’ Equity. VF’s comprehensive income was as follows:

		Three Months Ended June								Six Months Ended June
(In thousands)		2005				2004				2005				2004
Net income		$	99,987			$	90,088			$	222,855			$	193,962
Other comprehensive income (loss):
Foreign currency translation, net of income taxes			(34,446	)			936				(40,634	)			(2,848	)
Minimum pension liability adjustment, net of income taxes			—				—				—				54,425
Unrealized gains on derivative financial instruments, net of income taxes			10,327				86				15,649				3,577
Unrealized gains (losses) on marketable securities, net of income taxes			1,153				(252	)			5,028				(458	)
Comprehensive income		$	77,021			$	90,858			$	202,898			$	248,658

Accumulated Other Comprehensive Income (Loss) for 2005 is summarized as follows:

		Foreign				Minimum				Derivative
		Currency				Pension				Financial				Marketable
(In thousands)		Translation				Liability				Instruments				Securities				Total
Balance, December 2004		$	(1,816	)		$	(119,138	)		$	(5,141	)		$	13,024			$	(113,071	)
Other comprehensive income (loss)			(40,634	)			—				15,649				5,028				(19,957	)
Balance, June 2005		$	(42,450	)		$	(119,138	)		$	10,508			$	18,052			$	(133,028	)

Note J — Earnings Per Share

Earnings per share was computed as follows:

		Three Months Ended June								Six Months Ended June
(In thousands, except per share amounts)		2005				2004				2005				2004
Basic earnings per share:
Net income		$	99,987			$	90,088			$	222,855			$	193,962
Less Preferred Stock dividends			415				464				836				941
Income available for Common Stock		$	99,572			$	89,624			$	222,019			$	193,021
Weighted average Common Stock outstanding			110,254				109,655				111,008				109,192
Basic earnings per share		$	0.90			$	0.82			$	2.00			$	1.77
Diluted earnings per share:
Net income		$	99,987			$	90,088			$	222,855			$	193,962
Weighted average Common Stock outstanding			110,254				109,655				111,008				109,192
Effect of dilutive securities:
Preferred Stock			1,277				1,424				1,285				1,445
Stock option and other			1,746				1,563				1,809				1,441
Weighted average Common Stock and dilutive securities outstanding			113,277				112,642				114,102				112,078
Diluted earnings per share		$	0.88			$	0.80			$	1.95			$	1.73

Outstanding options to purchase 2.4 million shares of Common Stock have been excluded from the computation of diluted earnings per share for the second quarter and the six months of 2005, respectively, because the option exercise prices were greater than the average market price of the Common Stock. Similarly, options to purchase 0.9 million shares and 1.3 million shares of Common Stock were excluded for the second quarter and the six months of 2004, respectively.

Note K — Special Items

The second quarter of 2005 included special items, as follows:

		Net Income				Per Diluted Share
		(In millions)
Settlements of income tax matters in foreign jurisdictions		$	12.5			$	0.11
Tax impact of repatriation of foreign earnings - American Jobs Creation Act			(7.0	)			(0.06	)
Reduction of accruals related to postemployment benefits in Mexico			9.4				0.08
Capacity alignment actions, primarily in intimate apparel			(7.2	)			(0.06	)
Total		$	7.7			$	0.07

VF settled income tax matters in certain foreign jurisdictions, resulting in a reduction of income tax expense in the quarter.

The American Jobs Creation Act of 2004 (the “Act”) was signed into law on October 22, 2004. The Act contains an incentive for the repatriation of foreign earnings during 2005 at an effective income tax rate of 5.25%. During the second quarter of 2005, management adopted a formal Domestic Reinvestment Plan (the “Plan”) to repatriate $226.3 million of foreign earnings (based on current exchange rates), of which $159.5 will qualify for the incentive tax rate under the Act. The estimated tax liability associated with the repatriation is $7.0 million, which was included in income tax expense during the second quarter of 2005. VF has approximately $227 million of additional accumulated foreign earnings that could qualify for repatriation. If VF were to decide to remit some or all of these earnings during 2005, it would result in additional income tax expense ranging up to approximately $18 million. Management will continue to evaluate its unremitted foreign earnings for possible repatriation during 2005.

Also during the second quarter of 2005, VF determined that amounts accrued for postemployment benefits in Mexico were greater than required by local laws. The excess had accumulated over a number of years and was not significant to any prior period. The adjustment of these accruals benefited the quarter by $14.1 million, primarily in the Jeanswear Coalition.

Finally, management made decisions to align capacity with lower sales volume in our Intimate Apparel businesses, resulting in charges that were primarily severance. These charges and the accrual adjustment for postemployment benefits in Mexico discussed above were recorded principally in cost of goods sold.

Note L — Subsequent Events

Subsequent to the end of the second quarter, the VF Board of Directors declared a regular quarterly cash dividend of $0.27 per share, payable on September 19, 2005 to shareholders of record as of the close of business on September 9, 2005.

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Highlights of the second quarter included:

•

Sales, net income and earnings per share for the second quarter were each at record levels.

•

We completed the acquisition of the common stock of Reef Holdings Corporation (“Reef”) on April 14, 2005 for a cash purchase price of $187.2 million, including repayment of short-term working capital borrowings. Based in San Diego, California, Reef is a designer and marketer of premium surf-inspired footwear and apparel under the ReefÒ brand. Reef had sales of $75 million in 2004 and is on track for another year of double-digit growth in 2005. Reef is expected to contribute $50 million to 2005 sales, be neutral to earnings per share in 2005 and be accretive to earnings per share in 2006. Reef, along with our January 2005 acquisition of substantially all of the net assets of Holoubek, Inc. (“Holoubek”), are together referred to as the “2005 Acquisitions.”

•

Net sales increased 13% to $1,435.8 million. Sales growth was achieved in most of our existing businesses. The quarter also included first-time sales of the Vans, Napapijri and Kipling businesses, each of which was acquired near the end of the second quarter of 2004 (collectively, the “2004 Acquisitions”). These acquisitions, together with the 2005 Acquisitions, are referred to as the “2005 and 2004 Acquisitions.”

•

Net income increased 11% to $100.0 million, and earnings per share increased 10% to $0.88. (All per share amounts are presented on a diluted basis.) These increases resulted from profit contributions from the 2005 and 2004 Acquisitions and improved operating performance in most existing businesses, plus certain special items discussed below.

•

We announced broad-based organizational changes with a more streamlined leadership structure designed to support VF’s long-term growth plan. This new structure consolidated our branded jeanswear, outdoor products, intimate apparel and sportswear businesses under the leadership of one senior executive to support organic growth in our brands across different product categories. The organization changes also centralized our supply chain functions under the leadership of one senior executive, who will also have responsibility for our imagewear business. The change will help VF leverage its best practices and drive increased speed, flexibility and efficiency in its global supply chain functions.

Analysis of Results of Operations

Consolidated Statements of Income

Operating results in the second quarter of both 2005 and 2004 included several special items, as described below:

2005 quarter:

•

We settled income tax matters in certain foreign jurisdictions, resulting in a reduction of income tax expense of $12.5 million ($0.11 per share).

•

The decision was made to repatriate foreign earnings pursuant to the American Jobs Creation Act of 2004, resulting in an additional income tax expense of $7.0 million ($0.06 per share).

•

We determined that amounts accrued for postemployment benefits in Mexico were greater than required by local laws. The excess had accumulated over a number of years and was not significant to any prior period. The adjustment of these accruals benefited the quarter by $14.1 million ($0.08 per share), primarily in the Jeanswear Coalition.

•

We made decisions to align capacity with lower sales volume, resulting primarily in severance charges in the Intimate Apparel businesses. These decisions resulted in charges totaling $10.9 million ($0.06 per share).

2004 quarter:

•

The VF Playwear business was sold, resulting in a pretax gain of $10.4 million. Including an operating loss incurred during this transitional period, the net benefit of the Playwear exit was $8.0 million ($0.04 per share) to operating results in the quarter.

The following table presents a summary of the changes in our Net Sales from 2004:

		Second Quarter				Six Months
		2005 Compared				2005 Compared
(In millions)		with 2004				with 2004
Net sales — prior year		$	1,270			$	2,702
Existing businesses			32				41
Acquisitions in prior year (to anniversary date)			120				266
Acquisitions in current year			36				46
Disposition of VF Playwear			(22	)			(56	)
Net sales — current year		$	1,436			$	2,999

The increase in net sales in the second quarter and first half of 2005 was due primarily to sales of the Vans, Kipling and Napapijri businesses, each of which was acquired late in the second quarter of 2004. These businesses (prior to the 2005 anniversary dates of their acquisition), along with the 2005 Acquisitions, added $156 million to sales during the 2005 quarter and $312 million during the first half of 2005. Growth in our existing businesses was partially offset by a decline in sales in our Intimate Apparel businesses. In addition, the prior year’s quarter and six month periods included $22 million and $56 million, respectively, of sales of our VF Playwear business, which was sold in May 2004. Additional details on sales are provided in the section titled “Information by Business Segment.”

During 2004, approximately 23% of net sales were in international markets. In translating foreign currencies into the U.S. dollar, the weaker U.S. dollar in relation to the functional currencies where VF conducts the majority of its international business (primarily the European euro countries) improved sales comparisons by $13 million and $36 million in the 2005 quarter and six month periods, respectively, relative to 2004. The weighted average translation rate for the euro was $1.30 per euro during the first half of 2005, compared with $1.23 during the first half of 2004. The U.S. dollar has strengthened in recent months, resulting in a translation rate of $1.20 per euro at the end of June 2005. Since the weighted average translation rate was $1.24 per euro during the second half of 2004, reported sales for the remainder of 2005 may be negatively impacted compared with 2004.

The following table presents the percentage relationship to Net Sales for components of our Consolidated Statements of Income:

		Three Months Ended June								Six Months Ended June
		2005				2004				2005				2004
Gross margin (net sales less cost of goods sold)			41.4	%			39.4	%			41.5	%			39.0	%
Marketing, administrative and general expenses			(31.0	)			(29.3	)			(30.3	)			(28.3	)
Royalty income and other			0.7				0.9				0.7				0.9
Gain on sale of VF Playwear			—				0.8				—				0.3
Operating income			11.1	%			11.8	%			11.9	%			11.9	%

Gross margin as a percentage of sales increased 2.0% in the second quarter and 2.5% in the first half of 2005. Of those increases, 1.1% in the quarter and 1.6% in the first half was due to the changing mix of our existing businesses, including strong sales growth in our higher margin businesses such as our outdoor and sportswear businesses. The remainder of the increase in gross margin as a percent of sales in both periods related to the higher than average gross margins earned by our 2005 and 2004 Acquisitions.

Marketing, Administrative and General Expenses as a percentage of sales increased 1.7% in the quarter and 2.0% in the first six months of 2005. These increases were due primarily to changes in the mix of our businesses, with a larger portion of sales coming from businesses having a higher expense percentage, including our 2004 Acquisitions. In addition, 2005 included higher spending related to growth initiatives and increased advertising expense.

Royalty Income and Other declined slightly in both 2005 periods as we are transitioning some Sportswear Coalition licensing agreements to new licensing partners.

Gain on Sale of VF Playwear includes the gain on sale of this business of $10.4 million in the second quarter of 2004, bringing the net gain for the first half of 2004 to $7.4 million. See Note F to the consolidated financial statements for additional information on VF Playwear.

Net Interest Expense declined slightly in the quarter and by $1.3 million in the first six months of 2005 from the 2004 amounts, primarily due to higher Interest Income. Average interest-bearing debt outstanding totaled $1,014 million for the first half of 2005 and $997 million for the comparable 2004 period. The weighted average interest rate on outstanding debt was 7.2% for the first half of 2005 and 7.3% for the first half of 2004.

The effective income tax rate was 29.6% in the quarter and 31.5% in the first half of 2005, compared with 32.1% and 33.1% in the comparable periods of 2004. The effective income tax rate declined in 2005 due to the $12.5 million benefit from the favorable resolution of income tax issues in certain foreign jurisdictions in the second quarter, offset in part by incremental income taxes of $7.0 million from repatriation of foreign earnings under the American Jobs Creation Act of 2004 (see Note K to the Consolidated Financial Statements). In addition, there was increased income in international jurisdictions in 2005 taxed at lower rates.

Net income was $100.0 million ($0.88 per share) in the second quarter of 2005, compared with $90.1 million ($0.80 per share) in 2004. For the first six months of 2005, net income was $222.9 million ($1.95 per share), compared with $194.0 million ($1.73 per share) in 2004. Net income increased 11% in the quarter and 15% in the first half of 2005, while earnings per share increased 10% and 13%, respectively, reflecting a larger number of shares outstanding in 2005 due to stock option exercises, net of purchases of treasury stock. In translating foreign currencies into the U.S. dollar, the weaker U.S. dollar had a $0.03 favorable impact on

earnings per share in the first half of 2005 compared with the prior year period. During the second quarter, the impact was less than $0.01 per share. The 2005 and 2004 Acquisitions added an incremental $0.08 per share to the second quarter 2005 operating results and $0.18 per share to the first half 2005 results vs. their respective 2004 contributions.

Information by Business Segment

VF’s businesses are organized into five 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 represent VF’s 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. As explained in that Note, amounts for 2004 have been restated to conform with the 2005 presentation.

The following table presents a summary of the changes in our Net Sales by coalition for the second quarter and six months of 2005:

		Second Quarter
						Outdoor
						Apparel and				Intimate
(In millions)		Jeanswear				Equipment				Apparel				Imagewear				Sportswear				Other
Net sales - 2004		$	586			$	146			$	235			$	173			$	105			$	25
Existing businesses			11				13				(16	)			(3	)			19				8
Acquisitions in prior year			—				113				4				—				3				—
Acquisitions in current year			—				25				—				11				—				—
Disposition of VF Playwear			—				—				—				—				—				(22	)
Net sales - 2005		$	597			$	297			$	223			$	181			$	127			$	11

		Six Months
						Outdoor
						Apparel and				Intimate
(In millions)		Jeanswear				Equipment				Apparel				Imagewear				Sportswear				Other
Net sales - 2004		$	1,294			$	270			$	484			$	346			$	247			$	61
Existing businesses			9				30				(39	)			1				25				15
Acquisitions in prior year			—				254				5				—				7				—
Acquisitions in current year			—				25				—				21				—				—
Disposition of VF Playwear			—				—				—				—				—				(56	)
Net sales - 2005		$	1,303			$	579			$	450			$	368			$	279			$	20

Jeanswear:

Overall Jeanswear Coalition Sales increased 2% in the second quarter of 2005, with a 1% increase in domestic jeanswear sales due to unit volume increases and a 4% increase in international jeanswear sales due

to favorable foreign currency exchange rates. For the first half of 2005, total jeanswear coalition sales increased 1%, with a 2% decline in domestic jeanswear sales due to a reduction in unit sales of LeeÒ branded women’s products offset by a 7% increase in international jeanswear sales due to unit volume growth in Asia, Canada and South America and favorable foreign currency translation. In international markets, $9 million of the sales increase in the quarter and $22 million of the increase in the half resulted from foreign currency translation relative to the prior year periods.

Jeanswear Coalition Profit increased in both the quarter and the first half of 2005 due primarily to the favorable adjustment of accruals for postemployment benefits in Mexico during the second quarter, as discussed under Consolidated Statements of Income.

Outdoor Apparel and Equipment:

The acquisition of the ReefÒ brand in 2005, along with the acquisitions of the Vans, Napapijri, and Kipling businesses in 2004, collectively contributed $138 million to second quarter 2005 sales and $279 million to first half 2005 Outdoor Coalition sales. Sales in existing businesses increased in 2005, with unit volume increases at The North Face resulting from strong consumer demand for its products in the United States and internationally. In addition, 2005 sales benefited from $2 million of favorable foreign currency translation effects in the quarter and $9 million in the first half.

Coalition Profit increased 97% in the quarter and more than doubled in the first half over the prior year periods, with a large portion of the increases in both periods coming from the 2005 and 2004 Acquisitions.

Intimate Apparel:

Intimate apparel sales declined 5% in the quarter and 7% in the first half of 2005 due to unit volume declines in our private label and department store businesses in the United States and in our European business. Private label sales declined in 2005 compared with 2004 because 2004 included a launch of a major new product line with a private label specialty store customer that was not repeated in 2005. Foreign currency translation benefited the 2005 quarter and first half by $3 million and $5 million, respectively, relative to the prior year periods.

Coalition Profit decreased 61% in the quarter and 47% in the first half of 2005. The decline in Coalition Profit in both periods was primarily due to the lower sales and the resulting impact of higher costs related to unused manufacturing capacity and low overhead absorption. In addition, the second quarter of 2005 included charges of $9.3 million related to aligning manufacturing capacity and expense levels with current volume requirements. Comparisons in the second half of the year are expected to improve relative to the first half.

Imagewear:

Coalition Sales increased 4% in the second quarter and 6% in the first half of 2005, including sales of $11 million and $21 million, respectively, from the Holoubek business acquired on January 3, 2005. Sales in our activewear and licensed sports business and sales in our industrial and career occupational apparel business were about flat in both 2005 periods compared with 2004.

Coalition Profit increased 16% in the quarter and 27% in the first half of 2005 due to lower product costs and improved operating efficiencies.

Sportswear:

This coalition consists of our Nautica® lifestyle brand, John Varvatos® luxury apparel and Kipling® brand in North America. Sportswear coalition sales increased 22% in the quarter and 13% in the first half of 2005, with contributions from each of these business units.

Coalition Profit increased sharply in both 2005 periods. This improvement was led by Nautica with improved performance of our products at our retail customers resulting in lower markdowns and returns, particularly in our men’s sportswear business. In addition, reduced operating expenses and savings from restructuring actions taken in 2004 contributed to the improvement.

The comparisons of Coalition Sales and Coalition Profit were also impacted by a $7.2 million accounting adjustment in the second quarter of 2004 related to the acquisition of Nautica.

Other:

The Other business segment consists of our VF Outlet business. VF Outlet’s retail sales and profit of non-VF products are reported in this business segment, while VF Outlet’s retail sales and profit of VF products are reported as part of the operating results of the respective coalitions.

In prior years, this business segment also included the VF Playwear business. Trademarks and certain operating assets of VF Playwear were sold in May 2004. Accordingly, segment profit was $8.0 million in that quarter and $3.9 million in the six months, including the $10.4 million gain on disposal of those assets. Inventories and other retained operating assets have been liquidated. See Note F to the Consolidated Financial Statements.

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.

Corporate and Other Expenses consists of corporate and similar costs that are not apportioned to the operating coalitions. Included are certain information systems costs, corporate headquarters’ costs, trademark maintenance and enforcement costs and miscellaneous consolidating adjustments. Corporate and Other Expenses increased in 2005 due to additional corporate staff positions, consulting and other costs incurred to drive growth for VF.

Analysis of Financial Condition

Balance Sheets

Accounts Receivable increased at June 2005 over the prior year date due to the 2005 Acquisitions. Balances in the existing businesses declined slightly from the prior year level, despite higher 2005 sales, due to a decline in the number of days’ sales outstanding in 2005. Receivables are higher at June 2005 than at the end of 2004 due to seasonal sales patterns and the 2005 Acquisitions.

Inventories increased $82.4 million over the level at June 2004, with $23.6 million of the increase due to the 2005 Acquisitions. The June 2005 inventory level increased 5% for those businesses existing at June 2004 due to increasing sales expectations in most businesses. Inventory levels at June 2005 increased from December 2004 due to the 2005 Acquisitions and the higher seasonal requirements of the existing businesses.

Other Current Assets increased at June 2005 from the levels at December 2004 and June 2004 due to increases in deferred income taxes, VAT receivables and unrealized gains on hedging contracts.

The decline in Property, Plant and Equipment from June 2004 to June 2005 resulted from capital spending plus assets acquired as part of the acquisitions being less than depreciation expense and asset sales.

Intangible Assets and Goodwill each increased from December 2004 to June 2005 due to the 2005 Acquisitions. Goodwill increased from June 2004 to December 2004 by approximately the same amount that Intangible Assets declined during that period. The amounts assigned to Intangible Assets at June 2004 in the preliminary purchase price allocation of the 2004 Acquisitions was finalized during the third quarter of 2004 based on information from an independent valuation firm. This information resulted in a decrease in Intangible Assets and a corresponding increase in Goodwill. See Notes C, D and E to the Consolidated Financial Statements.

Short-term Borrowings at June 2005 included $217.0 million of domestic commercial paper borrowings, while borrowings at June 2004 included $193.7 million of domestic commercial paper borrowings and $41.8 million of deferred purchase price payable related to the 2004 Acquisitions. There were no commercial paper borrowings at December 2004. The remainder at all three balance sheet dates related primarily to foreign borrowings.

The increase in Accrued Liabilities from June 2004 to June 2005 was due primarily to growth in our existing businesses, along with the 2005 Acquisitions. The decline from December 2004 related to payment of the $55.0 million pension contribution that had been accrued as the current portion of the minimum pension liability.

Total Long-term Debt declined due to repayment of $100.0 million of 6.75% notes due in June 2005. The Current Portion of Long-term Debt at the end of June 2005 includes $300.0 million of 8.10% notes due on October 1, 2005.

Other Liabilities increased from December 2004 due to an increase of $37.3 million in deferred income taxes related primarily to Intangible Assets from the Reef acquisition. Other increases from June 2004 related to additional amounts of compensation elected to be deferred under an employee savings plan and other growth-related factors in the businesses.

Liquidity and Cash Flows

The financial condition of VF is reflected in the following:

		June				December				June
(Dollars in millions)		2005				2004				2004
Working capital		$	956.7			$	1,006.4			$	987.7
Current ratio			1.7 to 1				1.7 to 1				1.8 to 1
Debt to total capital ratio			29.9	%			28.4	%			35.8	%