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 a large accelerated filer, accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Securities and Exchange Act of 1934. (check one):

Large accelerated filer þ           Accelerated filer o           Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities and Exchange Act of 1934).
YES o NO þ

On July 28, 2007, there were 109,990,315 shares of the registrant’s Common Stock outstanding.

 

 

VF CORPORATION

INDEX

		Page No.
Part I — Financial Information
Item 1 – Financial Statements (Unaudited)
Consolidated Statements of Income:
Three and six months ended June 2007 and June 2006			3
Consolidated Balance Sheets:
June 2007, December 2006 and June 2006			4
Consolidated Statements of Cash Flows:
Six months ended June 2007 and June 2006			5
Notes to Consolidated Financial Statements			6
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3 – Quantitative and Qualitative Disclosures about Market Risk			28
Item 4 – Controls and Procedures			28
Part II — Other Information
Item 1A – Risk Factors			28
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			28
Item 6 – Exhibits			29
Signatures			30
Certification of the Principal Executive Officer -- Section 302
Certification of the Principal Financial Officer -- Section 302
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)

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

		Three Months Ended June								Six Months Ended June
		2007				2006				2007				2006
Net Sales		$	1,500,431			$	1,332,892			$	3,154,039			$	2,769,598
Royalty Income			16,962				18,421				36,973				37,337
Total Revenues			1,517,393				1,351,313				3,191,012				2,806,935
Costs and Operating Expenses
Cost of goods sold			865,727				765,554				1,811,610				1,590,154
Marketing, administrative and general expenses			483,204				439,970				995,615				883,679
			1,348,931				1,205,524				2,807,225				2,473,833
Operating Income			168,462				145,789				383,787				333,102
Other Income (Expense)
Interest income			2,848				1,292				5,292				2,710
Interest expense			(13,101	)			(13,856	)			(27,024	)			(26,535	)
Miscellaneous, net			1,483				542				1,749				1,371
			(8,770	)			(12,022	)			(19,983	)			(22,454	)
Income from Continuing Operations
Before Income Taxes			159,692				133,767				363,804				310,648
Income Taxes			53,887				44,208				123,921				102,947
Income from Continuing Operations			105,805				89,559				239,883				207,701
Discontinued Operations			(24,143	)			9,473				(19,877	)			19,516
Net Income		$	81,662			$	99,032			$	220,006			$	227,217
Earnings Per Common Share — Basic
Income from continuing operations		$	0.96			$	0.81			$	2.16			$	1.88
Discontinued operations			(0.22	)			0.09				(0.18	)			0.18
Net income			0.74				0.90				1.98				2.06
Earnings Per Common Share — Diluted
Income from continuing operations		$	0.93			$	0.80			$	2.10			$	1.85
Discontinued operations			(0.21	)			0.08				(0.17	)			0.17
Net income			0.72				0.88				1.93				2.02
Weighted Average Shares Outstanding
Basic			110,504				109,879				111,199				109,867
Diluted			113,473				112,539				114,142				112,440
Cash Dividends Per Common Share		$	0.55			$	0.55			$	1.10			$	0.84

See notes to consolidated financial statements.

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

		June				December				June
		2007				2006				2006
ASSETS
Current Assets
Cash and equivalents		$	177,849			$	343,224			$	161,672
Accounts receivable, less allowances for doubtful accounts of:
June 2007 - $53,147; Dec. 2006 - $46,113; June 2006 - $46,029			924,455				809,594				769,086
Inventories:
Finished products			1,033,663				783,507				865,708
Work in process			67,639				69,701				77,849
Materials and supplies			116,419				105,054				100,574
			1,217,721				958,262				1,044,131
Other current assets			198,851				205,004				244,789
Current assets of discontinued operations			18,271				261,926				314,436
Total current assets			2,537,147				2,578,010				2,534,114
Property, Plant and Equipment			1,466,736				1,455,154				1,408,471
Less accumulated depreciation			871,850				862,096				849,394
			594,886				593,058				559,077
Intangible Assets			854,381				755,693				747,839
Goodwill			1,048,348				1,030,925				990,958
Other Assets			378,660				348,862				387,746
Noncurrent Assets of Discontinued Operations			—				159,145				186,835
		$	5,413,422			$	5,465,693			$	5,406,569
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Short-term borrowings		$	107,586			$	88,467			$	229,145
Current portion of long-term debt			97,435				68,876				36,164
Accounts payable			424,229				385,700				413,187
Accrued liabilities			438,075				392,815				419,429
Current liabilities of discontinued operations			1,075				78,990				82,129
Total current liabilities			1,068,400				1,014,848				1,180,054
Long-term Debt			602,229				635,359				693,359
Other Liabilities			565,613				536,728				587,080
Noncurrent Liabilities of Discontinued Operations			—				13,586				24,669
Commitments and Contingencies
Common Stockholders’ Equity
Common Stock, stated value $1; shares authorized, 300,000,000; shares outstanding: June 2007 - 109,716,898; Dec. 2006 - 112,184,860; June 2006 - 110,640,175			109,717				112,185				110,640
Additional paid-in capital			1,585,105				1,469,764				1,368,082
Accumulated other comprehensive income (loss)			(58,336	)			(123,652	)			(180,782	)
Retained earnings			1,540,694				1,806,875				1,623,467
Total common stockholders’ equity			3,177,180				3,265,172				2,921,407
		$	5,413,422			$	5,465,693			$	5,406,569

See notes to consolidated financial statements.

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

		Six Months Ended June
		2007				2006
Operating Activities
Net income		$	220,006			$	227,217
Adjustments to reconcile net income to cash provided/(used) by operating activities of continuing operations:
Loss/(income) from discontinued operations			19,877				(19,516	)
Depreciation			46,350				43,177
Amortization of intangible assets			10,281				8,386
Other amortization			13,321				11,199
Stock-based compensation			34,227				27,204
Pension funding under/(over) expense			4,993				(52,442	)
Other, net			(33,801	)			(9,552	)
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Accounts receivable			(68,705	)			(89,138	)
Inventories			(197,058	)			(136,159	)
Accounts payable			28,687				16,490
Accrued compensation			(28,284	)			(51,038	)
Accrued income taxes			6,624				(26,035	)
Accrued liabilities and other			36,096				31,306
Cash provided/(used) by operating activities of continuing operations			92,614				(18,901	)
(Loss)/income from discontinued operations			(19,877	)			19,516
Adjustments to reconcile (loss)/income from discontinued operations to cash used by discontinued operations:
Loss on disposal of discontinued operations			24,314				—
Other, net			(15,601	)			(20,643	)
Cash used by discontinued operations			(11,164	)			(1,127	)
Cash provided/(used) by operating activities			81,450				(20,028	)
Investing Activities
Capital expenditures			(50,385	)			(55,018	)
Business acquisitions, net of cash acquired			(178,639	)			(3,893	)
Proceeds from sale of Intimate Apparel business			348,714				—
Software purchases			(777	)			(7,196	)
Other, net			3,676				9,204
Cash provided/(used) by investing activities of continuing operations			122,589				(56,903	)
Discontinued operations, net			(243	)			2,875
Cash provided/(used) by investing activities			122,346				(54,028	)
Financing Activities
Increase in short-term borrowings			18,565				88,175
Payments on long-term debt			(8,531	)			(1,444	)
Purchase of Common Stock			(350,000	)			(118,582	)
Cash dividends paid			(122,359	)			(93,607	)
Proceeds from issuance of Common Stock			75,519				53,542
Tax benefits of stock option exercises			14,667				7,824
Cash used by financing activities			(372,139	)			(64,092	)
Effect of Foreign Currency Rate Changes on Cash			2,968				3,263
Net Change in Cash and Equivalents			(165,375	)			(134,885	)
Cash and Equivalents — Beginning of Year			343,224				296,557
Cash and Equivalents — End of Period		$	177,849			$	161,672

See notes to consolidated financial statements.

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 2007, December 2006 and June 2006 relate to the fiscal periods ended on June 30, 2007, December 30, 2006 and July 1, 2006, 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 accounting principles generally accepted in the United States of America for complete financial statements. Similarly, the December 2006 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, the accompanying unaudited consolidated financial statements contain all normal and recurring adjustments necessary to make a fair statement of the consolidated financial position, results of operations and cash flows of VF for the interim periods presented. Operating results for the three months and six months ended June 2007 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 29, 2007. 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 2006 (“2006 Form 10-K”).

In December 2006, management and the Board of Directors decided to dispose of VF’s intimate apparel business consisting of its domestic and international women’s intimate apparel business units. Accordingly, the Consolidated Statements of Income and Consolidated Statements of Cash Flows have been reclassified to present the intimate apparel business as discontinued operations for all periods. General interest expense has not been allocated to the discontinued operations. Similarly, the assets and liabilities of the discontinued operations held for sale have been separately presented in the Consolidated Balance Sheets. Amounts presented herein, unless otherwise stated, relate to continuing operations. See Note C.

Note B — Changes in Accounting Policies

Defined benefit pension plans – In September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (“Statement 158”). Statement 158, effective as of December 2006, requires that the funded status of a defined benefit plan, measured as the difference between the fair value of plan assets and projected benefit obligations, be recorded in the balance sheet. Statement 158 also requires that gains and losses for differences between actuarial assumptions and actual results and that unrecognized prior service costs be recorded as components of accumulated other comprehensive income. In accordance with Statement 158, financial statements prior to December 2006 were not restated.

Under the prior accounting rules, VF had been using a September measurement date for valuation of its defined benefit pension plans’ assets and projected benefit obligations for its December year-end balance sheet. Under Statement 158, VF was required to change its September measurement date to a December year-end measurement date by no later than December 2008. VF elected, effective at the beginning of 2007, to change its plans’ measurement date to December. In accordance with Statement 158, pension expense of

$3.8 million, net of $2.4 million income tax effect, for the period October to December 2006 (determined using the September 2006 measurement date) was recorded as a charge to Retained Earnings at the beginning of 2007. Plan assets, projected benefit obligations, adjustments to other comprehensive income, and expense in the 2007 financial statements were determined using the beginning of 2007 measurement date. See Note H.

Accrued income taxes – In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in income tax positions. FIN 48 prescribes the recognition threshold an income tax provision is required to meet before being recorded in the financial statements and provides guidance on classification and disclosures of tax positions. VF adopted FIN 48 in the first quarter of 2007 by recording a cumulative effect charge of $2.3 million, net of $0.2 million income tax effect, to Retained Earnings at the beginning of 2007 in accordance with the provisions of FIN 48. See Note L.

Note C – Acquisitions

On January 26, 2007, VF acquired Eagle Creek, Inc. (“Eagle Creek”), maker of Eagle Creek^â brand adventure travel gear that includes accessories, luggage and daypacks. Eagle Creek, with revenues of $30 million in its latest fiscal year, will be operated as part of the Outdoor coalition. On February 28, 2007, VF acquired substantially all the operating assets of Majestic Athletic, Inc. (“Majestic”) and related companies. Majestic currently holds on-field uniform rights for all 30 major league baseball teams, including exclusively supplying each team with on-field MLB Authentic Collection™ outerwear, batting practice jerseys, T-shirts, shorts and fleece. Majestic markets baseball-related consumer apparel to numerous wholesale accounts. Majestic, with 2006 revenues of $179 million, will be operated as part of the Imagewear coalition’s Activewear division. The Eagle Creek and Majestic acquisitions are consistent with VF’s goal of acquiring strong lifestyle brands that have global growth potential within their target markets. On April 2, 2007, VF acquired the license-related assets of a former licensee who had rights to market VF’s The North Face^â brand in China and Nepal (“The North Face – China”). Because the preexisting license was an arms-length contract, no settlement gain or loss was recognized at the acquisition date. This acquisition gives VF control of one of its leading brands in one of the fastest growing markets in the world. Eagle Creek, Majestic and The North Face – China are together referred to as the “2007 Acquisitions.”

The total cash purchase price for the 2007 Acquisitions was $178.6 million. Management, with assistance from independent valuation specialists, has allocated the purchase price to acquired tangible and intangible assets, and assumed liabilities, based on their respective fair values. The purchase price allocations are substantially complete, except for income tax and certain other matters. Management expects to complete the purchase price allocations during the second half of 2007.

The purchase price of Eagle Creek and The North Face – China exceeded the fair value of the net assets acquired. The excess was recorded as Goodwill, which was attributed to expected growth rates and profitability of the acquired businesses, the ability to expand the Eagle Creek^® brand globally and The North Face^® brand in Asia, and expected synergies with existing VF operations. Contingent consideration for Eagle Creek is payable at the end of 2008 and 2009 based on a measure of profitability over those periods. Any contingent consideration earned will be recorded as additional Goodwill. In the Majestic acquisition, the fair value of the net assets acquired exceeded the purchase price by $14.0 million. Since there is contingent consideration based on growth in revenues that may result in the recognition of additional cost at the end of 2007, 2008 and 2009, the maximum amount of contingent consideration was recorded as a deferred credit of $1.5 million in Accrued Liabilities and $8.5 million in Other Liabilities. The remaining $4.0 million excess fair value was applied to reduce noncurrent assets on a pro rata basis. When the contingent consideration is known, any amount of payments less than the $10.0 million maximum will be recognized as a pro rata reduction of amounts initially assigned to noncurrent assets.

The Eagle Creek^â and Majestic^â trademarks and tradenames, which management believes have indefinite lives, have been valued at $18.4 million. Amounts assigned to amortizable intangible assets for the 2007 Acquisitions totaled $85.8 million and consisted primarily of $49.0 million of licensing contracts and $36.5 million of customer relationships. Licensing contracts are being amortized using straight-line and accelerated methods over their estimated weighted average useful lives of 18 years, and customer relationships are being amortized using accelerated methods over their estimated weighted average useful lives of 15 years.

Operating results of the 2007 Acquisitions have been included in the consolidated financial statements since their respective acquisition dates. Pro forma operating results for the 2007 and 2006 acquisitions, for periods prior to their respective dates of acquisition, are not provided because the amounts are not significant.

Note D – Discontinued Operations; Sale of H.I.S^® Brand

In December 2006, management and the Board of Directors decided to exit the women’s intimate apparel business. VF entered into a definitive agreement on January 22, 2007 to sell all of its domestic and international women’s intimate apparel business units (formerly referred to as the Intimate Apparel Coalition, a reportable business segment). The transaction is consistent with VF’s stated objective of focusing on lifestyle businesses having higher growth and profit potential. The results of operations and cash flows of the intimate apparel business are separately presented as discontinued operations for all periods in accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“Statement 144”). Similarly, the assets and liabilities of this business have been reclassified and reported as held for sale for all periods presented.

VF recorded a charge of $42.2 million in 2006, computed in accordance with Statement 144, for the difference between the recorded book value of the intimate apparel business and the expected net sales proceeds. The recorded book value included $32.0 million of foreign currency translation losses, net of income tax benefit, deferred in Accumulated Other Comprehensive Income (Loss). The impact of the $42.2 million charge and a partial pension plan curtailment charge of $5.6 million, less income tax benefit of $10.9 million, resulted in an estimated loss on disposal of $36.8 million ($0.33 per share) in 2006. Included in the determination of the $42.2 million impairment charge was a $17.2 million unrealized gain on an investment in marketable securities of one of our intimate apparel suppliers.

The sale closed on April 1, 2007, with net sales proceeds received in the second quarter of $348.7 million plus $28.8 million related to the business unit’s Cash and Equivalents. The transaction excluded the marketable securities discussed above, which remained unsold at the end of the second quarter. Because the anticipated gain on these securities will not be recognized until sold, the loss on disposal was increased by the amount of the unrealized gain included in the recorded 2006 impairment. Accordingly, in the second quarter, the loss on disposal was increased by $24.3 million ($0.21 per share) consisting of (i) a $17.2 million loss related to the unsold marketable securities, (ii) finalization of the purchase price allocation for income tax purposes and (iii) final determination of the sales price in June 2007. Since the marketable securities were unsold at the end of the second quarter, they continue to be classified as available for sale and recorded at market value, with their unrealized appreciation of $13.9 million recorded in Accumulated Other Comprehensive Income. Future adjustments to the loss on disposal will result from the sale of the marketable securities and the impact, if any, of settling retained liabilities. All adjustments to the loss on disposal will be recorded when realized.

Summarized operating results for the discontinued intimate apparel business are as follows:

		Three Months Ended June								Six Months Ended June
In thousands		2007				2006				2007				2006
Total revenues		$	3,378			$	215,515			$	196,167			$	425,626
Income from operations, net of income taxes of $719, $5,313, $3,190 and $10,946		$	171			$	9,473			$	4,437			$	19,516
Loss on disposal			(24,314	)			—				(24,314	)			—
Income (loss) from discontinued operations		$	(24,143	)		$	9,473			$	(19,877	)		$	19,516
Earnings Per Common Share — Basic
Income from operations		$	—			$	0.09			$	0.04			$	0.18
Loss on disposal			(0.22	)			—				(0.22	)			—
Earnings Per Common Share — Diluted
Income from operations		$	—			$	0.08			$	0.04			$	0.17
Loss on disposal			(0.21	)			—				(0.21	)			—

Summarized assets and liabilities of discontinued operations presented in the Consolidated Balance Sheets are as follows:

		June				December				June
In thousands		2007				2006				2006
Accounts receivable, net		$	377			$	83,129			$	123,646
Inventories			—				168,962				179,277
Investment in marketable securities			17,894				—				—
Other current assets, primarily deferred income taxes			—				9,835				11,513
Current assets of discontinued operations		$	18,271			$	261,926			$	314,436
Property, plant and equipment, net		$	—			$	45,862			$	47,944
Goodwill			—				117,526				117,526
Investment in marketable securities			—				21,533				18,696
Other assets, primarily deferred income taxes			—				16,377				2,669
Allowance to reduce noncurrent assets to estimated fair value			—				(42,153	)			—
Noncurrent assets of discontinued operations		$	—			$	159,145			$	186,835
Accounts payable		$	—			$	49,118			$	42,908
Accrued liabilities			1,075				29,872				39,221
Current liabilities of discontinued operations		$	1,075			$	78,990			$	82,129
Minority interest in partially owned subsidiaries		$	—			$	6,455			$	5,908
Other, primarily deferred income taxes			—				7,131				18,761
Noncurrent liabilities of discontinued operations		$	—			$	13,586			$	24,669

On June 29, 2007, VF sold certain H.I.S ^® trademarks and related intellectual property for $11.4 million. H.I.S ^® is a female jeans and casual apparel brand marketed primarily in Germany. Remaining inventories and other operating assets of the H.I.S ^® brand (which are not material) will be liquidated through the end of the year. Net foreign currency translation gains totaling $5.8 million on the H.I.S ^® net operating assets, previously deferred in Accumulated Other Comprehensive Income, are being recognized in the Consolidated Statement of Income as the sale and liquidation proceeds are realized. The sale proceeds and recognition of the deferred foreign currency translation gains, less employee termination and other exit costs, resulted in a $7.5 million gain, recorded as $2.3 million of additional expense in Cost of goods sold and a reduction of Marketing, administrative and general expenses of $9.8 million in the second quarter. Revenues of the H.I.S^® brand totaled $14 million in the first half of 2007 and $34 million and $45 million annually in 2006 and 2005, respectively.

Note E – Intangible Assets

		June 2007																December 2006
		Weighted				Gross								Net				Net
		Average				Carrying				Accumulated				Carrying				Carrying
(Dollars in thousands)		Life *				Amount				Amortization				Amount				Amount
Amortizable intangible assets:
License agreements		22 years				$	197,294			$	33,829			$	163,465			$	119,785
Customer relationships		20 years					137,160				18,818				118,342				84,964
Trademarks and other		7 years					11,000				3,568				7,432				8,082
Amortizable intangible assets, net*															289,239				212,831
Indefinite-lived intangible assets:
Trademarks and tradenames															565,142				542,862
Intangible assets, net														$	854,381			$	755,693

Amortization expense of intangible assets for the second quarter and six months of 2007 was $5.7 million and $10.3 million, respectively. Estimated amortization expense for the remainder of 2007 is $10.7 million and for the years 2008 through 2011 is $19.1 million, $18.6 million, $16.1 million and $15.1 million, respectively.

Note F – Goodwill

(In thousands)		Jeanswear				Outdoor				Imagewear				Sportswear				Total
Balance, December 2006		$	225,202			$	535,416			$	56,246			$	214,061			$	1,030,925
Change in accounting policy (Note L)			—				(1,014	)			—				(1,809	)			(2,823	)
2007 Acquisitions			—				14,337				—				—				14,337
Additional purchase price			50				—				—				—				50
Adjustments to purchase price allocation *			—				(6,240	)			—				(17	)			(6,257	)
Currency translation			5,965				6,151				—				—				12,116
Balance, June 2007		$	231,217			$	548,650			$	56,246			$	212,235			$	1,048,348

Note G – Long-term Debt

At June 2007, there was $127.9 million in borrowings outstanding under the revolving credit portion of the international bank credit agreement. These short-term notes can be continued until October 2010. Of this

amount, $67.3 million was classified as Long-term Debt because VF has the ability and intent to retain that amount as outstanding for the next 12 months.

Note H – Pension Plans

As discussed in Note B, VF adopted the balance sheet provisions of Statement 158 at the end of 2006 but continued to use a September 2006 measurement date, as permitted by the prior accounting rules. Effective at the beginning of 2007, VF elected to early adopt the measurement date provisions of Statement 158 by changing its annual measurement date from September to December. Accordingly, VF, along with its independent actuary, prepared a valuation of its pension plans’ assets and benefit obligations as of the beginning of 2007. The following summarizes the funded status of the plans included in the June 2007 balance sheet as measured at the beginning of 2007, compared with the funded status as reported in the December 2006 balance sheet (based on the September 30, 2006 valuation):

		June				December
In thousands		2007				2006
Accumulated benefit obligations		$	1,081,803			$	1,061,790
Fair value of plan assets		$	1,023,556			$	973,733
Projected benefit obligations			1,139,941				1,120,523
Funded status		$	(116,385	)		$	(146,790	)
Amount included in consolidated Balance Sheet:
Current liabilities		$	(5,300	)		$	(3,000	)
Noncurrent liabilities			(113,662	)			(143,790	)
Accumulated other comprehensive (income) loss:
Deferred actuarial loss			156,934				195,310
Deferred prior service cost			17,854				20,070
		$	55,826			$	68,590
Assumptions used to determine benefit obligations:
Discount rate			5.95	%			6.00	%
Rate of compensation increase			4.00	%			4.00	%

VF’s net periodic pension cost contained the following components:

		Three Months Ended June								Six Months Ended June
(In thousands)		2007				2006				2007				2006
Service cost — benefits earned during the year		$	6,521			$	5,507			$	11,620			$	11,014
Interest cost on projected benefit obligations			16,914				16,575				33,828				33,150
Expected return on plan assets			(20,652	)			(18,188	)			(41,304	)			(36,376	)
Amortization of:
Prior service cost			672				870				1,344				1,740
Actuarial loss			1,323				6,855				2,646				13,710
Net periodic pension cost			4,778				11,619				8,134				23,238
Amount allocable to discontinued operations			(1,534	)			(3,635	)			(1,612	)			(7,270	)
Net periodic pension cost — continuing operations		$	3,244			$	7,984			$	6,522			$	15,968

During the first half of 2007, VF made contributions totaling $1.6 million to fund benefit payments for the Supplemental Executive Retirement Plan (“SERP”). VF currently anticipates making an additional $4.5 million of contributions to fund benefit payments for the SERP during the remainder of 2007. VF is not required under applicable regulations, and does not currently intend, to make a contribution to the qualified pension plan during 2007.

Note I – Business Segment Information

VF’s businesses are grouped into four 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. Financial information for VF’s reportable segments is presented below:

		Three Months Ended June								Six Months Ended June
(In thousands)		2007				2006				2007				2006
Coalition revenues:
Jeanswear		$	655,402			$	638,170			$	1,416,206			$	1,341,990
Outdoor			446,745				371,047				985,498				756,692
Imagewear			229,885				188,496				443,576				382,461
Sportswear			153,651				141,210				302,091				304,231
Other			31,710				12,390				43,641				21,561
Total coalition revenues		$	1,517,393			$	1,351,313			$	3,191,012			$	2,806,935
Coalition profit:
Jeanswear		$	101,437			$	88,850			$	230,890			$	211,873
Outdoor			52,962				42,355				136,707				92,947
Imagewear			26,052				29,107				56,506				59,158
Sportswear			18,834				17,885				28,808				38,338
Other			3,670				283				2,458				(927	)
Total coalition profit			202,955				178,480				455,369				401,389
Corporate and other expenses			(33,010	)			(32,149	)			(69,833	)			(66,916	)
Interest, net			(10,253	)			(12,564	)			(21,732	)			(23,825	)
Income from continuing operations before income taxes		$	159,692			$	133,767			$	363,804			$	310,648

Since their dates of acquisition, operating results of Eagle Creek and The North Face – China are included in the Outdoor Coalition and results of Majestic are included in the Imagewear Coalition.

Note J — Capital and Comprehensive Income (Loss)

Common stock outstanding is net of shares held in treasury, and in substance retired, of 10,042,686 at June 2007, 5,775,810 at December 2006 and 5,775,810 at June 2006. In addition, 261,849 shares of VF Common Stock at June 2007, 261,458 shares at December 2006 and 266,558 shares at June 2006 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.

Activity for 2007 in the Common Stock, Additional Paid-in Capital and Retained Earnings accounts is summarized as follows:

		Common				Additional				Retained
(In thousands)		Stock				Paid-in Capital				Earnings
Balance, December 2006		$	112,185			$	1,469,764			$	1,806,875
Net income			—				—				220,006
Cash dividends on Common Stock			—				—				(122,359	)
Purchase of treasury stock			(4,116	)			—				(345,884	)
Changes in accounting policies (Note B)			—				—				(6,085	)
Stock compensation plans, net			1,648				115,341				(11,859	)
Balance, June 2007		$	109,717			$	1,585,105			$	1,540,694

Other comprehensive income consists of 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)		2007				2006				2007				2006
Net income		$	81,662			$	99,032			$	220,006			$	227,217
Other comprehensive income (loss):
Foreign currency translation
Amount arising during the period			3,303				24,026				10,236				16,562
Reclassification to net income during the period (Note D)			50,191				—				50,191				—
Defined benefit pension plans
Reclassification to net income during the period			1,882				—				3,878				—
Unrealized gains (losses) on derivative financial instruments
Amount arising during the period			(5,406	)			(12,220	)			(7,813	)			(13,216	)
Reclassification to net income during the period			1,437				(2,103	)			764				(5,453	)
Unrealized gains (losses) on marketable securities
Amount arising during the period			665				(5,660	)			(3,639	)			(7,892	)
Income tax benefit related to components of other comprehensive income (loss)			(13,131	)			2,150				(10,876	)			(5,981	)
Other comprehensive income (loss)			38,941				6,193				42,741				(15,980	)
Comprehensive income		$	120,603			$	105,225			$	262,747			$	211,237

Accumulated Other Comprehensive Income (Loss) for 2007 is summarized as follows:

		Foreign				Defined				Derivative
		Currency				Benefit				Financial				Marketable
In thousands		Translation				Pension Plans				Instruments				Securities				Total
Balance December 2006		$	(3,787	)		$	(132,776	)		$	2,448			$	10,463			$	(123,652	)
Adjustments to adopt measurement date provisions of Statement 158 (Note B):
Change in measurement date			—				20,115				—				—				20,115
Transition adjustment			—				2,460				—				—				2,460
Other comprehensive income (loss)			41,643	*			2,392				(4,348	)			3,054				42,741
Balance, June 2007		$	37,856			$	(107,809	)		$	(1,900	)		$	13,517			$	(58,336	)

Note K – Stock-based Compensation

During the first quarter of 2007, VF granted options for 1,708,150 shares of Common Stock at an exercise price of $76.10, equal to the market value of VF Common Stock on the date of grant. 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 for employee groups having similar exercise behaviors, with the following assumptions: expected volatility ranging from 22% to 30%, with a weighted average of 24%; expected term of 4.7 to 7.3 years; expected dividend yield of 3.2%; and risk-free interest rate ranging from 5.2% at six months to 4.8% at 10 years. The resulting weighted average fair value of these options at the date of grant was $16.80 per option.

Also during the first quarter of 2007, VF granted 238,680 performance-based restricted stock units. Participants are eligible to receive shares of VF Common Stock at the end of a three year performance period. The actual number of shares, if any, that will be earned will be based on VF’s performance over that period. The grant date fair value of the restricted stock units was $77.00 per unit.

Note L – Income Taxes

VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and foreign jurisdictions. With limited exceptions, VF is not subject to examination by tax authorities for years prior to 2001. In the United States, Internal Revenue Service (“IRS”) examinations for tax years 1995 through 1999 are tentatively agreed upon, the statutes of limitations have expired for tax years 2000 and 2001, and tax years 2002 and 2003 are in the appeals process with the IRS. In addition, tax years 1998 to 2002 are under examination by the State of North Carolina.

As discussed in Note B, VF adopted FIN 48 effective at the beginning of 2007. In accordance with the new rules, VF recognized (i) a decrease of $0.5 million in the liability for unrecognized income tax benefits, (ii) a charge of $2.3 million, net of a $0.2 million income tax effect, to Retained Earnings and (iii) a reduction of $2.8 million of Goodwill. As of the beginning of 2007, VF had recognized total liabilities of $113.0 million for unrecognized income tax benefits, which included $11.6 million of interest (net of tax benefit). The total amount of unrecognized tax benefits that, if recognized, would favorably affect income tax expense in future periods was $72.0 million, which included interest of $9.6 million (net of tax benefit).

During the first quarter of 2007, the amount of unrecognized income tax benefits was decreased by $6.2 million due to a favorable audit outcome on certain matters outside of the United States related to an acquired business for years prior to its acquisition by VF. Accordingly, the income tax benefit associated with the decrease in the unrecognized tax benefit was recorded as a reduction of Goodwill associated with the acquisition. Similarly during the second quarter of 2007, the amount of unrecognized tax benefits was reduced by $1.8 million, with a corresponding reduction in deferred income tax assets, due to settlement of a tax audit. Neither of these reductions affected Net Income. During the remainder of 2007, management believes that it is reasonably possible that the amount of unrecognized income tax benefits may decrease by an additional $13 million, which includes $10 million that would reduce income tax expense, due primarily to settlement of tax audits and expiration of statutes of limitations.

Note M – Earnings Per Share

Earnings per share were computed as follows:

		Three Months Ended June								Six Months Ended June
(In thousands, except per share amounts)		2007				2006				2007				2006
Basic earnings per share:
Income from continuing operations		$	105,805			$	89,559			$	239,883			$	207,701
Less Preferred Stock dividends			—				266				—				646
Income available for Common Stock		$	105,805			$	89,293			$	239,883			$	207,055
Weighted average Common Stock outstanding			110,504				109,879				111,199				109,867
Basic earnings per share from continuing operations		$	0.96			$	0.81			$	2.16			$	1.88
Diluted earnings per share:
Income from continuing operations		$	105,805			$	89,559			$	239,883			$	207,701
Weighted average Common Stock outstanding			110,504				109,879				111,199				109,867
Effect of dilutive securities:
Preferred Stock			—				744				—				955
Stock options and other			2,969				1,916				2,943				1,618
Weighted average Common Stock and dilutive securities outstanding			113,473				112,539				114,142				112,440
Diluted earnings per share from continuing operations		$	0.93			$	0.80			$	2.10			$	1.85

Earnings per share for Discontinued Operations and Net Income were computed using the same weighted average shares described above.

Note N – Recently Issued Accounting Standards

In September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurements (“Statement 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Statement 157 does not require any new fair value measurements. The provisions of Statement 157 are effective for fiscal years beginning after November 15, 2007. VF is currently evaluating the impact of adopting Statement 157.

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115 (“Statement 159”). This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The Statement is effective for fiscal years beginning after November 15, 2007. VF is currently evaluating the impact of adopting Statement 159.

Note O – Subsequent Events

In July 2007, VF agreed to acquire Seven For All Mankind, LLC for $775 million in cash. 7 For All Mankind^® is a rapidly growing premium denim-based lifestyle brand sold through luxury retail stores and upscale specialty boutiques and through the internet. In a separate transaction, VF agreed to acquire lucy activewear, inc. for $110 million in cash. lucy^® is a rapidly growing women’s activewear lifestyle brand sold through 50 company-owned retail stores and the internet. These transactions are subject to regulatory approval and other customary conditions and are expected to be completed during the third quarter. The acquisitions will be financed by existing cash balances, commercial paper borrowings and placement of long-term debt.

Also in July 2007, the VF Board of Directors declared a regular quarterly cash dividend of $0.55 per share, payable on September 20, 2007 to shareholders of record as of the close of business on September 10, 2007.

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

Overview

Highlights of the second quarter of 2007 included:

•		Revenues, income and earnings per share from continuing operations for the second quarter were each at record levels.
•		Revenues increased 12% over the prior year quarter to $1,517 million, driven by higher revenues across all of our business coalitions, with an 8% increase coming from organic growth and 4% from acquisitions.
•		Income from continuing operations increased 18% to $105.8 million, compared with $89.6 million in the prior year quarter, resulting from the strong performance of our Outdoor and Jeanswear Coalitions and the benefit of the gain on sale of the H.I.S® trademarks and related intellectual property discussed below. Earnings per share increased 16% to $0.93. (All per share amounts are presented on a diluted basis.)
•		VF sold certain H.I.S® trademarks and related intellectual property for $11.4 million. The sale benefited second quarter earnings by $0.04 per share.
•		VF acquired the license-related operations of its former licensee who held the rights to market The North Face® brand in China and Nepal. This acquisition and the first quarter 2007 acquisitions of Eagle Creek, Inc. (“Eagle Creek”) and substantially all the operating assets of Majestic Athletic, Inc. (“Majestic”) are collectively referred to as the “2007 Acquisitions.”
•		VF completed the sale of its domestic and international intimate apparel business for $348.7 million in cash. The proceeds were used to fund the purchase of 4.1 million shares of VF Common Stock during the first half of 2007 for a total cost of $350.0 million.

Discontinued Operations

In December 2006, management and the Board of Directors decided to exit the women’s intimate apparel business. VF entered into a definitive agreement on January 22, 2007 to sell all of its domestic and international women’s intimate apparel business units (formerly referred to as the Intimate Apparel Coalition, a reportable business segment). The transaction, which closed on April 1, 2007, is consistent with VF’s stated objective of focusing on lifestyle businesses having higher growth and profit potential. The results of operations and cash flows of the intimate apparel business are separately presented as discontinued operations for all periods in accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“Statement 144”). Similarly, the assets and liabilities of this business have been reclassified and reported as held for sale for all periods presented. Unless otherwise stated, the remaining sections of this discussion and analysis of financial condition and results of operations relate only to continuing operations.

We recorded a charge of $42.2 million in 2006, computed in accordance with Statement 144, for the difference between the recorded book value of the intimate apparel business and the expected net sales proceeds. The impact of the $42.2 million charge and a partial pension plan curtailment charge of $5.6 million, less income tax benefit of $10.9 million, resulted in an estimated loss on disposal of $36.8 million ($0.33 per share) in 2006. Included in the determination of the $42.2 million impairment charge was a $17.2 million unrealized gain on an investment in marketable securities of one of our intimate apparel suppliers.

The sales transaction excluded these marketable securities, which remained unsold at the end of the second quarter. Because the anticipated gain on these securities will not be recognized until sold, the loss on disposal was increased by the amount of the unrealized gain included in the recorded 2006 impairment. Accordingly, in the second quarter, the loss on disposal was increased by $24.3 million ($0.21 per share) consisting of (i) a $17.2 million loss related to the unsold marketable securities, (ii) finalization of the

purchase price allocation for income tax purposes and (iii) final determination of the purchase price in June 2007.

Future adjustments to the loss on disposal will result from the sale of the marketable securities and the impact, if any, of settling retained liabilities. All adjustments to the loss on disposal will be recorded when realized. Management intends to complete the sale of the remaining intimate apparel assets and settle all remaining liabilities by the end of 2007.

See Note D to the consolidated financial statements.

Analysis of Results of Continuing Operations

       Consolidated Statements of Income

The following table presents a summary of the changes in our Total Revenues from 2006:

		Second Quarter				Six Months
		2007 Compared				2007 Compared
(In millions)		with 2006				with 2006
Total revenues - 2006		$	1,351			$	2,807
Organic growth			104				278
Acquisitions in current year			56				89
Acquisition in prior year (to anniversary date)			6				17
Total revenues - 2007		$	1,517			$	3,191

The increase in Total Revenues in the second quarter and first half of 2007 was due primarily to organic sales growth within the Outdoor and Jeanswear coalitions. The 2007 Acquisitions added revenues of $56 million in the second quarter and $89 million during the first six months of 2007. In addition, the joint venture in India, formed in 2006, contributed an additional $6 million in the 2007 quarter and $17 million in the six month period of 2007. Additional details on revenues are provided in the section titled “Information by Business Segment.”

Approximately 26% of Total Revenues in 2006 were in international markets. In translating foreign currencies into the U.S. dollar, a weaker U.S. dollar in relation to the functional currencies where VF conducts the majority of its international business (primarily the European euro countries) positively impacted revenue comparisons by $21 million in the second quarter of 2007 and $56 million in the first half of 2007, compared with the 2006 periods. The average translation rate for the euro was $1.32 per euro during the first half of 2007, compared with $1.22 during the first half of 2006. The U.S. dollar has continued to weaken in recent months, resulting in a translation rate of $1.35 per euro at the end of June 2007. Reported revenues for the remainder of 2007 would be positively affected by currency translation rates when compared with 2006 if the current translation rate were to continue.

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

		Three Months Ended June								Six Months Ended June
		2007				2006				2007				2006
Gross margin (total revenues less cost of goods sold)			42.9	%			43.3	%			43.2	%			43.3	%
Marketing, administrative and general expenses			31.8	%			32.6	%			31.2	%			31.5	%
Operating income			11.1	%			10.8	%			12.0	%			11.9	%

Gross margin as a percentage of Total Revenues for the second quarter of 2007 decreased 0.4% from the prior year quarter to 42.9%, with 0.2% due to restructuring charges related to the H.I.S^® sale and the remainder primarily driven by a less favorable business mix in the Imagewear coalition.

Marketing, Administrative and General Expenses as a percentage of Total Revenues decreased 0.8% in the second quarter of 2007 and 0.3% in the first six months of 2007 from the prior year periods, with 0.6% of the improvement in the quarter and all of the improvement in the first six months due to the net gain on the H.I.S^® sale.

Net Interest Expense decreased by $2.3 million in the quarter and by $2.1 million in the first half of 2007. Interest income increased $2.6 million in the first six months of 2007 due to an increase in interest rates and higher cash levels resulting primarily from the proceeds of the sale of the global intimate apparel business received in April 2007. Interest expense increased $0.5 million in the first half of 2007, reflecting higher interest rates on short-term borrowings in domestic and international markets. The weighted average interest rate on outstanding debt increased to 6.4% for the first six months of 2007 from 6.0% for the comparable period of 2006. Average interest-bearing debt outstanding totaled $812 for the first half of 2007 and $868 million for the comparable period of 2006.

The effective income tax rate was 34.1% for the first half of 2007 and 33.1% for the comparable period in 2006. The effective income tax rate for the second quarter and first half of 2007 was based on the expected rate of approximately 34% for the full year, adjusted for discrete events arising during the respective periods. The lower tax rate in the first half of 2006 resulted primarily from favorable tax audit settlements.

Income from Continuing Operations increased 18% to $105.8 million from $89.6 million in the second quarter of 2006. Earnings per share from continuing operations increased 16% to $0.93 from $0.80 in the prior year quarter. In the first six months of 2007, Income from Continuing Operations increased 15% to $239.9 million compared with $207.7 million in the prior year period, with earnings per share increasing 14% to $2.10 from $1.85. The lower percentage increases in earnings per share reflected the effect of greater diluted shares outstanding in the 2007 periods resulting from a higher level of stock option exercises and greater dilutive impact of stock-based compensation in 2007. The sale of the H.I.S^® trademarks and related intellectual property benefited the second quarter of 2007 by $0.04 per share. Remaining costs of $0.01 to $0.02 per share are expected to be recognized in the second half of 2007 related to the exit of the H.I.S^® brand. In addition, in translating foreign currencies into the U.S. dollar, there was a $0.01 favorable impact on earnings per share in the 2007 quarter and a $0.06 favorable impact on earnings per share in the 2007 six months compared with the prior year.

After considering the operating results of our discontinued global intimate apparel businesses and the loss on disposal of this business, we reported net income of $81.7 million for the second quarter of 2007, an 18% decrease from the prior year period.

          Information by Business Segment

VF’s businesses are grouped into four 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 I to the Consolidated Financial Statements for a summary of our results of operations by coalition, along with a reconciliation of Coalition Profit to Income from Continuing Operations Before Income Taxes. Also, as explained in Note A to the Consolidated Financial Statements, amounts for 2006 have been reclassified to conform with the 2007 presentation.

The following tables present a summary of the changes in our Total Revenues by coalition for the second quarter and first six months of 2007:

		Second Quarter
(In millions)		Jeanswear				Outdoor				Imagewear				Sportswear				Other
Revenues - 2006		$	638			$	371			$	188			$	141			$	13
Organic growth			11				65				(3	)			13				18
Acquisitions in current year			—				11				45				—				—
Acquisition in prior year (to anniversary date)			6				—				—				—				—
Revenues - 2007		$	655			$	447			$	230			$	154			$	31