SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended January 3, 2009
Commission file number: 1-5256
V. F. CORPORATION
(Exact name of registrant as
specified in its charter)
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Pennsylvania
(State or other jurisdiction
of
incorporation or organization)
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23-1180120
(I.R.S. employer
identification number)
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105 Corporate Center Boulevard
Greensboro, North Carolina 27408
(Address of principal executive
offices)
(336) 424-6000
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, without par value,
stated capital $1 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. YES þ NO
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. YES
o NO þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
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
The aggregate market value of Common Stock held by
non-affiliates (i.e., persons other than officers, directors and
5% stockholders) of V.F. Corporation on June 28, 2008, the
last day of the registrants second fiscal quarter, was
approximately $5,172,000,000, based on the closing price of the
shares on the New York Stock Exchange.
As of January 31, 2009, there were 110,155,581 shares
of Common Stock of the registrant outstanding.
Documents Incorporated By Reference
Portions of the definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on April 28, 2009
(Item 1 in Part I and Items 10, 11, 12, 13 and 14
in Part III), which definitive Proxy Statement shall be
filed with the Securities and Exchange Commission within
120 days after the end of the fiscal year to which this
report relates.
This document (excluding exhibits) contains 92 pages.
The exhibit index begins on page 45.
PART I
V.F. Corporation, organized in 1899, is a worldwide leader in
branded lifestyle apparel and related products. Unless the
context indicates otherwise, the terms VF,
we, us and our used herein
refer to V.F. Corporation and its consolidated subsidiaries. Our
stated vision is: VF will grow by building lifestyle brands that
excite consumers around the world.
For over 100 years, VF has grown by offering consumers high
quality, high value branded apparel and related products. Since
2004, we have been implementing a growth plan that is
transforming VFs mix of business to include more lifestyle
brands. Lifestyle brands are those brands that connect closely
with consumers because they are aspirational and inspirational;
they reflect consumers specific activities and interests.
Lifestyle brands generally extend across multiple product
categories and have higher than average gross margins.
Accordingly, this transformation has included the acquisitions
of several growing lifestyle brands, such as
Vans®,
Reef®,
Kipling®,
Napapijri®,
7 For All
Mankind®
and
lucy®.
At the same time, we have continued to invest in our other
businesses, including extending The North
Face®
brand to new product categories and new markets, enhancing
product development and marketing strategy in our
Nautica®
mens sportswear business, and expanding
Lee®,
Wrangler®,
The North
Face®
and several other brands into Asian and Eastern European markets.
An important step in VFs transformation was the sale in
2007 of our womens intimate apparel business, which had
over $800 million in revenues but lower profit and growth
prospects. This business is separately reported as discontinued
operations in this Annual Report. The remaining discussion of
VFs business, unless otherwise stated, is focused on
VFs continuing operations. See additional discussion
regarding our discontinued operations in Note C to the
Consolidated Financial Statements, included at Item 8 of
this Annual Report.
VF is a highly diversified apparel company across
brands, product categories, channels of distribution and
geographies. VF owns a broad portfolio of brands in the
jeanswear, outerwear, packs, footwear, sportswear and
occupational apparel categories. These products are marketed to
consumers shopping in specialty stores, upscale and traditional
department stores, national chains and mass merchants. A growing
portion of our revenues, currently 16%, are derived from sales
directly to consumers through VF-operated retail stores and
internet sites. A global company, VF derives 30% of its revenues
from outside the United States, primarily in Europe, Asia,
Canada and Latin America. VF products are also sold in some
countries through licensees and distributors. To provide many
types of products across numerous channels of distribution in
different geographic areas, we balance efficient and flexible
internally-owned manufacturing with sourcing of finished goods
from independent contractors. An array of
state-of-the-art
technologies provide us with, among other things, sophisticated
inventory replenishment capabilities that enable us to get
consumer-right products, on time, to our customers shelves.
VFs businesses are organized primarily into product
categories, and by brands within those categories, for both
management and internal financial reporting purposes. These
groupings of businesses are called coalitions and
consist of the following: Outdoor and Action Sports, Jeanswear,
Imagewear, Sportswear and Contemporary Brands. These coalitions
are treated as reportable segments for financial reporting
purposes. Coalition management has responsibility to build their
brands, with certain financial, administrative and systems
support and disciplines provided by consolidated functions
within VF.
We consider our Outdoor and Action Sports, Sportswear and
Contemporary Brands coalitions to be our lifestyle coalitions.
These are VFs growth engines, where we expect long-term
revenue and profit growth at a mid-single digit to low-double
digit rate. Our Jeanswear and Imagewear coalitions are our
heritage businesses where our focus is on strong profitability
and cash flows, with long-term revenue growth expectations at a
low-single digit rate.
2
The following table summarizes VFs primary owned and
licensed brands by coalition:
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Coalition
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Primary Brands
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Primary Products
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Outdoor and Action Sports
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The North
Face®
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performance-oriented apparel, footwear, outdoor gear
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Vans®
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skateboard-inspired footwear, apparel
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JanSport®
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backpacks, luggage, apparel
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Eastpak®
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backpacks, apparel
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Kipling®
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handbags, backpacks, luggage, accessories (except in North
America)
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Napapijri®
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premium outdoor apparel
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Reef®
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surf-inspired footwear, apparel
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Eagle
Creek®
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luggage, packs, travel accessories
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Jeanswear
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Wrangler®
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denim and casual bottoms, tops
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Wrangler
Hero®
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denim bottoms
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Lee®
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denim and casual bottoms, tops
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Riders®
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denim and casual bottoms, tops
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Rustler®
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denim and casual bottoms, tops
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Timber Creek by
Wrangler®
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casual bottoms, tops
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Imagewear
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Red
Kap®
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occupational apparel
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Bulwark®
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occupational apparel
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Majestic®
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athletic apparel
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MLB®
(licensed)
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licensed athletic apparel
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NFL®
(licensed)
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licensed athletic apparel
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Harley-Davidson®
(licensed)
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licensed apparel
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Sportswear
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Nautica®
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fashion sportswear, denim bottoms, sleepwear, accessories
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John
Varvatos®
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luxury mens apparel, footwear, accessories
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Kipling®
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handbags, backpacks, luggage, accessories (in North America)
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Contemporary Brands
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7 For All
Mankind®
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premium denim bottoms, sportswear
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lucy®
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womens activewear
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Financial information regarding VFs coalitions, as well as
geographic information and sales by product category, are
included in Note R to the Consolidated Financial
Statements, which are included at Item 8 of this report.
Outdoor
and Action Sports Coalition
Our Outdoor and Action Sports Coalition, VFs fastest
growing business, is a group of outdoor and activity-based
businesses that represent a collection of lifestyle brands.
Product offerings include outerwear, sportswear, footwear,
equipment, backpacks, daypacks, luggage and accessories.
The North
Face®
is our largest Outdoor and Action Sports Coalition brand. Its
high performance outdoor apparel, equipment and footwear is sold
across North and South America, Europe and Asia. (In Japan and
South Korea, The North
Face®
trademarks are owned by a third party.) The North
Face®
apparel lines consist of outerwear, snow sports gear and
functional sportswear and footwear for men, women and children.
Its equipment line consists of tents, sleeping bags, backpacks,
daypacks and accessories. Many of The North
Face®
products are designed for extreme applications, such as high
altitude mountaineering and ice and rock climbing, although many
consumers also purchase these products because they represent a
lifestyle to which they aspire. The North
Face®
products are marketed through specialty outdoor and premium
sporting goods stores in the United States, Canada, Europe and
3
Asia and select department stores in the United States. In
addition, these products are sold through approximately 40
VF-operated full price retail and outlet stores in the United
States and Europe and online at www.thenorthface.com, as well as
over 180 The North
Face®
retail stores operated by independent third parties dedicated to
selling The North
Face®
products in Europe and Asia.
VF manufactures and markets
Vans®
performance and casual footwear and apparel for skateboard,
bicycle motocross (BMX), surf and snow sports
participants and enthusiasts. Products are sold on a wholesale
basis through national chain stores in the United States and
through skate and surf shops and specialty stores in the
United States and Europe. The brands products are
also sold through approximately 200 owned full-price
Vans®
retail and outlet stores in the United States, primarily on the
West Coast, and in key European markets. These retail stores
carry a wide variety of
Vans®
footwear, along with a growing assortment of apparel and
accessory items, most of which bear the
Vans®
trademarks. The
Vans®
brand is marketed through a 50%-owned joint venture in Mexico.
VF is the 70% owner of the Vans Warped
Tour®
music festival, which presents over 50 alternative rock and
heavy metal bands in performances in over 40 cities across
North America each summer.
JanSport®
backpacks, duffel bags, luggage and accessories are sold through
department, office supply and national chain stores, as well as
sports specialty stores and college bookstores in the United
States.
JanSport®
daypacks have a leading market share in the United States. A
technical line of
JanSport®
backpacks is sold through outdoor and sporting goods stores.
JanSport®
fleece and T-shirts imprinted with college logos are sold
through college bookstores and department stores in the United
States. In Europe,
Eastpak®
and
JanSport®
backpacks, and a line of
Eastpak®
clothing, are sold primarily through department and specialty
stores, where the
Eastpak®
brand is the leading backpack brand. The
JanSport®
and
Eastpak®
brands are also marketed throughout Asia by licensees and
distributors. In 2007, VF acquired the maker of Eagle
Creek®
adventure travel gear. Eagle
Creek®
products include luggage, daypacks and accessories sold through
specialty luggage stores, outdoor stores and department stores
throughout the United States and Europe.
Derived from the Finnish word for Arctic Circle,
Napapijri®
is a premium-priced brand of performance skiwear and
outdoor-inspired casual outerwear, sportswear and accessories
for men, women and children. The
Napapijri®
brand enjoys especially strong consumer awareness in Italy,
where it was created, and is expanding across Europe. Products
are sold on a wholesale basis primarily to European specialty
shops, such as sport stores and fashion boutiques, and through
VF-operated and independently-operated retail stores in several
countries in Europe. In 2007, VF entered into a majority-owned
joint venture to market
Napapijri®
brand products in Japan.
Kipling®
handbags, shoulder bags, backpacks, luggage and accessories are
stylish, colorful and fun products that are both practical and
durable. The brand name comes from the author of The Jungle
Book, Rudyard Kipling, and that provides the connection to
the
Kipling®
monkey mascot, which symbolizes fun and adventure. A colorful
monkey key ring is attached to every bag, with a different
monkey design for each product collection. Products are sold
through specialty stores in Europe, Asia and South America, as
well as through approximately 30 VF-operated and over 170
independently-operated retail stores. The
Kipling®
business in North America is managed as part of the Sportswear
Coalition.
The
Reef®
brand of surf-inspired products includes sandals, shoes, apparel
and accessories marketed primarily to surf shops and department
and specialty chain stores. Since its acquisition in 2005, we
have significantly expanded the
Reef®
brands presence by adding
Reef®
mens swimwear and other apparel in the United States and
by acquiring rights previously held by independent distributors
to market
Reef®
products in other geographic areas, particularly in Europe.
We expect continued long-term growth in our Outdoor and Action
Sports Coalition as we expand into new product categories, open
additional retail stores, expand geographically and acquire
additional outdoor or activity-based lifestyle brands.
Jeanswear
Coalition
Our Jeanswear Coalition markets jeanswear and related casual
products in the United States and in many international markets.
The largest of these brands, the
Lee®
and
Wrangler®
brands, have long-standing traditions as authentic American
jeans brands as they were established in 1889 and 1947,
respectively, and have strong market
4
positions.
Lee®
and
Wrangler®
products are sold in nearly every developed country. Products
also include shorts, casual pants, knit and woven tops and
outerwear, which are designed to complement the jeanswear
products and have helped to extend our brands.
In domestic markets,
Lee®
products are sold primarily through national chain stores and
specialty stores.
Wrangler®
westernwear is marketed through western specialty stores. The
Wrangler
Hero®,
Rustler®
and
Riders®
brands are marketed to mass merchant and regional discount
stores. Despite significant competitive activity, VFs
domestic jeanswear revenues have been stable in recent years.
Including all of its jeanswear brands, we believe that VF has
the largest unit market share of jeans in the United States and
is one of the largest marketers of jeans in the world. We also
market cotton casual pants under the Lee
Casuals®,
Timber Creek by
Wrangler®
and
Wrangler®
Khakis brands.
We believe our
vendor-managed
inventory and retail floor space management programs with
several of our major retailer customers give us a competitive
advantage in our domestic jeanswear business. We receive
point-of-sale
information from these customers on a daily basis, on an
individual store and style-size-color stockkeeping unit
(SKU) level. We then ship products based on customer
data to ensure their selling floors are appropriately stocked
with products that match their shoppers needs. Our systems
capabilities allow us to analyze our retail customers
sales, demographic and geographic data to develop product
assortment recommendations that maximize the productivity of
their jeanswear selling space and minimize their investment in
inventory.
Jeanswear in most international markets is more fashion-oriented
and has a higher selling price than similar products in the
United States. The jeans market internationally is also more
fragmented than in the United States, with competitors ranging
from global brands to a number of smaller national or regional
brands.
VFs largest international jeanswear business is located in
Western Europe. During 2008, we acquired the remaining portion
of our former 50%-owned joint venture that markets
Lee®
branded products in Spain and Portugal; this business is being
integrated with our existing European jeanswear business.
Lee®
and
Wrangler®
jeanswear products are sold through department stores and
specialty stores where we employ some of the same retail floor
space management programs described above. We also market
Lee®
and
Wrangler®
products to mass market and specialty stores in Canada and
Mexico, as well as to department stores and specialty stores in
Asia and South America. In many international markets, we are
expanding our reach through VF-operated retail stores, an
increasingly important vehicle for presenting our brands
image and marketing message directly to consumers. We are
continuing to expand our jeanswear brands in emerging markets,
such as China and Russia, and through our majority-owned joint
venture in India. In foreign markets where VF does not have
owned operations,
Lee®
and
Wrangler®
jeanswear and related products are marketed through
distributors, agents or licensees.
Lee®
and
Wrangler®
products are sold in over 500 independently operated single
brand retail stores, primarily in Eastern Europe and South
America.
In the United States, we believe our Jeanswear Coalition can
grow its jeans market share in the mass market and national
chain channels of distribution through superior consumer insight
and marketing strategies and continuous product innovation. In
our international businesses, growth will be driven by
(i) product innovation, positioning and marketing in Europe
and Latin America, (ii) expansion of our existing
businesses in Asia, particularly in China, Russia and India, and
(iii) the continued rollout of new retail stores.
Imagewear
Coalition
Our Imagewear Coalition consists of the Image division
(occupational apparel and uniforms) and the Activewear division
(owned and licensed high profile sports and lifestyle apparel).
Each division represents approximately one-half of Coalition
revenues.
The Image division provides occupational apparel for workers
around the world. Uniform and career apparel are sold in North
America and internationally, primarily in Europe, under the
Red
Kap®
brand (a premium workwear brand with more than 75 years of
history), the
Bulwark®
brand (flame resistant and protective apparel), the The
Force®
brand (apparel for law enforcement and public safety personnel)
and the Chef
Designstm
brand (restaurant and food service apparel). Products include
work pants, slacks, work and dress shirts, overalls, jackets
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and smocks. In 2009, the Image division will launch a new
services apparel line featuring high-end tailored apparel
marketed under the licensed Joseph
Abboud®
brand. Approximately two-thirds of Image division sales are to
industrial laundries, resellers and distributors that in turn
supply customized workwear to employers, primarily on a rental
basis, for
on-the-job
wear by production, service and white-collar personnel. Since
industrial laundries maintain minimal inventories of work
clothes, a suppliers ability to offer rapid delivery of
products in a broad range of sizes is an important factor in
this market. Our commitment to customer service, supported by an
automated central distribution center with several satellite
locations, has enabled customer orders to be filled within
24 hours of receipt and has helped the Red
Kap®
and
Bulwark®
brands obtain a significant share of the industrial laundry
rental business.
The Image division also develops and manages uniform programs
through custom-designed websites for major business customers
(e.g., FedEx Corporation, Air Canada, Continental Airlines and
American Airlines) and governmental organizations (e.g.,
U.S. Customs and Border Protection, Transportation Security
Administration, National Park Service, Fire Department of New
York City and New York City Transit Authority). These websites
give employees of these customers the convenience of shopping
for their work and career apparel via the internet.
In the Activewear division, we design and market sports apparel
and fanwear under licenses granted by the major sports leagues,
individual athletes and related organizations, including Major
League Baseball, the National Football League, the National
Basketball Association, the National Hockey League, NASCAR,
ESPN, Inc. and many major colleges and universities. Under
license from Major League Baseball,
Majestic®
brand uniforms are worn exclusively on-field by all 30 major
league teams.
Majestic®
brand adult and youth-size authentic, replica jersey and casual
fanwear are sold through department, sporting goods and athletic
specialty stores. Adult and youth sports apparel products
marketed under other licensed labels are distributed through
department, mass market, sporting goods and athletic specialty
stores. In addition, the Activewear division is a major supplier
of licensed
Harley-Davidson®
apparel marketed to Harley-Davidson dealerships. With the
exception of the Major League Baseball license, loss of any
license would not have a material effect on the Imagewear
Coalition.
The opportunities to grow our Imagewear Coalition revenues
include (i) the extension of its product and service
capabilities into new markets, such as hospitality/services,
(ii) growth of its
Majestic®
brand through expansion to new domestic and international
customers, updates to key authentic and replica products and
e-commerce,
(iii) growth of the National Football League business
through recently acquired rights to additional apparel
categories, (iv) market share gains in key licensed
categories and (v) the extension of VFs floor space
management and replenishment capabilities to more retail doors,
placing the product-right assortments on the sales floor in each
geographic market. Looking forward we intend to drive Image and
Activewear growth by leveraging the Coalitions ability to
manage a complex mix of products where
speed-to-market,
product customization and superior service give us a competitive
advantage.
Sportswear
Coalition
The
Nautica®
brand is the principal lifestyle brand of the Sportswear
Coalition.
Nautica®
sportswear is marketed in the department store and specialty
store channels of distribution in the United States. The
department store channel has undergone significant consolidation
in the last few years, resulting in numerous store closings and
negatively impacting sales of
Nautica®
brand products. The principal
Nautica®
product line is mens sportswear, noted for its classic
styling. We believe
Nautica®
is the number two mens collection sportswear brand in
national department stores. The Nautica Jeans
Company®
line features fashionable jeanswear and related tops for younger
male consumers. Other
Nautica®
product lines include mens outerwear, underwear and
swimwear and mens and womens sleepwear.
Nautica®
womens sportswear, initially launched in the department
store channel in late 2006, did not meet our expectations and
was discontinued in that channel of distribution in 2008.
Womens sportswear continues to be marketed at
www.nautica.com and in select
Nautica®
outlet stores.
The Sportswear Coalition operates approximately 110
Nautica®
retail outlet stores in better outlet malls across the United
States. These stores carry
Nautica®
merchandise for men, women, boys, girls and infants. The product
styles sold in the outlet stores are different from the
Nautica®
styles sold to department and specialty store wholesale
customers. These outlet stores also carry
Nautica®
merchandise from licensees to complete their product assortment.
In addition, independent licensees operate over 200
Nautica®
brand retail stores across the world.
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The
Nautica®
brand is licensed to independent parties in the United States
for apparel categories not produced by VF (e.g., tailored
clothing, dress shirts, neckwear, womens swimwear,
accessories such as fragrances, watches and eyewear) and for
nonapparel categories (e.g., bed and bath linens and
accessories).
Nautica®
products are licensed for sale in over 60 countries outside the
United States. Wholesale sales of
Nautica®
licensed products total approximately $470 million on an
annual basis.
The John
Varvatos®
brand is a rapidly growing luxury apparel and accessories
collection for men, including tailored clothing, sportswear,
footwear and accessories. The John Varvatos *
USA®
line of tailored clothing, sportswear and accessories is
designed to appeal to a younger consumer at somewhat more
accessible price points. A John Varvatos *
USA®
line of footwear will be launched in 2009. Products are sold
through upscale department and specialty stores primarily in the
United States, as well as through eight showcase John
Varvatos®
retail locations. This business is 80% owned by VF, with the
balance owned by Mr. John Varvatos.
The Sportswear Coalition also includes the
Kipling®
business in North America.
Kipling®
handbags, backpacks, totes, luggage and accessories are sold in
the United States through specialty stores, department stores,
VF-operated retail stores and at www.kipling.com. About
two-thirds of products are the same as those sold in Europe,
with the remainder designed specifically for the
U.S. market.
We believe there is revenue and profit growth potential in each
of our Sportswear brands through the expansion of owned retail
stores, the expansion in the number of individual retailers
offering our products and improved product offerings at
accessible price points.
Contemporary
Brands Coalition
Contemporary Brands, our newest coalition, is focused on upscale
lifestyle brands. Formed in August 2007, it is currently
composed of the 7 For All
Mankind®
and
lucy®
brands. In addition, in May 2008 we acquired one-third of the
outstanding equity of Mo Industries Holdings, Inc. (Mo
Industries), a Los Angeles-based company that owns the
Splendid®
and Ella
Moss®
brands of premium knitwear marketed to better department and
specialty stores. VF expects to acquire the remaining two-thirds
of the outstanding equity of Mo Industries in the first half of
2009.
7 For All
Mankind®
is a Los Angeles-based brand of contemporary denim jeans and
related products knit and woven tops, sweaters,
jackets and accessories for women and men. Products
are noted for their fit and for innovation in design, fabric and
finish. We believe the 7 For All
Mankind®
brand is the leading premium jeans brand in the United States,
with the premium segment defined as jeans retailing for $150 or
more. Retail price points for the brands core jeans range
from $155 $199 for basics, with higher price points
for more fashion-forward products. With approximately
three-fourths of its sales in the United States, the brand is
marketed through department stores, such as Bloomingdales,
Macys, Neiman Marcus, Nordstrom and Saks, and through
specialty stores. In addition, the brand is sold in VF-operated
retail locations. We opened 13 retail stores in prime street
fronts or malls in the United States during 2008, bringing the
total to 15. Internationally, sales are through department
stores, such as Harrods, and specialty stores. We are pursuing
growth opportunities in several areas additional
direct-to-consumer
expansion through company-operated retail stores and
e-commerce,
additional sportswear product offerings, further geographic
expansion in the Eastern European and Asian markets, and
licensing.
Based in Portland, Oregon, the
lucy®
brand of womens lifestyle apparel is marketed through
approximately 60
lucy®
branded retail stores across the United States and via the
internet.
lucy®
is an activewear brand designed for versatility, comfort and fit
for todays active woman.
lucy®
is an authentic activewear brand with functional product that
women can wear from workout to weekend. The
lucy®
retail stores are currently being remodeled to emphasize the
brands four core types of activity-based
apparel yoga, gym, running and outdoor adventure.
Approximately 90% of the products in the
lucy®
retail stores are
lucy®
branded, with the balance of the offerings being complementary
lines, including
Splendid®
knitwear. We expect that substantially all of the products in
the stores will continue to be
lucy®
branded.
We expect to grow the 7 For All
Mankind®
brand through retail and international expansion and new product
lines and the
lucy®
brand through opening stores in new markets. We will pursue
further opportunities to leverage VFs supply chain
capabilities for both brands for future profitability
improvement.
Direct-To-Consumer
Operations
VF-operated retail stores are an integral part of our strategy
for growing VFs brands, particularly our lifestyle brands.
Our full price retail stores allow us to showcase a brands
full line of current season products, with fixtures
7
and imagery that support the brands positioning. These
stores provide high visibility for our brands and products and
enable us to stay close to the needs and preferences of
consumers. The proper presentation of products in our retail
stores also helps to increase consumer purchases of VF products
at our wholesale customers. VF-operated retail stores generally
provide operating margins that are equal to or above VF averages
and a return on investment above VF averages. In addition, VF
operates outlet stores in both upscale outlet malls and in more
traditional value-based locations. These outlet stores serve an
important role in our overall inventory management by allowing
VF to effectively sell a significant portion of excess
discontinued and
out-of-season
products at better prices than are otherwise available from
outside parties, while maintaining the integrity of our brands.
Our growing global retail operations include 698 stores at the
end of 2008. Of that total, there are 624 monobrand stores,
(i.e., with only one brands products offered in each
store), that sell The North
Face®,
Vans®,
Napapijri®,
Kipling®,
John
Varvatos®,
7 For All
Mankind®,
lucy®,
Nautica®,
Lee®
or
Wrangler®
products. Approximately three-fourths of these stores offer
products at full price, with the remainder being outlet
locations offering products at discounted prices. In addition to
the monobrand retail and outlet stores, we operate 74 VF Outlet
stores across the United States that sell a broad selection of
excess quantities of VF-branded products as well as womens
intimate apparel and childrenswear products under brands that
are not VF-owned. Approximately three-fourths of the VF-operated
retail stores are located in the United States. The remaining
stores are primarily located in Europe.
Across the globe, internet sales (i.e.,
e-commerce)
comprise a small but growing portion of total retail sales of
apparel, footwear and accessories.
E-commerce
sales of apparel and footwear have become the second largest
category of
e-commerce
purchases in the United States (behind travel purchases). At VF,
e-commerce
is a growing portion of our revenues as we currently market the
Lee®,
The North
Face®,
Vans®,
7 For All
Mankind®,
lucy®,
Nautica®
and
Kipling®
brands online. Additional
e-commerce
sites will be rolled out for consumers in 2009.
Total retail store and
e-commerce
sales accounted for 16% of VFs consolidated Total Revenues
in 2008 and 14% in 2007. We expect our
direct-to-consumer
business to continue to grow at a faster pace than VFs
overall growth rate as we continue opening retail stores for our
lifestyle brands. During 2008, we opened 89 retail stores. For
2009, capital investments of approximately $30 million are
planned for leasehold improvements, fixtures and equipment for
approximately 70 new retail locations.
In addition to the
direct-to-consumer
venues operated by VF, our licensees, distributors and other
independent parties operate over 1,200 retail stores dedicated
to our brands. These stores are located primarily in Eastern
Europe and Asia.
Licensing
Arrangements
As part of our business strategy of expanding market penetration
of VF-owned brands, we enter into licensing agreements for our
brands for specific apparel and complementary product categories
in identified geographic regions if such arrangements with
independent parties can provide more effective manufacturing,
distribution and marketing of such products than could be
achieved internally. These licensing arrangements relate to a
broad range of VF brands and are for fixed terms of generally
five years, with conditional renewal options. Each licensee pays
royalties to VF based on its sales of licensed products, with
most agreements providing for a minimum royalty requirement.
Royalties generally range from 5% to 7% of the licensing
partners net sales of licensed products. Gross Royalty
Income was $81.0 million in 2008, with the largest
contribution from the
Nautica®
brand.
In addition, licensees of our brands are generally required to
spend a specified amount to advertise VFs products ranging
from 1% to 5% of their net licensed product sales. In some
cases, these advertising amounts are remitted to VF for
advertising on behalf of the licensees. We provide support to
these business partners and ensure the integrity of our brand
names by taking an active role in the design, quality control,
advertising, marketing and distribution of each licensed product.
VF has also entered into license agreements to use third-party
trademarks. We market apparel under licenses granted by Major
League Baseball, the National Football League, the National
Basketball Association, the National Hockey League,
Harley-Davidson Motor Company, Inc., NASCAR, ESPN, Inc. and
major colleges, most of which contain minimum annual licensing
and advertising requirements.
Manufacturing,
Sourcing and Distribution
Product design, fit, fabric, finish and quality are important in
all of our businesses. These functions are performed by
employees located within each of our branded businesses across
the globe.
8
VFs centralized global supply chain organization sources
product and ultimately bears the responsibility to deliver
product to our customers. VF is highly skilled in managing the
complexity associated with the supply chain. VFs revenues
are comprised of approximately 500 million units
representing 500,000 SKUs spread over 30 brands. VF operates 30
manufacturing facilities and utilizes over 1,600 contractor
manufacturing facilities. We manage over 30 distribution centers
and nearly 700 retail stores. Managing this complexity is made
possible by our use of information systems
technologies with
best-of-breed
systems for product development, forecasting, order management,
warehouse management, etc. attached to our core enterprise
resource management platform.
Today, 23% of our global Net Sales are of products manufactured
in VF-owned facilities in Mexico, Europe and Central America and
77% are of products obtained from contractors, primarily in
Asia. We believe a combination of VF-owned and contracted
production from different geographic regions provides
flexibility and a competitive advantage in our product sourcing.
We will continue to manage our supply chain from a global
perspective and adjust as needed to changes in the global
production environment.
Our domestic Jeanswear and Imagewear businesses operate owned
manufacturing facilities (primarily cutting, sewing and
finishing) located in Mexico and Central America. Our
international jeanswear businesses operate manufacturing
facilities located in Poland and Turkey. A significant
percentage of our denim bottoms are manufactured in these
plants. For these owned production plants, we purchase raw
materials from numerous domestic and international suppliers to
meet scheduled production needs. Raw materials include fabrics
made from cotton, synthetics and blends of cotton and synthetic
yarn, as well as thread and trim (product identification,
buttons, zippers and snaps). In some instances, we contract the
sewing of VF-owned raw materials into finished product with
independent contractors in the United States, Mexico and Central
America. While we obtain fixed price commitments for denim and
certain supplies for up to one year in advance, specific
purchase obligations with suppliers are typically limited to the
succeeding two to six months. Our only long-term contract for
the purchase of raw materials or finished products is a
commitment in connection with the sale of VFs
childrenswear business in 2004. This agreement requires VF to
purchase a remaining total of approximately $77.5 million
of finished product for sale through our VF Outlet stores, with
a minimum of $15 million per year. No single supplier
represents more than approximately 3% of our total cost of sales.
For the U.S. market, our current sourcing strategy includes
a balance of VF-owned production and contracted production in
the Western Hemisphere and contracted production from Asia.
Owned production generally has a lower cost than contracted
production. Product obtained from contractors in the Western
Hemisphere generally has a higher cost compared with production
obtained from contractors in the Far East but gives us greater
flexibility and shorter lead times and allows for lower
inventory levels. Approximately 33% of units sold in the United
States and 27% of the dollar value of domestic Net Sales in 2008
were manufactured in VF-owned facilities, primarily in Mexico
and Central America, with the balance obtained from contractors,
primarily in Asia. This combination of VF-owned and contracted
production, along with different geographic regions and cost
structures, provides a balanced approach to product sourcing.
To an increasing extent, we are using independent contractors
who own the raw materials and ship only finished,
ready-for-sale
products to VF. These contractors are engaged through VF
sourcing hubs in Hong Kong (with several satellite offices
across Asia) and Miami. These hubs are responsible for product
procurement, product quality assurance, supplier management,
transportation and shipping functions in the Eastern and Western
Hemispheres, respectively. Substantially all products in the
Outdoor and Action Sports and Sportswear Coalitions, as well as
a growing portion of product requirements for our Jeanswear and
Imagewear Coalitions, are obtained through these sourcing hubs.
For most products in our Contemporary Brands Coalition, we
currently contract the majority of sewing and finishing of
VF-owned raw materials through a network of independent domestic
and international contractors. Some of this volume is being
shifted to the VF sourcing hubs. VF does not directly or
indirectly source any products from suppliers in countries that
are identified by the State Department as state sponsors of
terrorism and are subject to U.S. economic sanctions and export
controls.
Management continually monitors political risks and developments
related to duties, tariffs and quotas. We limit VFs
sourcing exposure through, among other measures,
(i) extensive geographic diversification with a mix of
VF-operated and contracted production, (ii) shifts of
production among countries and contractors,
(iii) allocation of production to merchandise categories
where the free flow of product is available and
(iv) sourcing from countries with tariff preference and
free trade agreements.
9
Through its contractor monitoring program, VF oversees the
activities of the many independent businesses and contractors
that produce VF-branded goods at locations across the globe.
Each of the over 1,600 independent contractor facilities that
manufacture VF-branded products must be pre-certified prior to
performance of any production on behalf of VF, including
contractors of our independent licensees. This pre-certification
includes passing a factory inspection and signing a VF Terms of
Engagement agreement. These requirements provide strict
standards covering age of workers, hours of work, health and
safety conditions and conformity with local laws. We maintain an
ongoing audit program to ensure compliance with these
requirements by using dedicated internal and outsourced staff.
Additional information about VFs Global Compliance
Principles, Terms of Engagement, Factory Audit Procedure and
Factory Compliance Guidelines, along with a Global Compliance
Report, are available on the VF website at www.vfc.com.
VF did not experience difficulty in filling its raw material and
contracting production needs during 2008, and we do not
anticipate difficulties in meeting our raw materials and
contracting production requirements during 2009. The loss of any
one supplier or contractor would not have a significant adverse
effect on our business.
Product is shipped from our independent suppliers and
VF-operated manufacturing plants to many distribution centers in
the United States and international markets. In limited
instances, product is shipped directly to our customers. Product
is inspected, sorted and stored in our distribution centers
until needed for packing and shipping to our wholesale customers
or our retail stores. Most distribution centers are operated by
VF. Some support multiple brands. A small portion of our
distribution needs are met by contract distribution centers. Our
distribution centers use computer-controlled inventory
management technology for efficient tracking and movement of
products.
Seasonality
With its diversified product offerings, VFs operating
results are somewhat seasonal. On a quarterly basis and
excluding the effect of timing of businesses acquired during
2008, consolidated Total Revenues for 2008 ranged from a low of
approximately 22% of full year revenues in the second quarter to
a high of 29% in the third quarter. This disparity results
primarily from the seasonal influences on revenues of our
Outdoor and Action Sports Coalition, where only 19% of Outdoor
and Action Sports Coalition revenues occurred in the second
quarter and 33% in the third quarter of 2008. With changes in
our mix of business along with growth of our retail operations,
historical quarterly revenue and profit trends may not be
indicative of future trends. We expect the portion of annual
revenues and profits occurring in the second half of the year to
increase.
Working capital requirements vary throughout the year. Working
capital increases during the first half of the year as inventory
builds to support peak shipping periods and then decreases
during the second half of the year as those inventories are sold
and accounts receivable are collected. Cash provided by
operating activities is substantially higher in the second half
of the year due to higher net income during that period and
reduced working capital requirements, particularly during the
fourth quarter.
Advertising
and Customer Support
We support VFs brands through extensive advertising and
promotional programs that convey a lifestyle image for a
specific brand or focus on specific product features. We
advertise in consumer and trade publications, on national and
local radio and television and on the internet. We also
participate in cooperative advertising on a shared cost basis
with major retailers in print media, radio and television. We
sponsor various sporting, music and other special events and
sponsor a number of athletes and other personalities. In
addition, we provide
point-of-sale
fixtures and signage to our wholesale customers to enhance the
presentation and brand image of our products in their retail
locations. This includes
shop-in-shops,
which are separate retail sales areas within a department store
or other retail customer location that are dedicated to a
specific VF brand.
We also participate in various retail customer incentive
programs. These incentive programs with retailers include
discounts, cooperative advertising funds and margin support
funds. We also offer sales incentive programs directly to
consumers in the form of rebate and coupon offers. Sales
incentive offers with retailers and with consumers are
recognized as sales discounts in arriving at reported Net Sales
(except that cooperative advertising reimbursements of retailer
advertising costs are reported as Advertising Expense, and free
product with purchase offers are reported in Cost of Goods Sold).
During 2008, we spent $399.1 million on advertising and
promoting our brands, a 10% increase from the 2007 level. We
employ marketing sciences to optimize both the level and impact
of advertising and promotional spending and to identify the
types of spending that provide the greatest return on our
marketing investments.
10
Internet websites are maintained for most of our brands. Some of
them are
business-to-consumer
e-commerce
sites where consumers can order VF products. Other consumer
websites provide information about our brands and products and,
in many cases, direct consumers to our wholesale customers where
they can purchase our products. We also operate several
business-to-business
sites where our retail customers can order VF products.
Our Jeanswear, Outdoor and Action Sports, Sportswear and
Contemporary Brands Coalitions employ a staff of in-store
marketing and merchandising coordinators located in major cities
across the United States. These individuals visit our
customers retail locations to inform the customers
sales force about our products and related promotions and to
ensure that our products, and those of our licensees, are
properly presented on the merchandise sales floor.
Other
Matters
Competitive
Factors
Our business depends on our ability to stimulate consumer demand
for VFs brands and products. VF is well-positioned to
compete in the apparel industry by developing consumer-connected
and innovative products at competitive prices, producing high
quality merchandise, providing high levels of service, ensuring
product availability to the retail sales floor and enhancing
recognition of its brands. We continually strive to improve on
each of these areas. Many of VFs brands have long
histories and enjoy high recognition within their respective
consumer segments.
Trademarks
Trademarks, patents and domain names, as well as their related
logos, designs and graphics, have substantial value in the
marketing of VFs products and are important to our
continued success. We have registered this intellectual property
in the United States and in other countries where our products
are manufactured
and/or sold.
We vigorously monitor and enforce VFs intellectual
property against counterfeiting, infringement and violations of
other rights where and to the extent legal, feasible and
appropriate. In addition, we grant licenses to other parties to
manufacture and sell products utilizing our intellectual
property in product categories and geographic areas in which VF
does not operate.
Customers
VF products are primarily sold through our sales force and
independent sales agents and distributors. VFs customers
are specialty stores, department stores, national chains and
mass merchants in the United States and in international
markets. Of our Total Revenues, 30% are in international
markets, primarily in Europe, and 16% are through VF-operated
retail stores (which includes international stores).
Sales to VFs ten largest customers, all of which are
retailers based in the United States, amounted to 26% of Total
Revenues in 2008, 27% in 2007 and 30% in 2006. These larger
customers included (in alphabetical order) Kohls
Corporation, Macys, Inc., J.C. Penney Company, Inc., Sears
Holding Corporation, Target Corporation and Wal-Mart Stores,
Inc. Sales to the five largest customers amounted to
approximately 21% of Total Revenues in 2008, 22% in 2007 and 24%
in 2006. Sales to VFs largest customer, Wal-Mart Stores,
Inc., totaled 11% of Total Revenues in 2008, 12% in 2007 and 13%
in 2006, substantially all of which were in the Jeanswear
Coalition. Generally sales to our ten largest and five largest
customer groups have increased in the last two years but are a
smaller percentage of Total Revenues in 2008 and 2007 due to
higher growth rates in our lifestyle businesses, which have a
greater portion of their sales to other customers.
Employees
VF employed approximately 46,600 men and women at the end of
2008, of which approximately 19,900 were located in the United
States. Approximately 900 employees in the United States
are covered by collective bargaining agreements. In
international markets, a significant percentage of employees are
covered by trade- sponsored or governmental bargaining
arrangements. Employee relations are considered to be good.
Backlog
The dollar amount of VFs order backlog as of any date is
not meaningful, may not be indicative of actual future shipments
and, accordingly, is not material for an understanding of the
business of VF taken as a whole.
11
Executive
Officers of VF
The following are the executive officers of VF Corporation as of
February 14, 2009. The executive officers are generally
elected annually and serve at the pleasure of the Board of
Directors. There is no family relationship among any of the VF
Corporation executive officers.
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Period Served
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Name
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Position
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Age
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In Such Office(s)
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Eric C. Wiseman
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Chairman of the Board
Chief Executive Officer
President
Director
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53
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August 2008 to date
January 2008 to date
March 2006 to date
October 2006 to date
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Robert K. Shearer
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Senior Vice President and Chief Financial Officer
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57
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June 2005 to date
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Bradley W. Batten
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Vice President Controller and Chief Accounting
Officer
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53
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September 2004 to date
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Candace S. Cummings
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Vice President Administration and General Counsel
Secretary
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61
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March 1996 to date
October 1997 to date
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Mike Gannaway
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Vice President VF Direct/ Customer Teams
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57
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January 2008 to date
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Frank C. Pickard III
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Vice President Treasurer
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64
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April 1994 to date
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Boyd Rogers
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Vice President; President Supply Chain
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59
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June 2005 to date
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Karl Heinz Salzburger
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Vice President; President
International
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51
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January 2009 to date
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Mr. Wiseman was named President and Chief Operating
Officer of VF in March 2006, Director of VF in October 2006,
Chief Executive Officer in January 2008 and Chairman of the
Board in August 2008. He has held a progression of leadership
roles within and across VFs Coalitions since 1995.
Additional information is included under the caption
Election of Directors in VFs definitive Proxy
Statement for the Annual Meeting of Shareholders to be held
April 28, 2009 (2009 Proxy Statement) that will
be filed with the Securities and Exchange Commission within
120 days after the close of our fiscal year ended
January 3, 2009, which information is incorporated herein
by reference.
Mr. Shearer joined VF in 1986 as Assistant
Controller and was elected Controller in 1989 and Vice
President Controller in 1994. He has served as Vice
President Finance and Chief Financial Officer since
1998. He served as Chairman Outdoor Coalition from
June 2000 to January 2003. Mr. Shearer was also elected as
Vice President Global Processes in January 2003. In
May 2005, he became Senior Vice President and Chief Financial
Officer.
Mr. Batten rejoined VF as Vice President
Controller in September 2004. Mr. Batten had previously
served as Vice President & Chief Financial Officer of
VFs former intimate apparel business from 1998 to July
2000.
Mrs. Cummings joined VF as Vice
President General Counsel in 1995 and became Vice
President Administration and General Counsel in 1996
and Secretary in 1997.
Mr. Gannaway joined VF in July 2004 as Vice
President Customer Management. In January 2008, his
responsibilities were broadened to Vice President VF
Direct/Customer Teams.
Mr. Pickard joined VF in 1976 and was elected
Assistant Controller in 1982, Assistant Treasurer in 1985,
Treasurer in 1987 and Vice President Treasurer in
1994.
Mr. Rogers joined VF in 1971 and served in a number
of positions until his appointment as Vice President
Operations in 1994. He was appointed Vice President
Process Development Supply Chain in 2000 and Vice
President Process and Technology in 2002. In March
2004, he served as Vice President Global Supply
Chain and Technology until his appointment in June 2005 as Vice
President of VF and President Supply Chain.
Mr. Salzburger joined The North Face in 1997 as
Chief Executive Officer of European operations and was appointed
President of The North Face in 1999. Following the VF
acquisition of The North Face in 2000, Mr. Salzburger
served as President of VFs International Outdoor Coalition
from 2001 until his appointment as
12
President of VFs European, Middle East, Africa and Asian
operations in September 2006. In January 2009,
Mr. Salzburger was appointed Vice President of VF and
President VF International.
Available
Information
All periodic and current reports, registration statements and
other filings that VF has filed or furnished to the Securities
and Exchange Commission (SEC), including our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) of the Exchange Act, are available free of
charge from the SECs website (www.sec.gov) and public
reference room at 100 F Street, NE, Washington, DC
20549 and on VFs website at www.vfc.com. Such documents
are available as soon as reasonably practicable after electronic
filing of the material with the SEC. Copies of these reports
(excluding exhibits) may also be obtained free of charge upon
written request to the Secretary of VF Corporation,
P.O. Box 21488, Greensboro, NC 27420.
The following corporate governance documents can be accessed on
VFs website: VFs Corporate Governance Principles,
Code of Business Conduct, and the charters of our Audit
Committee, Compensation Committee, Finance Committee and
Nominating and Governance Committee. Copies of these documents
also may be obtained by any shareholder free of charge upon
written request to: Secretary of VF Corporation,
P.O. Box 21488, Greensboro, NC 27420.
After VFs 2009 Annual Meeting of Shareholders, VF intends
to file with the New York Stock Exchange (NYSE) the
certification regarding VFs compliance with the
NYSEs corporate governance listing standards as required
by NYSE Rule 303A.12. Last year, VF filed this
certification with the NYSE on May 2, 2008.
The following risk factors should be read carefully in
connection with evaluating VFs business and the
forward-looking statements contained in this
Form 10-K.
Any of the following risks could materially adversely affect
VFs business, its operating results and its financial
condition.
RISKS
SPECIFIC TO VF CORPORATION
VFs
business could be adversely affected by reduced consumer
spending and consumer confidence.
The global credit crisis that began in 2008 is having a negative
impact on retail sales of apparel and other consumer products.
Reduced sales by our wholesale customers may lead to lower
retail inventory levels, reduced orders from suppliers like VF,
or order cancelations. Reduced sales by some of our wholesale
customers, along with the possibility of their reduced access
to, or inability to access, the credit markets, may result in
various retailers experiencing significant financial
difficulties. Financial difficulties of customers could result
in reduced sales to those customers or could result in store
closures, bankruptcies or liquidations. Higher credit risk
relating to receivables from customers experiencing financial
difficulty may result. If these developments occur, our
inability to shift sales to other customers or to collect on
VFs trade accounts receivable could have a material
adverse effect on VFs financial condition and results of
operations.
A growing portion of our revenues are
direct-to-consumer
through VF-operated retail stores and websites. It is possible
that reduced consumer confidence, along with a reduction in
availability of consumer credit and increasing unemployment, may
lead to reduced purchases of VFs products through
VF-operated retail stores and websites. This could have a
material adverse effect on VFs financial condition and
results of operations.
A
substantial portion of VFs revenues and gross profit is
derived from a small number of large customers. The loss of any
of these customers could substantially reduce VFs
profits.
A few of VFs customers account for a significant portion
of revenues. Sales to VFs ten largest customers were 26%
of Total Revenues in fiscal 2008, with Wal-Mart Stores, Inc.
accounting for 11% of revenues. Sales are generally on a
purchase order basis, and we do not have long-term agreements
with any of our customers. A decision by any of VFs major
customers to decrease significantly the number of products
purchased from VF could substantially reduce revenues and have a
material adverse effect on VFs financial condition and
results of operations. Moreover, in recent years, the retail
industry has experienced consolidation and other ownership
changes. In the future, retailers may further consolidate,
undergo restructurings or reorganizations, realign their
affiliations or reposition their stores target market.
These developments could result in a reduction in the number of
stores that carry VFs products, increased ownership
concentration within the retail industry, increased credit
13
exposure or increased retailer leverage over their suppliers.
These changes could both impact VFs opportunities in the
market and increase VFs reliance on a smaller number of
large customers.
The
apparel industry is highly competitive, and VFs success
depends on its ability to respond to constantly changing fashion
trends and consumer demand. Reduced sales or prices resulting
from competition could have a material adverse effect on
VF.
VF competes with numerous brands and manufacturers of apparel.
Some of our competitors may be larger and have more resources
than VF in certain product categories. In addition, VF competes
directly with the private label brands of its wholesale
customers. VFs ability to compete within the apparel and
footwear industries depends on its ability to:
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Anticipate and respond to changing consumer trends in a timely
manner;
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Develop attractive, quality products;
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Maintain favorable brand recognition;
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Price products appropriately;
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Provide effective marketing support;
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Ensure product availability and optimize supply chain
efficiencies; and
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Obtain sufficient retail floor space and effectively present its
products at retail.
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The failure to compete effectively or to keep pace with rapidly
changing markets and trends could have a material adverse effect
on VFs business, financial condition and results of
operations. In addition, if we misjudge fashion trends and
market conditions, we could be faced with significant excess
inventories for some products that we may have to sell at a loss
or missed opportunities that may result in lost sales.
VFs
business is exposed to foreign currency
fluctuations.
Approximately 30% of VFs Total Revenues is derived from
international markets. VFs foreign businesses operate in
functional currencies other than the U.S. dollar. Assets,
liabilities, revenues and expenses in these foreign businesses
are subject to fluctuations in foreign currency exchange rates.
In addition, VF sources and manufactures most of its products
overseas. As a result, the cost of these products may be
affected by changes in the value of the relevant currencies.
Changes in currency exchange rates may also affect the
U.S. dollar value of the foreign currency denominated
amounts at which VFs international businesses purchase
products, incur costs or sell products. Furthermore, much of
VFs licensing revenue is derived from sales in foreign
currencies. Although we hedge some exposures to changes in
foreign currency exchange rates arising in the ordinary course
of business, foreign currency fluctuations could have a material
adverse impact on VFs financial condition and results of
operations.
VFs
profitability may decline as a result of increasing pressure on
margins.
The apparel industry is subject to significant pricing pressure
caused by many factors, including intense competition,
consolidation in the retail industry, pressure from retailers to
reduce the costs of products and changes in consumer demand.
These factors may cause us to reduce our sales prices to
retailers and consumers, which could cause VFs gross
margin to decline if we are unable to offset price reductions
with comparable reductions in operating costs. If VFs
sales prices decline and we fail to sufficiently reduce our
product costs or operating expenses, VFs profitability
will decline. This could have a material adverse effect on
VFs results of operations, liquidity and financial
condition.
Fluctuations
in the price, availability and quality of raw materials could
increase costs and cause service delays.
Fluctuations in the price, availability and quality of fabrics
or other raw materials used by VF in its manufactured apparel
could have a material adverse effect on VFs cost of sales
or its ability to meet its customers demands. The prices
for such fabrics depend on demand and market prices for the raw
materials used to produce them, particularly cotton. The price
and availability of such raw materials may fluctuate
significantly, depending on many factors, including crop yields
and weather patterns. In the future, VF may not be able to pass
all or a portion of such higher raw materials prices on to its
customers.
14
VF has
entered into license agreements to use the trademarks of others.
Loss of a license could have an adverse effect on VFs
operating results.
VF has entered into agreements to market products under licenses
granted by third parties, including Major League Baseball, the
National Football League and Harley-Davidson Motor Company, Inc.
Some of these licenses are for a short term and do not contain
renewal options. Loss of a license, which in certain cases could
result in an impairment charge for related intangible assets,
could have an adverse effect on VFs operating results.
VF may
not succeed in implementing its growth strategy.
One of our key strategic objectives is growth. We seek to grow
through both organic growth and acquisitions, building new
growing lifestyle brands, expanding our share with winning
customers, stretching VFs brands and customers to new
geographies, fueling the growth by leveraging our supply chain
and information technology capabilities across VF, expanding our
direct-to-consumer
business and building new growth enablers by identifying and
developing high potential employees. We may not be able to grow
our existing businesses or achieve planned cost savings from
ongoing businesses. We may have difficulty identifying
acquisition targets, and we may not be able to successfully
integrate a newly acquired business or achieve expected cost
savings or synergies from such integration. We may not be able
to expand our market share with winning customers, expand our
brands geographically or achieve the expected results from our
supply chain initiatives. We may also have difficulty recruiting
or developing qualified managers. Failure to implement our
growth strategy may have a material adverse effect on VFs
business.
VF
borrows funds on a short-term basis, primarily to support
seasonal working capital requirements. Long-term debt is part of
VFs total capital structure. Because of recent conditions
in global credit markets, VF may have difficulty accessing the
capital markets for short or long-term financing.
During the last several months, the global capital and credit
markets have been experiencing extreme levels of volatility and
disruption, with government intervention, mergers or
bankruptcies of several major financial institutions, and a
general decline in global liquidity. Many corporate issuers have
been unable to access credit markets.
VF uses short-term commercial paper borrowings primarily to
support seasonal working capital requirements, with amounts
generally repaid by the end of each year from strong cash flows
from operations. VF was able to continue to borrow in the
commercial paper markets during 2008, and all commercial paper
borrowings were repaid by the end of the year. In addition, VF
may access the long-term capital markets to replace maturing
debt obligations or to fund acquisition or other growth
opportunities. There is no assurance that the commercial paper
markets or the long-term capital markets will continue to be a
reliable source of financing for VF.
VF has
committed domestic and international bank credit facilities.
Because of the continued distress in the global capital markets,
one or more of the participating banks may not be able to honor
their commitments, which could have an adverse effect on
VFs business.
If we were to have difficulty in accessing the short or
long-term capital markets, VF has $1.3 billion of committed
domestic and international bank credit facilities that expire in
October 2012. Continued distress in the financial markets could
impair the ability of one or more of the banks participating in
our credit agreements from honoring their commitments. This
could have an adverse effect on our business if we were not able
to replace those commitments or to locate other sources of
liquidity on acceptable terms.
If VF
encounters problems with its distribution system, VFs
ability to deliver its products to the market would be adversely
affected.
VF relies on its distribution facilities to warehouse and, using
its own employees or in some cases independent contractors, to
ship product to its customers. VFs distribution system
includes computer-controlled and automated equipment, which
means its operations are complicated and may be subject to a
number of risks related to security or computer viruses, the
proper operation of software and hardware, electronic or power
interruptions or other system failures. Because substantially
all of VFs products are distributed from a relatively
small number of locations, VFs operations could also be
interrupted by earthquakes, floods, fires or other natural
disasters near its distribution centers. We maintain business
interruption insurance, but it may not adequately protect VF
from the adverse effects that could be caused by significant
disruptions in VFs distribution facilities, such as the
long-term loss of customers or an erosion of brand image. In
addition, VFs distribution capacity is dependent on the
timely performance of services by third parties, including the
transportation of product to and from its distribution
15
facilities. If we encounter problems with our distribution
system, our ability to meet customer expectations, manage
inventory, complete sales and achieve objectives for operating
efficiencies could be materially adversely affected.
VF
relies significantly on information technology. Any inadequacy,
interruption, integration failure or security failure of that
technology could harm VFs ability to effectively operate
its business.
Our ability to effectively manage and operate our business
depends significantly on its information technology systems. The
failure of these systems to operate effectively, problems with
transitioning to upgraded or replacement systems, difficulty in
integrating new systems or systems of acquired businesses or a
breach in security of these systems could adversely impact the
operations of VFs business. Moreover, VF and its customers
could suffer harm if customer information were accessed by third
parties due to a security failure in VFs systems. It could
also require significant expenditures to remediate any such
failure, problem or breach.
VF
uses foreign suppliers and manufacturing facilities for a
substantial portion of its raw materials and finished products,
which poses risks to VFs business
operations.
During fiscal 2008, approximately 77% of VFs products sold
were produced by and purchased or procured from independent
manufacturers primarily located in Asia, with substantially all
of the remainder produced by VF-owned and operated manufacturing
facilities located in Eastern Europe, Mexico and Central
America. Although no single supplier and no one country is
critical to VFs production needs, any of the following
could materially and adversely affect our ability to produce or
deliver VF products and, as a result, have a material adverse
effect on VFs business, financial condition and results of
operations:
|
|
|
|
|
Political or labor instability in countries where VFs
facilities, contractors and suppliers are located;
|
|
|
|
Political or military conflict, which could cause a delay in the
transportation of raw materials and products to VF and an
increase in transportation costs;
|
|
|
|
Heightened terrorism security concerns, which could subject
imported or exported goods to additional, more frequent or more
lengthy inspections, leading to delays in deliveries or
impoundment of goods for extended periods or could result in
decreased scrutiny by customs officials for counterfeit goods,
leading to lost sales, increased costs for VFs
anticounterfeiting measures and damage to the reputation of its
brands;
|
|
|
|
Disease epidemics and health-related concerns, such as the SARS,
bird flu, mad cow and
hoof-and-mouth
disease outbreaks in recent years, which could result in closed
factories, reduced workforces, scarcity of raw materials and
scrutiny or embargo of VFs goods produced in infected
areas;
|
|
|
|
Imposition of regulations and quotas relating to imports and our
ability to adjust timely to changes in trade regulations, which,
among other things, could limit our ability to produce products
in cost-effective countries that have the labor and expertise
needed;
|
|
|
|
Imposition of duties, taxes and other charges on
imports; and
|
|
|
|
Imposition or the repeal of laws that affect intellectual
property rights.
|
If
VFs suppliers fail to use acceptable ethical business
practices, VFs business could suffer.
We require third party suppliers to operate in compliance with
applicable laws, rules and regulations regarding working
conditions, employment practices and environmental compliance.
Additionally, we require all suppliers making VF-branded
apparel, whether directly for VF or for its licensees, to comply
with VFs Terms of Engagement and Global Compliance
Principles. Our staff and third parties retained for such
purposes periodically visit and audit the operations of
VFs owned and operated facilities and those of independent
contractors manufacturing product for VF to determine
compliance. However, we do not control independent manufacturers
or their labor and other business practices. If one of our
independent contractors violates labor or other laws or
implements labor or other business practices that are generally
regarded as unethical in the United States, the shipment of
finished products to VF could be interrupted, orders could be
cancelled, relationships could be terminated, and VFs
reputation could be damaged. Any of these events could have a
material adverse effect on VFs revenues and, consequently,
its results of operations.
VFs
results of operations could be materially harmed if VF is unable
to accurately forecast demand for its products.
We often schedule internal production and place orders for
products with independent manufacturers before our
customers orders are firm. Therefore, if we fail to
accurately forecast customer demand, we may experience
16
excess inventory levels or a shortage of product to deliver to
our customers. Factors that could affect our ability to
accurately forecast demand for our products include:
|
|
|
|
|
An increase or decrease in consumer demand for VFs
products or for products of its competitors;
|
|
|
|
Our failure to accurately forecast customer acceptance of new
products;
|
|
|
|
New product introductions by competitors;
|
|
|
|
Unanticipated changes in general market conditions or other
factors, which may result in cancelations of orders or a
reduction or increase in the rate of reorders placed by
retailers;
|
|
|
|
Weak economic conditions or consumer confidence in future
economic conditions, which could reduce demand for discretionary
items such as VFs products; and
|
|
|
|
Terrorism or acts of war, or the threat of terrorism or acts of
war, which could adversely affect consumer confidence and
spending or interrupt production and distribution of product and
raw materials.
|
Inventory levels in excess of customer demand may result in
inventory write-downs and the sale of excess inventory at
discounted prices, which could have an adverse effect on
VFs results of operations and financial condition. In
addition, if we underestimate demand for our products, our
manufacturing facilities or third party manufacturers may not be
able to produce products to meet customer requirements, and this
could result in delays in the shipment of products and lost
revenues, as well as damage to VFs reputation and customer
relationships. There can be no assurance that we will be able to
successfully manage inventory demand to meet future order and
reorder requirements.
The
loss of members of VFs executive management and other key
employees could have a material adverse effect on its
business.
VF depends on the services and management experience of its
executive officers and business leaders who have substantial
experience and expertise in VFs business. VF also depends
on other key employees involved in the operation of its
business. Competition for qualified personnel in the apparel
industry is intense. The unexpected loss of services of one or
more of these individuals could have a material adverse effect
on VF.
VF may
be unable to protect its trademarks and other intellectual
property rights.
VFs trademarks and other intellectual property rights are
important to its success and its competitive position. VF is
susceptible to others imitating its products and infringing its
intellectual property rights. With the shift in product mix to
higher priced brands, VF is more susceptible to infringement of
its intellectual property rights. Some of VFs brands, such
as The North
Face®,
Vans®,
JanSport®,
Nautica®,
Wrangler®
and
Lee®
brands, enjoy significant worldwide consumer recognition, and
the generally higher pricing of such products creates additional
risk of counterfeiting and infringement.
Infringement or counterfeiting of VFs products or its
other intellectual property rights could diminish the value of
our brands or otherwise adversely affect VF revenues. Actions we
have taken to establish and protect VFs intellectual
property rights may not be adequate to prevent imitation of its
products by others or to prevent others from seeking to
invalidate its trademarks or block sales of VFs products
as a violation of the trademarks and intellectual property
rights of others. In addition, unilateral actions in the United
States or other countries, such as changes to or the repeal of
laws recognizing trademark or other intellectual property
rights, could have an impact on VFs ability to enforce
those rights.
The value of VFs intellectual property could diminish if
others assert rights in, or ownership of, trademarks and other
intellectual property rights of VF, or in trademarks that are
similar to VFs trademarks, or trademarks that VF licenses
and/or
markets. We may be unable to successfully resolve these types of
conflicts to our satisfaction. In some cases, there may be
trademark owners who have prior rights to VFs trademarks
because the laws of certain foreign countries may not protect
intellectual property rights to the same extent as do the laws
of the United States. In other cases, there may be holders who
have prior rights to similar trademarks. VF is from time to time
involved in opposition and cancelation proceedings with respect
to some items of its intellectual property.
VF
obtains licensing royalties and relies on its licensees to
maintain the value of its brands.
Only a relatively small portion of VFs revenues,
$81.0 million or 1.1%, was derived from licensing royalties
in 2008. Although VF generally has significant control over its
licensee products and advertising, we rely on them for, among
other things, operational and financial controls over their
businesses. Failure of our licensees to successfully market
licensed products or our inability to replace existing licensees
could adversely affect VFs revenues, both
17
directly from reduced royalties received and indirectly from
reduced sales of our other products. Risks are also associated
with a licensees ability to:
|
|
|
|
|
Obtain capital;
|
|
|
|
Manage its labor relations;
|
|
|
|
Maintain relationships with its suppliers;
|
|
|
|
Manage its credit risk effectively; and
|
|
|
|
Maintain relationships with its customers.
|
In addition, VF relies on its licensees to help preserve the
value of its brands. Although we make every attempt to protect
VFs brands through, among other things, approval rights
over design, production processes and quality, packaging,
merchandising, distribution, advertising and promotion of its
products, we cannot completely control the use of licensed VF
brands by our licensees. The misuse of a brand by a licensee
could have a material adverse effect on that brand and on VF.
VFs
balance sheet includes a significant amount of intangible assets
and goodwill. A decline in the estimated fair value of an
intangible asset or of a business unit could result in an asset
impairment charge, which would be recorded as an operating
expense in VFs Consolidated Statement of
Income.
Under current accounting standards, we estimate the fair value
of acquired assets, including intangible assets, and assumed
liabilities arising from a business acquisition. The excess, if
any, of the cost of the acquired business over the fair value of
net tangible assets acquired is goodwill. The goodwill is then
assigned to a business unit or reporting unit within
VF, which depends on whether the acquired business will be
operated as a separate business unit or integrated into an
existing VF business unit.
At December 2008, VF had approximately $0.9 billion of
trademark intangible assets and $1.3 billion of goodwill on
its balance sheet. These assets are not required to be amortized
under current accounting rules. In addition, VF had
approximately $0.4 billion of intangible assets that are
being amortized under current accounting rules. The combined
amounts represent 42% of VFs Total Assets and 75% of
Common Stockholders Equity.
Trademark intangible assets that are not amortized and goodwill
must be tested for impairment at least annually. The impairment
test requires us to estimate the fair value of VFs
business units and related intangible assets, primarily using
discounted cash flow methodologies based on forecasted revenues
and cash flows that will be derived from a business unit or
trademark. Intangible assets that are being amortized must be
tested for impairment whenever events or circumstances indicate
that their carrying value might not be recoverable.
The fair value of a business unit could decline if forecasted
revenues or cash flows were to be lower in the future due to
effects of the global recession or other causes. If the carrying
value of intangible assets or of goodwill were to exceed its
fair value, the asset would be written down to its fair value,
with the impairment loss recognized as a noncash charge in the
Consolidated Statement of Income. We have not had any impairment
charges in the last three years, other than the 2006 loss on
disposal of our intimate apparel business (accounted for as
discontinued operations). However, changes in the future outlook
of a business unit could result in an impairment loss, which
could have a material adverse effect on VFs results of
operations and financial condition.
VFs
defined benefit pension plans were underfunded at the end of
2008 due primarily to the effects of the global financial and
credit market crisis that began in 2008. This resulted in a
charge to Common Stockholders Equity in our Consolidated
Balance Sheet and a significant increase in our 2009 pension
expense. If the pension plan investments were to decline in
value, or if the level of interest rates were to decline from
the current level, the pension plans would be further
underfunded, resulting in an additional charge to Common
Stockholders Equity and higher pension expense in future
years.
VFs qualified defined benefit pension plan swung from
being overfunded at the end of 2007 to significantly underfunded
at the end of 2008. This underfunded status was due primarily to
the decline in the value of pension plan assets with the general
turmoil in the global securities markets in 2008. The
underfunded status resulted in recognition of
$414.9 million of liabilities and a $291.0 million
after-tax charge to Common Stockholders Equity at the end
of 2008. For financial accounting, differences between actual
investment returns and the actuarially assumed investment return
are deferred and amortized to future years pension cost.
Our pension cost will increase from $10.8 million in 2008
to approximately $98 million in 2009 primarily due to
amortization of these deferred actuarial losses.
18
The level of interest rates drives the discount rate used to
value the plans projected benefit obligations. In general,
a decrease in interest rates would result in a greater present
value of future benefit obligations, while an increase in
interest rates would result in a smaller present value of future
benefit obligations.
A further decrease in the value of pension plan assets or a
decrease in interest rates could result in a further decline in
the plans funded status. In that case, VF would recognize
additional liabilities and additional charges to Common
Stockholders Equity in our Consolidated Balance Sheet and
higher pension expense in future years.
If current market conditions persist, VF would be required to
make substantial cash funding contributions to the plan,
beginning in 2010, to return the plan to a fully funded status
over the next few years.
RISKS
APPLICABLE TO THE APPAREL INDUSTRY
VFs
revenues and profits depend on the level of consumer spending
for apparel, which is sensitive to general economic conditions
and other factors affecting consumer confidence.
The apparel industry has historically been subject to cyclical
variations and is particularly affected by adverse trends in the
general economy. The success of VFs business depends on
consumer spending. Consumer spending is influenced by a number
of factors, including actual and perceived economic conditions
affecting disposable consumer income (such as unemployment and
wages), business conditions, interest rates, housing costs,
energy prices, availability of credit and tax rates in the
international, national, regional and local markets where
VFs products are sold. Any significant deterioration in
general economic conditions, recession or increases in interest
rates could reduce the level of consumer spending and inhibit
consumers use of credit. A significant decline in the
securities markets could materially affect consumer confidence,
the financial condition of VFs customers and VFs
operating costs through higher contributions to its pension
plan. In addition, natural disasters, war, terrorist activity or
the threat of war or terrorist activity could adversely affect
consumer spending and thereby have a material adverse effect on
VFs financial condition and results of operations.
VFs
ability to sell products in international markets may be
affected by legal, regulatory, political and economic
risks.
Our ability to maintain the current level of operations in our
existing international markets and to capitalize on growth in
new international markets is subject to risks associated with
international operations. These include the burdens of complying
with a variety of foreign laws and regulations, unexpected
changes in regulatory requirements, new tariffs or other
barriers to some international markets.
We cannot predict whether quotas, duties, taxes or other similar
restrictions will be imposed by the United States, the European
Union or other countries upon the import or export of our
products in the future, or what effect any of these actions
would have on VFs business, financial condition or results
of operations. Changes in regulatory, geopolitical policies and
other factors may adversely affect VFs business or may
require us to modify our current business practices.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None
VF owns certain facilities used in manufacturing and
distribution activities and leases a distribution center under a
capital lease. Other facilities are leased under operating
leases that generally contain renewal options. We believe all
facilities and machinery and equipment are in good condition and
are suitable for VFs needs.
19
Manufacturing, distribution and administrative facilities being
utilized at the end of 2008 are summarized below by reportable
segment:
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|
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|
Square Footage
|
|
|
|
Owned
|
|
|
Leased
|
|
|
Outdoor and Action Sports
|
|
|
1,100,000
|
*
|
|
|
2,000,000
|
|
Jeanswear
|
|
|
5,900,000
|
|
|
|
1,500,000
|
|
Imagewear
|
|
|
800,000
|
|
|
|
2,400,000
|
|
Sportswear
|
|
|
500,000
|
|
|
|
200,000
|
|
Contemporary Brands
|
|
|
200,000
|
|
|
|
200,000
|
|
Corporate and shared services
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,700,000
|
|
|
|
6,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes assets under capital lease. |
Approximately 70% of the owned and leased space represents
manufacturing (cutting, sewing and finishing) and distribution
facilities. The remainder represents administrative and showroom
facilities.
In addition to the above, VF owns or leases retail or outlet
locations totaling 5,900,000 square feet. VF also leases
500,000 square feet of space that was formerly used in its
operations but is now subleased to a third party through the end
of the lease term.
|
|
Item 3.
|
Legal
Proceedings.
|
There are no pending material legal proceedings, other than
ordinary, routine litigation incidental to the business, to
which VF or any of its subsidiaries is a party or to which any
of their property is the subject.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
Not applicable.
20
PART II
|
|
Item 5.
|
Market
for VFs Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
|
VFs Common Stock is listed on the New York Stock Exchange
under the symbol VFC. The high and low sale prices
of VF Common Stock, as reported on the NYSE Composite Tape in
each calendar quarter of 2008, 2007 and 2006, along with
dividends declared, are as follows:
|
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|
|
|
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|
|
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|
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|
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|
|
|
Dividends
|
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
77.69
|
|
|
$
|
38.22
|
|
|
$
|
0.59
|
|
Third quarter
|
|
|
84.60
|
|
|
|
65.50
|
|
|
|
0.58
|
|
Second quarter
|
|
|
79.87
|
|
|
|
69.44
|
|
|
|
0.58
|
|
First quarter
|
|
|
83.29
|
|
|
|
63.68
|
|
|
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
87.36
|
|
|
$
|
68.15
|
|
|
$
|
0.58
|
|
Third quarter
|
|
|
96.20
|
|
|
|
78.27
|
|
|
|
0.55
|
|
Second quarter
|
|
|
95.10
|
|
|
|
82.52
|
|
|
|
0.55
|
|
First quarter
|
|
|
83.29
|
|
|
|
73.59
|
|
|
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
$
|
83.10
|
|
|
$
|
73.00
|
|
|
$
|
0.55
|
|
Third quarter
|
|
|
75.32
|
|
|
|
62.16
|
|
|
|
0.55
|
|
Second quarter
|
|
|
67.97
|
|
|
|
55.99
|
|
|
|
0.55
|
|
First quarter
|
|
|
58.67
|
|
|
|
53.28
|
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2009, there were 4,706 shareholders
of record. Quarterly dividends on VF Common Stock, when
declared, are paid on or about the 20th day of March, June,
September and December.
21
Performance
graph:
The following graph compares the cumulative total shareholder
return on VF Common Stock with that of the Standard &
Poors (S&P) 500 Index and the S&P
Apparel, Accessories & Luxury Goods Subindustry Index
(S&P Apparel Index) for the five calendar years
ended December 31, 2008. The S&P Apparel Index at the
end of 2008 consisted of Carters, Inc., Coach, Inc., Perry
Ellis International, Inc., Fossil, Inc., Hanesbrands Inc., Jones
Apparel Group, Inc., Liz Claiborne, Inc., Maidenform Brands,
Inc., Movado Group, Inc., Oxford Industries, Inc., Phillips-Van
Heusen Corporation, Polo Ralph Lauren Corporation, Quiksilver,
Inc., True Religion Apparel, Inc., Under Armour, Inc., Unifirst
Corporation, VF Corporation, Volcom, Inc. and The Warnaco Group,
Inc. The graph assumes that $100 was invested on
December 31, 2003, in each of VF Common Stock, the S&P
500 Stock Index and the S&P Apparel Index, and that all
dividends were reinvested. The graph plots the respective values
on the last trading day of calendar years 2003 through 2008.
Past performance is not necessarily indicative of future
performance.
Comparison
of Five Year Total Return of
VF Common Stock, S&P 500 Index and S&P Apparel
Index
VF Common Stock closing price on December 31, 2008 was
$54.77
TOTAL
SHAREHOLDER RETURNS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company / Index
|
|
|
Base
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
VF CORPORATION
|
|
|
$
|
100
|
|
|
|
$
|
130.79
|
|
|
|
$
|
133.22
|
|
|
|
$
|
203.07
|
|
|
|
$
|
174.66
|
|
|
|
$
|
144.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 INDEX
|
|
|
|
100
|
|
|
|
|
110.88
|
|
|
|
|
116.33
|
|
|
|
|
134.70
|
|
|
|
|
142.10
|
|
|
|
|
89.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P APPAREL INDEX
|
|
|
|
100
|
|
|
|
|
129.27
|
|
|
|
|
132.28
|
|
|
|
|
171.43
|
|
|
|
|
127.65
|
|
|
|
|
77.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Issuer
purchases of equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
of Shares that
|
|
|
|
Total
|
|
|
Weighted
|
|
|
Shares Purchased as
|
|
|
May Yet be
|
|
|
|
Number of
|
|
|
Average
|
|
|
Part of Publicly
|
|
|
Purchased
|
|
|
|
Shares
|
|
|
Price Paid
|
|
|
Announced Plans or
|
|
|
Under the Plans or
|
|
Fiscal Period
|
|
Purchased
|
|
|
per Share
|
|
|
Programs
|
|
|
Programs(1)
|
|
|
Sept 28 Oct 25, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
3,204,000
|
|
Oct 26 Nov 22, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,204,000
|
|
Nov 23 Jan 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,204,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
There were no share repurchases during the fourth quarter of
2008. We will continue to evaluate future share repurchases
considering funding required for business acquisitions, our
common stock price and levels of stock option exercises. Also,
under the Mid-Term Incentive Plan implemented under VFs
1996 Stock Compensation Plan, VF must withhold from the shares
of Common Stock issuable in settlement of a participants
performance-based restricted stock units the number of shares
having an aggregate fair market value equal to any minimum
statutory federal, state and local withholding or other tax that
VF is required to withhold, unless the participant has made
other arrangements to pay such amounts. There were no shares
withheld under the Mid-Term Incentive Plan during the fourth
quarter of 2008. |
23
|
|
Item 6.
|
Selected
Financial Data.
|
The following table sets forth selected consolidated financial
data for the five years ended January 3, 2009. This
selected financial data, derived from financial statements
examined by VFs independent registered public accounting
firm, should be read in conjunction with Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations and Item 8.
Consolidated Financial Statements and Notes included in
this report. Historical results presented herein may not be
indicative of future results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Dollars in thousands, except per share amounts
|
|
|
Summary of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
7,642,600
|
|
|
$
|
7,219,359
|
|
|
$
|
6,215,794
|
|
|
$
|
5,654,155
|
|
|
$
|
5,218,066
|
|
Operating income
|
|
|
938,995
|
|
|
|
965,441
|
|
|
|
826,144
|
|
|
|
767,951
|
|
|
|
664,357
|
|
Income from continuing operations
|
|
|
602,748
|
|
|
|
613,246
|
|
|
|
535,051
|
|
|
|
482,629
|
|
|
|
398,879
|
|
Discontinued operations(1)
|
|
|
|
|
|
|
(21,625
|
)
|
|
|
(1,535
|
)
|
|
|
35,906
|
|
|
|
75,823
|
|
Cumulative effect of a change in accounting policy(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,833
|
)
|
|
|
|
|
Net income
|
|
|
602,748
|
|
|
|
591,621
|
|
|
|
533,516
|
|
|
|
506,702
|
|
|
|
474,702
|
|
|
|
Earnings (loss) per common share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
5.52
|
|
|
$
|
5.55
|
|
|
$
|
4.83
|
|
|
$
|
4.33
|
|
|
$
|
3.61
|
|
Discontinued operations(1)
|
|
|
|
|
|
|
(0.20
|
)
|
|
|
(0.01
|
)
|
|
|
0.32
|
|
|
|
0.69
|
|
Cumulative effect of a change in accounting policy(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.11
|
)
|
|
|
|
|
Net income
|
|
|
5.52
|
|
|
|
5.36
|
|
|
|
4.82
|
|
|
|
4.54
|
|
|
|
4.30
|
|
Earnings (loss) per common share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
5.42
|
|
|
$
|
5.41
|
|
|
$
|
4.73
|
|
|
$
|
4.23
|
|
|
$
|
3.54
|
|
Discontinued operations(1)
|
|
|
|
|
|
|
(0.19
|
)
|
|
|
(0.01
|
)
|
|
|
0.31
|
|
|
|
0.67
|
|
Cumulative effect of a change in accounting policy(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.10
|
)
|
|
|
|
|
Net income
|
|
|
5.42
|
|
|
|
5.22
|
|
|
|
4.72
|
|
|
|
4.44
|
|
|
|
4.21
|
|
Dividends per share
|
|
|
2.33
|
|
|
|
2.23
|
|
|
|
1.94
|
|
|
|
1.10
|
|
|
|
1.05
|
|
Dividend payout ratio(3)
|
|
|
43.0
|
%
|
|
|
42.7
|
%
|
|
|
41.1
|
%
|
|
|
24.2
|
%
|
|
|
24.9
|
%
|
|
|
Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
1,640,828
|
|
|
$
|
1,510,742
|
|
|
$
|
1,563,162
|
|
|
$
|
1,213,233
|
|
|
$
|
1,006,354
|
|
Current ratio
|
|
|
2.6
|
|
|
|
2.3
|
|
|
|
2.5
|
|
|
|
2.1
|
|
|
|
1.7
|
|
Total assets
|
|
$
|
6,433,868
|
|
|
$
|
6,446,685
|
|
|
$
|
5,465,693
|
|
|
$
|
5,171,071
|
|
|
$
|
5,004,278
|
|
Long-term debt
|
|
|
1,141,546
|
|
|
|
1,144,810
|
|
|
|
635,359
|
|
|
|
647,728
|
|
|
|
556,639
|
|
Redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,326
|
|
|
|
26,053
|
|
Common stockholders equity
|
|
|
3,555,892
|
|
|
|
3,576,829
|
|
|
|
3,265,172
|
|
|
|
2,808,213
|
|
|
|
2,513,241
|
|
Debt to total capital ratio(4)
|
|
|
25.2
|
%
|
|
|
26.4
|
%
|
|
|
19.5
|
%
|
|
|
22.6
|
%
|
|
|
28.5
|
%
|
Average number of common shares outstanding
|
|
|
109,234
|
|
|
|
110,443
|
|
|
|
110,560
|
|
|
|
111,192
|
|
|
|
109,872
|
|
Book value per common share
|
|
$
|
32.37
|
|
|
$
|
32.58
|
|
|
$
|
29.11
|
|
|
$
|
25.50
|
|
|
$
|
22.56
|
|
|
|
Other Statistics(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
12.3
|
%
|
|
|
13.4
|
%
|
|
|
13.3
|
%
|
|
|
13.6
|
%
|
|
|
12.7
|
%
|
Return on invested capital(6)(7)
|
|
|
13.5
|
%
|
|
|
14.8
|
%
|
|
|
14.7
|
%
|
|
|
14.2
|
%
|
|
|
13.4
|
%
|
Return on average common stockholders equity(7)
|
|
|
16.5
|
%
|
|
|
18.4
|
%
|
|
|
18.0
|
%
|
|
|
18.0
|
%
|
|
|
17.8
|
%
|
Return on average total assets(7)
|
|
|
9.1
|
%
|
|
|
10.4
|
%
|
|
|
10.0
|
%
|
|
|
9.4
|
%
|
|
|
8.5
|
%
|
Cash provided by operations
|
|
$
|
679,472
|
|
|
$
|
833,629
|
|
|
$
|
454,128
|
|
|
$
|
533,654
|
|
|
$
|
646,372
|
|
Cash dividends paid
|
|
$
|
255,235
|
|
|
$
|
246,634
|
|
|
$
|
216,529
|
|
|
$
|
124,116
|
|
|
$
|
117,731
|
|
|
|
24
|
|
|
(1) |
|
Womens intimate apparel business sold in April 2007. |
|
(2) |
|
After tax effect of change in accounting policy in 2005 to adopt
FASB Statement 123(R), Share-Based Payment. |
|
(3) |
|
Dividends per share divided by the total of income from
continuing and discontinued operations per diluted share. |
|
(4) |
|
Total capital is defined as common stockholders equity
plus short-term and long-term debt. |
|
(5) |
|
Operating statistics are based on continuing operations. |
|
(6) |
|
Invested capital is defined as average common stockholders
equity plus average short-term and long-term debt. |
|
(7) |
|
Return is defined as income from continuing operations before
net interest expense, after income taxes. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Overview
VF Corporation is a leading global marketer of branded lifestyle
and other apparel products. Managements vision is to grow
VF by building leading lifestyle brands that excite consumers
around the world. Lifestyle brands, representative of the
activities that consumers aspire to, will generally extend
across multiple geographic markets and product categories and
therefore have greater opportunities for growth.
VF owns a diverse portfolio of brands with strong market
positions in several consumer product categories. In addition,
we market occupational apparel to resellers and major corporate
and government customers. VF has a broad customer base, with
products distributed through leading specialty stores, upscale
and traditional department stores, national chains and mass
merchants, plus VF-operated retail stores and internet websites.
VF is organized around our principal product categories and
major brands within those categories. These groupings of
businesses, referred to as coalitions, are
summarized as follows:
|
|
|
Coalition
|
|
Principal VF-owned Brands
|
|
Outdoor and Action Sports
|
|
The North
Face®,
Vans®,
JanSport®,
Eastpak®,
Kipling®
(except in North America),
Napapijri®,
Reef®,
Eagle
Creek®
|
Jeanswear
|
|
Wrangler®,
Wrangler
Hero®,
Lee®,
Riders®,
Rustler®,
Timber Creek by
Wrangler®
|
Imagewear
|
|
Red
Kap®,
Bulwark®,
Majestic®
|
Sportswear
|
|
Nautica®,
John
Varvatos®,
Kipling®
(in North America)
|
Contemporary Brands
|
|
7 For All
Mankind®,
lucy®
|
Discontinued
Operations
VF sold its womens intimate apparel business in April
2007. The decision to exit this business was representative of
our strategic plan to shift VFs portfolio mix to higher
growth, higher margin lifestyle brands. Because VF has sold this
business, the operating results, assets, liabilities and cash
flows of the global intimate apparel business have been
separately presented as discontinued operations in the
Consolidated Financial Statements.
See Note C to the Consolidated Financial Statements for
further details about the discontinued operations. Unless
otherwise stated, the remaining sections of this discussion and
analysis of results of operations and financial condition relate
only to continuing operations.
Impact of
the Current Global Economic Environment
The global economy reflected significant volatility and change
during 2008 declines in residential and commercial
real estate values that spread across the globe, rapid and
extreme changes in commodity prices and currency markets, sharp
declines in global securities markets, rising unemployment, and
a credit and liquidity crisis leading to the current
global recession. VF reported record revenues and earnings per
share in each of its first three quarters and full year of 2008.
However, our fourth quarter performance was negatively impacted
by the deteriorating global economic environment and its impact
on consumer spending. There is every indication that these
difficult economic conditions will continue through 2009.
25
In response to these market conditions and the expectation that
they would continue, we took an aggressive approach to reducing
costs, resulting in a charge of $41.0 million in the fourth
quarter of 2008. These cost reduction initiatives are expected
to result in cost savings of approximately $100 million
beginning in 2009. See Note K to the Consolidated Financial
Statements.
Long-term
Financial Targets
In January 2008, we revised two of our long-term financial
targets and added a new earnings per share growth target. We
expect attainment of these targets to drive increases in total
shareholder return (TSR), which is the total of
stock price appreciation and dividends received by our
shareholders. While the revenue and earnings growth targets are
not expected to be achieved in 2009, we have not revised our
longer-term outlook. These targets are summarized below:
|
|
|
|
|
Revenue growth of 8% to 10% per year At the
beginning of 2008, we increased our long-term revenue growth
target from 6% to 8% per year to 8% to 10% per year, with
approximately 6% to 7% coming from organic growth and 2% to 3%
from acquisitions. We had exceeded the prior target by achieving
revenue growth of 16% in 2007 and 10% in 2006. In 2008, our
revenues increased by 6%. Key drivers of future growth
consistent with the 8% to 10% target include a continuation of
the strong momentum we have experienced in our outdoor and
action sports businesses, growth in our contemporary brands and
sportswear businesses, acquisitions of key lifestyle brands,
international expansion and continued growth in our
direct-to-consumer business. We expect our international
revenues to expand approximately 13% annually and account for
33% of our total revenues by 2012, compared with 30% in 2008.
Revenues in our direct-to-consumer business are also expected to
grow by approximately 18% annually and represent 22% of revenues
by 2012, compared with 16% in 2008. We have many programs in
place to continue to drive organic growth across our brands and
will continue to aggressively search for opportunities to
acquire branded lifestyle businesses that meet our strategic and
financial goals.
|
|
|
|
Operating income of 15% of revenues We
increased our long-term targeted operating margin from 14% to
15%. Our operating margins had approached the original 14%
target in 2007 and 2006. However, operating margins declined to
12.3% in 2008, reflecting the negative impact from cost saving
actions of 0.8% primarily related to workforce reductions and
the current difficult global economic conditions, particularly
in the fourth quarter of the year. We expect future improvement
in our operating margin as we (i) leverage our costs across
an expanded revenue base, (ii) grow our international and
retail businesses, which have higher than VF average operating
margins, (iii) continue our relentless focus on cost
reduction and (iv) grow existing lifestyle brands that
report higher than VF average operating margins.
|
|
|
|
Earnings per share growth of 10% to 11% per year
We established a new target of 10% to 11% annual
growth in diluted earnings per share and believe that earnings
per share can grow at a faster rate than revenues, reflecting
expansion in our operating margin. We had exceeded this growth
rate in recent years. With the impact of the cost reduction
actions and global economic events mentioned above, earnings per
share were flat in 2008. On a long-term basis, we expect our
growth rate of earnings per share to be in line with the new
target.
|
In addition to the revised and new targets discussed above, we
maintained the following long-term targets:
|
|
|
|
|
Return on invested capital of 17% We believe
that a high return on capital is closely correlated with
enhancing TSR. We calculate return on invested capital as
follows:
|
Income from continuing operations before net interest
expense, after income taxes
Average common stockholders equity, plus
average short and long-term debt
VF earned a 13.5% return on invested capital in 2008 and a 14.8%
return in 2007. Our returns in these years were impacted by our
2008 cost reduction initiatives and by acquisitions in 2007.
Newly acquired businesses generally have a lower than average
return on invested capital in their earliest years of ownership.
|
|
|
|
|
Debt to capital of less than 40% We have
established a goal of keeping our debt to less than 40% of our
total capitalization, with capitalization defined as our common
stockholders equity, plus combined short and long-term
debt. This ratio was 25.2% at the end of 2008. This low debt to
capital ratio demonstrates VFs ability to generate strong
cash flow considering the level of dividend, share repurchase
and acquisition spending over the last several years.
|
26
|
|
|
|
|
Dividend payout ratio of 40% Our target is to
return approximately 40% of earnings to our stockholders through
a consistent dividend policy. The 2008 dividend payout ratio was
43.0% of Net Income. VF has increased its dividends paid per
share each year for the past 36 years.
|
We evaluate our existing businesses to ensure that they meet our
strategic and financial objectives and may in the future decide
to exit a business that does not meet those objectives, as
demonstrated by the sale of the global intimate apparel business
in 2007.
Strategic
Objectives
We have developed a growth plan that we believe will enable VF
to achieve its long-term revenue and earnings targets. Our
growth strategy consists of six drivers:
|
|
|
|
1.
|
Build more global, growing lifestyle brands. Focus on
building more growing, global lifestyle brands with an emphasis
on younger consumers and on female consumers.
|
|
|
2.
|
Expand our share with winning customers. Develop brand
and product strategies that will enable us to gain market share
with successful, growing retail partners.
|
|
|
3.
|
Stretch brands to new geographies. Grow our international
presence, particularly in expanding economies such as those in
China, India and Russia.
|
|
|
4.
|
Expand our direct-to-consumer business. Increase the
portion of revenues obtained from VF-operated monobrand retail
stores and
e-commerce.
|
|
|
5.
|
Fuel the growth. Leverage our supply chain and
information technology capabilities across VF to drive lower
costs and inventory levels, increase productivity and integrate
acquisitions efficiently to generate savings that can be
reinvested in our brands.
|
|
|
6.
|
Build new growth enablers. Support our growth plans by
identifying and developing high potential employees and by
building a diverse team of talented leaders.
|
Highlights
of 2008
There were several notable actions and achievements in 2008:
|
|
|
|
|
Revenues and earnings per share were both at record levels.
|
|
|
|
Total Revenues increased 6% to $7,642.6 million, driven by
higher revenues in our outdoor and action sports, international
and direct-to-consumer businesses and the benefit of a full year
of ownership of the contemporary brands businesses.
|
|
|
|
With $679.5 million of cash flow from operating activities,
VF had adequate liquidity to cover all of its current needs, as
well as fund $217.6 million of investments in capital
expenditures and acquisitions, $255.2 million of dividends
paid and $149.7 million of repurchases of our Common Stock.
We ended the year with $381.8 million of cash and
equivalents. And with our investment grade credit rating, we
continue to have access to the capital markets, despite the
credit crisis in late 2008. At the end of 2008, we had the
ability to borrow over $1.3 billion under committed bank
credit agreements.
|
|
|
|
We took aggressive actions to address the uncertainty posed by
current economic conditions and to protect our future
profitability. These cost reduction actions should bring about
annualized savings of approximately $100 million, beginning
in 2009. The actions resulted in a $41.0 million charge in
the fourth quarter.
|
|
|
|
In May 2008, VF acquired one-third of the outstanding equity of
Mo Industries, which owns the
Splendid®
and Ella
Moss®
brands of premium sportswear marketed to better department and
specialty stores. VF expects to acquire the remaining two-thirds
equity in the first half of 2009. Mo Industries had total
revenues of $95 million for the full year 2008. See
Note B to the Consolidated Financial Statements.
|
27
Analysis
of Results of Continuing Operations
Consolidated
Statements of Income
The following table presents a summary of the changes in our
Total Revenues during the last two years:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Compared with
|
|
|
Compared with
|
|
|
|
2007
|
|
|
2006
|
|
|
|
In millions
|
|
|
Total revenues prior year
|
|
$
|
7,219
|
|
|
$
|
6,216
|
|
Organic growth
|
|
|
120
|
|
|
|
631
|
|
Acquisitions in prior year (to anniversary dates)
|
|
|
291
|
|
|
|
25
|
|
Acquisitions in current year
|
|
|
13
|
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
Total revenues current year
|
|
$
|
7,643
|
|
|
$
|
7,219
|
|
|
|
|
|
|
|
|
|
|
Total Revenues consist of Net Sales of products and Royalty
Income from licensees. Revenues increased in 2008 due to overall
unit volume increases and organic growth in our outdoor and
action sports businesses and the benefit of a full year of
operations of our contemporary brands businesses acquired in
2007. The impact of the 53rd week in 2008 was not
significant to VFs operating results. Revenues in most of
our businesses increased in 2007, with the largest growth in our
outdoor and action sports and jeanswear businesses. Additional
details on revenues are provided in the section titled
Information by Business Segment.
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 business (primarily the
European euro countries) benefited revenue by $109 million
in 2008 relative to 2007, and $130 million in 2007 relative
to 2006. The weighted average translation rate for the euro was
$1.47 per euro during 2008 compared with $1.36 during 2007. With
the strengthening of the U.S. dollar in recent months to
$1.39 per euro at December 2008, reported revenues in 2009 are
expected to be negatively impacted compared with 2008.
The following table presents the percentage relationship to
Total Revenues for components of our Consolidated Statements of
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Gross margin (total revenues less cost of goods sold)
|
|
|
43.9
|
%
|
|
|
43.5
|
%
|
|
|
43.4
|
%
|
Marketing, administrative and general expenses
|
|
|
31.7
|
|
|
|
30.1
|
|
|
|
30.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
12.3
|
%
|
|
|
13.4
|
%
|
|
|
13.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margins increased to 43.9% of revenues in 2008, compared
with 43.5% in 2007 and 43.4% in 2006. Gross margins increased
0.5% in 2008 from the impact of our lifestyle businesses, which
have gross margin percentages higher than VF averages,
representing a higher percentage of Total Revenues. The slight
increase in the gross margin percentage in 2007 over 2006 was
also due to our higher margin lifestyle businesses representing
a higher percentage of Total Revenues.
In 2008, 77% of our total Net Sales related to products sourced
from contractors, primarily in Asia, and 23% related to products
manufactured in VF-owned facilities in Mexico, Europe and
Central and South America. We believe a combination of VF-owned
and contracted production from different geographic regions
provides flexibility and a competitive advantage in our product
sourcing.
Marketing, Administrative and General Expenses as a percent of
revenues were 31.7% of revenues in 2008 and 30.1% in both 2007
and 2006. This ratio increased 1.4% in 2008 due to the growth in
our direct-to-consumer business, which has a higher expense
ratio. Our direct-to-consumer business represented 16% of total
VF revenues in 2008 and 14% in 2007. In addition, the specific
cost reduction actions discussed in the Highlights of
2008 section of the Overview above increased
this ratio by 0.6% in 2008. These increases were partially
offset by lower incentive compensation and other spending
reductions. While the 2007 ratio was flat compared with 2006,
the 2007 ratio reflected the net impact of the higher expense
ratios of our 2007 acquisitions and the cost reduction actions
taken in 2007, offset by the beneficial impact of revenue growth
in many of our businesses, resulting in improved leverage of
operating expenses.
28
We include costs of cooperative advertising, licensing, retail
stores and shipping and handling in Marketing, Administrative
and General Expenses, as stated in our significant accounting
policies in Note A to the Consolidated Financial
Statements. Some apparel companies classify cooperative
advertising costs as a reduction of Net Sales and licensing
costs as a reduction to Royalty Income. Further, some classify
retail store costs and shipping and handling costs in Cost of
Goods Sold. Accordingly, our gross margins and operating
expenses may not be directly comparable with other apparel
companies.
Interest income decreased $3.2 million in 2008 primarily
due to lower interest rates. Interest expense (including bank
fees and amortization of deferred costs and a hedging gain)
increased $21.9 million in 2008 due to an increase in debt
balances related to the issuance of $600.0 million of
senior long-term notes in October 2007 to fund our 2007
acquisitions. This increase was partially offset by lower
short-term borrowing rates. Interest expense increased
$14.9 million in 2007 due to (i) higher borrowings
needed to fund acquisition activity and (ii) higher
interest rates on short-term debt. Average interest-bearing debt
outstanding totaled approximately $1,454 million for 2008,
$1,080 million for 2007 and $900 million for 2006. The
weighted average interest rate on outstanding debt was 6.3% for
2008, 6.4% for 2007 and 6.1% for 2006.
The effective income tax rate was 28.9% in 2008, compared with
32.3% in 2007 and 31.2% in 2006. During 2008, 2007 and 2006, we
recorded tax benefits of $24.6 million, $12.0 million
and $16.9 million, respectively, for the favorable tax
outcomes upon audits in several international locations and from
expirations of statutes of limitations in locations where tax
contingencies were recorded for open tax years. These benefits
lowered our annual tax rates by 2.9%, 1.3% and 2.2%,
respectively, for 2008, 2007 and 2006. During 2008, we also
recorded tax benefits of $11.5 million due to updated
assessments of previously accrued amounts. These benefits
lowered our 2008 annual tax rate by 1.4%. The remainder of the
decline in the effective income tax rate in 2008 from 2007 was
attributed to growth in our international businesses in
jurisdictions having effective tax rates that are substantially
lower than the United States as well as VF average effective
rates.
Income from Continuing Operations decreased 2% to
$602.7 million in 2008 from $613.2 million in 2007,
while earnings per share increased to $5.42 in 2008 from $5.41
in 2007. Cost reduction actions taken during 2008 lowered
earnings per share by $0.41. Cost reduction actions completed in
2007, partially offset by the gain on exiting the
H.I.S®
business, reduced 2007 earnings per share by $0.06. In
translating foreign currencies into the U.S. dollar, the
weaker U.S. dollar had a $0.15 favorable impact on earnings
per share in 2008 compared with 2007. Discrete tax items
accounted for an incremental benefit of $0.16 in 2008 earnings
per share over 2007. Earnings per share increased slightly in
2008 on lower Income from Continuing Operations due to the
reduced number of diluted shares outstanding in 2008.
After considering the effects of discontinued operations, VF
reported net income of $591.6 million ($5.22 per share) in
2007 and $533.5 million ($4.72 per share) in 2006. In
translating foreign currencies into the U.S. dollar, the
weaker U.S. dollar had a $0.11 per share favorable impact
in 2007 compared with 2006. Net income for 2007 also benefited
by $0.09 per share from the acquisitions made in 2007.
Information
by Business Segment
VFs businesses are grouped into five product categories,
and by brands within those product categories, for management
and internal financial reporting purposes. These groupings of
businesses are referred to as coalitions. Both
management and VFs Board of Directors evaluate operating
performance at the coalition level. These coalitions represent
VFs reportable segments.
We have recently realigned our management structure within our
former Outdoor Coalition to better capture future opportunities
in the outdoor and action sports industries. As a result, we
have renamed that coalition the Outdoor and Action Sports
Coalition.
For business segment reporting purposes, Coalition Revenues and
Coalition Profit represent net sales, royalty income and
operating expenses under the direct control of an individual
coalition, along with amortization of acquisition-related
intangible assets and its share of centralized corporate
expenses directly related to the coalition. Corporate expenses
not apportioned to the coalitions and net interest expense are
excluded from Coalition Profit. Importantly, this basis of
performance evaluation is consistent with that used for
management incentive compensation.
See Note R to the Consolidated Financial Statements for a
summary of our results of operations and other information by
coalition, along with a reconciliation of Coalition Profit to
Income from Continuing Operations
29
Before Income Taxes. To leverage the scale of VF, there are a
number of functions that are shared across all coalitions.
Accordingly, coalition results are not necessarily indicative of
operating results that would have been reported had each
business coalition been an independent, stand-alone entity
during the periods presented. Further, VFs presentation of
Coalition Profit may not be comparable with similar measures
used by other companies.
The following table presents a summary of the changes in our
Total Revenues by coalition during the last two years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Action
|
|
|
|
|
|
|
|
|
|
|
|
Contemporary
|
|
|
|
|
|
|
Sports
|
|
|
Jeanswear
|
|
|
Imagewear
|
|
|
Sportswear
|
|
|
Brands
|
|
|
Other
|
|
|
|
In millions
|
|
|
Total revenues 2006
|
|
$
|
1,868
|
|
|
$
|
2,780
|
|
|
$
|
828
|
|
|
$
|
686
|
|
|
$
|
|
|
|
$
|
54
|
|
Organic growth
|
|
|
470
|
|
|
|
92
|
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
67
|
|
Acquisition in prior year
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions in current year
|
|
|
49
|
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues 2007
|
|
|
2,387
|
|
|
|
2,897
|
|
|
|
988
|
|
|
|
684
|
|
|
|
142
|
|
|
|
121
|
|
Organic growth
|
|
|
341
|
|
|
|
(145
|
)
|
|
|
(30
|
)
|
|
|
(50
|
)
|
|
|
2
|
|
|
|
2
|
|
Acquisitions in prior year
|
|
|
14
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
Acquisition in current year
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues 2008
|
|
$
|
2,742
|
|
|
$
|
2,765
|
|
|
$
|
991
|
|
|
$
|
634
|
|
|
$
|
388
|
|
|
$
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor
and Action Sports:
The Outdoor and Action Sports Coalition consists of VFs
outdoor and action sports-related businesses including The
North
Face®
brand apparel, footwear and equipment,
Vans®
performance and casual footwear and apparel,
JanSport®
and
Eastpak®
daypacks and apparel,
Kipling®
bags and accessories,
Napapijri®
outdoor-based sportswear,
Reef®
beach-inspired footwear and apparel and Eagle
Creek®
adventure travel gear.
Outdoor and Action Sports Coalition Revenues increased 15% in
2008 led by global unit gains from strong consumer demand for
our The North
Face®,
Vans®,
Kipling®,
Napapijri®
and
Eastpak®
brands. The growth in these brands, particularly The North
Face®
and
Vans®,
included geographic expansion and the opening of additional
owned retail locations. Domestic revenues for our outdoor and
action sports businesses increased 11%, while international
revenues increased 21%, with the favorable effects of foreign
currency accounting for $57 million or 6% of this increase.
Revenues increased 28% in 2007, with 25% organic growth and the
remainder resulting from the Eagle Creek and The North
Face China acquisitions in 2007. The organic growth
was led by global unit volume increases in our The North
Face®,
Vans®,
Kipling®
and
Napapijri®
brands. Domestic revenues for our outdoor and action sports
businesses increased 24% in 2007, while international revenues
increased 35%, with the favorable effects of foreign currency
accounting for $73 million or 11% of this increase.
Coalition Profit increased 16% in 2008, with operating margins
increasing to 16.6% from 16.4% in 2007. The increase was driven
by higher revenues, resulting in improved leverage of operating
expenses, and growth in our international and retail operations,
where operating margins are higher. These improvements were
partially offset by an $8.3 million charge related to cost
reduction actions that negatively impacted operating margins by
0.3%.
Coalition Profit increased 31% in 2007, with operating margins
increasing to 16.4% in 2007 from 16.0% in 2006. The increase was
also driven by strong revenue growth and the improved leverage
of operating expenses and higher revenues in our international
and retail operations. These improvements were partially offset
by the negative impact of higher levels of distressed sales and
additional investments in our retail operations.
Jeanswear:
The Jeanswear Coalition consists of our global jeanswear
businesses, led by the
Wrangler®
and
Lee®
brands. Overall jeanswear revenues were down 5% in 2008 and up
4% in 2007.
Domestic jeanswear revenues decreased 8% in 2008 and were flat
in 2007 compared with 2006. The decline in 2008 resulted from a
very difficult retail environment caused by the deteriorating
global economy that impacted the
30
Lee, mass market and western specialty businesses. In 2007, a 3%
increase in our mass market business over 2006 was offset by
slight declines in our Lee and specialty businesses.
Jeanswear revenues in international markets, including Europe,
Canada, Mexico, Latin America and Asia, increased 2% in 2008
over 2007 and 13% in 2007 over 2006. Foreign currency
translation positively impacted international jeanswear 2008
revenues by $50 million, or 5%, and 2007 revenues by
$57 million, or 6%. Revenues on a constant-currency basis
were down in 2008, reflecting difficult economic conditions in
key European countries and the sale of the
H.I.S®
business in 2007, which accounted for $25 million of
revenues in that year. These declines were partially offset by
revenue growth in our Asia businesses. Revenues increased in all
geographic areas in 2007 over 2006 with the exception of our
Latin America operations, where revenues were flat.
Jeanswear Coalition operating margins were 13.7% in 2008 and
16.6% in 2007. Jeanswear operating results included expenses of
$27.3 million in 2008 and $8.0 million in 2007 related
to capacity reduction and other cost saving actions, which
negatively impacted operating margins in those years by 1.0% and
0.3%, respectively. Operating margins in 2008 were also impacted
by lower revenues without comparable expense reduction,
increased promotional activities and higher product costs. The
2007 operating margin was favorably impacted by 0.2% related to
the gain on the sale of
H.I.S®
trademarks and related intellectual property during that year.
Jeanswear Coalition operating margins were 16.6% in 2007 and
15.5% in 2006. The increase in 2007 operating margins resulted
from (i) growth in our international jeans businesses,
where gross margins are higher than our domestic businesses,
(ii) improved operating efficiencies, (iii) a 0.2%
increase in 2007 due to the gain on the
H.I.S®
sale and (iv) capacity and other cost reduction actions
that negatively impacted margins by 0.3% in 2007 vs. 0.5%
in 2006.
Imagewear:
The Imagewear Coalition includes VFs occupational
(industrial, career and safety) apparel business, as well as our
licensed sports apparel business. Imagewear Coalition Revenues
were flat in both our occupational and licensed sports apparel
businesses in 2008 compared with 2007. Imagewear Coalition
Revenues increased in 2007 compared with 2006 due to the
Majestic acquisition.
Occupational apparel revenues declined 3% in 2007 from 2006.
This reduction included the impact of exiting our
underperforming commodity fleece and T-shirt business. Excluding
this business, revenues in our occupational apparel business
increased slightly in 2007 over 2006.
Revenues in the licensed apparel business increased 59% in 2007
over 2006 due to the acquisition of Majestic. This acquisition
added $156 million to revenues in 2007. Excluding the
impact of the Majestic acquisition, licensed apparel revenues
increased 6% in 2007 led by growth in the licensed National
Football League and Major League Baseball businesses.
Imagewear Coalition operating margins declined in 2008 to 13.3%
from 14.4% in 2007, reflecting difficult market conditions in
the fourth quarter of 2008 that especially affected consumer
spending in our licensed sports apparel businesses. In addition,
the 2008 operating results included a $2.0 million charge
for cost reduction activities that negatively impacted the
operating margin by 0.2% and additional investments in
advertising that accounted for 0.4% of the margin decline.
Operating margins for the Imagewear Coalition declined to 14.4%
in 2007 from 16.2% in 2006, resulting from competitive factors
impacting the pricing of new programs within the occupational
apparel businesses and the impact of the 2007 Majestic
acquisition, which had lower operating margins than Imagewear
Coalition averages.
Sportswear:
The Sportswear Coalition consists of our
Nautica®
lifestyle brand, the John
Varvatos®
luxury collection for men and the
Kipling®
brand business in North America (whereas the
Kipling®
brand is managed as part of the Outdoor and Action Sports
Coalition internationally).
Coalition Revenues were down 7% in 2008 compared with 2007, with
an 11% decrease in our
Nautica®
brand revenues partially offset by double-digit revenue gains in
our John
Varvatos®
and
Kipling®
brand businesses. The decline in the Nautica business resulted
from difficult market conditions in the department store
channel, lower volumes in our retail outlet stores and the exit
in early 2008 of our womens wholesale business.
Coalition Revenues were flat in 2007 compared with 2006, with a
4% decrease in our
Nautica®
brand revenues offset by double-digit revenue gains in our
John
Varvatos®
and
Kipling®
brand businesses. The overall decline in
31
Nautica revenues resulted from lower menswear business due to
challenging conditions in department stores and higher
promotional activity in our Nautica retail stores in the second
half of 2007.
Sportswear Coalition operating margins declined to 6.3% in 2008
from 9.6% in 2007 due to lower
Nautica®
brand revenues without comparable expense reduction and
increased markdown activity related to a highly promotional
retail environment. In addition, the 2008 operating results
included $5.8 million in charges for cost reduction
activities, including the exit of the
Nautica®
womens wholesale sportswear business that negatively
impacted the operating margin by 0.9%.
Sportswear Coalition operating margins declined to 9.6% in 2007
from 13.3% in 2006 due to the impact of revenue decreases in the
Nautica®
brand without comparable expense reduction and increased
promotional activity in our owned outlet stores and the
department store channel in 2007.
Contemporary
Brands:
This coalition was formed in August 2007 with two newly acquired
businesses Seven For All Mankind (7 For All
Mankind®
brand of premium denim jeanswear and related apparel) and lucy
activewear
(lucy®
brand of womens activewear). This coalition in 2008 also
includes the earnings since June 2008 from our one-third equity
investment in Mo Industries, the owner and marketer of the
Splendid®
and Ella
Moss®
brands. VF expects to acquire the remaining two-thirds equity
interest in Mo Industries in the first half of 2009.
The increase in Coalition Revenues in 2008 was due to a full
year of ownership of the 7 For All
Mankind®
and
lucy®
brands and additional VF-operated retail store openings.
The Contemporary Brands Coalition operating margin decreased
from 17.5% in 2007 to 13.9% in 2008, reflecting high levels of
promotion and markdown-related expenses as a result of the
significant impact of the economic downturn on the more upscale
department stores. In addition, the 2008 operating results
included the impact of 1.7% for charges for an unremitted
value-added tax and duty matter and cost reduction initiatives.
Other:
The Other business segment includes the VF Outlet business,
which is a group of company-operated retail outlet stores in the
United States that sell a broad selection of excess quantities
of VF products and other branded products. Revenues and profits
of VF products are reported as part of the operating results of
the applicable coalitions, while revenues and profits of non-VF
products (primarily womens intimate apparel,
childrenswear, hosiery, underwear and accessories, which provide
a broader selection of merchandise to attract consumer traffic)
are reported in this business segment. Revenues in 2008 for the
Other business segment were flat with 2007. The increase in
revenues in 2007 over 2006 was due to VF Outlets sales of
womens intimate apparel products obtained from independent
suppliers following VFs exit of its intimate apparel
business in April 2007 (whereas such revenues prior to April
2007 were reported as part of discontinued operations).
Reconciliation
of Coalition Profit to Consolidated Income from Continuing
Operations Before Income Taxes:
There are two types of costs necessary to reconcile total
Coalition Profit, as discussed in the preceding paragraphs, to
Income from Continuing Operations Before Income Taxes. These
costs, discussed below, are Interest and Corporate and Other
Expenses. See also Note R to the Consolidated Financial
Statements.
Interest Expense, Net was discussed in the previous
Consolidated Statements of Income section. Interest
is excluded from Coalition Profit because substantially all of
our financing costs are managed at the corporate office and are
not under the control of coalition management.
32
Corporate and Other Expenses consists of corporate
headquarters and similar costs that are not apportioned to
the operating coalitions. These expenses are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
In millions
|
|
|
Information systems and shared services
|
|
$
|
178.2
|
|
|
$
|
187.0
|
|
|
$
|
179.0
|
|
Less costs apportioned to coalitions
|
|
|
(150.3
|
)
|
|
|
(146.4
|
)
|
|
|
(153.0
|
)
|
Less billings for transition services after sale of intimate
apparel business
|
|
|
|
|
|
|
(13.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.9
|
|
|
|
26.9
|
|
|
|
26.0
|
|
Corporate headquarters costs
|
|
|
79.3
|
|
|
|
96.4
|
|
|
|
84.7
|
|
Trademark maintenance and enforcement
|
|
|
11.3
|
|
|
|
10.9
|
|
|
|
11.3
|
|
Other
|
|
|
1.3
|
|
|
|
6.1
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other Expenses
|
|
$
|
119.8
|
|
|
$
|
140.3
|
|
|
$
|
127.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information Systems and Shared Services
Included are costs of our management information systems and our
centralized shared services center, which includes common
financial, supply chain, human resources and customer management
services that support our worldwide operations. Operating costs
of information systems and shared services are charged to the
coalitions based on utilization of those services, such as
minutes of computer processing time, number of transactions or
number of users. Costs to develop new computer applications that
will be used across VF are not allocated to the coalitions. The
decrease in information systems and shared services costs in
2008 resulted primarily from information systems costs incurred
in 2007 for transition services provided to the acquirer of our
intimate apparel business that did not recur in 2008. The
reimbursement of these costs from the acquirer in 2007 is
separately presented above.
Corporate Headquarters Costs
Headquarters costs include compensation and benefits of
corporate management and staff, certain legal and professional
fees, and administrative and general expenses, which are not
apportioned to the coalitions. The decrease in corporate
headquarters costs in 2008 from 2007 resulted primarily
from lower management incentive compensation. The increase in
these costs from 2006 to 2007 was driven by higher incentive
compensation and other costs.
Trademark Maintenance and Enforcement Legal
and other costs of registering, maintaining and enforcing the
majority of VFs trademarks, plus related costs of
licensing administration, are controlled by a centralized
trademark and licensing staff and are not allocated to the
coalitions.
Other This category includes
(i) adjustments to convert the earnings of certain business
units using the FIFO inventory valuation method for internal
reporting to the LIFO method for consolidated financial
reporting, (ii) miscellaneous costs that result from
corporate programs or corporate-managed decisions that are not
allocated to the business units for internal management
reporting and (iii) other consolidating adjustments.
Analysis
of Financial Condition
Balance
Sheets
Accounts Receivable decreased 12% in 2008 due, in part, to a 5%
decrease in fourth quarter wholesale revenues compared with
2007. In addition, collections on accounts receivable were
higher in 2008 because that year included 53 weeks; that
is, collections in the 53rd week ended January 3, 2009
sharply exceeded credit sales during that week.
Inventories increased 1% in 2008, reflecting our aggressive
management of inventory levels during the economic downturn.
Other Current Assets increased at December 2008 over 2007 due
primarily to an increase in prepaid income taxes at the end of
2008.
Property, Plant and Equipment remained flat at the end of 2008
compared with 2007, with additions from 2008 capital spending
being offset by depreciation and the effects of foreign currency
translation. Capital spending in 2008 supported the growth of
our businesses and specifically included an increased level of
spending to support new retail stores.
33
Total Intangible Assets and Goodwill decreased in 2008 due to
the amortization of intangible assets and the impact of a
stronger U.S. dollar in translating balances of
international businesses, partially offset by the acquired Lee
Spain balances.
Other Assets increased in 2008 as a result of our investment in
Mo Industries and higher deferred income taxes. The increase in
deferred income taxes primarily related to the underfunded
status of our defined benefit pension plans as discussed below.
These increases were partially offset by a decline in the value
of our assets held for deferred compensation plans.
In October 2007, VF entered into a $1.0 billion domestic
senior unsecured committed revolving bank credit agreement that
supports issuance of up to $1.0 billion in commercial
paper. Also in October 2007, certain international subsidiaries,
with VF as guarantor, entered into a 250.0 million
(U.S. dollar equivalent of $347.2 million) senior
unsecured committed revolving bank credit agreement. There were
no Short-term Borrowings under these domestic or international
credit agreements at December 2008. Short-term Borrowings at
December 2007 included $92.7 million outstanding under the
international credit agreement. Short-term Borrowings under
other international borrowing agreements were $53.6 million
at December 2008 and $38.8 million at December 2007.
Accounts Payable decreased in 2008 compared with 2007 due to the
timing of inventory purchases and the related vendor payments at
our fiscal year-end. Accrued Liabilities increased in 2008 due
to the fourth quarter 2008 charge for cost reduction actions and
increased income and other tax accruals, partially offset by
lower incentive compensation liabilities.
Other Liabilities increased due to the underfunded status of our
defined benefit pension plans at the end of 2008, as discussed
in the following paragraph. This increase is partially offset by
lower deferred compensation liabilities and deferred income
taxes.
The global credit crisis and the related significant declines in
global securities markets during 2008 resulted in a significant
decline in the value of our defined benefit pension plans
investment portfolio. As a result, our projected pension benefit
obligations now exceed the value of our plans investment
assets. In accordance with FASB Statement No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, the underfunded status of our
pension plans was recognized as a $414.9 million liability
at December 2008 and a $291.0 million after-tax charge in
Accumulated Other Comprehensive Income (Loss). Net deferred
actuarial losses in Accumulated Other Comprehensive Income
(Loss) will be amortized to pension expense over the next five
years. See Note N to the Consolidated Financial Statements
for a discussion of asset, liability and equity balances related
to defined benefit pension plans.
Liquidity
and Cash Flows
The financial condition of VF is reflected in the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Dollars in millions
|
|
|
Working capital
|
|
$
|
1,640.8
|
|
|
$
|
1,510.7
|
|
Current ratio
|
|
|
2.6 to 1
|
|
|
|
2.3 to 1
|
|
Debt to total capital
|
|
|
25.2
|
%
|
|
|
26.4
|
%
|
For the ratio of debt to total capital, debt is defined as
short-term and long-term borrowings, and total capital is
defined as debt plus common stockholders equity. Our ratio
of net debt to total capital, with net debt defined as debt less
cash and equivalents, was 18.7% at the end of 2008.
VFs primary source of liquidity is its strong cash flow
provided by operating activities. Cash flow from operating
activities of continuing operations, which was
$679.5 million in 2008, $833.6 million in 2007 and
$454.1 million in 2006, is primarily dependent on the level
of Income from Continuing Operations and changes in investments
in inventories and other working capital components. Income from
Continuing Operations was $602.7 million,
$613.2 million and $535.1 million in 2008, 2007 and
2006, respectively. Income from Continuing Operations in each
year included noncash stock-based compensation expense of
$31.6 million, $62.4 million and $46.4 million in
2008, 2007 and 2006, respectively. Also, we did not make a
discretionary contribution to our qualified defined benefit
pension plan in 2007 or 2008 because of the plans funded
status at the beginning of each of those years. Operating cash
flows in 2006 included a discretionary contribution to the
pension plan of $75.0 million.
34
The net change in operating asset and liability components was a
cash usage of $152.3 million in 2008, $4.2 million in
2007 and $200.6 million in 2006. Cash flow in 2008
benefited from collections on accounts receivable in the
53rd week of the year; that is, collections in the
53rd week ended January 3, 2009 sharply exceeded
credit sales during that week. Cash flow in 2007 benefited
because the timing of year-end payments resulted in an unusually
large accounts payable balance at the end of 2007, which
resulted in higher accounts payable disbursements in 2008. Cash
generated from operations was lower in 2006 due to
(i) higher than normal accounts receivable at the end of
2006, resulting from very strong international sales near the
end of the year to customers with longer payment terms,
(ii) unusually low accounts payable at the end of 2006 due
to the timing of inventory receipts and (iii) unusually
high accrued income taxes at the beginning of 2006 due to
required tax payments for the prior year.
To finance ongoing operations and most unusual circumstances
that may arise, VF anticipates relying on continued future
strong cash generation. In addition, VF has significant existing
liquidity from its available cash balances and debt capacity,
supported by its strong credit rating. At the end of 2008,
$988.4 million was available for borrowing under VFs
$1.0 billion senior unsecured committed revolving bank
credit facility, with $11.6 million of standby letters of
credit issued under the agreement. This credit facility is used
primarily to support our seasonal commercial paper borrowings.
Also at the end of 2008, 250.0 million
(U.S. dollar equivalent of $347.2 million) was
available for borrowing under VFs senior unsecured
committed international revolving bank credit facility.
As discussed in the previous Balance Sheets section, our defined
benefit pension plans were significantly underfunded at the end
of 2008. VF is not required and does not intend to make a
funding contribution to the plan during 2009. VF has adequate
liquidity to meet future funding requirements. We will continue
to evaluate the funded status of our retirement plans and to
evaluate future funding levels.
We paid cash of $93.4 million, $1,060.6 million and
$39.3 million for acquisitions in 2008, 2007 and 2006,
respectively, net of cash balances in the acquired companies.
These acquisitions were funded with existing VF cash balances,
short-term commercial paper borrowings and bank borrowings. In
addition, we received $348.7 million in proceeds from the
sale of our intimate apparel business in 2007.
Capital expenditures were $124.2 million in 2008, compared
with $113.9 million and $127.2 million in 2007 and
2006, respectively. Capital expenditures in each of these years
primarily related to retail, distribution and information
systems, as well as maintenance spending across our global
manufacturing network. We expect that capital spending could
reach $110 million in 2009. Capital spending will be funded
by cash flow from operations.
During 2007, VF received $592.8 million in proceeds from
the issuance of $600.0 million principal amount of
5.95% senior notes due in 2017 and 6.45% senior notes
due in 2037. VF paid $78.1 million under the international
bank credit agreement in 2007 and paid $33.0 million notes
in each of 2007 and 2006 related to the Nautica acquisition. See
Notes J and L to the Consolidated Financial Statements.
In October 2007, Standard & Poors Ratings
Services affirmed its A minus corporate credit
rating, A-2 commercial paper rating and
stable outlook for VF. Standard &
Poors also assigned its A minus senior
unsecured debt rating to VFs $600.0 million unsecured
senior notes issued in October 2007. In August 2007,
Moodys Investors Service affirmed VFs long-term debt
rating of A3, commercial paper rating of
Prime-2 and stable outlook. Existing
long-term debt agreements do not contain acceleration of
maturity clauses based solely on changes in credit ratings.
However, for the $600.0 million of senior notes issued in
2007, if there were a change in control of VF and, as a result
of the change in control, the notes were rated below
investment grade by recognized rating agencies, then VF would be
obligated to repurchase the notes at 101% of the aggregate
principal amount of notes repurchased, plus any accrued and
unpaid interest.
During 2008, VF purchased 2.0 million shares of its Common
Stock in open market transactions at a cost of
$149.7 million (average price of $74.86). During 2007, VF
purchased 4.1 million shares of its Common Stock at a cost
of $350.0 million (average price of $85.03), using the
proceeds from the sale of our intimate apparel business. In
addition, VF purchased 2.0 million shares of its Common
Stock in 2006 at a cost of $118.6 million (average price of
$59.29 per share). The primary objective of our share repurchase
program is to offset, on a long-term basis, dilution caused by
awards under equity compensation plans. Under its current
authorization from the Board of Directors, VF may purchase an
additional 3.2 million shares. We do not currently intend
to repurchase any shares in 2009. We will continue to evaluate
future share repurchases considering funding required for
business acquisitions, our common stock price and levels of
stock option exercises.
35
Cash dividends totaled $2.33 per common share in 2008, compared
with $2.23 in 2007 and $1.94 in 2006. Our dividend payout rate
was 43.0% in 2008, compared with payout rates of 42.7% in 2007
and 41.1% in 2006. Going forward, we expect to pay dividends of
approximately 40% of our diluted earnings per share. The current
indicated annual dividend rate for 2009 is $2.36 per share.
Following is a summary of VFs contractual obligations and
commercial commitments at the end of 2008 that will require the
use of funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due or Forecasted by Period
|
|
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
|
In millions
|
|
|
Recorded liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt(1)
|
|
$
|
1,145
|
|
|
$
|
3
|
|
|
$
|
203
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
930
|
|
Other(2)
|
|
|
472
|
|
|
|
137
|
|
|
|
69
|
|
|
|
34
|
|
|
|
39
|
|
|
|
32
|
|
|
|
161
|
|
Unrecorded commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payment obligations(3)
|
|
|
1,285
|
|
|
|
75
|
|
|
|
71
|
|
|
|
58
|
|
|
|
58
|
|
|
|
57
|
|
|
|
966
|
|
Operating leases(4)
|
|
|
844
|
|
|
|
170
|
|
|
|
148
|
|
|
|
128
|
|
|
|
99
|
|
|
|
84
|
|
|
|
215
|
|
Minimum royalty payments(5)
|
|
|
397
|
|
|
|
59
|
|
|
|
80
|
|
|
|
78
|
|
|
|
78
|
|
|
|
50
|
|
|
|
52
|
|
Inventory obligations(6)
|
|
|
748
|
|
|
|
685
|
|
|
|
15
|
|
|
|
15
|
|
|
|
15
|
|
|
|
15
|
|
|
|
3
|
|
Other obligations(7)
|
|
|
58
|
|
|
|
40
|
|
|
|
12
|
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,949
|
|
|
$
|
1,169
|
|
|
$
|
598
|
|
|
$
|
321
|
|
|
$
|
293
|
|
|
$
|
241
|
|
|
$
|
2,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Long-term debt, including the current portion, consists of
required principal payments on long-term debt and capital lease
obligations. |
|
(2) |
|
Other recorded liabilities represent payments due for other
noncurrent liabilities in VFs Consolidated Balance Sheet.
Payments for deferred compensation and other employee-related
benefits, income taxes, product warranty claims and other
liabilities are based on historical and forecasted cash outflows. |
|
(3) |
|
Interest payment obligations represent (i) required
interest payments on long-term debt, (ii) the interest
portion of payments on capital leases and (iii) accretion
of debt discount (in the Thereafter column) on the
$300.0 million principal amount of notes. Amounts exclude
bank fees and amortization of deferred costs and a hedging gain
that would be included in Interest Expense in our Consolidated
Financial Statements. |
|
(4) |
|
Operating leases represent required minimum lease payments. Most
real estate leases also require payment of related operating
expenses such as taxes, insurance, utilities and maintenance.
Such costs, which are not included above, average approximately
27% of the stated minimum lease payments. Total lease
commitments exclude $11.3 million of payments to be
received under noncancelable subleases. |
|
(5) |
|
Minimum royalty payments include required minimum advertising
commitments under license agreements. |
|
(6) |
|
Inventory purchase obligations represent binding commitments for
finished goods, raw materials and sewing labor in the ordinary
course of business that are payable upon satisfactory receipt of
the inventory by VF. Included is a remaining commitment at fair
value to purchase $77.5 million of finished goods from one
supplier, with a minimum of $15.0 million per year. The
reported amount excludes inventory purchase liabilities included
in Accounts Payable at December 2008. |
|
(7) |
|
Other obligations represent other binding commitments for the
expenditure of funds, including (i) amounts related to
contracts not involving the purchase of inventories, such as the
noncancelable portion of service or maintenance agreements for
management information systems, and (ii) capital expenditures
for approved projects. |
We have other financial commitments at the end of 2008 that are
not included in the above table but may require the use of funds
under certain circumstances:
|
|
|
|
|
Funding contributions to our qualified defined benefit pension
plan are not included in the table because of uncertainty over
whether or when further contributions will be required.
|
|
|
|
VF owned one-third of the equity of Mo Industries at the end of
2008 and had an option to acquire the remaining equity. VF
expects to acquire the remaining two-thirds of the outstanding
equity of Mo Industries for approximately $200 million,
including the repayment of debt, in the first half of 2009.
|
36
|
|
|
|
|
VF has entered into $80.3 million of surety bonds, standby
letters of credit and international bank guarantees representing
contingent guarantees of performance under self-insurance and
other programs. These commitments would only be drawn upon if VF
were to fail to meet its claims obligations.
|
|
|
|
Purchase orders for goods or services in the ordinary course of
business that represent authorizations to purchase rather than
binding commitments are not included in the table.
|
During 2008 VF met its obligations when due from (i) cash
flows from operations, (ii) issuance of commercial paper
and (iii) on a limited basis, short-term borrowings under
international bank facilities. Credit market conditions and the
general contraction of liquidity in the United States and global
capital markets during 2008, particularly during the last half
of the year, had a significant impact on the ability of many
companies to access the commercial paper and other capital
markets. VF was able to issue commercial paper for seasonal
working capital needs during this period, although for generally
shorter maturities and at higher spreads over U.S. Treasury
interest rates than in prior years. If the commercial paper
markets were not available, VF has $1.3 billion of
liquidity available under its domestic and international
committed revolving bank credit agreements. These agreements
expire in 2012. Management believes that VFs cash balances
and funds provided by operating activities, as well as unused
committed bank credit lines, additional borrowing capacity and
access to equity markets, taken as a whole, provide
(i) adequate liquidity to meet all of its current and
long-term obligations when due, (ii) adequate liquidity to
fund capital expenditures and to maintain our dividend payout
policy and (iii) flexibility to meet investment
opportunities that may arise.
We do not participate in transactions with unconsolidated
entities or financial partnerships established to facilitate
off-balance sheet arrangements or other limited purposes.
Risk
Management
VF is exposed to a variety of market risks in the ordinary
course of business, and we regularly assess these potential
risks. We manage our exposures to these risks through our
operating and financing activities and, when appropriate, by
taking advantage of naturally offsetting exposures within VF or
by creating offsetting positions through the use of derivative
financial instruments. Derivative financial instruments are
contracts whose value is based on, or derived from,
changes in the value of an underlying currency exchange rate,
interest rate or other financial asset or index. We do not use
derivative financial instruments for trading or speculative
purposes.
VF had $381.8 million of cash and equivalents at the end of
2008. Cash equivalents are highly liquid investments that mature
within three months of their purchase. These investments consist
of deposits in highly rated U.S. and foreign commercial
banks and investments in institutional money market funds that
invest only in obligations issued or guaranteed by the
U.S. government. Considering recent credit market
conditions and the weakened financial condition of many banks
and other financial institutions, we continually monitor
VFs cash equivalents and the credit ratings of VFs
financial institutions. Similarly, we monitor the credit quality
of investments in our defined benefit pension plan to ensure
that the plans exposure to investments affected, or likely
to be affected, by the credit market crisis is not significant.
We limit the risk of interest rate fluctuations on net income
and cash flows by managing our mix of fixed and variable
interest rate debt. In addition, we may also use derivative
financial instruments to minimize our interest rate risk. Since
all of our long-term debt has fixed interest rates, our primary
interest rate exposure relates to changes in interest rates on
variable rate short-term borrowings, which averaged
approximately $308 million during 2008. However, any change
in interest rates would also affect interest income earned on
VFs cash equivalents. Based on average amounts of
borrowings having variable interest rates and cash equivalents
during 2008, the effect of a hypothetical 1.0% change in
interest rates on reported net income would not be significant.
VF is a global enterprise subject to the risk of foreign
currency fluctuations. Approximately 30% of our revenues in 2008
were generated in international markets. Substantially all of
our foreign businesses operate in functional currencies other
than the U.S. dollar. Assets and liabilities in these
foreign businesses are subject to fluctuations in foreign
currency exchange rates. During 2007, we entered into an
international bank credit agreement that provides for
euro-denominated borrowings. Although there were no borrowings
under this agreement at the end of 2008, borrowings under the
agreement could be used to reduce the exposure to currency rate
changes for our euro-denominated net assets. Net advances to and
investments in our foreign businesses, primarily in Europe,
Latin American and Asia, are considered to be long-term, and
accordingly, foreign currency translation effects on those net
assets are deferred as a component of Accumulated Other
Comprehensive Income
37
(Loss) in Common Stockholders Equity. We do not hedge
these net investments and do not hedge the translation of
foreign currency operating results into the U.S. dollar.
We monitor net foreign currency market exposures and may in the
ordinary course of business enter into foreign currency forward
exchange contracts to hedge the effects of exchange rate
fluctuations for specific foreign currency transactions or a
portion of our anticipated foreign currency cash flows. Use of
these financial instruments allows us to reduce the overall
exposure to exchange rate movements on VFs cash flows,
since gains and losses on these contracts will offset losses and
gains on the transactions or cash flows being hedged. Our
practice is to hedge a portion of our net foreign currency cash
flows anticipated during the following 12 months (relating
to cross-border inventory purchases, production costs, product
sales and intercompany royalty payments) by buying or selling
primarily U.S. dollar contracts against various currencies.
Although VF is exposed to risk of loss in the event of
nonperformance by the counterparties to these foreign exchange
contracts, we believe these counterparties are creditworthy
financial institutions. We continually monitor our hedging
positions with each counterparty and the credit ratings of the
counterparties. We will adjust our positions if necessary.
If there were a hypothetical adverse change in foreign currency
exchange rates of 10% compared with rates at the end of 2008,
the expected effect on the change in fair value of the hedging
contracts outstanding would result in an unrealized loss of
approximately $45 million. Based on changes in the timing
and amount of foreign currency exchange rate movements, the
actual unrealized loss could differ. However, any such change in
the fair value of the hedging contracts would also result in an
offsetting change in the value of the underlying transactions or
anticipated cash flows being hedged.
VF is exposed to market risks for the pricing of cotton and
other fibers, which indirectly impacts fabric prices. We manage
our fabric prices by obtaining fixed price commitments for denim
and other fabrics in some cases for up to one year in advance.
VF has not historically managed, nor do we currently intend to
manage, commodity price exposures by using derivative
instruments.
VF has nonqualified deferred compensation plans in which
liabilities accrued for the plans participants are based
on market values of investment funds that are selected by the
participants. The risk of changes in the market values of the
participants investment selections is hedged by VFs
investment in a portfolio of securities that substantially
mirrors the investment selections underlying the deferred
compensation liabilities. Increases and decreases in deferred
compensation liabilities are substantially offset by
corresponding increases and decreases in the market value of
VFs investments, resulting in a negligible net exposure to
our operating results and financial position.
Critical
Accounting Policies and Estimates
We have chosen accounting policies that we believe are
appropriate to accurately and fairly report VFs operating
results and financial position in conformity with accounting
principles generally accepted in the United States. We apply
these accounting policies in a consistent manner. Our
significant accounting policies are summarized in Note A to
the Consolidated Financial Statements.
The application of these accounting policies requires that we
make estimates and assumptions about future events and apply
judgments that affect the reported amounts of assets,
liabilities, revenues, expenses, contingent assets and
liabilities, and related disclosures. These estimates,
assumptions and judgments are based on historical experience,
current trends and other factors believed to be reasonable under
the circumstances. We evaluate these estimates and assumptions
on an ongoing basis and may retain outside specialists to assist
in our evaluation in areas such as determining the fair value of
acquired assets and assumed liabilities in a business
acquisition, impairment testing for goodwill and intangible
assets, equity compensation, pension benefits and self-insured
liabilities. Because our business cycle is relatively short
(i.e., from the date that we place an order to manufacture or
purchase inventory until that inventory is sold and the trade
receivable is collected), actual results related to most of
these estimates are known within a few months after any balance
sheet date. If actual results ultimately differ from previous
estimates, the revisions are included in results of operations
in the period in which the actual amounts become known.
We believe the following accounting policies involve the most
significant estimates, assumptions and management judgments used
in preparation of our Consolidated Financial Statements or are
the most sensitive to change from outside factors. We have
discussed the application of these critical accounting policies
and estimates with the Audit Committee of our Board of Directors.
38
Inventories
Our inventories are stated at the lower of cost or market value.
Cost includes all material, labor and overhead costs incurred to
manufacture or purchase the finished goods. Overhead allocated
to manufactured product is based on the normal capacity of our
plants and does not include amounts related to idle capacity or
abnormal production inefficiencies. Market value is based on a
detailed review in each business unit, at least quarterly, of
all inventories on the basis of individual styles or individual
style-size-color stockkeeping units (SKUs) to
identify slow moving or excess products, discontinued and
to-be-discontinued products, and off-quality merchandise. This
review matches inventory on hand, plus current production and
purchase commitments, with current and expected future sales
orders. For those units in inventory that are identified as
slow-moving or excess quantities, we estimate their market value
based on historical experience and current realization trends.
This evaluation, performed using a systematic and consistent
methodology, requires forecasts of future demand, market
conditions and selling prices. If the forecasted market value,
on an individual style or SKU basis, is less than cost, we
provide an allowance to reflect the lower value of that
inventory. This methodology recognizes inventory exposures, on
an individual style or SKU basis, at the time such losses are
evident rather than at the time goods are actually sold.
Historically, these estimates of future demand and selling
prices have not varied significantly from actual results due to
our timely identification and rapid disposal of these reduced
value inventories.
Physical inventory counts are taken on a regular basis. We
provide for estimated inventory losses that have likely occurred
since the last physical inventory date. Historically, our
physical inventory shrinkage has not been significant.
Long-lived
Assets
We allocate the purchase price of an acquired business to the
underlying tangible and intangible assets acquired, and
liabilities assumed, based on their respective fair values, with
any excess purchase price recorded as goodwill. The process of
assigning fair values, particularly to acquired intangible
assets, is highly subjective, as the fair value assessments are
based on forecasts of future cash flows. We use the same
assumptions of future cash flows for assigning fair values to
these assets that we used for evaluation of the business
acquisition.
Our depreciation policies for property, plant and equipment and
our amortization policies for definite-lived intangible assets
reflect judgments on the estimated economic lives of these
assets. In evaluating the useful lives and expected benefits to
be received for customer-related intangible assets, we review
historical attrition patterns for various groups of customers.
For license-related intangible assets, we review historical
trends and anticipated license renewal periods and attrition
rates. We review these assets for possible impairment whenever
events or circumstances indicate that the carrying amount of an
asset or asset group may not be fully recoverable. In those
circumstances, we measure recoverability of the carrying value
of these assets by comparison with estimated undiscounted cash
flows expected to be generated by the asset. This review
requires estimates and assumptions about the forecasted amount
and duration of future cash flows and residual value, if any,
attributable to the assets being tested.
We evaluate indefinite-lived trademark intangible assets and
goodwill in all business units at least annually, or more
frequently if there is an indication of possible impairment. We
measure recoverability of an indefinite-lived trademark
intangible asset by comparing its fair value, estimated using
the relief-from-royalty method, with its carrying
value. Under the relief-from-royalty method,
forecasted global revenues for a trademark are assigned a
royalty rate that would be charged to license the trademark from
an independent party. Those forecasted royalties are discounted
to a present value, and the discounted fair value is compared
with the carrying value of the trademark intangible asset.
The recoverability of the carrying value of goodwill of an
acquired business is assessed by comparing the carrying value of
the business unit, including recorded goodwill, to the fair
value of the business unit. Fair value is estimated using
forecasted cash flows of a business unit, discounted to a
present value. These assessments of intangible asset and
goodwill fair values require managements assumptions and
judgment regarding business strategies, future revenues and
profitability, working capital changes, capital spending, income
tax rates and a discount rate that reflects the risks inherent
in the forecasted cash flows.
Based on our evaluations, other than the charges in 2006 and
2007 in connection with the sale of our intimate apparel
businesses, the indicated fair values of our amortized assets,
indefinite-lived trademark assets and goodwill exceeded the
respective carrying amounts of those assets in each of the last
three years, and accordingly no
39
impairment charges were recognized. If the estimated fair value
of an acquired business were to decline due to changes in
forecasted business operations, or if we were to decide to
discontinue use of its trademark or otherwise exit the business,
we may be exposed to an impairment charge, which could be
material.
Stock
Options
We use a lattice option-pricing model to estimate the fair value
of stock options granted to employees and nonemployee members of
the Board of Directors. We believe that a lattice model provides
a refined estimate of the fair value of options because it can
incorporate (i) historical option exercise patterns and
multiple assumptions about future option exercise patterns for
each of several groups of option holders and (ii) inputs
that vary over time, such as assumptions for interest rates and
volatility. We performed a rigorous review of all assumptions
and believe that the assumptions employed in each valuation are
reflective of our outstanding options and underlying Common
Stock and of our groups of option participants. Our lattice
valuation is based on the assumptions listed in Note P to
the Consolidated Financial Statements.
One of the critical assumptions in the valuation process is
estimating the expected average life of the options before
exercise. In each year, we based our estimates on evaluations of
the historical and expected option exercise patterns for each of
several groups of option holders that have historically
exhibited different option exercise patterns. These evaluations
included (i) voluntary stock option exercise patterns based
on a combination of changes in the price of VF Common Stock and
periods of time that options are outstanding before exercise and
(ii) involuntary exercise patterns resulting from turnover,
retirement and mortality.
Volatility is another critical assumption requiring judgment. In
each year, we based our estimate of future volatility on a
combination of implied and historical volatility. Implied
volatility was based on short-term (6 to 9 months) publicly
traded near-the-money options on VF Common Stock. We measured
historical volatility over a ten year period, corresponding to
the contractual term of the options, using daily stock price
observations. Our assumption for valuation purposes was that
expected volatility starts at a level equal to the implied
volatility and then transitions to the historical volatility
over the remainder of the ten year option term.
Pension
Obligations
VF sponsors a qualified defined benefit pension plan as a key
retirement benefit for most domestic employees employed on or
before December 31, 2004. For employees covered by this
plan, VF also sponsors an unfunded supplemental defined benefit
plan that provides benefits that exceed limitations imposed by
income tax regulations. The selection of appropriate actuarial
assumptions for determination of our projected pension benefit
liabilities and of our annual pension expense is significant due
to the long time period over which benefits are accrued and
paid. We annually update participant demographics and the
expected amount and timing of benefit payments. We review
annually the principal economic actuarial assumptions,
summarized in Note N to the Consolidated Financial
Statements, and modify them based on current rates and trends.
We also periodically review and modify as necessary other plan
assumptions such as rates of retirement, termination, disability
and mortality. We believe our assumptions are reflective of the
participants in and benefits provided by the plans and result in
the best estimate of the plans future experience. Actual
results may vary from the actuarial assumptions used.
One of the critical assumptions used in the actuarial model is
the discount rate. The discount rate is used to estimate the
present value of future cash outflows required to meet our
projected benefit obligations at each measurement date. The
discount rate reflects the interest rate inherent in the price
that VF could settle its projected benefit obligations at the
valuation date. Our discount rate assumption at each year-end is
based on current market interest rates. We select our discount
rate based on matching high quality corporate bond yields to the
timing of projected benefit payments to be made to participants
in our pension plans. We use the population of
U.S. corporate bonds rated Aa by Moodys
Investors Service (over 300 such bonds with at least
$50 million outstanding that are noncallable/nonputtable
unless with make-whole provisions) and exclude the highest and
lowest yielding bonds. The plans projected benefit
payments are matched to current market interest rates over the
expected payment period, and a present value is developed that
produces a single equivalent discount rate that recognizes our
plans distinct liability characteristics. Despite the
unusual conditions prevailing in the corporate bond markets in
late 2008, we concluded that those Aa rated issues
meet the high quality intent of the applicable
accounting standards. We believe our 2008 discount rate of 6.50%
appropriately reflects current market conditions and the
long-term nature of projected benefit payments to participants
in our pension plans. The discount rate for our plans may be
higher than rates used for plans at some other companies because
of our plans longer duration of expected
40
benefit payments due to (i) a higher percentage of female
participants with a longer life expectancy and (ii) a
higher percentage of inactive participants who will not begin
receiving vested benefits for many years.
Another critical assumption of the actuarial model is the
expected long-term rate of return on investment assets in our
qualified plans pension trust. Our investment objective is
to maximize the long-term return on a diversified portfolio of
assets at an acceptable level of risk. Plan assets are comprised
of a diversified portfolio of domestic and international equity,
corporate and governmental fixed income and real estate
securities. We develop a projected rate of return for each of
our investment asset classes based on several factors, including
the estimated inflation rate, the premium to be earned in excess
of a risk-free return, the premium for equity risk and the
premium for longer duration fixed income securities. The
weighted average of the projected long-term rate of return for
the various classes of assets held by the plan provides the
basis for the expected long-term rate of return actuarial
assumption. Our rate of return assumption was 8.00% in 2008 and
8.25% in 2007 and 2006. Our actual compounded annual rate of
return since 1981 has exceeded 9%, although our actual rate of
return was lower than the 8.00% assumption for the trailing 10
and 15 year periods and was negative in 2008. We will
constantly challenge the plans asset allocation, giving
consideration to changes that will appropriately balance
anticipated investment returns with risk.
The sensitivity of changes in actuarial assumptions on our
annual pension expense and on our plans projected benefit
obligations, all other factors being equal, is illustrated by
the following:
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in
|
|
|
|
|
|
|
Projected
|
|
|
|
Pension Expense
|
|
|
Benefit Obligations
|
|
|
|
Dollars in millions
|
|
|
0.50% decrease in discount rate
|
|
$
|
1
|
|
|
$
|
71
|
|
0.50% increase in discount rate
|
|
|
(1
|
)
|
|
|
(66
|
)
|
0.50% decrease in expected investment return
|
|
|
5
|
|
|
|
|
|
0.50% increase in expected investment return
|
|
|
(5
|
)
|
|
|
|
|
0.50% decrease in rate of compensation change
|
|
|
(1
|
)
|
|
|
(3
|
)
|
0.50% increase in rate of compensation change
|
|
|
1
|
|
|
|
3
|
|
During 2007 and 2006, actual pension plan investment returns
varied favorably compared with their respective actuarial
assumptions. In 2008, however, there was a significant decline
in the market value of our pension plan investment assets due to
the global credit and financial market crisis, resulting in over
$450 million of accumulated net unrecognized actuarial
losses at the end of 2008. Accordingly, our qualified defined
benefit pension plan was significantly underfunded at the end of
2008. The underfunded status of our pension plans at the end of
2008 resulted in recognition of a $291.0 million after-tax
charge in Accumulated Other Comprehensive Income (Loss), along
with recognition of related current and noncurrent liabilities
of $9.4 million and $405.5 million, respectively. The
funded status of our plans recognized in our Consolidated
Balance Sheets could change significantly in future years
depending on investment portfolio performance, changes in
interest rates and the level of VF contributions to the
qualified plan.
Differences between actual results and the respective actuarial
assumptions (i.e., actuarial gains and losses related to
investment returns, discount rates and other assumptions) do not
affect the current years pension expense but instead are
deferred and amortized to pension expense over future periods.
Our policy is to amortize unrecognized actuarial gains and
losses to pension expense as follows: amounts totaling less than
10% of the lower of investment assets or projected benefit
obligations at the beginning of the year are not amortized;
amounts totaling 10% to 20% of projected benefit obligations are
amortized over the expected average remaining service of active
participants; and amounts in excess of 20% of projected benefit
obligations at the beginning of the year are amortized over five
years.
The cost of pension benefits earned by our covered employees
(commonly called service cost) was
$16.5 million in 2008 and has averaged $20.1 million
per year over the last three years. Pension expense recognized
in our financial statements was $10.8 million in 2008,
$13.1 million in 2007 and $37.5 million in 2006.
Expense in 2006 was significantly higher than the average annual
service cost because that year included a significant cost
component for amortization of accumulated unrecognized actuarial
losses (as discussed in the preceding paragraph). Our pension
expense for 2008 and 2007 decreased significantly from 2006 due
to reduced amortization of unrecognized actuarial losses, higher
investment returns on a larger amount of plan assets (arising
from discretionary funding contributions totaling
$260.0 million over the period 2003
2006) and an increase in the discount
41
rate used to value our projected benefit liabilities. Because of
the significant investment losses incurred in the plans
investment portfolio in 2008, pension expense for 2009 will
include a significant cost component for amortization of
unrecognized actuarial losses. This significant amortization
cost component, plus expected reduced investment portfolio
earnings due to a lower amount of plan assets, will cause our
pension expense to increase to approximately $98 million
for 2009 from $10.8 million in 2008.
VF is not required under applicable regulations, and does not
currently intend, to make a contribution to the qualified
pension plan during 2009 but does intend to make contributions
totaling $9.4 million during 2009 to fund payments under
the supplemental pension plan. We believe that VF has sufficient
liquidity to make contributions to the qualified plan, as
necessary, in future years to return the plan to a fully or
substantially fully funded status.
Effective December 31, 2004, VFs domestic defined
benefit plans were amended to close the plans to new entrants.
The amendments did not affect the benefits of plan participants
at that date or their accrual of future benefits. Domestic
employees hired after that date, plus employees at certain
acquired businesses not covered by those plans, now participate
in a new defined contribution arrangement with VF contributing
amounts based on a percentage of eligible compensation. Funds
contributed under this new benefit arrangement are invested as
directed by the participants. This defined contribution feature
did not have a significant effect on our total retirement
benefit expense over the last three years. However, on a
longer-term basis, the service cost component of our defined
benefit plans expense is expected to decline as a
percentage of our total retirement benefit expense, and the
year-to-year variability of our retirement benefit expense
should decrease.
Income
Taxes
As a global company, VF is subject to income tax and files
income tax returns in over 100 domestic and foreign
jurisdictions each year. The calculation of our income tax
liabilities involves uncertainties in the application of complex
tax laws and regulations, which are subject to legal and factual
interpretation and significant management judgment.
VFs income tax returns are regularly examined by federal,
state and foreign tax authorities, and those audits may result
in proposed adjustments. We have reviewed all issues raised upon
examination, as well as any exposure for issues that may be
raised in future examinations. We have evaluated these potential
issues under the more-likely-than-not standard of
FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement
No. 109. A tax position is recognized if it meets this
standard and is measured at the largest amount of benefit that
is greater than 50% likely of being realized. Such judgments and
estimates may change based on audit settlements, court cases and
interpretation of tax laws and regulations. Our income tax
expense could be materially affected to the extent we prevail in
a tax position or when the statute of limitations expires for a
tax position for which accruals have been established, or to the
extent we are required to pay amounts greater than established
accruals. We do not currently anticipate any material impact on
earnings from the ultimate resolution of income tax
uncertainties. There are no accruals for general or unknown tax
expenses.
We have recorded $133.2 million of deferred income tax
assets related to operating loss and capital loss carryforwards,
and we have recorded $93.4 million of valuation allowances
against those assets. Realization of deferred tax assets is
dependent on future taxable income in specific jurisdictions,
the amount and timing of which are uncertain, possible changes
in tax laws and tax planning strategies. If in our judgment it
appears that we will not be able to generate sufficient taxable
income or capital gains to offset losses during the carryforward
periods, we have recorded valuation allowances to reduce those
deferred tax assets to amounts expected to be ultimately
realized. If in a future period we determine that the amount of
deferred tax assets to be realized differs from the net recorded
amount, we would record an adjustment to income tax expense in
that future period.
We have not provided U.S. income taxes on a portion of our
foreign subsidiaries undistributed earnings because we
intend to invest those earnings indefinitely. If we were to
decide to remit those earnings to the United States in a future
period, our provision for income taxes could increase in that
period.
Cautionary
Statement on Forward-Looking Statements
From time to time, we may make oral or written statements,
including statements in this Annual Report that constitute
forward-looking statements within the meaning of the
federal securities laws. These include statements concerning
plans, objectives, projections and expectations relating to
VFs operations or economic performance, and assumptions
related thereto. Forward-looking statements are made based on
our expectations and beliefs concerning future events impacting
VF and therefore involve a number of risks and uncertainties. We
caution that
42
forward-looking statements are not guarantees and actual results
could differ materially from those expressed or implied in the
forward-looking statements.
Known or unknown risks, uncertainties and other factors that
could cause the actual results of operations or financial
condition of VF to differ materially from those expressed or
implied by such forward-looking statements are summarized in
Item 1.A of this Annual Report.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk.
|
A discussion of VFs market risks is incorporated by
reference to Risk Management in Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations in this Annual Report.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
See Index to Consolidated Financial Statements and
Financial Statement Schedule at the end of this Annual
Report on
page F-1
for information required by this Item 8.
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|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
Not applicable.
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|
Item 9A.
|
Controls
and Procedures.
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
Under the supervision of the Chief Executive Officer and the
Chief Financial Officer, VF conducted an evaluation of the
effectiveness of the design and operation of VFs
disclosure controls and procedures as defined in
Rules 13a-15(e)
or 15d-15(e)
of the Securities and Exchange Act of 1934 (the Exchange
Act) as of January 3, 2009. These require that VF
ensure that information required to be disclosed by VF in
reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms and that information required
to be disclosed in the reports filed or submitted under the
Exchange Act is accumulated and communicated to VFs
management, including the principal executive officer and
principal financial officer, to allow timely decisions regarding
required disclosures. Based on VFs evaluation, the
principal executive officer and the principal financial officer
concluded that VFs disclosure controls and procedures are
effective.
Managements
Report on Internal Control Over Financial Reporting
VFs management is responsible for establishing and
maintaining adequate internal control over financial reporting,
as defined in Exchange Act
Rule 13a-15(f).
VFs management conducted an assessment of VFs
internal control over financial reporting based on the framework
described in Internal Control Integrated
Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this
assessment, VFs management has determined that VFs
internal control over financial reporting was effective as of
January 3, 2009. The effectiveness of VFs internal
control over financial reporting as of January 3, 2009 has
been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
See Index to Consolidated Financial Statements and
Financial Statement Schedule at the end of this annual
report on
page F-1
for Managements Report on Internal Control Over
Financial Reporting.
Changes
in Internal Control Over Financial Reporting
There were no changes in VFs internal control over
financial reporting that occurred during its last fiscal quarter
that have materially affected, or are reasonably likely to
materially affect, VFs internal control over financial
reporting.
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Item 9B.
|
Other
Information.
|
Not applicable.
43
PART III
|
|
Item 10.
|
Directors
and Executive Officers of VF.
|
Information regarding VFs Executive Officers required by
Item 10 of this Part III is set forth in Item 1
of Part I under the caption Executive Officers of
VF. Information required by Item 10 of Part III
regarding VFs Directors is included under the caption
Election of Directors in VFs 2009 Proxy
Statement that will be filed with the Securities and Exchange
Commission within 120 days after the close of our fiscal
year ended January 3, 2009, which information is
incorporated herein by reference.
Information regarding compliance with Section 16(a) of the
Exchange Act of 1934 is included under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance in VFs 2009 Proxy Statement that will be
filed with the Securities and Exchange Commission within
120 days after the close of our fiscal year ended
January 3, 2009, which information is incorporated herein
by reference.
VF has adopted a written code of ethics, VF Corporation
Code of Business Conduct, that is applicable to all VF
directors, officers and employees, including VFs chief
executive officer, chief financial officer, chief accounting
officer and other executive officers identified pursuant to this
Item 10 (collectively, the Selected Officers).
In accordance with the Securities and Exchange Commissions
rules and regulations, a copy of the code is filed as
Exhibit 14 to this report. The code is also posted on
VFs website, www.vfc.com. VF will disclose any changes in
or waivers from its code of ethics applicable to any Selected
Officer or director on its website at www.vfc.com.
The Board of Directors Corporate Governance Principles,
the Audit Committee, Nominating and Governance Committee,
Compensation Committee and Finance Committee charters and other
corporate governance information, including the method for
interested parties to communicate directly with nonmanagement
members of the Board of Directors, are available on VFs
website. These documents, as well as the VF Corporation Code of
Business Conduct, will be provided free of charge to any
shareholder upon request directed to the Secretary of VF
Corporation at P.O. Box 21488, Greensboro, NC 27420.
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|
Item 11.
|
Executive
Compensation.
|
Information required by Item 11 of this Part III is
included under the caption Executive Compensation
(excluding the Compensation Committee Report) in VFs 2009
Proxy Statement that will be filed with the Securities and
Exchange Commission within 120 days after the close of our
fiscal year ended January 3, 2009, which information is
incorporated herein by reference.
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|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
Information required by Item 12 of this Part III is
included under the caption Security Ownership of Certain
Beneficial Owners and Management in VFs 2009 Proxy
Statement that will be filed with the Securities and Exchange
Commission within 120 days after the close of our fiscal
year ended January 3, 2009, which information is
incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions.
|
Information required by Item 13 of this Part III is
included under the caption Election of Directors in
VFs 2009 Proxy Statement that will be filed with the
Securities and Exchange Commission within 120 days after
the close of our fiscal year ended January 3, 2009, which
information is incorporated herein by reference.
|
|
Item 14.
|
Principal
Accounting Fees and Services.
|
Information required by Item 14 of this Part III is
included under the caption Professional Fees of
PricewaterhouseCoopers LLP in VFs 2009 Proxy
Statement that will be filed with the Securities and Exchange
Commission within 120 days after the close of our fiscal
year ended January 3, 2009, which information is
incorporated herein by reference.
44
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) The following documents are filed as a part of this
report:
1. Financial Statements The following
consolidated financial statements, managements report on
internal control over financial reporting and report of
independent registered public accounting firm are included
herein (*):
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Page
|
|
|
Number
|
|
Managements report on internal control over financial
reporting
|
|
F-2
|
Report of independent registered public accounting firm
|
|
F-3
|
Consolidated balance sheets December 2008 and 2007
|
|
F-4
|
Consolidated statements of income Fiscal years ended
December 2008, 2007 and 2006
|
|
F-5
|
Consolidated statements of comprehensive income
Fiscal
years ended December 2008, 2007 and 2006
|
|
F-6
|
Consolidated statements of cash flows Fiscal years
ended
December 2008, 2007 and 2006
|
|
F-7
|
Consolidated statements of common stockholders
equity
Fiscal years ended December 2008, 2007 and 2006
|
|
F-8
|
Notes to consolidated financial statements
|
|
F-9
|
|
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|
* |
|
VF operates and reports using a 52/53 week fiscal year
ending on the Saturday closest to December 31 of each year. All
references to 2008, 2007 and
2006 relate to the fiscal years ended on
January 3, 2009 (53 weeks), December 29, 2007
(52 weeks) and December 30, 2006 (52 weeks),
respectively. |
2. Financial statement schedules The
following consolidated financial statement schedule and the
report of independent registered public accounting firm with
respect to that schedule are included herein:
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Page
|
|
|
Number
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|
Schedule II Valuation and qualifying accounts
|
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F-43
|
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable and therefore have been omitted.
3. Exhibits
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Number
|
|
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|
Description
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3
|
.
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|
Articles of incorporation and bylaws:
|
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|
(A)
|
|
Articles of Incorporation, restated as of April 22, 2008
(Incorporated by reference to Exhibit 3.2 to
Form 8-K
dated April 23, 2008)
|
|
|
|
|
(B)
|
|
Bylaws, as amended through December 11, 2007 (Incorporated
by reference to Exhibit 3(B) to
Form 10-K
for the year ended December 29, 2007)
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4
|
.
|
|
Instruments defining the rights of security holders, including
indentures:
|
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|
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(A)
|
|
A specimen of VFs Common Stock certificate (Incorporated
by reference to Exhibit 3(C) to
Form 10-K
for the year ended January 3, 1998)
|
|
|
|
|
(B)
|
|
Indenture between VF and United States Trust Company of New
York, as Trustee, dated September 29, 2000 (Incorporated by
reference to Exhibit 4.1 to
Form 10-Q
for the quarter ended September 30, 2000)
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|
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|
(C)
|
|
Form of 8.50% Note due 2010 (Incorporated by reference to
Exhibit 4.3 to
Form 10-Q
for the quarter ended September 30, 2000)
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|
|
|
(D)
|
|
Form of 6.00% Note due October 15, 2033 for
$297,500,000 (Incorporated by reference to Exhibit 4.2 to
Form S-4
Registration Statement No. 110458 filed November 13,
2003)
|
|
|
|
|
(E)
|
|
Form of 6.00% Note due October 15, 2033 for $2,500,000
(Incorporated by reference to Exhibit 4.2 to
Form S-4
Registration Statement No. 110458 filed November 13,
2003)
|
45
|
|
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|
|
Number
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|
|
|
Description
|
|
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(F)
|
|
Indenture between VF and The Bank of New York
Trust Company, N.A., as Trustee, dated October 10,
2007 (Incorporated by references to Exhibit 4.1 to
Form S-3ASR
Registration Statement
No. 333-146594
filed October 10, 2007)
|
|
|
|
|
(G)
|
|
First Supplemental Indenture between VF and The Bank of New York
Trust Company, N.A., as Trustee, dated October 15,
2007 (Incorporated by reference to Exhibit 4.2 to
Form 8-K
filed October 25, 2007)
|
|
|
|
|
(H)
|
|
Form of 5.95% Note due 2017 for $250,000,000 (Incorporated
by reference to Exhibit 4.3 to
Form 8-K
filed on October 25, 2007)
|
|
|
|
|
(I)
|
|
Form of 6.45% Note due 2037 for $350,000,000 (Incorporated
by reference to Exhibit 4.4 to
Form 8-K
filed on October 25, 2007)
|
|
10
|
.
|
|
Material contracts:
|
|
|
|
|
*(A)
|
|
1996 Stock Compensation Plan, as amended and restated as of
February 6, 2007 (Incorporated by reference to
Exhibit B to the 2007 Proxy Statement filed March 22,
2007)
|
|
|
|
|
*(B)
|
|
Form of VF Corporation 1996 Stock Compensation Plan
Non-Qualified Stock Option Certificate (Incorporated by
reference to Exhibit 10.1 to
Form 8-K
filed on February 7, 2008)
|
|
|
|
|
*(C)
|
|
Form of VF Corporation 1996 Stock Compensation Plan
Non-Qualified Stock Option Certificate for Non-Employee
Directors (Incorporated by reference to Exhibit 10(e) to
Form 8-K
filed on December 17, 2004)
|
|
|
|
|
*(D)
|
|
Form of Award Certificate for Performance-Based Restricted Stock
Units (Incorporated by reference to Exhibit 10.2 to
Form 8-K
filed on February 7, 2008)
|
|
|
|
|
*(E)
|
|
Form of VF Corporation 1996 Stock Compensation Plan
Non-Qualified Stock Option Certificate for Mackey J. McDonald
(Incorporated by reference to Exhibit 10.3 to
Form 8-K
filed on February 7, 2008)
|
|
|
|
|
*(F)
|
|
Form of Award Certificate for Restricted Stock Units
(Incorporated by reference to Exhibit 10.1 to
Form 10-Q
for the quarter ended April 2, 2005)
|
|
|
|
|
*(G)
|
|
Deferred Compensation Plan, as amended and restated as of
December 31, 2001 (Incorporated by reference to
Exhibit 10(A) to
Form 10-Q
for the quarter ended March 30, 2002)
|
|
|
|
|
*(H)
|
|
Executive Deferred Savings Plan, as amended and restated as of
December 31, 2001 (Incorporated by reference to
Exhibit 10(B) to
Form 10-Q
for the quarter ended March 30, 2002)
|
|
|
|
|
*(I)
|
|
Executive Deferred Savings Plan II (Incorporated by
reference to Exhibit 10.3 to
Form 10-Q
for the quarter ended September 27, 2008)
|
|
|
|
|
*(J)
|
|
Amendment to Executive Deferred Savings Plan (Incorporated by
reference to Exhibit 10(b) to
Form 8-K
filed on December 17, 2004)
|
|
|
|
|
*(K)
|
|
Amended and Restated Second Supplemental Annual Benefit
Determination under the Amended and Restated Supplemental
Executive Retirement Plan for Mid-Career Senior Management
(Incorporated by reference to Exhibit 10.2 to
Form 10-Q
for the quarter ended April 1, 2006)
|
|
|
|
|
*(L)
|
|
Amended and Restated Fourth Supplemental Annual Benefit
Determination under the Amended and Restated Supplemental
Executive Retirement Plan for Participants in VFs Deferred
Compensation Plan (Incorporated by reference to
Exhibit 10.3 to
Form 10-Q
for the quarter ended April 1, 2006)
|
|
|
|
|
*(M)
|
|
Amended and Restated Fifth Annual Benefit Determination under
the Amended and Restated Supplemental Executive Retirement Plan
which funds certain benefits upon a Change in Control
(Incorporated by reference to Exhibit 10.4 to
Form 10-Q
for the quarter ended April 1, 2006)
|
|
|
|
|
*(N)
|
|
Amended and Restated Seventh Supplemental Annual Benefit
Determination under the Amended and Restated Supplemental
Executive Retirement Plan for Participants in VFs
Executive Deferred Savings Plan (Incorporated by reference to
Exhibit 10.5 to
Form 10-Q
for the quarter ended April 1, 2006)
|
|
|
|
|
*(O)
|
|
Amended and Restated Eighth Supplemental Annual Benefit
Determination under the Amended and Restated Supplemental
Executive Retirement Plan (Incorporated by reference to
Exhibit 10.6 to
Form 10-Q
for the quarter ended April 1, 2006)
|
46
|
|
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
|
|
|
*(P)
|
|
Amended and Restated Ninth Supplemental Annual Benefit
Determination under the Amended and Restated Supplemental
Executive Retirement Plan relating to the computation of
benefits for Senior Management (Incorporated by reference to
Exhibit 10.7 to
Form 10-Q
for the quarter ended April 1, 2006)
|
|
|
|
|
*(Q)
|
|
Amended and Restated Tenth Supplemental Annual Benefit
Determination under the Amended and Restated Supplemental
Executive Retirement Plan for Participants in VFs Mid-Term
Incentive Plan (Incorporated by reference to Exhibit 10.8
to
Form 10-Q
for the quarter ended April 1, 2006)
|
|
|
|
|
*(R)
|
|
Eleventh Supplemental Annual Benefit Determination Pursuant to
the Amended and Restated Supplemental Executive Retirement Plan
(Incorporated by reference to Exhibit 10.9 to
Form 10-Q
for the quarter ended April 1, 2006)
|
|
|
|
|
*(S)
|
|
Amended and Restated Supplemental Executive Retirement Plan
(Incorporated by reference to Exhibit 10.10 to
Form 10-Q
for the quarter ended April 1, 2006)
|
|
|
|
|
*(T)
|
|
Resolution of the Board of Directors dated December 3, 1996
relating to lump sum payments under VFs Supplemental
Executive Retirement Plan (Incorporated by reference to
Exhibit 10(N) to
Form 10-K
for the year ended January 4, 1997)
|
|
|
|
|
*(U)
|
|
Form of Change in Control Agreement with Certain Senior
Management of VF or its Subsidiaries (Incorporated by reference
to Exhibit 10.1 to
Form 8-K
filed on October 21, 2008)
|
|
|
|
|
*(V)
|
|
Amended and Restated Executive Incentive Compensation Plan
(Incorporated by reference to Exhibit 10.4 to
Form 8-K
filed February 7, 2008)
|
|
|
|
|
*(W)
|
|
VF Corporation Deferred Savings Plan for Non-Employee Directors
|
|
|
|
|
*(X)
|
|
Form of Indemnification Agreement with each of VFs
Non-Employee Directors (Incorporated by reference to
Exhibit 10.2 of the
Form 10-Q
for the quarter ended September 27, 2008)
|
|
|
|
|
*(Y)
|
|
2004 Mid-Term Incentive Plan, a subplan under the 1996 Stock
Compensation Plan (Incorporated by reference to
Exhibit 10.1 to
Form 10-Q
for the quarter ended September 27, 2008)
|
|
|
|
|
(Z)
|
|
Credit Agreement, dated October 15, 2007 (Incorporated by
reference to Exhibit 10.1 to
Form 8-K
filed October 18, 2007)
|
|
|
|
|
(AA)
|
|
International Credit Agreement dated October 26, 2007, by
and among VF Investments S.a.r.l., VF Europe BVBA, and VF
International S.a.g.l., as Borrowers; VF Corporation, as
Guarantor; and the Lenders party thereto from time to time
(Incorporated by reference to Exhibit 10.1 to
Form 8-K
filed October 29, 2007)
|
|
|
|
|
*(BB)
|
|
Award Certificate for 20,000 Shares of Restricted Stock
Granted to Eric C. Wiseman (Incorporated by reference to
Exhibit 10.1 to
Form 10-Q
for the quarter ended April 1, 2006)
|
|
|
|
|
*(CC)
|
|
Award Certificate for 25,000 Shares of Restricted Stock
Granted to Eric C. Wiseman (Incorporated by reference to
Exhibit 10.1 to
Form 10-Q
for the quarter ended June 28, 2008)
|
|
|
|
|
*
|
|
Management compensation plans
|
|
14
|
.
|
|
Code of Business Conduct The VF Corporation Code of Business
Conduct is also available on VFs website at www.vfc.com. A
copy of the Code of Business Conduct will be provided free of
charge to any person upon request directed to the Secretary of
VF Corporation, at P.O. Box 21488, Greensboro, NC
27420.
|
|
21
|
.
|
|
Subsidiaries of the Corporation
|
|
23
|
.
|
|
Consent of independent registered public accounting firm
|
|
24
|
.
|
|
Power of attorney
|
|
31
|
.1
|
|
Certification of the principal executive officer, Eric C.
Wiseman, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
|
47
|
|
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
31
|
.2
|
|
Certification of the principal financial officer, Robert K.
Shearer, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
|
|
32
|
.1
|
|
Certification of the principal executive officer, Eric C.
Wiseman, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
32
|
.2
|
|
Certification of the principal financial officer, Robert K.
Shearer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
All other exhibits for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and
therefore have been omitted.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, VF has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
V.F. CORPORATION
Eric C. Wiseman
Chairman and Chief Executive Officer
(Chief Executive Officer)
|
|
|
|
By:
|
/s/ Robert
K. Shearer
|
Robert K. Shearer
Senior Vice President and Chief Financial Officer
(Chief Financial Officer)
|
|
|
|
By:
|
/s/ Bradley
W. Batten
|
Bradley W. Batten
Vice President Controller
(Chief Accounting Officer)
March 3, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of VF and in the capacities and on the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
Charles V. Bergh*
|
|
Director
|
|
|
|
|
|
|
|
Juan Ernesto de Bedout*
|
|
Director
|
|
|
|
|
|
|
|
Ursula F. Fairbairn*
|
|
Director
|
|
|
|
|
|
|
|
Barbara S. Feigin*
|
|
Director
|
|
|
|
|
|
|
|
George Fellows*
|
|
Director
|
|
|
|
|
|
|
|
Robert J. Hurst*
|
|
Director
|
|
|
|
|
|
|
|
W. Alan McCollough*
|
|
Director
|
|
|
|
|
|
|
|
Clarence Otis, Jr.*
|
|
Director
|
|
|
|
|
|
|
|
M. Rust Sharp*
|
|
Director
|
|
|
|
|
|
|
|
Eric C. Wiseman*
|
|
Director
|
|
|
|
|
|
|
|
Raymond G. Viault*
|
|
Director
|
|
|
|
|
|
|
|
|
|
*By:
|
|
/s/ C.
S. Cummings
C.
S. Cummings,
Attorney-in-Fact
|
|
|
|
March 3, 2009
|
49
VF
Corporation
Index to
Consolidated Financial Statements
and
Financial Statement Schedule
|
|
|
|
|
|
|
Page
|
|
|
|
Number
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-9
|
|
|
|
|
F-43
|
|
F-1
VF
Corporation
Managements
Report on Internal Control Over Financial Reporting
Management of VF Corporation (VF) is responsible for
establishing and maintaining adequate internal control over
financial reporting, as defined in Exchange Act
Rule 13a-15(f). VFs management conducted an
assessment of VFs internal control over financial
reporting based on the framework described in Internal
Control Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, VFs management has
determined that VFs internal control over financial
reporting was effective as of January 3, 2009.
Managements assessment of the effectiveness of VFs
internal control over financial reporting as of January 3,
2009 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in
their report included herein.
F-2
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of V.F. Corporation:
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of V.F.
Corporation and its subsidiaries (the Company) at
January 3, 2009 and December 29, 2007, and the results
of their operations and their cash flows for each of the three
years in the period ended January 3, 2009 in conformity
with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under
Item 15(a)(2) presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
January 3, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for these financial statements and financial statement schedule,
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements, on the financial
statement schedule, and on the Companys internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As more fully described in Note A to the consolidated
financial statements, the Company changed the manner in which it
accounts for (i) uncertain tax positions effective
December 31, 2006; and (ii) defined benefit pension
and other postretirement plans effective December 30, 2006
as well as the measurement date for the related plan assets and
benefit obligations effective December 31, 2006.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Greensboro, North Carolina
March 3, 2009
F-3
VF
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
December
|
|
|
|
2008
|
|
|
2007
|
|
|
|
In thousands, except share amounts
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
381,844
|
|
|
$
|
321,863
|
|
Accounts receivable, less allowance for doubtful accounts of
$48,163 in 2008 and $59,053 in 2007
|
|
|
851,282
|
|
|
|
970,951
|
|
Inventories
|
|
|
1,151,895
|
|
|
|
1,138,752
|
|
Deferred income taxes
|
|
|
96,339
|
|
|
|
104,489
|
|
Other current assets
|
|
|
171,650
|
|
|
|
109,074
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,653,010
|
|
|
|
2,645,129
|
|
Property, Plant and Equipment
|
|
|
642,727
|
|
|
|
651,858
|
|
Intangible Assets
|
|
|
1,366,222
|
|
|
|
1,435,269
|
|
Goodwill
|
|
|
1,313,798
|
|
|
|
1,278,163
|
|
Other Assets
|
|
|
458,111
|
|
|
|
436,266
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,433,868
|
|
|
$
|
6,446,685
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
53,580
|
|
|
$
|
131,545
|
|
Current portion of long-term debt
|
|
|
3,322
|
|
|
|
3,803
|
|
Accounts payable
|
|
|
435,381
|
|
|
|
509,879
|
|
Accrued liabilities
|
|
|
519,899
|
|
|
|
489,160
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,012,182
|
|
|
|
1,134,387
|
|
Long-term Debt
|
|
|
1,141,546
|
|
|
|
1,144,810
|
|
Other Liabilities
|
|
|
724,248
|
|
|
|
590,659
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Common Stockholders Equity
|
|
|
|
|
|
|
|
|
Common Stock, stated value $1; shares authorized, 300,000,000;
109,847,563 shares outstanding in 2008 and 109,797,984 in
2007
|
|
|
109,848
|
|
|
|
109,798
|
|
Additional paid-in capital
|
|
|
1,749,464
|
|
|
|
1,619,320
|
|
Accumulated other comprehensive income (loss)
|
|
|
(276,294
|
)
|
|
|
61,495
|
|
Retained earnings
|
|
|
1,972,874
|
|
|
|
1,786,216
|
|
|
|
|
|
|
|
|
|
|
Total common stockholders equity
|
|
|
3,555,892
|
|
|
|
3,576,829
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,433,868
|
|
|
$
|
6,446,685
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
VF
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands, except per share amounts
|
|
|
Net Sales
|
|
$
|
7,561,621
|
|
|
$
|
7,140,811
|
|
|
$
|
6,138,087
|
|
Royalty Income
|
|
|
80,979
|
|
|
|
78,548
|
|
|
|
77,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
7,642,600
|
|
|
|
7,219,359
|
|
|
|
6,215,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
4,283,680
|
|
|
|
4,080,022
|
|
|
|
3,515,624
|
|
Marketing, administrative and general expenses
|
|
|
2,419,925
|
|
|
|
2,173,896
|
|
|
|
1,874,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,703,605
|
|
|
|
6,253,918
|
|
|
|
5,389,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
938,995
|
|
|
|
965,441
|
|
|
|
826,144
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
6,115
|
|
|
|
9,310
|
|
|
|
5,994
|
|
Interest expense
|
|
|
(94,050
|
)
|
|
|
(72,122
|
)
|
|
|
(57,259
|
)
|
Miscellaneous, net
|
|
|
(3,103
|
)
|
|
|
2,941
|
|
|
|
2,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91,038
|
)
|
|
|
(59,871
|
)
|
|
|
(48,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations Before Income Taxes
|
|
|
847,957
|
|
|
|
905,570
|
|
|
|
777,238
|
|
Income Taxes
|
|
|
245,209
|
|
|
|
292,324
|
|
|
|
242,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
|
602,748
|
|
|
|
613,246
|
|
|
|
535,051
|
|
Discontinued Operations
|
|
|
|
|
|
|
(21,625
|
)
|
|
|
(1,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
602,748
|
|
|
$
|
591,621
|
|
|
$
|
533,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
5.52
|
|
|
$
|
5.55
|
|
|
$
|
4.83
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.20
|
)
|
|
|
(0.01
|
)
|
Net income
|
|
|
5.52
|
|
|
|
5.36
|
|
|
|
4.82
|
|
Earnings Per Common Share Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
5.42
|
|
|
$
|
5.41
|
|
|
$
|
4.73
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.19
|
)
|
|
|
(0.01
|
)
|
Net income
|
|
|
5.42
|
|
|
|
5.22
|
|
|
|
4.72
|
|
Cash Dividends Per Common Share
|
|
$
|
2.33
|
|
|
$
|
2.23
|
|
|
$
|
1.94
|
|
See notes to consolidated financial statements.
F-5
VF
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands
|
|
|
Net Income
|
|
$
|
602,748
|
|
|
$
|
591,621
|
|
|
$
|
533,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount arising during year
|
|
|
(133,035
|
)
|
|
|
136,877
|
|
|
|
69,400
|
|
Less income tax effect
|
|
|
30,057
|
|
|
|
(33,493
|
)
|
|
|
(30,738
|
)
|
Reclassification of (gain) loss to Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(1,522
|
)
|
|
|
(8,517
|
)
|
|
|
|
|
Less income tax effect
|
|
|
532
|
|
|
|
2,981
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
50,191
|
|
|
|
|
|
Less income tax effect
|
|
|
|
|
|
|
(18,081
|
)
|
|
|
|
|
Defined benefit pension plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
106,954
|
|
Current year actuarial gain (loss)
|
|
|
(378,272
|
)
|
|
|
66,999
|
|
|
|
|
|
Settlement charge
|
|
|
4,383
|
|
|
|
|
|
|
|
|
|
Amortization of deferred actuarial loss
|
|
|
1,562
|
|
|
|
5,296
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
2,691
|
|
|
|
2,691
|
|
|
|
|
|
Less income tax effect
|
|
|
142,620
|
|
|
|
(28,724
|
)
|
|
|
(41,072
|
)
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount arising during year
|
|
|
(10,099
|
)
|
|
|
(26,377
|
)
|
|
|
(6,105
|
)
|
Less income tax effect
|
|
|
3,795
|
|
|
|
10,119
|
|
|
|
2,353
|
|
Reclassification to net income for (gains) losses realized
|
|
|
12,869
|
|
|
|
8,746
|
|
|
|
(1,781
|
)
|
Less income tax effect
|
|
|
(4,836
|
)
|
|
|
(3,355
|
)
|
|
|
687
|
|
Unrealized losses on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount arising during year
|
|
|
(8,534
|
)
|
|
|
(9,438
|
)
|
|
|
(5,164
|
)
|
Less income tax effect
|
|
|
|
|
|
|
6,693
|
|
|
|
2,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(337,789
|
)
|
|
|
162,608
|
|
|
|
96,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
264,959
|
|
|
$
|
754,229
|
|
|
$
|
630,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
VF
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
602,748
|
|
|
$
|
591,621
|
|
|
$
|
533,516
|
|
Adjustments to reconcile net income to cash provided by
operating activities of continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
21,625
|
|
|
|
1,535
|
|
Depreciation
|
|
|
105,059
|
|
|
|
94,540
|
|
|
|
90,374
|
|
Amortization of intangible assets
|
|
|
39,427
|
|
|
|
27,106
|
|
|
|
18,003
|
|
Other amortization
|
|
|
21,685
|
|
|
|
19,581
|
|
|
|
20,469
|
|
Stock-based compensation
|
|
|
31,592
|
|
|
|
62,413
|
|
|
|
46,427
|
|
Provision for doubtful accounts
|
|
|
22,062
|
|
|
|
13,859
|
|
|
|
6,693
|
|
Pension funding under (over) expense
|
|
|
(4,787
|
)
|
|
|
7,094
|
|
|
|
(31,277
|
)
|
Deferred income taxes
|
|
|
23,654
|
|
|
|
(3,748
|
)
|
|
|
(24,463
|
)
|
Other, net
|
|
|
(6,319
|
)
|
|
|
3,763
|
|
|
|
(6,509
|
)
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
52,679
|
|
|
|
(49,673
|
)
|
|
|
(113,363
|
)
|
Inventories
|
|
|
(38,275
|
)
|
|
|
(24,113
|
)
|
|
|
(33,193
|
)
|
Other current assets
|
|
|
(66,866
|
)
|
|
|
15,644
|
|
|
|
6,322
|
|
Accounts payable
|
|
|
(67,214
|
)
|
|
|
77,212
|
|
|
|
(19,043
|
)
|
Accrued compensation
|
|
|
(35,285
|
)
|
|
|
(1,932
|
)
|
|
|
(23,592
|
)
|
Accrued income taxes
|
|
|
24,118
|
|
|
|
(7,541
|
)
|
|
|
(51,111
|
)
|
Accrued liabilities
|
|
|
13,318
|
|
|
|
31,986
|
|
|
|
22,485
|
|
Other assets and liabilities
|
|
|
(38,124
|
)
|
|
|
(45,808
|
)
|
|
|
10,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities of continuing operations
|
|
|
679,472
|
|
|
|
833,629
|
|
|
|
454,128
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(21,625
|
)
|
|
|
(1,535
|
)
|
Adjustments to reconcile loss from discontinued operations to
cash provided (used) by discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of discontinued operations
|
|
|
|
|
|
|
24,554
|
|
|
|
36,845
|
|
Other, net
|
|
|
(1,071
|
)
|
|
|
(15,982
|
)
|
|
|
1,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided (used) by operating activities of discontinued
operations
|
|
|
(1,071
|
)
|
|
|
(13,053
|
)
|
|
|
36,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
678,401
|
|
|
|
820,576
|
|
|
|
490,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(124,207
|
)
|
|
|
(113,863
|
)
|
|
|
(127,195
|
)
|
Business acquisitions, net of cash acquired
|
|
|
(93,377
|
)
|
|
|
(1,060,636
|
)
|
|
|
(39,301
|
)
|
Software purchases
|
|
|
(10,601
|
)
|
|
|
(6,367
|
)
|
|
|
(8,939
|
)
|
Sale of intimate apparel business
|
|
|
|
|
|
|
348,714
|
|
|
|
|
|
Sale of other businesses
|
|
|
537
|
|
|
|
12,368
|
|
|
|
4,667
|
|
Sale of property, plant and equipment
|
|
|
11,462
|
|
|
|
14,085
|
|
|
|
3,327
|
|
Other, net
|
|
|
400
|
|
|
|
(120
|
)
|
|
|
(323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used by investing activities of continuing operations
|
|
|
(215,786
|
)
|
|
|
(805,819
|
)
|
|
|
(167,764
|
)
|
Discontinued operations, net
|
|
|
|
|
|
|
(243
|
)
|
|
|
1,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used by investing activities
|
|
|
(215,786
|
)
|
|
|
(806,062
|
)
|
|
|
(166,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in short-term borrowings
|
|
|
(67,736
|
)
|
|
|
36,785
|
|
|
|
(60,533
|
)
|
Proceeds from long-term debt
|
|
|
|
|
|
|
592,758
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(3,632
|
)
|
|
|
(168,671
|
)
|
|
|
(33,520
|
)
|
Purchase of Common Stock
|
|
|
(149,729
|
)
|
|
|
(350,000
|
)
|
|
|
(118,582
|
)
|
Cash dividends paid
|
|
|
(255,235
|
)
|
|
|
(246,634
|
)
|
|
|
(216,529
|
)
|
Proceeds from issuance of Common Stock
|
|
|
64,972
|
|
|
|
69,539
|
|
|
|
119,675
|
|
Tax benefits of stock option exercises
|
|
|
22,504
|
|
|
|
15,571
|
|
|
|
24,064
|
|
Other, net
|
|
|
(905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used by financing activities
|
|
|
(389,761
|
)
|
|
|
(50,652
|
)
|
|
|
(285,425
|
)
|
Effect of Foreign Currency Rate Changes on Cash
|
|
|
(12,873
|
)
|
|
|
14,777
|
|
|
|
8,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Equivalents
|
|
|
59,981
|
|
|
|
(21,361
|
)
|
|
|
46,667
|
|
Cash and Equivalents Beginning of Year
|
|
|
321,863
|
|
|
|
343,224
|
|
|
|
296,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents End of Year
|
|
$
|
381,844
|
|
|
$
|
321,863
|
|
|
$
|
343,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-7
VF
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
|
Balance, December 2005
|
|
$
|
110,108
|
|
|
$
|
1,277,486
|
|
|
$
|
(164,802
|
)
|
|
$
|
1,585,421
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
533,516
|
|
Cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(215,883
|
)
|
Series B Redeemable Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(646
|
)
|
Conversion of Preferred Stock
|
|
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
22,117
|
|
Purchase of treasury stock
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(116,582
|
)
|
Stock compensation plans, net
|
|
|
2,860
|
|
|
|
192,278
|
|
|
|
|
|
|
|
(1,228
|
)
|
Common Stock held in trust for deferred compensation plans
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
38,662
|
|
|
|
160
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
65,884
|
|
|
|
|
|
Change in accounting policy (Note A)
|
|
|
|
|
|
|
|
|
|
|
(55,468
|
)
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
(4,848
|
)
|
|
|
|
|
Unrealized losses on marketable securities
|
|
|
|
|
|
|
|
|
|
|
(3,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 2006
|
|
|
112,185
|
|
|
|
1,469,764
|
|
|
|
(123,652
|
)
|
|
|
1,806,875
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
591,621
|
|
Common Stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(246,634
|
)
|
Purchase of treasury stock
|
|
|
(4,116
|
)
|
|
|
|
|
|
|
|
|
|
|
(345,884
|
)
|
Stock compensation plans, net
|
|
|
1,752
|
|
|
|
149,556
|
|
|
|
|
|
|
|
(11,641
|
)
|
Common Stock held in trust for deferred compensation plans
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,036
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
129,958
|
|
|
|
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
46,262
|
|
|
|
|
|
Change in accounting policy (Note A)
|
|
|
|
|
|
|
|
|
|
|
22,539
|
|
|
|
(6,085
|
)
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
(10,867
|
)
|
|
|
|
|
Unrealized losses on marketable securities
|
|
|
|
|
|
|
|
|
|
|
(2,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 2007
|
|
|
109,798
|
|
|
|
1,619,320
|
|
|
|
61,495
|
|
|
|
1,786,216
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
602,748
|
|
Common Stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(255,235
|
)
|
Purchase of treasury stock
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(147,729
|
)
|
Stock compensation plans, net
|
|
|
2,027
|
|
|
|
130,144
|
|
|
|
|
|
|
|
(14,162
|
)
|
Common Stock held in trust for deferred compensation plans
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
1,036
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
(103,968
|
)
|
|
|
|
|
Defined benefit pension plans
|
|
|
|
|
|
|
|
|
|
|
(227,016
|
)
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
1,729
|
|
|
|
|
|
Unrealized losses on marketable securities
|
|
|
|
|
|
|
|
|
|
|
(8,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 2008
|
|
$
|
109,848
|
|
|
$
|
1,749,464
|
|
|
$
|
(276,294
|
)
|
|
$
|
1,972,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-8
VF
CORPORATION
December
2008
Note A
Significant Accounting Policies
Description of Business: VF Corporation (and
its subsidiaries, collectively known as VF) is a
global apparel company based in the United States. VF designs
and manufactures or sources from independent contractors a
variety of apparel and footwear for all ages. Products are
marketed primarily under VF-owned brand names. VF has
significant market shares in jeanswear, outdoor and action
sports apparel and sportswear. VF is also a leader in daypacks,
backpacks and technical outdoor equipment and in occupational
apparel.
VF markets these products to a broad customer base throughout
the world. Products having various price points are sold through
multiple channels of distribution, including specialty stores,
department stores, national chains, mass merchants and
VF-operated retail stores. VFs ten largest customers, all
U.S.-based
retailers, accounted for 26% of 2008 total revenues and 25% of
total 2008 accounts receivable. Sales are made on an unsecured
basis under customary terms that may vary by product, channel of
distribution or geographic region. VF continuously monitors the
creditworthiness of its customers and has established internal
policies regarding customer credit limits. The breadth of
product offerings, combined with the large number and geographic
diversity of its customers, limits VFs concentration of
risks.
Basis of Presentation: All financial
statements and related disclosures are presented in accordance
with accounting principles generally accepted in the United
States of America. The consolidated financial statements include
the accounts of VF and its subsidiaries, after elimination of
intercompany transactions and balances. For consolidated
subsidiaries that are not wholly owned, the minority
owners portion of net income, which is not significant, is
reported in Miscellaneous, net in the Consolidated Statements of
Income, and the minority ownership interest in net assets is
reported in Other Liabilities in the Consolidated Balance Sheets.
Investments in entities that VF does not control but has the
ability to exercise significant influence (generally
20-50% owned
companies) are accounted for using the equity method of
accounting. Equity method investments, initially recorded at
cost in Other Assets in the Consolidated Balance Sheets, are
adjusted to recognize VFs share of the investees
earnings and dividends after the date of investment. VFs
share of net income of these investments, totaling
$7.3 million in 2008, $4.2 million in 2007 and
$2.2 million in 2006, is included in Marketing,
Administrative and General Expenses in the Consolidated
Statements of Income.
In April 2007, VF sold its intimate apparel business consisting
of its domestic and international womens intimate apparel
business units. Accordingly, the Consolidated Statements of
Income and Consolidated Statements of Cash Flows have been
reclassified to present the intimate apparel businesses as
discontinued operations for all periods. Interest expense has
not been allocated to the discontinued operations. Amounts
presented herein, unless otherwise stated, relate to continuing
operations. See Note C.
Fiscal Year: VF operates and reports using a
52/53 week fiscal year ending on the Saturday closest to
December 31 of each year. All references to 2008,
2007 and 2006 relate to the 53 week
fiscal year ended on January 3, 2009 and the 52 week
fiscal years ended on December 29, 2007 and
December 30, 2006, respectively. Certain foreign
subsidiaries report using a December 31 year-end due to
local statutory requirements. For presentation purposes in this
report, all fiscal years are presented as ended in December.
Foreign Currency Translation: Financial
statements of most foreign subsidiaries are measured using the
local currency as the functional currency. Assets and
liabilities denominated in a foreign currency are translated
into U.S. dollars using exchange rates in effect at the
balance sheet date, and revenues and expenses are translated at
average exchange rates during the period. Resulting translation
gains and losses, and transaction gains and losses on long-term
advances to foreign subsidiaries, are reported in Accumulated
Other Comprehensive Income (Loss). For a foreign subsidiary that
uses the U.S. dollar as its functional currency, the
effects of remeasuring assets and liabilities into
U.S. dollars are included in the Consolidated Statements of
Income. Net transaction losses of $18.9 million in 2008 and
net transaction gains of $7.5 million in 2007 and
$12.0 million in 2006, arising from
F-9
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
transactions denominated in a currency other than the functional
currency of a particular entity, are included in the
Consolidated Statements of Income.
Cash and Equivalents are demand deposits and highly
liquid investments that will mature within three months of their
purchase. Cash equivalents consist of short-term time deposits
in U.S. and foreign commercial banks and investments in
institutional money market funds that invest in short-term
obligations issued or guaranteed by the U.S. government.
Accounts Receivable: Trade accounts receivable
are recorded at invoiced amounts, less estimated allowances for
trade terms, sales incentive programs, customer markdowns and
charge-backs, and returned products. Allowances are based on
evaluations of specific product and customer circumstances,
retail sales performance, historical and anticipated trends and
current economic conditions. Royalty receivables are recorded at
amounts earned based on the licensees sales of licensed
products, subject in some cases to minimum annual amounts from
individual licensees. VF maintains an allowance for doubtful
accounts for estimated losses that will result from the
inability of customers and licensees to make required payments.
All accounts are subject to ongoing review for ultimate
collectibility. The allowance considers specific customer
accounts where collection is doubtful, as well as the inherent
risk in ultimate collectibility of total balances. The amount of
the allowance is determined considering the aging of balances,
anticipated trends and economic conditions. Receivables are
written off against the allowance when it is probable the
amounts will not be recovered. There is no off-balance sheet
credit exposure related to customer receivables.
Inventories are stated at the lower of cost or market.
Cost is net of purchase discounts or rebates received from
vendors. Cost is determined on the
first-in,
first-out (FIFO) method for 77% of total 2008
inventories and 73% of total 2007 inventories. For remaining
inventories, cost is determined on the
last-in,
first-out (LIFO) method (primarily due to Internal
Revenue Service conformity requirements where LIFO is used for
income tax purposes). The LIFO method is used for jeanswear,
wholesale sportswear and occupational apparel inventories
located in the United States and Canada. The value of
inventories stated on the LIFO method is not significantly
different from the value determined under the FIFO method.
Market value for materials and supplies is replacement cost.
Market value for finished goods is the expected net realizable
value, which is based on the quantity and quality of
inventories, forecasted demand and historical and expected
realization trends.
Long-lived Assets: Property, plant and
equipment, intangible assets and goodwill are stated at cost.
Improvements to property, plant and equipment that substantially
extend the useful life of the asset, and interest costs incurred
during construction of major assets, are capitalized. Repair and
maintenance costs are expensed as incurred. Goodwill represents
the excess of costs over the fair value of net tangible assets
and identifiable intangible assets of businesses acquired.
Goodwill is assigned at the business unit level, which at VF is
typically one level below a reportable segment.
Depreciation of owned assets and amortization of assets under
capital leases are computed using the straight-line method over
the estimated useful lives of the assets, ranging from 3 to
10 years for machinery and equipment and up to
40 years for buildings. Leasehold improvements are
depreciated over the shorter of their estimated useful lives or
the lease term. Intangible assets having indefinite lives
(trademarks and tradenames) and goodwill are not amortized.
Other intangible assets, primarily customer relationships,
contracts to license acquired trademarks to third parties and
contracts to license trademarks from third parties, are
amortized over their estimated useful lives ranging from less
than one year to 30 years. Amortization of intangible
assets is computed using straight-line or accelerated methods
consistent with the expected realization of benefits to be
received. The estimated useful lives of licensing intangible
assets may take into consideration renewal or extension periods
based on VFs experience in renewing or extending similar
arrangements. Costs related to license contract renewals or
extensions are expensed as incurred and are not significant.
Depreciation and amortization expense related to producing or
otherwise obtaining finished goods inventories is included in
Cost of Goods Sold, and other depreciation and amortization
expense is included in Marketing, Administrative and General
Expenses. Upon retirement or disposition, the asset
F-10
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
cost and related accumulated depreciation or amortization are
removed from the accounts, and a gain or loss is recognized
based on the difference between the net proceeds received and
the assets carrying value.
VFs policy is to evaluate goodwill and indefinite-lived
intangible assets for possible impairment at least annually and
to evaluate all long-lived assets for possible impairment
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Goodwill
is evaluated for possible impairment by comparing the fair value
of a reporting unit with its carrying value, including the
goodwill assigned to that reporting unit. Fair value of a
reporting unit is generally estimated using an approach in which
forecasted cash flows of a reporting unit are discounted at a
rate commensurate with the risks of those cash flows. An
impairment charge would be recorded if the carrying value of the
goodwill exceeds its implied fair value. Intangible assets with
indefinite lives (trademarks) are evaluated for possible
impairment by comparing the fair value of the asset with its
carrying value. Fair value for these assets is estimated as the
discounted value of future revenues arising from a trademark
using a royalty rate that a third party would pay for use of
that trademark. The amount of impairment charge would be the
excess of the trademarks carrying value over its estimated
fair value. For property and intangible assets with identified
useful lives, an impairment loss would be recorded if forecasted
undiscounted cash flows to be generated by the asset or asset
group are not expected to be adequate to recover the
assets carrying value. The amount of impairment charge for
these assets would be the excess of the assets carrying
value over its fair value.
In connection with the decision near the end of 2006 to exit the
womens intimate apparel business, VF recorded an
impairment charge for the difference between the recorded book
value of the long-lived assets of this business and the expected
net sales proceeds. See Basis of Presentation above and
Note C.
Revenue Recognition: Revenue is recognized
when (i) there is a contract or other arrangement of sale,
(ii) the sales price is fixed or determinable,
(iii) title and the risks of ownership have been
transferred to the customer, and (iv) collection of the
receivable is reasonably assured. Net Sales to wholesale
customers and sales through the internet are generally
recognized when the product has been received by the customer.
Shipping and handling costs billed to customers are included in
Net Sales. Net Sales are recorded after reduction of estimated
allowances for trade terms, sales incentive programs, customer
markdowns and charge-backs, and product returns. Sales incentive
programs with wholesale customers include stated discounts.
Sales incentive programs directly with consumers include rebate
and coupon offers. These allowances are estimated based on
evaluations of specific product and customer circumstances,
retail sales performance, historical and anticipated trends, and
current economic conditions; historically, they have not
differed significantly from actual results. Net Sales at
VF-operated retail stores, after reduction of an estimated
allowance for returns, are recognized at the time products are
purchased by consumers. Sales taxes and value added taxes
collected from customers and remitted directly to governmental
authorities are excluded from Net Sales.
Royalty Income is recognized as earned based on the greater of
licensees sales of licensed products at rates specified in
the licensing contracts or contractual minimum royalty levels.
Cost of Goods Sold for VF-manufactured goods includes all
materials, labor and overhead costs incurred in the production
process. Cost of Goods Sold for contracted or purchased finished
goods includes the purchase costs and related overhead. In both
cases, overhead includes all costs related to manufacturing or
purchasing finished goods, including costs of planning,
purchasing, quality control, freight, duties, royalties paid to
third parties and shrinkage. For product lines having a lifetime
warranty, a provision for estimated future repair or replacement
costs, based on historical and anticipated trends, is recorded
when these products are sold. Sales incentives to consumers in
the form of free products are included in Cost of Goods Sold.
Marketing, Administrative and General Expenses include
costs of product development, selling, marketing and
advertising, VF-operated retail stores, warehousing, shipping
and handling, licensing and administration. Advertising costs
are expensed as incurred and totaled $399.1 million in
2008, $362.1 million in 2007 and $321.9 million in
2006. Advertising costs include cooperative advertising payments
made to VFs retail customers
F-11
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
as direct reimbursement of documented advertising costs incurred
by those retailers for advertising VFs products.
Cooperative advertising costs, totaling $73.2 million in
2008, $61.5 million in 2007 and $60.8 million in 2006,
are independently verified to support the fair value of
advertising reimbursed by VF. Shipping and handling costs for
delivery of products to customers totaled $218.4 million in
2008, $213.0 million in 2007 and $201.5 million in
2006. Expenses related to royalty income, including amortization
of licensing intangible assets, were $21.6 million in 2008,
$23.6 million in 2007 and $22.5 million in 2006.
Rent Expense: VF enters into noncancelable
operating leases for retail stores, distribution, office and
other real estate and for equipment. Leases for real estate have
initial terms ranging from 3 to 15 years, generally with
renewal options. Leases for equipment typically have initial
terms ranging from 2 to 5 years. Most leases have fixed
rentals, with many of the real estate leases providing for
additional payments based on sales volume or for payments of
real estate taxes and occupancy-related costs. Contingent rent
expense, based on Net Sales at individual retail store locations
being in excess of a stated base amount, is recognized when the
liability is probable. Rent expense for leases having rent
holidays or scheduled rent increases is recorded on a
straight-line basis over the lease term beginning when VF has
possession or control of the leased premises. Lease incentives
received from landlords and the difference between straight-line
rent expense and scheduled rent payments are deferred in Other
Liabilities and amortized as a reduction of rent expense over
the lease term.
Self-insurance: VF is primarily self-insured
for employee group medical, workers compensation, vehicle,
property and general liability exposures. Liabilities for
self-insured exposures are accrued at the present value of
amounts expected to be paid based on historical claims
experience and actuarial data for forecasted settlements of
claims filed and for incurred but not yet reported claims.
Accruals for self-insured exposures are included in current and
noncurrent liabilities based on the expected period of payment.
Excess liability insurance has been purchased to cover claims in
excess of self-insured amounts.
Income Taxes are provided on Net Income for financial
reporting purposes. Income Taxes are based on amounts of taxes
payable or refundable in the current year and on expected future
tax consequences of events that are recognized in the financial
statements in different periods than they are recognized in tax
returns. As a result of timing of recognition and measurement
differences between financial accounting standards and income
tax laws, temporary differences arise between amounts of pretax
financial statement income and taxable income and between
reported amounts of assets and liabilities in the Consolidated
Balance Sheets and their respective tax bases. Deferred income
tax assets and liabilities reported in the Consolidated Balance
Sheets reflect estimated future tax effects attributable to
these temporary differences and to net operating loss and net
capital loss carryforwards, based on tax rates expected to be in
effect for years in which the differences are expected to be
settled or realized. Realization of deferred tax assets is
dependent on future taxable income in specific jurisdictions.
Valuation allowances are used to reduce deferred tax assets to
amounts considered likely to be realized. U.S. deferred
income taxes are not provided on undistributed income of foreign
subsidiaries where such earnings are considered to be
permanently invested. Accrued income taxes in the Consolidated
Balance Sheets include unrecognized income tax benefits,
including related interest and penalties, appropriately
classified as current or noncurrent. The provision for Income
Taxes also includes estimated interest and penalties related to
uncertain tax positions.
Earnings Per Share: Basic earnings per share
is computed by dividing earnings available to common
stockholders by the weighted average number of shares of Common
Stock outstanding. Diluted earnings per share considers the
effect of potentially dilutive securities such as stock options,
restricted stock, restricted stock units and Preferred Stock
(prior to its conversion into Common Stock during 2006). Stock
options are included in diluted earnings per share when the
average market price of VF Common Stock during the quarter
exceeds the exercise price of the option. Performance-based
restricted stock units are included in diluted earnings per
share in the quarter in which the underlying performance
conditions have been satisfied.
Changes in Accounting Policies: 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 for December 2006, required that
(i) the funded status of a
F-12
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
defined benefit plan, measured as the difference between the
fair value of plan assets and projected benefit obligations, be
recorded in the balance sheet and (ii) gains and losses for
differences between actuarial assumptions and actual results,
and unrecognized prior service costs, be recorded as a component
of Accumulated Other Comprehensive Income (Loss). Accordingly,
VF recorded a charge of $55.5 million (net of income taxes
of $34.5 million) to Accumulated Other Comprehensive Income
(Loss) effective at the end of 2006. Statement 158 did not
change the measurement of plan assets and benefit obligations or
the measurement of benefit expense in the statement of income.
Further, Statement 158 required VF to change its September
measurement date for valuation of plan assets and projected
benefit obligations to its December fiscal year-end date. VF
elected for 2007 to change its plans measurement date to
December and accordingly recorded, effective at the beginning of
2007, (i) a charge of $3.8 million (net of income
taxes of $2.4 million) to Retained Earnings for pension
expense for the period October to December 2006 and (ii) a
credit of $22.5 million (net of income taxes of
$14.0 million) to Accumulated Other Comprehensive Income
(Loss) for the changes in plan assets and projected benefit
obligations for that period. See Note N for the effect of
the change in measurement date from September 2006 to December
2006 on the pension plans assets and projected benefit
obligations.
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 clarified the accounting
for uncertainty in income tax positions. FIN 48 prescribed
the recognition threshold an income tax provision is required to
meet before being recorded in the financial statements and
provided guidance on classification and disclosures of tax
positions. VF adopted FIN 48 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, a $2.8 million reduction in Goodwill and a
$0.5 million reduction in unrecognized income tax benefits,
in accordance with the provisions of FIN 48. See
Note Q.
VF adopted Emerging Issues Task Force (EITF)
06-11,
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards, beginning in 2008.
EITF 06-11
requires that the tax benefit related to dividend equivalents
declared on restricted stock units that are expected to vest be
recorded as an increase in Additional Paid-in Capital. The
impact of adopting
EITF 06-11
was not significant.
In September 2006, the FASB issued FASB Statement No. 157,
Fair Value Measurements (Statement 157), and
in February 2007 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). Statement 157
clarified the definition of fair value, established a framework
and a hierarchy based on the level of observability and judgment
associated with inputs used in measuring fair value, and
expanded disclosures about fair value measurements
(Note U). Statement 157 applies whenever other accounting
pronouncements require or permit assets or liabilities to be
measured at fair value but does not require any new fair value
measurements. VF adopted Statement 157 in 2008. However, as
permitted by FASB Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, VF elected
to defer until 2009 the disclosure provisions of Statement 157
relating to nonrecurring measurements of nonfinancial assets and
nonfinancial liabilities. This deferral of disclosures applies
primarily to nonfinancial assets and nonfinancial liabilities
initially measured at fair value in a business combination or
measured at fair value for an impairment assessment. Statement
159 permits companies to measure at fair value eligible
financial assets and financial liabilities that were not
otherwise required to be recorded at fair value, with changes in
fair value recognized in net income as they occur. Since VF did
not elect to apply fair value accounting to any additional
items, the adoption of Statement 159 had no impact.
Derivative Financial Instruments are measured at their
fair value and are recognized as Other Current Assets or Accrued
Liabilities in the Consolidated Balance Sheets. VF formally
documents hedged transactions and hedging instruments at the
inception of the contract. Further, VF assesses, both at the
inception of a contract and on an ongoing basis, whether the
hedging instruments are highly effective in offsetting changes
in cash flows of the hedged transactions. Derivative financial
instruments are used for risk management and are not used for
trading or speculative purposes.
F-13
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
A derivative may be specifically designated and accounted for as
(i) a hedge of the exposure to variable cash flows for a
forecasted transaction or (ii) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or
an unrecognized firm commitment. The criteria used to determine
if hedge accounting treatment is appropriate are
(i) whether an appropriate hedging instrument has been
designated and identified to reduce an identified exposure and
(ii) whether there is a high correlation between changes in
the fair value of the hedging instrument and the identified
exposure. Changes in the fair value of derivatives accounted for
as cash flow hedges are deferred in Accumulated Other
Comprehensive Income (Loss) until the hedged transaction affects
earnings, at which time the amount is reclassified to Net Income
(primarily in Cost of Goods Sold) as an offset to the earnings
impact of the hedged transaction. Changes in the fair value of
derivatives accounted for as fair value hedges are recognized in
Net Income as an offset to the earnings impact of the hedged
item. These hedging transactions are evaluated each quarter,
with changes in fair value deferred in Accumulated Other
Comprehensive Income (Loss) or reported in Net Income, depending
on the nature of the hedged item or risk and the effectiveness
of the hedge. The impact of a hedging instrument that is not
effective in hedging the intended cash flows or fair values is
recorded immediately in earnings; these amounts have not been
significant. Hedging cash flows are classified in the
Consolidated Statements of Cash Flows in the same category as
the items being hedged. If a derivative instrument does not meet
the criteria for hedge accounting, which would be rare, any
change in fair value is recognized in Miscellaneous Income or
Expense when it occurs.
Legal and Other Contingencies: Management
periodically assesses, based on the latest information
available, liabilities and contingencies in connection with
legal proceedings and other claims that may arise from time to
time. When it is probable that a loss has been or will be
incurred, we record the loss, or a reasonable estimate of the
loss, in the consolidated financial statements. Estimates of
losses are adjusted in the period in which additional
information becomes available or circumstances change. We
disclose a contingent liability when there is at least a
reasonable possibility that a loss has been incurred. Management
believes that the outcome of any outstanding or pending matters,
individually and in the aggregate, will not have a material
adverse effect on the consolidated financial statements.
Use of Estimates: In preparing financial
statements in accordance with generally accepted accounting
principles, management makes estimates and assumptions that
affect amounts reported in the consolidated financial statements
and accompanying notes. Actual results may differ from those
estimates.
Reclassifications: Certain prior year amounts
have been reclassified to conform with the 2008 presentation.
Recently Issued Accounting Standards: In
December 2007, the FASB issued FASB Statement
No. 141(Revised), Business Combinations
(Statement 141(R)), which revises how business
combinations are accounted for, both at the acquisition date and
in subsequent periods. Statement 141(R) requires the acquiring
entity in a business combination to (i) measure
substantially all assets acquired and liabilities assumed in
either a full or a partial acquisition at their full fair values
at the acquisition date, (ii) expense all transaction and
restructuring costs and (iii) provide additional
disclosures not required under prior rules. Statement 141(R) is
effective for transactions in which VF obtains control of a
business beginning in its 2009 fiscal year. The impact on VF of
adopting Statement 141(R) will depend on the nature, terms and
size of business combinations completed after the effective
date. Early adoption of Statement 141(R) was not permitted.
Also in December 2007, the FASB issued FASB Statement
No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51
(Statement 160). Statement 160 requires a company to
classify noncontrolling (i.e., minority) interests in partially
owned consolidated subsidiaries as equity instead of as a
liability and provides guidance on the accounting for
transactions between an entity and noncontrolling interests.
Statement 160, effective for VFs 2009 fiscal year,
requires retroactive adoption of the presentation and disclosure
requirements, with all other requirements to be applied
prospectively. The impact on VF of adopting Statement 160 will
not be significant. Early adoption of Statement 160 was not
permitted.
F-14
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
In March 2008, the FASB issued FASB Statement No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (Statement 161). Statement 161
requires expanded disclosures related to (i) how and why an
entity uses derivative instruments, (ii) how derivative
instruments and related hedged items are accounted for under
Statement 133 and its related interpretations and (iii) how
derivative instruments and related hedged items affect an
entitys financial position, operating results and cash
flows. This Statement is effective for financial statements
issued for VFs 2009 fiscal year. VF is currently
evaluating the impact of adopting Statement 161.
In April 2008, the FASB issued FASB Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible Assets
(FSP 142-3).
FSP 142-3
amends the factors to be considered in developing renewal or
extension assumptions used to determine the useful life of an
identified intangible asset under FASB Statement No. 142,
Goodwill and Other Intangible Assets, and requires
expanded disclosures related to the determination of intangible
asset useful lives.
FSP 142-3
is effective for all recognized intangible assets in VFs
2009 consolidated financial statements. VF is currently
evaluating the impact of adopting
FSP 142-3.
Note B
Acquisitions
In June 2008, VF acquired one-third of the outstanding equity of
Mo Industries Holdings, Inc. (Mo Industries), a Los
Angeles-based company that owns the
Splendid®
and Ella
Moss®
brands of premium sportswear marketed to upscale department and
specialty stores. VF also acquired an option to purchase the
remaining shares of Mo Industries and granted the other
stockholders of Mo Industries an option to require VF to
purchase all of their stock during the first half of 2009 at a
price based on its 2008 earnings. The cost of the investment,
including the related put/call rights, was $77.4 million.
The investment is recorded in Other Assets and is being
accounted for using the equity method of accounting. The equity
in net income of Mo Industries was reported as part of the
Contemporary Brands Coalition from the date of the investment.
See Note W.
In July 2008, VF acquired 100% ownership of its former 50%-owned
joint venture that markets
Lee®
branded products in Spain and Portugal (Lee Spain).
The cost of the additional investment was $25.4 million,
consisting of $14.9 million in cash, plus the transfer of
certain nonmonetary assets held by the former joint venture.
Management has allocated the purchase price to acquired tangible
and intangible assets and assumed liabilities, based on their
respective fair values. Of the total consideration,
$13.5 million was assigned to indefinite-lived and
amortizable Intangible Assets and $15.7 million was
assigned to Goodwill. The joint venture was accounted for using
the equity method of accounting through July 2008, and Lee Spain
is accounted for as a consolidated subsidiary subsequent to that
date. Operating results for all periods are reported as part of
the Jeanswear Coalition.
On February 28, 2007, VF acquired substantially all the
operating assets of Majestic Athletic, Inc.
(Majestic) and related companies for a cost of
$131.5 million. Majestic currently holds exclusive on-field
uniform rights for all 30 major league baseball teams, including
supplying each team with on-field MLB Authentic
Collectiontm
outerwear, batting practice jerseys, T-shirts, shorts and
fleece. Majestic also markets
Majestic®
brand baseball-related consumer apparel to wholesale accounts.
On August 27, 2007, VF acquired lucy activewear, inc.
(lucy activewear), a chain of retail stores
marketing
lucy®
brand womens activewear, for a cost of
$114.1 million. On August 31, 2007, VF acquired Seven
For All Mankind, LLC (Seven For All Mankind),
marketer of the 7 For All
Mankind®
brand of womens and mens premium denim jeanswear and
related apparel products in the United States and Europe, for a
cost of $773.1 million. The lucy activewear business and
the Seven For All Mankind business together formed the
foundation for a new lifestyle-based coalition called
Contemporary Brands. On January 26, 2007, VF acquired Eagle
Creek, Inc. (Eagle Creek), maker of Eagle
Creek®
brand adventure travel gear that includes accessories, luggage
and daypacks. In addition, on April 2, 2007, VF acquired
the brand-related assets of a former licensee that had rights to
market VFs The North
Face®
brand in China and Nepal (The North Face
China). Because the licensing arrangement represented an
arms-length contract, no gain or loss was recognized at
F-15
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
the acquisition date. The total cost of these acquisitions,
collectively referred to as the 2007 Acquisitions,
was $1,070.3 million, plus the assumption of
$11.6 million of debt.
In the Majestic acquisition, the fair value of the net assets
acquired exceeded the purchase price by $14.0 million.
Since there is a maximum of $10.0 million of contingent
consideration based on growth in revenues that may result in the
recognition of additional purchase cost, that amount was accrued
as a deferred credit, with the remaining $4.0 million
excess fair value at the acquisition date applied to reduce on a
pro rata basis amounts initially assigned to noncurrent assets.
Of the total contingent consideration, $3.3 million was
earned in 2008 and payable in 2009 and $1.5 million was
earned in 2007 and paid in 2008. The additional
$5.2 million maximum contingent consideration that can be
earned through 2009 is recorded as a deferred credit in Other
Liabilities. If the final contingent consideration earned is
less than the $10.0 million maximum, the difference will be
recognized as a pro rata reduction of amounts initially assigned
to noncurrent assets. Contingent consideration of
$5.3 million for Eagle Creek, based on a measure of
profitability, was accrued in 2008 and recorded as Goodwill. In
addition, contingent consideration of $0.8 million related
to the 2005 acquisition of the net assets of Holoubek, Inc.
(Holoubek) was earned and recorded as Goodwill in
2008. Additional contingent consideration for Eagle Creek can be
earned in 2009 based on a measure of profitability, with no
maximum amount, and additional consideration of
$1.7 million can be earned for Holoubek in 2011. Any
additional contingent consideration earned will be recorded as
Goodwill.
On September 1, 2006, VF acquired a 60% interest in a newly
formed joint venture to design, market and distribute VF-branded
products in India for a total cost of $33.2 million. Prior
to the transaction, the joint venture partner marketed the
Lee®,
Wrangler®,
Nautica®,
JanSport®
and
Kipling®
brands under license or distribution agreements. Because all
preexisting relationships were arms-length contracts, no gain or
loss was recognized upon formation of the joint venture.
Management has allocated the purchase price of each acquisition
to acquired tangible and intangible assets, and assumed
liabilities, based on their respective fair values. The
following table summarizes the estimated fair values of the
assets acquired and liabilities assumed for the Lee Spain
acquisition in 2008 (including the carrying value of the prior
50% equity investment) and for the 2007 Acquisitions at their
respective dates of acquisition:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Acquisition
|
|
|
Acquisitions
|
|
|
|
In thousands
|
|
|
Cash and equivalents
|
|
$
|
813
|
|
|
$
|
9,679
|
|
Other current assets
|
|
|
20,287
|
|
|
|
221,088
|
|
Property, plant and equipment
|
|
|
1,312
|
|
|
|
38,625
|
|
Intangible assets indefinite-lived
|
|
|
6,314
|
|
|
|
408,400
|
|
Intangible assets amortizable
|
|
|
7,170
|
|
|
|
273,541
|
|
Goodwill
|
|
|
15,678
|
|
|
|
222,084
|
|
Other assets
|
|
|
|
|
|
|
2,028
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
51,574
|
|
|
|
1,175,445
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
22,209
|
|
|
|
64,636
|
|
Long-term debt
|
|
|
|
|
|
|
11,363
|
|
Other liabilities, primarily deferred income taxes
|
|
|
3,986
|
|
|
|
29,131
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
26,195
|
|
|
|
105,130
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
25,379
|
|
|
|
1,070,315
|
|
Carrying value of prior equity investment
|
|
|
9,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
35,058
|
|
|
$
|
1,070,315
|
|
|
|
|
|
|
|
|
|
|
F-16
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
For the 2007 Acquisitions, management believes the 7 For All
Mankind®,
lucy®,
Majestic®
and Eagle
Creek®
trademarks and tradenames have indefinite lives. Amounts
assigned to amortizable intangible assets included
$223.8 million of customer relationships and
$49.7 million of licensing contracts. Customer
relationships are being amortized using accelerated methods over
their estimated weighted average useful lives of 19 years,
and licensing contracts are being amortized using straight-line
and accelerated methods over their estimated weighted average
useful lives of 18 years. For the 2008 acquisition of Lee
Spain and the 2006 acquisition in India, amounts assigned to
amortizable intangible assets consisted primarily of customer
relationships, which are being amortized using an accelerated
method over their weighted average useful lives of 15 years.
Except for the Majestic transaction, the purchase price of each
acquisition exceeded the fair value of the net tangible and
intangible assets acquired, with the excess purchase price
recorded as Goodwill. Factors that contributed to recognition of
Goodwill included (i) expected growth rates and
profitability of the acquired companies, (ii) the ability
to expand the brands within their markets or to new markets,
(iii) their experienced workforce, (iv) VFs
strategies for growth in sales, income and cash flows and
(v) expected synergies with existing VF business units. The
Majestic, lucy activewear, Seven For All Mankind and Eagle Creek
acquisitions are consistent with VFs goal of acquiring
strong lifestyle brands that have high growth potential within
their target markets. The acquisitions of Lee Spain, The North
Face China and the joint venture in India gave VF
control of its leading brands in some of the fastest growing
markets in the world. Approximately $205.9 million of
Goodwill in the 2007 Acquisitions is expected to be deductible
for income tax purposes.
Operating results of the acquisitions have been included in the
consolidated financial statements since their respective
acquisition dates.
The following pro forma results of operations assume that the
Majestic and Seven For All Mankind acquisitions had occurred at
the beginning of 2007. Pro forma operating results for the other
2007 acquisitions and for the Lee Spain acquisition in 2008, for
periods prior to their respective dates of acquisition, are not
provided because these acquisitions, in the aggregate, are not
material to VFs results of operations.
|
|
|
|
|
|
|
2007
|
|
|
|
In thousands, except per
|
|
|
|
share amounts
|
|
|
Total revenues
|
|
$
|
7,444,893
|
|
Income from continuing operations
|
|
|
611,102
|
|
Income from continuing operations per common share:
|
|
|
|
|
Basic
|
|
$
|
5.53
|
|
Diluted
|
|
|
5.39
|
|
Note C
Sale of Intimate Apparel Business and Sale of
H.I.S®
Brand
Sale of Intimate Apparel Business Classified as Discontinued
Operations: In December 2006, management and the Board of
Directors decided to exit VFs domestic and international
womens intimate apparel business (formerly referred to as
the Intimate Apparel Coalition, a reportable business segment).
On April 1, 2007, VF sold the net assets of this business
(except for an investment in marketable securities of an
intimate apparel supplier) for $348.7 million, plus
$28.8 million related to the business units Cash and
Equivalents. The transaction was consistent with VFs
stated objective of focusing on lifestyle businesses having high
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).
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
$117.5 million of Goodwill and $32.0 million of
foreign currency translation losses, net of income tax
F-17
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
benefit, deferred in Accumulated Other Comprehensive Income
(Loss). The charge was recorded as a valuation allowance against
noncurrent assets of the intimate apparel business. In addition,
VF recorded a noncash partial pension plan curtailment charge of
$5.6 million for the withdrawal of intimate apparel
participants from VFs defined benefit pension plans. The
write-down to expected net sales proceeds, plus the pension
curtailment charge, were recorded in 2006 as a loss on disposal
of the intimate apparel business, net of an income tax benefit
of $10.9 million. Included in the determination of the
$42.2 million impairment charge in 2006 was a
$17.2 million unrealized gain on an investment in
marketable securities of a supplier to our former intimate
apparel business mentioned above. However, those marketable
securities were not included in the final sales transaction.
Accordingly, the loss on disposal in 2007 of $24.6 million
consisted of (i) a $17.2 million increase in the loss
related to the unsold marketable securities, (ii) final
determination of the sales price and (iii) income tax
adjustments of the sales price allocation.
Summarized operating results for the discontinued intimate
apparel business were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands
|
|
|
Total revenues
|
|
$
|
196,167
|
|
|
$
|
817,749
|
|
|
|
|
|
|
|
|
|
|
Income from operations, net of income taxes of $3,851 and $17,517
|
|
$
|
2,929
|
|
|
$
|
35,310
|
|
Loss on disposal, net of income tax benefit of $10,920 in 2006
|
|
|
(24,554
|
)
|
|
|
(36,845
|
)
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(21,625
|
)
|
|
$
|
(1,535
|
)
|
|
|
|
|
|
|
|
|
|
Sale of
H.I.S®
Brand: VF sold its
H.I.S®
trademarks and related intellectual property for
$11.5 million in 2007.
H.I.S®
was a female jeans and casual apparel brand, marketed primarily
in Germany, and was reported as part of the Jeanswear reporting
segment. Net foreign currency translation gains of
$3.9 million, net of $2.2 million income taxes, on the
H.I.S®
net operating assets, previously deferred in Accumulated Other
Comprehensive Income (Loss), were recognized in the Consolidated
Statement of Income. The sale proceeds and recognition of the
deferred foreign currency translation gains, less employee
termination and other exit costs, resulted in a
$5.7 million pretax gain, which was recorded as
$2.6 million of additional expense in Cost of Goods Sold
and a reduction of $8.3 million in Marketing,
Administrative and General Expenses. Revenues of the
H.I.S®
brand totaled $25 million in 2007 and $34 million in
2006.
Note D
Accounts Receivable
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
In thousands
|
|
|
Trade
|
|
$
|
833,561
|
|
|
$
|
965,126
|
|
Royalty and other
|
|
|
65,884
|
|
|
|
64,878
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable
|
|
|
899,445
|
|
|
|
1,030,004
|
|
Less allowance for doubtful accounts
|
|
|
48,163
|
|
|
|
59,053
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
851,282
|
|
|
$
|
970,951
|
|
|
|
|
|
|
|
|
|
|
Note E
Inventories
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
In thousands
|
|
|
Finished products
|
|
$
|
931,122
|
|
|
$
|
911,496
|
|
Work in process
|
|
|
87,543
|
|
|
|
87,176
|
|
Materials and supplies
|
|
|
133,230
|
|
|
|
140,080
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
1,151,895
|
|
|
$
|
1,138,752
|
|
|
|
|
|
|
|
|
|
|
F-18
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Note F
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
In thousands
|
|
|
Land
|
|
$
|
47,288
|
|
|
$
|
49,146
|
|
Buildings and improvements
|
|
|
555,407
|
|
|
|
547,316
|
|
Machinery and equipment
|
|
|
954,939
|
|
|
|
932,553
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost
|
|
|
1,557,634
|
|
|
|
1,529,015
|
|
Less accumulated depreciation
|
|
|
914,907
|
|
|
|
877,157
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
642,727
|
|
|
$
|
651,858
|
|
|
|
|
|
|
|
|
|
|
Assets recorded under capital leases, primarily buildings and
improvements, are included in Property, Plant and Equipment at a
cost of $51.9 million, less accumulated amortization of
$14.1 million, at the end of 2008 and a cost of
$49.5 million, less accumulated amortization of
$9.2 million, at the end of 2007. Amortization expense for
assets under capital leases is included in depreciation expense.
Assets having a cost of $21.2 million, less accumulated
depreciation of $0.6 million at the end of 2008 and
$0.2 million at the end of 2007, are subject to a mortgage.
All other Property, Plant and Equipment is unencumbered.
Note G
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Average
|
|
|
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
December 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets:*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License agreements
|
|
|
22 years
|
|
|
$
|
180,158
|
|
|
$
|
34,769
|
|
|
$
|
145,389
|
|
Customer relationships
|
|
|
20 years
|
|
|
|
324,191
|
|
|
|
52,105
|
|
|
|
272,086
|
|
Trademarks and other
|
|
|
7 years
|
|
|
|
17,509
|
|
|
|
8,269
|
|
|
|
9,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
426,715
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
939,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,366,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets:*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License agreements
|
|
|
22 years
|
|
|
$
|
198,560
|
|
|
$
|
39,994
|
|
|
$
|
158,566
|
|
Customer relationships
|
|
|
20 years
|
|
|
|
325,133
|
|
|
|
28,748
|
|
|
|
296,385
|
|
Trademarks and other
|
|
|
7 years
|
|
|
|
15,140
|
|
|
|
4,551
|
|
|
|
10,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
465,540
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
969,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,435,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amortization of license agreements straight-line and
accelerated methods; customer relationships
accelerated methods; trademarks and other
straight-line method. |
F-19
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Cost and accumulated amortization of $17.5 million were
eliminated from License Agreements in 2008 because the
underlying intangible assets became fully amortized in that
year. Similarly, $0.1 million was eliminated from
Trademarks and Other in both 2008 and 2007.
Amortization expense was $39.4 million in 2008,
$27.1 million in 2007 and $18.0 million in 2006.
Estimated amortization expense for the years 2009 through 2013
is $34.5 million, $31.9 million, $29.6 million,
$28.0 million and $26.7 million, respectively.
Note H
Goodwill
Activity is summarized by business segment as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor and
|
|
|
|
|
|
|
|
|
|
|
|
Contemporary
|
|
|
|
Action Sports
|
|
|
Jeanswear
|
|
|
Imagewear
|
|
|
Sportswear
|
|
|
Brands
|
|
|
|
In thousands
|
|
|
Balance, December 2005
|
|
$
|
512,164
|
|
|
$
|
193,685
|
|
|
$
|
56,246
|
|
|
$
|
217,416
|
|
|
|
|
|
2006 acquisition
|
|
|
|
|
|
|
27,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
Adjustments to purchase price allocation
|
|
|
(1,450
|
)
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
Currency translation
|
|
|
21,170
|
|
|
|
4,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 2006
|
|
|
531,884
|
|
|
|
225,202
|
|
|
|
56,246
|
|
|
|
217,593
|
|
|
|
|
|
Change in accounting policy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note A and Q)
|
|
|
(1,014
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,809
|
)
|
|
|
|
|
2007 acquisitions
|
|
|
12,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
209,215
|
|
Additional purchase cost
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to purchase price allocation
|
|
|
(6,240
|
)
|
|
|
(5,027
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
Currency translation
|
|
|
27,452
|
|
|
|
11,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 2007
|
|
|
564,867
|
|
|
|
232,068
|
|
|
|
56,246
|
|
|
|
215,767
|
|
|
|
209,215
|
|
2008 acquisition
|
|
|
|
|
|
|
15,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
5,309
|
|
|
|
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
Adjustments to purchase price allocation
|
|
|
(426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,215
|
*
|
Currency translation
|
|
|
(15,040
|
)
|
|
|
(11,928
|
)
|
|
|
|
|
|
|
|
|
|
|
370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 2008
|
|
$
|
554,710
|
|
|
$
|
235,818
|
|
|
$
|
56,703
|
|
|
$
|
215,767
|
|
|
$
|
250,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Represents reclassification from indefinite-lived Intangible
Assets upon finalization of purchase price allocation.
|
F-20
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Note I
Other Assets
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
In thousands
|
|
|
Investment securities held for deferred compensation plans
(Note N)
|
|
$
|
152,653
|
|
|
$
|
221,622
|
|
Other investment securities
|
|
|
12,216
|
|
|
|
24,621
|
|
Investments accounted for under the equity method
|
|
|
85,642
|
|
|
|
19,040
|
|
Deferred income taxes (Note Q)
|
|
|
90,947
|
|
|
|
25,731
|
|
Computer software, net of accumulated amortization of $67,268 in
2008 and $62,039 in 2007
|
|
|
47,091
|
|
|
|
52,830
|
|
Pension asset (Note N)
|
|
|
|
|
|
|
27,441
|
|
Deferred debt issuance costs
|
|
|
11,130
|
|
|
|
11,952
|
|
Other
|
|
|
58,432
|
|
|
|
53,029
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
458,111
|
|
|
$
|
436,266
|
|
|
|
|
|
|
|
|
|
|
Investment securities held for deferred compensation plans
consist of mutual funds and life insurance contracts, which are
considered trading securities recorded at fair value. See the
discussion of Deferred Compensation Plans at Note N.
Other investment securities include common stock of a supplier
to our former intimate apparel business and life insurance
contracts held in an irrevocable trust to partially fund
liabilities under the supplemental defined benefit pension plan
(Note N). The common stock and the life insurance contracts
are considered to be available-for-sale securities and,
accordingly, are recorded at fair value.
Investments accounted for under the equity method at the end of
2007 included a 50% investment in Lee Spain. In July 2008, VF
acquired the remaining equity in Lee Spain, and accordingly Lee
Spain is a consolidated subsidiary after that date. At the end
of 2008, the primary investment accounted for under the equity
method was a one-third interest in Mo Industries. See
Note B.
VF is the beneficiary of the insurance policies discussed above.
Policy loans against the cash value of these policies are not
significant.
Note J
Short-term Borrowings
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
In thousands
|
|
|
International bank credit agreement
|
|
$
|
|
|
|
$
|
92,711
|
|
International bank borrowings
|
|
|
53,580
|
|
|
|
38,834
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
53,580
|
|
|
$
|
131,545
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings had a weighted average interest rate of
15.0% at the end of 2008 and 6.4% at the end of 2007.
VF has a $1.0 billion senior domestic unsecured committed
revolving bank credit agreement that supports issuance of up to
$1.0 billion in commercial paper, with any unused portion
available for general corporate purposes. This agreement expires
in October 2012 and can be extended by VF in October 2009 for
one additional year, with approval of the lenders. The agreement
requires VF to pay a facility fee of 0.06% per year and contains
a financial covenant requiring VFs ratio of consolidated
indebtedness to consolidated capitalization to remain below 60%.
The agreement contains other covenants and events of default,
including limitations on liens, subsidiary indebtedness, sales
of assets, and a cross-acceleration event of default if more
than $100.0 million of other debt is in default and has
been accelerated by the lenders. If VF fails in the performance
of any covenant under this agreement,
F-21
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
the banks may terminate their obligation to lend, and any bank
borrowings outstanding under this agreement may become due and
payable. At the end of 2008, VF was in compliance with all
covenants, and the entire amount of the credit agreement was
available for borrowing, except for $11.6 million related
to standby letters of credit issued under the agreement on
behalf of VF.
In addition, certain international subsidiaries, with VF
Corporation as guarantor, have a 250.0 million
(U.S. dollar equivalent of $347.2 million at December
2008) senior international unsecured committed revolving
bank credit agreement. The agreement, which expires in October
2012, can be extended by VF in October 2009 for one additional
year, with approval of the lenders. The agreement has a 0.06%
facility fee. The terms and conditions of the international bank
credit agreement are substantially the same as those of
VFs $1.0 billion domestic credit agreement. At the
end of 2008, VF was in compliance with all covenants, and the
entire amount of the credit agreement was available for
borrowing.
Note K
Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
In thousands
|
|
|
Compensation
|
|
$
|
133,620
|
|
|
$
|
135,621
|
|
Deferred compensation (Note N)
|
|
|
22,300
|
|
|
|
24,200
|
|
Income taxes (Note Q)
|
|
|
17,574
|
|
|
|
9,731
|
|
Deferred income taxes (Note Q)
|
|
|
6,221
|
|
|
|
7,431
|
|
Other taxes
|
|
|
70,173
|
|
|
|
57,185
|
|
Unrealized losses on hedging contracts
|
|
|
26,025
|
|
|
|
13,027
|
|
Advertising
|
|
|
25,127
|
|
|
|
26,685
|
|
Customer discounts and allowances
|
|
|
20,296
|
|
|
|
18,091
|
|
Interest
|
|
|
15,030
|
|
|
|
16,774
|
|
Insurance
|
|
|
13,308
|
|
|
|
12,123
|
|
Product warranty claims (Note M)
|
|
|
11,376
|
|
|
|
10,791
|
|
Pension liability (Note N)
|
|
|
9,400
|
|
|
|
3,152
|
|
Contingent consideration (Note B)
|
|
|
9,300
|
|
|
|
1,500
|
|
Other
|
|
|
140,149
|
|
|
|
152,849
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
519,899
|
|
|
$
|
489,160
|
|
|
|
|
|
|
|
|
|
|
In the fourth quarter of 2008, management took a number of
actions to realign VFs cost structure to protect future
profitability and to address the uncertainty posed by the
economic crisis and recession that began in 2008. Costs totaling
$41.0 million relating to these actions were charged to
expense as follows: $5.0 million to Cost of Goods Sold and
$36.0 million to Marketing, Administrative and General. Of
the total, $35.1 million related to severance and benefits,
and $5.9 million related to asset write-downs and lease
exit costs. There was $40.1 million remaining to be paid at
the end of December 2008, primarily in Compensation above, and
substantially all amounts will be paid in cash during 2009.
F-22
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Note L
Long-term Debt
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
In thousands
|
|
|
8.50% notes, due 2010
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
5.95% notes, due 2017
|
|
|
250,000
|
|
|
|
250,000
|
|
6.00% notes, due 2033
|
|
|
292,679
|
|
|
|
292,556
|
|
6.45% notes, due 2037
|
|
|
350,000
|
|
|
|
350,000
|
|
Capital leases and other
|
|
|
52,189
|
|
|
|
56,057
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
1,144,868
|
|
|
|
1,148,613
|
|
Less current portion
|
|
|
3,322
|
|
|
|
3,803
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, due beyond one year
|
|
$
|
1,141,546
|
|
|
$
|
1,144,810
|
|
|
|
|
|
|
|
|
|
|
All notes, along with any amounts outstanding under the domestic
bank credit agreement and the international bank credit
agreement (Note J), rank equally as senior obligations of
VF. All notes contain customary covenants and events of default,
including limitations on liens and sale-leaseback transactions
and a cross-acceleration event of default. The
cross-acceleration provision of the 2010 and 2033 notes is
triggered if more than $50.0 million of other debt is in
default and has been accelerated by the lenders. For the 2017
and 2037 notes, the cross-acceleration trigger is
$100.0 million. If VF fails in the performance of any
covenant under the indenture that governs the respective notes,
the trustee or lenders may declare the principal due and payable
immediately. At the end of 2008, VF was in compliance with all
covenants. Existing long-term debt agreements do not contain
acceleration of maturity clauses based solely on changes in
credit ratings. However, for the 2017 and 2037 notes, if there
were a change in control of VF and, as a result of the change in
control, those notes were rated below investment grade by
recognized rating agencies, then VF would be obligated to
repurchase those notes at 101% of the aggregate principal amount
of notes repurchased, plus any accrued and unpaid interest. VF
may redeem the notes, in whole or in part, at a price equal to
(i) 100% of the principal amount, plus accrued interest to
the redemption date, and (ii) a premium for any excess of
the U.S. Treasury rate over the stated rate for the notes,
plus an additional 20 basis points for the 2017 notes and
25 basis points for the 2037 notes.
The 6.00% notes, having a principal balance of
$300.0 million, are recorded net of unamortized original
issue discount. Interest Expense on these notes is recorded at
an effective annual interest rate of 6.19%, including
amortization of the original issue discount, deferred gain on an
interest rate hedging contract (Note U) and debt
issuance costs.
Capital leases and other included capital lease obligations of
$40.0 million at the end of 2008 and $43.3 million at
the end of 2007 at an effective interest rate of 5.1%.
F-23
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
The scheduled payments of long-term debt and future minimum
lease payments for capital leases at the end of 2008 are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Notes and
|
|
|
Capital
|
|
|
|
Other
|
|
|
Leases
|
|
|
|
In thousands
|
|
|
2009
|
|
$
|
646
|
|
|
$
|
4,659
|
|
2010
|
|
|
200,655
|
|
|
|
4,348
|
|
2011
|
|
|
165
|
|
|
|
4,320
|
|
2012
|
|
|
174
|
|
|
|
4,147
|
|
2013
|
|
|
187
|
|
|
|
4,159
|
|
Thereafter
|
|
|
910,342
|
|
|
|
32,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,112,169
|
|
|
|
54,118
|
|
Less debt discount included above
|
|
|
7,321
|
|
|
|
|
|
Less amounts representing interest
|
|
|
|
|
|
|
14,098
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
1,104,848
|
|
|
|
40,020
|
|
Less current portion
|
|
|
646
|
|
|
|
2,676
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, due beyond one year
|
|
$
|
1,104,202
|
|
|
$
|
37,344
|
|
|
|
|
|
|
|
|
|
|
Note M
Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
In thousands
|
|
|
Deferred compensation (Note N)
|
|
$
|
156,538
|
|
|
$
|
229,410
|
|
Pension liability (Note N)
|
|
|
405,517
|
|
|
|
74,357
|
|
Income taxes (Note Q)
|
|
|
47,773
|
|
|
|
79,025
|
|
Deferred income taxes (Note Q)
|
|
|
9,434
|
|
|
|
96,446
|
|
Deferred rent credits
|
|
|
42,057
|
|
|
|
36,144
|
|
Product warranty claims
|
|
|
28,693
|
|
|
|
27,908
|
|
Deferred credit Majestic earnout (Note B)
|
|
|
5,250
|
|
|
|
8,500
|
|
Minority interest in partially owned subsidiaries
|
|
|
1,353
|
|
|
|
1,726
|
|
Other
|
|
|
27,633
|
|
|
|
37,143
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
724,248
|
|
|
$
|
590,659
|
|
|
|
|
|
|
|
|
|
|
Activity relating to accrued product warranty claims is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands
|
|
|
Balance, beginning of year
|
|
$
|
38,699
|
|
|
$
|
32,615
|
|
|
$
|
31,738
|
|
Acquired businesses
|
|
|
|
|
|
|
1,664
|
|
|
|
|
|
Accrual for products sold during the year
|
|
|
12,795
|
|
|
|
10,367
|
|
|
|
7,943
|
|
Repair or replacement costs incurred
|
|
|
(10,341
|
)
|
|
|
(7,862
|
)
|
|
|
(8,350
|
)
|
Currency translation
|
|
|
(1,084
|
)
|
|
|
1,915
|
|
|
|
1,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
40,069
|
|
|
|
38,699
|
|
|
|
32,615
|
|
Less current portion (Note K)
|
|
|
11,376
|
|
|
|
10,791
|
|
|
|
8,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
28,693
|
|
|
$
|
27,908
|
|
|
$
|
23,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
Note N
Retirement and Savings Benefit Plans
VF has several retirement and savings benefit plans covering
eligible employees. VF retains the right to amend any aspect of
the plans, or to curtail or discontinue any of the plans,
subject to local regulations.
Defined Benefit Pension Plans: VF sponsors a
noncontributory qualified defined benefit pension plan covering
most full-time domestic employees initially employed before
2005. For employees covered by this plan, VF also sponsors an
unfunded supplemental defined benefit pension plan that provides
benefits that exceed limitations imposed by income tax
regulations. These defined benefit plans provide pension
benefits based on compensation levels and years of service. The
effect of these pension plans on income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Dollars in thousands
|
|
|
Service cost benefits earned during the year
|
|
$
|
16,473
|
|
|
$
|
21,701
|
|
|
$
|
22,027
|
|
Interest cost on projected benefit obligations
|
|
|
69,043
|
|
|
|
67,653
|
|
|
|
66,301
|
|
Expected return on plan assets
|
|
|
(83,360
|
)
|
|
|
(82,611
|
)
|
|
|
(72,751
|
)
|
Settlement and curtailment charges
|
|
|
4,383
|
|
|
|
|
|
|
|
5,612
|
|
Amortization of deferred amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
|
1,562
|
|
|
|
5,296
|
|
|
|
27,421
|
|
Prior service cost
|
|
|
2,691
|
|
|
|
2,691
|
|
|
|
3,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension expense
|
|
|
10,792
|
|
|
|
14,730
|
|
|
|
52,090
|
|
Amount allocable to discontinued operations
|
|
|
|
|
|
|
1,651
|
|
|
|
14,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense continuing operations
|
|
$
|
10,792
|
|
|
$
|
13,079
|
|
|
$
|
37,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine pension expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.40
|
%
|
|
|
5.95
|
%
|
|
|
5.75
|
%
|
Expected long-term return on plan assets
|
|
|
8.00
|
%
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
Rate of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
3.75
|
%
|
VF incurred a $4.4 million settlement change in 2008
related to the recognition of deferred actuarial losses
resulting from payments of a portion of the retirement benefits
accrued under VFs supplemental defined benefit plan. In
2006, VF incurred a $5.6 million partial plan curtailment
charge related to the sale of the intimate apparel business
(Note C).
F-25
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
The following provides a reconciliation of the changes in fair
value of the pension plans assets and projected benefit
obligations, and the plans funded status, at the end of
each year: