e10vk
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 2,
2010
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 whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). YES þ NO
o
Indicate by check mark 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. þ
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 July 4, 2009, the
last day of the registrants second fiscal quarter, was
approximately $4,439,000,000, based on the closing price of the
shares on the New York Stock Exchange.
As of January 30, 2010, there were 110,589,533 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 27, 2010
(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 105 pages.
The exhibit index begins on page 54.
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. In
recent years, 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 growing lifestyle brands, such as
Vans®,
Reef®,
Kipling®,
Napapijri®,
7 For All
Mankind®,
Splendid®
and Ella
Moss®.
At the same time, we have continued to invest in our other
businesses through product line extensions, geographic expansion
particularly in Asia, new retail store openings, product
innovation, consumer research and other marketing initiatives.
In addition, an important step in VFs transformation was
the sale in 2007 of our womens imtimate apparel business,
which had over $800 million in revenues but lower profit
and growth prospects.
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 17%, 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. We utilize
state-of-the-art
technologies for inventory replenishment 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 & Action Sports,
Jeanswear, Imagewear, Sportswear and Contemporary Brands. These
coalitions are our 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 & Action Sports, Sportswear
and Contemporary Brands coalitions to be our lifestyle
coalitions, with the potential to achieve higher long-term
revenue and profit growth than our other businesses. Our
Jeanswear and Imagewear coalitions are our heritage businesses
where our focus is on maintaining our historically strong levels
of profitability and cash flows but with lower revenue growth.
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 & 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, luggage, backpacks, 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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mens fashion sportswear, denim bottoms, sleepwear,
accessories
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Kipling®
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handbags, luggage, backpacks, 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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John
Varvatos®
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luxury mens apparel, footwear, accessories
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Splendid®
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premium womens sportswear
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Ella
Moss®
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premium womens 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, are included in Note R to the
Consolidated Financial Statements, which are included at
Item 8 of this report.
Outdoor &
Action Sports Coalition
Our Outdoor & 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 & Action Sports Coalition
brand. Its high performance outdoor apparel, equipment and
footwear are 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
3
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
Asia and select department stores in the United States. In
addition, these products are sold through over 50 VF-operated
full price retail and outlet stores in the United States and
Europe and online at www.thenorthface.com. The brand is also
sold through over 250 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, Canada, Europe and Asia. The brands products are
also sold through over 200 owned
Vans®
full-price retail and outlet stores primarily in the western
United States 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.
The
Vans®
brand has been recognized as part of The
Facebook®
50, a ranking of brands developed by Slate
magazines The Big Money website that are making
the best use of the social networking site,
Facebook®.
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. Eagle
Creek®
adventure travel gear 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, the
Napapijri®
brand offers premium-priced 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. The
Napapijri®
brand is marketed through a majority-owned joint venture 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 and department stores in Europe, Asia and
South America, as well as through over 30 VF-operated and over
175 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,
swimwear and other casual apparel and accessories for men, women
and children. Products are marketed primarily to surf shops,
sporting goods and specialty chains, and department stores in
the United States, Canada, Europe and Asia. In recent years, we
have expanded the
Reef®
brands presence by acquiring rights previously held by
independent distributors to market
Reef®
products in Europe and Canada.
We expect continued long-term growth in our Outdoor &
Action Sports Coalition as we extend our brands into new product
categories, open additional retail stores, expand geographically
and acquire additional outdoor or activity-based lifestyle
brands. Also, beginning in 2010, responsibility for the
lucy®
brand has been moved to this Coalition. Specifically, management
of the The North
Face®
and
lucy®
business units will work closely together to better leverage
VFs activity-based product development and retail
operations experience.
4
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 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. Based on available data, we believe our key brands have
been gaining market share despite significant competitive
activity. 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.
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 that
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 brands marketed in a
specific country or region.
VFs largest international jeanswear business is located in
Western Europe.
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, which are
an 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 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 mostly
monobrand retail stores, primarily in Eastern Europe and Asia.
In the United States, we believe our Jeanswear Coalition is
growing 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 expansion
of our existing business in Asia where we have averaged in
excess of 25% growth per year over the last three years.
Imagewear
Coalition
Our Imagewear Coalition consists of the Image division
(occupational apparel and uniforms) and the Licensed Sports
division (owned and licensed high profile sports and lifestyle
apparel). Each division represents approximately one-half of
Coalition revenues.
The Image division provides uniforms and career occupational
apparel for workers 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 primarily for the
petrochemical, utility and mining industries), the The
Force®
brand (apparel for law enforcement and public safety personnel)
and the Chef
Designstm
brand (apparel for restaurant and food service staff). Products
include work pants, slacks, work shirts, overalls, jackets and
smocks. Image division revenues are significantly affected by
the overall level of U.S. industrial and service
employment, which has been declining for the last two years.
Approximately two-thirds
5
of Image division sales are to industrial laundries, resellers
and distributors that in turn supply customized workwear to
employers for
on-the-job
wear by production, service and white-collar personnel. Since
industrial laundries and uniform distributors maintain minimal
inventories of work clothes, VFs 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, enables customer orders to be
filled within 24 to 48 hours of receipt and has helped the
Red
Kap®
and
Bulwark®
brands obtain a significant share of uniform apparel sold to
laundries, resellers and other distributors.
The Image division also develops and manages uniform programs
through custom-designed websites for major business customers
(e.g., FedEx Corporation, AT&T, Air Canada, Continental
Airlines and American Airlines) and governmental organizations
(e.g., U.S. Customs and Border Protection, Fire Department
of New York City, Transportation Security Administration,
National Park Service 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.
This division is the nations largest supplier of
nonmilitary apparel to the U.S. government.
In the Licensed Sports 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, MLB Players Association, 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 sporting goods and athletic specialty
stores, department stores and major league stadiums. 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 Licensed
Sports 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) extension of its product and service
capabilities into new industrial and service apparel markets,
(ii) growth of its
Majestic®
brand for Major League Baseball and growth of our National
Football League business through rights for additional apparel
categories and new channels of distribution, (iii) market
share gains in key licensed categories and (iv) extension
of VFs floor space management and replenishment
capabilities to more retail doors, placing product-right
assortments on the sales floor in each geographic market.
Sportswear
Coalition
The
Nautica®
brand is the principal lifestyle brand of the Sportswear
Coalition.
Nautica®
mens sportswear, noted for its classic styling, is
marketed through department stores and VF-operated outlet stores
in better outlet centers. The Nautica Jeans
Company®
line features fashionable jeanswear and related tops for younger
male consumers. We believe the
Nautica®
brand is the number two mens sportswear collection brand
in department stores. This retail channel has undergone
significant consolidation in the last few years, resulting in
numerous store closings, which has negatively impacted sales of
Nautica®
brand products. Other
Nautica®
product lines include mens outerwear, underwear and
swimwear and mens and womens sleepwear.
Nautica®
womens sportswear is marketed in the United States at most
Nautica®
outlet stores and at www.nautica.com.
The Sportswear Coalition operates over 100
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 150
Nautica®
brand retail stores across the world.
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,
childrens clothing, and 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. Our licensees wholesale sales of
Nautica®
licensed products total approximately $400 million annually.
6
The Sportswear Coalition also includes the
Kipling®
business in North America. Products include
Kipling®
brand handbags, luggage, backpacks, totes and accessories.
Beginning in 2010,
Kipling®
handbags and accessories in the department store channel in the
United States will be sold exclusively through Macys
department stores. In addition, all product categories are sold
in the United States through specialty luggage and bag stores,
VF-operated retail stores and www.kipling.com and in Canada
through specialty and department stores. About two-thirds of
products sold in the United States are the same as those sold in
Europe and other parts of the world, with the remainder designed
for the U.S. market only.
We believe there is potential to improve
Nautica®
brand revenue and profit performance through more accessible
price points, store growth in existing
Nautica®
retail outlet stores, growth in our online business and
expansion of the licensed business internationally, particularly
in Asia. There is also potential for expansion of our
Kipling®
brand through our handbags and accessories relationship with
Macys, Inc.
Contemporary
Brands Coalition
Our Contemporary Brands Coalition is focused on premium-priced
lifestyle brands. Formed in August 2007, the coalition was
originally composed of the 7 For All
Mankind®
and
lucy®
brands. During 2009, the Coalition was expanded to include the
John
Varvatos®
brand (previously part of the Sportswear Coalition), which
shares many product, customer and supply chain characteristics
of the other Contemporary Brands businesses, and the
Splendid®
and Ella
Moss®
brands, which were acquired during the year.
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 $150 - $199 for basics, with higher price points for
more fashion-forward products. In December 2009, Advertising
Age magazine selected the 7 For All
Mankind®
brand as one of its top ten new products of the decade,
recognizing the brand for introducing premium denim to the
American market and changing the way that consumers shop for
jeans. With over two-thirds of its sales in the United States,
the brand is marketed through premium department stores, such as
Bloomingdales, Macys, Neiman Marcus, Nordstrom and
Saks, and through specialty stores. In addition, we opened 13
retail stores in the United States during 2009, bringing the
total to 28 stores in the United States. Internationally, sales
are through department stores, such as Harrods, and specialty
stores, plus several VF-operated retail stores. We are pursuing
growth opportunities in several areas additional
direct-to-consumer
expansion through company-operated and partnership retail
stores,
e-commerce,
additional sportswear product offerings, further geographic
expansion in Europe and Asia, and licensing.
The John
Varvatos®
brand is a luxury apparel and accessories collection for men,
including tailored clothing, sportswear, footwear and
accessories. The John Varvatos *
USA®
line of tailored clothing, sportswear, footwear and accessories
is designed to appeal to a younger consumer at somewhat more
accessible price points. Products are sold through upscale
department and specialty stores, primarily in the United States,
several VF-operated John
Varvatos®
retail locations and online at www.johnvarvatos.com. This
business is 80% owned by VF, with the balance owned by
Mr. John Varvatos.
In March 2009, VF completed the acquisition of Mo Industries
Holdings, Inc., owner of the
Splendid®
and Ella
Moss®
brands of womens premium sportswear. These brands are
marketed to upscale department and specialty stores primarily in
the United States. VF had acquired one-third of the outstanding
equity of Mo Industries in June 2008. The first
Splendid®
retail store was opened in 2009. A limited number of
Splendid®
and Ella
Moss®
stores are planned for 2010, along with several new
shop-in-shops
in major retail accounts.
The
lucy®
brand of womens lifestyle apparel is marketed through
approximately 60
lucy®
branded retail stores across the United States and via the
internet at www.lucy.com.
lucy®
is an authentic activewear brand designed for versatility,
comfort and fit that can be worn by todays active woman
from workout to weekend. The
lucy®
retail stores emphasize the brands four core types of
activity-based apparel yoga, gym, running and
outdoor adventure. Over 90% of the products in the
lucy®
retail stores are
lucy®
branded, with most of the balance being complementary VF brands,
including a limited selection of The North
Face®
apparel. Beginning in 2010, the
lucy®
7
business unit will become part of the Outdoor & Action
Sports Coalition. The
lucy®
brand shares attributes of our outdoor brands and will benefit
from shared expertise in technical performance fabrics and
product innovation.
During 2009, premium apparel sales were severely impacted by the
recession, with many consumers significantly reducing spending
for luxury goods, which has led to sharply lower same store
sales comparisons in the upscale department store channel and
the closing of a significant number of specialty shops. In 2010,
we expect to see our Contemporary Brands businesses grow their
revenues through additional retail and international expansion
and product line extensions.
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 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 sold through our
wholesale customers. VF-operated full price 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 757 stores at the
end of 2009. Of that total, there are 681 monobrand stores
(i.e., primarily one brands products offered in each
store) that sell The North
Face®,
Vans®,
Nautica®,
7 For All
Mankind®,
lucy®,
Lee®,
Wrangler®
and other products. Approximately three-fourths of these stores
offer products at full price, with the remainder being outlet
locations offering excess, discontinued and
out-of-season
products at discounted prices. In addition to the monobrand
retail and outlet stores, we operate 76 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, childrenswear, other apparel and accessories.
Approximately three-fourths of the VF-operated retail stores are
located in the United States. The remaining stores are located
in Europe, Latin America and Asia.
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 North
Face®,
Vans®,
Lee®,
7 For All
Mankind®,
lucy®,
Nautica®,
Kipling®
and other brands online in the United States, plus The North
Face®
and other brands across Europe. Additional
e-commerce
sites will be rolled out for consumers in 2010.
Total retail store and
e-commerce
sales accounted for 17% of VFs consolidated Total Revenues
in 2009 and 16% in 2008. 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 and
expanding our
e-commerce
presence for our lifestyle brands. During 2009, we opened 90
retail stores. For 2010, capital investments of approximately
$60 million are planned for leasehold improvements,
fixtures and equipment for approximately
80-90 new
retail locations, concentrated where we see higher growth
potential
Vans®,
The North
Face®,
7 For All
Mankind®
and international.
In addition to the
direct-to-consumer
venues operated by VF, our licensees, distributors and other
independent parties operate over 1,300 primarily monobrand
retail stores dedicated to our brands. These stores
located primarily in Eastern Europe and Asia and focused on
The North
Face®,
Kipling®,
Nautica®,
Lee®
and
Wrangler®
brands have the appearance of VF-operated retail
stores.
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
8
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 $77.2 million in 2009,
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 licensed products.
VF has also entered into license agreements to use trademarks
owned by third parties. 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, major colleges, and
individual athletes and related organizations, 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 in either our global supply chain organization
or our branded business units across the globe.
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 over 400 million units representing
500,000 SKUs spread over 30 brands. VF operates over 30
manufacturing facilities and utilizes over 1,600 contractor
manufacturing facilities. We operate over 30 distribution
centers and over 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, 16% of our products sold are manufactured in VF-owned
facilities and 84% are products obtained from contractors,
primarily in Asia. 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.
We operate manufacturing facilities (primarily cutting, sewing
and finishing) located in Mexico, Central America, Poland and
the Middle East. A significant percentage of our denim bottoms
and occupational apparel are manufactured in these plants. For
these owned production facilities, 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.
Manufacturing in the United States is primarily limited to
screen printing and embroidery of jerseys, T-shirts and fleece
products, including Major League Baseball uniforms and other
products. 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 is a
commitment in connection with the sale of our childrenswear
business in 2004 to purchase a remaining total of
$67.5 million of childrenswear for sale through our VF
Outlet stores, with a minimum of $15.0 million per year. No
single supplier represents more than 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.
Products manufactured in VF facilities generally have a lower
cost and shorter lead times than contracted production. Product
obtained from contractors in the Western Hemisphere generally
has a higher cost than product obtained from contractors in the
Far East but gives
9
us greater flexibility and shorter lead times and allows for
lower inventory levels. The vast majority of units sold and
dollar value of domestic Net Sales in 2009 were manufactured by
outside 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.
Our independent contractors generally own the raw materials and
ship to VF only finished,
ready-for-sale
products. 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 & 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 contract the majority of sewing and finishing of
VF-owned raw materials through a network of independent domestic
and international contractors.
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. VF does not directly or indirectly source
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.
All VF-owned production facilities throughout the world, as well
as all independent contractor facilities that manufacture
VF-branded products, must comply with VFs Global
Compliance Principles. These principles, established in 1997 and
consistent with international labor standards, are a set of
strict standards covering legal and ethical business practices,
workers ages, work hours, health and safety conditions,
environment sustainability or standards, compliance with local
laws and reputations. In addition, our owned factories must also
undergo certification by the independent, nonprofit organization
Worldwide Responsible Accredited Production (WRAP)
that promotes global ethics in manufacturing. VF, through its
contractor monitoring program, audits 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, including those serving our
independent licensees, must be precertified prior to performance
of any production on behalf of VF. This precertification
includes passing a factory inspection and signing a VF Terms of
Engagement agreement. We maintain an ongoing audit program to
ensure compliance with these requirements by using dedicated
internal and outsourced staff. Additional information about
VFs Code of Business Conduct, Global Compliance
Principles, Terms of Engagement, Factory Compliance Guidelines,
Factory Audit Procedure and Environmental Compliance Guidelines,
along with a Global Compliance Report, is available on the VF
website at www.vfc.com.
VF did not experience difficulty in filling its raw material and
contracting production needs during 2009, and we do not
anticipate difficulties in meeting our raw materials and
contracting production requirements during 2010. 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, and some support multiple brands. Our distribution centers
use computer-controlled inventory management technology for
efficient tracking and movement of products. A small portion of
our distribution needs are met by contract distribution centers.
Seasonality
With its diversified product offerings, VFs operating
results are somewhat seasonal. On a quarterly basis and
excluding the effect of acquisitions, consolidated Total
Revenues for 2009 ranged from a low of approximately 21% of full
year revenues in the second quarter to a high of 29% in the
third quarter. This variation results primarily from the
seasonal influences on revenues of our Outdoor &
Action Sports Coalition, where 19% of the Coalition revenues
10
occurred in the second quarter and 33% in the third quarter of
2009. With changes in our mix of business and 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
During 2009, our advertising and promotion spending was
$329.1 million, representing 4.6% of Net Sales. 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. We employ
marketing sciences to optimize the impact of advertising and
promotional spending and to identify the types of spending that
provide the greatest return on our marketing investments.
We provide
point-of-sale
fixtures and signage to our wholesale customers to enhance the
presentation and brand image of our products. This includes
shop-in-shops,
which are separate retail sales areas with brand
signage a store within a
store dedicated to a specific VF brand within
a customers location. We participate in concession
arrangements with department store customers in China and some
other international markets. In a typical concession, a
department store provides a dedicated sales area, along with
check-out, credit and other services, while VF bears the risk of
inventory ownership. Concession sales associates may be
employees of VF or the department store.
We participate in various retail customer incentive programs.
Incentive programs with retailers include discounts, allowances
and cooperative advertising 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
documented retailer advertising costs are reported as
Advertising Expense, and free product with purchase offers are
reported in Cost of Goods Sold).
Internet websites are maintained for most of our brands. Many of
them are
business-to-consumer
e-commerce
sites where consumers can order products from VF. Other consumer
websites provide information about our brands and products and
may 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 Outdoor & Action Sports, Jeanswear, 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 ensure that our products,
and those of our licensees, are properly presented on the
merchandise sales floor and to inform the customers sales
force about our products and related promotions.
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.
11
Trademarks
Trademarks, patents and domain names, as well as 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 17% are
direct-to-consumer
through VF-operated retail stores and
e-commerce
sites (which includes stores and internet sites in international
markets).
Sales to VFs ten largest customers, all of which are
retailers based in the United States, amounted to 27% of Total
Revenues in 2009, 26% in 2008 and 27% in 2007. 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 2009 and 2008 and 22% in
2007. Sales to VFs largest customer, Wal-Mart Stores,
Inc., totaled 11% of Total Revenues in 2009 and 2008 and 12% in
2007, substantially all of which were in the Jeanswear Coalition.
Employees
VF employed approximately 45,700 men and women at the end of
2009, of which approximately 19,600 were located in the United
States. Approximately 800 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.
12
Executive
Officers of VF
The following are the executive officers of VF Corporation as of
February 20, 2010. 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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54
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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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58
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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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54
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October 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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62
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March 1996 to date
October 1997 to date
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Michael T. Gannaway
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Vice President VF Direct/ Customer Teams
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58
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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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65
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April 1994 to date
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Boyd A. Rogers
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Vice President; President Supply Chain
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60
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June 2005 to date
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Karl Heinz Salzburger
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Vice President; President VF International
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52
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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 27, 2010 (2010 Proxy Statement) that will
be filed with the Securities and Exchange Commission within
120 days after the close of our fiscal year ended
January 2, 2010, 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 was elected Vice
President Finance and Chief Financial Officer in
1998 and Senior Vice President and Chief Financial Officer in
June 2005.
Mr. Batten rejoined VF in September 2004 and was
named Vice President Controller in October 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.
13
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 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 2010 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 7, 2009.
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.
VFs
revenues and profits depend on the level of consumer spending
for apparel, which is sensitive to general economic
conditions.
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, availability of
credit, housing costs, the level of securities markets, energy
prices and tax rates in the international, national, regional
and local markets where VFs products are sold. Consumer
spending was constrained during 2009, and a further decline in
general economic conditions could further reduce the level of
consumer spending.
We do
not expect a significant improvement in business conditions and
consumer spending in the near future. The effects of a return to
recessionary conditions could have a material adverse effect on
VF.
The global recession with rising unemployment,
reduced availability of credit, increased savings rates and
declines in real estate and securities values had 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 to suppliers like
VF, or order cancellations. 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
14
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
e-commerce
websites. It is possible that reduced consumer confidence, along
with a reduction in availability of consumer credit and
increasing unemployment, could 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.
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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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
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 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:
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|
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An increase or decrease in consumer demand for VFs
products or for products of its competitors;
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|
Our failure to accurately forecast customer acceptance of new
products;
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|
New product introductions by competitors;
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|
|
Unanticipated changes in general market conditions or other
factors, which may result in cancellations of orders or a
reduction or increase in the rate of reorders placed by
retailers;
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|
|
Weak economic conditions or consumer confidence, which could
reduce demand for discretionary items such as VFs
products; and
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|
|
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. On the
other hand, if we underestimate demand for our products, our
manufacturing facilities or third
15
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
levels to exactly meet future order and reorder requirements.
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 27%
of Total Revenues in fiscal 2009, 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
exposure or increased retailer leverage over their suppliers.
These changes could impact VFs opportunities in the market
and increase VFs reliance on a smaller number of large
customers.
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 and
finished goods 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,
or of purchased finished goods, 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 higher costs on to its
customers.
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 by building new
growing lifestyle brands, expanding our share with winning
customers, stretching VFs brands and customers to new
geographies, leveraging our supply chain and information
technology capabilities across VF, expanding our
direct-to-consumer
business and identifying and developing high potential
employees. We may not be able to grow our existing businesses or
achieve planned cost savings. 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.
16
VFs
operations in international markets, and earnings in those
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
existing and 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, exchange
controls or other 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. We cannot predict whether
there might be changes in our ability to repatriate earnings or
capital from international jurisdictions. Changes in regulatory,
geopolitical policies and other factors may adversely affect
VFs business or may require us to modify our current
business practices.
Approximately one-third of VFs income is earned in
international jurisdictions. VF is exposed to risks of changes
in U.S. policy for companies having business operations
outside the United States. In recent months, the President and
others in his Administration have proposed changes in
U.S. income tax laws that could, among other things,
accelerate the U.S. taxability of
non-U.S. earnings
or limit foreign tax credits. Although such proposals have been
deferred, if new legislation were enacted, it is possible our
U.S. income tax expense could increase, which would reduce
our earnings.
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 2009, approximately 84% of VFs products sold
were produced by and purchased from independent manufacturers
primarily located in Asia, with substantially all of the
remainder produced by VF-owned and operated manufacturing
facilities located in Mexico, Central America, Poland and the
Middle East. 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:
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Political or labor instability in countries where VFs
facilities, contractors and suppliers are located;
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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;
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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;
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Disease epidemics and health-related concerns, such as the H1N1
virus, bird flu, SARS, 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;
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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;
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Imposition of duties, taxes and other charges on
imports; and
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Imposition or the repeal of laws that affect intellectual
property rights.
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17
Our
business is subject to national, state and local laws and
regulations for environmental, employment, safety and other
matters. The costs of compliance with, or the violation of, such
laws and regulations by VF or by independent suppliers who
manufacture products for VF could have an adverse effect on our
operations and cash flows.
Numerous governmental agencies enforce comprehensive federal,
state and local laws and regulations on a wide range of
environmental, employment, safety and other matters. VF could be
adversely affected by costs of compliance or violations of those
laws and regulations. In addition, the costs of products
purchased by VF from independent contractors could increase due
to the costs of compliance by those contractors. Further,
violations of such laws and regulations could affect the
availability of inventory, thereby affecting our net sales.
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
business is exposed to the risks of foreign currency exchange
rate fluctuations. VFs hedging strategies may not be
effective in mitigating those risks.
Approximately 30% of VFs Total Revenues is derived from
international markets. VFs foreign businesses operate in
functional currencies other than the U.S. dollar. Changes
in currency exchange rates may affect the U.S. dollar value
of the foreign currency-denominated amounts at which VFs
international businesses purchase products, incur costs or sell
products. In addition, for VFs
U.S.-based
businesses, the majority of products are sourced from
independent contractors or VF plants located in foreign
countries. As a result, the cost of these products may be
affected by changes in the value of the relevant currencies.
Furthermore, much of VFs licensing revenue is derived from
sales in foreign currencies. Changes in foreign currency
exchange rates could have an adverse impact on VFs
financial condition, results of operations and cash flows.
In accordance with our operating practices, we hedge a
significant portion of our foreign currency transaction
exposures arising in the ordinary course of business to reduce
risks in our cash flows and earnings. Our hedging strategy may
not be effective in reducing these risks, and no hedging
strategy can completely insulate VF from foreign exchange risk.
We do not hedge foreign currency translation rate changes.
Further, our use of derivative financial instruments may expose
VF to counterparty risks. Although VF only enters into hedging
contracts with counterparties having investment grade credit
ratings, it is possible that the credit quality of a
counterparty could be downgraded or a counterparty could default
on its obligations, which could have a material adverse impact
on VFs financial condition, results of operations and cash
flows.
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. VF may have difficulty
accessing capital markets for short or long-term
financing.
During the last two years, the global capital and credit markets
have experienced 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.
18
Although VF had over $700 million of cash and equivalents
at the end of 2009, we typically use short-term commercial paper
borrowings 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 the last two
years, and all commercial paper borrowings were repaid by the
end of each 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 reliable sources of financing for VF.
VF has
committed domestic and international bank credit facilities. 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,
however, 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.
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 in recent years, 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.
Counterfeiting of VFs products or infringement on its
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 trademarks that are
similar to VFs trademarks, or trademarks that VF licenses
from others. 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 cancellation proceedings
with respect to some of its intellectual property rights.
VF is
subject to the risk that its licensees may not maintain the
value of VFs brands.
During 2009, $77.2 million of VFs revenues were
derived from licensing royalties. Although VF generally has
significant control over its licensees products and
advertising, we rely on our licensees 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, if
necessary, could adversely affect VFs revenues, both
19
directly from reduced royalties received and indirectly from
reduced sales of our other products. Risks are also associated
with a licensees ability to:
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Obtain capital;
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Manage its labor relations;
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Maintain relationships with its suppliers;
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Manage its credit risk effectively; and
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Maintain relationships with its customers.
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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 our
licensed 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.
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 operating and
intangible assets, could have an adverse effect on VFs
operating results.
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 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.
If VF
encounters problems with its distribution system, VFs
ability to deliver its products to the market could 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, 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 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.
20
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 and could
be material.
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 and intangible assets acquired is goodwill. The
goodwill is then assigned to a business unit or reporting
unit within VF, which depends on how the acquired business
will be operated after integration into VF.
We evaluate trademark intangible assets that are not amortized
and goodwill for possible impairment at least annually. In
addition, intangible assets that are being amortized are tested
for impairment whenever events or circumstances indicate that
their carrying value might not be recoverable. For these
impairment tests, we use various valuation methodologies to
estimate the fair value of our business units and intangible
assets. If the fair value of an asset is less than its carrying
value, we would recognize an impairment charge for the
difference. During 2009, we recognized goodwill and intangible
asset impairment charges totaling $122.0 million.
At December 2009, VF had approximately $1.0 billion of
indefinite-lived trademark intangible assets and
$1.4 billion of goodwill on its balance sheet. These assets
are not required to be amortized under current accounting rules.
In addition, VF had approximately $0.5 billion of
intangible assets that are being amortized under current
accounting rules. Goodwill and intangible assets combined
represent 45% of VFs Total Assets and 76% of
Stockholders Equity.
It is possible that we could have an impairment charge for
goodwill or trademark intangible assets in future periods if
(i) overall economic conditions in 2010 or future years
vary from our current assumptions, (ii) business conditions
or our strategies for a specific business unit change from our
current assumptions, (iii) investors require higher rates
of return on equity investments in the marketplace or
(iv) enterprise values of comparable publicly traded
companies, or of actual sales transactions of comparable
companies, were to decline, resulting in lower comparable
multiples of revenues and EBITDA and, accordingly, lower implied
values of goodwill and intangible assets. Specifically regarding
our Contemporary Brands Coalition, the recession of the last two
years has particularly impacted the upper tier or premium
department and specialty store channel of distribution and, in
many cases, products sold through this premium channel. While no
impairment is indicated for any of our business units within
this coalition, if the premium channel does not improve from
recessionary levels or if the growth strategies of our business
units are not successful, it is possible that an impairment
charge would be required. A future impairment charge for
goodwill or intangible assets could have a material effect on
our consolidated financial position or results of operations.
VFs
defined benefit pension plans were underfunded at the end of
2009 due primarily to the decline in market value of the
plans investment portfolios, resulting from the global
financial and credit crisis that began near the end of 2007.
This resulted in recognition of a significant liability
representing the underfunded status of our plans and a
significant charge to Stockholders Equity in our
Consolidated Balance Sheets at the end of 2008 and 2009, as well
as a significant increase in our 2009 pension expense. If the
pension plans investments were to decline in value or if
the level of interest rates were to decline from the current
level, the pension plans could be further underfunded, resulting
in recognition of additional underfunded liabilities and
additional charges to Stockholders Equity in our
Consolidated Balance Sheets, higher pension expense and possibly
additional cash contributions to fund the plans.
VFs defined benefit pension plans were underfunded at the
end of 2009, resulting in recognition of $238.8 million of
pension liabilities at the end of 2009. Differences between
actual results and amounts estimated using actuarial assumptions
(e.g., investment returns, discount rate, mortality) are
deferred and amortized in future years pension cost.
Deferred actuarial losses included in Stockholders Equity
totaled $266.0 million. Primarily because of these deferred
actuarial losses, our pension cost increased from
$10.8 million in 2008 to $98.0 million in 2009. To
improve the funded status of our pension plans, we made over
$200 million of discretionary contributions to our plans
during 2009.
21
A further decrease in the value of our plans assets or a
decrease in the discount rate used to value the plans
liabilities to participants could result in a further decrease
in the plans funded status. In that case, VF would
recognize additional pension liabilities and additional charges
to Stockholders Equity in our Consolidated Balance Sheet
and higher pension expense in future years. Further, VF could be
required to make additional cash funding contributions to return
the pension plans to a fully funded status over the next few
years.
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Item 1B.
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Unresolved
Staff Comments.
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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. Manufacturing, distribution
and administrative facilities being utilized at the end of 2009
are summarized below by reportable segment:
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Square Footage
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Owned
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Leased
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Outdoor & Action Sports
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1,100,000
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*
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2,200,000
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Jeanswear
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6,200,000
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1,700,000
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Imagewear
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800,000
|
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1,700,000
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Sportswear
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500,000
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200,000
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Contemporary Brands
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200,000
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100,000
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Corporate and shared services
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200,000
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100,000
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|
|
|
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|
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9,000,000
|
|
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6,000,000
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* |
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Includes assets under capital lease. |
Approximately 66% 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 locations
totaling 7,100,000 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.
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Item 3.
|
Legal
Proceedings.
|
On September 22, 2009, the U.S. Environmental
Protection Agency filed a lawsuit against VF Outdoor, Inc.
alleging violations of the Federal Insecticide, Fungicide and
Rodenticide Act resulting from the alleged sale of unregistered
pesticides in shoes. The lawsuit was filed with the Regional
Hearing Clerk of the U.S. Environmental Protection Agency,
Region IX. The parties entered into an agreement to settle
the proceeding in the first quarter of 2010. 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.
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Item 4.
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Submission
of Matters to a Vote of Security Holders.
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Not applicable.
22
PART II
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Item 5.
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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 2009, 2008 and 2007, along with
dividends declared, are as follows:
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Dividends
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High
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Low
|
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Declared
|
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2009
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Fourth quarter
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$
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79.79
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$
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68.60
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$
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0.60
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Third quarter
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73.81
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53.53
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|
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0.59
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Second quarter
|
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69.72
|
|
|
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53.27
|
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|
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0.59
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First quarter
|
|
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59.98
|
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46.06
|
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|
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0.59
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 30, 2010, there were 4,526 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.
23
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, 2009. The S&P Apparel Index at the
end of 2009 consisted of Carters, Inc., Coach, Inc., Perry
Ellis International, Inc., Fossil, Inc., Hanesbrands 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, 2004, in
each of VF Common Stock, the S&P 500 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 2004 through 2009. 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, 2009 was
$73.24
TOTAL
SHAREHOLDER RETURNS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company / Index
|
|
|
Base
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2009
|
|
VF CORPORATION
|
|
|
$
|
100
|
|
|
|
$
|
101.86
|
|
|
|
$
|
155.26
|
|
|
|
$
|
133.54
|
|
|
|
$
|
110.18
|
|
|
|
$
|
152.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 INDEX
|
|
|
|
100
|
|
|
|
|
104.91
|
|
|
|
|
121.48
|
|
|
|
|
128.16
|
|
|
|
|
80.74
|
|
|
|
|
102.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P APPAREL INDEX
|
|
|
|
100
|
|
|
|
|
102.33
|
|
|
|
|
132.61
|
|
|
|
|
98.74
|
|
|
|
|
59.65
|
|
|
|
|
99.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Issuer
purchases of equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
of Shares that
|
|
|
|
Total
|
|
|
Weighed
|
|
|
Shares Purchased as
|
|
|
May Yet be
|
|
|
|
Number of
|
|
|
Average
|
|
|
Part of Publicly
|
|
|
Purchased
|
|
|
|
Shares
|
|
|
Price Paid
|
|
|
Announced Plans or
|
|
|
Under the Plan or
|
|
Fiscal Period
|
|
Purchased
|
|
|
per Share
|
|
|
Programs
|
|
|
Programs(1)
|
|
|
Oct 4 Oct 31, 2009
|
|
|
188,900
|
|
|
$
|
72.23
|
|
|
|
188,900
|
|
|
|
2,237,020
|
|
Nov 1 Nov 28, 2009
|
|
|
523,300
|
|
|
|
73.53
|
|
|
|
523,300
|
|
|
|
1,713,720
|
|
Nov 29 Jan 2, 2010
|
|
|
68,600
|
|
|
|
73.23
|
|
|
|
68,600
|
|
|
|
1,645,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
780,800
|
|
|
|
|
|
|
|
780,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the quarter, 750,000 shares of Common Stock were
purchased under open market transactions. In addition, VF
purchased 30,800 shares of Common Stock in connection with
VFs deferred compensation plans. We currently intend to
repurchase at least 3.0 million shares in 2010 and will
continue to evaluate future share purchases considering funding
required for business acquisitions, our Common Stock price and
levels of stock option exercises. |
25
|
|
Item 6.
|
Selected
Financial Data.
|
The following table sets forth selected consolidated financial
data for the five years ended January 2, 2010. This
selected financial data 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Dollars and shares in thousands, except per share amounts
|
|
|
Summary of Operations(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
7,220,286
|
|
|
$
|
7,642,600
|
|
|
$
|
7,219,359
|
|
|
$
|
6,215,794
|
|
|
$
|
5,654,155
|
|
Operating income
|
|
|
736,817
|
|
|
|
938,995
|
|
|
|
965,441
|
|
|
|
826,144
|
|
|
|
767,951
|
|
Income from continuing operations attributable to VF Corporation
|
|
|
461,271
|
|
|
|
602,748
|
|
|
|
613,246
|
|
|
|
535,051
|
|
|
|
482,629
|
|
Discontinued operations attributable to VF Corporation
|
|
|
|
|
|
|
|
|
|
|
(21,625
|
)
|
|
|
(1,535
|
)
|
|
|
35,906
|
|
Cumulative effect of a change in accounting policy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,833
|
)
|
Net income attributable to VF Corporation
|
|
|
461,271
|
|
|
|
602,748
|
|
|
|
591,621
|
|
|
|
533,516
|
|
|
|
506,702
|
|
|
|
Earnings (loss) per common share attributable to VF Corporation
common stockholders basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
4.18
|
|
|
$
|
5.52
|
|
|
$
|
5.55
|
|
|
$
|
4.83
|
|
|
$
|
4.33
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.20
|
)
|
|
|
(0.01
|
)
|
|
|
0.32
|
|
Cumulative effect of a change in accounting policy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.11
|
)
|
Net income
|
|
|
4.18
|
|
|
|
5.52
|
|
|
|
5.36
|
|
|
|
4.82
|
|
|
|
4.54
|
|
Earnings (loss) per common share attributable to VF Corporation
common stockholders diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
4.13
|
|
|
$
|
5.42
|
|
|
$
|
5.41
|
|
|
$
|
4.73
|
|
|
$
|
4.23
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.19
|
)
|
|
|
(0.01
|
)
|
|
|
0.31
|
|
Cumulative effect of a change in accounting policy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.10
|
)
|
Net income
|
|
|
4.13
|
|
|
|
5.42
|
|
|
|
5.22
|
|
|
|
4.72
|
|
|
|
4.44
|
|
Dividends per share
|
|
|
2.37
|
|
|
|
2.33
|
|
|
|
2.23
|
|
|
|
1.94
|
|
|
|
1.10
|
|
Dividend payout ratio(2)(7)
|
|
|
46.0
|
%
|
|
|
43.0
|
%
|
|
|
42.7
|
%
|
|
|
41.1
|
%
|
|
|
24.2
|
%
|
|
|
Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
1,536,773
|
|
|
$
|
1,640,828
|
|
|
$
|
1,510,742
|
|
|
$
|
1,563,162
|
|
|
$
|
1,213,233
|
|
Current ratio
|
|
|
2.4
|
|
|
|
2.6
|
|
|
|
2.3
|
|
|
|
2.5
|
|
|
|
2.1
|
|
Total assets
|
|
$
|
6,470,657
|
|
|
$
|
6,433,868
|
|
|
$
|
6,446,685
|
|
|
$
|
5,465,693
|
|
|
$
|
5,171,071
|
|
Long-term debt
|
|
|
938,494
|
|
|
|
1,141,546
|
|
|
|
1,144,810
|
|
|
|
635,359
|
|
|
|
647,728
|
|
Redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,326
|
|
Stockholders equity
|
|
|
3,813,285
|
|
|
|
3,557,245
|
|
|
|
3,578,555
|
|
|
|
3,271,849
|
|
|
|
2,813,066
|
|
Debt to total capital ratio(3)
|
|
|
23.7
|
%
|
|
|
25.2
|
%
|
|
|
26.4
|
%
|
|
|
19.5
|
%
|
|
|
22.6
|
%
|
Average number of common shares outstanding
|
|
|
110,389
|
|
|
|
109,234
|
|
|
|
110,443
|
|
|
|
110,560
|
|
|
|
111,192
|
|
Book value per common share
|
|
$
|
34.58
|
|
|
$
|
32.37
|
|
|
$
|
32.58
|
|
|
$
|
29.11
|
|
|
$
|
25.50
|
|
|
|
Other Statistics(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
11.9
|
%
|
|
|
12.3
|
%
|
|
|
13.4
|
%
|
|
|
13.3
|
%
|
|
|
13.6
|
%
|
Return on invested capital(5)(6)(7)
|
|
|
12.6
|
%
|
|
|
13.5
|
%
|
|
|
14.8
|
%
|
|
|
14.7
|
%
|
|
|
14.2
|
%
|
Return on average stockholders equity(6)(7)
|
|
|
15.6
|
%
|
|
|
16.5
|
%
|
|
|
18.4
|
%
|
|
|
18.0
|
%
|
|
|
18.0
|
%
|
Return on average total assets(6)(7)
|
|
|
8.7
|
%
|
|
|
9.1
|
%
|
|
|
10.4
|
%
|
|
|
10.0
|
%
|
|
|
9.4
|
%
|
Cash provided by operations
|
|
$
|
973,485
|
|
|
$
|
679,472
|
|
|
$
|
833,629
|
|
|
$
|
454,128
|
|
|
$
|
533,654
|
|
Cash dividends paid
|
|
|
261,682
|
|
|
|
255,235
|
|
|
|
246,634
|
|
|
|
216,529
|
|
|
|
124,116
|
|
|
|
26
|
|
|
(1) |
|
Operating results for 2009 include a noncash charge for
impairment of goodwill and intangible assets
$122.0 million (pretax) in operating income and
$114.4 million (aftertax) in income from continuing
operations and net income attributable to VF Corporation, $1.02
basic earnings per share and $1.03 diluted earnings per share. |
|
(2) |
|
Dividends per share divided by the total of income from
continuing and discontinued operations per diluted share
(excluding the effect of the charge for impairment of goodwill
and intangible assets in 2009). |
|
(3) |
|
Total capital is defined as stockholders equity plus
short-term and long-term debt. |
|
(4) |
|
Operating statistics are based on continuing operations
(excluding the effect of the charge for impairment of goodwill
and intangible assets in 2009). |
|
(5) |
|
Invested capital is defined as average stockholders equity
plus average short-term and long-term debt. |
|
(6) |
|
Return is defined as income from continuing operations before
net interest expense, after income taxes. |
|
(7) |
|
Information presented for 2009 excludes the impairment charge
for goodwill and intangible assets. This information is a
non-GAAP measure as discussed in Non-GAAP Financial
Information in Item 7. herein. |
|
|
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, 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.
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, which is consistent with
that used for management incentive compensation. These
coalitions represent VFs reportable segments. These
groupings of businesses are summarized as follows:
|
|
|
Coalition
|
|
Principal VF-owned Brands
|
|
Outdoor & 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®,
Kipling®
(in North America)
|
Contemporary Brands
|
|
7 For All
Mankind®,
John
Varvatos®,
Splendid®,
Ella
Moss®,
lucy®
|
Impact
of the Current Global Economic Environment
The global recession that began near the end of 2007 is the
longest and most severe recession in the last several decades.
This recession, which has resulted in flat-to-falling consumer
income levels, sharp declines in real estate and global
securities markets, volatility in commodity and currency
markets, significant increases in unemployment, numerous
retailer and other bankruptcies, and unprecedented government
stimulus programs, has led to a decline in consumer spending
that has impacted VF as well as most other companies. Recent
statistics indicate that the U.S. and global economies are
showing some signs of stability, but unemployment is still very
high and consumer spending remains weak.
27
Consumer spending represents about 70% of the domestic economy,
and spending at retail represents about one-half of that. The
general reduction in household wealth and income over the last
two years, along with reduced availability of consumer credit
and increased savings and debt repayment rates, has reduced
consumer purchases of discretionary items such as apparel.
Reduced consumer spending has had a significant impact on sales
in all retail channels, and particularly in sales of premium,
higher priced products in the upper tier distribution channels.
Although there are some signs of stabilization, consumer
confidence remains weak. We believe economic conditions will
remain difficult and that consumer spending will remain
constrained in global markets through 2010.
In response to these market conditions, VF was aggressive in
reducing costs and lowering inventory levels during 2009.
However, we have continued to invest in our brands and, in 2010,
are expecting to increase our investments in advertising,
product development and retail store expansion. These
investments, totaling $50 million, will be very targeted
and concentrated in those businesses with the strongest
opportunities for growth, including The North
Face®,
Vans®
and 7 For All
Mankind®
brands, and our business in Asia. A portion of these investments
will be targeted at further strengthening our product innovation
and sustainability platforms. We believe that the strength of
our brands is fundamental to our success in this economic
climate.
Long-term
Financial Targets
While our long-term revenue and earnings growth targets, as
described below, were not achieved in 2009 due to global
recessionary conditions and are not expected to be achieved in
2010, our long-term targets remain intact. These targets are
summarized below:
|
|
|
|
|
Revenue growth of 8% to 10% per year Our
long-term revenue growth target is 8% to 10% per year, with
approximately 6% to 7% coming from organic growth and 2% to 3%
from acquisitions. We met this long-term target by achieving
revenue growth of 16% in 2007. However, our revenues increased
by 6% in 2008 and declined by 6% in 2009, reflecting the impact
of the global economic environment discussed above. Key drivers
of future growth, consistent with the 8% to 10% long-term
target, include growth in our lifestyle brands, acquisitions of
additional lifestyle brands, international expansion and
continued growth in our direct-to-consumer business. We now
expect our international revenues to grow to 40% of Total
Revenues, compared with a prior long-term target of 33%.
International revenues accounted for 30% of our Total Revenues
in 2008 and 2009. In addition, we continue to expect our
direct-to-consumer business to grow to a level that exceeds 20%
of Total Revenues through an increase in sales within existing
stores, new store openings and expansion of our
e-commerce
platforms. Direct-to-consumer revenues comprised 16% of our
Total Revenues in 2008 and 17% in 2009. We have many programs in
place to continue to drive organic growth, including a plan to
invest $50 million behind our strongest brands in 2010, and
will continue our aggressive search to acquire branded lifestyle
businesses that meet our strategic and financial goals.
|
|
|
|
Operating income of 15% of revenues Operating
margins of 12.3% in 2008 and of 11.9% in 2009 (excluding the
effect of the impairment charge discussed in the Analysis
of Results of Continuing Operations section below) were
negatively impacted by difficult global economic conditions. In
addition, operating margins in 2008 included the negative impact
from nonrecurring charges related to cost saving actions taken
near the end of that year, and in 2009 included a significant
increase in expense for our defined benefit pension plans. We
expect to improve our operating margin as we (i) achieve
disproportionate growth in our higher margin, faster growing
lifestyle businesses, (ii) grow our international and
retail businesses, which also have higher operating margins than
VF averages, and (iii) continue our relentless focus on
cost reduction.
|
|
|
|
Earnings per share growth of 10% to 11% per year
While we have exceeded this target in recent
years, we did not meet this long-term target in 2008 and 2009
due to the negative impact of the factors discussed above. We
expect to increase earnings per share by 9% to 11% in 2010.
|
28
|
|
|
|
|
Return on invested capital of 17% We believe
that a high return on capital is closely correlated with
enhancing total shareholder return. We calculate return on
invested capital as follows:
|
Income before net interest expense, after income taxes
Average stockholders equity, plus average short and
long-term debt
Excluding the effect of the impairment charge discussed in the
Analysis of Results of Continuing Operations section
below, we earned a 12.6% return on invested capital in 2009,
compared with a 13.5% return in 2008. Our returns in these years
were negatively impacted by the global economic conditions
discussed above, our 2008 cost reduction initiatives, our
incremental pension expense in 2009 and by our 2007
acquisitions. Newly acquired businesses generally have a lower
than average return on invested capital in their earlier years
of ownership. We expect our return on invested capital to
improve in 2010 and move closer to the long-term target of 17%.
|
|
|
|
|
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
stockholders equity, plus combined short and long-term
debt. This ratio was 23.7% at the end of 2009. If cash were
netted, the ratio would have been 10.7%. This low debt to
capital ratio demonstrates VFs ability to navigate
effectively through a difficult economic environment and
maintain financial strength.
|
|
|
|
Dividend payout ratio of 40% Our target is to
return approximately 40% of earnings to our stockholders through
dividends. The 2009 dividend payout ratio was 46.0% of diluted
earnings per share (excluding the effect of the impairment
charge discussed in the Analysis of Results of Continuing
Operations section below). Our industry-leading dividend
payout is expected to exceed 40% of earnings per share in 2010.
|
Strategic
Objectives
Our strategy for growth consists of six drivers:
1. Build more global, growing lifestyle brands.
Focus on building more global, growing lifestyle brands with
an emphasis on activity-based brands.
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 and customers to new geographies.
Grow our international presence, particularly in China,
Europe, India and Brazil.
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. Maintain our competitive
advantage by leveraging 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 with specific
focus on consumer insight and innovation.
Highlights
of 2009
There were several notable actions and achievements in 2009:
|
|
|
|
|
We continued our positive momentum in the Outdoor & Action
Sports businesses and achieved record revenue and operating
margin levels.
|
|
|
|
We gained market share in the United States in our core
Wrangler®
and
Lee®
brands in a very difficult economic environment.
|
|
|
|
Our Asia revenues increased 28%.
|
29
|
|
|
|
|
We completed the acquisition 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.
|
|
|
|
Our direct-to-consumer business revenues grew to 17% of Total
Revenues and we opened 90 stores.
|
|
|
|
Gross margin was at a record level of 44.3%.
|
|
|
|
We improved the profitability of our Sportswear businesses,
achieving double-digit operating margin.
|
|
|
|
We reduced inventories by 17%, reflecting our aggressive
management of inventory levels during the economic downturn.
|
|
|
|
Our record $973 million of cash flow from operating
activities allowed us to grow existing cash, while funding
(i) $298 million of investments in capital
expenditures and acquisitions, (ii) $262 million of
dividends, (iii) over $200 million in contributions to
our pension plans and (iv) $112 million of repurchases
of our Common Stock. We ended the year with $732 million of
cash and equivalents, almost doubling our prior year position.
And with our A minus investment grade credit rating,
we continue to have access to capital markets and have the
ability to borrow over $1.3 billion under committed bank
credit agreements.
|
|
|
|
We increased our dividends paid per share for the
37th consecutive year.
|
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:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Compared with
|
|
|
Compared with
|
|
|
|
2008
|
|
|
2007
|
|
|
|
In millions
|
|
|
Total revenues prior year
|
|
$
|
7,643
|
|
|
$
|
7,219
|
|
Impact of foreign currency translation
|
|
|
(156
|
)
|
|
|
109
|
|
Organic growth (decline)
|
|
|
(344
|
)
|
|
|
11
|
|
Acquisition in prior year (to anniversary date)
|
|
|
16
|
|
|
|
291
|
|
Acquisition in current year
|
|
|
61
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Total revenues current year
|
|
$
|
7,220
|
|
|
$
|
7,643
|
|
|
|
|
|
|
|
|
|
|
Total Revenues consist of Net Sales of products and Royalty
Income from licensees. Revenues declined 6% in 2009, with 2% of
the decline due to foreign currency translation. The effect of
global recessionary conditions on consumer spending affected all
of our businesses in 2009. In spite of the recession, we
reported growth in our Outdoor & Action Sports
businesses in 2009. Revenues increased in 2008 due to overall
unit volume increases and organic growth in our Outdoor &
Action Sports businesses and the benefit of a full year of
operations of our Contemporary Brands businesses acquired in
2007. Additional details on revenues are provided in the section
titled Information by Business Segment.
In translating foreign currencies into the U.S. dollar, the
stronger U.S. dollar in relation to the functional
currencies where VF conducts the majority of its business
(primarily the European euro countries) negatively impacted
revenue by $156 million in 2009 relative to 2008. A weaker
U.S. dollar benefited revenues by $109 million in 2008
relative to 2007. The weighted average translation rate for the
euro was $1.39 per euro during 2009, compared with $1.47 during
2008 and $1.36 during 2007.
30
The following table presents the percentage relationship to
Total Revenues for components of our Consolidated Statements of
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Gross margin (total revenues less cost of goods sold)
|
|
|
44.3
|
%
|
|
|
43.9
|
%
|
|
|
43.5
|
%
|
Marketing, administrative and general expenses
|
|
|
32.4
|
|
|
|
31.7
|
|
|
|
30.1
|
|
Impairment of goodwill and intangible assets
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
10.2
|
%
|
|
|
12.3
|
%
|
|
|
13.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margins increased 1.4% in 2009 over 2008 and 1.0% in 2008
over 2007 from the impact of our direct-to-consumer operations,
which have gross margin percentages higher than VF averages. In
addition, our aggressive management of inventory levels in 2009
resulted in gross margin improvement due to a lower impact from
the disposal of excess and obsolete inventory. The increase in
2009 was partially offset by lower gross margins in our European
jeanswear and imagewear businesses. The 2008 increase was
partially offset by lower gross margins primarily in our
European jeanswear business. See the Information by
Business Segment section below.
Marketing, Administrative and General Expenses as a percent of
revenues increased 1.2% in 2009 over 2008 due to the higher
expense of our defined benefit pension plans and 1.1% due to
growth in our direct-to-consumer business, which has a higher
expense ratio than our wholesale business. The 2009 comparison
benefited from (i) the absence of nonrecurring charges from
cost reduction actions, which increased Marketing,
Administrative and General Expenses as a percent of revenues by
0.7% in 2008, and (ii) the benefit of these actions and
other spending reductions in 2009.
Marketing, Administrative and General Expenses as a percent of
revenues increased 1.4% in 2008 over 2007 due to the growth in
our direct-to-consumer business and 0.7% due to nonrecurring
charges from the cost reduction actions mentioned above. These
increases were partially offset by lower incentive compensation
and other spending reductions in 2008.
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 margin and operating expenses
may not be directly comparable with other apparel companies.
We completed our annual impairment testing for goodwill and
indefinite-lived trademark intangible assets in the fourth
quarter of 2009. Based on our assessment of current and expected
future economic conditions, trends and forecasted cash flows at
each business unit, and assumptions representative of those that
market participants would make in valuing our business units, VF
management determined that the carrying values of goodwill at
its
Reef®,
Nautica®,
and
lucy®
business units exceeded their fair values and the carrying
values of trademark intangible assets at its
Reef®
and
lucy®
business units exceeded their fair values. Accordingly, VF
recorded noncash impairment charges totaling $122.0 million
($114.4 million net of related income tax benefits) to
reduce the carrying values of goodwill and trademark intangible
assets of these business units to their fair values. Of this
total,
Reef®
represented $36.7 million,
Nautica®
represented $58.5 million, and
lucy®
represented $26.8 million (in each case, 23%, 14% and 26%
of its combined goodwill and nonamortized trademark intangible
assets). For additional information, see Notes H and U to
the Consolidated Financial Statements and the Critical
Accounting Policies and Estimates section below.
References to financial results excluding the impact of the
impairment charge reflect non-GAAP measures and are addressed
below in the Non-GAAP Financial Information
section.
Interest income decreased $3.9 million in 2009 and
$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) decreased $8.1 million
in 2009 due to reduced short-term borrowing levels and lower
interest rates. Interest expense increased $21.9 million in
2008 due to an increase in debt 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. Average interest-bearing
debt outstanding totaled approximately $1,364 million for
2009, $1,454 million for 2008 and
31
$1,080 million for 2007. The weighted average interest rate
on outstanding debt was 6.1% for 2009, 6.3% for 2008 and 6.4%
for 2007.
The effective income tax rate was 29.9% in 2009 and 26.2%
excluding the impairment charge discussed above. These rates
compared with 28.9% in 2008 and 32.3% in 2007. During 2009, we
recorded tax benefits of $17.5 million related to favorable
outcomes of U.S. state tax audits and from expirations of
statutes of limitations in several U.S. state and
international jurisdictions where accruals for uncertain tax
positions had been recorded. These items lowered our 2009 annual
tax rate by 2.7%. During 2008, we recorded tax benefits of
$24.6 million related primarily to favorable outcomes of
foreign tax audits, expirations of statutes of limitations in
foreign jurisdictions and other state tax benefits that lowered
our 2008 annual tax rate by 2.9%. In addition, during 2008, we
recorded tax benefits of $11.5 million to reflect updated
assessments of previously accrued amounts, which lowered our
2008 annual tax rate by 1.4%. During 2007, we recorded tax
benefits of $12.0 million related primarily to expirations
of statutes of limitations in several international
jurisdictions that lowered our 2007 annual tax rate by 1.3%. The
remaining declines in the effective income tax rate in 2009
(excluding the impairment charge) from 2008 and in 2008 from
2007 were primarily attributed to growth in our international
businesses in jurisdictions having effective tax rates that are
substantially lower than the United States.
Net Income Attributable to VF Corporation decreased to
$461.3 million in 2009 from $602.7 million in 2008,
while earnings per share decreased to $4.13 in 2009 from $5.42
in 2008. (All per share amounts are presented on a diluted
basis.) Earnings per share in 2009 were $5.16 excluding a $1.03
impairment charge for goodwill and intangible assets. Earnings
per share in 2009 were also negatively impacted by
(i) incremental pension expense in our defined benefit
pension plans of $0.48 over the 2008 level and (ii) an
unfavorable impact of $0.18, compared with 2008, from
translating foreign currencies into a stronger U.S. dollar.
Earnings per share in 2009 benefited from the absence of
nonrecurring charges of $0.30 per share for cost reduction
actions taken in the fourth quarter of 2008.
Net Income Attributable to VF Corporation 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 the fourth quarter
of 2008 lowered earnings per share by $0.30. 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.
Information
by Business Segment
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 its share of centralized corporate
expenses directly related to the coalition and amortization of
acquisition-related intangible assets. Corporate expenses not
apportioned to the coalitions, impairment charges for goodwill
and intangible assets, net interest expense and a significant
portion of our pension expense are excluded from Coalition
Profit.
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 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.
32
The following tables present a summary of the changes in our
Total Revenues and Coalition Profit by coalition during the last
two years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
& Action
|
|
|
|
|
|
|
|
|
|
|
|
Contemporary
|
|
|
|
|
|
|
Sports
|
|
|
Jeanswear
|
|
|
Imagewear
|
|
|
Sportswear
|
|
|
Brands
|
|
|
Other
|
|
|
|
In millions
|
|
|
Coalition Revenues 2007
|
|
$
|
2,387
|
|
|
$
|
2,897
|
|
|
$
|
988
|
|
|
$
|
631
|
|
|
$
|
195
|
|
|
$
|
121
|
|
Impact of foreign currency translation
|
|
|
59
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic growth (decline)
|
|
|
282
|
|
|
|
(195
|
)
|
|
|
(30
|
)
|
|
|
(60
|
)
|
|
|
12
|
|
|
|
2
|
|
Acquisitions in prior year
|
|
|
14
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
Acquisition in current year
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalition Revenues 2008
|
|
|
2,742
|
|
|
|
2,765
|
|
|
|
991
|
|
|
|
571
|
|
|
|
451
|
|
|
|
123
|
|
Impact of foreign currency translation
|
|
|
(76
|
)
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
Organic growth (decline)
|
|
|
86
|
|
|
|
(182
|
)
|
|
|
(126
|
)
|
|
|
(73
|
)
|
|
|
(37
|
)
|
|
|
(12
|
)
|
Acquisition in prior year
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition in current year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalition Revenues 2009
|
|
$
|
2,752
|
|
|
$
|
2,522
|
|
|
$
|
865
|
|
|
$
|
498
|
|
|
$
|
472
|
|
|
$
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
& Action
|
|
|
|
|
|
|
|
|
|
|
|
Contemporary
|
|
|
|
|
|
|
Sports
|
|
|
Jeanswear
|
|
|
Imagewear
|
|
|
Sportswear
|
|
|
Brands
|
|
|
Other
|
|
|
|
In millions
|
|
|
Coalition Profit 2007
|
|
$
|
393
|
|
|
$
|
479
|
|
|
$
|
142
|
|
|
$
|
67
|
|
|
$
|
24
|
|
|
$
|
4
|
|
Impact of foreign currency translation
|
|
|
9
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
|
52
|
|
|
|
(110
|
)
|
|
|
(10
|
)
|
|
|
(25
|
)
|
|
|
28
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalition Profit 2008
|
|
|
454
|
|
|
|
379
|
|
|
|
132
|
|
|
|
42
|
|
|
|
52
|
|
|
|
(3
|
)
|
Impact of foreign currency translation
|
|
|
(16
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
1
|
|
Operations
|
|
|
70
|
|
|
|
(1
|
)
|
|
|
(45
|
)
|
|
|
10
|
|
|
|
(13
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalition Profit 2009
|
|
$
|
508
|
|
|
$
|
370
|
|
|
$
|
87
|
|
|
$
|
52
|
|
|
$
|
37
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating results of the John Varvatos business unit for 2007
and 2008 have been reclassified from the Sportswear Coalition to
the Contemporary Brands Coalition reflecting the change in
internal management responsibility, which began in 2009.
Outdoor &
Action Sports:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars in millions
|
|
|
Coalition Revenues
|
|
$
|
2,752.0
|
|
|
$
|
2,742.1
|
|
|
$
|
2,387.1
|
|
|
|
0.4
|
%
|
|
|
14.9
|
%
|
Coalition Profit
|
|
|
508.3
|
|
|
|
454.2
|
|
|
|
392.7
|
|
|
|
11.9
|
%
|
|
|
15.7
|
%
|
Operating Margin
|
|
|
18.5
|
%
|
|
|
16.6
|
%
|
|
|
16.4
|
%
|
|
|
|
|
|
|
|
|
The Outdoor & 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.
33
Coalition Revenues in 2009 increased slightly on a reported
basis compared with 2008 and 3% on a constant currency basis.
Reported global revenues of the two largest brands in this
coalition increased in 2009 The North
Face®
by 6% (including a negative impact of 3% from foreign currency
translation) and
Vans®
by 5% (including a negative impact of 2% from foreign currency
translation). In addition, revenues in Asia increased by more
than 50%, largely due to increases in the
Vans®
brand, which was just introduced into China in 2008. These
increases were offset by the impact of foreign currency
translation and revenue declines in the other coalition
businesses.
Coalition Revenues increased in 2008 led by global unit gains
from strong consumer demand for our The North
Face®,
Vans®,
Kipling®,
Napapijri®
and
Eastpak®
brands. 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 6% of this increase.
Approximately one-half of the operating margin improvement in
2009 over 2008 resulted from increased gross margins in our
outdoor and action sports businesses, with their
direct-to-consumer revenues making up a larger portion of total
Coalition Revenues in 2009. In addition, the 2009 operating
margin comparison benefited by 0.3% from an $8.3 million
nonrecurring charge in 2008 related to cost reduction actions.
The remainder of the operating margin improvement in 2009 over
2008 was due to lower spending, partially offset by continued
investments to expand the direct-to-consumer business.
The increase in operating margin in 2008 over 2007 was driven by
higher revenues, resulting in improved leverage of operating
expenses, and growth in our international and direct-to-consumer
operations, where operating margins are higher. These
improvements were partially offset by the charge related to cost
reduction actions mentioned above.
Jeanswear:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars in millions
|
|
|
Coalition Revenues
|
|
$
|
2,522.5
|
|
|
$
|
2,764.9
|
|
|
$
|
2,896.7
|
|
|
|
(8.8
|
)%
|
|
|
(4.6
|
)%
|
Coalition Profit
|
|
|
370.2
|
|
|
|
378.9
|
|
|
|
479.4
|
|
|
|
(2.3
|
)%
|
|
|
(21.0
|
)%
|
Operating Margin
|
|
|
14.7
|
%
|
|
|
13.7
|
%
|
|
|
16.6
|
%
|
|
|
|
|
|
|
|
|
The Jeanswear Coalition consists of our global jeanswear
businesses, led by the
Wrangler®
and
Lee®
brands.
Domestic jeanswear revenues declined 4% in 2009 from 2008 due
primarily to a difficult retail environment, including the loss
of volume from customers who filed for bankruptcy in 2008 and a
reduction in noncore
Riders®
brand plus size and seasonal programs. Despite these reductions,
we believe that we are gaining market share in our
Wrangler®
mens,
Lee®
mens and womens, and core
Riders®
womens businesses, driven by the success of new product
innovation. Domestic jeanswear revenues decreased 8% in 2008
from 2007 due to a very difficult retail environment caused by
the deteriorating global economy that impacted the Lee, mass
market and western specialty businesses.
Jeanswear revenues in international markets, including Europe,
Canada, Mexico, Latin America and Asia, declined 18% in 2009
from 2008, with 8% of the decline resulting from the negative
impact of foreign currency translation. The remainder of the
decline was driven by recessionary conditions, especially in
Europe, and the decision earlier in 2009 to exit our mass market
jeans business in Europe. These declines were partially offset
by a 14% increase in jeanswear revenues in Asia.
Jeanswear revenues in international markets increased 2% in 2008
over 2007. Foreign currency translation positively impacted
international jeanswear 2008 revenues by 5%. Therefore, 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 business.
34
The Jeanswear operating margin comparison in 2009 benefited by
1.0% from nonrecurring charges in 2008 of $27.3 million
related to cost reduction actions. The negative impact of higher
distressed inventory provisions in our European businesses in
2009 was offset by lower spending across the coalition due in
part to the cost reduction actions taken in 2008.
Jeanswear operating margin in 2008 was negatively impacted
compared with 2007 due to the charges in 2008 discussed above,
lower revenues that negatively impacted the expense to revenue
ratio, 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.
Imagewear:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars in millions
|
|
|
Coalition Revenues
|
|
$
|
865.5
|
|
|
$
|
991.1
|
|
|
$
|
988.3
|
|
|
|
(12.7
|
)%
|
|
|
0.3
|
%
|
Coalition Profit
|
|
|
87.5
|
|
|
|
131.6
|
|
|
|
141.9
|
|
|
|
(33.5
|
)%
|
|
|
(7.2
|
)%
|
Operating Margin
|
|
|
10.1
|
%
|
|
|
13.3
|
%
|
|
|
14.4
|
%
|
|
|
|
|
|
|
|
|
The Imagewear Coalition consists of VFs Image division
(occupational apparel and uniforms) and the Licensed Sports
division (owned and licensed high profile sports and lifestyle
apparel).
Image apparel revenues declined 17% in 2009 from 2008 due to
rising unemployment, particularly in the manufacturing and
petrochemical sectors. Licensed Sports revenues were down 8% in
2009 from 2008, resulting from lower attendance at sporting
events and the overall weak retail environment and the highly
discretionary nature of consumer spending on these products.
Coalition Revenues were flat in both our Image and Licensed
Sports divisions in 2008 compared with 2007.
Operating margin declined in 2009 from 2008 due to revenue
declines that negatively impacted the expense to revenue ratio
and economic factors that affected obligations under royalty
agreements in our Licensed Sports division.
The operating margin decline in 2008 from 2007 reflected
difficult market conditions in the fourth quarter of 2008 that
especially affected consumer spending in our Licensed Sports
division. In addition, the 2008 operating results included a
$2.0 million nonrecurring 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.
Sportswear:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars in millions
|
|
|
Coalition Revenues
|
|
$
|
498.3
|
|
|
$
|
570.7
|
|
|
$
|
631.2
|
|
|
|
(12.7
|
)%
|
|
|
(9.6
|
)%
|
Coalition Profit
|
|
|
52.0
|
|
|
|
41.6
|
|
|
|
66.8
|
|
|
|
25.0
|
%
|
|
|
(37.8
|
)%
|
Operating Margin
|
|
|
10.4
|
%
|
|
|
7.3
|
%
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
The Sportswear Coalition consists of our
Nautica®
lifestyle brand and the
Kipling®
brand business in North America (whereas the
Kipling®
brand is managed as part of the Outdoor & Action
Sports Coalition outside North America).
The decline in Coalition Revenues in 2009 from 2008 was driven
by a 13% decrease in
Nautica®
brand revenues. The decline in the Nautica business resulted
from difficult market conditions in the department store channel
and lower volume in our retail outlet stores.
Coalition Revenues were down 7% in 2008 compared with 2007, with
an 11% decrease in our
Nautica®
brand revenues partially offset by a double-digit revenue gain
in our
Kipling®
brand businesses. The decline in the Nautica business resulted
from the very challenging department and outlet store trends
mentioned above and the exit in early 2008 of our womens
wholesale business.
35
Sportswear Coalition operating margin improved in 2009 from 2008
due to aggressive cost and inventory reduction actions in our
Nautica business. Also, the 2009 operating margin comparison
benefited by 1.0% from $5.8 million in nonrecurring charges
in 2008 related to cost reduction actions, including the exit of
the
Nautica®
womens wholesale sportswear business.
Sportswear Coalition operating margin declined in 2008 from 2007
due to lower
Nautica®
brand revenues that negatively impacted the expense to revenue
ratio and increased markdown activity related to a highly
promotional retail environment. In addition, as mentioned above,
the 2008 operating results included nonrecurring charges for
cost reduction actions that negatively impacted the operating
margin by 1.0%.
Contemporary
Brands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars in millions
|
|
|
Coalition Revenues
|
|
$
|
471.9
|
|
|
$
|
451.2
|
|
|
$
|
194.7
|
|
|
|
4.6
|
%
|
|
|
131.7
|
%
|
Coalition Profit
|
|
|
37.2
|
|
|
|
51.8
|
|
|
|
24.0
|
|
|
|
(28.2
|
)%
|
|
|
115.9
|
%
|
Operating Margin
|
|
|
7.9
|
%
|
|
|
11.5
|
%
|
|
|
12.3
|
%
|
|
|
|
|
|
|
|
|
This coalition consists of the 7 For All
Mankind®
brand of premium denim jeanswear and related apparel, John
Varvatos®
luxury apparel collection for men and
lucy®
brand of womens activewear. This coalition also includes
the operating results of the
Splendid®
and Ella
Moss®
brands comprised of the earnings from our one-third equity
investment from June 2008 through March 2009, when the remaining
two-thirds equity interest was purchased, and the consolidated
operating results thereafter.
The increase in Coalition Revenues in 2009 was driven by the
acquisition of the
Splendid®
and Ella
Moss®
brands in March 2009. This increase was partially offset by an
8% decline in our global 7 For All
Mankind®
brand revenues, driven by challenging conditions in the
U.S. upper tier department and specialty store channel. We
did experience growth in both the 7 For All
Mankind®
Asia business, where revenues nearly doubled, and the
direct-to-consumer business, where revenues more than tripled.
We continued to expand this brands reach with 21 retail
store openings in 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.
Operating margin was negatively impacted in 2009 compared with
2008 due to volume declines in our 7 For All
Mankind®
wholesale business that negatively impacted the expense to
revenue ratio, increased retail investments across the coalition
and higher operating losses in our
lucy®
and John
Varvatos®
businesses. The 2009 operating margin comparison benefited by
1.5% from nonrecurring charges in 2008 related to an unremitted
value-added tax and duty matter and cost reduction initiatives.
Operating margins for our 7 For All
Mankind®,
Splendid®
and Ella
Moss®
brands in 2009 were above the coalition average at 16% and 20%,
respectively.
The operating margin decline in 2008 from 2007 reflects 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, as mentioned above, the
2008 operating results included nonrecurring charges that
negatively impacted operating margin by 1.5%.
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars in millions
|
|
|
Revenues
|
|
$
|
110.2
|
|
|
$
|
122.7
|
|
|
$
|
121.3
|
|
|
|
(10.2
|
)%
|
|
|
1.1
|
%
|
Profit
|
|
|
1.2
|
|
|
|
(2.4
|
)
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Operating Margin
|
|
|
1.1
|
%
|
|
|
(2.0
|
)%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
36
The Other business segment includes the VF Outlet business,
which is a group of VF-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 the Other
business segment declined in 2009 due to the impact of the
economic recession on consumer spending.
Reconciliation
of Coalition Profit to Consolidated Income from Continuing
Operations Before Income Taxes:
There are three 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 Impairment of Goodwill and
Trademarks, Interest and Corporate and Other Expenses. See also
Note R to the Consolidated Financial Statements.
Impairment of Goodwill and Trademarks was discussed in the
previous Consolidated Statements of Income section.
These charges resulted from our annual impairment review of
these assets.
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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
In millions
|
|
|
Information systems and shared services
|
|
$
|
164.7
|
|
|
$
|
178.2
|
|
|
$
|
187.0
|
|
Less costs apportioned to coalitions
|
|
|
(143.7
|
)
|
|
|
(150.3
|
)
|
|
|
(146.4
|
)
|
Less billings for transition services after sale of intimate
apparel business
|
|
|
|
|
|
|
|
|
|
|
(13.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.0
|
|
|
|
27.9
|
|
|
|
26.9
|
|
Corporate headquarters costs
|
|
|
72.6
|
|
|
|
79.3
|
|
|
|
96.4
|
|
Trademark maintenance and enforcement
|
|
|
11.1
|
|
|
|
11.3
|
|
|
|
10.9
|
|
Other
|
|
|
91.3
|
|
|
|
1.3
|
|
|
|
6.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other Expenses
|
|
$
|
196.0
|
|
|
$
|
119.8
|
|
|
$
|
140.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
2009 from 2008 is primarily due to reductions in third-party
data center charges and common systems amortization. The
decrease in information systems and shared services costs in
2008 from 2007 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 decline in corporate
headquarters costs in 2009 from 2008 was due to reduced
spending as part of our cost reduction efforts. The decrease in
corporate headquarters costs in 2008 from 2007 resulted
primarily from lower management incentive compensation.
37
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) costs
that result from corporate programs or corporate-managed
decisions that are not allocated to the business units for
internal management reporting, (ii) 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 and (iii) other
consolidating adjustments. The most significant of these other
adjustments is related to the expense of our centrally-managed
U.S. defined benefit pension plans. Coalition Profit of the
business units includes only their current year service cost
component of pension expense. Pension costs totaling
$83.1 million for 2009, primarily representing amortization
of deferred actuarial losses, were recorded in other
expense. These costs were not significant in prior years.
Analysis
of Financial Condition
Balance
Sheets
Accounts Receivable decreased 9% in 2009 due to the sale of
$74.2 million of selected accounts receivable, as discussed
in the Liquidity and Cash Flows section below.
Inventories declined 17% in 2009, reflecting our aggressive
management of inventory levels during the economic downturn.
Other Current Assets decreased at December 2009 from 2008 due
primarily to a decrease in prepaid income taxes.
Property, Plant and Equipment was lower at the end of 2009
compared with 2008 as depreciation expense exceeded our capital
spending in 2009.
Intangible Assets increased in 2009 due to the Mo Industries
acquisition in March 2009, partially offset by the impairment
charge and amortization.
Goodwill increased in 2009 due to the Mo Industries acquisition
in March 2009, partially offset by the impairment charge.
Other Assets decreased at December 2009 due to (i) the
completion of the acquisition of Mo Industries in March 2009,
resulting in the elimination of the $80.5 million equity
investment in one-third of its stock, and (ii) a reduction
in deferred income tax assets. These decreases were partially
offset by an increase in the investment securities held for
VFs deferred compensation plans.
VF has a $1.0 billion senior unsecured committed domestic
revolving bank credit agreement that supports issuance of up to
$1.0 billion in commercial paper and a
250.0 million (U.S. dollar equivalent of
$358.3 million) senior unsecured committed international
revolving bank credit agreement. There were no borrowings under
these credit agreements at December 2009 or December 2008.
Short-term Borrowings under other international borrowing
agreements were $45.5 million at December 2009 and
$53.6 million at December 2008.
The decline in Accounts Payable from 2008 to 2009 is consistent
with the decline in inventories discussed above. Accrued
Liabilities decreased in 2009 due primarily to the payments of
the obligations associated with the cost reduction actions taken
in the fourth quarter of 2008.
Total Long-term Debt at December 2009 and December 2008 was
comparable. At September 2009, $200.0 million of notes, due
October 1, 2010, were reclassified to Current Portion of
Long-term Debt.
Other Liabilities decreased due to the reduction in the
underfunded status of our defined benefit pension plans at the
end of 2009, as discussed in the following paragraph. This
decrease is partially offset by higher deferred income taxes and
deferred compensation liabilities.
The global credit crisis and the related significant declines in
global securities markets during 2008 resulted in a significant
decline in the value of the investment portfolios of our defined
benefit pension plans. As a result, our defined benefit pension
plans are in an underfunded status, with our projected pension
benefit obligations exceeding
38
the value of our plans investment assets. In December
2008, the underfunded status of $414.9 million was
recognized as a liability in our Consolidated Balance Sheet. To
improve the funded status of our pension plans, we contributed
over $200 million to these plans during 2009. Accordingly,
the plans underfunded status recognized in our 2009
Consolidated Balance Sheet was reduced to $250.9 million.
See Note N to the Consolidated Financial Statements and the
Critical Accounting Policies and Estimates section
below 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:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars in millions
|
|
|
Working capital
|
|
$
|
1,536.8
|
|
|
$
|
1,640.8
|
|
Current ratio
|
|
|
2.4 to 1
|
|
|
|
2.6 to 1
|
|
Debt to total capital
|
|
|
23.7
|
%
|
|
|
25.2
|
%
|
For the ratio of debt to total capital, debt is defined as
short-term and long-term borrowings, and total capital is
defined as debt plus stockholders equity. Our ratio of net
debt to total capital, with net debt defined as debt less cash
and equivalents, was 10.7% at the end of 2009.
VFs primary source of liquidity is its strong cash flow
provided by operating activities. Cash generated from
operations, which was $973.5 million in 2009,
$679.5 million in 2008 and $833.6 million in 2007, is
primarily dependent on the level of Net Income, changes in
accounts receivable, investments in inventories and other
working capital components. Net Income was $458.5 million,
$602.8 million, and $592.2 million in 2009, 2008 and
2007, respectively. The decline in Net Income in 2009 was
primarily due to a noncash pretax impairment charge for goodwill
and intangible assets of $122.0 million.
Operating cash flow for 2009 included $200.0 million of
discretionary contributions to our U.S. qualified defined
benefit pension plan. There were no contributions to this plan
in 2007 or 2008 because of the funded status of the plan at the
beginning of each of those years. Although VF is not required
and does not currently intend to make a funding contribution to
the domestic qualified plan during 2010, management is committed
to returning each of our defined benefit plans to a fully funded
status. VF has adequate liquidity to meet future funding
requirements. We will continue to evaluate the funded status of
our retirement plans and future funding requirements.
The net change in operating asset and liability components
provided an increase to operating cash flow of
$228.1 million in 2009, in contrast to reducing operating
cash flows by $150.6 million in 2008 and $12.5 million
in 2007. The positive cash generation from these components in
2009 was driven by our aggressive management of inventory levels
and the sale of selected accounts receivable discussed in the
paragraph below. The changes in operating cash flow from other
current assets resulted from an unusually high amount of prepaid
income taxes at the end of 2008. Operating cash flow in 2008
benefited from an additional week of collections on accounts
receivable in the
53rd week
of the fiscal year; that is, collections sharply exceeded credit
sales in the additional week. Operating cash flow in 2007
benefited from an unusually high accounts payable balance at the
end of 2007, related to the timing of payments, that resulted in
higher accounts payable disbursements in 2008.
During September 2009, VF entered into an agreement to sell
selected trade accounts receivable, on a revolving basis, to a
financial institution. This agreement covers the sale of up to
$105.0 million of accounts receivable on a nonrecourse
basis. Net proceeds of this accounts receivable sale program are
recognized in the Statement of Consolidated Cash Flows as part
of the accounts receivable component of cash from operations.
The December 2009 balance of Accounts Receivable has been
reduced by $74.2 million for amounts that had been sold
under this program.
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 2009,
$985.2 million was available for borrowing under VFs
$1.0 billion senior unsecured committed domestic revolving
bank credit facility, with
39
$14.8 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 2009,
250.0 million (U.S. dollar equivalent of
$358.3 million) was available for borrowing under VFs
senior unsecured committed international revolving bank credit
facility.
We used cash of $212.3 million, $93.4 million and
$1,060.6 million for acquisitions in 2009, 2008 and 2007,
respectively, which is net of cash balances in the acquired
companies. These acquisitions were funded with existing VF cash
balances as well as for the 2007 acquisitions short-term
commercial paper borrowings and bank borrowings. In 2007, we
received $348.7 million in proceeds from the sale of our
intimate apparel business.
Capital expenditures were $85.9 million in 2009, compared
with $124.2 million and $113.9 million in 2008 and
2007, respectively. Capital expenditures in each of these years
primarily related to our retail stores, distribution network and
information systems, as well as maintenance spending across our
global supply chain. We expect that capital spending could reach
$110 million in 2010. 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. Also during 2007, VF paid $78.1 million under
the international bank credit agreement and $33.0 million
in notes related to the Nautica acquisition. See Note L to
the Consolidated Financial Statements.
At the end of 2009, VFs long-term debt ratings were
A minus by Standard & Poors Ratings
Services and A3 by Moodys Investors Service,
and commercial paper ratings were A-2 and
Prime-2, respectively, by those rating agencies.
Both agencies have a stable outlook for VF. Existing
long-term debt agreements do not contain acceleration of
maturity clauses based solely on changes in credit ratings.
However, for the $600.0 million of senior notes issued in
2007, if there were a change in control of VF and, as a result
of the change in control, the notes were rated below investment
grade by recognized rating agencies, then VF would be obligated
to repurchase the notes at 101% of the aggregate principal
amount of notes repurchased, plus any accrued and unpaid
interest.
During 2009, 2008 and 2007, VF purchased 1.6 million,
2.0 million and 4.1 million shares, respectively, of
its Common Stock in open market transactions. The cost of these
transactions was $112.0 million, $149.7 million and
$350.0 million with an average price of $71.80 in 2009,
$74.86 in 2008 and $85.03 in 2007. 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 11.6 million shares (including
10.0 million shares authorized subsequent to the end of
2009). We currently intend to repurchase at least
3.0 million shares in 2010 and will continue to evaluate
future share repurchases considering funding required for
business acquisitions, our Common Stock price and levels of
stock option exercises.
Cash dividends totaled $2.37 per common share in 2009, compared
with $2.33 in 2008 and $2.23 in 2007. Our dividend payout rate
was 46.0% in 2009 (excluding the effect of the noncash goodwill
and intangible asset impairment charge), compared with payout
rates of 43.0% in 2008 and 42.7% in 2007. On a longer term
basis, we expect to pay dividends of approximately 40% of our
diluted earnings per share. The current indicated annual
dividend rate for 2010 is $2.40 per share.
40
Following is a summary of VFs contractual obligations and
commercial commitments at the end of 2009 that will require the
use of funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due or Forecasted by Period
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
|
In millions
|
|
|
Recorded liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt(1)
|
|
$
|
1,149
|
|
|
$
|
203
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
934
|
|
Other(2)
|
|
|
383
|
|
|
|
68
|
|
|
|
45
|
|
|
|
42
|
|
|
|
33
|
|
|
|
34
|
|
|
|
161
|
|
Unrecorded commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payment obligations(3)
|
|
|
1,203
|
|
|
|
71
|
|
|
|
58
|
|
|
|
58
|
|
|
|
58
|
|
|
|
57
|
|
|
|
901
|
|
Operating leases(4)
|
|
|
898
|
|
|
|
180
|
|
|
|
159
|
|
|
|
131
|
|
|
|
107
|
|
|
|
95
|
|
|
|
226
|
|
Minimum royalty payments(5)
|
|
|
318
|
|
|
|
59
|
|
|
|
78
|
|
|
|
79
|
|
|
|
50
|
|
|
|
52
|
|
|
|
|
|
Inventory obligations(6)
|
|
|
742
|
|
|
|
690
|
|
|
|
15
|
|
|
|
15
|
|
|
|
15
|
|
|
|
7
|
|
|
|
|
|
Other obligations(7)
|
|
|
72
|
|
|
|
43
|
|
|
|
14
|
|
|
|
9
|
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,765
|
|
|
$
|
1,314
|
|
|
$
|
372
|
|
|
$
|
337
|
|
|
$
|
271
|
|
|
$
|
249
|
|
|
$
|
2,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 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
20% of the stated minimum lease payments. Total lease
commitments exclude $9.4 million of payments to be received
under noncancelable subleases. |
|
(5) |
|
Minimum royalty payments include required minimum advertising
commitments under license agreements. |
|
(6) |
|
Inventory obligations represent binding commitments to purchase
finished goods, raw materials and sewing labor in the ordinary
course of business that are payable upon satisfactory receipt of
the inventory by VF. The reported amount excludes inventory
purchase liabilities included in Accounts Payable at December
2009. |
|
(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 2009 that are
not included in the above table but may require the use of funds
under certain circumstances:
|
|
|
|
|
Funding contributions to our defined benefit pension plans are
not included in the table because of uncertainty over whether or
when further contributions will be required.
|
|
|
|
VF has entered into $84.5 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.
|
41
During 2009 VF met its obligations when due from cash flows from
operations and, for seasonal needs, issuance of commercial
paper; there were no borrowings under our domestic or
international bank facilities during the year. 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 that year and continuing
into early 2009, 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) reflecting our investment
grade credit rating and a $1.0 billion committed revolving
bank credit facility that supports our commercial paper program.
If the commercial paper markets were not available, VF has a
total of $1.3 billion of liquidity available under its
domestic and international committed revolving bank credit
agreements that do not expire until October 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 risks in the ordinary course of
business (discussed below), and we regularly assess these
potential risks. We manage our exposures to these risks through
our operating and financing activities and, when appropriate, by
(i) taking advantage of naturally offsetting exposures
within VF, (ii) purchasing insurance from commercial
carriers or (iii) 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.
Insured risks We self-insure a substantial
portion of our property, vehicle, medical, workers
compensation, director and officer, and general liability
exposures and purchase insurance from unrelated highly rated
commercial carriers for losses in excess of exposures retained
by VF.
Cash and equivalents risks VF had
$731.5 million of cash and equivalents at the end of 2009.
Cash equivalents are highly liquid investments that mature
within three months of their purchase. These investments consist
of institutional money market funds that invest only in
obligations issued or guaranteed by the U.S. government and
time deposits in highly rated U.S. and foreign commercial
banks. 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 cash equivalents and
fixed income investments in our pension plan portfolios.
Defined benefit pension plan risks VF is
subject to funding risks of its defined benefit pension plans.
Due to substantial pension plan investment portfolio losses
incurred in 2008, VF recognized a significant liability
representing the underfunded status of the plans and a
significant charge to Stockholders Equity at the end of
2008. We contributed over $200 million to the plans during
2009 and are committed to returning the plans to a fully funded
status, including making further contributions, if necessary, in
future years. At the end of 2009, the underfunded status of the
plans had improved to $250.9 million.
Interest rate risks 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 interest rate exposure relates to
changes in interest rates on variable rate short-term borrowings
for seasonal working capital needs. These variable rate
borrowings averaged approximately $220 million during 2009.
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 2009, the effect on reported net income of a
hypothetical 1.0% change in interest rates would not be
significant.
42
Foreign currency exchange rate risks VF is a
global enterprise subject to the risk of foreign currency
fluctuations. Approximately 30% of our revenues in 2009 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 during 2009, 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 America 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 (Loss) in
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 in the
ordinary course of business enter into derivative foreign
currency contracts to hedge the effects of exchange rate
fluctuations for a significant portion of our forecasted foreign
currency cash flows or specific foreign currency transactions.
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 cash flows or transactions being hedged.
Our practice is to hedge a portion of our net foreign currency
cash flows forecasted for periods of up to 20 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. Currently, we use only forward exchange contracts
but may use options or collars in the future.
If there were a hypothetical adverse change in foreign currency
exchange rates of 10% compared with rates at the end of 2009,
the expected effect on the change in fair value of the hedging
contracts outstanding would result in an unrealized loss on the
Consolidated Balance Sheet of approximately $90 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 fair value of the underlying balance sheet positions
impacted by the currency rate changes.
Counterparty risks VF is exposed to
credit-related losses in the event of nonperformance by
counterparties to derivative hedging instruments. To manage this
risk, we have established counterparty credit guidelines and
enter into derivative transactions only with financial
institutions with A minus/A3 investment grade credit
ratings or better. We continually monitor the credit rating of,
and our hedging positions with, each counterparty. Additionally,
we utilize a portfolio of financial institutions to minimize our
exposure to potential counterparty defaults and will adjust our
positions if necessary. We also monitor counterparty risk for
derivative contracts within our defined benefit pension plans.
Commodity price risks VF is exposed to market
risks for the pricing of cotton and other fibers, which may
impact 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.
Deferred compensation and related investment security
risks 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 an insignificant 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.
43
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. 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. In addition, we 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, testing goodwill and intangible assets for possible
impairment, equity compensation, pension benefits and
self-insured liabilities. 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 management 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.
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 or off-quality, 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
fair values of the tangible and intangible assets acquired and
liabilities assumed, with any excess purchase price recorded as
goodwill. We evaluate fair value using three valuation
techniques the replacement cost, market and income
methods and weight the valuation method or methods
based on what is most appropriate in the circumstances. The
process of assigning fair values, particularly to acquired
intangible assets, is highly subjective.
Our depreciation policies for property, plant and equipment
reflect judgments on their estimated economic lives and residual
value, if any. Our amortization policies for intangible assets
reflect judgments on the estimated amounts and duration of
future cash flows expected to be generated by those assets. In
evaluating expected benefits to be received for customer-related
intangible assets, we consider historical attrition patterns for
various groups of customers. For license-related intangible
assets, we consider historical trends and anticipated license
renewal periods based on our experience in renewing or extending
similar arrangements, regardless of whether there are explicit
renewal provisions.
44
We review property and definite-lived intangible assets for
possible impairment whenever events or changes in circumstances
indicate that it is more likely than not that the carrying
amount of an asset may not be fully recoverable. We test for
possible impairment at the asset or asset group level, which is
the lowest level for which there are identifiable cash flows. We
measure recoverability of the carrying value of an asset or
asset group by comparison with estimated undiscounted cash flows
expected to be generated by the asset. If the total of
undiscounted cash flows exceeds the carrying value of the asset,
there is no impairment charge. If the undiscounted cash flows
are less than the carrying value of the asset, we estimate the
fair value of the asset based on the present value of its future
cash flows and recognize an impairment charge for the excess of
the assets carrying value over its fair value.
Indefinite-lived intangible assets, consisting of major
trademarks, and goodwill are not subject to amortization.
Rather, we evaluate those assets for possible impairment as of
the beginning of the fourth quarter as part of our annual
strategic planning process, or more frequently if events or
changes in circumstances indicate that it is more likely than
not that the carrying value of an asset may exceed its fair
value. Fair value of an indefinite-lived trademark intangible
asset is based on an income approach using the
relief-from-royalty method. Under this method, forecasted global
revenues for a trademark are assigned a royalty rate that would
be charged to license the trademark (in lieu of ownership) from
an independent party, and fair value is the present value of
those forecasted royalties avoided by owning the trademark. If
the fair value of the trademark intangible asset exceeds its
carrying value, there is no impairment charge. If the fair value
of the asset is less than its carrying value, an impairment
charge would be recognized for the difference.
We assess the recoverability of the carrying value of goodwill
at each reporting unit having goodwill using a required two-step
approach. Our reporting units are either our coalitions or a
component of a coalition if that component is a business unit
for which discrete financial information is available and
reviewed by coalition management. Two or more business units may
be aggregated for impairment testing if they have similar
economic characteristics. In the first step of the goodwill
impairment test, we compare the carrying value of a business
unit, including its recorded goodwill, to the fair value of the
business unit. We estimate the fair value of a business unit
using both income-based and market-based valuation
methodologies. The principal method used is an income-based
method in which the business units forecasted cash flows
are discounted to a present value. In the market-based valuation
method, the fair value of a business unit is estimated using
multiples of revenues and of earnings before interest, taxes,
depreciation and amortization (EBITDA) for
(i) a group of comparable public companies and
(ii) recent transactions, if any, involving comparable
companies. We evaluate the range of fair values developed from
the income and market-based methods and determine the best fair
value estimate for our business unit. If the fair value of the
business unit exceeds its carrying value, the goodwill is not
impaired and no further review is required. However, if the fair
value of the business unit is less than its carrying value, we
perform the second step of the goodwill impairment test to
determine the amount of the impairment charge, if any. The
second step involves a hypothetical allocation of the fair value
of the business unit to its net tangible and intangible assets
(excluding goodwill) as if the business unit were newly
acquired, which results in an implied fair value of goodwill.
The amount of the impairment charge is the excess of the
recorded goodwill over the implied fair value of goodwill.
The income-based fair value methodology requires
managements assumptions and judgments regarding economic
conditions in the markets in which we operate and conditions in
the U.S. capital markets, many of which are outside
managements control. At the business unit level, fair
value estimation requires managements assumptions and
judgments regarding the effects of overall economic conditions
on the specific business unit, along with assessment of the
business units strategies and forecasts of future cash
flows. Forecasts of individual business unit cash flows involve
managements estimates and assumptions regarding:
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Cash flows arising from future revenues and profitability,
changes in working capital, capital spending, depreciation,
amortization and income taxes for a 10 year forecast period.
|
|
|
|
A terminal growth rate of the business unit for years beyond our
10 year financial forecast period. At 10 years, the
forecast assumes that the business has matured and long-term
growth levels have been reached. This terminal growth rate is
generally comparable with historical growth rates for overall
consumer spending and, more specifically, for apparel spending
in the United States.
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45
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A discount rate that reflects the risks inherent in realizing
the forecasted cash flows. A discount rate considers the
risk-free rate of return on long-term Treasury securities, the
risk premium associated with investing in equity securities of
comparably-sized companies, beta obtained from comparable
companies and the cost of debt for investment grade issuers.
|
Under the market-based fair value methodology, judgment is
required in evaluating market multiples and recent transactions.
Management believes that the assumptions used for its impairment
tests are representative of those that would be used by market
participants performing similar valuations of our business units.
We evaluated our goodwill and indefinite-lived trademark
intangible assets for possible impairment during the fourth
quarter of 2009. Based on analysis of current and expected
future economic conditions and our updated strategic plan for
each of our business units, we concluded that the carrying
values of goodwill at our
Reef®,
Nautica®
and
lucy®
business units and the carrying values of trademark intangible
assets at our
Reef®
and
lucy®
business units exceeded their respective fair values.
Accordingly, we recognized in our 2009 Consolidated Statement of
Income impairment charges of $101.9 million to write down
the carrying value of goodwill and $20.1 million to write
down the carrying value of nonamortized trademark intangible
assets. The total noncash charge of $122.0 million had an
insignificant impact on our financial position and no impact on
our liquidity or debt agreements. The charge was based on
significant estimates and judgments by management; changes to
the fair value assumptions used for the
Reef®,
Nautica®
and
lucy®
business units potentially would have resulted in different
goodwill or intangible asset impairment charges. See
Notes G, H and U of the Consolidated Financial Statements
for additional information about the impairment charges recorded
for these business units.
For our other business units, the estimated fair values of those
business units and the fair values of their trademark intangible
assets exceeded their respective carrying values as of the
beginning of the fourth quarter of 2009. Accordingly, no
goodwill or trademark impairment charges were recorded for our
other business units.
For our
Reef®,
Nautica®
and
lucy®
business units and for our other business units, it is possible
that our conclusions regarding impairment of goodwill or
trademark intangible assets could change in future periods if,
for example, (i) overall economic conditions in 2010 or
future years vary from our current assumptions,
(ii) business conditions or our strategies for a specific
business unit change from our current assumptions,
(iii) investors require higher rates of return on equity
investments in the marketplace or (iv) enterprise values of
comparable publicly traded companies, or of actual sales
transactions of comparable companies, were to decline, resulting
in lower multiples of revenues and EBITDA. A future impairment
change for goodwill or intangible assets could have a material
effect on our consolidated financial position or results of
operations.
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 the valuation of
each option grant 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. For each option grant, 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. 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,
46
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 covering
most full-time domestic employees initially employed before 2005
and an unfunded supplemental defined benefit plan that provides
benefits that exceed limitations imposed by income tax
regulations. VF also sponsors defined benefit plans covering
selected international employees. 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 compensation increases, 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. (This discussion of discount rate, and the
discussion of return on assets in the next paragraph, relate
specifically to our U.S. pension plans, which comprise over
90% of the assets and projected benefit liabilities of our
combined domestic and international plans.) 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
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 U.S. pension plans. We use the
population of U.S. corporate bonds rated Aa by
Moodys Investors Service or, if a Moodys rating is
not available, bonds rated Aa by two other
recognized rating services. From this population of over 500
such bonds having at least $50 million outstanding that are
noncallable/nonputtable unless with make-whole provisions, we
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. We believe that those Aa rated
issues meet the high quality intent of the
applicable accounting standards and that our 2009 discount rate
of 6.05% appropriately reflects current market conditions and
the long-term nature of projected benefit payments to
participants in our domestic pension plans. This lower discount
rate, compared with the rate of 6.50% at the end of 2008,
reflects stabilization of the credit markets in the past year
and the general decline in yields of high quality corporate
bonds of all maturities. 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 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
domestic 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. These risks
include market, interest rate, credit, liquidity and foreign
securities risks. Investment assets are comprised of a
diversified portfolio of domestic and international equity,
corporate and governmental fixed income, real estate and
commodity 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 rates of return for
the various classes of assets held by the qualified plan
provides the basis for the expected long-term rate of return
actuarial assumption. Our rate of return assumption was 8.00% in
2009 and 2008 and 8.25% in 2007. The rate of return is a
forward-looking assumption. While our actual compounded annual
rate of return was lower than the 8.00% assumption for the
trailing 10 and 15 year periods, our compounded rate of
return since 1981 has exceeded 9%. We
47
have not changed the overall target mix of investment assets
during 2009; however, we altered the investment mix to add
commodities as a new asset class. Looking forward, we plan to
increase the allocation of equity investments to international
equity investments and reduce the allocation to domestic equity
investments. As the qualified plan becomes fully funded, our
intent is to lengthen the average duration of fixed income
investments to more closely match expected benefit payments,
thereby better matching the effect of interest rate changes on a
portion of the value of our plans investment assets with
the benefit obligations they are intended to fund. These changes
in asset allocation should, over time, reduce the year-to-year
variability of our domestic plans funded status and
resulting pension expense. We will constantly challenge our
plans asset allocation, giving consideration to changes
that will appropriately balance anticipated investment returns
with risk. Based on an evaluation of market conditions,
projected market returns and planned changes in investment mix,
we will be using a rate of return assumption of 7.75% for our
U.S. plan for 2010.
The funded status of our defined benefit pension plans is
reflected in the balance sheet as the excess (or deficiency) of
pension plan assets compared with projected benefit obligations
payable to plan participants. In 2008, there was a significant
decline in the market value of our pension plan investment
assets due to the global credit and financial market crisis,
which resulted in the plans being underfunded by
$414.9 million at the end of 2008. This underfunded status
was presented in our 2008 Consolidated Balance Sheet by
recognition of liabilities of that amount. Our underfunded
status improved during 2009 primarily from substantial VF cash
contributions to the plans totaling over $200 million and
significant investment earnings on pension plan assets,
partially offset by an increase in projected benefit obligations
due to a decline in the discount rate during the year. The
resulting underfunded status in our 2009 Consolidated Balance
Sheet was $250.9 million, represented by $3.3 million
of current liabilities and $247.6 million of noncurrent
liabilities. The funded status of our plans recognized in our
Consolidated Balance Sheets could change significantly in future
years depending on investment portfolio performance, the level
of VF contributions to the pension plans, changes in the
discount rate used to value projected benefit obligations or
other factors.
Differences in any year between actual results and the
respective actuarial assumptions (e.g., investment performance,
discount rates and other assumptions) do not affect that
years pension expense but instead are deferred as
unrecognized actuarial gains or losses in accumulated other
comprehensive income in the balance sheet. The substantial
investment losses incurred in 2008 was the primary reason that
the plans had over $450 million of pretax accumulated
unrecognized actuarial losses at the end of 2008, which resulted
in deferred actuarial losses of $291.0 million after tax in
Accumulated Other Comprehensive Income (Loss) in our 2008
Consolidated Balance Sheet. During 2009, investment returns in
our pension plans substantially exceeded the actuarially assumed
investment return, resulting in a deferred actuarial gain. This
was partially offset, however, by a deferred actuarial loss in
2009 from an increase in our projected benefit obligations
resulting from a lower discount rate used to value those
obligations at the end of 2009. Accordingly, our net pretax
cumulative unrecognized actuarial losses of $431.5 million
at the end of 2009 resulted in deferred actuarial losses of
$266.0 million after tax in Accumulated Other Comprehensive
Income (Loss) in our 2009 Consolidated Balance Sheet. Our policy
is to amortize any 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
are amortized over five years.
Pension expense recognized in our financial statements was
$98.0 million in 2009, $10.8 million in 2008 and
$13.1 million in 2007. This compares with the cost of
pension benefits actually earned by our covered active employees
(commonly called service cost) of $14.9 million
in 2009 and an average of $17.7 million per year over the
last three years. Pension expense for 2009 was significantly
higher than the annual service cost because 2009 included a
significant cost component for amortization of accumulated
unrecognized actuarial losses (as discussed in the preceding
paragraph). Looking forward, our 2010 pension expense will also
include a significant cost component (but lower than in
2009) for amortization of accumulated unrecognized
actuarial losses. With this lower amortization cost component
for 2010 and, more importantly, greater assumed earnings due to
the sharp increase in plan assets during 2009 (including over
$200 million of VF contributions), we expect our 2010
pension expense to decline to approximately $66 million.
48
The sensitivity of changes in actuarial assumptions on our 2009
pension expense and on projected benefit obligations at the end
of 2009, all other factors being equal, is illustrated by the
following:
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|
|
|
|
|
|
|
|
Increase (Decrease) in
|
|
|
|
|
|
|
Projected
|
|
|
|
Pension Expense
|
|
|
Benefit Obligations
|
|
|
|
Dollars in millions
|
|
|
0.50% decrease in discount rate
|
|
$
|
13
|
|
|
$
|
83
|
|
0.50% increase in discount rate
|
|
|
(12
|
)
|
|
|
(77
|
)
|
0.50% decrease in expected investment return
|
|
|
3
|
|
|
|
|
|
0.50% increase in expected investment return
|
|
|
(3
|
)
|
|
|
|
|
0.50% decrease in rate of compensation change
|
|
|
(1
|
)
|
|
|
(4
|
)
|
0.50% increase in rate of compensation change
|
|
|
1
|
|
|
|
4
|
|
As previously mentioned, we made $200.0 million of
discretionary contributions to our domestic qualified pension
plan during 2009. VF is not required under applicable
regulations, and does not currently intend, to make a
contribution to the domestic qualified pension plan during 2010
but does intend to make contributions totaling approximately
$8 million during 2010 to its other pension plans. We
believe that VF has sufficient liquidity to make contributions
to our pension plans, as necessary, in future years to return
the plans to a fully or substantially fully funded status.
Beginning in 2005, VFs domestic defined benefit plans were
closed to new entrants, which did not affect the benefits of
plan participants at that date or their accrual of future
benefits. Domestic employees hired after 2004, plus employees at
certain acquired businesses not covered by those plans,
participate in a defined contribution plan with VF contributing
amounts based on a percentage of eligible compensation. Funds
contributed 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 will
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
the accounting literature. 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 $143.6 million of deferred income tax
assets related to operating loss and capital loss carryforwards,
and we have recorded $99.2 million of valuation allowances
against those assets. Realization of deferred tax assets related
to operating loss and capital loss carryforwards is dependent on
future taxable income in specific jurisdictions, the amount and
timing of which are uncertain, and on 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. In addition, we have recorded $11.2 million of
valuation allowances against deferred income tax assets
unrelated to operating loss and capital loss
49
carryforwards. 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
have asserted that these earnings are indefinitely reinvested in
the respective foreign jurisdictions. 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.
Non-GAAP Financial
Information
VF is a global company that reports financial information in
U.S. dollars in accordance with GAAP. Foreign currency
exchange rate fluctuations affect the amounts reported by VF
from translating our foreign revenues and expenses into
U.S. dollars. These exchange rate fluctuations can have a
significant effect on reported operating results and,
accordingly, can affect the comparability of reported results.
To better explain our operating results, we use constant
currency information, which excludes the effects of changes in
foreign currency translation rates, to provide a framework to
assess how our businesses performed relative to prior periods.
Accordingly, we have provided supplemental constant currency
financial information, which is a non-GAAP financial measure, in
the Analysis of Results of Operations section.
Constant currency information represents the current year
reported revenues after adjustment to eliminate the translation
effects of changes in exchange rates. To calculate Coalition
Revenues on a constant currency basis, revenues for the current
year period for entities reporting in currencies other than the
U.S. dollar are translated into U.S. dollars at the
average exchange rates in effect during the comparable period of
the prior year (rather than the actual exchange rates in effect
during the current year period).
We believe the following supplemental constant currency
financial information is useful to investors to facilitate
comparisons of operating results and better identify trends in
our businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 2009
|
|
|
|
|
|
|
Exclude
|
|
|
|
|
|
|
|
|
|
Impact of Foreign
|
|
|
Constant
|
|
|
|
As Reported
|
|
|
Currency Exchange
|
|
|
Currency
|
|
|
|
In millions
|
|
|
Coalition Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor & Action Sports
|
|
$
|
2,752
|
|
|
$
|
(76
|
)
|
|
$
|
2,828
|
|
Jeanswear
|
|
|
2,522
|
|
|
|
(77
|
)
|
|
|
2,599
|
|
Imagewear
|
|
|
865
|
|
|
|
|
|
|
|
866
|
|
Sportswear
|
|
|
498
|
|
|
|
|
|
|
|
498
|
|
Contemporary Brands
|
|
|
472
|
|
|
|
(3
|
)
|
|
|
475
|
|
Other
|
|
|
111
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total coalition revenues
|
|
$
|
7,220
|
|
|
$
|
(156
|
)
|
|
$
|
7,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, we discuss operating results in the preceding
Analysis of Results of Operations section excluding
the impairment charge for goodwill and intangible assets. We
believe this non-GAAP financial
50
information is useful to investors to facilitate comparisons of
operating results and better identify trends in our businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 2009
|
|
|
|
|
|
|
Exclude
|
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
|
|
|
|
As Reported
|
|
|
Charge
|
|
|
As Adjusted
|
|
|
|
In millions
|
|
|
Income Before Income Taxes
|
|
$
|
655
|
|
|
$
|
(122
|
)
|
|
$
|
777
|
|
Income Taxes
|
|
|
196
|
|
|
|
(8
|
)
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
458
|
|
|
|
(114
|
)
|
|
|
573
|
|
Net (Income) Loss Attributable to Noncontrolling Interests in
Subsidiaries
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to VF Corporation
|
|
$
|
461
|
|
|
$
|
(114
|
)
|
|
$
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share Attributable to VF Corporation Common
Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
4.18
|
|
|
$
|
(1.04
|
)
|
|
$
|
5.22
|
|
Diluted
|
|
|
4.13
|
|
|
|
(1.03
|
)
|
|
|
5.16
|
|
(Above amounts may not add due to rounding.)
These constant currency and other non-GAAP performance measures
should be viewed in addition to, and not in lieu of or superior
to, our financial results calculated in accordance with GAAP.
Also, this supplemental information may not be comparable to
similarly titled measures reported by other companies.
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
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 1A. 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.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
Not applicable.
51
|
|
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 2, 2010. 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 2, 2010. The effectiveness of VFs internal
control over financial reporting as of January 2, 2010 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.
|
|
Item 9B.
|
Other
Information.
|
Not applicable.
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 2010 Proxy
Statement that will be filed with the Securities and Exchange
Commission within 120 days after the close of our fiscal
year ended January 2, 2010, 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 2010 Proxy Statement that will be
filed with the Securities and Exchange Commission within
120 days after the close of our fiscal year ended
January 2, 2010, 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
52
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.
|
|
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 2010
Proxy Statement that will be filed with the Securities and
Exchange Commission within 120 days after the close of our
fiscal year ended January 2, 2010, which information is
incorporated herein by reference.
|
|
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 2010 Proxy
Statement that will be filed with the Securities and Exchange
Commission within 120 days after the close of our fiscal
year ended January 2, 2010, 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 2010 Proxy Statement that will be filed with the
Securities and Exchange Commission within 120 days after
the close of our fiscal year ended January 2, 2010, 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 2010 Proxy
Statement that will be filed with the Securities and Exchange
Commission within 120 days after the close of our fiscal
year ended January 2, 2010, which information is
incorporated herein by reference.
53
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 (*):
|
|
|
|
|
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 2009 and 2008
|
|
F-4
|
Consolidated statements of income Fiscal years ended
December 2009, 2008 and 2007
|
|
F-5
|
Consolidated statements of comprehensive income
Fiscal years ended December 2009, 2008 and 2007
|
|
F-6
|
Consolidated statements of cash flows Fiscal years
ended December 2009, 2008 and 2007
|
|
F-7
|
Consolidated statements of stockholders equity
Fiscal years ended December 2009, 2008 and 2007
|
|
F-8
|
Notes to consolidated financial statements
|
|
F-10
|
|
|
|
* |
|
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 2009, 2008 and
2007 relate to the fiscal years ended on
January 2, 2010 (52 weeks), January 3, 2009
(53 weeks) and December 29, 2007 (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:
|
|
|
|
|
|
|
Page
|
|
|
Number
|
|
Schedule II Valuation and qualifying accounts
|
|
|
F-48
|
|
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.
|
|
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
3
|
.
|
|
Articles of incorporation and bylaws:
|
|
|
|
|
(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)
|
|
4
|
.
|
|
Instruments defining the rights of security holders, including
indentures:
|
|
|
|
|
(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)
|
54
|
|
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
|
|
|
(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)
|
|
|
|
|
(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)
|
|
|
|
|
(F)
|
|
Indenture between VF and The Bank of New York
Trust Company, N.A., as Trustee, dated October 10,
2007 (Incorporated by reference 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
|
|
|
|
|
*(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
|
|
|
|
|
*(E)
|
|
Form of Award Certificate for Restricted Stock Units for
Non-Employee Directors
|
|
|
|
|
*(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)
|
55
|
|
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
|
|
|
*(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)
|
|
|
|
|
*(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
(Incorporated by reference to Exhibit 10(W) to
Form 10-K
for the year ended January 3, 2009)
|
|
|
|
|
*(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
|
|
|
|
|
(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. (Incorporated by reference to Exhibit 14 to Form
10-K for the
year ended January 3, 2009)
|
|
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
|
56
|
|
|
|
|
|
|
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.
57
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, 2010
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
|
|
|
|
|
|
|
|
Richard T. Carucci*
|
|
Director
|
|
|
|
|
|
|
|
Juliana L. Chugg*
|
|
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, 2010
|
58
VF
CORPORATION
Index to Consolidated Financial Statements
and Financial Statement Schedule
December 2009
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
|
|
|
F-10
|
|
|
|
|
F-47
|
|
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 2, 2010.
Managements assessment of the effectiveness of VFs
internal control over financial reporting as of January 2,
2010 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 2, 2010 and January 3, 2009, and the results
of their operations and their cash flows for each of the three
years in the period ended January 2, 2010 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 2, 2010, 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) noncontrolling interests effective
January 4, 2009; (ii) uncertain tax positions
effective December 31, 2006; and (iii) the measurement
date related to defined benefit pension and other postretirement
plans 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, 2010
F-3
VF
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
December
|
|
|
|
2009
|
|
|
2008
|
|
|
|
In thousands,
|
|
|
|
except share amounts
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
731,549
|
|
|
$
|
381,844
|
|
Accounts receivable, less allowance for doubtful accounts
of $60,380 in 2009 and $48,163 in 2008
|
|
|
776,140
|
|
|
|
851,282
|
|
Inventories
|
|
|
958,639
|
|
|
|
1,151,895
|
|
Deferred income taxes
|
|
|
64,959
|
|
|
|
96,339
|
|
Other current assets
|
|
|
98,069
|
|
|
|
171,650
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,629,356
|
|
|
|
2,653,010
|
|
Property, Plant and Equipment
|
|
|
614,178
|
|
|
|
642,727
|
|
Intangible Assets
|
|
|
1,535,121
|
|
|
|
1,366,222
|
|
Goodwill
|
|
|
1,367,680
|
|
|
|
1,313,798
|
|
Other Assets
|
|
|
324,322
|
|
|
|
458,111
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,470,657
|
|
|
$
|
6,433,868
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
45,453
|
|
|
$
|
53,580
|
|
Current portion of long-term debt
|
|
|
203,179
|
|
|
|
3,322
|
|
Accounts payable
|
|
|
373,186
|
|
|
|
435,381
|
|
Accrued liabilities
|
|
|
470,765
|
|
|
|
519,899
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,092,583
|
|
|
|
1,012,182
|
|
Long-term Debt
|
|
|
938,494
|
|
|
|
1,141,546
|
|
Other Liabilities
|
|
|
626,295
|
|
|
|
722,895
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common Stock, stated value $1; shares authorized, 300,000,000;
110,285,132 shares outstanding in 2009 and 109,847,563 in
2008
|
|
|
110,285
|
|
|
|
109,848
|
|
Additional paid-in capital
|
|
|
1,864,499
|
|
|
|
1,749,464
|
|
Accumulated other comprehensive income (loss)
|
|
|
(209,742
|
)
|
|
|
(276,294
|
)
|
Retained earnings
|
|
|
2,050,109
|
|
|
|
1,972,874
|
|
Noncontrolling interests in subsidiaries
|
|
|
(1,866
|
)
|
|
|
1,353
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,813,285
|
|
|
|
3,557,245
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,470,657
|
|
|
$
|
6,433,868
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
VF
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
In thousands, except per share amounts
|
|
|
Net Sales
|
|
$
|
7,143,074
|
|
|
$
|
7,561,621
|
|
|
$
|
7,140,811
|
|
Royalty Income
|
|
|
77,212
|
|
|
|
80,979
|
|
|
|
78,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
7,220,286
|
|
|
|
7,642,600
|
|
|
|
7,219,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
4,025,122
|
|
|
|
4,283,680
|
|
|
|
4,080,022
|
|
Marketing, administrative and general expenses
|
|
|
2,336,394
|
|
|
|
2,419,925
|
|
|
|
2,173,896
|
|
Impairment of goodwill and intangible assets
|
|
|
121,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,483,469
|
|
|
|
6,703,605
|
|
|
|
6,253,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
736,817
|
|
|
|
938,995
|
|
|
|
965,441
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,230
|
|
|
|
6,115
|
|
|
|
9,310
|
|
Interest expense
|
|
|
(85,902
|
)
|
|
|
(94,050
|
)
|
|
|
(72,122
|
)
|
Miscellaneous, net
|
|
|
1,528
|
|
|
|
(2,969
|
)
|
|
|
4,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82,144
|
)
|
|
|
(90,904
|
)
|
|
|
(58,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations Before Income Taxes
|
|
|
654,673
|
|
|
|
848,091
|
|
|
|
906,703
|
|
Income Taxes
|
|
|
196,215
|
|
|
|
245,244
|
|
|
|
292,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations
|
|
|
458,458
|
|
|
|
602,847
|
|
|
|
613,871
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
(21,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
458,458
|
|
|
|
602,847
|
|
|
|
592,246
|
|
Net (Income) Loss Attributable to Noncontrolling Interests in
Subsidiaries
|
|
|
2,813
|
|
|
|
(99
|
)
|
|
|
(625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to VF Corporation
|
|
$
|
461,271
|
|
|
$
|
602,748
|
|
|
$
|
591,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Common Share Attributable to VF
Corporation Common Stockholders Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
4.18
|
|
|
$
|
5.52
|
|
|
$
|
5.55
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.20
|
)
|
Net income
|
|
|
4.18
|
|
|
|
5.52
|
|
|
|
5.36
|
|
Earnings (Loss) Per Common Share Attributable to VF
Corporation Common Stockholders Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
4.13
|
|
|
$
|
5.42
|
|
|
$
|
5.41
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.19
|
)
|
Net income
|
|
|
4.13
|
|
|
|
5.42
|
|
|
|
5.22
|
|
Cash Dividends Per Common Share
|
|
$
|
2.37
|
|
|
$
|
2.33
|
|
|
$
|
2.23
|
|
See notes to consolidated financial statements.
F-5
VF
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
In thousands
|
|
|
Net Income
|
|
$
|
458,458
|
|
|
$
|
602,847
|
|
|
$
|
592,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) arising during year
|
|
|
52,735
|
|
|
|
(133,035
|
)
|
|
|
136,877
|
|
Less income tax effect
|
|
|
(15,267
|
)
|
|
|
30,057
|
|
|
|
(33,493
|
)
|
Reclassification of (gains) losses 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
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year actuarial gains (losses)
|
|
|
(9,916
|
)
|
|
|
(378,272
|
)
|
|
|
66,999
|
|
Amortization of deferred actuarial losses
|
|
|
60,525
|
|
|
|
1,562
|
|
|
|
5,296
|
|
Plan amendment
|
|
|
(13,024
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
4,266
|
|
|
|
2,691
|
|
|
|
2,691
|
|
Settlement charge
|
|
|
|
|
|
|
4,383
|
|
|
|
|
|
Less income tax effect
|
|
|
(16,830
|
)
|
|
|
142,620
|
|
|
|
(28,724
|
)
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses arising during year
|
|
|
(8,971
|
)
|
|
|
(10,099
|
)
|
|
|
(26,377
|
)
|
Less income tax effect
|
|
|
3,457
|
|
|
|
3,795
|
|
|
|
10,119
|
|
Reclassification to net income for losses realized
|
|
|
9,802
|
|
|
|
12,869
|
|
|
|
8,746
|
|
Less income tax effect
|
|
|
(3,778
|
)
|
|
|
(4,836
|
)
|
|
|
(3,355
|
)
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) arising during year
|
|
|
3,553
|
|
|
|
(8,534
|
)
|
|
|
(9,438
|
)
|
Less income tax effect
|
|
|
|
|
|
|
|
|
|
|
6,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
66,552
|
|
|
|
(337,789
|
)
|
|
|
162,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
525,010
|
|
|
|
265,058
|
|
|
|
754,854
|
|
Comprehensive (Income) Loss Attributable to Noncontrolling
Interests
|
|
|
2,739
|
|
|
|
(377
|
)
|
|
|
(961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income Attributable to VF Corporation
|
|
$
|
527,749
|
|
|
$
|
264,681
|
|
|
$
|
753,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
VF
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
In thousands
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
458,458
|
|
|
$
|
602,847
|
|
|
$
|
592,246
|
|
Adjustments to reconcile net income to cash provided
|
|
|
|
|
|
|
|
|
|
|
|
|
by operating activities of continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
21,625
|
|
Impairment of goodwill and intangible assets
|
|
|
121,953
|
|
|
|
-
|
|
|
|
|
|
Depreciation
|
|
|
113,207
|
|
|
|
105,059
|
|
|
|
94,540
|
|
Amortization of intangible assets
|
|
|
40,500
|
|
|
|
39,427
|
|
|
|
27,106
|
|
Other amortization
|
|
|
16,745
|
|
|
|
21,685
|
|
|
|
19,581
|
|
Stock-based compensation
|
|
|
36,038
|
|
|
|
31,592
|
|
|
|
62,413
|
|
Provision for doubtful accounts
|
|
|
24,836
|
|
|
|
22,062
|
|
|
|
13,859
|
|
Pension funding under (over) expense
|
|
|
(114,149
|
)
|
|
|
(4,787
|
)
|
|
|
7,094
|
|
Deferred income taxes
|
|
|
54,674
|
|
|
|
23,654
|
|
|
|
(3,748
|
)
|
Other, net
|
|
|
(6,923
|
)
|
|
|
(11,477
|
)
|
|
|
(13,548
|
)
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
75,449
|
|
|
|
52,679
|
|
|
|
(49,673
|
)
|
Inventories
|
|
|
209,439
|
|
|
|
(38,275
|
)
|
|
|
(24,113
|
)
|
Other current assets
|
|
|
77,173
|
|
|
|
(66,866
|
)
|
|
|
15,644
|
|
Accounts payable
|
|
|
(69,560
|
)
|
|
|
(67,214
|
)
|
|
|
77,212
|
|
Accrued compensation
|
|
|
(11,714
|
)
|
|
|
471
|
|
|
|
(1,932
|
)
|
Accrued income taxes
|
|
|
14,763
|
|
|
|
24,118
|
|
|
|
(7,541
|
)
|
Accrued liabilities
|
|
|
(25,182
|
)
|
|
|
(22,438
|
)
|
|
|
31,986
|
|
Other assets and liabilities
|
|
|
(42,222
|
)
|
|
|
(33,065
|
)
|
|
|
(29,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities of continuing operations
|
|
|
973,485
|
|
|
|
679,472
|
|
|
|
833,629
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
-
|
|
|
|
(21,625
|
)
|
Adjustments to reconcile loss from discontinued operations
to cash used by discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of discontinued operations
|
|
|
|
|
|
|
-
|
|
|
|
24,554
|
|
Other, net
|
|
|
|
|
|
|
(1,071
|
)
|
|
|
(15,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used by operating activities of discontinued operations
|
|
|
|
|
|
|
(1,071
|
)
|
|
|
(13,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
973,485
|
|
|
|
678,401
|
|
|
|
820,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(85,859
|
)
|
|
|
(124,207
|
)
|
|
|
(113,863
|
)
|
Business acquisitions, net of cash acquired
|
|
|
(212,339
|
)
|
|
|
(93,377
|
)
|
|
|
(1,060,636
|
)
|
Software purchases
|
|
|
(9,735
|
)
|
|
|
(10,601
|
)
|
|
|
(6,367
|
)
|
Sale of intimate apparel business
|
|
|
|
|
|
|
-
|
|
|
|
348,714
|
|
Sale of other businesses
|
|
|
580
|
|
|
|
537
|
|
|
|
12,368
|
|
Other, net
|
|
|
(9,523
|
)
|
|
|
11,862
|
|
|
|
13,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used by investing activities of continuing operations
|
|
|
(316,876
|
)
|
|
|
(215,786
|
)
|
|
|
(805,819
|
)
|
Discontinued operations, net
|
|
|
|
|
|
|
-
|
|
|
|
(243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used by investing activities
|
|
|
(316,876
|
)
|
|
|
(215,786
|
)
|
|
|
(806,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in short-term borrowings
|
|
|
(11,019
|
)
|
|
|
(67,736
|
)
|
|
|
36,785
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
-
|
|
|
|
592,758
|
|
Payments on long-term debt
|
|
|
(3,242
|
)
|
|
|
(3,632
|
)
|
|
|
(168,671
|
)
|
Purchase of Common Stock
|
|
|
(111,974
|
)
|
|
|
(149,729
|
)
|
|
|
(350,000
|
)
|
Cash dividends paid
|
|
|
(261,682
|
)
|
|
|
(255,235
|
)
|
|
|
(246,634
|
)
|
Proceeds from issuance of Common Stock
|
|
|
62,590
|
|
|
|
64,972
|
|
|
|
69,539
|
|
Tax benefits of stock option exercises
|
|
|
6,464
|
|
|
|
22,504
|
|
|
|
15,571
|
|
Other, net
|
|
|
(480
|
)
|
|
|
(905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used by financing activities
|
|
|
(319,343
|
)
|
|
|
(389,761
|
)
|
|
|
(50,652
|
)
|
Effect of Foreign Currency Rate Changes on Cash
|
|
|
12,439
|
|
|
|
(12,873
|
)
|
|
|
14,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Equivalents
|
|
|
349,705
|
|
|
|
59,981
|
|
|
|
(21,361
|
)
|
Cash and Equivalents Beginning of Year
|
|
|
381,844
|
|
|
|
321,863
|
|
|
|
343,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents End of Year
|
|
$
|
731,549
|
|
|
$
|
381,844
|
|
|
$
|
321,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-7
VF
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VF Corporation Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Non-
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
controlling
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Interests
|
|
|
|
In thousands
|
|
|
Balance, December 2006
|
|
$
|
112,185
|
|
|
$
|
1,469,764
|
|
|
$
|
(123,652
|
)
|
|
$
|
1,806,875
|
|
|
$
|
232
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
591,621
|
|
|
|
625
|
|
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
|
)
|
|
|
|
|
Acquisition of noncontrolling interest in subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,095
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(562
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
129,958
|
|
|
|
|
|
|
|
336
|
|
Defined benefit pension plans
|
|
|
|
|
|
|
|
|
|
|
46,262
|
|
|
|
|
|
|
|
|
|
Changes in accounting policies (Note A)
|
|
|
|
|
|
|
|
|
|
|
22,539
|
|
|
|
(6,085
|
)
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
(10,867
|
)
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
(2,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 2007
|
|
|
109,798
|
|
|
|
1,619,320
|
|
|
|
61,495
|
|
|
|
1,786,216
|
|
|
|
1,726
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
602,748
|
|
|
|
99
|
|
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
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(750
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
(103,968
|
)
|
|
|
|
|
|
|
278
|
|
Defined benefit pension plans
|
|
|
|
|
|
|
|
|
|
|
(227,016
|
)
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
1,729
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
(8,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 2008
|
|
|
109,848
|
|
|
|
1,749,464
|
|
|
|
(276,294
|
)
|
|
|
1,972,874
|
|
|
|
1,353
|
|
Continued
F-8
VF
CORPORATION
Consolidated
Statements of Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VF Corporation Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Non-
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
controlling
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Interests
|
|
|
|
In thousands
|
|
|
Balance, December 2008
|
|
$
|
109,848
|
|
|
$
|
1,749,464
|
|
|
$
|
(276,294
|
)
|
|
$
|
1,972,874
|
|
|
$
|
1,353
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
461,271
|
|
|
|
(2,813
|
)
|
Common Stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(261,682
|
)
|
|
|
|
|
Purchase of treasury stock
|
|
|
(1,560
|
)
|
|
|
|
|
|
|
|
|
|
|
(110,415
|
)
|
|
|
|
|
Stock compensation plans, net
|
|
|
1,977
|
|
|
|
115,035
|
|
|
|
|
|
|
|
(12,732
|
)
|
|
|
|
|
Common Stock held in trust for deferred compensation plans
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
793
|
|
|
|
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(480
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
37,468
|
|
|
|
|
|
|
|
74
|
|
Defined benefit pension plans
|
|
|
|
|
|
|
|
|
|
|
25,021
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
|
|
3,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 2009
|
|
$
|
110,285
|
|
|
$
|
1,864,499
|
|
|
$
|
(209,742
|
)
|
|
$
|
2,050,109
|
|
|
$
|
(1,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-9
VF
CORPORATION
December
2009
|
|
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 outdoor and action sports apparel,
jeanswear 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 27% of 2009 total revenues. 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 generally accepted accounting principles (GAAP)
in the United States of America. The consolidated financial
statements include the accounts of VF and its majority-owned
subsidiaries, after elimination of intercompany transactions and
balances. For consolidated subsidiaries that are not wholly
owned, the minority owners interests (noncontrolling
interests) in net income, comprehensive income and
stockholders equity are separately presented in the
financial statements.
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 are recorded initially at
cost in Other Assets in the Consolidated Balance Sheets. Those
amounts are adjusted to recognize VFs proportional share
of the investees earnings and dividends after the date of
investment. VFs share of net income of these investments,
totaling $0.8 million in 2009, $7.3 million in 2008
and $4.2 million in 2007, 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 2007 Consolidated Statement of
Income and the 2008 and 2007 Consolidated Statements of Cash
Flows present the intimate apparel businesses as discontinued
operations. Interest expense was not 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 2009,
2008 and 2007 relate to the 52 week
fiscal year ended on January 2, 2010, the 53 week
fiscal year ended on January 3, 2009 and the 52 week
fiscal year ended on December 29, 2007, 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.
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 2009 presentation.
Changes in Accounting Policies: In June 2009,
the Financial Accounting Standards Board (FASB)
issued the FASB Accounting Standards
Codificationtm
(the ASC) as the source of authoritative
U.S. GAAP recognized by the FASB to be applied to
nongovernmental entities. The ASC also recognizes rules and
interpretive releases of the Securities and Exchange Commission
(SEC) as authoritative GAAP for SEC registrants. The
ASC, which
F-10
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
became effective in 2009, supersedes all existing non-SEC
accounting and reporting standards but does not change
U.S. GAAP. Accordingly, references to standards issued
prior to the codification have been replaced with a description
of the applicable accounting guidance.
In September 2006, the FASB adopted new accounting guidance for
the measurement date used to value pension plan assets and
obligations. Accordingly, VF elected, effective at the beginning
of 2007, to change its plans measurement date to December
and recorded (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. Further, in March 2009, the FASB
issued new accounting guidance on disclosures for pension and
other postretirement benefit plans. The new guidance expands
disclosure requirements to provide information about an
employers defined benefit pension plans, including the
major categories and fair values of plan assets, investment
policies and strategies, and concentrations of credit risk. See
Note N.
In June 2006, the FASB clarified the accounting guidance for
uncertainty in income tax positions. VF adopted the new
accounting guidance 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.
During 2009, VF adopted the FASBs new accounting guidance
on business combinations. The new guidance revises how business
combinations are accounted for, both at the acquisition date and
in subsequent periods. The new guidance changes the accounting
model for a business acquisition from a cost allocation standard
to recognition of the fair value of the assets and liabilities
of the acquired business, regardless of whether a 100% or a
lesser controlling interest is acquired.
During 2009, VF adopted the FASBs new accounting guidance
on noncontrolling interests in consolidated financial
statements. The new guidance requires information about the
entity as a whole, with separate information relating to the
parent or controlling owners and to the noncontrolling
(minority) interests, and provides guidance on the accounting
for transactions between an entity and noncontrolling interests.
Upon adoption of the new guidance, the FASB required retroactive
treatment for the presentation and disclosure requirements, with
all other requirements to be applied prospectively. Accordingly,
for VFs previously issued financial statements:
|
|
|
|
|
Noncontrolling interests in subsidiaries were reclassified from
Other Liabilities to a separate component of Stockholders
Equity.
|
|
|
|
Net income was adjusted to separately present net income
attributable to noncontrolling interests.
|
|
|
|
Comprehensive income was adjusted to separately present
comprehensive income attributable to noncontrolling interests.
|
During 2009, VF adopted the FASBs new accounting guidance
for derivative instruments and hedging activities. The new
guidance 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 and (iii) how derivative instruments and related hedged
items affect an entitys financial position, operating
results and cash flows. See Note V.
During 2009, VF adopted the FASBs new accounting guidance
on the determination of the useful life of intangible assets.
The new guidance amends the factors to be considered in
developing renewal or extension assumptions used to determine
the useful life of an identified intangible asset and requires
expanded disclosures related to the determination of intangible
asset useful lives.
F-11
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
During 2009, VF adopted the FASBs new guidance on
subsequent events, which establishes general standards of
accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued. See Note X.
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 Other
Comprehensive Income (Loss) (OCI). 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 gains of $21.3 million in 2009,
losses of $18.9 million in 2008 and gains of
$7.5 million in 2007, arising from 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 institutional money market
funds that invest in short-term obligations issued or guaranteed
by the U.S. government and short-term time deposits in
U.S. and foreign commercial banks.
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 75% of total 2009
inventories and 77% of total 2008 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 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 cost incurred
during construction of major assets, are capitalized. Repair and
maintenance costs are expensed as incurred. Cost for acquired
intangible assets is fair value based generally on the present
value of expected cash flows. These expected cash flows consider
the stated terms of the rights or contracts acquired and
expected renewal periods, if applicable. The number of renewal
periods considered is based on managements experience in
renewing or extending similar arrangements, regardless of
whether the acquired rights have explicit renewal or extension
provisions. Trademark intangible assets represent individual
acquired trademarks, some of which are registered in over 100
countries. Because of the significant number of trademarks,
renewal of those rights is an ongoing process, with individual
trademark renewals averaging 10 years. License intangible
assets relate to numerous licensing
F-12
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
contracts, with VF as either the licensor or licensee.
Individual license renewals average four years. Costs incurred
to renew or extend the lives of recognized intangible assets are
not significant and are expensed as incurred. Goodwill
represents the excess of cost of an acquired business over the
fair value of net tangible assets and identifiable intangible
assets 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,
consisting of major trademarks, 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. 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. Assets held for sale are measured at the
lower of their carrying value or fair value less costs of
disposal. Upon retirement or disposition, the asset 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 fair value of proceeds received and the
assets carrying value.
VFs policy is to review property and intangible assets
with identified useful lives for possible impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset or asset group may not be recoverable. If
forecasted undiscounted cash flows to be generated by the asset
are not expected to be adequate to recover the assets
carrying value, an impairment charge is recorded for the excess
of the assets carrying value over its estimated fair value.
VFs policy is to evaluate indefinite-lived intangible
assets and goodwill for possible impairment at least annually or
whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. An
intangible asset with an indefinite life (a major trademark) is
evaluated for possible impairment by comparing the fair value of
the asset with its carrying value. Fair value is estimated as
the discounted value of future revenues arising from a trademark
using a royalty rate that an independent party would pay for use
of that trademark. An impairment charge is recorded if the
trademarks carrying value exceeds its estimated fair
value. Goodwill is evaluated for possible impairment by
comparing the fair value of a business unit with its carrying
value, including the goodwill assigned to that business unit.
Fair value of a business unit is estimated using a combination
of income-based and market-based valuation methodologies. Under
the income approach, forecasted cash flows of a business unit
are discounted to a present value using a discount rate
commensurate with the risks of those cash flows. Under the
market approach, the fair value of a business unit is estimated
based on the revenues and earnings multiples of a group of
comparable public companies and from recent transactions
involving comparable companies. An impairment charge is recorded
if the carrying value of the goodwill exceeds its implied fair
value. See Notes H and U for information related to
impairment charges recorded in 2009 for indefinite-lived
trademark intangible assets and goodwill.
Derivative Financial Instruments are measured at their
fair value in the Consolidated Balance Sheets. Unrealized gains
and losses are recognized as assets or liabilities,
respectively, and classified as current or noncurrent based on
the expected period of settlement. The accounting for changes in
the fair value (i.e., gains and losses) of derivative
instruments depends on whether a derivative has been designated
and qualifies as part of a hedging relationship and on the type
of hedging relationship. The criteria used to determine if a
derivative instrument qualifies for hedge accounting treatment
are (i) whether an appropriate hedging instrument has been
identified and designated to reduce a specific exposure and
(ii) whether there is a high correlation between changes in
the fair value of the hedging instrument and the identified
exposure. A qualifying derivative is designated for
F-13
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
accounting purposes, based on the nature of the hedging
relationship, as a fair value hedge, a cash flow hedge or a
hedge of a net investment in a foreign business. VFs
hedging practices and related accounting policies for fair value
hedges and for cash flow hedges are described in Note V. VF
considers its foreign businesses to be long-term investments
and, accordingly, does not hedge those net investments. VF does
not use derivative instruments for trading or speculative
purposes. Hedging cash flows are classified in the Consolidated
Statements of Cash Flows in the same category as the items being
hedged.
VF formally documents hedging instruments and hedging
relationships at the inception of each contract. Further, VF
assesses, both at the inception of a contract and on an ongoing
basis, whether the hedging instruments are effective in
offsetting the risk of the hedged transactions. Occasionally, a
portion of a derivative instrument will be considered
ineffective in hedging the originally identified exposure due to
a decline in amount or a change in timing of the hedged
exposure. In other cases, cash flow hedges of forecasted cash
receipts are dedesignated as hedges when the forecasted sale is
recognized. In those cases, hedge accounting treatment is
discontinued for the ineffective portion of that hedging
instrument or upon dedesignation, and any change in fair value
is recognized in net income when it occurs.
The counterparties to the derivative contracts consist of
financial institutions having A-rated investment grade credit
ratings. To manage its credit risk, VF continually monitors the
credit risks of its counterparties, limits its exposure in the
aggregate and to any single counterparty, and adjusts its
hedging positions as appropriate. The impact of VFs credit
risk and the credit risk of its counterparties, as well as the
ability of each party to fulfill its obligations under the
contracts, is considered in determining the fair value of the
derivative contracts. Credit risk has not had a significant
effect on the fair value of VFs derivative contracts. VF
does not have any credit risk-related contingent features or
collateral requirements with its derivative contracts.
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 recognized when the
product has been received by the customer. Net Sales at
VF-operated retail stores are recognized at the time products
are purchased by consumers. 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. 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 $329.1 million in
2009, $399.1 million in 2008 and $362.1 million in
2007. Advertising costs include cooperative advertising payments
made to VFs retail customers
F-14
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
as direct reimbursement of retailers documented costs
incurred for advertising VFs products. Cooperative
advertising costs, totaling $37.1 million in 2009,
$42.1 million in 2008 and $39.0 million in 2007, are
independently verified to support the fair value of advertising
reimbursed by VF. Shipping and handling costs for delivery of
products to customers totaled $188.2 million in 2009,
$218.4 million in 2008 and $213.0 million in 2007.
Expenses related to royalty income, including amortization of
licensing intangible assets, were $14.5 million in 2009,
$20.8 million in 2008 and $22.4 million in 2007.
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 self-insured for a
substantial portion of its 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 net income attributable to VF
Corporation common stockholders by the weighted average number
of shares of Common Stock outstanding during the period. Diluted
earnings per share considers the additional effect, if dilutive,
of potentially dilutive securities such as stock options,
restricted stock and restricted stock units. 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 period in
which the underlying performance and service conditions have
been satisfied.
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, a loss, or a reasonable estimate of the loss, is
F-15
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
recorded in the consolidated financial statements. Estimates of
losses are adjusted in the period in which additional
information becomes available or circumstances change. A
contingent liability is disclosed 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.
Recently Issued Accounting Standards: New
accounting guidance issued by the FASB but not effective until
after 2009 is not expected to have a significant effect on
VFs consolidated financial position, results of operations
or disclosures.
On March 11, 2009, VF completed the acquisition of Mo
Industries Holdings, Inc. (Mo Industries), owner of
the
Splendid®
and Ella
Moss®
brands of premium sportswear marketed to upscale department and
specialty stores. This transaction resulted in VF acquiring the
remaining two-thirds equity of Mo Industries for a purchase
price of $160.8 million (consisting of $156.1 million
of cash and $4.7 million of notes) and payment of
$52.3 million of debt. In June 2008, VF had acquired
one-third of the outstanding equity of Mo Industries for
$77.4 million. The agreement included put/call rights to
acquire the remaining equity during the first half of 2009 at a
price based on the acquired companys earnings. The initial
investment was recorded in Other Assets and was accounted for
using the equity method of accounting. The carrying value of the
investment was $80.5 million at the time of the March 2009
acquisition, consisting of the initial cost of the investment,
plus the equity in net income of the investment to the date of
acquisition. VF recognized a gain in the first quarter of
$0.3 million from remeasuring its one-third interest in Mo
Industries to fair value. The gain was included in Miscellaneous
Income in VFs Consolidated Statement of Income. This
acquisition contributed $61.2 million to revenues and
$12.0 million to operating earnings in 2009.
Acquisition-related expenses were not significant. Operating
results are reported as part of the Contemporary Brands
Coalition.
On July 31, 2008, VF acquired 100% ownership of its former
50%-owned joint venture that marketed
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. The
investment in 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 are reported as part of the Jeanswear
Coalition.
On February 28, 2007, VF acquired substantially all the
operating assets of Majestic Athletic, Inc.
(Majestic) for a cost of $131.5 million.
Majestic 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 primarily 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 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.
F-16
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
In the Majestic acquisition, the fair value of the net assets
acquired exceeded the purchase price by $14.0 million.
Since there was 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, $5.2 million was
earned in 2009 (payable in 2010), $3.3 million was earned
in 2008 and $1.5 million was earned in 2007. Contingent
consideration of $4.0 million and $5.1 million for
Eagle Creek, based on a measure of profitability, was earned in
2009 (payable in 2010) and 2008, respectively, and was recorded
as Goodwill. In addition, contingent consideration of
$0.8 million related to a prior years acquisition was
earned and recorded as Goodwill in 2008, and an additional
$1.7 million can be earned in 2011, which would also be
recorded as Goodwill.
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 Mo Industries in
2009 and Lee Spain in 2008 at their respective dates of
acquisition:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Acquisition
|
|
|
Acquisition
|
|
|
|
In thousands
|
|
|
Cash and equivalents
|
|
$
|
5,244
|
|
|
$
|
813
|
|
Other tangible assets
|
|
|
18,234
|
|
|
|
21,599
|
|
Intangible assets indefinite-lived
|
|
|
98,900
|
|
|
|
6,314
|
|
Intangible assets amortizable
|
|
|
115,700
|
|
|
|
7,170
|
|
Goodwill
|
|
|
142,361
|
|
|
|
15,678
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
380,439
|
|
|
|
51,574
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
7,384
|
|
|
|
22,209
|
|
Other liabilities, primarily deferred income taxes
|
|
|
79,038
|
|
|
|
3,986
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
86,422
|
|
|
|
26,195
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
294,017
|
|
|
$
|
25,379
|
|
|
|
|
|
|
|
|
|
|
Management believes the
Splendid®,
Ella
Moss®,
7 For All
Mankind®,
lucy®,
Majestic®
and Eagle
Creek®
trademarks and tradenames have indefinite lives. Amounts
assigned to amortizable intangible assets relate primarily to
customer relationships in each year, which are being amortized
using accelerated methods over their estimated weighted average
useful lives of 19 years. In the 2007 Acquisitions,
$49.7 million of licensing contracts are being amortized
using straight-line and accelerated methods over their estimated
weighted average useful lives of 18 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
Mo Industries, Seven For All Mankind, lucy activewear, Majestic
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 and The North Face China gave VF control of
its leading brands in additional international markets.
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.
F-17
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
|
|
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.
VF recorded a charge of $42.2 million in 2006 for the
difference between the recorded book value of the intimate
apparel business and the expected net sales proceeds. In 2007,
VF recorded an additional loss on disposal of $24.6 million
due to changes in noncore assets sold, final determination of
the sales price and income tax adjustments.
Summarized 2007 operating results for the discontinued intimate
apparel business prior to its sale were as follows (in
thousands):
|
|
|
|
|
Total revenues
|
|
$
|
196,167
|
|
|
|
|
|
|
Income from operations, net of income taxes of $3,851
|
|
$
|
2,929
|
|
Loss on disposal (no income tax benefit)
|
|
|
(24,554
|
)
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(21,625
|
)
|
|
|
|
|
|
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 jeanswear and casual apparel brand marketed
primarily in Germany. Net foreign currency translation gains
previously deferred in Accumulated OCI on the
H.I.S®
net operating assets of $3.9 million, net of
$2.2 million income taxes, 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.
|
|
Note D
|
Accounts
Receivable
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
In thousands
|
|
|
Trade
|
|
$
|
786,604
|
|
|
$
|
833,561
|
|
Royalty and other
|
|
|
49,916
|
|
|
|
65,884
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable
|
|
|
836,520
|
|
|
|
899,445
|
|
Less allowance for doubtful accounts
|
|
|
60,380
|
|
|
|
48,163
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
776,140
|
|
|
$
|
851,282
|
|
|
|
|
|
|
|
|
|
|
In September 2009, VF entered into an agreement to sell selected
trade accounts receivable, on a revolving basis, to a financial
institution. The agreement covers the sale of up to
$105.0 million of accounts receivable on a nonrecourse
basis. After the sale, VF continues to service and collect these
accounts receivable on behalf of the financial institution but
does not retain any other interests in the receivables. Since
the inception of the agreement, VF sold a total of
$239.3 million of accounts receivable at their stated
amounts, less a funding fee. The funding fee charged by the
financial institution for this program, which totaled
$0.4 million, is recorded in Miscellaneous Expense. Net
proceeds of this accounts receivable sale program are recognized
as part of the change in accounts
F-18
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
receivable in cash provided by operating activities in the
Consolidated Statement of Cash Flows. At the end of December
2009, accounts receivable in the Consolidated Balance Sheet had
been reduced by $74.2 million related to balances sold
under the program.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
In thousands
|
|
|
Finished products
|
|
$
|
772,458
|
|
|
$
|
931,122
|
|
Work in process
|
|
|
70,507
|
|
|
|
87,543
|
|
Materials and supplies
|
|
|
115,674
|
|
|
|
133,230
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
958,639
|
|
|
$
|
1,151,895
|
|
|
|
|
|
|
|
|
|
|
|
|
Note F
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
In thousands
|
|
|
Land
|
|
$
|
47,731
|
|
|
$
|
47,288
|
|
Buildings and improvements
|
|
|
578,861
|
|
|
|
555,407
|
|
Machinery and equipment
|
|
|
975,016
|
|
|
|
954,939
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost
|
|
|
1,601,608
|
|
|
|
1,557,634
|
|
Less accumulated depreciation
|
|
|
987,430
|
|
|
|
914,907
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
614,178
|
|
|
$
|
642,727
|
|
|
|
|
|
|
|
|
|
|
Assets recorded under capital leases, primarily buildings and
improvements, are included in Property, Plant and Equipment at a
cost of $45.3 million, less accumulated amortization of
$12.1 million, at the end of 2009 and a cost of
$51.9 million, less accumulated amortization of
$14.1 million, at the end of 2008. Amortization expense for
assets under capital leases is included in depreciation expense.
Assets having a cost of $21.2 million, less accumulated
depreciation of $1.1 million at the end of 2009 and
$0.6 million at the end of 2008, are subject to a mortgage.
All other Property, Plant and Equipment is unencumbered.
F-19
VF
CORPORATION
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note G
|
Intangible
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Average
|
|
|
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|