North Face 1999 Annual Report Download - page 30

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Stock options outstanding at January 1, 2000 are summarized
as follows:
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
$ 6– 10 8,900 .9 years $ 8.09
16– 20 44,220 1.9 years 17.95
21– 25 641,616 4.6 years 23.49
26– 30 1,179,510 4.7 years 27.01
31– 35 1,127,900 6.9 years 34.48
40– 45 3,629,350 8.6 years 43.25
$ 6– 45 6,631,496 7.2 years $36.74
All above options are exercisable, except for those granted in
1999. There are 4,646,983 shares available for future grants of stock
options and stock awards, of which no more than 1,030,053 may be
grants of restricted stock awards.
Since all stock options are granted at market value, compensation
expense is not required. However, had compensation expense been
determined based on the fair value of the options on the grant dates,
the Company’s net income would have been reduced by $11.9 mil-
lion ($.10 per share) in 1999, $9.7 million ($.08 per share) in 1998
and $9.0 million ($.07 per share) in 1997.
The fair value of options granted during 1999 was $9.97 per
share and of options granted during 1998 was $8.78 per share. Fair
value is estimated based on the Black-Scholes option-pricing model
with the following assumptions for grants in 1999 and 1998: divi-
dend yield of 2.0%; expected volatility of 26% in 1999 and 20% in
1998; risk-free interest rates of 4.8% in 1999 and 5.4% in 1998;
and expected lives of 4 years.
The Company has granted to key employees 67,367 shares of
restricted stock that vest in the year 2005. Compensation equal to
the market value of shares at the date of grant is amortized to expense
over the vesting period. Expense for these shares was $.3 million in
1999 and $.2 million in 1998 and 1997.
In 1999, the Company granted stock awards to certain key
employees under a new stock award plan, which replaced a portion of
the cash incentive compensation for those employees. The stock
awards entitle the participants to the right to receive shares of VF
Common Stock, with the number of shares to be earned based on the
three year total shareholder return of VF Common Stock compared
with a peer group of other major apparel companies. Shares earned at
the end of each three year period are issued to participants in the fol-
lowing year, unless they elect to defer receipt of the shares. A total of
44,962 shares of VF Common Stock were earned for the three year
performance period ended in 1999. At the end of 1999, there are
34,062 stock awards outstanding for the performance period ending
in 2000 and 34,062 for the performance period ending in 2001.
Compensation expense equal to the market value of the shares to be
issued is recognized ratably over each three year performance period.
In 1999, expense of $2.0 million was recognized for this plan.
Note M Income Taxes
The provision for income taxes is computed based on the following
amounts of income before income taxes:
In thousands 1999 1998 1997
Domestic $567,545 $582,128 $514,028
Foreign 28,031 49,470 71,852
$595,576 $631,598 $585,880
The provision for income taxes consists of:
In thousands 1999 1998 1997
Current:
Federal $175,052 $174,346 $201,924
Foreign 14,113 35,082 46,466
State 19,607 14,757 19,553
208,772 224,185 267,943
Deferred, primarily federal 20,562 19,107 (33,005)
$229,334 $243,292 $234,938
The reasons for the difference between income taxes computed by
applying the statutory federal income tax rate and income tax expense
in the financial statements are as follows:
In thousands 1999 1998 1997
Tax at federal statutory rate $208,452 $221,059 $205,058
State income taxes,
net of federal tax benefit 12,744 9,592 12,709
Amortization of intangible assets 8,241 7,916 7,084
Foreign operating losses
with no current benefit 11,608 4,715 4,033
Other, net (11,711) 10 6,054
$229,334 $243,292 $234,938
Deferred income tax assets and liabilities consist of the following:
In thousands 1999 1998
Deferred income tax assets:
Employee benefits $ 51,582 $ 62,564
Inventories 19,990 16,780
Other accrued expenses 79,767 103,811
Operating loss carryforwards 71,911 38,083
Foreign currency translation 34,869 13,806
258,119 235,044
Valuation allowance (46,526) (34,249)
Deferred income tax assets 211,593 200,795
Deferred income tax liabilities:
Depreciation 56,103 59,288
Other 25,244 39,857
Deferred income tax liabilities 81,347 99,145
Net deferred income tax assets $130,246 $101,650
Amount included in:
Current Assets $ 74,067 $ 99,608
Other Assets 56,179 13,554
Other Liabilities – (11,512)
$130,246 $101,650