North Face 2000 Annual Report Download - page 33

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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 com-
pared with a peer group of major apparel companies. Shares earned
at the end of each three year period are issued to participants in
the following year, unless they elect to defer receipt of the shares.
A total of 39,923 shares and 44,962 shares of VF Common Stock
were earned for the three year performance periods ended in 2000
and 1999, respectively. At the end of 2000, there are 33,875 stock
awards outstanding for the performance period ending in 2001 and
54,711 for the performance period ending in 2002. Compensation
expense equal to the market value of the shares to be issued is
recognized over each three year performance period. Expense of
$1.8 million and $2.0 million was recognized for this plan in 2000
and 1999, respectively. A total of 37,911 shares of Common Stock
are issuable in future years to participants who have elected to
defer receipt of their shares earned.
Note M Restructuring Costs
During the fourth quarter of 2000, the Company recorded pretax
charges totaling $119.9 million ($.67 per share) aimed at eliminating
certain underperforming businesses and reducing the Company’s
overall cost structure. These charges related to exiting certain busi-
nesses and product lines, closing higher cost manufacturing facilities,
consolidating distribution and administrative operations and writing
down assets.
As part of the above charge, the Company recorded costs
totaling $69.7 million to exit several underperforming businesses.
Effective December 27, 2000, the Company transferred its Wrangler
business in Japan to a licensee and recorded a pretax loss on disposi-
tion of $26.8 million, of which $23.8 million related to the write-
off of intangible assets. In the occupational apparel business units,
the Company discontinued its regional catalog and linens businesses
and exited other unprofitable product lines arising from certain of
the companies acquired in late 1998 and early 1999. Finally, the
Company decided to exit certain intimate apparel product lines
having limited profit and growth potential. Sales of these businesses
included in the consolidated operating results were $101 million in
2000, $138 million in 1999 and $92 million in 1998.
Also included are charges of $18.5 million to close certain higher
cost North American manufacturing facilities as part of the
ongoing strategy of moving toward lower cost, more flexible global
sourcing. In other actions, the Company recorded $31.7 million
of other restructuring costs relating to closing and consolidating
distribution centers and administrative offices and functions in the
U.S., Europe and Latin America.
The restructuring costs were recorded in the Consolidated
Statement of Income in Cost of Products Sold – $55.9 million;
Marketing, Administrative and General – $37.2 million; and Other
Operating Expense – $26.8 million. A total of $22.4 million of
the costs relate to personnel reductions, including severance and
related benefits. These actions affect approximately 2,700 of the
Company’s employees. As of December 30, 2000, 400 employees
have been terminated. The remainder of the employees, all of
whom have been notified, are generally located at manufacturing
facilities and will work through the plant closing transition periods
that end in 2001.
Activity in the restructuring accrual is summarized as follows:
Facilities Other Lease and
Exit Asset Contract
In thousands Severance Costs Write-downs Termination Total
Total restructuring costs $22,367 $ 21,850 $ 59,996 $15,695 $119,908
Noncash charges:
Intangible assets – – (23,819) – (23,819)
Inventories – – (22,392) – (22,392)
Other – (20,381) (13,785) – (34,166)
Cash payments (1,976) (8) – (154) (2,138)
Balance
December 30, 2000 $20,391 $ 1,461 $ 0 $15,541 $ 37,393
Remaining severance and other cash payments will be made
into 2002.
Note N Income Taxes
The provision for income taxes is computed based on the follow-
ing amounts of income before income taxes and cumulative effect
of change in accounting policy:
In thousands 2000 1999 1998
Domestic $429,453 $567,545 $582,128
Foreign 2,080 28,031 49,470
$431,533 $595,576 $631,598
The provision for income taxes consists of:
In thousands 2000 1999 1998
Current:
Federal $130,740 $175,052 $174,346
Foreign 23,957 14,113 35,082
State 17,753 19,607 14,757
172,450 208,772 224,185
Deferred, primarily federal (8,033) 20,562 19,107
$164,417 $229,334 $243,292
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 2000 1999 1998
Tax at federal statutory rate $151,037 $208,452 $221,059
State income taxes,
net of federal tax benefit 6,169 12,744 9,592
Amortization of intangible assets 8,812 8,241 7,916
Foreign operating losses
with no current benefit 20,613 13,871 8,988
Change in valuation allowance (4,951) (2,263) (4,273)
Other, net (17,263) (11,711) 10
$164,417 $229,334 $243,292