North Face 2002 Annual Report Download

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VF Corporation 2002 Annual Report
i am...

Table of contents

  • Page 1
    i am... VF Corporation 2002 Annual Report

  • Page 2
    2002 FINANCIAL HIGHLIGHTS In thousands, except per share amounts 2002 2001 2000 Summary of Operations Net sales Operating income Operating margin Income from continuing operations Net income (loss)* Return on capital (continuing operations) Financial Position Working capital Current ratio Cash ...

  • Page 3
    We are a portfolio of brands. Brands people care about. Brands they identify with. At VF Corporation, we don't just create, gather and grow our portfolio of brands. We work hard to tie each one intimately into people's lives. We get to know our customers. Down to their very souls. Now here's your...

  • Page 4
    i am indestructible This much is true: I am running out of quarters, clean underwear and decent pickup lines.

  • Page 5
    What to hold on to: My opinion An entire morning in bed The moment. i am confident

  • Page 6
    Will the coyote ever nail the roadrunner? Why do they call it rush hour when you just sit there? What do they put for hair color on your passport if you're bald? Will she be my next leading lady? i am curious

  • Page 7
    i am real Our weekend excursions aren't a matter of life and death. They're much more important than that.

  • Page 8
    spontaneous i am What's his sign? What's his favorite cereal? Boxers or briefs? London or Paris?

  • Page 9
    i am so... I'm in Prague. My luggage? On its way to Rome So I'll hop a flight tomorrow with that cute guy in the lobby. whatever

  • Page 10
    i crave simplicity Jamie, where's your lunch box? You have to go to the bathroom? Hold it until we get to school, okay? I'm never gonna make it to the meeting. I really need another cup of coffee...

  • Page 11
    A closet full of clothes and nothing to wear. I have no idea where I'll be in 2 years, let alone in 20 minutes. Without Caller ID, I'd be a dead woman. i want it all

  • Page 12
    I'd like to know...What it feels like to run 200 miles...What the fading orange sun looks like over the Tibetan Plateau...What the mountain has to say to me from my perch on the glacier... i am fearless

  • Page 13
    Spend less time on the computer and more on the range. Worry less. Breathe deep. Let him wait. i am free

  • Page 14
    10,000 steps a day. Yoga three times a week. No red meat. Today is the first day of the rest of my life. Once I finish this cheeseburger and fries. i am content

  • Page 15
    Rapidement! Presto! Andele! Faster! GO WEST! i'm outtahere

  • Page 16
    Today I learned: You can make soup out of anything. i love a mess

  • Page 17
    i am a Stuff your face do the dance call the shots start the wave. Bond with people you've never met before in your life. fanatic

  • Page 18
    ... our company strong and healthy. Key accomplishments for 2002 include: > An increase in market share for many of VF's core brands in the U.S., including Lee®, Vanity Fair ® and Bestform® > Strong sales performance by many of our brands in Europe, including Lee®, Wrangler ®, The North Face® and...

  • Page 19
    ... market share, with success in products such as Wrangler ® Five Star Premium Denim and Lee® Dungarees jeans for men, Riders® jeans for women, The North Face® outerwear, JanSport ® Airlift ® packs and Healthtex® Kidproof ® stain resistant childrenswear. Our licensed sports apparel business...

  • Page 20
    ... other apparel company, and giving them and our retail partners the right products at the right time. Keep the momentum going in our U.S. jeans businesses. Challenges we expect to face this year include new competition for our jeans brands in mass market stores and the closing of a number of stores...

  • Page 21
    ... to extend the equity of our brands, so that they make a true lifestyle statement to consumers. For example, our Lee® brand is adding an array of casual, comfortable and stylish pants and tops for both men and women to complement their core denim products. And we're expanding The North Face® brand...

  • Page 22
    ... advertising campaign ever for the brand, resulting in a strong sales increase for the year. Our Wrangler ® and Lee® brands also are distributed throughout Latin America, Mexico and Canada, and are targeted primarily at consumers shopping in department and specialty stores. The U.S. jeans market...

  • Page 23
    ... and print advertising will put a fresh face on the brand in 2003. We're building new business in the mass market with our launch of the CurvationTM brand. Real women with real curves were the inspiration behind the line. These women were often frustrated by 36 DEPARTMENT STORES VANITY FAIR LILY...

  • Page 24
    ... of our brands. ® New in-store shops featuring our Lee, Wrangler ® and H.I.S ® brands will debut in 2003 with one of our large customers in Germany. Our International Jeanswear coalition clearly has its sights set on Retail market conditions are mixed abroad, but our jeans sales in Europe - our...

  • Page 25
    ... ® fashion and function. New travel and accessory lines are contributing to the Eastpak® brand's growth. Our International Outdoor business had an outstanding year in 2002, and this trend is expected to continue in 2003. and The North Face® brands, achieved both higher sales and profits in 2002...

  • Page 26
    ... HORACE SMALL APPAREL COMPANY VF SOLUTIONS LEE WRANGLER HERO JANSPORT GITANO THE NORTH FACE EASTPAK RETAIL LEE SPORT CHASE AUTHENTICS* CSA NFL RED* NFL WHITE* increase the assortments for our customers. Our customer base is diverse and includes corporate accounts and government agencies including...

  • Page 27
    ... help parents and kids match outfits. We see a significant untapped opportunity in mass stores, and have begun testing the new Our Girl by Healthtex line. Early test results TM In 2002, we substantially improved profitability, gained market share in key categories and achieved our long-term return...

  • Page 28
    ...Controller and Chief Accounting Officer George Derhofer VP and Chairman - Imagewear Coalition Susan Williams VP - Human Resources John Schamberger VP and Chairman - North & South America Jeanswear & Playwear Coalitions Mackey McDonald Chairman, President and Chief Executive Officer Candace Cummings...

  • Page 29
    ... reduced our manufacturing, marketing and administrative cost structure and exited underperforming businesses. Principal costs relate to workforce reduction and consolidation and elimination of facilities as we continue to move more production to offshore locations. Severance and related charges are...

  • Page 30
    ... of 2002. • Inventories - Our inventories are stated at the lower of cost or market value. We review all of our inventory each quarter on the basis of individual style-size-color stockkeeping units (SKUs) to identify excess or slow moving products, discontinued and to-be-discontinued product lines...

  • Page 31
    ... Repositioning Program. This consisted of a series of actions to exit underperforming businesses and to aggressively reduce the Company's overall cost structure. Cost reduction initiatives related specifically to closure of manufacturing plants, consolidation of distribution centers and reduction...

  • Page 32
    ... benefits (as employees at several plants worked longer than originally planned during the 60 day notice periods required by law), favorable lease and contract settlements, and other unforeseen developments. Also during 2002, the Company recognized $4.9 million of gains on disposal of plants closed...

  • Page 33
    ... items Restructuring and related items: Restructuring charges $(46,012) Reversal of prior years' restructuring charges 14,787 Gains on sale of closed facilities 4,883 Earnings per share from continuing operations, as reported Restructuring charges: Cost of products sold Marketing, administrative and...

  • Page 34
    ... realized through lower distribution and administrative expenses. Advertising spending increased by $24.1 million to 4.8% of sales in 2002 from 4.2% in 2001, with the increase focused on the ® ® , Wrangler , Vanity Fair , Vassarette ® and The North Face ® Company's Lee ® brands. Expenses as...

  • Page 35
    ... due to the exit of the Wrangler business in Japan and recessionary conditions in Latin America. Domestic intimate apparel sales declined 4% in 2002 and 1% in 2001, as increases in department store brands were more than offset by a lack of new private label programs and by a reduction in Vassarette...

  • Page 36
    ... in the prior year. The Outdoor Apparel and Equipment segment consists of the Company's outdoor-related businesses represented by The North Face ® branded products (outerwear and equipment) and the JanSport ® and Eastpak ® brands (backpacks and daypacks). Sales increased 3% in 2002 and increased...

  • Page 37
    ... 2002, Moody's Investors Service confirmed its ratings of 'A2' for VF's senior unsecured debt and 'Prime-1' for commercial paper based on the value of VF's brands, its strong market share in the jeans business and the strength of its systems which allow the Company to effectively manage inventory...

  • Page 38
    ... We have other financial commitments at the end of 2002 that may require the use of funds under certain circumstances: • Shares of the Company's Series B Convertible Preferred Stock have been issued to participants as matching contributions under the Employee Stock Ownership Plan. If requested by...

  • Page 39
    ... last two years and more in line with historical levels. • For the first quarter of 2003, sales are expected to be up slightly, and earnings per share are expected to be up approximately 10%. Risk Management The Company is exposed to a variety of market risks in the ordinary course of business. We...

  • Page 40
    ... of our retail customers; actions of competitors, customers, suppliers and service providers that may impact the Company's business; completion of software developed by outside vendors and the related implementation of the Company's common systems project; the ability to achieve the anticipated cost...

  • Page 41
    ... and Chief Financial Officer Robert A. Cordaro Vice President - Controller and Chief Accounting Officer Report of Independent Accountants To the Board of Directors and Shareholders VF Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements...

  • Page 42
    ...Liabilities Short-term borrowings Current portion of long-term debt Accounts payable Accrued liabilities Current liabilities of discontinued operations Total current liabilities Long-term Debt Other Liabilities Redeemable Preferred Stock Deferred Contributions to Employee Stock Ownership Plan $ 60...

  • Page 43
    Consolidated Statements of Income In thousands, except per share amounts Fiscal year ended January 4, 2003 December 29, 2001 December 30, 2000 Net Sales Costs and Operating Expenses Cost of products sold Marketing, administrative and general expenses Other operating (income) expense, net $5,083,...

  • Page 44
    ... to net income from disposal of foreign subsidiaries Less income tax effect Minimum pension liability adjustment: Amount arising during year Less income tax effect Foreign exchange hedging contracts: Amount arising during year Less income tax effect Reclassification to net income for (gains)/losses...

  • Page 45
    ... Statements of Cash Flows In thousands Fiscal year ended January 4, 2003 December 29, 2001 December 30, 2000 Operations Net income (loss) Adjustments to reconcile net income (loss) to cash provided by operations: Discontinued operations Cumulative effect of accounting change Restructuring costs...

  • Page 46
    ... Stock Tax benefit from Preferred Stock dividends Redemption of Preferred Stock Purchase of treasury shares Stock compensation plans, net Common Stock held in trust for deferred compensation plans Foreign currency translation Minimum pension liability adjustment Foreign exchange hedging contracts...

  • Page 47
    ... assets of businesses acquired, less accumulated amortization of $315.3 million in 2001. Through 2001, goodwill was amortized using the straight-line method over 10 to 40 years. Effective at the beginning of 2002, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 142...

  • Page 48
    ... per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to all stock-based employee compensation: In thousands, except per share amounts 2002 2001 2000 Net income (loss), as reported Add employee compensation...

  • Page 49
    ... announced a plan to exit the Private Label knitwear business unit, which was a vertically integrated textile business that manufactured and marketed fleece and T-shirts to domestic customers. Management also decided to exit the Jantzen ® swimwear business. During that quarter, the Company recorded...

  • Page 50
    ... totaled $171.2 million. The Company acquired the remaining shares of H.I.S sportswear AG during 2001 and 2002 for a total cost of $6.4 million. All acquisitions have been accounted for as purchases and, accordingly, the purchase prices have been allocated to the net assets acquired based on fair...

  • Page 51
    ...goodwill related to the children's apparel reporting unit was recognized in Other Operating Expense in 2002 based on its forecast of profits and cash flows. Note G - Short-term Borrowings The weighted average interest rate for short-term borrowings from foreign banks was 8.0% at the end of 2002 and...

  • Page 52
    ...management employees. This supplemental plan primarily covers pension benefits computed under the Company's principal benefit plan that exceed payment limitations imposed by income tax regulations. These defined benefit plans provide pension benefits based on compensation levels and years of service...

  • Page 53
    ...status at the end of each year: In thousands 2002 2001 Fair value of plan assets, beginning of year Actual return on plan assets Company contributions Benefits paid Fair value of plan assets, end of year Projected obligations, beginning of year Service cost Interest cost Plan amendment Partial plan...

  • Page 54
    ...addition, 266,146 shares of VF Common Stock at the end of 2002, 266,203 shares at the end of 2001 and 311,608 shares at the end of 2000 are held in trust for deferred compensation plans. These additional shares are treated for financial reporting purposes as treasury shares at a cost of $9.3 million...

  • Page 55
    ...employees' accounts. Note N - Stock-based Compensation The Company may grant nonqualified stock options, stock awards and restricted stock to officers, directors and key employees under a stock compensation plan approved by shareholders. Stock options are granted at prices not less than fair market...

  • Page 56
    ... for those employees. The stock awards entitle the participants to receive shares of VF Common Stock, with the number of shares to be earned based on three year shareholder return comparisons of VF Common Stock with a peer group of major apparel companies. Shares earned at the end of each...

  • Page 57
    ... 2002. Finally, the Company recorded gains of $4.9 million on disposal of closed plants related to the restructuring actions. In the fourth quarter of 2000, the Company recorded a total of $116.6 million of restructuring charges to exit certain unprofitable businesses and to reduce its overall cost...

  • Page 58
    ...: In thousands 2002 2001 2000 Cost of products sold Marketing, administrative and general expenses Other operating expense, net $17,848 8,494 - $26,342 $ 63,743 46,712 3,963 $114,418 $ 53,645 36,089 26,831 $116,565 Note P - Income Taxes The provision for income taxes is computed based on the...

  • Page 59
    ... by applying the statutory federal income tax rate for continuing operations and income tax expense in the financial statements are as follows: In thousands 2002 2001 2000 Tax at federal statutory rate State income taxes, net of federal tax benefit Amortization of goodwill Foreign operating losses...

  • Page 60
    ...Q - Business Segment Information The Company designs and manufactures apparel products marketed primarily under Company-owned brand names. Customers include department, discount and specialty stores throughout the world. Sales to Wal-Mart Stores, Inc. comprise 16.2% of consolidated sales in 2002, 15...

  • Page 61
    ... Consolidated net sales Segment profit: Consumer Apparel Occupational Apparel Outdoor Apparel and Equipment All Other Total segment profit Interest, net Goodwill Restructuring charges, net Corporate and other expenses Consolidated income from continuing operations before income taxes Segment assets...

  • Page 62
    ... and $10.9 million for the years 2003 through 2007. The trustee of the Employee Stock Ownership Plan may require the Company to redeem Series B Convertible Preferred Stock held in participant accounts, and to pay each participant the value of their account, upon retirement or withdrawal from the...

  • Page 63
    ... the Company's short-term and long-term debt is estimated based on quoted market prices or values of comparable borrowings. The fair value of the Series B Convertible Preferred Stock is based on a valuation by an independent financial consulting firm. The fair value of open foreign currency exchange...

  • Page 64
    ... relate to a portion of the Company's significant foreign currency cash flows for inventory purchases and production costs, product sales and intercompany royalty payments anticipated for the following 12 months. The earnings impact of foreign currency forward exchange contracts designated as fair...

  • Page 65
    ...23 $ 2.29 2.26 .89 * In the fourth quarter of 2002, restructuring charges reduced net income by $14.0 million ($.13 per diluted share). See Note O to the Consolidated Financial Statements. ** In the fourth quarter of 2001, restructuring charges reduced net income by $88.7 million ($.80 per diluted...

  • Page 66
    ...ranges have been adjusted to reflect a two-for-one stock split in November 1997. Capital is defined as common shareholders' equity plus short-term and long-term debt. (3) Return on capital is based on operating income plus miscellaneous income (expense), net of income taxes. (4) Operating statistics...

  • Page 67
    ... 18.2% 10.1% 395,056 $ 391,651 100,141 10.9% 11.9% 16.2% 8.6% 648,348 ...2002 includes a $16.4 million ($.14 per diluted share) restructuring charge. 2001 includes a $88.7 million ($.77 per diluted share) restructuring charge. 2000 includes a $73.3 million ($.63 per diluted share) restructuring charge...

  • Page 68
    ... Group, Inc. New York, New York (International investment banking and securities firm) Director since 1994, age 57 W. Alan McCollough 2,5 Chairman, President and Chief Executive Officer Circuit City Stores, Inc. Richmond, Virginia (National retailer) Director since 2000, age 53 Mackey J. McDonald...

  • Page 69
    ...- North & South America Jeanswear & Playwear Coalitions Joined VF in 1972, age 54 Eric C. Wiseman Vice President and Chairman - Global Intimate Apparel Coalition Joined VF in 1995, age 47 Robert K. Shearer Vice President - Finance & Global Processes and Chief Financial Officer Joined VF in 1986, age...

  • Page 70
    Investor Information Common Stock Listed on the New York Stock Exchange and Pacific Exchange - trading symbol VFC. Shareholders of Record As of February 11, 2003, there were 6,022 shareholders of record. Dividend Policy Quarterly dividends on VF Corporation Common Stock, when declared, are paid on...

  • Page 71
    ... Vice President, Financial and Corporate Communications VF Services, Inc. 105 Corporate Center Boulevard Greensboro, North Carolina 27408 Transfer Agent and Registrar First Chicago Trust Company of New York, a Division of EquiServe Mail Suite 4694, P.O. Box 2536 Jersey City, New Jersey 07303-2536...

  • Page 72
    V F C O R P O R AT I O N 2 0 0 2 A N N U A L R E P O RT 105 Corporate Center Blvd. Greensboro, North Carolina 27408 www.vfc.com