North Face 2004 Annual Report Download - page 43

2004 Nautica
In thousands Acquisitions Acquisition
Cash and equivalents $ 59,899 $ 75,597
Other current assets 159,343 247,675
Property, plant and equipment 20,034 52,197
Intangible assets 323,500 319,700
Other assets 48,867 10,954
Total assets acquired 611,643 706,123
Current liabilities 171,979 172,751
Long-term debt 1,619 18,092
Other liabilities, primarily deferred income taxes 86,745 48,595
Total liabilities assumed 260,343 239,438
Net assets acquired 351,300 466,685
Goodwill 316,199 217,178
Purchase price $ 667,499 $ 683,863
81vf corporation 2004 Annual Report
Amounts assigned to intangible assets were based
on management’s evaluation of their fair values,
with assistance from an independent valuation firm.
Management believes that amounts assigned to
major trademarks and tradenames have an indefinite
life. Amounts assigned to amortizable intangible
assets for the 2004 Acquisitions totaled $90.4
million and consisted principally of $57.2 million of
customer relationships and $24.4 million of licensing
contracts. These assets were determined to have
weighted average useful lives of 21 years and 8 years,
respectively, and are being amortized primarily using
accelerated methods. Amortizable intangible assets
for the Nautica Acquisition totaled $102.3 million
and consisted principally of $89.5 million of
licensing contracts and $9.7 million of customer
relationships. These assets have weighted average
useful lives of 30 years and 24 years, respectively,
and are being amortized using accelerated methods.
Factors that contributed to the recognition of
Goodwill for the 2004 Acquisitions and the Nautica
Acquisition included (1) expected growth rates and
profitability of the acquired companies, (2) their
experienced workforce, (3) VF’s strategies for growth
in sales, income and cash flows in the various whole-
sale, retail and licensing businesses and (4) expected
synergies with existing VF business units. Goodwill
of $48.0 million related to the 2004 Acquisitions and
of $51.6 million related to the Nautica Acquisition
is expected to be deductible for income tax purposes.
The following unaudited pro forma results of opera-
tions assume that the 2004 and the 2003 acquisitions
had occurred at the beginning of 2003. These pro
forma amounts should not be relied on as an indica-
tion of the results of operations that VF would have
achieved had the acquisitions taken place at a different
date or of future results that VF might achieve:
In thousands, except per share amounts 2004* 2003*
Net sales $6,278,790 $ 6,062,955
Net income 460,311 343,726
Earnings per common share:
Basic $4.17 $ 3.17
Diluted 4.08 3.12
*Pro forma operating results for 2004 include expenses totaling $59.6 million ($0.41 basic and $0.40 diluted per share) and for 2003 include
expenses totaling $35.6 million ($0.24 basic and $0.23 diluted EPS) for settlement of stock options, management contracts and other
transaction expenses incurred by the acquired businesses related to their acquisition by VF.
During 2004, VF acquired the following four
businesses for a total cash cost, including transaction
costs, of $667.5 million (collectively referred to as
the “2004 Acquisitions”):
•The most significant transaction was the acquisition
on June 30, 2004 of 100% of the common stock
of Vans, Inc. (“Vans”) at a price of $20.55 per share,
for a total cost of $373.1 million. Vans designs
and markets Vans® performance and casual
footwear and apparel for skateboarders and other
action sports participants and enthusiasts. In its
most recent fiscal year, Vans had sales of $344
million (unaudited), with sales being split approxi-
mately equally among domestic wholesale accounts,
domestic retail stores and international operations.
•A subsidiary of VF acquired the operating assets
of Kipling® bags, backpacks and accessories
(“Kipling”) on June 14, 2004. Including the
acquisition of the brand rights in the United States
in late 2004, the total cost was $185.0 million.
Based in Belgium, Kipling had sales of $69 million
(unaudited) in its most recent year.
•On May 31, 2004, VF acquired 100% of the
common stock of Green Sport Monte Bianco
S.p.A., makers of Napapijri® premium casual
outdoor sportswear (“Napapijri”), for a total cost of
$103.4 million. Based in Italy, Napapijri had sales of
$76 million (unaudited) in its most recent year.
•VF acquired 51% ownership of a newly formed
company in Mexico for $6.0 million. This company
will market several of VF’s intimate apparel brands,
as well as the Ilusión® brand licensed from the
minority partner, to discount stores and department
stores in Mexico.
The Vans, Kipling and Napapijri businesses add
lifestyle brands having global growth potential. Their
brands are targeted to specific consumer groups, and
their products extend across multiple categories. Vans
and Kipling provide expertise and growth opportuni-
ties in two new product categories for VF – footwear
and women’s accessories. In addition, the sportswear
design talent at Napapijri is being used to assist in
the European launch of Nautica® apparel in 2005.
On August 27, 2003, VF acquired all of the common
stock of Nautica Enterprises, Inc. (“Nautica”) for a
total cash cost of $587.6 million, including transaction
costs. Nautica designs, sources and markets sportswear
under the Nautica® brand. The Nautica® brand is
licensed for apparel and accessories in the United
States and internationally and for home furnishings
in the United States. The Nautica acquisition (1)
provided a growth platform for sportswear, which was
a new product category for VF, (2) provided broader
lifestyle product capabilities and (3) significantly
expanded VF’s presence in the department store and
specialty store channels of distribution. The Nautica
acquisition also included a chain of 115 Nautica®
retail outlet stores, the premium Earl Jean® brand
of jeans and sportswear and the John Varvatos® brand
of designer sportswear. In a separate transaction,
VF acquired from a former officer of Nautica his
rights to receive 50% of Nautica’s net royalty income,
along with other rights in the Nautica® name, trade-
marks and intellectual property owned, held or used
by Nautica. Under this agreement, VF paid $38.0
million at closing and will pay $33.0 million on each
of the third and fourth anniversaries of the closing.
The future amounts do not bear interest and were
recorded at their present value of $58.3 million.
As additional consideration, VF will pay 31.7%
of Nautica’s gross royalty revenues in excess of
$34.7 million in any year through 2008, with such
excess payments to be recorded as Goodwill.
Gross royalty revenues were $33.7 million in 2004.
The acquisitions of Nautica and of the former
officer’s rights are collectively referred to herein
as the “Nautica Acquisition.”
Operating results of these acquisitions have been
included in the consolidated financial statements
since their respective dates of acquisition.
The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed
for these transactions at their respective dates of
acquisition. The purchase price allocation for the
2004 Acquisitions is subject to adjustment over
the first half of 2005 as VF management finalizes
their integration plans. In addition, management
is awaiting information from outside counsel on
litigation related to one of the acquisitions.
note b – acquisitions