North Face 1999 Annual Report Download - page 27

Note B Acquisitions
In 1999, the Company acquired the common stock of Horace Small
Holdings Corporation of Delaware, Inc., a manufacturer and marketer
of occupational apparel, for $57.7 million in cash, plus repayment of
$23.3 million in debt. The Company also acquired two other work-
wear and four jeanswear businesses for an aggregate cost of $78.4 mil-
lion, plus additional contingent consideration if future earnings targets
are attained. Intangible assets related to these acquisitions totaled
$87.4 million. The Company accrued various restructuring charges in
connection with certain of these businesses. The charges relate to sever-
ance, closure of manufacturing and distribution facilities, and lease and
contract termination costs. Cash payments related to these actions will
be substantially completed during 2000. Charges are summarized as
follows (in thousands):
Facilities Lease and
Exit Contract
Severance Costs Termination Total
Restructuring accrual $ 5,061 $1,622 $17,948 $24,631
Cash payments (1,362) (208) (2,218) (3,788)
Estimated remaining costs $ 3,699 $1,414 $15,730 $20,843
During 1998, the Company acquired Bestform Group, Inc. for
$184.3 million in cash, plus repayment of $44.4 million in debt. The
Company also acquired three other businesses in 1998 for an aggregate
cost of $76.1 million and three businesses in 1997 for an aggregate cost
of $16.0 million. Intangible assets related to these acquisitions totaled
$168.5 million in 1998 and $10.0 million in 1997.
The following unaudited pro forma results of operations assume
that acquisitions during the last two years had occurred at the
beginning of 1998:
In thousands, except per share amounts 1999 1998
Net sales $5,614,028 $5,826,443
Net income 363,097 383,933
Earnings per common share:
Basic $3.01 $3.13
Diluted 2.96 3.06
All acquisitions have been accounted for as purchases, and accord-
ingly, the purchase prices have been allocated to the net assets acquired
based on fair values at the dates of acquisition. The excess of cost
over fair value of the purchased businesses has been allocated to intangi-
ble assets and is being amortized over periods from 19 to 40 years.
Operating results of these businesses have been included in the con-
solidated financial statements since the dates of acquisition.
Note C Inventories
In thousands 1999 1998
Finished products $575,617 $552,729
Work in process 171,275 185,929
Materials and supplies 217,148 215,349
$964,040 $954,007
The current cost of inventories stated on the last-in, first-out method
is not significantly different from their value determined under the
first-in, first-out method.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A Accounting Policies
Principles of Consolidation: The consolidated financial statements
include the accounts of VF Corporation and all majority owned sub-
sidiaries after elimination of intercompany transactions and profits.
Inventories are stated at the lower of cost or market. Inventories
stated on the last-in, first-out method represent 42% of total 1999
inventories and 48% in 1998. Remaining inventories are valued
using the first-in, first-out method.
Property and Depreciation: Property, plant and equipment are
stated at cost. Depreciation is computed by the straight-line method
over the estimated useful lives of the assets, ranging up to 40 years
for buildings and 10 years for machinery and equipment.
Intangible Assets represent the excess of costs over the fair value of
net tangible assets of businesses acquired, less accumulated amortiza-
tion of $270.5 million and $243.5 million in 1999 and 1998. These
assets are amortized on the straight-line method over 10 to 40 years.
The Company’s policy is to evaluate intangible assets for possible
impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. An
impairment loss may be recorded if undiscounted future cash flows,
net of income tax payments, are not expected to be adequate to
recover the assets’ carrying value.
Revenue Recognition: Sales are recorded when products are shipped
to customers, net of discounts and allowances.
Advertising Costs are expensed as incurred and were $257.6 mil-
lion in 1999, $287.5 million in 1998 and $309.3 million in 1997.
Stock-based Compensation: Compensation expense is recorded for
the excess, if any, of the market price of VF Common Stock at the
date of grant over the amount the employee must pay for the stock.
Other Comprehensive Income consists of certain changes in assets
and liabilities that are not included in Net Income but are instead
reported under generally accepted accounting principles within a
separate component of Common Shareholders’ Equity. All amounts
in Accumulated Other Comprehensive Income relate to foreign cur-
rency translation and are net of income taxes at a 35% rate.
Stock Split: During 1997, the Company declared a two-for-one
stock split. Common Stock increased and Retained Earnings
decreased by $61.1 million, representing the stated value of addition-
al shares issued. Amounts presented in the Consolidated Statements
of Common Shareholders’ Equity are based on actual share amounts
outstanding for each period presented.
Reclassifications: Certain amounts in prior years have been reclass-
ified to conform with the current year presentation.
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 finan-
cial statements and accompanying notes. Actual results may differ
from those estimates.