North Face 2004 Annual Report Download - page 30

55vf corporation 2004 Annual Report
Information by Business Segment
VF’s businesses are organized into five product cate-
gories, and by brands within those product categories,
for management and internal financial reporting
purposes. These groupings of businesses are referred
to as “coalitions.” Both management and VF’s Board
of Directors evaluate operating performance at
the coalition level. These coalitions represent VF’s
reportable business segments.
For business segment reporting purposes, Coalition
Sales and Coalition Profit represent net sales and
operating expenses under the direct control of an
individual coalition, royalty income for which it has
responsibility, amortization of acquisition-related
intangible assets and its share of centralized corporate
expenses directly related to the coalition. Corporate
expenses not apportioned to the coalitions and net
interest expense are excluded from Coalition Profit.
Importantly, this basis of performance evaluation is
consistent with that used for management incentive
compensation.
See Note R to the Consolidated Financial Statements
for composition of the coalitions. Also see Note R
for a summary of our results of operations and other
information by coalition, along with a reconciliation
of Coalition Profit to Consolidated Income from
Continuing Operations before Income Taxes. Coalition
results are not necessarily indicative of the operating
results that would have been reported had each busi-
ness coalition been an independent, stand-alone entity
during the periods presented. Further, VF’s presenta-
tion of Coalition Profit may not be comparable with
similar measures used by other companies.
The following table presents a summary of the
changes in our Net Sales by coalition during the
last two years:
Jeanswear: The Jeanswear coalition consists of our
global jeanswear businesses, led by the Wrangler®
and Lee® brands. Overall jeanswear sales in 2004
declined slightly, with a 3% decline in domestic
jeanswear substantially offset by a 7% increase in
international jeanswear. Domestic jeanswear sales
declined due to a continued reduction in sales to
Kmart Holding Corporation, which emerged from
bankruptcy protection in 2003, lower sales of off-price
product and reduced sales of Lee® branded women’s
products. Sales in international markets benefited from
$57 million of favorable foreign currency translation.
Increased sales in Canada, Latin America and Mexico
helped to offset declines in our European businesses.
In 2003, overall jeanswear sales declined 4%. Domestic
jeanswear sales declined 7%, with the unit volume
decline related to the two bankruptcies noted in the
previous section accounting for almost all of the sales
dollar decline. The balance was due to selected price
reductions and changes in product mix. International
jeanswear sales increased 5% in 2003 due to a $72
million favorable effect of foreign currency translation.
Jeanswear Coalition Profit increased 9% in 2004 due
to lower sales of off-price products and improvements
in operating efficiencies, particularly in the United
States. Coalition Profit declined by 12% during 2003,
with two-thirds of the decline related to the bankrupt-
cies mentioned above. Coalition Profit in 2003 also
declined due to selected price decreases and a net
change in product mix (lower margin products), offset
by benefits from previous years’ restructuring actions.
Outdoor Apparel and Equipment: The Outdoor
Apparel and Equipment coalition consists of
VF’s outdoor-related businesses represented by
The North Face® brand (apparel and equipment)
and the JanSport® and Eastpak® brands (apparel
and daypacks). Acquisitions in 2004 added Vans®
brand performance and casual footwear and apparel
for skateboarders and other action sports participants
and enthusiasts, Kipling® brand backpacks, bags
and accessories and Napapijri® brand outdoor-based
sportswear, which collectively contributed $296
million to 2004 sales. Sales increased in both 2004
and 2003 in the core businesses, with unit volume
increases at The North Face resulting from strong
consumer demand for its products in the United
States and internationally. Sales in both years bene-
fited from the favorable effects of foreign currency
translation – $23 million in 2004 and $31 million
in 2003 relative to the respective prior year.
Coalition Profit increased 61% in 2004 over the prior
year and increased 34% in 2003 over 2002. About
one-half of the 2004 increase was due to the 2004
Acquisitions. The remainder of the 2004 increase and
most of the 2003 increase was due to volume increases
at The North Face.
Intimate Apparel: The Intimate Apparel coalition
consists of our global women’s intimate apparel
businesses, led by the Vanity Fair®, Lily of France®,
Vassarette® and Bestform® brands in the United States.
Sales increased 9% in 2004, with unit volume growth
in our private label business resulting from new
programs sold to a major private label customer and
unit growth in our mass market Vassarette® and
Curvation® brands. Domestic intimate apparel sales
in 2003 were flat in the department store and mass
market channels, but overall declined by 3% due to
a decrease in private label programs. International
intimate apparel sales advanced in both 2004 and
2003. During 2004, the comparison was helped by
the acquisition of a new business in Mexico in 2004
and favorable effects of foreign currency translation
of $16 million. Currency translation benefited 2003
by $25 million relative to the respective prior year.
Coalition Profit increased 37% in 2004 and declined
11% in 2003 from the respective prior year. The 2004
increase was due to higher volume and improved oper-
ating efficiencies. The decline in 2003 resulted from
lower sales volume and a $7.7 million charge related
to a withdrawal liability for a multiemployer union
pension plan.
Imagewear: The Imagewear coalition includes VF’s
occupational (industrial, career and safety) apparel
business, as well as our licensed sports apparel
business. Coalition Sales increased 6% in 2004
and declined 3% in 2003.
Occupational apparel sales increased 5% in 2004,
primarily due to higher sales of service uniforms to
governmental agencies, compared with a sales decline
of 9% in 2003. While sales of career and safety apparel
have generally been increasing in recent years,
industrial workwear has been declining since 2000.
This decline in workwear resulted from (1) workforce
reductions in the United States manufacturing sector,
which has impacted overall workwear uniform sales,
and (2) the ongoing consolidation of our industrial
laundry customers and those customers placing
greater reliance on their in-house manufacturing and
product sourcing. Sales of the licensed sports busi-
nesses grew 15% in 2004 and 16% in 2003, led by
increases in sales of products under license from the
National Football League, Major League Baseball
and Harley-Davidson Motor Company, Inc.
Coalition Profit increased 14% in 2004 due to volume
gains across most business units, offset in part by a
small loss in the distributor knitwear business.
Coalition Profit increased 18% in 2003 due to cost
reduction benefits resulting from prior years’ restruc-
turing actions, which allowed for a higher margin on
a lower sales volume, and the absence of restructuring
charges in 2003.
Outdoor
Apparel and Intimate
In millions Jeanswear Equipment Apparel Imagewear Sportswear Other
Net sales – 2002 $2,789 $ 508 $ 840 $ 752 $ – $ 195
Core businesses (122) 73 (10) (40) – (11)
Acquisitions in current year – – – 15 249 –
Disposition of VF Playwear – – – – – (31)
Net sales – 2003 2,667 581 830 727 249 153
Core businesses (5) 127 68 31 – 14
Acquisitions in prior year – – – 12 355 –
Acquisitions in current year – 296 6 – 1 –
Disposition of VF Playwear – – – – – (57)
Net sales – 2004 $2,662 $ 1,004 $ 904 $ 770 $ 605 $ 110