SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2008
Commission file number: 1-5256
V. F. CORPORATION
(Exact name of registrant as specified in its charter)
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Pennsylvania
(State or other jurisdiction of
incorporation or organization)
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23-1180120
(I.R.S. employer
identification number)
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105 Corporate Center Boulevard
Greensboro, North Carolina 27408
(Address of principal executive offices)
(336) 424-6000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2)
has been subject to such filing requirements for the past 90 days. YES
þ
NO
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Securities and Exchange Act of 1934).
YES
o
NO
þ
On October 25, 2008, there were 110,075,616 shares of the registrants Common Stock outstanding.
VF CORPORATION
INDEX
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Page No.
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Part I Financial Information
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Item 1 Financial Statements (Unaudited)
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Consolidated Statements of Income:
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Three and nine months ended September 2008
and September 2007
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3
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Consolidated Balance Sheets:
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September 2008, December 2007
and September 2007
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4
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Consolidated Statements of Cash Flows:
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Nine months ended September 2008
and September 2007
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5
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Notes to Consolidated Financial Statements
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6
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Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations
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17
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Item 3 Quantitative and Qualitative Disclosures about Market Risk
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26
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Item 4 Controls and Procedures
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26
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Part II Other Information
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Item 1A Risk Factors
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27
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Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
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27
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Item 6 Exhibits
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28
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Signatures
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29
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2
Part I Financial Information
Item 1
Financial Statements (Unaudited)
VF CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended September
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Nine Months Ended September
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2008
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2007
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2008
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2007
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Net Sales
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$
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2,185,825
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$
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2,053,136
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$
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5,669,503
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$
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5,207,175
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Royalty Income
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20,802
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20,023
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60,947
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56,996
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Total Revenues
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2,206,627
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2,073,159
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5,730,450
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5,264,171
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Costs and Operating Expenses
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Cost of goods sold
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1,227,577
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1,163,399
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3,184,470
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2,975,009
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Marketing, administrative and general expenses
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627,839
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578,721
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1,786,788
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1,574,336
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1,855,416
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1,742,120
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4,971,258
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4,549,345
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Operating Income
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351,211
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331,039
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759,192
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714,826
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Other Income (Expense)
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Interest income
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1,435
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2,202
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4,696
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7,494
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Interest expense
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(24,310
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(19,349
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(69,516
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(46,373
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Miscellaneous, net
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(1,950
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1,834
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950
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3,583
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(24,825
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(15,313
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(63,870
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(35,296
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Income from Continuing Operations Before Income Taxes
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326,386
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315,726
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695,322
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679,530
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Income Taxes
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92,511
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106,409
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208,437
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230,330
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Income from Continuing Operations
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233,875
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209,317
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486,885
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449,200
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Discontinued Operations
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(2,110
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(21,987
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Net Income
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$
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233,875
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$
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207,207
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$
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486,885
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$
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427,213
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Earnings Per Common Share Basic
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Income from continuing operations
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$
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2.14
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$
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1.91
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$
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4.46
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$
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4.06
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Discontinued operations
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(0.02
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(0.20
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Net income
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2.14
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1.89
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4.46
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3.86
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Earnings Per Common Share Diluted
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Income from continuing operations
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$
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2.10
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$
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1.86
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$
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4.37
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$
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3.96
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Discontinued operations
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(0.02
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(0.20
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Net income
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2.10
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1.84
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4.37
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3.76
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Weighted Average Shares Outstanding
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Basic
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109,106
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109,671
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109,062
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110,689
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Diluted
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111,258
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112,424
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111,379
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113,568
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Cash Dividends Per Common Share
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$
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0.58
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$
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0.55
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$
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1.74
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$
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1.65
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See notes to consolidated financial statements.
3
VF CORPORATION
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)
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September
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December
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September
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2008
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2007
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2007
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ASSETS
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Current Assets
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Cash and equivalents
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$
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225,957
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$
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321,863
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$
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193,855
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Accounts receivable, less allowance for doubtful accounts of:
September 2008 -
$59,403, Dec. 2007 - $59,053; September 2007 - $59,793
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1,313,919
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970,951
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1,266,490
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Inventories:
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Finished products
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1,118,878
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911,496
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1,082,906
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Work in process
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90,878
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87,176
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91,701
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Materials and supplies
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132,086
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140,080
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121,387
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1,341,842
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1,138,752
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1,295,994
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Other current assets
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222,669
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213,563
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209,422
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Current assets of discontinued operations
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14,861
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Total current assets
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3,104,387
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2,645,129
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2,980,622
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Property, Plant and Equipment
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1,582,337
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1,529,015
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1,524,030
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Less accumulated depreciation
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920,760
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877,157
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883,304
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661,577
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651,858
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640,726
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Intangible Assets
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1,390,402
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1,435,269
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1,434,904
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Goodwill
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1,323,808
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1,278,163
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1,265,878
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Other Assets
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504,091
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436,266
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373,854
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$
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6,984,265
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$
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6,446,685
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$
|
6,695,984
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current Liabilities
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Short-term borrowings
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$
|
413,469
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$
|
131,545
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$
|
461,043
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Current portion of long-term debt
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|
3,427
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|
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|
3,803
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|
67,403
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Accounts payable
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|
|
418,712
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|
|
|
509,879
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|
|
|
413,814
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|
Accrued liabilities
|
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|
577,647
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|
|
488,089
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|
606,348
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Current liabilities of discontinued operations
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|
69
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|
|
1,071
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|
|
|
267
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|
|
|
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|
Total current liabilities
|
|
|
1,413,324
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|
|
|
1,134,387
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|
|
1,548,875
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Long-term Debt
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|
1,142,170
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|
|
1,144,810
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|
1,186,792
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|
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|
|
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|
|
|
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|
|
Other Liabilities
|
|
|
567,769
|
|
|
|
590,659
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|
|
|
592,524
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|
|
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|
|
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|
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|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
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|
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Common Stockholders Equity
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|
|
|
|
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Common Stock, stated value $1; shares authorized, 300,000,000; shares
outstanding: Sept. 2008 - 109,827,052; Dec. 2007 - 109,797,984;
Sept. 2007 - 109,736,874
|
|
|
109,827
|
|
|
|
109,798
|
|
|
|
109,737
|
|
Additional paid-in capital
|
|
|
1,747,775
|
|
|
|
1,619,320
|
|
|
|
1,601,708
|
|
Accumulated other comprehensive income (loss)
|
|
|
78,268
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|
|
|
61,495
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|
|
|
(29,634
|
)
|
Retained earnings
|
|
|
1,925,132
|
|
|
|
1,786,216
|
|
|
|
1,685,982
|
|
|
|
|
|
|
|
|
|
|
|
Total common stockholders equity
|
|
|
3,861,002
|
|
|
|
3,576,829
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|
|
|
3,367,793
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|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,984,265
|
|
|
$
|
6,446,685
|
|
|
$
|
6,695,984
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
4
VF CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September
|
|
|
|
2008
|
|
|
2007
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
486,885
|
|
|
$
|
427,213
|
|
Adjustments to reconcile net income to cash used
by operating activities of continuing operations:
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
21,987
|
|
Depreciation
|
|
|
77,482
|
|
|
|
69,081
|
|
Amortization of intangible assets
|
|
|
29,781
|
|
|
|
17,655
|
|
Other amortization
|
|
|
9,862
|
|
|
|
11,352
|
|
Stock-based compensation
|
|
|
33,824
|
|
|
|
48,449
|
|
Other, net
|
|
|
4,911
|
|
|
|
22,327
|
|
Changes in operating assets and liabilities,
net of acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(363,767
|
)
|
|
|
(353,469
|
)
|
Inventories
|
|
|
(193,485
|
)
|
|
|
(196,290
|
)
|
Accounts payable
|
|
|
(93,990
|
)
|
|
|
(9,694
|
)
|
Accrued compensation
|
|
|
(24,259
|
)
|
|
|
(11,907
|
)
|
Accrued income taxes
|
|
|
36,373
|
|
|
|
60,792
|
|
Accrued liabilities
|
|
|
52,588
|
|
|
|
86,522
|
|
Other assets and liabilities
|
|
|
3,598
|
|
|
|
(28,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities of continuing operations
|
|
|
59,803
|
|
|
|
165,793
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(21,987
|
)
|
Adjustments to reconcile loss from discontinued operations
to cash used by discontinued operations
|
|
|
(1,002
|
)
|
|
|
8,816
|
|
|
|
|
|
|
|
|
Cash used by discontinued operations
|
|
|
(1,002
|
)
|
|
|
(13,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
|
58,801
|
|
|
|
152,622
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(88,319
|
)
|
|
|
(79,085
|
)
|
Business acquisitions, net of cash acquired
|
|
|
(93,377
|
)
|
|
|
(1,054,501
|
)
|
Software purchases
|
|
|
(7,349
|
)
|
|
|
(1,885
|
)
|
Sale of property, plant and equipment
|
|
|
5,851
|
|
|
|
11,745
|
|
Sale of intimate apparel business
|
|
|
|
|
|
|
348,714
|
|
Other, net
|
|
|
1,020
|
|
|
|
597
|
|
|
|
|
|
|
|
|
Cash provided used by investing activities of continuing operations
|
|
|
(182,174
|
)
|
|
|
(774,415
|
)
|
Discontinued operations, net
|
|
|
|
|
|
|
(243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used by investing activities
|
|
|
(182,174
|
)
|
|
|
(774,658
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Increase in short-term borrowings
|
|
|
281,340
|
|
|
|
963,713
|
|
Payments on long-term debt
|
|
|
(2,945
|
)
|
|
|
(57,971
|
)
|
Purchase of Common Stock
|
|
|
(149,729
|
)
|
|
|
(350,000
|
)
|
Cash dividends paid
|
|
|
(190,347
|
)
|
|
|
(182,831
|
)
|
Proceeds from issuance of Common Stock, net
|
|
|
63,450
|
|
|
|
77,594
|
|
Tax benefits of stock option exercises
|
|
|
22,246
|
|
|
|
15,119
|
|
Other, net
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
23,710
|
|
|
|
465,624
|
|
|
|
|
|
|
|
|
|
|
Effect of Foreign Currency Rate Changes on Cash
|
|
|
3,757
|
|
|
|
7,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Equivalents
|
|
|
(95,906
|
)
|
|
|
(149,369
|
)
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents Beginning of Year
|
|
|
321,863
|
|
|
|
343,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents End of Period
|
|
$
|
225,957
|
|
|
$
|
193,855
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
5
VF CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Note A Basis of Presentation
VF Corporation (and its subsidiaries collectively known as VF) operate and report using a 52/53
week fiscal year ending on the Saturday closest to December 31 of each year. Similarly, the fiscal
third quarter ends on the Saturday closest to September 30. For presentation purposes herein, all
references to periods ended September 2008, December 2007 and September 2007 relate to the fiscal
periods ended on September 27, 2008, December 29, 2007 and September 29, 2007, respectively.
The accompanying unaudited consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the
information and notes required by accounting principles generally accepted in the United States of
America for complete financial statements. Similarly, the December 2007 consolidated balance sheet
was derived from audited financial statements but does not include all disclosures required by
generally accepted accounting principles. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all normal and recurring adjustments necessary to make a
fair statement of the consolidated financial position, results of operations and cash flows of VF
for the interim periods presented. Operating results for the three months and nine months ended
September 2008 are not necessarily indicative of results that may be expected for any other interim
period or for the year ending January 3, 2009. For further information, refer to the consolidated
financial statements and notes included in VFs Annual Report on Form 10-K for the year ended
December 2007 (2007 Form 10-K).
In April 2007, VF sold its intimate apparel business consisting of its domestic and international
womens intimate apparel business units. Accordingly, the Consolidated Statements of Income and
Consolidated Statements of Cash Flows present the intimate apparel businesses as discontinued
operations for all periods. Similarly, the assets and liabilities of the discontinued operations
have been separately presented in the Consolidated Balance Sheets. Amounts presented herein, unless
otherwise stated, relate to continuing operations. See Note D.
Certain prior year amounts, none of which are material, have been reclassified to conform with the
2008 presentation.
Note B Changes in Accounting Policies
During the first quarter of 2008, VF adopted Financial Accounting Standards Board (FASB)
Statement No. 157,
Fair Value Measurements
(Statement 157), which clarified the definition of
fair value, established a framework and a hierarchy based on the level of observability and
judgment associated with inputs used in measuring fair value, and expanded disclosures about fair
value measurements. Statement 157 applies whenever other accounting pronouncements require or
permit assets or liabilities to be measured at fair value but does not require any new fair value
measurements. As permitted by FASB Staff Position No. 157-2,
Effective Date of FASB Statement No.
157
, the disclosure provisions of Statement 157 relating to nonrecurring measurements of
nonfinancial assets and nonfinancial liabilities are deferred until VFs 2009 fiscal year. This
deferral of disclosures applies primarily to nonfinancial assets and nonfinancial liabilities
initially measured at fair value in a business combination or measured at fair value for an
impairment assessment.
6
Fair value is defined in Statement 157 as the price that would be received from the sale of an
asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous
market in an orderly transaction between market participants. In determining fair value, Statement
157 establishes a three-level hierarchy that distinguishes between (i) market data obtained or
developed from independent sources (i.e., observable data inputs) and (ii) a reporting entitys own
data and assumptions that market participants would use in pricing an asset or liability (i.e.,
unobservable data inputs). Financial assets and financial liabilities measured and reported at fair
value are classified in one of the following categories, in order of priority of observability and
objectivity of pricing inputs:
|
|
Level 1 Fair value based on quoted prices in active markets for identical assets or
liabilities.
|
|
|
|
Level 2 Fair value based on significant directly observable data (other than Level 1
quoted prices) or significant indirectly observable data through corroboration with observable
market data. Inputs would normally be (i) quoted prices in active markets for similar assets
or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or
liabilities or (iii) information derived from or corroborated by observable market data.
|
|
|
|
Level 3 Fair value based on prices or valuation techniques that require significant
unobservable data inputs. Inputs would normally be a reporting entitys own data and judgments
about assumptions that market participants would use in pricing the asset or liability.
|
The following table summarizes financial assets and financial liabilities measured at fair value on
a recurring basis at September 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using:
|
|
|
|
|
|
|
Quoted Price
|
|
Significant
|
|
|
|
|
|
|
|
|
in Active
|
|
Other
|
|
Significant
|
|
|
Total
|
|
Markets for
|
|
Observable
|
|
Unobservable
|
|
|
Fair
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
In thousands
|
|
Value
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
84,050
|
|
|
$
|
84,050
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
197,071
|
|
|
|
151,265
|
|
|
$
|
45,806
|
|
|
|
|
|
Derivative instruments
|
|
|
4,965
|
|
|
|
|
|
|
|
4,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financials liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
|
3,689
|
|
|
|
|
|
|
|
3,689
|
|
|
|
|
|
Deferred compensation
|
|
|
226,472
|
|
|
|
|
|
|
|
226,472
|
|
|
|
|
|
Cash equivalents represent funds held in institutional money market funds. Investment securities,
consisting primarily of mutual funds (classified as Level 1) and a separately managed fixed income
fund (classified as Level 2), are purchased to offset a substantial portion of participant-directed
investment selections representing underlying liabilities to participants in VFs deferred
compensation plans. Liabilities under deferred compensation plans are recorded at amounts payable
to participants, based on the fair value of participant-directed investment selections. Derivative
instruments represent net unrealized gains or losses on foreign currency forward exchange
contracts, which is the net difference between (i) the U.S. dollars to be received or paid at the
contracts settlement date and (ii) the U.S. dollar value of the foreign currency to be sold or
purchased at the current forward exchange rate.
VF also adopted FASB Statement No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities
(Statement 159) in the first quarter of 2008. Statement 159 permits companies to
measure at fair value eligible financial assets and financial liabilities that were not otherwise
required to be recorded at
7
fair value, with changes in fair value recognized in net income as they occur. Since VF has not elected
to apply fair value accounting to any additional items, the adoption of Statement 159 had no
impact.
In addition, as required beginning in the first quarter of 2008, VF adopted Emerging Issues Task
Force (EITF) 06-11,
Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards,
which requires that the tax benefit related to dividend equivalents declared on restricted
stock units that are expected to vest be recorded as an increase in additional paid-in capital. The
impact of adopting EITF 06-11 was not significant.
Note C Acquisitions
The final valuation of intangible assets for Seven For All Mankind, the largest acquisition in
2007, was completed in 2008, resulting in reductions in the amount assigned to indefinite-lived
trademark intangible assets from $340.0 million to $313.7 million and the amount assigned to
amortizable intangible assets (primarily customer relationships) from $185.0 million to $182.8
million, with offsetting increases in goodwill.
In June 2008, VF acquired one-third of the outstanding equity of Mo Industries Holdings, Inc. (Mo
Industries), a Los Angeles-based company that owns the
Splendid
Ò
and
Ella
Moss
Ò
brands of premium sportswear marketed to upscale department and specialty
stores. VF also acquired an option to purchase the remaining shares of Mo Industries, and granted
the other stockholders of Mo Industries an option to require VF to purchase all of their stock,
during the first half of 2009 at a price based on its 2008 earnings. The cost of the investment,
including the related put/call rights, was $77.0 million, with this investment being accounted for
using the equity method of accounting. From the date of acquisition, the equity in net income of Mo
Industries is reported as part of the Contemporary Brands Coalition. If VF were to acquire the
remaining shares in 2009, the purchase price of those shares, plus any net debt assumed, is limited
to a maximum amount of $225 million.
In July 2008, VF acquired 100% ownership of its former 50%-owned joint venture that markets
Lee
Ò
branded products in Spain and Portugal. The cost of the additional investment
was $25.5 million, consisting of $14.9 million in cash and transfer of certain nonmonetary assets held by
the former joint venture. Management has allocated the purchase price to acquired tangible and
intangible assets, and assumed liabilities, based on their respective fair values. Of the total
consideration, $13.5 million was preliminarily assigned to indefinite-lived and amortizable
intangible assets and $11.9 million was assigned to goodwill, subject to possible refinement during
the fourth quarter. Goodwill arising from the acquisition related to synergies and economies of
scale from combining this business with VFs existing European jeanswear business. The joint
venture was accounted for using the equity method of accounting through July 2008, while the entity
is consolidated for periods since the acquisition of the remaining 50% ownership. Operating results
for all periods are reported as part of the Jeanswear Coalition. Pro forma operating results for
this acquisition are not provided because this acquisition is not material to VFs operating
results.
Note D Sale of Intimate Apparel Business
In December 2006, management and the Board of Directors decided to exit VFs domestic and
international womens intimate apparel business (formerly referred to as the Intimate Apparel
Coalition, a reportable business segment). On April 1, 2007, VF sold the net assets of this
business (except for an investment in marketable securities of an intimate apparel supplier) for
$348.7 million, plus $28.8 million related to the business units Cash and Equivalents. The results
of operations and cash flows of the intimate apparel business are separately presented as
discontinued operations for all periods in accordance with FASB Statement No. 144,
Accounting for
the Impairment or Disposal of Long-Lived Assets
. Similarly, the assets and liabilities of this
business have been reported as held for sale.
8
Summarized operating results for the discontinued intimate apparel business was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September
|
|
|
Ended September
|
|
In thousands
|
|
2007
|
|
|
2007
|
|
Total revenues
|
|
$
|
|
|
|
$
|
196,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of income
taxes of $1,669 and $4,859
|
|
$
|
(1,870
|
)
|
|
$
|
2,567
|
|
Loss on disposal, without income tax benefit
|
|
|
(240
|
)
|
|
|
(24,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(2,110
|
)
|
|
$
|
(21,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share basic
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
(0.02
|
)
|
|
$
|
0.02
|
|
Loss on disposal
|
|
|
|
|
|
|
(0.22
|
)
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
Earnings per common share diluted
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
$
|
(0.02
|
)
|
|
$
|
0.02
|
|
Loss on disposal
|
|
|
|
|
|
|
(0.22
|
)
|
Discontinued operations
|
|
|
(0.02
|
)
|
|
|
(0.20
|
)
|
Summarized assets and liabilities of discontinued operations presented in the Consolidated Balance
Sheets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
|
|
|
December
|
|
|
September
|
|
In thousands
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
Investments in marketable securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets of discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
69
|
|
|
$
|
1,071
|
|
|
$
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities of discontinued operations
|
|
$
|
69
|
|
|
$
|
1,071
|
|
|
$
|
267
|
|
|
|
|
|
|
|
|
|
|
|
9
Note E
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2008
|
|
|
December 2007
|
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
|
Net
|
|
|
Net
|
|
|
|
Average
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
Dollars in thousands
|
|
Life *
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License agreements
|
|
22 years
|
|
$
|
198,208
|
|
|
$
|
48,654
|
|
|
$
|
149,554
|
|
|
$
|
158,566
|
|
Customer relationships
|
|
20 years
|
|
|
333,879
|
|
|
|
47,913
|
|
|
|
285,966
|
|
|
|
301,057
|
|
Trademarks and other
|
|
7 years
|
|
|
12,425
|
|
|
|
6,387
|
|
|
|
6,038
|
|
|
|
5,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible
assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441,558
|
|
|
|
465,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
948,844
|
|
|
|
969,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,390,402
|
|
|
$
|
1,435,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Amortization of license agreements accelerated and straight-line methods; customer
relationships accelerated methods; trademarks and other accelerated and straight-line methods.
|
Amortization expense of intangible assets for the third quarter and nine months of 2008 was $9.8
million and $29.8 million, respectively. Estimated amortization expense for the remainder of 2008
is $8.3 million and for the years 2009 through 2012 is $31.9 million, $29.9 million, $28.4 million
and $26.8 million, respectively.
Note F Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contemporary
|
|
|
|
|
In thousands
|
|
Jeanswear
|
|
|
Outdoor
|
|
|
Imagewear
|
|
|
Sportswear
|
|
|
Brands
|
|
|
Total
|
|
Balance, December 2007
|
|
$
|
232,068
|
|
|
$
|
564,867
|
|
|
$
|
56,246
|
|
|
$
|
215,767
|
|
|
$
|
209,215
|
|
|
$
|
1,278,163
|
|
2008 acquisition
|
|
|
11,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,875
|
|
Adjustments to purchase
price allocation
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
37,465
|
|
|
|
37,371
|
|
Currency translation
|
|
|
(6,195
|
)
|
|
|
(1,026
|
)
|
|
|
|
|
|
|
|
|
|
|
3,620
|
|
|
|
(3,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 2008
|
|
$
|
237,748
|
|
|
$
|
563,747
|
|
|
$
|
56,246
|
|
|
$
|
215,767
|
|
|
$
|
250,300
|
|
|
$
|
1,323,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Note G
Pension Plans
VFs net periodic pension cost contained the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September
|
|
|
Nine Months Ended September
|
|
In thousands
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service cost benefits earned during the year
|
|
$
|
4,162
|
|
|
$
|
5,022
|
|
|
$
|
12,486
|
|
|
$
|
16,642
|
|
Interest cost on projected benefit obligations
|
|
|
17,276
|
|
|
|
16,914
|
|
|
|
51,828
|
|
|
|
50,742
|
|
Expected return on plan assets
|
|
|
(20,840
|
)
|
|
|
(20,652
|
)
|
|
|
(62,520
|
)
|
|
|
(61,956
|
)
|
Settlement loss
|
|
|
3,242
|
|
|
|
|
|
|
|
3,242
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
673
|
|
|
|
672
|
|
|
|
2,019
|
|
|
|
2,016
|
|
Actuarial loss
|
|
|
254
|
|
|
|
1,323
|
|
|
|
1,180
|
|
|
|
3,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
|
4,767
|
|
|
|
3,279
|
|
|
|
8,235
|
|
|
|
11,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount allocable to discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost continuing operations
|
|
$
|
4,767
|
|
|
$
|
3,279
|
|
|
$
|
8,235
|
|
|
$
|
9,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The settlement loss in the third quarter of 2008 related to recognition of deferred actuarial
losses upon payment of a portion of the retirement benefits accrued under VFs Supplemental
Executive Retirement Plan (SERP). During the first nine months of 2008, VF made contributions
totaling $10.3 million to fund benefit payments for the SERP. VF currently anticipates making an
additional $0.9 million of contributions to fund benefit payments for the SERP during the remainder
of 2008. Due to the overfunded status of the qualified pension plan at
the end of 2007, the latest valuation date, VF is not required under applicable regulations, and does not currently intend, to
make a contribution to the plan during 2008.
Note H Business Segment Information
For internal management and reporting purposes, VFs businesses are grouped principally by product
categories, and by brands within those product categories. These groupings of businesses are
referred to as coalitions. These coalitions represent VFs reportable segments. Financial
information for VFs reportable segments is as follows:
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September
|
|
|
Nine Months Ended September
|
|
In thousands
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Coalition revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeanswear
|
|
$
|
743,180
|
|
|
$
|
758,485
|
|
|
$
|
2,101,635
|
|
|
$
|
2,174,691
|
|
Outdoor
|
|
|
906,608
|
|
|
|
806,113
|
|
|
|
2,066,351
|
|
|
|
1,791,611
|
|
Imagewear
|
|
|
260,099
|
|
|
|
267,470
|
|
|
|
748,384
|
|
|
|
711,046
|
|
Sportswear
|
|
|
163,733
|
|
|
|
172,964
|
|
|
|
444,238
|
|
|
|
475,055
|
|
Contemporary Brands
|
|
|
100,489
|
|
|
|
32,667
|
|
|
|
284,009
|
|
|
|
32,667
|
|
Other
|
|
|
32,518
|
|
|
|
35,460
|
|
|
|
85,833
|
|
|
|
79,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total coalition revenues
|
|
$
|
2,206,627
|
|
|
$
|
2,073,159
|
|
|
$
|
5,730,450
|
|
|
$
|
5,264,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalition profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeanswear
|
|
$
|
122,868
|
|
|
$
|
135,727
|
|
|
$
|
323,499
|
|
|
$
|
366,617
|
|
Outdoor
|
|
|
188,621
|
|
|
|
161,305
|
|
|
|
352,762
|
|
|
|
298,012
|
|
Imagewear
|
|
|
40,757
|
|
|
|
41,553
|
|
|
|
104,529
|
|
|
|
98,059
|
|
Sportswear
|
|
|
16,512
|
|
|
|
17,110
|
|
|
|
31,472
|
|
|
|
45,918
|
|
Contemporary Brands
|
|
|
11,674
|
|
|
|
4,854
|
|
|
|
40,617
|
|
|
|
4,854
|
|
Other
|
|
|
(994
|
)
|
|
|
530
|
|
|
|
(3,008
|
)
|
|
|
2,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total coalition profit
|
|
|
379,438
|
|
|
|
361,079
|
|
|
|
849,871
|
|
|
|
816,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other expenses
|
|
|
(30,177
|
)
|
|
|
(28,206
|
)
|
|
|
(89,729
|
)
|
|
|
(98,039
|
)
|
Interest, net
|
|
|
(22,875
|
)
|
|
|
(17,147
|
)
|
|
|
(64,820
|
)
|
|
|
(38,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
|
$
|
326,386
|
|
|
$
|
315,726
|
|
|
$
|
695,322
|
|
|
$
|
679,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note I Capital and Comprehensive Income (Loss)
Common stock outstanding is net of shares held in treasury, and in substance retired. There were
12,198,054 treasury shares at September 2008 and 10,042,686 at December 2007 and September 2007.
The excess of the cost of treasury shares acquired over the $1 per share stated value of Common
Stock is deducted from Retained Earnings. In addition, 242,964 shares of VF Common Stock at
September 2008, 284,103 shares at December 2007, and 279,198 shares at September 2007 were held in
trust for deferred compensation plans. These shares held for deferred compensation plans are
treated for financial reporting purposes as treasury shares at a cost of $9.6 million, $11.8
million and $11.5 million at each of the respective dates.
There are 25,000,000 authorized shares of Preferred Stock, $1 par value, of which none are
outstanding.
12
Activity for 2008 in the Common Stock, Additional Paid-in Capital and Retained Earnings accounts is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Additional
|
|
|
Retained
|
|
In thousands
|
|
Stock
|
|
|
Paid-in Capital
|
|
|
Earnings
|
|
Balance, December 2007
|
|
$
|
109,798
|
|
|
$
|
1,619,320
|
|
|
$
|
1,786,216
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
486,885
|
|
Cash dividends on Common Stock
|
|
|
|
|
|
|
|
|
|
|
(190,347
|
)
|
Purchase of treasury stock
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
(147,729
|
)
|
Stock compensation plans, net
|
|
|
2,029
|
|
|
|
128,455
|
|
|
|
(9,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 2008
|
|
$
|
109,827
|
|
|
$
|
1,747,775
|
|
|
$
|
1,925,132
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income consists of changes in assets and liabilities that are not included in
Net Income under generally accepted accounting principles but are instead reported within a
separate component of Common Stockholders Equity. VFs comprehensive income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September
|
|
|
Ended September
|
|
In thousands
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net income
|
|
$
|
233,875
|
|
|
$
|
207,207
|
|
|
$
|
486,885
|
|
|
$
|
427,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount arising during the period
|
|
|
(99,412
|
)
|
|
|
50,862
|
|
|
|
(4,923
|
)
|
|
|
61,098
|
|
Reclassification to net income during the period
(2007 - Note D)
|
|
|
|
|
|
|
(5,622
|
)
|
|
|
(1,522
|
)
|
|
|
44,569
|
|
Defined benefit pension plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to net income during the period
|
|
|
927
|
|
|
|
2,107
|
|
|
|
3,200
|
|
|
|
5,985
|
|
Settlement loss (Note G)
|
|
|
3,242
|
|
|
|
|
|
|
|
3,242
|
|
|
|
|
|
Adjustment of funded status
|
|
|
|
|
|
|
|
|
|
|
25,950
|
|
|
|
|
|
Unrealized gains (losses) on derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount arising during the period
|
|
|
10,272
|
|
|
|
(13,136
|
)
|
|
|
982
|
|
|
|
(20,949
|
)
|
Reclassification to net income during the period
|
|
|
3,270
|
|
|
|
5,719
|
|
|
|
17,733
|
|
|
|
6,483
|
|
Unrealized gains (losses) on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount arising during the period
|
|
|
(2,120
|
)
|
|
|
(3,027
|
)
|
|
|
(6,873
|
)
|
|
|
(6,666
|
)
|
Income tax expense related to components
of other comprehensive income (loss)
|
|
|
15,636
|
|
|
|
(8,201
|
)
|
|
|
(21,016
|
)
|
|
|
(19,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(68,185
|
)
|
|
|
28,702
|
|
|
|
16,773
|
|
|
|
71,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
165,690
|
|
|
$
|
235,909
|
|
|
$
|
503,658
|
|
|
$
|
498,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Accumulated Other Comprehensive Income (Loss) for 2008 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Defined
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
Currency
|
|
|
Benefit
|
|
|
Financial
|
|
|
Marketable
|
|
|
|
|
In thousands
|
|
Translation
|
|
|
Pension Plans
|
|
|
Instruments
|
|
|
Securities
|
|
|
Total
|
|
Balance, December 2007
|
|
$
|
126,171
|
|
|
$
|
(63,975
|
)
|
|
$
|
(8,419
|
)
|
|
$
|
7,718
|
|
|
$
|
61,495
|
|
Other
comprehensive income (loss)
|
|
|
(7,867
|
)
|
|
|
19,973
|
|
|
|
11,540
|
|
|
|
(6,873
|
)
|
|
|
16,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 2008
|
|
$
|
118,304
|
|
|
$
|
(44,002
|
)
|
|
$
|
3,121
|
|
|
$
|
845
|
|
|
$
|
78,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note J
Stock-based Compensation
During the nine months of 2008, VF granted options for 1,395,214 shares of Common Stock at a
weighted average exercise price of $79.41, equal to the fair market value of VF Common Stock on the
date of grant. The options vest in equal annual installments over a three year period. The fair
value of these options was estimated using a lattice valuation model for employee groups having
similar exercise behaviors, with the following assumptions: expected volatility ranging from 23% to
36%, with a weighted average of 27%; expected term of 4.8 to 7.3 years; expected dividend yield of
2.8%; and risk-free interest rate ranging from 2.1% at six months to 3.6% at 10 years. The resulting weighted average fair value of these options
at the date of grant was $18.58 per option.
Also during the nine months of 2008, VF granted 293,735 performance-based restricted stock units.
Participants are eligible to receive shares of VF Common Stock at the end of a three year
performance period. The actual number of shares that will be earned, if any, will be based on VFs
performance over that period. The weighted average grant date fair value of the restricted stock
units was $78.02 per unit.
In addition, VF granted 31,000 shares of restricted VF Common Stock during the nine months of 2008
at a weighted average fair value of $72.38 per share. The shares will vest at various dates through
2014.
Note K Income Taxes
The effective income tax rate was 28.3% for the third quarter and 30.0% for the first nine months
of 2008, compared with 33.7% and 33.9% in the comparable periods of 2007. The lower rate in 2008
was due to reductions of previously accrued amounts that will not be paid due to resolution of the
underlying uncertain income tax positions, as covered below. In addition, results in 2008 included
a higher percentage of income in lower tax jurisdictions outside the United States. The effective
tax rate for the full year 2007 was 32.3%, which included the favorable impact from expiration of
statutes of limitations and tax audit settlements.
VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax
returns in numerous state and foreign jurisdictions. In the United States, Internal Revenue Service
(IRS) examinations for tax years 2002 and 2003 were settled. In 2008, the IRS commenced an
examination of tax years 2004, 2005 and 2006. In the United Kingdom, Inland Revenue examinations
for certain subsidiaries for tax years 2001 to 2006 were settled. Tax years 1998 to 2002 are under
examination by the State of North Carolina, and tax years 2003 to 2005 are under examination by the
State of Alabama. VF is also currently subject to examination by various other taxing authorities.
Management believes that some of these audits and negotiations will conclude during the next 12
months.
14
The amount of unrecognized tax benefits decreased by $15.0 million during the third quarter and by
$18.2 million during the first nine months of 2008, primarily due to favorable settlements of audit
exposures and updated assessments of previously accrued amounts. During the next 12 months,
management believes that it is reasonably possible that the amount of unrecognized tax benefits may
decrease by approximately $9 million due to settlement of audit exposures and expiration of
statutes of limitations, which includes $7 million that would reduce income tax expense.
VF had been granted a lower income tax rate in a foreign subsidiary based on meeting certain
increased investment and employment level requirements. The tax status providing this benefit
expires at the end of 2009. During the second quarter of 2008, VF entered into a new agreement with
the tax authorities of that country, which will result in a slightly higher effective income tax
rate on taxable income in that subsidiary for 2010 through 2014.
Note L Earnings Per Share
Earnings per share from continuing operations were computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended September
|
|
|
Ended September
|
|
In thousands, except per share amounts
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
233,875
|
|
|
$
|
209,317
|
|
|
$
|
486,885
|
|
|
$
|
449,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Common Stock outstanding
|
|
|
109,106
|
|
|
|
109,671
|
|
|
|
109,062
|
|
|
|
110,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share from continuing
operations
|
|
$
|
2.14
|
|
|
$
|
1.91
|
|
|
$
|
4.46
|
|
|
$
|
4.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
233,875
|
|
|
$
|
209,317
|
|
|
$
|
486,885
|
|
|
$
|
449,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Common Stock outstanding
|
|
|
109,106
|
|
|
|
109,671
|
|
|
|
109,062
|
|
|
|
110,689
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and other
|
|
|
2,152
|
|
|
|
2,753
|
|
|
|
2,317
|
|
|
|
2,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Common Stock and
dilutive securities outstanding
|
|
|
111,258
|
|
|
|
112,424
|
|
|
|
111,379
|
|
|
|
113,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing
operations
|
|
$
|
2.10
|
|
|
$
|
1.86
|
|
|
$
|
4.37
|
|
|
$
|
3.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options to purchase 1.4 million shares of Common Stock were excluded from the
computation of diluted earnings per share for the three and nine months ended September 2008
because the effect of their inclusion would have been antidilutive. Earnings per share for
Discontinued Operations and Net Income in 2007 were computed using the same weighted average shares
described above.
15
Note M Recently Issued Accounting Standards
In December 2007, the FASB issued FASB Statement No. 141(Revised),
Business Combinations
(Statement 141(R)), which revises how business combinations are accounted for, both at the
acquisition date and in subsequent periods. Statement 141(R) requires the acquiring entity in a
business combination to (i) measure all assets acquired and liabilities assumed at their fair value
at the acquisition date, (ii) recognize the full fair value of assets acquired and liabilities
assumed in either a full or a partial acquisition, (iii) expense transaction and restructuring
costs and (iv) provide additional disclosures not required under prior rules. Statement 141(R) is
effective for transactions in which VF obtains control of a business beginning in VFs 2009 fiscal
year. The impact on VF of adopting Statement 141(R) will depend on the nature, terms and size of
business combinations completed after the effective date.
In December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51
(Statement 160). Statement 160 requires a
company to classify noncontrolling (minority) interests in consolidated subsidiaries as equity
instead of a liability and provides guidance on the accounting for transactions between an entity
and noncontrolling interests. Statement 160, effective for VFs 2009 fiscal year, requires
retroactive adoption of the presentation and disclosure requirements, with all other requirements
to be applied prospectively. Since VF does not have significant noncontrolling interests in
subsidiaries, Statement 160 is not expected to have a significant impact on the consolidated
financial statements.
In March 2008, the FASB issued FASB Statement No. 161,
Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133
(Statement 161). Statement 161
requires expanded disclosures related to (i) how and why an entity uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for under Statement 133 and its
related interpretations and (iii) how derivative instruments and related hedged items affect an
entitys financial position, operating results and cash flows. This Statement is effective for
financial statements issued for VFs 2009 fiscal year. VF is currently evaluating the impact of
adopting Statement 161.
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3,
Determination of the Useful Life
of Intangible Assets
(FSP 142-3). FSP 142-3 amends the factors to be considered in developing
renewal or extension assumptions used to determine the useful life of an identified intangible
asset under FASB Statement No. 142,
Goodwill and Other Intangible Assets,
and requires expanded
disclosure related to the determination of intangible asset useful lives. FSP 142-3 provides
guidance for determining the useful life of recognized intangible assets acquired beginning in VFs
2009 fiscal year, and the expanded disclosures are effective for all recognized intangible assets
in VFs 2009 consolidated financial statements. VF is currently evaluating the impact of adopting
FSP 142-3.
Note N Subsequent Events
VFs Board of Directors declared a quarterly cash dividend of $0.59 per share, an increase of
$0.01, payable on December 19, 2008 to shareholders of record on December 9, 2008.
16
Item 2
Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
Highlights of the third quarter of 2008 included:
|
|
Revenues and earnings per share for the third quarter were each at record levels.
|
|
|
|
Revenues increased 6% over the prior year quarter to $2,206.6 million, with the increase
coming from organic growth in our Outdoor businesses and from acquisitions in the prior year.
|
|
|
|
Our direct-to-consumer and international businesses continue to be key drivers of growth,
with these revenues in the quarter rising 12% and 22%, respectively. International revenues
represented 34% of total revenues.
|
|
|
|
Gross margin as a percent of revenues rose to 44.4% from 43.9% in the prior year quarter.
|
|
|
|
VF acquired 100% ownership of its former 50%-owned joint venture that marketed
Lee
Ò
branded products in Spain and Portugal (Lee Spain). The cost of the
additional investment was $25.5 million, consisting of $14.9 million in cash and transfer of
certain assets held by the former joint venture. The joint venture had revenues of $35
million in its latest fiscal year.
|
Discontinued Operations
In December 2006, management and the Board of Directors decided to exit the womens intimate
apparel business. The sale, which closed on April 1, 2007, was consistent with VFs stated
objective of focusing on lifestyle businesses having higher growth and profit potential. The
results of operations and cash flows of the intimate apparel business are separately presented as
discontinued operations for all periods. Similarly, the assets and liabilities of this business
have been reclassified and reported as held for sale for all periods presented. See Note D to the
Consolidated Financial Statements. Unless otherwise stated, the remaining sections of this
discussion and analysis of financial condition and results of operations relate only to continuing
operations.
Analysis of Results of Operations
Consolidated Statements of Income
The following table presents a summary of the changes in our Total Revenues from 2007:
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
|
Nine Months
|
|
|
|
2008
|
|
|
2008
|
|
|
|
Compared
|
|
|
Compared
|
|
(In millions)
|
|
with 2007
|
|
|
with 2007
|
|
Total revenues - 2007
|
|
$
|
2,073
|
|
|
$
|
5,264
|
|
Organic growth
|
|
|
66
|
|
|
|
167
|
|
Acquisitions in prior year (to anniversary date)
|
|
|
60
|
|
|
|
291
|
|
Acquisition in current year
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues - 2008
|
|
$
|
2,207
|
|
|
$
|
5,730
|
|
|
|
|
|
|
|
|
The increases in Total Revenues were due to strong organic revenue growth within the Outdoor
Coalition, plus inclusion for the full quarter and nine months of the Seven For All Mankind and
lucy businesses (together, the Contemporary Brands Acquisitions) acquired in the third quarter of
2007.
17
Additional details on revenues are provided in the section titled Information by Business
Segment.
During the third quarter and first nine months of 2008, approximately 34% and 33%, respectively, of
Total Revenues were in international markets. In translating foreign currencies into the U.S.
dollar, a weaker U.S. dollar in relation to the functional currencies where VF conducts the
majority of its international business (primarily the European euro countries) benefited revenue
comparisons by $50 million in the third quarter of 2008 and $148 million in the first nine months
of 2008, compared with the 2007 periods. The weighted average translation rate for the euro was
$1.51 per euro for the first nine months of 2008, compared with $1.36 during the first nine months
of 2007. The U.S. dollar has strengthened in recent months, resulting in a translation rate of
$1.47 per euro at the end of September 2008. With the strengthening of the U.S. dollar, it is
likely that reported revenues for the fourth quarter will be negatively impacted compared with
2007.
The following table presents the percentage relationship to Total Revenues for components of our
Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September
|
|
Nine Months Ended September
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Gross margin (total revenues less cost
of goods sold)
|
|
|
44.4
|
%
|
|
|
43.9
|
%
|
|
|
44.4
|
%
|
|
|
43.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, administrative and general
expenses
|
|
|
28.5
|
|
|
|
27.9
|
|
|
|
31.2
|
|
|
|
29.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
15.9
|
%
|
|
|
16.0
|
%
|
|
|
13.2
|
%
|
|
|
13.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin as a percentage of Total Revenues increased 0.5% in the third quarter of 2008 and 0.9%
in the first nine months of 2008 over the prior year periods. This improvement was driven by
growth in our higher margin lifestyle businesses, with our retail revenue growth being a primary
contributor.
Marketing, Administrative and General Expenses as a percentage of Total Revenues increased 0.6% in
the third quarter of 2008. The third quarter of 2008 included charges for cost reduction actions
and an unremitted value-added tax and duty issue related to a 2007 acquisition, together
representing 0.5% of revenues. In the first nine months of 2008, Marketing, Administrative and
General Expenses as a percentage of Total Revenues increased 1.3% compared with the prior year
period. Approximately 0.3% of the change was attributed to charges for cost reduction actions and
the value-added tax and duty issue in the first nine months of 2008. In addition, approximately
0.4% of the increase was driven by the change in mix of our businesses toward retail operations,
which have higher expense percentages. The remainder of the increase resulted primarily from lower
revenues in our jeanswear and sportswear businesses without comparable expense reduction.
Interest expense increased $5.0 million in the quarter and $23.1 million in the first nine months
of 2008, reflecting higher borrowings. Average interest-bearing debt outstanding totaled $1,450
million for the first nine months of 2008 and $922 million for the comparable period of 2007, with
the increase driven by the issuance of $600.0 million of senior long-term notes in October 2007. The
weighted average interest rate on total outstanding debt decreased to 6.2% for the first nine
months of 2008 from 6.4% for the comparable period of 2007. This decrease was driven by the mix of
our outstanding debt, including the impact of the $600.0 million of senior notes, and lower
short-term rates.
The effective income tax rate was 28.3% in the third quarter and 30.0% for the first nine months of
2008,
18
compared with 33.9% for the first nine months of 2007. The lower rate in the 2008 periods
was due primarily to net favorable income tax adjustments in the third quarter of 2008 and a higher
percentage of income in lower tax jurisdictions outside of the United States. The effective income
tax rate for the third quarter and first nine months of 2008 was based on the expected annual rate,
adjusted for discrete events arising during the respective periods.
Income from Continuing Operations in the quarter increased 12% to $233.9 million, compared with
$209.3 million in the third quarter of 2007. Earnings per share from continuing operations
increased 13% to $2.10 per share from $1.86 per share in the prior year quarter. (All per share
amounts are presented on a diluted basis.) The third quarter of 2008 included a net benefit of
$0.07 per share in unusual items, comprised of $0.14 per share in net favorable income tax
adjustments offset by $0.07 per share from cost reduction actions and for costs related to an
unremitted value-added tax and duty issue. The third quarter also benefited from a $0.06 per share
positive impact from translating foreign currencies into the U.S. dollar. The remaining
improvement in the quarter was driven primarily by profitability in our Outdoor businesses.
Income from Continuing Operations increased 8% to $486.9 million in the first nine months of 2008,
compared with $449.2 million in 2007. Earnings per share from continuing operations increased 10%
to $4.37 per share from $3.96 per share in the first nine months of 2007. Earnings per share in the first nine months of 2007
included a benefit of $0.04 per share from the sale of
H.I.S
â
trademarks and intellectual property. Earnings per share
in the first nine months of 2008 included a net benefit of $0.09 per share in unusual
items, comprised of $0.20 per share in net favorable income tax adjustments and favorable tax audit
settlements offset by $0.11 per share from cost reduction actions and for costs related to an
unremitted value-added tax and duty issue. In addition, the 2008 period included a $0.16 per share
positive impact from translating foreign currencies into the U.S. dollar.
Information by Business Segment
VFs businesses are grouped into five product categories, and by brands within those product
categories, for management and internal financial reporting purposes. These groupings of
businesses within VF are referred to as coalitions. These coalitions represent VFs reportable
business segments.
See Note H to the Consolidated Financial Statements for a summary of our results of operations by
coalition, along with a reconciliation of Coalition Profit to Income from Continuing Operations
Before Income Taxes.
The following table presents a summary of the changes in our Total Revenues by coalition for the
third quarter and first nine months of 2008:
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contemporary
|
|
|
|
|
(In millions)
|
|
Jeanswear
|
|
|
Outdoor
|
|
|
Imagewear
|
|
|
Sportswear
|
|
|
Brands
|
|
|
Other
|
|
Revenues - 2007
|
|
$
|
758
|
|
|
$
|
806
|
|
|
$
|
267
|
|
|
$
|
173
|
|
|
$
|
33
|
|
|
$
|
36
|
|
Organic growth
|
|
|
(23
|
)
|
|
|
101
|
|
|
|
(7
|
)
|
|
|
(9
|
)
|
|
|
7
|
|
|
|
(3
|
)
|
Acquisition in prior
year
(to anniversary date)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
Acquisition in current
year
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - 2008
|
|
$
|
743
|
|
|
$
|
907
|
|
|
$
|
260
|
|
|
$
|
164
|
|
|
$
|
100
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contemporary
|
|
|
|
|
(In millions)
|
|
Jeanswear
|
|
|
Outdoor
|
|
|
Imagewear
|
|
|
Sportswear
|
|
|
Brands
|
|
|
Other
|
|
Revenues - 2007
|
|
$
|
2,175
|
|
|
$
|
1,792
|
|
|
$
|
711
|
|
|
$
|
475
|
|
|
$
|
33
|
|
|
$
|
78
|
|
Organic growth
|
|
|
(81
|
)
|
|
|
260
|
|
|
|
4
|
|
|
|
(31
|
)
|
|
|
7
|
|
|
|
8
|
|
Acquisition in prior
year
(to anniversary date)
|
|
|
|
|
|
|
14
|
|
|
|
33
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
Acquisition in current
year
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - 2008
|
|
$
|
2,102
|
|
|
$
|
2,066
|
|
|
$
|
748
|
|
|
$
|
444
|
|
|
$
|
284
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeanswear:
Jeanswear Coalition revenues declined 2% in the third quarter of 2008. Domestic jeanswear revenues
declined 3% in the quarter, with the mass market business remaining essentially flat and the Lee
and western specialty businesses declining due to a very challenging retail environment, retailers
lowering their inventory levels and consumers moving to lower price points, including private label
products. International jeans revenues were flat in the quarter, which included a $20 million
benefit from foreign currency translation and double-digit revenue increases on a constant-currency
basis in Asia and Latin America. For the nine month period ended September 2008, Jeanswear
Coalition revenues decreased 3%, with domestic revenues declining 8% due to the retail environment
and other factors discussed above. International jeanswear revenues increased 6% in the 2008 nine
month period, reflecting the benefit of foreign currency translation. The Lee Spain acquisition,
completed in July 2008, also added $8 million in revenue to both the third quarter and first nine
months of 2008.
Jeanswear Coalition Profit decreased 9% in the third quarter of 2008, with operating margins
declining from 17.9% in the third quarter of 2007 to 16.5% in the current quarter. The third
quarter of 2008 was negatively impacted by increased promotional activity and a higher proportion
of sales of lower margin new fashion products. In addition, approximately 0.3% of the total 1.4%
margin decline was attributed to actions taken in the third quarter of 2008 to improve our cost
structure. Operating margins for the nine month period also declined from 16.9% in 2007 to 15.4%
in 2008. The nine month period ending September 2007 included a gain on sale of
H.I.S
â
trademarks and intellectual property items that positively impacted
operating margins by 0.4%. The remainder of the declines in both the quarter and nine month period
were driven primarily by decreases in revenues without comparable expense reduction.
20
Outdoor:
Revenues in our Outdoor businesses increased 12% in the third quarter of 2008 and 15% in the nine
month period, compared with prior year periods. These increases were led by strong global unit
volume gains of
The North Face
â
,
Vans
â
,
Kipling
â
,
Napapijri
â
and
Eastpak
â
brands. Also, the 2007 acquisitions of Eagle Creek and specific brand-related assets of a former
licensee of
The North Face
â
brand in China and Nepal added $14 million to
revenues in the first nine months of 2008 (prior to the anniversary dates of the respective
acquisitions). Foreign currency translation positively impacted 2008 Outdoor Coalition revenues by
$27 million, or 3%, in the quarter and $80 million, or 4%, in the first nine months.
Operating margins increased in the quarter to 20.8% from 20.0% in the prior year quarter and also
increased in the nine months ended September 2008 to 17.1% from 16.6% in the prior year period.
Operating margins were higher in both 2008 periods due to a higher percentage of products sold in
international markets, where
higher gross margins are realized. Revenue growth and the resulting benefit of improved leverage
of certain operating expenses were offset by increased retail investments.
Imagewear:
Coalition Revenues declined 3% in the third quarter of 2008, with similar decreases in both our
occupational apparel and activewear divisions. Coalition Revenues increased 5% for the nine month
period of 2008 over the prior year period. The
Majestic
â
brand, acquired on
February 28, 2007, accounted for substantially all of the increase in the nine month period (prior
to the anniversary date of its acquisition).
Operating margins increased to 15.7% from 15.5% in the prior year quarter and also increased in the
nine months ended September 2008 to 14.0% from 13.8% due to lower distribution and selling costs.
Sportswear:
Coalition Revenues declined 5% in the 2008 quarter and 6% in the nine month period of 2008 compared
with the prior year. Revenues in our core
Nautica
â
brand sportswear business
declined 10% in the third quarter of 2008 and 11% in the nine month period, driven by the exit of
our womens wholesale sportswear business and challenging overall conditions in the department
store channel. These declines were partially offset by significant revenue growth in our
Kipling
â
and
John Varvatos
â
businesses in both 2008 periods,
including over 18% growth in each in the third quarter and over 20% growth in each in the nine
month period.
Operating margins improved to 10.1% from 9.9% in the prior year quarter, with third quarter 2008
operating margins negatively impacted by 0.9% from cost reduction actions. The improved operating
performance resulted from the exit of the womens wholesale sportswear business and benefits of
recent cost reduction initiatives. Operating margins declined to 7.1% from 9.7% for the nine month
period due to lower
Nautica
â
brand revenues without comparable expense reduction,
plus a charge in the first quarter of 2008 to discontinue our
Nautica
â
womens
wholesale sportswear business.
Contemporary Brands:
The Contemporary Brands Coalition was formed in August 2007 with two newly acquired businesses -
Seven For All Mankind and lucy activewear. This coalition in 2008 also includes the earnings from our
one-third equity investment in Mo Industries Holdings, Inc. (Mo Industries), the owner
and marketer of the
Splendid
â
and
Ella Moss
â
brands.
The Contemporary Brands Coalition operating margins of 11.6% in the third quarter and 14.3% for the
first nine months of 2008 were driven by the high operating margins of Seven For All Mankind and
our portion of the earnings of the
Splendid
â
and
Ella Moss
â
brands. Operating margins were negatively impacted by 6.2% in the third quarter of 2008 and
2.2% in the nine month period for a $6.2 million charge related to an unremitted value-added tax
and duty matter at Seven For All Mankind. Operating margins were 14.9%
21
during the period of our
ownership in the third quarter of 2007. While not currently profitable, we expect results of our
lucy activewear business to improve as we increase our operating efficiencies.
Other:
The Other business segment includes the VF Outlet business unit of company-operated retail outlet
stores in the United States that sell a broad selection of excess quantities of first quality VF
products and other branded products. Revenues and profits of VF products are reported as part of
the operating results of the applicable coalitions, while revenues and profits of non-VF products
are reported in this business segment. The increase in revenues in the first nine months of 2008
was due to VF Outlets sale of womens intimate apparel products obtained from independent
suppliers following VFs sale of its intimate apparel business in April 2007 (whereas such revenues
prior to April 2007 were reported as part of discontinued operations).
Reconciliation of Coalition Profit to Income from Continuing Operations before Income
Taxes:
There are two types of costs necessary to reconcile total Coalition Profit, as discussed in the
preceding paragraphs, to consolidated Income from Continuing Operations Before Income Taxes. These
costs are (i) Corporate and Other Expenses, discussed below, and (ii) Interest, Net, which was
discussed in the previous Consolidated Statements of Income section.
Corporate and Other Expenses consist of corporate headquarters expenses that are not allocated to
the coalitions and certain other expenses related to but not allocated to the coalitions for
internal management reporting, including development costs for management information systems,
certain costs of maintaining and enforcing VFs trademarks and miscellaneous consolidating
adjustments. The reduction in Corporate and Other Expenses in the nine month period ended
September 2008 over the prior year period resulted primarily from lower stock-based and other
incentive compensation.
Analysis of Financial Condition
Balance Sheets
Accounts Receivable at September 2008 increased 4% over the September 2007 balance, reflecting
higher revenues in the third quarter of 2008. This increase was partially offset by an improvement
in days sales outstanding. Accounts Receivable are higher at September 2008 than at the end of
2007 due to seasonal sales patterns.
Inventories at September 2008 increased 4% over September 2007, which is in line with the
forecasted revenue growth in the fourth quarter of 2008 over the prior year quarter. Inventory
levels at September 2008 increased over December 2007 due to higher seasonal requirements of our
businesses.
Property, Plant and Equipment increased at September 2008 over December 2007 and September 2007
because capital spending, including investments in retail stores, exceeded depreciation expense.
Total Intangible Assets and Goodwill at September 2008 increased over September 2007 as a result of
the Lee Spain acquisition and foreign currency translation, offset in part by amortization. See
Notes C, E and F to the Consolidated Financial Statements.
Other Assets increased at September 2008 over December 2007 and September 2007 due to a $77.0
million investment in shares of the owner of the
Splendid
â
and
Ella
Moss
â
brands in the second quarter. In addition, the September 2008 and December
2007 balances included the recognition of the overfunded status of our qualified defined benefit
pension plan (based at both dates on our December 2007 plan valuation), whereas the plan was
underfunded at September 2007 (based on our December 2006 valuation). These increases
22
were offset
in part by lower values of investment securities held for deferred compensation plans at September
2008.
Short-term Borrowings at September 2008 consisted of $362.5 million of domestic commercial paper
borrowings and $51.0 million of international borrowings. Overall, the extent of short-term
borrowings varies throughout the year in relation to working capital requirements and other
investing and financing activities. See the Liquidity and Cash Flows section below for a
discussion of these items. Due to seasonal working capital flows and financing requirements, there
is typically more need for external borrowings at the end of the third quarter than at our fiscal
year-end.
Accounts Payable at September 2008 increased slightly over September 2007 due primarily to
increased
inventory levels discussed above. The Accounts Payable balance at December 2007 was higher than
normal due to the timing of inventory purchases and payments to vendors at the end of 2007.
Accrued Liabilities increased at September 2008 from December 2007 due to (i) an increase in
accrued income taxes resulting from higher profitability and timing of tax payments, (ii) seasonal
increases and growth-related factors in our businesses and (iii) the Lee Spain acquisition in the
third quarter of 2008. The September 2008 balance declined from September 2007 due to changes in
accrued income tax balances, driven by higher estimated income tax payments, partially offset by
the Lee Spain acquisition.
Total Long-term Debt, including the current portion, decreased at September 2008 and December 2007
from the level at September 2007 resulting from repayment of $49.3 million of short-term
international borrowings that had been classified as long-term at September 2007 because of our
intent and ability to retain that amount as outstanding for the following twelve months. These
short-term international borrowings were repaid due to higher cash generation than expected.
Other Liabilities were lower at September 2008 than both December 2007 and September 2007 due to
lower deferred compensation liabilities. Also, Other Liabilities were lower at September 2008 and
December 2007 than September 2007 due to the improved funded status of our defined benefit pension
plans, offset by higher deferred income tax liabilities.
Liquidity and Cash Flows
The financial condition of VF is reflected in the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
|
|
December
|
|
September
|
(Dollars in millions)
|
|
2008
|
|
2007
|
|
2007
|
Working capital
|
|
$
|
1,691.1
|
|
|
$
|
1,510.7
|
|
|
$
|
1,431.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio
|
|
|
2.2 to 1
|
|
|
|
2.3 to 1
|
|
|
|
1.9 to 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt to total capital ratio
|
|
|
28.8
|
%
|
|
|
26.4
|
%
|
|
|
33.7
|
%
|
For the ratio of debt to total capital, debt is defined as short-term and long-term borrowings, and
total capital is defined as debt plus common stockholders equity. Our ratio of net debt to total
capital, with net debt defined as debt less cash and equivalents, was 25.7% at September 2008.
On an annual basis, VFs primary source of liquidity is its strong cash flow provided by operating
activities. Cash provided by operating activities is primarily dependent on the level of net
income and changes in investments in inventories and other working capital components. Our cash
flow from operations is typically
23
low in the first half of the year as we build working capital to
service our operations in the second half of the year. Cash provided by operating activities is
substantially higher in the fourth quarter of the year as we collect accounts receivable arising
from our higher seasonal wholesale sales in the third quarter. In addition, cash flows from our
direct-to-consumer businesses are significantly higher in the fourth quarter of the year.
For the nine months through September 2008, cash provided by operating activities was $59.8
million, compared with cash provided by operating activities of $165.8 million in the comparable
2007 period. The decrease in cash provided by operating activities was driven by the net change in
operating asset and liability
components, which was a usage of funds of $582.9 million for the nine months ended September 2008,
compared with a usage of funds of $452.3 million for the comparable period ended September 2007.
This additional usage of funds in the first nine months of 2008 was primarily due to an increase in
payments to vendors as a result of a higher than normal accounts payable balance at the end of
2007. See the discussion of accounts payable in the Balance Sheets section above.
To finance our ongoing operations and unusual circumstances that may arise, we rely on our
continued strong cash flow from operations. In addition, VF has liquidity from its available cash
balances and debt capacity, supported by its strong credit rating. At the end of September 2008,
$625.9 million was available for borrowing under VFs $1.0 billion senior unsecured committed
domestic revolving bank credit facility. There was $362.5 million of commercial paper outstanding
and $11.6 million of standby letters of credit issued under this agreement. We have not drawn down
any funds on this facility. Also at the end of September 2008,
250.0 million (U.S. dollar
equivalent of $366.4 million) was available for borrowing under VFs senior unsecured committed
international revolving bank credit facility.
The investing activities in the first nine months of 2008 included the $14.9 million cash component
of the Lee Spain acquisition and $77.0 million purchase of one-third of the shares of Mo
Industries, owner of the
Splendid
Ò
and
Ella Moss
Ò
brands. We
have an option to purchase the remaining shares of Mo Industries and have granted the other
stockholders of Mo Industries an option to require us to purchase all of their stock in 2009, with
the purchase price based on their 2008 earnings. If we were to acquire the remaining shares, the
purchase price of those shares, plus any net debt assumed, would be subject to a maximum amount of
$225 million. The other significant investing activity in the first nine months of 2008 was
capital spending, primarily related to retail initiatives. We expect that capital spending could
reach $120 million for the full year of 2008, which will be funded by operating cash flows.
In October 2007, Standard & Poors Ratings Services affirmed its A minus corporate credit rating,
A-2 commercial paper rating and stable outlook for VF. Standard & Poors also assigned its A
minus senior unsecured debt rating to VFs $600.0 million unsecured senior notes issued in October
2007. In August 2007, Moodys Investors Service affirmed VFs long-term debt rating of A3,
commercial paper rating of Prime-2 and stable outlook. Existing long-term debt agreements do
not contain acceleration of maturity clauses based solely on changes in credit ratings. However,
for the $600.0 million of senior notes issued in 2007, if there were a change in control of VF and,
as a result of the change in control
,
the notes were rated below investment grade by recognized
rating agencies, then VF would be obligated to repurchase the notes at 101% of the aggregate
principal amount of notes repurchased, plus any accrued and unpaid interest.
During the first nine months of 2008, VF purchased 2.0 million shares of its Common Stock in open
market transactions at a cost of $149.7 million (average price of $74.86 per share) and in the
first nine months of 2007 purchased 4.1 million shares at a cost of $350.0 million (average price
of $85.03 per share). Share repurchase activity during the first nine months of 2008 reduced the
total remaining authorization approved by the Board of Directors to 3.2 million shares as of the
end of September 2008. The primary objective of our share repurchase program is to offset, on a
long-term basis, dilution caused by awards under equity compensation plans. We will continue to
evaluate future share repurchases by comparing to the benefits of business acquisitions.
24
Managements Discussion and Analysis in our 2007 Form 10-K provided a table summarizing VFs
contractual obligations and commercial commitments at the end of 2007 that would require the use of
funds. Since the filing of our 2007 Form 10-K, there have been no material changes, except as
noted below, relating to VFs contractual obligations and commercial commitments that will require
the use of funds:
|
|
|
Inventory purchase obligations represent binding commitments to purchase finished goods,
raw materials and sewing labor in the ordinary course of business. These commitments
increased by approximately $20 million at the end of September 2008 to support the growth
of our businesses.
|
|
|
|
|
Operating leases represent required minimum lease payments. These commitments increased
by approximately $85 million at the end of September 2008, driven by leases for additional
retail stores.
|
|
|
|
|
Minimum royalty and other commitments decreased by approximately $70 million at the end
of September 2008 due to payments made under the agreements.
|
During the first nine months and extending into the fourth quarter of 2008, the fair value of
investments in our qualified defined benefit pension plan declined due to disruption in the global
capital and credit markets. Management is continually evaluating current credit market conditions
and, along with its independent actuary, is evaluating the impact of those conditions on our
pension plans assets and liabilities. If our plans investment portfolio does not recover its
losses before our next plan measurement date at the end of 2008 and if the extent of the effects of
any decline in asset values are not offset by the effects of a possible increase in the discount
rate used to value the plans obligations to participants, it is likely that (i) the reduction in
the plans funded status will result in charges to Other Comprehensive Income at December 2008,
(ii) our pension expense in 2009 will increase, and (iii) VF will be required to make funding
contributions to the plan in 2009.
Management believes that VFs cash balances and funds provided by operating activities, as well as
unused committed bank credit lines, additional borrowing capacity and access to equity markets,
taken as a whole, provide (i) adequate liquidity to meet all of its current and long-term
obligations when due, (ii) adequate liquidity to fund capital expenditures and to maintain our
dividend payout policy and (iii) flexibility, depending on capital market conditions, to meet
investment opportunities that may arise.
VF does not participate in transactions with unconsolidated entities or financial partnerships
established to facilitate off-balance sheet arrangements or other limited purposes.
Critical Accounting Policies and Estimates
We have chosen accounting policies that we believe are appropriate to accurately and fairly report
VFs operating results and financial position in conformity with accounting principles generally
accepted in the United States. We apply these accounting policies in a consistent manner. Our
significant accounting policies are summarized in Note A to the Consolidated Financial Statements
included in our 2007 Form 10-K.
The application of these accounting policies requires that we make estimates and assumptions about
future events and apply judgments that affect the reported amounts of assets, liabilities,
revenues, expenses, contingent assets and liabilities, and related disclosures. These estimates,
assumptions and judgments are based on historical experience, current trends and other factors
believed to be reasonable under the circumstances. We evaluate these estimates and assumptions and
may retain outside consultants to assist in our evaluation. If actual results ultimately differ
from previous estimates, the revisions are included in results of operations in the period in which
the actual amounts become known.
The accounting policies that involve the most significant estimates, assumptions and management
judgments used in preparation of our consolidated financial statements, or are the most sensitive
to change from outside
25
factors, are discussed in Managements Discussion in our 2007 Form 10-K. There have been no
material changes in these policies, except for those mentioned in Note B to the Consolidated
Financial Statements.
Cautionary Statement on Forward-Looking Statements
From time to time, we may make oral or written statements, including statements in this Quarterly
Report that constitute forward-looking statements within the meaning of the federal securities
laws. These include
statements concerning plans, objectives, projections and expectations relating to VFs operations
or economic performance, and assumptions related thereto. Forward-looking statements are made
based on our expectations and beliefs concerning future events impacting VF and therefore involve a
number of risks and uncertainties. We caution that forward-looking statements are not guarantees
and actual results could differ materially from those expressed or implied in the forward-looking
statements.
Potential risks and uncertainties that could cause the actual results of operations or financial
condition of VF to differ materially from those expressed or implied by forward-looking statements
in this Quarterly Report on Form 10-Q include VFs reliance on a small number of large customers;
the financial strength of VFs customers; changing fashion trends and consumer demand; increasing
pressure on margins; VFs ability to implement its growth strategy; VFs ability to grow its
international and direct-to-consumer businesses; VFs ability to successfully integrate and grow
acquisitions; VFs ability to maintain the strength and security of its information technology
systems; stability of VFs manufacturing facilities and foreign suppliers; continued use by VFs
suppliers of ethical business practices; VFs ability to accurately forecast demand for products;
continuity of members of VFs management; VFs ability to protect trademarks and other
intellectual property rights; maintenance by VFs licensees and distributors of the value of VFs
brands; the overall level of consumer spending; disruption and volatility in the global capital
and credit markets; general economic conditions and other factors affecting consumer confidence;
fluctuations in the price, availability and quality of raw materials and contracted products;
foreign currency fluctuations; and legal, regulatory, political and economic risks in
international markets. More information on potential factors that could affect VFs financial
results is included from time to time in VFs public reports filed with the Securities and Exchange
Commission, including VFs Annual Report on Form 10-K.
Item 3
Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes in VFs market risk exposures from what was disclosed in
Item 7A in our 2007 Form 10-K.
Item 4
Controls and Procedures
Disclosure controls and procedures:
Under the supervision of our Chief Executive Officer and Chief Financial Officer, a Disclosure
Committee comprising various members of management has evaluated the effectiveness of the
disclosure controls and procedures at VF and its subsidiaries as of the end of the period covered
by this Quarterly Report (the Evaluation Date). Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded as of the Evaluation Date that such controls and
procedures were effective.
Changes in internal control over financial reporting:
There have been no changes during the last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, VFs internal control over financial reporting.
26
Part II Other Information
Item 1A
Risk Factors
Except for the item below, there have been no material changes to our risk factors from those
disclosed in
our 2007 Form 10-K.
Global capital and credit markets conditions, and resulting declines in consumer confidence and
spending, could have an adverse effect on VFs operating results. Further, the conditions in the
global capital and credit markets could have an adverse effect on VFs ability to access those
markets.
Volatility and disruption in the global capital and credit markets reached unprecedented levels
during the third quarter of 2008 and extending into the fourth quarter. This market turmoil has
led to failures of major financial institutions, government intervention in the capital markets, a
tightening of business credit and liquidity, a contraction of consumer credit, higher unemployment
and declines in consumer confidence and spending. The economic downturn in the United States and
in many international markets could have an adverse effect on demand for our products and on the
financial condition of some of our wholesale customers. Global economic conditions could continue
to deteriorate and remain weak for an extended period of time, which could have a material adverse
effect on VFs financial condition, results of operations and ability to access the capital and
credit markets.
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer purchases of equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
Maximum Number
|
|
|
|
|
|
|
Weighted
|
|
Shares Purchased
|
|
of Shares that May
|
|
|
Total Number
|
|
Average
|
|
as Part of Publicly
|
|
Yet Be Purchased
|
|
|
of Shares
|
|
Price Paid
|
|
Announced Plans
|
|
Under the Plans or
|
Fiscal Period
|
|
Purchased
|
|
per Share
|
|
or Programs
|
|
Programs (1)
|
June 29 - July 26, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
3,204,000
|
|
July 27 - August 23, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,204,000
|
|
August 24 - September
27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,204,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Under the Mid-Term Incentive Plan
implemented under VFs 1996 Stock Compensation Plan, VF must withhold from the shares of
Common Stock issuable in settlement of a participants performance-based restricted stock
units the number of shares having an aggregate fair market value equal to any minimum
statutory federal, state and local withholding or other tax that VF is required to
withhold, unless the participant has made other arrangements to pay such amounts. There
were no shares withheld under the Mid-Term Incentive Plan during the third quarter of 2008.
|
27
Item 6
Exhibits
10.1
|
|
VF 2004 Mid-Term Incentive Plan, as amended July 14, 2008
|
|
10.2
|
|
The Form of Indemnification Agreement with each of VFs non-employee Directors
|
|
10.3
|
|
Executive Deferred Savings Plan II, as amended and restated to be
effective January 1, 2009
|
|
31.1
|
|
Certification of the principal executive officer, Eric C. Wiseman, pursuant to 15
U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
31.2
|
|
Certification of the principal financial officer, Robert K. Shearer,
pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
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32.1
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Certification of the principal executive officer, Eric C. Wiseman,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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32.2
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Certification of the principal financial officer, Robert K. Shearer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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V.F.
CORPORATION
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(Registrant)
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By:
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/s/ Robert K. Shearer
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Robert K. Shearer
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Senior Vice President and
Chief Financial Officer
(Chief Financial Officer)
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Date: November 5, 2008
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By:
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/s/ Bradley W. Batten
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Bradley W. Batten
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Vice President - Controller
(Chief Accounting Officer)
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29
Exhibit 10.1
VF CORPORATION
2004 Mid-Term Incentive Plan
,
as amended July 14, 2008
1.
Purposes
. This 2004 Mid-Term Incentive Plan (the Plan) of VF Corporation (the
Company), as amended July 14, 2008, is implemented under the Companys 1996 Stock Compensation
Plan (the 1996 Plan). The Plan, which replaces, for periods beginning on and after January 1,
2004, the Mid-Term Incentive Plan adopted in 1999, is intended to provide an additional means to
attract and retain talented executives, to link a significant element of executives compensation
opportunity to the Companys performance over more than one year, thereby providing an incentive
for successful long-term strategic management of the Company, and otherwise to further the purposes
of the 1996 Plan.
2.
Status as Subplan Under the 1996 Plan; Administration
. This Plan is a subplan implemented
under the 1996 Plan, and will be administered by the Compensation Committee of the Board of
Directors in accordance with the terms of the 1996 Plan. All of the terms and conditions of the
1996 Plan are hereby incorporated by reference in this Plan, and if any provision of this Plan or
an agreement evidencing an award hereunder conflicts with a provision of the 1996 Plan, the
provision of the 1996 Plan shall govern. Capitalized terms used in this Plan but not defined
herein shall have the same meanings as defined in the 1996 Plan.
3.
Certain Definitions
. In addition to terms defined above and in the 1996 Plan, the
following are defined terms under this Plan:
(a) Account means the account established for a Participant under Section 7(a).
(b) Administrator means the officers and employees of the Company responsible for the
day-to-day administration of the Plan and to which other authority may be delegated under Section
10(b). Unless otherwise specified by the Committee, the Administrator shall be the VF Corporation
Pension Plan Committee.
(c) Cause means (i), if the Participant has an Employment Agreement defining Cause, the
definition under such Employment Agreement, or (ii), if the Participant has no Employment Agreement
defining Cause, the Participants gross misconduct, meaning (A) the Participants willful and
continued refusal substantially to perform his or her duties with the Company (other than any such
refusal resulting from his or her incapacity due to physical or mental illness), after a demand for
substantial performance is delivered to the Participant by the Board of Directors which
specifically identifies the manner in which the Board believes that the Participant has refused to
perform his or her duties, or (B) the willful engaging by the Participant in gross misconduct
materially and demonstrably injurious to the Company. For purposes of this definition, no act or
failure to act on the Participants part shall be considered willful unless done, or omitted to
be done, by the Participant not in good faith and without reasonable belief that his or her action
or omission was in the best interest of the Company.
(d) Covered Employee means a Participant determined by the Committee to be
likely to be a
named executive officer of the Company in the year compensation under the Plan will become payable
and whose compensation in that year likely could be non-deductible under Section 162(m) of the
Internal Revenue Code, such that the Committee has determined that compensation to such Participant
under the Plan should qualify as performance-based compensation for purposes of Section 162(m).
(e) Disability means (i), if the Participant has an Employment Agreement defining
Disability, the definition under such Employment Agreement, or (ii), if the Participant has no
Employment Agreement defining Disability, the Participants incapacity due to physical or mental
illness resulting in the Participants absence from his or her duties with the Company on a
full-time basis for 26 consecutive weeks, and, within 30 days after written notice of termination
has been given by the Company, the Participant has not returned to the full-time performance of his
or her duties.
(f) Dividend Equivalents means credits in respect of each PRSU representing an amount equal
to the dividends or distributions declared and paid on a share of Common Stock, subject to Section
7(b).
(g) Employment Agreement means a written agreement between the Company and a Participant
securing the Participants services as an employee for a period of time and in effect at the later
of the time of the Participants Designation of Participation (as defined below) or December 31,
2008 or, if no such agreement is then in effect, an agreement providing severance benefits to the
Participant upon termination of employment in effect at the later of the time of the Participants
Designation of Participation or December 31, 2008 (including for this purpose an agreement
providing such benefits only during a period following a defined change in control, whether or not
a change in control in fact has occurred prior to the Participants Termination of Employment).
(h) Good Reason means Good Reason as defined in the Participants Employment Agreement.
If the Participant has no such Employment Agreement, no circumstance will constitute Good Reason
for purpose of this Plan.
(i) Participant means an Employee participating in this Plan.
(j) Performance Cycle means the period specified by the Committee over which a designated
amount of PRSUs potentially may be earned. Performance Cycles generally will be periods comprising
three consecutive fiscal years of the Company.
(k) Performance Goal means the performance required to be achieved as a condition of earning
of PRSUs under the Plan. As specified in Section 6(a), for each Participant who is a Covered
Employee in a given Performance Cycle, the Performance Goal will include at least two components, a
Pre-Set Goal which must be met in order for any amount to be earned and one or more Challenge
Goals which will then determine the amount of PRSUs such Participant will earn for the Performance
Cycle, and for each Participant who is not a Covered
Employee in a given Performance Cycle, the Performance Goal may but is not required to include
the Pre-Set Goal and will include one or more Challenge Goals which will then
2
determine the amount
of PRSUs such Participant will earn for the Performance Cycle.
(l) PRSU or Performance Restricted Stock Unit means a Stock Unit which is potentially
earnable by a Participant hereunder upon achievement of the Performance Goal. PRSUs that have been
earned but deferred at the election of the Participant continue to be referred to as PRSUs under
the Plan, with the understanding that such PRSUs are no longer forfeitable upon Termination of
Employment or based on performance.
(m) Pro Rata Portion means a portion of a specified number of PRSUs potentially earnable in
a given Performance Cycle determined by multiplying such number of PRSUs by a fraction the
numerator of which is the number of calendar days from the beginning of the Performance Cycle until
a specified Proration Date and the denominator of which is the number of calendar days in the
Performance Cycle.
(n) Stock Unit means a bookkeeping unit which represents a right to receive one share of
Common Stock upon settlement, together with a right to accrual of additional Stock Units as a
result of Dividend Equivalents as specified in Section 7(b), subject to the terms and conditions of
this Plan. Stock Units, which constitute an award under Article IX of the 1996 Plan (including
Section 9.6 thereof), are arbitrary accounting measures created and used solely for purposes of
this Plan, and do not represent ownership rights in the Company, shares of Common Stock, or any
asset of the Company.
(o) Target PRSUs means a number of PRSUs designated as a target number that potentially may
be earned by a Participant in a given Performance Cycle.
(p) Termination of Employment means the Participants termination of employment with the
Company or any of its subsidiaries or affiliates in circumstances in which, immediately thereafter,
the Participant is not employed by the Company or any of its subsidiaries or affiliates; provided,
however, that in the case of any PRSUs that constitute a deferral of compensation, Termination of
Employment shall mean a separation from service as defined in Treasury Regulation § 1.409A-1(h).
The date of Termination of Employment will be determined without giving effect to any period
during which severance payments may be made to a Participant, unless otherwise specifically stated
herein.
4.
Shares Available Under the Plan
. Shares issuable or deliverable in settlement of PRSUs
shall be drawn from the 1996 Plan. The Committee will monitor share usage under this Plan and the
1996 Plan to ensure that shares are available for settlement of PRSUs in compliance with the
requirements of the 1996 Plan.
5.
Eligibility
. Employees who are eligible to participate in the 1996 Plan may be selected by
the Committee to participate in this Plan.
6.
Designation and Earning of PRSUs.
(a)
Designation of PRSUs, Pre-Set Goals, Challenge Goals and Related Terms
. Not later than 90
days after the beginning of a Performance Cycle (except that this time
3
limitation will not apply in
the case of a Participant other than a Covered Employee), the Committee shall (i) select Employees
to participate in the Performance Cycle, (ii) designate the Pre-Set Goal (to the extent applicable)
for the Performance Cycle, and (iii) designate for each Participant the number of Target PRSUs and
the range of PRSUs the Participant shall have the opportunity to earn in such Performance Cycle.
The time at which these terms have been designated for a given Participant shall be the
Participants Designation of Participation for the specified Performance Cycle, except that with
respect to any designation made not later than 90 days after the beginning of a Performance Cycle,
the Designation of Participation shall be the commencement date of the Performance Cycle. The
number of PRSUs potentially earnable by each Participant shall range from 0% to a maximum
percentage of a specified number of Target PRSUs, subject to the following provisions:
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(A)
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In no event may the number of PRSUs that may be potentially earnable by any one
Participant in all Performance Cycles that begin in any one calendar year exceed the
applicable annual per-person limitation set forth in Section 5.3 of the 1996 Plan; and
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(B)
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The maximum percentage of the number of Target PRSUs that may be earned shall
be 200% of the number of Target PRSUs, unless the Committee specifies a lesser
percentage.
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The Pre-Set Goal is intended to be a Performance Objective within the meaning of Section 9.3 of
the 1996 Plan, in order to qualify PRSUs as performance-based compensation under Section 162(m)
of the Code. Accordingly, the Pre-Set Goal shall be based on one or more of the performance
criteria specified in Section 9.3 of the 1996 Plan. If the Pre-Set Goal applicable to a
Participant who is a Covered Employee (or if so specified for a Participant who is not a Covered
Employee) for a Performance Cycle is not achieved, no PRSUs may be earned by the Participant for
such Performance Cycle. In addition, the Committee may at any time, in its discretion, specify the
Challenge Goals applicable to one or more years of the Performance Cycle. Challenge Goals may be
specified as a table, grid, or formula that sets forth the amount of PRSUs that will be earned upon
achievement of a specified level of performance during all or part of the Performance Cycle
(subject to the requirement that the Pre-Set Goal has been achieved, in the case of a Participant
who is a Covered Employee or if so specified by the Committee for other Participants). For
purposes of Section 162(m) of the Code, the Committee is authorized to treat the maximum percentage
of PRSUs as earned upon achievement of the Pre-Set Goal, so specification of the Challenge Goals
and related terms represents an exercise of negative discretion by the Committee.
(b)
Adjustments to Performance Goal.
The Committee may provide for adjustments to the
Performance Goal, to reflect changes in accounting rules, corporate structure or other
circumstances of the Company, for the purpose of preventing dilution or enlargement of
Participants opportunity to earn PRSUs hereunder; provided, however, that no adjustment shall
be authorized if and to the extent that such authorization or adjustment would cause the
Pre-Set Goal applicable to a Participant who is a Covered Employee not to meet the performance
goal requirement set forth in Treasury Regulation 1.162-27(e)(2) under the Code.
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(c)
Determination of Number of Earned PRSUs
. Not later than 75 days after the end of each
Performance Cycle, the Committee shall determine the extent to which the Performance Goal for the
earning of PRSUs was achieved during such Performance Cycle and the number of PRSUs earned by each
Participant for the Performance Cycle. The Committee shall make written determinations that any
Pre-Set Goal and Challenge Goals and any other material terms relating to the earning of PRSUs were
in fact satisfied. The date at which the Committee makes a final determination of PRSUs earned
with respect to a given Performance Cycle will be the Earning Date for such Performance Cycle.
The Committee may adjust upward or downward the number of PRSUs earned, in its discretion, in light
of such considerations as the Committee may deem relevant (but subject to applicable limitations of
the 1996 Plan, as referenced in Section 6(a) of this Plan), provided that, with respect to a
Participant who is a Covered Employee, no upward adjustment may be made if the Pre-Set Goal has not
been achieved and adjustments otherwise shall comply with applicable requirements of Treasury
Regulation 1.162-27(e) under the Code.
7.
Certain Terms of PRSUs.
(a)
Accounts
. The Company shall maintain a bookkeeping account for each Participant
reflecting the number of PRSUs then credited to the Participant hereunder. The Account may include
subaccounts or other designations showing, with respect to separate Performance Cycles, PRSUs that
remain potentially earnable, PRSUs that have been earned but deferred, and other relevant
information. Fractional PRSUs shall be credited to at least three decimal places for purposes of
this Plan, unless otherwise determined by the Administrator.
(b)
Dividend Equivalents and Adjustments
. Unless otherwise determined by the Administrator,
Dividend Equivalents shall be paid or credited on PRSUs that have been earned as follows:
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(i)
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Regular Cash Dividends
. At the time of settlement of PRSUs under Section 9,
the Administrator shall determine the aggregate amount of regular cash dividends that
would have been payable to the Participant, based on record dates for dividends since
the beginning of the Performance Cycle (or, if later, the date of the Participants
Designation of Participation ), if the earned PRSUs then to be settled had been
outstanding shares of Common Stock at such record date (without compounding of
dividends but adjusted to account for splits and other extraordinary corporate
transactions). Such aggregate cash amount will be converted to a number of shares by
dividing the amount by the Fair Market Value of a share of Common Stock at the
settlement date.
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(ii)
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Common Stock Dividends and Splits
. If the Company declares and pays a
dividend or distribution on Common Stock in the form of additional shares of Common
Stock, or there occurs a forward split of Common Stock, then the
number of PRSUs credited to each Participants Account and potentially earnable
hereunder as of the payment date for such dividend or distribution or forward split
shall be automatically adjusted by multiplying the number of PRSUs credited to the
Account or potentially earnable as of the record date for such dividend or
distribution or split by the number of additional shares of Common Stock actually
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paid as a dividend or distribution or issued in such split in respect of each
outstanding share of Common Stock.
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(iii)
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Adjustments
. If the Company declares and pays a dividend or distribution on
Common Stock that is not a regular cash dividend and not in the form of additional
shares of Common Stock, of if there occurs any other event referred to in Article XI of
the 1996 Plan, the Committee may determine to adjust the number of PRSUs credited to
each Participants Account and potentially earnable hereunder, in order to prevent
dilution or enlargement of Participants rights with respect to PRSUs.
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(c)
Statements
. An individual statement relating to a Participants Account will be issued to
the Participant not less frequently than annually. Such statement shall report the amount of PRSUs
potentially earnable and the number of PRSUs earned and remaining credited to Participants Account
(i.e., not yet settled), transactions therein during the period covered by the statement, and other
information deemed relevant by the Administrator. Such statement may be combined with or include
information regarding other plans and compensatory arrangements affecting the Participant. A
Participants statements may evidence the Companys obligations in respect of PRSUs without the
need for the Company to enter into a separate agreement relating to such obligations; provided,
however, that any statement containing an error shall not represent a binding obligation to the
extent of such error.
8.
Effect of Termination of Employment
.
(a)
Termination Prior to Performance Cycle Earning Date
. Except to the extent set forth in
subsections (i) through (v) of this Section 8(a), upon a Participants Termination of Employment
prior to the Earning Date with respect to a given Performance Cycle all unearned PRSUs relating to
such Performance Cycle shall cease to be earnable and shall be canceled and forfeited, and
Participant shall have no further rights or opportunities hereunder:
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(i)
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Retirement
. If Termination of Employment is due to the Retirement (as defined
in the 1996 Plan) of the Participant, the Participant shall be entitled to receive
settlement of a Pro Rata Portion of the total number of PRSUs the Participant is deemed
to have earned in accordance with this Section 8(a)(i), with the Proration Date (used
to calculate the Pro Rata Portion) being the date of Retirement, except that PRSUs
relating to any Performance Cycle beginning in 2009 or later that has not completed one
full year as of the date of Termination of Employment will not be earnable and will be
cancelled as of the date of Termination of Employment. The settlement of PRSUs shall
occur promptly (and in any event not later than March 15) following completion of the
fiscal year of the Company in which the
Termination of Employment occurs. Performance for any open Performance Cycle shall
be deemed to be the average performance achieved for the fiscal year(s) completed
prior to the date of settlement. Any deferral election filed by the Participant
shall be effective and apply to the settlement of the PRSUs.
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(ii)
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Death or Disability.
If Termination of Employment is due to the Participants
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death or Disability, the Participant in the case of Disability or the Participants
Beneficiary in the case of death shall be entitled to receive settlement of a Pro Rata
Portion of the total number of PRSUs the Participant is deemed to have earned in
accordance with this Section 8(a)(ii), with the Proration Date (used to calculate the
Pro Rata Portion) being the date of death or Termination due to Disability. The
settlement of PRSUs shall occur promptly (and in any event not later than March 15)
following completion of the fiscal year of the Company in which the date of death or
Termination due to Disability occurs. Performance for any open Performance Cycle shall
be deemed to be the average performance achieved for the fiscal year(s) completed prior
to the date of settlement. Any deferral election filed by the Participant shall have
no effect on the settlement of the PRSUs.
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(iii)
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Involuntary Termination By the Company Not for Cause Prior to a Change in
Control.
If Termination of Employment is an involuntary separation by the Company not
for Cause prior to a Change in Control, the Participant shall be entitled to receive
settlement of a Pro Rata Portion of the total number of PRSUs the Participant is
deemed to have earned in accordance with this Section 8(a)(iii), with the Proration
Date (used to calculate the Pro Rata Portion) being the earlier of (A) the last day of
the payroll period with respect to which a severance payment in the nature of salary
continuation has been made and (B) the last day of the Performance Cycle. If no
severance payments are to be made, the applicable Proration Date shall be the date of
Termination of Employment. In all cases under this Section 8(a)(iii), PRSUs relating
to any Performance Cycle beginning in 2009 or later or, with respect to the 2008 -2010
Performance Cycle, as to which the Participant has been designated a participant after
July 1, 2008, in which the Participant has not participated for twelve months as of
the date of Termination of Employment (i.e., Termination occurs within 12 months after
the Participants Designation of Participation) will not be earnable and will be
cancelled as of the date of Termination of Employment. The settlement of PRSUs shall
occur promptly (and in any event not later than March 15) following completion of the
fiscal year of the Company in which the Proration date occurs. Performance for any
open Performance Cycle shall be deemed to be the average performance achieved for the
fiscal year(s) completed prior to the date of settlement. Any deferral election filed
by the Participant shall have no effect on the settlement of the PRSUs.
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(iv)
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At or Following a Change in Control, Involuntary Termination By the Company Not
for Cause or by Participant for Good Reason.
If Termination of Employment
occurs at or after a Change in Control and is an involuntary separation by the
Company not for Cause or a Termination by the Participant for Good Reason, the
Participant shall be entitled to receive settlement of the total number of PRSUs the
Participant is deemed to have earned in accordance with this Section 8(a)(iv),
promptly (and in any event within 30 days) following the date of Termination of
Employment. The amount of the settlement shall assume that the Participant has
remained with the Company through the completion of each open Performance
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Cycle and
that the performance achieved by the Company for each such Performance Cycle is the
average of the performance achieved for the completed year(s) in such Performance
Cycle if greater than 100% (i.e., the performance required to earn at least the
Target PRSUs), or, if such average is less than 100%, the performance achieved shall
be deemed to be the average of the actual performance for the completed year(s) in
such Performance Cycle (if any) together with performance for years not yet complete
being deemed to be 100% of target performance. Any deferral election filed by the
Participant shall have no effect on the settlement of the PRSUs.
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(v)
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Termination by the Company for Cause or Voluntary Termination by the
Participant
. If Termination of Employment is either by the Company for Cause or
voluntary by the Participant (excluding a Termination for Good Reason following a
Change in Control), PRSUs relating to each Performance Cycle which has not yet ended or
reached its Earning Date will cease to be earnable and will be canceled.
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The foregoing provisions notwithstanding, if any PRSUs constitute a deferral of compensation for
purposes of Code Section 409A, and (i) such PRSUs would be settled at a date related to a
Termination of Employment under this Section 8(a) (or in connection with a permitted elective
deferral of the PRSUs), (ii) such settlement date would be within six months after the Termination
of Employment, (iii) the Company at the date of Termination has any class of securities traded in a
public trading market, and (iv) the Participant is a Specified Employee at the date of
Termination of Employment under Code Section 409A, then the settlement date will be delayed until
the date six months after Termination of Employment. PRSUs for a given Performance Cycle each will
be deemed a separate payment for purposes of Code Section 409A. It is intended that PRSUs that are
not electively deferred hereunder constitute short-term deferrals under Treasury Regulation §
1.409A-1(b)(4), unless otherwise specifically designated by the Company in the case of a specified
Participant.
(b)
Termination After Performance Cycle Earning Date
. Upon a Participants Termination of
Employment at or after the Earning Date with respect to a given Performance Cycle, all PRSUs
resulting from such Performance Cycle shall be settled in accordance with Section 9(a) as promptly
as practicable after such Termination, except that, if the Participant has timely filed an
irrevocable election to defer settlement of PRSUs following a Termination of Employment due to
Retirement or Disability, such PRSUs shall be settled in accordance with such deferral election.
(c)
Release
. Any settlement of PRSUs following Termination of Employment may be delayed by
the Committee if the Participants Employment Agreement or any policy of the Committee then in
effect conditions such settlement or severance payments upon the Company receiving a full and valid
release of claims against the Company.
9.
Settlement of PRSUs.
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(a)
Settlement If PRSUs Not Deferred
. Not later than the Earning Date for each Performance
Cycle, the Committee shall settle all PRSUs earned in respect of such Performance Cycle, other than
PRSUs deferred under Section 9(b) or settled as specified in Section 8, by issuing and/or
delivering to the Participant one share of Common Stock for each PRSU being settled. Such issuance
or delivery shall occur as promptly as practicable after the Earning Date for the Performance
Cycle.
(b)
Deferral of PRSUs
. If and to the extent authorized by the Committee, at any time on or
before such date as may be specified by the Administrator, the Participant may elect to defer
settlement of PRSUs to a date (i) later than the Earning Date for the Performance Cycle to which
the PRSUs relate or (ii) later than Termination of Employment due to Retirement or Disability, as
specified by the Participant; provided, however, that an optional deferral shall be subject to such
additional restrictions and limitations as the Committee or Administrator may from time to time
specify, including for purposes of ensuring that the Participant will not be deemed to have
constructively received compensation in connection with such deferral. Dividend equivalents shall
accrue on deferred PRSUs and shall be paid in cash annually to the Participant at an annual payment
date set by the Administrator, without interest or compounding. Other provisions of the Plan
notwithstanding, if any legislation or regulation imposes requirements on elective non-qualified
deferred compensation that are inconsistent with the Plan and procedures hereunder, if Participants
are not afforded an opportunity under such legislation or regulation to withdraw or modify their
prior elections or deferred compensation resulting therefrom, then (i) if the prior deferrals can
be automatically modified to conform to the requirements of the legislation or regulation with the
Participant being deemed not to be in constructive receipt of the deferred compensation, then such
modification automatically shall be in effect, and (ii) if not, then such deferral will immediately
end and the deferred PRSUs shall be promptly settled in accordance with the Plan; provided,
however, that if a Participant would be deemed to be in constructive receipt of any deferred
amounts solely because of this provision, the provision shall be void and of no effect.
(c)
Creation of Rabbi Trust
. If and to the extent authorized by the Committee, the Company
may create one or more trusts and deposit therein Common Stock or other property for delivery to
the Participant in satisfaction of the Companys obligations hereunder. Any such trust shall be a
rabbi trust that shall not jeopardize the status of the Participants rights hereunder as
unfunded deferred compensation for federal income tax purposes. If so provided by the Committee,
upon the deposit by the Committee of Common Stock in such a trust, there shall be substituted for
the rights of the Participant to receive settlement by issuance and/or delivery of Common Stock
under this Agreement a right to receive property of the same type as and equal in
value to the assets of the trust (to the extent that such assets represent the full amount of
the Companys obligation at the date of deposit). The trustee of the trust shall not be permitted
to diversify trust assets by voluntarily disposing of shares of Common Stock in the trust and
reinvesting proceeds, but such trustee may be authorized to dispose of other trust assets and
reinvest the proceeds in alternative investments, subject to such terms, conditions, and
limitations as the Committee may specify, including for the purpose of avoiding adverse accounting
consequences to the Company, and in accordance with applicable law.
(d)
Settlement of PRSUs at the End of the Deferral Period
. Not later than 15 days
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after the
end of any elective period of deferral or immediately in the case of a deferral period ending upon
a Change in Control, the Company will settle all PRSUs then credited to a Participants Account by
issuing and/or delivering to the Participant one share of Common Stock for each PRSU being settled.
Any deferral period will end on an accelerated basis immediately prior to a Change in Control,
except as limited under Section 9(b).
(e)
Manner of Settlement
. The Committee or Administrator may, in its or his or her sole
discretion, determine the manner in which shares of Common Stock shall be delivered by the Company,
including the manner in which fractional shares shall be dealt with; provided, however, that no
certificate shall be issued representing a fractional share. In furtherance of this authority,
PRSUs may be settled by the Company issuing and delivering the requisite number of shares of Common
Stock to a member firm of the New York Stock Exchange which is also a member of the National
Association of Securities Dealers, as selected by the Company from time to time, which shares shall
be deposited by such member firm in separate brokerage accounts for each Participant. If there
occurs any delay between the settlement date and the date shares are issued or delivered to the
Participant, a cash amount equal to any dividends or distributions the record date for which fell
between the settlement date and the date of issuance or delivery of the shares shall be paid to the
Participant together with the delivery of the shares.
(f)
Settlement of PRSUs Held by Non-US Residents.
Other provisions of the Plan (including
Section 9(e)) notwithstanding, PRSUs credited to the Account of a Participant who resides in or is
subject to income tax laws of a country other than the United States may be settled in cash, in the
discretion of the Committee. The cash amount payable in settlement of each PRSU shall equal the
Fair Market Value of a share at the date of not more than five business days before the date of
settlement. The Committee is authorized to vary the terms of participation of such foreign
Participants in any other respect (including in ways not consistent with the express provisions of
the Plan) in order to conform to the laws, regulations, and business customs of a foreign
jurisdiction.
(g)
Tax Withholding
. The Company shall deduct from any settlement of a Participants PRSUs
and cash dividends paid in respect of any deferred PRSUs any Federal, state, or local withholding
or other tax or charge which the Company is then required to deduct under applicable law. In
furtherance of this requirement, the Company shall withhold from the shares of Common Stock
issuable or deliverable in settlement of a Participants PRSUs the number of shares having an
aggregate Fair Market Value equal to any Federal, state, and local withholding or other tax or
charge which the Company is required to withhold under applicable law, unless
the Participant has otherwise elected and has made other arrangements satisfactory to the
Company to pay such withholding amounts.
(h)
Non-Transferability
. Unless otherwise determined by the Committee, neither a Participant
nor any beneficiary shall have the right to, directly or indirectly, alienate, assign, transfer,
pledge, anticipate, or encumber (except by reason of death) any PRSU, Account or Account balance,
or other right hereunder, nor shall any such PRSU, Account or Account balance, or other right be
subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment,
or garnishment by creditors of the Participant or any beneficiary, or to the debts, contracts,
liabilities, engagements, or torts of the Participant or any Beneficiary or
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transfer by operation
of law in the event of bankruptcy or insolvency of the Participant or any beneficiary, or any legal
process.
10.
General Provisions
.
(a)
Changes to this Plan
. The Committee may at any time amend, alter, suspend, discontinue,
or terminate this Plan, and such action shall not be subject to the approval of the Companys
shareholders; provided, however, that, without the consent of an affected Participant, no such
action may materially impair the rights of such Participant under this Plan. The foregoing
notwithstanding, the Committee may, in its discretion, accelerate the termination of any
Performance Cycle or any deferral period and the resulting settlement of PRSUs with respect to an
individual Participant or all Participants.
(b)
Delegation of Administrative Authority
. The Committee may, in writing, delegate some or
all of its power and responsibilities under the Plan to the Administrator or any other officer of
the Company or committee of officers and employees, except such delegation may not include (i)
authority to amend the Plan under Section 10(a), (ii), with respect to any executive officer of the
Company, authority under Section 6 or other authority required to be exercised by the Committee in
order that compensation under the Plan will qualify as performance-based compensation under Section
162(m) of the Code, or (iii) authority that otherwise may not be delegated under the terms of the
1996 Plan, this Plan, or applicable law. In furtherance of this authority, the Committee hereby
delegates to the Administrator, as from time to time designated, authority to administer the Plan
and act on behalf of the Committee to the fullest extent permitted under this Section 10(b). This
delegation of authority to the Administrator shall remain in effect until terminated or modified by
resolution of the Committee (without a requirement that the Plan be amended further). The
authority delegated to the Administrator hereunder shall include:
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(i)
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Authority to adopt such rules for the administration of the Plan as the
Administrator considers desirable, provided they do not conflict with the Plan; and
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(ii)
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Authority under Section 9(b) to impose restrictions or limitations on
Participant deferrals under the Plan, including in order to promote cost-effective
administration of the Plan; no restriction or limitation on deferrals shall be
deemed to conflict with the Plan.
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No individual acting as Administrator (including any member of the committee serving as
Administrator) shall participate in a decision directly affecting his or her own rights or
obligations under the Plan, although participation in a decision affecting all Participants shall
not be prohibited by this provision.
(c)
Nonexclusivity of the Plan
. The adoption of this Plan shall not be construed as creating
any limitations on the power of the Board or Committee to adopt such other compensation
arrangements as it may deem desirable for any Participant.
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(d)
Effective Date and Plan Termination
. This Plan became effective on January 1, 2004,
following its approval by the Committee. This Plan was most recently amended by the Committee on
July 14, 2008. This Plan will remain in effect until such time as the Company and Participants
have no further rights or obligations under this Plan in respect of PRSUs not yet settled or the
Committee otherwise terminates this Plan.
12
Exhibit 10.2
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (
Agreement
) is made as of this
day of
,
2008, by and between V.F. Corporation, a Pennsylvania corporation (the
Company
), and
[
] (
Indemnitee
).
WHEREAS, the Company and Indemnitee recognize the prevalent risk of corporate shareholder
litigation, in general, subjecting directors to the risk of expensive litigation; and
WHEREAS, the Company desires to attract and retain the services of highly qualified
individuals, such as Indemnitee, to serve as directors of the Company and to indemnify its
directors so as to provide them with the maximum indemnification protection permitted by law as
protection against such risks.
NOW, THEREFORE, the Company and Indemnitee, intending to be legally bound, hereby agree as
follows:
1.
Indemnification
.
a.
Third Party and Derivative Proceedings
. The Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, an action by or in the right of the Company or any affiliate of the
Company) by reason of the fact that Indemnitee is or was a director, officer, trustee, fiduciary,
employee or agent of the Company, or any affiliate of the Company, by reason of any action or
inaction on the part of Indemnitee while an officer or director, or by reason of the fact that
Indemnitee is or was serving at the request of the Company as a director, officer, trustee,
fiduciary, employee or agent of any other enterprise, against expenses (including attorneys fees),
and all liabilities and loss, including, judgments, fines and amounts paid in settlement (if such
settlement is approved pursuant to
Section 2(f)
) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding so long as the Indemnitees actions
are not determined, in a final judicial determination (as to which all rights of appeal have been
exhausted or lapsed), to have constituted willful misconduct or recklessness.
b.
Mandatory Indemnification
. To the extent that Indemnitee has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in
Section
1(a)
or in defense of any claim, issue or matter therein, Indemnitee shall be indemnified
against expenses (including attorneys fees) actually and reasonably incurred by Indemnitee in
connection therewith. For purposes of this
Section 1(c)
, the term
successful on the merits
or otherwise
shall include, but not be limited to, (i) any termination, withdrawal, or dismissal
(with or without prejudice) of any claim, action, suit or proceeding against Indemnitee without any
express finding of liability or guilt against him, or (ii) the expiration of a reasonable period of
time after the making of any claim or threat of an action, suit or proceeding without the
institution of the same and without any promise or payment made to induce a settlement.
2.
Expenses and Indemnification Procedure
.
a.
Advancement of Expenses
. The Company shall advance all reasonable out-of-pocket
expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal
of any civil, criminal, administrative or investigative action, suit or proceeding referenced in
Section 1(a)
.
b.
Undertaking to Repay Expenses
. In the event that it shall ultimately be determined
that Indemnitee is not entitled to be indemnified for the expenses paid by the Company pursuant to
Section 2(a) hereof or otherwise or was not entitled to be fully indemnified, Indemnitee shall
repay to the Company such amount of the advanced expenses or the appropriate portion thereof.
c.
Notice/Cooperation by Indemnitee
. Indemnitee shall, as a condition precedent to his
right to be indemnified under this Agreement, give the Company notice in writing as soon as
practicable of any claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to VF Corporation, 105 Corporate
Center Blvd., Greensboro, North Carolina 27408, Facsimile: (336) 424-7696, Attention: General
Counsel (or such other address as the Company may from time to time designate in writing to
Indemnitee). Notice shall be deemed received on the third business day after the date postmarked if
sent by domestic certified or registered mail, properly addressed; otherwise, notice shall be
deemed received when such notice shall actually be received by the Company. In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably require and as shall
be within Indemnitees power.
d.
Procedure
. Any indemnification and advances provided for in
Section 1
and
this
Section 2
shall be made no later than 45 days after receipt of the written request of
Indemnitee, coupled with appropriate documentation to support the requested payment. If a claim
under this Agreement, under any statute, or under any provision of the Companys Articles of
Incorporation or Bylaws providing for indemnification is not paid in full by the Company within 45
days after receipt of a fully documented written request for payment thereof has first been
received by the Company, Indemnitee may, but need not, at any time thereafter bring an action
against the Company to recover the unpaid amount of the claim and, subject to
Section 13
,
Indemnitee shall also be entitled to be paid for the expenses (including attorneys fees) of
bringing such action. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance
of its final disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed,
but the burden of proving such defense shall be on the Company, and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to
Section 2(a)
unless and until such defense
may be finally adjudicated by court order or judgment from which no further right of appeal exists.
It is the parties intention that if the Company contests Indemnitees right to indemnification,
the question of Indemnitees right to indemnification shall be for the court to decide, and neither
the failure of the Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its shareholders) to have made a determination
that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard
-2-
of conduct required by applicable law, nor an actual determination by the
Company (including its Board of Directors, any committee or subgroup of the Board of Directors,
independent legal counsel, or its shareholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not, as the case may be,
met the applicable standard of conduct.
e.
Notice to Insurers
. If, at the time of the receipt of a notice of claim pursuant to
Section 2(b)
, the Company has directors and officers liability insurance in effect, the
Company shall give prompt notice of the commencement of such proceeding to the insurers in
accordance with the procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of such policies.
f.
Selection of Counsel
. If the Company shall be obligated under
Section 1
or
Section 2
to pay the expenses of any proceeding against Indemnitee, the Company shall be
entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election to do so. After delivery of such notice,
approval of such counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of any other counsel
subsequently incurred by Indemnitee with respect to the same proceeding;
provided
that (i)
Indemnitee shall have the right to employ separate counsel in any such proceeding at Indemnitees
expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such proceeding, then the
reasonable fees and expenses of Indemnitees counsel shall be at the expense of the Company.
g.
Settlements
. The Company shall not be liable to Indemnitee under this Agreement for
any amounts paid in settlement of any action or claim effected without its written consent. The
Company shall not settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitees written consent. Neither the Company nor Indemnitee
will unreasonably withhold consent to any proposed settlement.
h.
Change in Control
.
(1) If, at any time subsequent to the date of this Agreement, members of the Incumbent Board
do not constitute a majority of the members of the Board of Directors, or there is otherwise a
Change in Control, then upon the request of Indemnitee, the Company shall cause the determination
of indemnification and advances required by
Section 2
to be made by a third party (mutually
agreed upon by the parties or failing such agreement, as determined by the Chief Judge of the
Federal District Court for the Eastern District of Pennsylvania). The fees and expenses incurred by
the third party in making the determination of indemnification and advances shall be borne solely
by the Company. If such third party is unwilling and/or unable to make the determination of
indemnification and advances, then the
-3-
Company shall cause the indemnification and advances to be
made by a majority vote or consent of a Board of Directors committee consisting solely of members
of the Incumbent Board.
(2) For purposes of this Agreement, a
Change in Control
shall be deemed to have occurred if
individuals who, as of the date of this Agreement, constitute the Board of Directors (the
"
Incumbent Board
) cease for any reason to constitute at least a
majority of the Board of Directors;
provided
,
however
, that any individual becoming a director
subsequent to the date of this Agreement whose election, or nomination for election by the
Companys shareholders, was approved by a vote of at least a three-quarters (3/4) of the directors
then comprising the Incumbent Board, (either by a specific vote or by approval of the proxy
statement of the Corporation in which such person is named as a nominee of the Corporation for
director), shall be considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board of Directors.
3.
Additional Indemnification Rights
:
a.
Scope
. Notwithstanding any other provision of this Agreement, the Company shall
indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this Agreement, the
Companys Articles of Incorporation, the Companys Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or rule which expands the
right of a Pennsylvania corporation to indemnify a member of its board of directors, such changes
shall be,
ipso facto
, within the purview of Indemnitees rights and Companys obligations under
this Agreement. In the event of any change in any applicable law, statute or rule which narrows the
right of a Pennsylvania corporation to indemnify a member of its board of directors, such changes
(to the extent not otherwise required by such law, statute or rule to be applied to this Agreement)
shall have no effect on this Agreement or the parties rights and obligations hereunder.
b.
Non-exclusivity
. The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which an Indemnitee may be entitled under the Companys Articles of
Incorporation, its Bylaws, any agreement, any vote of Shareholders or disinterested directors, the
Pennsylvania Business Corporation Law of 1988, as amended, or otherwise, both as to action in
Indemnitees official capacity and as to action in another capacity while holding such office.
4.
Continuation of Indemnity
. All agreements and obligations of the Company contained
herein shall continue during the period Indemnitee is a director, officer, employee or agent of the
Company (or is or was serving at the request of the Company as a director, officer, employee or
agent of any other enterprise) and shall continue thereafter, so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal or investigative, by reason of the fact that Indemnitee was a director,
officer, employee or agent of the Company or serving in any other capacity referred to herein.
-4-
5.
Partial Indemnification
. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines
or penalties actually or reasonably incurred by him in the investigation, defense, appeal or
settlement of any civil or criminal action, suit or proceeding, but not for the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such
expenses, judgments, fines or penalties to which Indemnitee is entitled.
6.
Mutual Acknowledgment
. Both the Company and Indemnitee acknowledge that, in certain
instances, federal law or public policy may override applicable state law and prohibit the Company
from indemnifying its directors under this Agreement or otherwise. For example, the Company and
Indemnitee acknowledge that the Securities and Exchange Commission (the
SEC
) has taken the
position that indemnification is not permissible for liabilities arising under certain federal
securities laws, and federal legislation prohibits indemnification for certain ERISA violations.
Indemnitee understands and acknowledges that the Company has undertaken with the SEC to submit the
question of indemnification to a court in certain circumstances for a determination of the
Companys right under public policy to indemnify Indemnitee.
7.
Officer and Director Liability Insurance
. The Company shall, from time to time,
make the good faith determination whether or not it is practicable for the Company to obtain and
maintain a policy or policies of insurance with reputable insurance companies providing the
directors of the Company with coverage for losses from wrongful acts, or to ensure the Companys
performance of its indemnification obligations under this Agreement. Among other considerations,
the Company will weigh the costs of obtaining such insurance coverage against the protection
afforded by such coverage. In all policies of directors and officers liability insurance,
Indemnitee shall be insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Companys directors. Notwithstanding the
foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the premium costs for
such insurance are disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee
is covered by similar insurance maintained by an affiliate of the Company.
8.
Severability
. Nothing in this Agreement is intended to require or shall be
construed as requiring the Company to do or fail to do any act in violation of applicable law. The
Companys inability, pursuant to court order, to perform its obligations under this Agreement shall
not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as
provided in this
Section 8
. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify
Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not
have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.
9.
Exceptions
. Any other provision herein to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement:
-5-
a.
Claims Initiated by Indemnitee
. To indemnify or advance expenses to Indemnitee with
respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of
defense (such as by counterclaim, cross-claim or third-party
claim), except with respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as required under the
Pennsylvania Business Corporation Law of 1988, as amended, but such indemnification or advancement
of expenses may be provided by Company in specific cases if the Board of Directors, at its sole
discretion, finds it to be appropriate;
b.
Lack of Good Faith
. To indemnify Indemnitee for any expenses incurred by Indemnitee
with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if
a court of competent jurisdiction determines that each of the material assertions made by
Indemnitee in such proceeding was made in bad faith or was frivolous;
c.
Insured Claims
. To indemnify Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and
amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier
under a policy of officers and directors liability insurance maintained by the Company or other
enterprise;
d.
Claims Under Section 16(b)
. To indemnify Indemnitee for expenses or the payment of
profits arising from the purchase and sale by Indemnitee of securities in violation of Section
16(b) of the Exchange Act, or any similar successor statute;
e.
Illegal Activity
. To indemnify Indemnitee if a court of competent jurisdiction
finally adjudges that such indemnification is illegal, including, without limitation, by virtue of
such indemnification being in violation of public policy or any provision of law.
10.
Interpretation; Construction of Certain Phrases
.
a. The headings of particular provisions of this Agreement are inserted for convenience only
and will not be construed as a part of this Agreement or serve as a limitation or expansion on the
scope of any term or provision of this Agreement. The words
include
,
includes
or
including
shall be deemed to be followed by the words
without limitation
. The words
hereof
,
herein
and
herewith
and words of similar import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole and not to any particular provision of this Agreement.
b. For purposes of this Agreement:
(1) references to the
Company
shall include, in addition to the resulting or surviving
corporation, any constituent entity (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is
or was a director, officer, employee or agent of such constituent entity, or is or was serving at
the request of such constituent entity as a director, officer, employee or agent of any other
enterprise, Indemnitee shall stand in the same position under the
-6-
provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have with respect to such
constituent entity if its separate existence had continued;
(2) references to any
other enterprise
shall include any corporation, trust, partnership,
joint venture, or other entity;
(3) references to
fines
shall include any excise taxes or penalties assessed on Indemnitee
with respect to an employee benefit plan;
(4) references to
serving at the request of the Company
shall include any service as a
director, officer, employee or agent of the Company which imposes duties on, or involves services
by, Indemnitee with respect to an employee benefit plan, its participants, or beneficiaries;
(5) references to
affiliates
shall mean any entity which, directly or indirectly, is in the
control of, is controlled by, or is under common control with, the Company; and
(6) references to
Sections
or
clauses
shall be to Sections or clauses of this Agreement.
11.
Counterparts; Facsimile Signatures
. This Agreement may be executed in any number
of counterparts (including by facsimile signature), each of which shall be deemed to be an original
and all of which together shall constitute one and the same document.
12.
Successors and Assigns
. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns, and Indemnitee and Indemnitees estate,
heirs, legal representatives and assigns.
13.
Attorneys Fees
. If any action is instituted by Indemnitee under this Agreement to
enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court
costs and expenses, including reasonable attorneys fees, incurred by Indemnitee with respect to
such action, unless as a part of such action, the court of competent jurisdiction determines that
each of the material assertions made by Indemnitee as a basis for such action was made in bad faith
or was frivolous. In the event of an action instituted by or in the name of the Company under this
Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be
entitled to be paid all court costs and expenses, including attorneys fees, incurred by Indemnitee
in defense of such action (including with respect to Indemnitees counterclaims and cross-claims
made in such action), unless as a part of such action the court determines that each of
Indemnitees material defenses to such action was made in bad faith or was frivolous.
14.
Notice
. All notices, requests, demands, consents and other communications
hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly
given or made upon receipt) by delivery in person, by overnight courier service, or by facsimile
with receipt confirmed (followed by delivery of an original via overnight courier service). The
address for notice to the Company shall be as set forth in
Section 2(b)
, and
-7-
the address
for notice to Indemnitee shall be as set forth on the signature page of this Agreement, or as
subsequently modified in a notice given in accordance with this
Section 14
.
15.
Consent to Jurisdiction
. The Company and Indemnitee each hereby irrevocably
consent to the jurisdiction of the courts of the Commonwealth of Pennsylvania for all purposes in
connection with any action or proceeding which arises out of or relates to this Agreement. Any
action or proceeding instituted under or to enforce this Agreement shall be brought only in the
state courts of the Commonwealth of Pennsylvania.
16.
Subrogation
. In the event of payment under this Agreement, Company shall be
subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who
shall execute all papers required and shall do everything that may be necessary to secure such
rights, including the execution of such documents necessary to enable Company effectively to bring
suit to enforce such rights.
17.
Choice of Law
. This Agreement shall be governed by and its provisions construed in
accordance with the laws of the Commonwealth of Pennsylvania, as applied to contracts between
Pennsylvania residents entered into and to be performed within Pennsylvania.
18.
Prior Agreement
. Notwithstanding any contrary provision contained herein, this
Agreement supersedes and replaces any and all prior written indemnification agreements between the
Indemnitee and the Company.
[
Signature page follows
]
-8-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above
written.
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V.F. Corporation
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By:
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Name:
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Title:
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Indemnitee
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Address for Notice:
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Exhibit 10.3
VF EXECUTIVE DEFERRED SAVINGS PLAN II
(Adopted January 1, 2005 and amended and restated effective January 1, 2009)
Prior to 2005, VF Corporation maintained the VF Executive Deferred Savings Plan (the Old
EDSP). In response to the addition of section 409A to the Internal Revenue Code of 1986, as
amended (the Code), VF Corporation ceased participation in the Old EDSP effective December 31,
2004 and adopted the VF Executive Deferred Savings Plan II (the Plan) effective January 1, 2005
which served as an interim plan until necessary revisions, effective January 1, 2009, could be made
to bring the Plan into documentary compliance with Code section 409A. The Old EDSP shall continue
to hold those vested accounts under the Old Plan as of December 31, 2004.
The Plan permits senior executive employees, who are among a select group of management or
highly-compensated employees of VF Corporation or a Participating Employer, to defer compensation
and be credited with matching deferrals in a manner similar to that offered to other VF Corporation
employees who participate in the VF Corporation Retirement Savings Plan for Salaried Employees (the
Savings Plan). Those employees who are eligible to participate in this Plan are not eligible to
participate in the Savings Plan. In addition, this Plan also provides an additional benefit (
i.e.
,
Company Retirement Deferrals) for any eligible employee who begins employment with VF Corporation
or a Participating Employer on or after January 1, 2005 (or, earlier, if determined by the VF
Corporation Pension Plan Committee) and who is not eligible to participate in the VF Corporation
Pension Plan.
The intention of VF Corporation is that the Plan be at all times maintained on an unfunded
basis for federal income tax purposes, administered as a top hat plan exempt from the substantive
requirements of the Employee Retirement Income Security Act of 1974, as amended, and operated in
accordance with the requirements of section 409A of the Code.
SECTION I
DEFINITIONS
Unless otherwise required by the context, the terms used herein shall have the meanings as set
forth below:
1.
Accrued Benefit
means the sum of a Participants Basic Deferrals and the vested portion
of the Participating Employers Matching Deferrals and Company Retirement Deferrals. A
Participants Accrued Benefit shall also include any Matching Deferrals that, as of December 31,
2004, were not vested under the Old EDSP.
2.
Basic Deferral
means that portion of a Participants Earnings elected to be deferred
under the terms of this Plan.
3.
Beneficiary
means the individual or entity named pursuant to the Plan to receive benefit
payments hereunder in the event of the death of the Participant. In the case of any Participant
who also was a participant in the Old EDSP, such Participants Beneficiary under this Plan shall be
the same Beneficiary designated by the Participant under the Old EDSP unless and until a different
Beneficiary is otherwise designated.
4.
Change of Control
means, for purposes of vesting under Article III, the same as it does
in the Companys change of control agreements with its senior management in place at the relevant
time; provided, however, that if there is ever a time that the Company no longer has any such
agreements in place with its senior management, then the Committee shall determine the meaning of
Change of Control. Notwithstanding the foregoing, for purposes of benefit entitlement under
Article VI and payment rights under Article VII, when used in connection with a Participating
Employer (including the Company), Change of Control means the same as change in the ownership or
effective control of a corporation under Code section 409A.
5.
Code Section 409A
means, collectively, Section 409A of the Code and any Treasury
regulations and guidance issued thereunder.
6.
Committee
means the VF Corporation Pension Plan Committee, as appointed from time to time
by the Board of Directors of the Company. In the event the Committee has delegated an authority or
responsibility under this Plan in accordance with subsection 3 of Section X, the term Committee
where used herein shall be deemed to refer to the applicable delegate.
7.
Company
means VF Corporation, a Pennsylvania corporation.
8.
Company Controlled Group
shall include the Company and each related company or business
which is part of the same controlled group under Code sections 414(b) or 414(c); provided that in
applying Code section 1563(a)(1) (a)(3) for purposes of determining a controlled group of
corporations under Code section 414(b) and in applying Treasury Regulation section 1.414(c)-2 for
purposes of determining whether trades or businesses are under common control under Code section
414(c), the phrase at least 50 percent is used instead of at least 80 percent.
9.
Company Retirement Deferral
means the additional deferral amount credited to a
Participant by a Participating Employer under the terms of Subsection 3 of Section III of this
Plan.
10.
Deferrals
means, collectively, a Participants Basic, Matching, and Company Retirement
Deferrals under the Plan (and, unless specified otherwise, shall include any gains or losses
attributable thereto).
11.
Earnings
means the Participants total compensation, including any salary and any cash
bonus payments made to a Participant by a Participating Employer in the relevant year under a
Participating Employers performance-based incentive compensation plans.
2
For purposes of the Plan, Earnings shall be determined without regard to any salary or bonus
deferrals or reductions which may be made by a Participant pursuant to section 401(k) or section
125 of the Code. However, Earnings shall not include any reimbursement for expenses paid to a
Participant by a Participating Employer nor shall it include any payments or contributions made by
a Participating Employer to a plan or arrangement, on behalf of a Participant, which results in
imputed income to the Participant for federal income tax purposes. In the discretion of the
Committee, a Participants deferral election may identify additional forms of compensation to be
included in or excluded from the Participants Earnings.
12.
Excess Earnings
means:
(a) Earnings received by a Participant during a Plan Year in excess of the annual compensation
limit described in section 401(a)(17) of the Code (as adjusted by the Secretary of the Treasury);
and
(b) Earnings not described in (a) above with respect to which the Participant did not receive
an allocation of Company Retirement Contributions under the Savings Plan because such Earnings
were deferred as Basic Deferrals under this Plan.
13.
Initial Eligibility Date
means the earliest date on which a newly eligible employee may
participate in the Plan. The Initial Eligibility Date shall be established by the Committee and
may not be earlier than the date the employee is notified, in writing, by the Participating
Employer of the material terms of the Plan.
14.
Matching Deferral
means the additional deferral amount credited to a Participant by a
Participating Employer under the terms of Subsection 2 of Section III of this Plan. In addition,
the term Matching Deferral shall include any Matching Deferrals (and any gains and losses
credited thereon) that, as of December 31, 2004, were not vested under the Old EDSP.
15.
Old EDSP
means the VF Executive Deferred Savings Plan, as it may be amended from time to
time.
16.
Participant
means an eligible employee who participates in this Plan in accordance with
its provisions.
17.
Participating Employer
means the Company and each related company or business within the
Company Controlled Group the eligible employees of which are designated by the Committee to
participate in this Plan with respect to Basic and Matching Deferrals and/or Company Retirement
Deferrals.
18.
Performance-Based Compensation
shall have the meaning as set forth under Code section
409A.
19.
Plan
means the VF Executive Deferred Savings Plan II as it may be amended subsequently
from time to time.
3
20.
Plan Year
means the calendar year.
21.
Service
means the sum of (i) the vesting service, if any, the Participant accrued, or
such service as is recognized for the Participant, under the VF Corporation Retirement Savings Plan
for Salaried Employees as of the date the Participant commences participation in this Plan (or, if
earlier, the date the Participant commenced participation in the Old EDSP), (ii) service, if any,
while eligible to participate under the Old EDSP, and (iii) service while eligible to participate
under this Plan. An employee shall be credited with Service under (iii) hereof for each calendar
month during which he or she performs services while eligible to participate in this Plan
determined, for these purposes, without regard to any period of suspension attributable to a
hardship withdrawal under Section VIII. Service shall also include the following periods:
(a) Any leave of absence from employment which is authorized by the Participating Employer;
(b) Any period of military service in the Armed Forces of the United States required to be
credited by law; provided, however, that the Participant returns to the employment of a
Participating Employer within the period his or her re-employment rights are protected by law; and
(c) Service with any entity or enterprise related to the Company if, and to the extent that,
the Committee determines that such service should be counted.
22.
Severance from Service
shall have the same meaning as the term separation from service
as set forth under Code section 409A. Notwithstanding the foregoing, a Severance from Service does
not occur if a Participant is transferred to another Participating Employer or any member of the
Company Controlled Group.
23.
Social Security Wage Base
means the applicable dollar amount for the Plan Year of the
contribution and benefit base as determined under section 230 of the Social Security Act.
24.
Specified Employee
means as of any given date, the one-hundred (100) highest compensated
employees as of the end of the preceding Plan Year; provided that the group of one-hundred (100)
employees shall include at least fifty (50) officers, and provided further that such group of
employees and officers shall be determined from a listing of same drawn from the Company Controlled
Group, and complied as of the end of such preceding Plan Year.
25.
Spouse
means the person to whom the Participant is legally married at the time relevant
to any determination under the Plan.
26.
Total Disability
means a physical or mental impairment that qualifies a Participant for
disability benefits under a long-term disability benefits plan maintained by a Participants
Participating Employer and/or eligibility for disability benefits under the Social
4
Security Act; provided that such impairment would also qualify as a disability as defined in
Code section 409A. All determinations of Total Disability for purposes of this Plan shall be based
on the fact that the Participant is in receipt of disability payments under either or both the
above-referenced disability benefits plans.
SECTION II
ELIGIBILITY
1.
Requirements
. An individual shall be eligible to elect to contribute Basic
Deferrals and be credited with Matching Deferrals if he or she is working for a Participating
Employer in a capacity classified by the Participating Employer as that of an employee and, for
compensation purposes, is assigned by the Participating Employer to grade 20 (or its equivalent) or
above. An individual shall be eligible to be credited with Company Retirement Deferrals if he or
she satisfies the foregoing requirements and satisfies the requirements of Subsection 3(a) of
Section III. An employee shall be eligible to participate only if the employee is so notified, in
writing, by the Participating Employer of the material terms of the Plan and the employees Initial
Eligibility Date.
2.
Participation
. Participation in this Plan by an eligible employee is voluntary
with respect to the right to elect to contribute Basic Deferrals and be credited with Matching
Deferrals but is mandatory with respect to Company Retirement Deferrals.
3.
Termination of Participation
. In the event that a Participant ceases to be an
eligible employee, the Participants Basic Deferral election shall remain in effect through the end
of the Plan Year in which the Participant remains employed but has ceased to be an eligible
employee (and such Participant shall remain eligible to be credited with Company Retirement
Deferrals during such period), and thereafter, the Participant shall make no further Basic
Deferrals (or be credited with Company Retirement Deferrals) unless and until the Participant
again becomes an eligible employee.
SECTION III
DEFERRALS
1.
Basic Deferrals
.
(a)
Election
. A Participant may elect to defer any portion of his or her Earnings
(Basic Deferral) by directing his or her Participating Employer to reduce his or her Earnings by
an amount authorized by the Participant in the form and manner designated by the Committee
provided, however, that a Participant may not elect to defer an amount under this Plan that, when
aggregated with any similar amount deferred under any other nonqualified deferred compensation plan
maintained by the Company would either (A) with regard to annual salary, result in a reduction of
his or her annual salary below the lesser of: (1) the Social
5
Security Wage Base, or (2) fifty percent (50%) of annual salary, or (B) with regard to
bonuses, exceed one hundred percent (100%) of any cash bonus payment that qualifies as Earnings;
provided the following requirements are met:
(i) With respect to deferrals of a Participants Earnings other than Performance-Based
Compensation, a Participants Basic Deferral Election shall be made no later than the December
immediately preceding the Plan Year to which the election relates;
(ii) With respect to deferrals of Performance-Based Compensation, a Participants Basic
Deferral Election shall be made no later than six (6) months preceding the end of the performance
period to which the Performance-Based Compensation relates;
(iii) Notwithstanding the foregoing, with respect to an individual who is first eligible to
participate in the Plan, such individual may submit a Basic Deferral Election within the first
thirty (30) days after the individuals Initial Eligibility Date with respect to: (A) salary to be
paid for services to be performed after the Basic Deferral Election is submitted, and (B)
Performance-Based Compensation, if so permitted by the Committee at the time, provided that such
election shall be prorated in accordance with Code section 409A; and
(iv) In the event a Participant is on a bona fide leave of absence with the Participating
Employers consent, or in military service in conformity with the Participating Employers
policies, such Participants Basic Deferrals shall continue if Earnings are being continued by the
Participating Employer.
(b)
Vesting
. A Participant shall have a nonforfeitable right to his or her Basic
Deferrals.
(c)
Change of Election
. The percentage or amount of Earnings designated by a
Participant as a Basic Deferral for any given Plan Year shall continue in effect for such Plan
Year, notwithstanding any change in Earnings.
(d)
Manner of Deferral
. A Participants Basic Deferrals may be taken from the
Participants Earnings ratably during the applicable Plan Year or in any other manner determined by
the Committee; provided that such Basic Deferrals during the Plan Year, in the aggregate, reflect
the Participants Basic Deferral Election in accordance with Code section 409A.
(e)
Hardship
. In the event a Participant receives a hardship withdrawal pursuant to
Section VIII or in the event the Participant receives a hardship distribution (as defined in
Treasury Regulations section 1.401(k)-1(d)(3)) under the Companys 401(k) plan, such Participants
Basic Deferral Election with respect to the Plan Year during which such hardship withdrawal under
this Plan or hardship distribution under the Companys 401(k) plan occurs shall be cancelled in
accordance with Code section 409A. The Participant
6
may submit a new Basic Deferral Election with respect to future Plan Years to the extent
permitted under this Subsection 1 of this Section III.
2.
Matching Deferrals
.
(a)
Amount
. The Participating Employer shall credit an additional deferral amount
(Matching Deferral) equal to 50% of a Participants Basic Deferral; provided, however, that such
Matching Deferral shall not exceed $12,500 for any given Plan Year or such other amount as the
Committee shall approve from time to time.
(b)
Vesting
. A Participant shall become vested in his or her Matching Deferrals at
the rate of one-sixtieth (1/60th) per month of Service. Notwithstanding the foregoing, a
Participant shall become 100% vested in his or her Matching Deferrals if, prior to his or her
Severance from Service the Participant attains age sixty-five (65), incurs a Total Disability,
dies, or a Change of Control of the Company occurs.
(c)
Forfeitures
. A Participant shall forfeit, upon his or her Severance from Service
prior to becoming vested in accordance with Subsection 2(b) of this Section III, any right to
Matching Deferrals in which he or she is not vested.
3.
Company Retirement Deferrals
.
(a)
Amount
. A Participating Employer shall credit an additional deferral amount
(Company Retirement Deferral) equal to the percentage of the Excess Earnings of each eligible
Participant employed by such Participating Employer in accordance with the following schedule:
|
|
|
|
|
Years of Service
|
|
Percentage of Excess Earnings
|
Less than 10
|
|
|
2
|
%
|
10, but less than 15
|
|
|
3
|
%
|
15, but less than 20
|
|
|
4
|
%
|
20 or more
|
|
|
5
|
%
|
A Participant shall be eligible for Company Retirement Deferrals under the Plan only if he or
she began employment with the Participating Employer on or after January 1, 2005 (or earlier, if
determined by the Committee) and is either not covered by the VF Corporation Pension Plan or not
eligible to actively participate in the VF Corporation Pension Plan. For purposes of the above
schedule, the term Years of Service shall mean each 12-month period of Service accrued by the
Participant after December 31, 2004, unless otherwise determined by the Committee.
(b)
Vesting
. A Participant shall become vested in his or her Company Retirement
Deferrals at the rate of one-sixtieth (1/60th) per month of Service. Notwithstanding the
foregoing, a Participant shall become 100% vested in his or her Company Retirement
7
Deferrals if, prior to his or her Severance from Service, the Participant attains age
sixty-five (65), incurs a Total Disability, dies, or a Change of Control of the Company occurs.
(c)
Forfeitures
. A Participant shall forfeit upon his or her Severance from Service
prior to becoming vested in accordance with Subsection 3(b) of this Section III, any right to
Company Retirement Deferrals in which he or she is not vested.
SECTION IV
INVESTMENT
1.
Investment Election
. A Participant may elect, pursuant to procedures established
by the Committee and subject to applicable limitations herein, that his or her Basic, Matching, and
Company Retirement Deferrals be credited with gains and losses as if such Deferrals had been
invested (in increments of at least one percent (1%)) in one or more of the investment funds
offered under the Plan, as may be determined by the Committee from time to time; provided, however,
that a Participant may not elect to have any Company Retirement Deferrals credited with gains and
losses as if such amounts had been invested in a fund composed of common stock of the Company (the
VF Corporation Stock Fund).
2.
Change of Investment Election
. A Participant may elect, pursuant to procedures
established by the Committee and subject to applicable limitations herein, a change with respect to
his or her previously-made investment election.
3.
Special Rule for Certain Participants Who Invest in the VF Corporation Stock Fund
.
If a Participant who is either a director or officer of the Company or otherwise subject to Section
16 of the Securities Exchange Act of 1934 (the Exchange Act) has Basic or Matching Deferrals
which, under this Plan, are credited with gains and losses as if invested in the VF Corporation
Stock Fund, then such amounts shall continue to be so credited until such Participants Severance
from Service, Total Disability, or death, and, prior thereto, shall not be available for hardship
withdrawal pursuant to Section VIII except as provided therein. Any Participant who becomes
subject to this limitation by reason of being appointed a director or officer of the Company or to
such other position subject to Section 16 of the Exchange Act may elect, in accordance Subsection
2, that any portion of his or her prior Deferrals that had been previously credited with gains and
losses as if invested in the VF Corporation Stock Fund be changed to a different fund or funds
under this Plan; provided, however, that such election is made and such change is implemented prior
to the date of such appointment. For purposes of this Subsection 3, the term officer shall have
the same meaning as that term is defined in Rule 16a-1(f) under the Exchange Act.
8
SECTION V
RECORDS
The Committee shall create and maintain, or may direct a third party to create and maintain,
adequate records, in book entry form, for each Participant of Basic, Matching, and Company
Retirement Deferrals. Each Participant shall, to the extent permitted by the Committee, have
electronic access to the status of his or her account balance and vested percentage.
SECTION VI
PLAN BENEFITS
1.
Severance from Service
. Upon a Participants Severance from Service, he or she
shall be entitled to his or her Accrued Benefit payable in accordance with Section VII.
2.
Death
. In the event of the death of a Participant prior to Severance from Service,
the Participants Beneficiary shall be entitled to a benefit equal to the Participants Accrued
Benefit payable in accordance with Section VII. In the event of the death of a Participant after a
Severance from Service, the Participants Beneficiary shall be entitled to that part, if any, of
the Participants Accrued Benefit which has not yet been paid to the Participant payable in
accordance with Section VII.
3.
Total Disability
. In the event a Participant incurs a Total Disability prior to
Severance from Service, the Participant shall be entitled to his or her Accrued Benefit payable in
accordance with Section VII.
4.
Change of Control
. In the event a Participants Participating Employer undergoes a
Change of Control prior to a Participants Severance from Service, the Participant shall be
entitled to his or her Accrued Benefit payable in accordance with Section VII.
5.
Beneficiary
. Each Participant may designate a Beneficiary (along with alternate
beneficiaries) to whom, in the event of the Participants death, any benefit is payable hereunder.
Each Participant has the right to change any designation of Beneficiary and such change
automatically revokes any prior designation. A designation or change of Beneficiary must be in
writing on forms supplied by the Committee and any change of Beneficiary shall not become effective
until filed with the Committee; provided, however, that the Committee shall not recognize the
validity of any designation received after the death of the Participant. The interest of any
Beneficiary who dies before the Participant shall terminate unless otherwise provided. If a
Beneficiary is not validly designated, or is not living or cannot be found at the date of payment,
any amount payable pursuant to this Plan shall be paid to the Spouse of the Participant if living
at the time of payment, otherwise in equal shares to such of the children of the Participant as may
be living at the time of payment; provided, however, that if there is no surviving Spouse or child
at the time of payment, such payment shall be made to the estate of the Participant.
9
SECTION VII
PAYMENT OF BENEFITS
1.
Normal Form
. The normal form for the payment of a Participants Accrued Benefit
shall be a lump-sum payment in cash payable to the Participant not earlier than the first business
day of the month occurring three full calendar months following the event giving rise to the
distribution and not later than the close of the Plan Year during which such three month period
ends or any such later date as may be permitted under Code section 409A.
2.
Installments
. Notwithstanding the foregoing, a Participant may elect in the form
and manner designated by the Committee, that payment of his or her Accrued Benefit be made in
annual installments over a period of not more than ten (10) years. Such election must be made to
the Committee at the same time that the Participant makes his or her Basic Deferral Election for
such Plan Year in accordance with Subsection 1 of Section III.
3.
Death
.
(a) If a Participant dies prior to a Severance from Service, his or her Accrued Benefit shall
be distributed to his or her Beneficiary in a lump-sum payment in cash in accordance with
Subsection 1 of this Section VII unless the Participant has elected an installment form of
distribution in accordance with Subsection 2 of this Section VII, in which case, distribution to
the Beneficiary shall be made in accordance with such election.
(b) If a Participant dies after a Severance from Service, his or her Accrued Benefit shall be
distributed to his or her Beneficiary in the same form and at the same time as it would have been
paid to the Participant had he or she survived.
4.
Change of Control
.
(a) In the event of a Change of Control of a Participants Participating Employer (other than
the Company), his or her Accrued Benefit shall be distributed in a lump sum payment in accordance
with Subsection 1 of this Section VII unless the Participant has elected an installment form of
distribution in accordance with Subsection 2 of this Section VII, in which case, distribution to
the Participant shall be made in accordance with such election.
(b) In the event of a Change of Control of the Company, all Accrued Benefits under the Plan
(regardless of whether or not in pay status) shall be distributed in a lump sum payment as soon as
practicable and in accordance with procedures determined by the Committee.
5.
Specified Employee Restrictions
. During any period in which the stock of any
member of the Company Controlled Group is publicly traded on an established securities market, in
the event benefits become payable to a Participant who is a Specified Employee due to the
Participants Severance from Service, distribution of the Participants Accrued Benefit shall not
commence any earlier than six (6) months following the Participants Severance from Service. Any
payment that would have been made during such six (6) month period shall be
10
retained in the Plan as part of the Participants Accrued Benefit (and credited with any
applicable earnings and losses) and paid as soon as administratively feasible following the end of
the six (6) month period.
SECTION VIII
HARDSHIP WITHDRAWALS
Distribution may be made to a Participant of some or all of his or her Accrued Benefit
(excluding any Company Retirement Deferrals) in the event of an unforeseeable emergency; provided,
however, that such a distribution shall not be made to any Participant who is a director of the
Company or an officer as defined in Subsection 3 of Section IV or otherwise subject to Section 16
of the Exchange Act, from any Basic or Matching Deferrals which have been credited with gains and
losses as if invested in the VF Corporation Stock Fund unless approved by the Committee. The
Participant shall file a written request with the Committee, and the Committee shall determine in
its sole discretion, if an unforeseeable emergency exists, based on the facts of each case. For
this purpose, unforeseeable emergency shall have the meaning as set forth under Code section
409A.
SECTION IX
FUNDING STATUS
This Plan is unfunded. All obligations hereunder shall constitute an unsecured promise of the
Company to pay a Participants benefit out of the general assets of the Company, subject to all of
the terms and conditions of the Plan, as amended from time to time, and applicable law. A
Participant shall have no greater right to benefits provided hereunder than that of any unsecured
general creditor of the Company.
SECTION X
ADMINISTRATION
1.
Powers and Responsibilities
. The Plan shall be administered by the Committee which
shall have the following powers and responsibilities.
(a) to amend the Plan;
(b) to terminate the Plan;
(c) to construe the Plan, make factual determinations, decide all benefit requests made by a
Participant or any other person, correct defects, and take any and all similar actions considered
by the Committee to be necessary to administer the Plan, with any such determinations under or
interpretations of the Plan made in good faith by the Committee to be final and conclusive for all
purposes;
11
(d) determine the investment options which may be utilized under the Plan, including any
default option to be utilized if a Participant makes no investment request;
(e) to designate a related company or business as a Participating Employer and to revoke such
status if, in the Committees discretion, such action is in the best interest of the Company; and
(f) to take all other actions and do all other things which are considered by the Committee to
be necessary to the administration of the Plan.
2.
Actions Conclusive
. The Committee shall have complete discretion in carrying out
its powers and responsibilities under the Plan, and its exercise of discretion hereunder shall be
final and conclusive.
3.
Delegation
. The Committee may, in writing, delegate some or all of its powers and
responsibilities to any other person or entity.
4.
Meetings
. The Committee may hold meetings upon such notice, at such time or times,
and at such place or places as it may determine. The majority of the members of the Committee at
the time in office shall constitute a quorum for the transaction of business at all meetings and a
majority vote of those present and constituting a quorum at any meeting shall be required for
action. The Committee may also act by written consent of a majority of its members.
5.
Rules of Administration
. The Committee may adopt such rules for administration of
the Plan as is considered desirable, provided they do not conflict with the Plan.
6.
Agents
. The Committee may retain such counsel, and actuarial, medical, accounting,
clerical and other services as it may require to carry out the provisions and purposes of the Plan.
7.
Reliance
. The Committee shall be entitled to rely upon all tables, valuations,
certificates, and reports furnished by any duly appointed auditor, or actuary, upon all
certificates and reports made by any investment manager, or any duly appointed accountant, and upon
all opinions given by any duly appointed legal counsel.
8.
Liability and Indemnification
. No member of the Committee shall be personally
liable by virtue of any instrument executed by the member, or on the members behalf, as a member
of the Committee. Neither the Company nor a Participating Employer, nor any of their respective
officers or directors, nor any member of the Committee, shall be personally liable for any action
or inaction with respect to any duty or responsibility imposed upon such person by the terms of the
Plan except when the same is finally judicially determined to be due to the self dealing, willful
misconduct or recklessness of such person. The Company shall indemnify and hold harmless its
officers, directors, and those of any Participating Employer, and each member of the Committee
against any and all claims, losses, damages, expenses (including attorneys fees and the
advancement thereof), and liability (including, in
12
each case, amounts paid in settlement), arising from any action or failure to act regarding
the Plan, to the greatest extent permitted by applicable law. The foregoing right of
indemnification shall be in addition to any other rights to which any such person may be entitled.
9.
Conflict of Interest
. If any Participant is a member of the Committee, he or she
shall not participate as a member of the Committee in any determination under the Plan relating
specifically to his or her Basic, Matching, or Company Retirement Deferrals.
SECTION XI
MODIFICATION AND TERMINATION
The Committee reserves the right to terminate this Plan at any time or to modify, amend or
suspend it from time to time, such right to include, without limitation, the right to distribute
any and all Accrued Benefits following a termination of the Plan. Any such termination,
modification, amendment or suspension shall be effective at such date as the Committee may
determine and may be effective as to all Participating Employers, or as to one or more
Participating Employers, and their respective employees. The Committee shall notify all affected
Participants of any such termination, modification, amendment or suspension and, in appropriate
circumstances as determined by the Committee, shall also notify the relevant Participating
Employers. A termination, modification, amendment or suspension may affect Participants generally,
by class or individually, and may apply irrespective of whether they are past, current or future
Participants; provided, however, that any such action may not eliminate or reduce the Accrued
Benefit of any Participant as of the effective date of such action.
SECTION XII
GENERAL PROVISIONS
1.
No Employment Right
. Nothing contained herein shall be deemed to give any employee
the right to be retained in the service of the Company or a Participating Employer, as applicable,
or to interfere with the rights of any such employer to discharge any employee at any time.
2.
Interest Not Assignable
. It is a condition of this Plan, and all rights of each
Participant shall be subject thereto, that no right or interest of any Participant under this Plan
or in his or her credited Deferrals shall be assignable or transferable in whole or in part, either
directly or by operation of law or otherwise, including without limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy, or in any other manner, subject, however, to
applicable law, but excluding devolution by death or mental incompetency, and no right or interest
of any Participant under this Plan or in his or her credited Deferrals shall be liable for or
subject to any obligation or liability of such Participant, subject, however, to applicable law.
3.
Taxes and Withholding
. All Deferrals and payments under the Plan shall be subject
to such taxes and other withholdings (federal, state or local) as may be due thereon,
13
and the determination of the Committee as to withholding with respect to Deferrals and
payments shall be binding upon the Participant and each Beneficiary.
4.
Sale of Assets
. The sale of all or substantially all of the assets of the Company,
or a merger, consolidation or reorganization of the Company wherein the Company is not the
surviving corporation, or any other transaction which, in effect, amounts to a sale of the Company
or voting control thereof, shall not terminate this Plan or any related agreements and the
obligations created hereunder or thereby and the same shall be binding upon the successors and
assigns of the Company.
5.
Legal Incapacity
. If a Participant or Beneficiary entitled to receive any benefits
hereunder is deemed by the Committee or is adjudged to be legally incapable of giving valid receipt
and discharge for such benefits, the benefits will be paid to such persons as the Committee
designates or to the duly appointed guardian.
6.
Governing Law
. This Plan shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania, notwithstanding the conflict of law rules applicable
therein.
7.
Compliance with Code Section 409A
.
Notwithstanding any other provision of the Plan
to the contrary, the Plan shall be administered in accordance with all applicable requirements of
Code section 409A and the regulations or guidance issued with regard thereto, and any distribution,
acceleration or election feature that could result in the early inclusion in gross income shall be
deemed restricted or limited to the extent necessary to avoid such result.
[END]
14
Pursuant to its authority under Sections X and XI of the Plan, as adopted effective January 1,
2005, the Committee, as evidenced by the signatures of its members below, hereby amends and
restates the Plan effective January 1, 2009 for the stated purposes set forth herein and this
amended and restated Plan shall, on and after such effective date, be applicable to all
Participating Employers and their respective employees until such time as the Committee may, in
its discretion, further amend or take any other authorized action with respect to the Plan.
APPROVED BY:
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/s/ Candace S. Cummings
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Candace S. Cummings
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October 30, 2008
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/s/ Frank C. Pickard III
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Frank C. Pickard III
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/s/ Susan L. Williams
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Susan L. Williams
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15