Analysis of Results of
Operations
Consolidated Statements of Income
The
following table presents a summary of the changes in total revenues from the comparable period in 2013:
|
|
|
|
|
In millions
|
|
First Quarter
|
|
Total revenues 2013
|
|
$
|
2,611.9
|
|
Operations
|
|
|
161.3
|
|
Impact of foreign currency translation
|
|
|
7.6
|
|
|
|
|
|
|
Total revenues 2014
|
|
$
|
2,780.8
|
|
|
|
|
|
|
VF reported revenue growth of 6.5% in the first quarter of 2014 driven by growth in the Outdoor & Action Sports
coalition, and continued strength in the international and direct-to-consumer businesses. Additional details on revenues are provided in the section titled Information by Business Segment.
VFs foreign currency exposure primarily relates to business conducted in euro-based countries. In addition, VF conducts business in other developed and
emerging markets around the world that creates exposure to foreign currencies other than the euro. Changes in foreign currency translation rates positively impacted total revenue by 0.3% for the first quarter of 2014.
The following table presents the percentage relationships to total revenues for components of the Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
2014
|
|
|
2013
|
|
Gross margin (total revenues less cost of goods sold)
|
|
|
49.4
|
%
|
|
|
48.1
|
%
|
Selling, general and administrative expenses
|
|
|
34.9
|
%
|
|
|
34.4
|
%
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
14.5
|
%
|
|
|
13.7
|
%
|
|
|
|
|
|
|
|
|
|
Gross margin increased 130 basis points in the first quarter of 2014 with improvements in every coalition. The higher gross
margin reflects the continued shift in our revenue mix towards higher margin businesses, including Outdoor & Action Sports, international and direct-to-consumer. In addition, approximately 30 basis points of the gross margin improvement is
due to a change in classification of retail concession fees discussed below in the Direct-to-Consumer Operations section.
Selling, general and
administrative expenses as a percentage of total revenues were 50 basis points higher in the first quarter of 2014 compared with the 2013 period due to investments in marketing and direct-to-consumer businesses growing at a faster rate than
revenues, substantially offset by the leverage of operating expenses on higher revenues, resulting in a net 20 basis point increase from operations. The remaining 30 basis point increase relates to the change in classification of retail concession
fees.
19
Net interest expense decreased by $1.2 million in the first quarter of 2014 from the comparable period in 2013,
due to the repayment of $400 million of floating rate notes during the third quarter of 2013 and increased interest income on cash equivalents. Total outstanding debt averaged $1.5 billion for the first three months of 2014 and $1.9 billion for the
same period in 2013. The weighted average interest rates on total outstanding debt were 5.6% and 4.6% for the first quarter of 2014 and 2013, respectively.
The effective income tax rate for the first quarter of 2014 was 22.2% compared with 20.1% in the first quarter of 2013. The first quarter of 2014 included a
net discrete tax benefit of $8.4 million, which included $4.1 million of prior year refund claims, reducing the effective income tax rate by 2.2%. The first quarter of 2013 included a net discrete tax benefit of $13.5 million, which included $8.3
million of tax benefits related to the extension of certain tax credits and other provisions of the Internal Revenue Code enacted in 2013 which were retroactive to 2012, and $5.6 million of tax benefits related to the realization of previously
unrecognized tax benefits and interest, reducing the effective income tax rate by 4.0%. Without discrete items, the effective tax rate for the first quarter of 2014 increased by 0.3% compared with the 2013 period primarily due to the impact of tax
law changes in the U.S.
Net income for the first quarter of 2014 increased to $297.2 million ($0.67 per share) compared with $270.4 million ($0.60 per
share) in the 2013 quarter. The increase in earnings per share in 2014 resulted primarily from improved operating performance, as discussed in the Information by Business Segment section below, as well as other factors described above.
Information by Business Segment
VFs
businesses are grouped into 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 are the basis for VFs reportable business segments.
See Note K to the Consolidated Financial Statements for a summary of results of
operations by coalition, along with a reconciliation of coalition profit to income before income taxes.
The following tables present a summary of the
changes in coalition revenues and coalition profit for the first quarter of 2014 from the comparable period in 2013:
Coalition revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
Outdoor &
|
|
|
|
|
|
|
|
|
|
|
|
Contemporary
|
|
|
|
|
|
|
|
In millions
|
|
Action Sports
|
|
|
Jeanswear
|
|
|
Imagewear
|
|
|
Sportswear
|
|
|
Brands
|
|
|
Other
|
|
|
Total
|
|
Coalition revenues 2013
|
|
$
|
1,384.3
|
|
|
$
|
717.9
|
|
|
$
|
252.8
|
|
|
$
|
128.2
|
|
|
$
|
103.7
|
|
|
$
|
25.0
|
|
|
$
|
2,611.9
|
|
Operations
|
|
|
175.0
|
|
|
|
(20.3
|
)
|
|
|
11.6
|
|
|
|
3.3
|
|
|
|
(6.3
|
)
|
|
|
(2.0
|
)
|
|
|
161.3
|
|
Impact of foreign currency translation
|
|
|
15.3
|
|
|
|
(7.3
|
)
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalition revenues 2014
|
|
$
|
1,574.6
|
|
|
$
|
690.3
|
|
|
$
|
263.2
|
|
|
$
|
131.5
|
|
|
$
|
98.2
|
|
|
$
|
23.0
|
|
|
$
|
2,780.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Coalition profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
Outdoor &
|
|
|
|
|
|
|
|
|
|
|
|
Contemporary
|
|
|
|
|
|
|
|
In millions
|
|
Action Sports
|
|
|
Jeanswear
|
|
|
Imagewear
|
|
|
Sportswear
|
|
|
Brands
|
|
|
Other
|
|
|
Total
|
|
Coalition profit 2013
|
|
$
|
226.5
|
|
|
$
|
143.3
|
|
|
$
|
31.6
|
|
|
$
|
12.2
|
|
|
$
|
12.6
|
|
|
$
|
(2.6
|
)
|
|
$
|
423.6
|
|
Operations
|
|
|
44.1
|
|
|
|
(14.9
|
)
|
|
|
6.4
|
|
|
|
0.4
|
|
|
|
(4.8
|
)
|
|
|
(0.6
|
)
|
|
|
30.6
|
|
Impact of foreign currency translation
|
|
|
3.9
|
|
|
|
0.9
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coalition profit 2014
|
|
$
|
274.5
|
|
|
$
|
129.3
|
|
|
$
|
37.8
|
|
|
$
|
12.6
|
|
|
$
|
7.9
|
|
|
$
|
(3.2
|
)
|
|
$
|
458.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following section discusses the changes in revenues and profitability by coalition:
Outdoor & Action Sports:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
Percent
|
|
Dollars in millions
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
Coalition revenues
|
|
$
|
1,574.6
|
|
|
$
|
1,384.3
|
|
|
|
13.7
|
%
|
Coalition profit
|
|
|
274.5
|
|
|
|
226.5
|
|
|
|
21.2
|
%
|
Operating margin
|
|
|
17.4
|
%
|
|
|
16.4
|
%
|
|
|
|
|
Coalition revenues for Outdoor & Action Sports increased 14% in the first quarter of 2014 compared with 2013
primarily due to growth in the
Vans
®
, The North Face
®
and
Timberland
®
brands, which achieved global revenue growth of 20%, 14% and 12%, respectively.
U.S. revenues for the first quarter increased 15% and international revenues rose 13%, reflecting double-digit growth in Europe and Asia Pacific. Global
revenue increases were driven by growth in the direct-to-consumer and wholesale businesses of 19% and 11%, respectively. New store openings, comparable store growth and an expanding e-commerce business all contributed to the direct-to-consumer
revenue growth. Wholesale revenue increases were driven by growth in the
Vans
®
, The North Face
®
and
Timberland
®
brands.
Operating margin for the first quarter of 2014 improved 100 basis points compared with
2013 driven by a shift in business mix towards higher margin businesses and the leverage of operating expenses on higher revenues, partially offset by increased investments in direct-to-consumer businesses and marketing.
Jeanswear:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in millions
|
|
First Quarter
|
|
|
Percent
Change
|
|
|
|
2014
|
|
|
2013
|
|
|
Coalition revenues
|
|
$
|
690.3
|
|
|
$
|
717.9
|
|
|
|
(3.8
|
%)
|
Coalition profit
|
|
|
129.3
|
|
|
|
143.3
|
|
|
|
(9.8
|
%)
|
Operating margin
|
|
|
18.7
|
%
|
|
|
20.0
|
%
|
|
|
|
|
Global Jeanswear revenues decreased 4% in the first quarter of 2014 compared with the 2013 period. This decrease was driven by
a high single-digit decline in the Americas region due to ongoing pressure in the mid-tier channel, consumer trends in womens denim and the exit of less profitable sales programs in the Mass business. These challenges resulted in a decline in
the
Lee
®
and
Wrangler
®
brand revenues in the Americas region. This revenue decrease in the Americas region was partially
offset by an 8% increase in Europe, driven by wholesale growth in the
Lee
®
and
Wrangler
®
brands, and a 10% increase in
the Asia Pacific region primarily due to wholesale growth in the
Lee
®
brand.
Operating
margin decreased 130 basis points during the first quarter of 2014 primarily due to higher selling, general and administrative costs as a percentage of revenues resulting from the sales decline, partially offset by improved profitability in our
international businesses.
21
Imagewear:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in millions
|
|
First Quarter
|
|
|
Percent
Change
|
|
|
|
2014
|
|
|
2013
|
|
|
Coalition revenues
|
|
$
|
263.2
|
|
|
$
|
252.8
|
|
|
|
4.1
|
%
|
Coalition profit
|
|
|
37.8
|
|
|
|
31.6
|
|
|
|
19.6
|
%
|
Operating margin
|
|
|
14.4
|
%
|
|
|
12.5
|
%
|
|
|
|
|
Imagewear revenues increased 4% in the first quarter of 2014 compared with the 2013 period driven by 6% growth in the Licensed
Sports business, which benefited from strong National Football League and Major League Baseball sales, and 2% growth in the Image business. Management made a strategic decision to transition the youth business for Major League Baseball to a licensed
model, which negatively impacted first quarter of 2014 revenues by 4%.
Operating margin increased 190 basis points during the first quarter of 2014
primarily driven by a shift in business mix towards higher margin businesses, lower product costs and the leverage of operating expenses on higher revenues.
Sportswear:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in millions
|
|
First Quarter
|
|
|
Percent
Change
|
|
|
|
2014
|
|
|
2013
|
|
|
Coalition revenues
|
|
$
|
131.5
|
|
|
$
|
128.2
|
|
|
|
2.6
|
%
|
Coalition profit
|
|
|
12.6
|
|
|
|
12.2
|
|
|
|
3.3
|
%
|
Operating margin
|
|
|
9.6
|
%
|
|
|
9.5
|
%
|
|
|
|
|
The increase in Sportswear revenues during the first quarter of 2014 compared with the 2013 period was driven by a 19%
increase in the
Kipling
®
brand in North America, which reflected growth in direct-to-consumer and wholesale revenues.
Nautica
®
brand revenues were flat compared with the 2013 period, as an increase in direct-to-consumer revenues offset a decline in wholesale revenues.
Nautica
®
brand wholesale revenues in the first quarter of 2014 were impacted by a shift in timing of shipments into the second quarter of 2014.
Operating margin for the first quarter of 2014 was flat compared with the 2013 period primarily due to a shift in business mix towards higher margin
businesses, offset by increased investments in direct-to-consumer businesses and marketing.
Contemporary Brands:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in millions
|
|
First Quarter
|
|
|
Percent
Change
|
|
|
|
2014
|
|
|
2013
|
|
|
Coalition revenues
|
|
$
|
98.2
|
|
|
$
|
103.7
|
|
|
|
(5.3
|
%)
|
Coalition profit
|
|
|
7.9
|
|
|
|
12.6
|
|
|
|
(37.3
|
%)
|
Operating margin
|
|
|
8.0
|
%
|
|
|
12.1
|
%
|
|
|
|
|
Revenues for Contemporary Brands decreased 5% in the first quarter of 2014 compared with the 2013 period primarily due to
ongoing challenges in the U.S. premium denim market. Wholesale revenues, which represent the largest channel in the coalition, declined 13%, partially offset by a 13% increase in direct-to-consumer revenues. Management made a strategic decision to
transition a portion of the youth business to a licensed model, which negatively impacted first quarter of 2014 revenues by 3%.
Operating margin declined
for the first quarter of 2014 compared with 2013 primarily due to higher selling, general and administrative costs as a percentage of revenues resulting from the sales decline, and increased investments in direct-to-consumer businesses.
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in millions
|
|
First Quarter
|
|
|
Percent
Change
|
|
|
|
2014
|
|
|
2013
|
|
|
Coalition revenues
|
|
$
|
23.0
|
|
|
$
|
25.0
|
|
|
|
(8.0
|
%)
|
Coalition profit (loss)
|
|
|
(3.2
|
)
|
|
|
(2.6
|
)
|
|
|
(23.1
|
%)
|
Operating margin
|
|
|
(13.9
|
%)
|
|
|
(10.4
|
%)
|
|
|
|
|
22
VF Outlet
®
stores in the U.S. sell VF-branded
products at prices that are generally higher than what could be realized through wholesale channels, as well as other non-VF products. Revenues and profits of VF products sold in these stores are reported as part of the operating results of the
applicable coalition, while revenues and profits of non-VF products are reported in this other category.
International Operations
International revenues in the first quarter grew 11 percent. Revenues in Europe rose 12 percent with positive results from nearly every VF brand sold in that
region. In the Asia Pacific region, revenues were up 16 percent driven by 27 percent growth in China, which included strong results from every VF brand sold in that region. Revenues were flat in the Americas (non-U.S.) as an 8% increase in local
currency revenues was offset by the negative impact of foreign currency translation. International revenues were 43 percent of total VF first quarter sales in 2014 compared with 42 percent in the same period of 2013.
Direct-to-Consumer Operations
Direct-to-consumer
revenues grew 16 percent in the first quarter with double-digit increases in all regions and growth in nearly every VF brand. New store openings, comparable store growth and an expanding e-commerce business all contributed to the
direct-to-consumer
revenue growth. Twenty-three stores were opened across our brands during the first quarter of 2014 bringing the total number of VF-owned retail stores to
1,263. Direct-to-consumer revenues reached 23 percent of total revenues in the first quarter of 2014 compared with 22 percent (20 percent prior to the concession classification change discussed below) in the 2013 period.
Concessions are retail store locations outside the U.S. where VF is responsible for all aspects of operations without ownership of the retail space. Under
typical concession arrangements, VF pays a concession fee for use of the space based on a percentage of retail sales. Beginning in 2014, we have included all concessions-based arrangements in our direct-to-consumer channel. In addition, we began
classifying all concession fees as a component of selling, general and administrative expenses instead of the previous treatment as an offset to revenue in the Consolidated Statement of Income. We made these changes to better represent the
operations of our direct-to-consumer business. These changes in classification did not impact operating income, and 2013 reported balances have not been restated in the Consolidated Statement of Income because the impact is immaterial. However,
comparative references to
direct-to-consumer
and wholesale revenue growth rates reflect the change in reporting of concessions as if the change had occurred at the beginning of each reporting period.
Reconciliation of Coalition Profit to Income Before Income Taxes:
There are two types of costs necessary to reconcile total coalition profit, as discussed in the preceding paragraphs, to consolidated income before income
taxes. These costs are (i) corporate and other expenses, discussed below, and (ii) interest expense, net, which was discussed in the previous Consolidated Statements of Income section.
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in millions
|
|
First Quarter
|
|
|
Percent
Change
|
|
|
|
2014
|
|
|
2013
|
|
|
Corporate and other expenses
|
|
$
|
57.8
|
|
|
$
|
64.8
|
|
|
|
(10.8
|
%)
|
Interest expense, net
|
|
|
19.3
|
|
|
|
20.5
|
|
|
|
(5.9
|
%)
|
Corporate and other expenses are those that have not been allocated to the coalitions for internal management reporting,
including (i) information systems and shared services, (ii) corporate headquarters costs and (iii) other income and expenses. Other income and expenses includes costs of corporate programs and initiatives; costs of registering,
maintaining and enforcing certain VF trademarks; and miscellaneous costs, the most significant of which is related to the expense of VFs centrally-managed U.S. defined benefit pension plans. The current year service cost component of pension
cost is allocated to the coalitions, while the remaining cost components, totaling $8.0 million for the first quarter of 2014 and $15.2 million for the first quarter of 2013, are reported in corporate and other expenses.
Analysis of Financial Condition
Balance Sheets
The following discussion refers to significant changes in balances at March 2014 compared with December 2013:
|
|
|
Increase in inventories
due to the seasonality of the business and anticipated sales growth.
|
|
|
|
Increase in short-term borrowings
due to commercial paper borrowings primarily used to support seasonal working capital requirements and share repurchases.
|
|
|
|
Decrease in accounts payable
driven by the timing of inventory purchases and payments to vendors.
|
|
|
|
Decrease in accrued liabilities
primarily due to timing of accruals and payments related to compensation and accrued income taxes.
|
23
The following discussion refers to significant changes in balances at March 2014 compared with March 2013:
|
|
|
Increase in accounts receivable
resulting from an increase in wholesale revenues for the first quarter of 2014.
|
|
|
|
Increase in inventories
due to anticipated sales growth, higher product costs and the impact of foreign currency translation.
|
|
|
|
Increase in other assets
driven by an increase in assets held for deferred compensation plans and deferred software costs primarily related to i) system implementations and ii) a new software license
agreement that supports our e-commerce infrastructure and other key business functions.
|
|
|
|
Increase in short-term borrowings
due to commercial paper borrowings primarily used to support seasonal working capital requirements and higher levels of share repurchases.
|
|
|
|
Decrease in current portion of long-term debt
related to the repayment of the $400 million two-year notes issued to finance the acquisition of Timberland.
|
|
|
|
Increase in accrued liabilities
primarily due to an increase in unrealized hedging losses, and timing of accruals and payments related to compensation and accrued income taxes.
|
Liquidity and Cash Flows
The financial condition of VF
is reflected in the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in millions
|
|
March
2014
|
|
|
December
2013
|
|
|
March
2013
|
|
Working capital
|
|
$
|
1,993.0
|
|
|
$
|
2,315.0
|
|
|
$
|
1,554.2
|
|
Current ratio
|
|
|
2.3 to 1
|
|
|
|
2.5 to 1
|
|
|
|
1.9 to 1
|
|
Debt to total capital ratio
|
|
|
22.7
|
%
|
|
|
19.3
|
%
|
|
|
28.4
|
%
|
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 stockholders equity. The ratio of net debt to total net capital (with net debt defined as debt less cash and equivalents and total net capital defined as total capital less cash and equivalents) was 19.2% at March 2014, 10.0% at
December 2013 and 25.2% at March 2013.
In summary, our cash flows were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
In millions
|
|
2014
|
|
|
2013
|
|
Net cash provided by operating activities
|
|
$
|
13,654
|
|
|
$
|
11,674
|
|
Net cash used by investing activities
|
|
|
(99,133
|
)
|
|
|
(114,999
|
)
|
Net cash used by financing activities
|
|
|
(366,260
|
)
|
|
|
(191,962
|
)
|
Cash Provided by Operating Activities
VFs primary source of liquidity is the strong cash flow provided by operating activities, which is dependent on the level of net income and changes in
working capital. Cash provided by operating activities for the first quarter of 2014 increased to $13.7 million from $11.7 million for the 2013 period. The improvement is due to an increase in net income and a $100.0 million discretionary defined
benefit pension plan contribution in the first quarter of 2013 that did not recur in 2014, partially offset by an increase in net cash usage from working capital changes.
Cash Used by Investing Activities
Cash used by
investing activities for the first quarter of 2014 decreased to $99.1 million from $115.0 million in 2013. VFs investing activities in the first quarter of 2014 related primarily to capital expenditures of $49.3 million and software purchases
of $44.7 million.
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Capital expenditures decreased $52.9 million compared with the 2013 period due to the completion of a number of significant projects during 2013. Software purchases increased $34.1 million over
the 2013 period due to system implementations and a new software license agreement that supports our e-commerce infrastructure.
Cash Used by Financing
Activities
Cash used by financing activities in the first quarter of 2014 was $366.3 million compared with $192.0 million in the first quarter of
2013. This increase was primarily due to higher levels of share repurchases and cash dividends paid, partially offset by an increase in short-term borrowings.
During the first quarter of 2014, VF repurchased 9.2 million shares of Common Stock in open market transactions at a total cost of $554.6 million
(average price per share of $60.53). Due to the three-day settlement period on stock trades, $40.8 million of the total cost related to 667,500 repurchased shares was not transferred to the broker until the second quarter of 2014, and thus has
been excluded from financing activities in the Consolidated Statement of Cash Flows for the first quarter of 2014. During the first quarter of 2013, VF repurchased 6.8 million shares of Common Stock in open market transactions at a total cost
of $280.7 million (average price per share of $41.15).
As of the end of the first quarter of 2014, the Company had 43.6 million shares remaining
under its current share repurchase program authorized by VFs Board of Directors. From March 31, 2014 to April 16, 2014, the Company repurchased an additional 2.9 million shares of Common Stock in open market transactions for
$172.8 million (average price of $60.23). VF will continue to evaluate future share repurchases considering funding required for business acquisitions, VFs Common Stock price and levels of stock option exercises.
VF relies on continued strong cash generation to finance its ongoing operations. In addition, VF has significant liquidity from its available cash balances
and credit facilities. VF maintains a $1.25 billion senior unsecured revolving line of credit (the Global Credit Facility), which supports its $1.25 billion U.S. commercial paper program for short-term seasonal working capital
requirements and corporate operations. The Global Credit Facility expires in December 2016. Commercial paper borrowings and standby letters of credit issued as of March 2014 were $230.0 million and $16.8 million, respectively, leaving $1.0 billion
available for borrowing against this facility at March 2014.
VFs favorable credit agency ratings allow for access to additional liquidity at
competitive rates. At the end of March 2014, VFs long-term debt ratings were A minus by Standard & Poors Ratings Services and A3 by Moodys Investors Service, and commercial paper ratings by those
rating agencies were A-2 and Prime-2, respectively. In April 2014, Standard & Poors Ratings Services raised its corporate credit rating of VF from A minus to A with a continued
stable outlook.
None of VFs long-term debt agreements contain acceleration of maturity clauses based solely on changes in credit
ratings. However, if there were a change in control of VF and, as a result of the change in control, the 2017, 2021 and 2037 notes were rated below investment grade by recognized rating agencies, VF would be obligated to repurchase the notes at 101%
of the aggregate principal amount, plus any accrued and unpaid interest.
Managements Discussion and Analysis in the 2013 Form 10-K provided a table
summarizing VFs contractual obligations and commercial commitments at the end of 2013 that would require the use of funds. Since the filing of the 2013 Form 10-K, there have been no material changes in the disclosed amounts.
Management believes that VFs cash balances and funds provided by operating activities, as well as its Global Credit Facility, additional borrowing
capacity and access to capital 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 the dividend to
stockholders at current and expected rates and (iii) flexibility to meet investment opportunities that may arise.
Recently Adopted Accounting
Standards
In July 2013, the FASB issued an update to their accounting guidance which requires unrecognized tax benefits to be netted with net
operating loss or tax credit carryforwards in the balance sheet if specific criteria are met. The guidance became effective for VF in the first quarter of 2014, but did not have an impact on VFs consolidated financial statements.
Critical Accounting Policies and Estimates
Management
has chosen accounting policies that it considers to be appropriate to accurately and fairly report VFs operating results and financial position in conformity with generally accepted accounting principles in the United States. Our critical
accounting policies are applied in a consistent manner. Significant accounting policies are summarized in Note A to the Consolidated Financial Statements included in the 2013 Form 10-K.
25
The application of these accounting policies requires management to 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. Management evaluates these estimates and assumptions and may retain outside consultants to assist in the 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 the consolidated financial statements, or are the most sensitive to change from outside factors, are discussed in Managements Discussion
and Analysis in the 2013 Form 10-K. There have been no material changes in these policies.
Cautionary Statement on Forward-Looking Statements
From time to time, VF 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 managements expectations and beliefs concerning future events impacting VF and therefore involve a number of risks and uncertainties. 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, but are not limited to, the overall level of consumer demand for apparel;
fluctuations in the price, availability and quality of raw materials and contracted products; disruption to VFs distribution system; disruption and volatility in the global capital and credit markets; VFs reliance on a small number of
large customers; the financial strength of VFs customers; VFs response to changing fashion trends; increasing pressure on margins; VFs ability to implement its growth strategy; VFs ability to grow its international and
direct-to-consumer businesses; VF and its customers ability to maintain the strength and security of its information technology systems; adverse unseasonable weather conditions; 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; foreign currency fluctuations; changes in tax liabilities; 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.