NOTES TO FINANCIAL STATEMENTS
Note A -
Description of the Plan
The following description of VF Corporation Retirement Savings Plan for Hourly Employees (the Plan) provides only
general information. Participants should refer to the Plan document for a more complete description of the Plans provisions.
General
The Plan, which is sponsored by VF Corporation (VF or the Company) is a defined contribution plan under
Section 401(k) of the Internal Revenue Code (IRC) covering hourly employees of VF who have one year of service and 1,000 hours within the one year. The Plan is subject to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA). Effective January 1, 2013 the hourly portion of The Timberland Retirement Earnings 401(k) Plan was merged into the Plan. The Timberland Company was acquired by VF on September 13, 2011. Assets totaling
$1,098,474 were transferred into the Plan on January 14, 2013.
Contributions
Hourly employees of specified VF subsidiaries may elect to contribute between 2% and 50% of their pre-tax annual compensation, as defined in the Plan, subject
to certain IRC limitations. Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions. Participants may also contribute amounts representing distributions from other qualified defined benefit
or defined contribution plans.
Effective January 1, 2005, VF added a noncontributory retirement contribution feature for employees hired after
December 31, 2004 and certain other eligible employees. Eligible employees automatically receive the retirement contribution feature and are not required to make participant deferrals. VF makes quarterly retirement contributions to the Plan in
an amount equal to a percentage of eligible employee earnings based on each employees continuous service with VF since January 1, 2005. VFs retirement contribution ranges from 2% of earnings for participants with less than 10 years
of VF service (which is the rate currently in place for all participants in the Plan) to 5% of earnings for participants with 20 or more years of VF service.
Participant Accounts
Individual accounts are
maintained for each Plan participant. Each participants account is credited with the participants contributions, the Companys retirement contributions, and investment funds earnings, and is charged with the allocation of
administrative expenses, investment funds losses, and withdrawals including benefit payments. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can
be provided from the participants vested account.
Vesting
Participants immediately vest in their contributions, plus actual earnings thereon. Participants vest ratably by month in the Companys contributions plus
actual earnings thereon, and are fully vested after 5 years of service or normal retirement, disability or death.
Investment Options
Plan investments are held in the VF Corporation Tax-Advantaged Savings Plan Master Trust (VF Master Trust) of which Fidelity Management Trust
Company (Fidelity) serves as trustee for all plan investments except a separately managed fixed income fund of which UMB Bank, N.A. (UMB Bank) serves as trustee. The VF Master Trust holds assets for this Plan as well as the
VF Corporation Retirement Savings Plan for Salaried Employees. Participants may direct the investment of their contributions into one or more formal investment options offered by the Plan, including various mutual funds, a separately managed fixed
income fund, and the VF Common Stock fund, or into various other mutual funds and exchange traded funds available through a self-directed brokerage account. Participants are not permitted to invest the Companys retirement contributions in the
VF Common Stock fund, but may invest them in any of the other investment options offered by the Plan. If a participant does not direct the investment of contributions, they will be invested in the age appropriate target date mutual fund.
Participants may change their deferral percentage and investment direction at any time.
Payment of Benefits
Participants may withdraw the vested value of their accounts upon retirement, disability, death or termination of employment. Participants may elect to receive
distributions in a lump sum or accounts may be rolled over into another IRS-approved tax deferral account. Participants with account balances in excess of $1,000 may leave their account in the Plan. Hardship withdrawals are permitted upon
demonstration of financial hardship. All fully vested balances are available for distribution after the participant reaches the age of 59
1
⁄
2
.
7
Forfeitures
Forfeitures are used to reduce future retirement contributions, make corrections or pay plan expenses. Unused forfeitures at December 31, 2013 and 2012
totaled $252,972 and $187,331, respectively. During 2013, forfeitures of $64,571 were used to pay plan expenses and make corrections.
Notes
Receivable from Participants
Participants may borrow the lesser of $50,000 or 50% of their vested account balance. They may borrow only from their
employee contribution and rollover account balances. They may not borrow from the retirement contribution account balances. Participants are charged interest at the prime rate as published in the Wall Street Journal at the time of the loan and repay
the principal within 60 months, or 120 months if the loan is for the purchase of their primary residence. At December 31, 2013, outstanding loans bore interest at rates ranging from 3.25% to 5.25%. Payments are made through payroll deductions.
At termination of employment, a participant may elect to continue paying their outstanding loan directly through Fidelity.
Note B - Summary of
Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United
States of America (GAAP).
Investment Valuation and Income Recognition
The Plans allocated share of the VF Master Trusts net assets and investment income is based on the total of each individual participants
share of the VF Master Trust. The investments of the VF Master Trust are valued at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. See Note G for discussion of fair value measurements. Purchases and sales of securities, including gains and losses thereon, are recorded on the trade date. Dividends are recorded on the ex-dividend date, and interest is
recorded as earned on the accrual basis. Net appreciation (depreciation) includes the Plans share of the VF Master Trusts gains and losses on investments bought and sold as well as held during the year.
Notes Receivable from Participants
Notes
receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant loans are classified as distributions based on the terms of the Plan document.
Payment of Benefits
Benefits are recorded upon
distribution.
Administrative Expenses
The
Plans administrative expenses are paid by either the Plan or VF, as provided by the Plan document. Certain administrative functions are performed by employees of the Company. No such employee receives compensation from the Plan. Expenses
relating to specific participant transactions (notes receivable from participants and distributions) are charged directly to the participants account.
Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets, liabilities and changes therein, and disclosure of contingent assets and liabilities. Accordingly, actual results may
differ from those estimates and assumptions.
8
Note C - Tax Status
The Internal Revenue Service (the IRS) has determined and informed the Company by a letter dated September 17, 2013, that the Plan was designed in
accordance with the applicable regulations of the IRC. The Plan has been amended since receiving the determination letter. However, the Company believes that the Plan is designed and is currently being operated in compliance with the applicable
provisions of the IRC. Therefore, the Company believes the Plan was qualified and the related trust was tax-exempt as of the financial statement date.
GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position
that more likely than not would not be sustained upon examination by the IRS. Plan management has analyzed the tax positions taken by the Plan, and has concluded that there are no uncertain positions taken or expected to be taken that would require
recognition of a liability or disclosure in the financial statements as of December 31, 2013 and 2012. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Plan
management believes it is no longer subject to income tax examinations for years prior to 2010.
Note D - Risks and Uncertainties
Through the VF Master Trust, the Plan provides for investment in mutual funds that in turn invest in equity, fixed income or other securities. The Plan also
provides for investment in VF Common Stock. Investments are exposed to various risks, such as market, interest rate, and credit. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes
in the value of investment securities, it is at least reasonably possible that changes in risks in the near term would materially affect participants account balances and the amounts reported in the statements of net assets available for
benefits.
Note E - Exempt Related Party Transactions
Certain plan investments are shares of mutual funds managed by Fidelity. Fidelity is the trustee as defined by the Plan and, therefore, these transactions
qualify as exempt party-in-interest transactions. Fees paid to Fidelity by the Plan for investment management services were included as a reduction of the return earned on each fund. In addition, fees paid to Fidelity for administrative services
were $119,284 for the year ended December 31, 2013.
The Plan also invests in the common stock of the Plan sponsor, and, therefore, transactions in
these securities also qualify as exempt party-in-interest transactions.
Note F - Investments in the Master Trust
All the Plans investments are included in the VF Master Trust, which was established for the investment of assets of this Plan and the VF Corporation
Retirement Savings Plan for Salaried Employees. Each participating retirement plan has an undivided interest in the VF Master Trust. The value of the Plans interest in the VF Master Trust is based on the beginning of the year value of the
Plans interest in the trust, plus actual contributions and allocated investment income less actual distributions, allocated investment losses and administrative expenses. At both December 31, 2013 and 2012, the Plans interest in the
net amounts of the VF Master Trust was approximately 2.4%. Investment income, losses and administrative expenses relating to the VF Master Trust are allocated to the individual plans based upon average monthly balances invested by each plan.
9
The following table presents the total investments of the VF Master Trust:
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|
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December 31
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2013
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|
2012
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|
Investments at fair value:
|
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|
|
|
|
|
|
|
Mutual funds
|
|
$
|
551,754,321
|
|
|
$
|
382,988,968
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|
Self-directed brokerage accounts
|
|
|
16,255,615
|
|
|
|
12,111,711
|
|
Separately managed fixed income fund
|
|
|
38,318,454
|
|
|
|
43,569,493
|
|
VF Corporation Common Stock fund
|
|
|
228,358,851
|
|
|
|
155,784,602
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
834,687,241
|
|
|
|
594,454,774
|
|
|
|
|
|
|
|
|
|
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Total assets of the VF Master Trust
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$
|
834,687,241
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$
|
594,454,774
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|
|
|
|
|
|
|
|
|
|
Plan interest in the VF Master Trust
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$
|
20,431,320
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|
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$
|
15,092,903
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|
|
|
|
|
|
|
|
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Investment income for the VF Master Trust was as follows:
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Year ended
December 31, 2013
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Investment income (loss):
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Net appreciation (depreciation) in fair value of investments:
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|
|
Mutual funds
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|
$
|
63,679,836
|
|
Self-directed brokerage accounts
|
|
|
1,565,769
|
|
Separately managed fixed income fund
|
|
|
183,523
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|
VF Corporation Common Stock fund
|
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|
92,548,958
|
|
|
|
|
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Total
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157,978,086
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Interest and dividends
|
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25,119,358
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|
|
|
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$
|
183,097,444
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|
|
|
|
|
|
At December 31, 2013 and 2012, the VF Master Trust held 3,594,297 and 4,045,672 shares (adjusted for the Companys
four-for-one stock split effected in December 2013), respectively, of VF Common Stock, with a cost basis of $36,356,727 and $39,757,754, respectively. During the year ended December 31, 2013, the VF Master Trust recorded dividend income of
$3,464,558.
10
Note G - Fair Value Measurements
Accounting standards provide a three-level hierarchy that prioritizes inputs to valuation techniques used to measure and report financial assets and financial
liabilities at fair value. The hierarchy is based on the observability and objectivity of pricing inputs, as follows:
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Level 1 Quoted prices for identical assets or liabilities in active markets accessible by the Plan.
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Level 2 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 for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in inactive markets, (iii) inputs other than quoted prices that are observable for the asset or
liability, or (iv) information derived from or corroborated by observable market data.
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Level 3 Significant unobservable inputs, therefore requiring an entity to develop its own assumptions.
|
Financial assets and financial liabilities are classified within the hierarchy based on the lowest level of any input that is significant to the fair value
measurement. Valuation techniques used should maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a
description of the valuation methodologies used for the underlying assets of the VF Master Trust measured at fair value. There have been no changes in the methodologies used at December 31, 2013 and 2012.
Mutual funds These funds are valued using the quoted net asset value (NAV) of shares held by the Plan at year-end.
Self-directed brokerage accounts These accounts may include mutual funds valued using the quoted NAV of shares held in the accounts, or exchange traded
funds valued at the closing price reported in the active market in which the securities are traded.
VF Corporation Common Stock fund This unitized
company stock fund is valued by the trustee based on the NAV of the shares held by the Plan at year-end. VF Common Stock is valued at the closing price reported in the active market in which the security is traded. Money market mutual funds are
valued using the quoted NAV of shares held by the Plan at year-end.
Separately managed fixed income fund This fund is valued by the trustee based
on the NAV of the shares held by the Plan at year-end. U.S. Treasury securities are valued at the closing price in the active market in which the individual securities are traded. Other U.S. government and related agency securities are valued based
on the closing price reported in the active market in which the individual securities are traded or based on yields currently available on comparable securities of issuers with similar credit ratings.
The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.
Furthermore, although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result
in a different fair value measurement at the reporting date.
11
The following table sets forth, by level within the fair value hierarchy, the underlying assets in the VF Master
Trust as of December 31, 2013:
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Fair Value Measurement Using:
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Total Fair
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Value
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(Level 1)
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(Level 2)
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(Level 3)
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Mutual funds
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U.S. equity
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$
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175,166,315
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$
|
175,166,315
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$
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|
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$
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Non-U.S. equity
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32,987,370
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|
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|
32,987,370
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Target date
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265,266,436
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|
|
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265,266,436
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|
|
|
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|
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Fixed income
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19,262,478
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|
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19,262,478
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|
|
|
|
|
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Money market
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|
59,071,722
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|
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|
59,071,722
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|
|
|
|
|
|
|
|
Self-directed brokerage accounts
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|
|
16,255,615
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|
|
|
16,255,615
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|
|
|
|
|
|
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Separately managed fixed income fund
(a)
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38,318,454
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38,318,454
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VF Corporation Common Stock fund
(b)
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228,358,851
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228,358,851
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Total
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$
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834,687,241
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$
|
568,009,936
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$
|
266,677,305
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$
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(a)
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This fund seeks to maximize current income to the extent consistent with the preservation of capital and the maintenance of liquidity by investing in U.S. Treasury
and agency obligations. There are no unfunded commitments, redemption frequency restrictions, or other redemption restrictions.
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(b)
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Represents investments in VF Corporation Common Stock, along with a minor amount of short-term investments to provide liquidity. There are no unfunded commitments,
redemption frequency restrictions, or other redemption restrictions.
|
The following table sets forth, by level within the fair value
hierarchy, the underlying assets in the VF Master Trust as of December 31, 2012:
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Fair Value Measurement Using:
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Total Fair
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Value
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(Level 1)
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(Level 2)
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(Level 3)
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Mutual funds
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|
|
|
|
|
|
|
|
|
|
|
|
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U.S. equity
|
|
$
|
94,391,069
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|
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$
|
94,391,069
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|
|
$
|
|
|
|
$
|
|
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Non-U.S. equity
|
|
|
11,423,315
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|
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|
11,423,315
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|
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|
|
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Target date
|
|
|
200,919,257
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200,919,257
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|
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Fixed income
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|
|
16,464,991
|
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|
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16,464,991
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|
|
|
|
|
|
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Money market
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|
|
59,790,336
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|
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59,790,336
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Self-directed brokerage accounts
|
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|
12,111,711
|
|
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|
12,111,711
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|
|
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|
|
|
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|
Separately managed fixed income fund
(a)
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|
|
43,569,493
|
|
|
|
|
|
|
|
43,569,493
|
|
|
|
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|
VF Corporation Common Stock fund
(b)
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|
155,784,602
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|
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155,784,602
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Total
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$
|
594,454,774
|
|
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$
|
395,100,679
|
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$
|
199,354,095
|
|
|
$
|
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|
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(a)
|
This fund seeks to maximize current income to the extent consistent with the preservation of capital and the maintenance of liquidity by investing in U.S. Treasury
and agency obligations. There are no unfunded commitments, redemption frequency restrictions, or other redemption restrictions.
|
(b)
|
Represents investments in VF Corporation Common Stock, along with a minor amount of short-term investments to provide liquidity. There are no unfunded commitments,
redemption frequency restrictions, or other redemption restrictions.
|
12
Note H - Plan Termination
Although it has not expressed any intention to do so, VF has the right under the Plan to discontinue its contributions at any time and to terminate the Plan
subject to the provisions of ERISA. In the event of plan termination, participants become 100 percent vested in their accounts.
13