Notes to Consolidated Financial Statements
(Unaudited)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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PAGE NUMBER
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NOTE 1
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NOTE 2
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NOTE 3
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NOTE 4
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NOTE 5
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NOTE 6
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NOTE 7
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NOTE 8
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NOTE 9
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NOTE 10
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NOTE 11
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NOTE 12
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NOTE 13
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NOTE 14
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NOTE 15
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NOTE 16
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NOTE 17
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NOTE 18
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NOTE 19
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NOTE 20
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NOTE 21
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VF Corporation Q3 FY22 Form 10-Q 10
NOTE 1 — BASIS OF PRESENTATION
VF Corporation (together with its subsidiaries, collectively known as “VF” or the “Company”) uses a 52/53 week fiscal year ending on the Saturday closest to March 31 of each year. The Company's current fiscal year runs from April 4, 2021 through April 2, 2022 ("Fiscal 2022"). Accordingly, this Form 10-Q presents our third quarter of Fiscal 2022. For presentation purposes herein, all references to periods ended December 2021 and December 2020 relate to the fiscal periods ended on January 1, 2022 and December 26, 2020, respectively. References to March 2021 relate to information as of April 3, 2021.
On June 28, 2021, VF completed the sale of its Occupational Workwear business. The Occupational Workwear business was comprised primarily of the following brands and businesses: Red Kap®, VF Solutions®, Bulwark®, Workrite®, Walls®, Terra®, Kodiak®, Work Authority® and Horace Small®. The business also included the license of certain Dickies® occupational workwear products that have historically been sold through the business-to-business channel. The results of the Occupational Workwear business and the related cash flows have been reported as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively, through the date of sale. The related held-for-sale assets and liabilities have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets, through the date of sale. These changes have been applied to all periods presented.
Unless otherwise noted, discussion within these notes to the interim consolidated financial statements relates to continuing operations. Refer to Note 5 for additional information on discontinued operations.
Certain prior year amounts have been reclassified to conform to the Fiscal 2022 presentation.
The accompanying unaudited interim 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 generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. Similarly, the March 2021 consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations and cash flows of VF for the interim periods presented. Operating results for the three and nine months ended December 2021 are not necessarily indicative of results that may be expected for any other interim period or for Fiscal 2022. For further information, refer to the consolidated financial statements and notes included in VF’s Annual Report on Form 10-K for the year ended April 3, 2021 (“Fiscal 2021 Form 10-K”).
In preparing the interim consolidated financial statements, management makes estimates and assumptions that affect amounts reported in the interim consolidated financial statements and accompanying notes. The duration and severity of the novel coronavirus ("COVID-19") pandemic, which is subject to uncertainty, continues to impact VF's business. Management's estimates and assumptions have contemplated both current and expected impacts related to COVID-19 based on available information. Actual results may differ from those estimates.
NOTE 2 — RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", an update that amends and simplifies the accounting for income taxes by removing certain exceptions in existing guidance and providing new guidance to reduce complexity in certain areas. The guidance became effective for VF in the first quarter of Fiscal 2022, but did not have a material impact on VF's consolidated financial statements.
Recently Issued Accounting Standards
In March 2020 and January 2021, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and ASU No. 2021-01, "Reference Rate Reform (Topic 848): Scope", respectively. This guidance provides optional expedients and
exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The optional guidance is provided to ease the potential burden of accounting for reference rate reform. The guidance is effective and can be adopted no later than December 31, 2022. The Company is evaluating the impact that adopting this guidance would have on VF's consolidated financial statements.
In November 2021, the FASB issued ASU No. 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance", an update that requires annual disclosures about government assistance, including the types of assistance and the effect on the financial statements. The guidance will be effective for VF in Fiscal 2023 with early adoption permitted. The Company is evaluating the impact that adopting this guidance will have on VF's disclosures.
11 VF Corporation Q3 FY22 Form 10-Q
NOTE 3 — REVENUES
Contract Balances
The following table provides information about contract assets and contract liabilities:
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(In thousands)
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December 2021
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March 2021
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December 2020
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Contract assets (a)
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$
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1,425
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$
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880
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$
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1,512
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Contract liabilities (b)
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73,890
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49,869
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55,995
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(a)Included in the other current assets line item in the Consolidated Balance Sheets.
(b)Included in the accrued liabilities line item in the Consolidated Balance Sheets.
For the three and nine months ended December 2021, the Company recognized $81.6 million and $243.6 million, respectively, of revenue that was included in the contract liability balance during the periods, including amounts recorded as a contract liability and subsequently recognized as revenue as performance obligations were satisfied within the same period, such as order deposits from customers. The change in the contract asset and contract liability balances primarily results from the timing differences between the Company's satisfaction of performance obligations and the customer's payment.
Performance Obligations
As of December 2021, the Company expects to recognize $75.5 million of fixed consideration related to the future minimum guarantees in effect under its licensing agreements and expects such amounts to be recognized over time based on the
contractual terms through March 2031. The variable consideration related to licensing arrangements is not disclosed as a remaining performance obligation as it qualifies for the sales-based royalty exemption. VF has also elected the practical expedient to not disclose the transaction price allocated to remaining performance obligations for contracts with an original expected duration of one year or less.
As of December 2021, there were no arrangements with transaction price allocated to remaining performance obligations other than contracts for which the Company has applied the practical expedients and the fixed consideration related to future minimum guarantees discussed above.
For the three and nine months ended December 2021, revenue recognized from performance obligations satisfied, or partially satisfied, in prior periods was not material.
Disaggregation of Revenue
The following tables disaggregate our revenues by channel and geography, which provides a meaningful depiction of how the nature, timing and uncertainty of revenues are affected by economic factors.
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Three Months Ended December 2021
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(In thousands)
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Outdoor
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Active
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Work
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Other
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Total
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Channel revenues
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Wholesale
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$
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960,020
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$
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448,690
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$
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215,023
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$
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279
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$
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1,624,012
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Direct-to-consumer
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964,016
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956,393
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61,077
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—
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1,981,486
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Royalty
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4,391
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5,494
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9,001
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—
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18,886
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Total
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$
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1,928,427
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$
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1,410,577
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$
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285,101
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$
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279
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$
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3,624,384
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Geographic revenues
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United States
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$
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945,218
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$
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788,839
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$
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213,535
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$
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279
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$
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1,947,871
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International:
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Europe
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651,252
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333,415
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18,631
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—
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1,003,298
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Asia-Pacific
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236,348
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214,638
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37,361
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—
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488,347
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Americas (non-U.S.)
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95,609
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73,685
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15,574
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—
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184,868
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Total
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$
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1,928,427
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$
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1,410,577
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$
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285,101
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$
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279
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$
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3,624,384
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VF Corporation Q3 FY22 Form 10-Q 12
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Three Months Ended December 2020
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(In thousands)
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Outdoor
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Active
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Work
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Other
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Total
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Channel revenues
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Wholesale
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$
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763,743
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$
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465,857
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$
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200,872
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$
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3,106
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$
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1,433,578
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Direct-to-consumer
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804,711
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655,922
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63,470
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89
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1,524,192
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Royalty
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2,589
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5,342
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5,840
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—
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13,771
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Total
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$
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1,571,043
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$
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1,127,121
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$
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270,182
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$
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3,195
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$
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2,971,541
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Geographic revenues
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United States
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$
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776,674
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$
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620,261
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$
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170,760
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$
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—
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$
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1,567,695
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International:
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Europe
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502,000
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256,282
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32,381
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3,195
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793,858
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Asia-Pacific
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213,271
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199,202
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51,858
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—
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464,331
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Americas (non-U.S.)
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79,098
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51,376
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15,183
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—
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145,657
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Total
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$
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1,571,043
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$
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1,127,121
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$
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270,182
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$
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3,195
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$
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2,971,541
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Nine Months Ended December 2021
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(In thousands)
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Outdoor
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Active
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Work
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Other
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Total
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Channel revenues
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Wholesale
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$
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2,426,963
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$
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1,600,238
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$
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693,910
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$
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557
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$
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4,721,668
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Direct-to-consumer
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1,614,783
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2,488,454
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144,029
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—
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4,247,266
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Royalty
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11,056
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16,126
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21,060
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—
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48,242
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Total
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$
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4,052,802
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$
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4,104,818
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$
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858,999
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$
|
557
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$
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9,017,176
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Geographic revenues
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United States
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$
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1,919,914
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$
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2,198,759
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$
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640,431
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$
|
557
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$
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4,759,661
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International:
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Europe
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1,406,329
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1,051,301
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58,247
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—
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2,515,877
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Asia-Pacific
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506,710
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641,289
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111,561
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—
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1,259,560
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Americas (non-U.S.)
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219,849
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213,469
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48,760
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—
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482,078
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Total
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$
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4,052,802
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$
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4,104,818
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$
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858,999
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$
|
557
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$
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9,017,176
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Nine Months Ended December 2020
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(In thousands)
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Outdoor
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Active
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Work
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Other
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Total
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Channel revenues
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Wholesale
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$
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1,746,203
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$
|
1,371,889
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$
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527,378
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$
|
4,381
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$
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3,649,851
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Direct-to-consumer
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1,314,386
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1,510,354
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144,113
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|
297
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2,969,150
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Royalty
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6,089
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16,396
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14,672
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—
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37,157
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Total
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$
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3,066,678
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$
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2,898,639
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$
|
686,163
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$
|
4,678
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$
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6,656,158
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Geographic revenues
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United States
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$
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1,451,827
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$
|
1,472,145
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|
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$
|
446,850
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$
|
—
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|
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$
|
3,370,822
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International:
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|
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Europe
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1,015,078
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|
|
753,820
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|
|
76,786
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|
|
4,678
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|
|
1,850,362
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Asia-Pacific
|
448,234
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|
|
533,620
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|
|
120,125
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|
|
—
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|
|
1,101,979
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Americas (non-U.S.)
|
151,539
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|
|
139,054
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|
|
42,402
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|
|
—
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|
|
332,995
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Total
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$
|
3,066,678
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|
|
$
|
2,898,639
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|
|
$
|
686,163
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|
|
$
|
4,678
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|
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$
|
6,656,158
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13 VF Corporation Q3 FY22 Form 10-Q
NOTE 4 — ACQUISITION
On December 28, 2020, VF acquired 100% of the outstanding shares of Supreme Holdings, Inc. ("Supreme") for $2.2 billion in cash, subject to working capital and other adjustments. The transaction also included $0.2 billion of cash acquired by VF. The purchase price was primarily funded with cash on hand. The purchase price was unchanged during the three months ended December 2021 and decreased by $3.8 million during the nine months ended December 2021, related to the final working capital adjustment.
The acquisition of Supreme includes a contingent arrangement that may require additional cash consideration to be paid to the selling shareholders of Supreme ranging from zero to $300.0 million, subject to the achievement of certain financial targets over the one-year earn-out period ending January 31, 2022. The initial estimated fair value of the contingent consideration of $207.0 million was included in the purchase price and reported in the other liabilities line item in the Consolidated Balance Sheet at March 2021. The estimated fair value of the contingent consideration was determined based on the probability-weighted present value of various future cash payment outcomes. In subsequent reporting periods, the contingent consideration liability has been remeasured at fair value with changes recognized in the selling, general and administrative expenses line item in the Consolidated Statements of Operations. Refer to Note 17 for additional information on fair value measurements.
Supreme was a privately-held company based in New York, New York and is a global streetwear leader that sells apparel, accessories and footwear under its namesake brand, Supreme®, through direct-to-consumer channels, including digital. The acquisition of Supreme accelerates VF's long-term growth
strategy and builds on a long-standing relationship between Supreme and VF, with the Supreme® brand being a regular collaborator with VF's Vans®, The North Face® and Timberland® brands. The acquisition also provides VF with deeper access to attractive consumer segments and the ability to leverage VF's enterprise platforms and capabilities to enable sustainable long-term growth.
In connection with the acquisition, VF deposited in escrow 605,050 shares of VF Common Stock. The common shares are subject to certain future service requirements and vest over periods of up to four years. For accounting purposes, VF will recognize the stock-based compensation cost for the fair value of these awards of $51.7 million over the vesting periods.
For the three and nine months ended December 2021, Supreme contributed revenues of $193.2 million and $438.5 million, respectively, and net income of $43.8 million and $76.2 million, respectively. The results of Supreme have been reported in the Active segment since the date of acquisition. Total transaction expenses for the Supreme acquisition were $8.7 million, all of which were recognized in the year ended March 2021 in the selling, general and administrative expenses line item in the Consolidated Statement of Operations.
Goodwill increased by $3.6 million during the three months ended December 2021 due to a measurement period adjustment for income tax matters, and decreased by $0.7 million during the nine months ended December 2021, which was also impacted by the final working capital adjustment. The purchase price allocation was finalized during the three months ended December 2021.
The following table summarizes the estimated fair values of the Supreme assets acquired and liabilities assumed at the date of acquisition:
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(In thousands)
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December 28, 2020
|
Cash and equivalents
|
|
$
|
218,104
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Accounts receivable
|
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19,698
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Inventories
|
|
44,937
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Other current assets
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|
40,912
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Property, plant and equipment
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18,914
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Intangible asset
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1,201,000
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Operating lease right-of-use assets
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|
55,668
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Other assets
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58,479
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Total assets acquired
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1,657,712
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Accounts payable
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|
25,717
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Other current liabilities
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|
81,816
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Operating lease liabilities
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|
53,062
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Deferred income tax liabilities
|
|
280,971
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Other liabilities
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|
35,245
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Total liabilities assumed
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|
476,811
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Net assets acquired
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|
1,180,901
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Goodwill
|
|
1,249,594
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Purchase price
|
|
$
|
2,430,495
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VF Corporation Q3 FY22 Form 10-Q 14
The purchase price consisted of the following components:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 28, 2020
|
Cash consideration
|
|
$
|
2,223,495
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|
Contingent consideration
|
|
207,000
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Purchase price
|
|
$
|
2,430,495
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|
The goodwill is attributable to our ability to expand the Supreme® brand into new markets, the acquired workforce and future collaboration opportunities for the Supreme® brand. All of the goodwill was assigned to the Active segment and will not be deductible for tax purposes.
The Supreme® trademark, which management believes to have an indefinite life, has been valued at $1.2 billion using the relief-from-royalty method, which is an income valuation approach. The relief-from-royalty method requires the use of significant estimates and assumptions, including but not limited to, future revenues, growth rates, royalty rate, tax rates and discount rate.
The following unaudited pro forma summary presents consolidated information of VF as if the acquisition of Supreme had occurred on March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
Three Months Ended
December 2020
(unaudited)
|
|
Nine Months Ended
December 2020
(unaudited)
|
Total revenues
|
|
$
|
3,160,826
|
|
|
$
|
7,094,470
|
|
Income from continuing operations
|
|
377,987
|
|
|
387,949
|
|
Earnings per common share from continuing operations
|
|
|
|
|
Basic
|
|
$
|
0.97
|
|
|
$
|
1.00
|
|
Diluted
|
|
0.96
|
|
|
0.99
|
|
These pro forma amounts have been calculated after applying VF’s accounting policies and adjusting the results of Supreme to reflect the fair value adjustments to intangible assets, property, plant and equipment and inventory. The results of Supreme have also been adjusted for historical interest expense as the acquired business was debt-free on the acquisition date. These changes have been applied from March 31, 2019, with related tax effects.
The pro forma financial information in the three and nine months ended December 2020 excludes $30.6 million of expenses
related to Supreme's transaction and deal-related costs, including employee compensation costs and accelerated vesting of stock options, which are directly attributable to the transaction.
Pro forma financial information is not necessarily indicative of VF’s operating results if the acquisition had been effected at the date indicated, nor is it necessarily indicative of future operating results. Amounts do not include any marketing leverage, or operating efficiencies that VF believes are achievable.
NOTE 5 — DISCONTINUED OPERATIONS
The Company continuously assesses the composition of its portfolio to ensure it is aligned with its strategic objectives and positioned to maximize growth and return to shareholders.
Occupational Workwear Business
On January 21, 2020, VF announced its decision to explore the divestiture of its Occupational Workwear business. The Occupational Workwear business was comprised primarily of the following brands and businesses: Red Kap®, VF Solutions®, Bulwark®, Workrite®, Walls®, Terra®, Kodiak®, Work Authority® and Horace Small®. The business also included the license of certain Dickies® occupational workwear products that have historically been sold through the business-to-business channel. As of March 28, 2020, the Occupational Workwear business met the held-for-sale and discontinued operations accounting criteria. Accordingly, the Company has reported the results of the Occupational Workwear business and the related cash flows as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively, through the date of sale. The related held-for-sale assets and liabilities have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets, through the date of sale.
On June 28, 2021, VF completed the sale of the Occupational Workwear business. The Company received proceeds of $616.5 million, net of cash sold, resulting in an estimated after-tax gain on sale of $145.6 million, which is included in the income from discontinued operations, net of tax line item in the Consolidated Statement of Operations for the nine months ended December 2021, and is subject to working capital and other adjustments.
The results of the Occupational Workwear business were previously reported in the Work segment. The results of the Occupational Workwear business recorded in the income from discontinued operations, net of tax line item in the Consolidated Statements of Operations were income of $170.3 million (including an estimated after-tax gain on sale of $145.6 million) for the nine months ended December 2021, and income of $19.6 million and $25.2 million for the three and nine months ended December 2020, respectively.
Under the terms of a transition services agreement, the Company will provide certain support services for periods generally up to 12 months from the closing date of the transaction.
15 VF Corporation Q3 FY22 Form 10-Q
Summarized Discontinued Operations Financial Information
The following table summarizes the major line items for the Occupational Workwear business that are included in the income from discontinued operations, net of tax line item in the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December
|
|
|
Nine Months Ended December
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
Net revenues
|
|
$
|
—
|
|
|
|
$
|
176,464
|
|
|
|
$
|
181,424
|
|
|
|
$
|
464,107
|
|
Cost of goods sold
|
|
—
|
|
|
|
115,801
|
|
|
|
117,193
|
|
|
|
330,418
|
|
Selling, general and administrative expenses
|
|
—
|
|
|
|
35,576
|
|
|
|
38,735
|
|
|
|
103,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
—
|
|
|
|
68
|
|
|
|
194
|
|
|
|
541
|
|
Other income (expense), net
|
|
—
|
|
|
|
22
|
|
|
|
6
|
|
|
|
101
|
|
Income from discontinued operations before income taxes
|
|
—
|
|
|
|
25,177
|
|
|
|
25,696
|
|
|
|
30,588
|
|
Gain on the sale of discontinued operations before income taxes
|
|
—
|
|
|
|
—
|
|
|
|
133,571
|
|
|
|
—
|
|
Total income from discontinued operations before income taxes
|
|
—
|
|
|
|
25,177
|
|
|
|
159,267
|
|
|
|
30,588
|
|
Income tax expense (benefit) (a)
|
|
—
|
|
|
|
5,596
|
|
|
|
(11,006)
|
|
|
|
5,402
|
|
Income from discontinued operations, net of tax
|
|
$
|
—
|
|
|
|
$
|
19,581
|
|
|
|
$
|
170,273
|
|
|
|
$
|
25,186
|
|
(a)Income tax benefit for the nine months ended December 2021 includes $12.0 million of deferred tax benefit related to capital and other losses realized upon the sale of the Occupational Workwear business.
The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations as of March 2021 and December 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 2021
|
|
December 2020
|
Cash and equivalents
|
|
$
|
34,132
|
|
|
$
|
18,771
|
|
Accounts receivable, net
|
|
103,835
|
|
|
91,554
|
|
Inventories
|
|
245,227
|
|
|
242,204
|
|
Other current assets
|
|
8,208
|
|
|
12,802
|
|
Property, plant and equipment, net
|
|
49,394
|
|
|
48,605
|
|
Intangible assets, net
|
|
54,471
|
|
|
54,472
|
|
Goodwill
|
|
43,530
|
|
|
43,530
|
|
Operating lease right-of-use assets
|
|
43,220
|
|
|
42,930
|
|
Other assets
|
|
5,561
|
|
|
5,780
|
|
|
|
|
|
|
Total assets of discontinued operations
|
|
$
|
587,578
|
|
|
$
|
560,648
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
59,965
|
|
|
$
|
50,434
|
|
Accrued liabilities
|
|
38,956
|
|
|
34,470
|
|
Operating lease liabilities
|
|
31,301
|
|
|
33,073
|
|
Other liabilities
|
|
3,863
|
|
|
6,303
|
|
Deferred income tax liabilities (a)
|
|
(8,828)
|
|
|
(4,095)
|
|
Total liabilities of discontinued operations
|
|
$
|
125,257
|
|
|
$
|
120,185
|
|
(a)Deferred income tax balances reflect VF's consolidated netting by jurisdiction.
NOTE 6 — INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 2021
|
|
|
March 2021
|
|
December 2020
|
Finished products
|
|
$
|
1,218,099
|
|
|
|
$
|
983,472
|
|
|
$
|
1,008,796
|
|
Work-in-process
|
|
49,933
|
|
|
|
54,386
|
|
|
55,352
|
|
Raw materials
|
|
19,178
|
|
|
|
23,981
|
|
|
11,835
|
|
Total inventories
|
|
$
|
1,287,210
|
|
|
|
$
|
1,061,839
|
|
|
$
|
1,075,983
|
|
VF Corporation Q3 FY22 Form 10-Q 16
NOTE 7 — INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2021
|
|
|
March 2021
|
(In thousands)
|
|
Weighted
Average
Amortization
Period
|
|
Amortization
Method
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
|
Net
Carrying
Amount
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships and other
|
|
19 years
|
|
Accelerated
|
|
|
$
|
268,018
|
|
|
$
|
159,541
|
|
|
$
|
108,477
|
|
|
|
$
|
121,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names
|
|
|
|
|
|
|
|
|
|
|
2,902,040
|
|
|
|
2,907,904
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
$
|
3,010,517
|
|
|
|
$
|
3,029,545
|
|
Amortization expense for the three and nine months ended December 2021 was $3.8 million and $11.9 million, respectively. Based on the carrying amounts of amortizable intangible assets noted above, estimated amortization expense for the next five years beginning in Fiscal 2022 is $15.3 million, $14.3 million, $13.8 million, $13.3 million and $12.3 million, respectively.
NOTE 8 — GOODWILL
Changes in goodwill are summarized by reportable segment as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Outdoor
|
|
Active
|
|
Work
|
|
Total
|
|
Balance, March 2021
|
$
|
665,278
|
|
|
$
|
1,645,769
|
|
|
$
|
114,380
|
|
|
$
|
2,425,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurement period adjustment to Supreme acquisition (Note 4)
|
—
|
|
|
(717)
|
|
|
—
|
|
|
(717)
|
|
|
Currency translation
|
(3,173)
|
|
|
(12,011)
|
|
|
(266)
|
|
|
(15,450)
|
|
|
Balance, December 2021
|
$
|
662,105
|
|
|
$
|
1,633,041
|
|
|
$
|
114,114
|
|
|
$
|
2,409,260
|
|
|
Accumulated impairment charges for the Outdoor segment were $323.2 million as of December 2021 and March 2021. No impairment charges were recorded during the nine months ended December 2021.
NOTE 9 — LEASES
The Company leases certain retail locations, office space, distribution facilities, machinery and equipment, and vehicles. The substantial majority of these leases are operating leases. Total lease cost includes operating lease cost, variable lease cost, finance lease cost, short-term lease cost and impairment. Components of lease cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December
|
|
|
Nine Months Ended December
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
Operating lease cost
|
|
$
|
105,888
|
|
|
|
$
|
110,970
|
|
|
|
$
|
329,548
|
|
|
|
$
|
326,501
|
|
|
|
|
|
|
Other lease costs
|
|
34,092
|
|
|
|
19,336
|
|
|
|
84,522
|
|
|
|
53,906
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
139,980
|
|
|
|
$
|
130,306
|
|
|
|
$
|
414,070
|
|
|
|
$
|
380,407
|
|
|
|
|
|
|
During the nine months ended December 2021 and 2020, the Company paid $357.9 million and $289.4 million of cash for operating leases, respectively. The increase was primarily driven by the timing of payments and lease concessions related to the effects of COVID-19 in the nine months ended December 2020. During the nine months ended December 2021 and 2020, the Company obtained $147.2 million and $506.7 million of right-of-use assets in exchange for lease liabilities, respectively. The decrease was primarily driven by the commencement of a new distribution center lease during the nine months ended December 2020.
17 VF Corporation Q3 FY22 Form 10-Q
NOTE 10 — SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Revolving Credit Facility
In November 2021, VF entered into a $2.25 billion senior unsecured revolving line of credit (the "Global Credit Facility") that expires November 2026. The Global Credit Facility replaced VF's $2.25 billion revolving facility which was scheduled to expire in December 2023. VF may request an unlimited number of one year extensions so long as each extension does not cause the remaining life of the Global Credit Facility to exceed five years, subject to stated terms and conditions. The Global Credit Facility may be used to borrow funds in U.S. dollars or any alternative currency (including euros and any other currency that is freely convertible into U.S. dollars, approved at the request of the Company by the lenders) and has a $75.0 million letter of credit sublimit. In addition, the Global Credit Facility supports VF’s U.S. commercial paper program for short-term, seasonal working capital requirements and general corporate purposes, including share repurchases and acquisitions. Borrowings under the Global Credit Facility are priced at a credit spread of 91.0 basis points over the appropriate LIBOR benchmark for each currency. VF is also required to pay a facility fee to the lenders, currently equal to 9.0 basis points of the committed amount of the facility. The credit spread and facility fee are subject to adjustment based on VF’s credit ratings. Outstanding short-term balances may vary from period to period depending on the level of corporate requirements.
The Global Credit Facility contains certain restrictive covenants, which include maintenance of a consolidated net indebtedness to consolidated net capitalization ratio. The consolidated net indebtedness to consolidated net capitalization ratio financial covenant, as of the last day of any fiscal quarter, cannot be greater than 0.70 to 1.00 through the last day of the fiscal quarter ending April 1, 2023, then 0.65 to 1.00 through the last day of the fiscal quarter ending March 30, 2024, and 0.60 to 1.00 thereafter. The calculation of consolidated net indebtedness (and, thereby consolidated net capitalization) is net of unrestricted cash of VF and its subsidiaries. As of December 2021, VF was in compliance with all covenants.
Redemption
In December 2021, VF completed an early redemption of $500.0 million in aggregate principal amount of its outstanding 2.050% Senior Notes due April 2022. The redemption price was equal to the sum of the present value of the remaining scheduled payments of principal and interest discounted to the redemption date at 38.7 basis points, which resulted in a make-whole premium of $3.2 million. Additionally, in connection with the redemption, $0.5 million of unamortized original issue discount and debt issuance costs were recognized. The make-whole premium and amortization were recorded in the loss on debt extinguishment line item in the Consolidated Statements of Operations in the three and nine months ended December 2021.
Supply Chain Financing Program
During the three months ended December 2021, VF began offering a voluntary supply chain finance ("SCF") program that enables certain suppliers of inventory to leverage VF's credit rating to receive payment from participating financial institutions prior to the payment date specified in the terms between VF and the supplier. The transactions are at the sole discretion of both the suppliers and financial institutions, and VF is not a party to the agreements. The terms between VF and the supplier, including the amount due and scheduled payment dates, are not impacted by a supplier's participation in the SCF program. The amount financed by suppliers and outstanding under this program is primarily included in the short-term borrowings line item in VF's Consolidated Balance Sheet and was $99.0 million at December 2021. Invoices selected for financing by the suppliers are primarily reported as operating cash outflows and financing cash inflows. Payments made by VF to the banks to settle the invoices on the originally scheduled payment dates are primarily reflected as financing cash outflows. Subsequent to the quarter end, VF decided to temporarily suspend the SCF program to implement certain modifications to the program.
NOTE 11 — PENSION PLANS
The components of pension cost (income) for VF’s defined benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December
|
|
|
Nine Months Ended December
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
Service cost – benefits earned during the period
|
|
$
|
3,547
|
|
|
|
$
|
3,837
|
|
|
|
$
|
10,737
|
|
|
|
$
|
11,252
|
|
Interest cost on projected benefit obligations
|
|
9,332
|
|
|
|
11,764
|
|
|
|
28,174
|
|
|
|
35,693
|
|
Expected return on plan assets
|
|
(19,347)
|
|
|
|
(20,586)
|
|
|
|
(58,100)
|
|
|
|
(61,696)
|
|
Settlement charges
|
|
5,660
|
|
|
|
544
|
|
|
|
6,684
|
|
|
|
1,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred amounts:
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred actuarial losses
|
|
2,858
|
|
|
|
3,020
|
|
|
|
8,569
|
|
|
|
8,781
|
|
Deferred prior service credits
|
|
(117)
|
|
|
|
(19)
|
|
|
|
(352)
|
|
|
|
(53)
|
|
Net periodic pension cost (income)
|
|
$
|
1,933
|
|
|
|
$
|
(1,440)
|
|
|
|
$
|
(4,288)
|
|
|
|
$
|
(4,907)
|
|
The amounts reported in these disclosures have not been segregated between continuing and discontinued operations.
VF Corporation Q3 FY22 Form 10-Q 18
VF has reported the service cost component of net periodic pension cost (income) in operating income and the other components, which include interest cost, expected return on plan assets, settlement charges and amortization of deferred actuarial losses and prior service credits, in the other income (expense), net line item in the Consolidated Statements of Operations.
VF contributed $23.2 million to its defined benefit plans during the nine months ended December 2021, and intends to make approximately $10.3 million of contributions during the remainder of Fiscal 2022.
VF recorded $5.7 million and $6.7 million in settlement charges in the other income (expense), net line item in the Consolidated
Statements of Operations for the three and nine months ended December 2021, respectively, as well as $0.5 million and $1.1 million for the three and nine months ended December 2020, respectively. The settlement charges related to the recognition of deferred actuarial losses resulting from lump sum payments of retirement benefits in the supplemental defined benefit pension plan. Actuarial assumptions used in the interim valuations were reviewed and revised as appropriate. The discount rate used to determine the supplemental defined benefit pension obligation as of December 2021, September 2021 and June 2021 was 2.96%, 2.91% and 2.90%, respectively.
NOTE 12 — CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Common Stock
During the nine months ended December 2021, the Company purchased 4.0 million shares of Common Stock in open market transactions for $300.0 million under its share repurchase program authorized by VF’s Board of Directors. These transactions are treated as treasury stock transactions.
Common Stock outstanding is net of shares held in treasury which are, in substance, retired. During the nine months ended December 2021, VF restored 4.0 million treasury shares to an unissued status, after which they were no longer recognized as shares held in treasury. There were no shares held in treasury at the end of December 2021, March 2021 or December 2020. The excess of the cost of treasury shares acquired over the $0.25 per share stated value of Common Stock is deducted from retained earnings.
Accumulated Other Comprehensive Income (Loss)
Comprehensive income consists of net income and specified components of other comprehensive income (“OCI”), which relate to changes in assets and liabilities that are not included in net income under GAAP but are instead deferred and accumulated within a separate component of stockholders’ equity in the balance sheet. VF’s comprehensive income is presented in the Consolidated Statements of Comprehensive Income. The deferred components of OCI are reported, net of related income taxes, in accumulated OCI in stockholders’ equity, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 2021
|
|
|
March 2021
|
|
December 2020
|
Foreign currency translation and other
|
|
$
|
(712,831)
|
|
|
|
$
|
(700,173)
|
|
|
$
|
(663,863)
|
|
Defined benefit pension plans
|
|
(248,971)
|
|
|
|
(257,747)
|
|
|
(264,966)
|
|
Derivative financial instruments
|
|
24,345
|
|
|
|
(51,080)
|
|
|
(67,134)
|
|
Accumulated other comprehensive income (loss)
|
|
$
|
(937,457)
|
|
|
|
$
|
(1,009,000)
|
|
|
$
|
(995,963)
|
|
The changes in accumulated OCI, net of related taxes, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 2021
|
|
(In thousands)
|
Foreign Currency Translation and Other
|
|
Defined Benefit Pension Plans
|
|
Derivative Financial Instruments
|
|
Total
|
|
Balance, September 2021
|
$
|
(687,120)
|
|
|
$
|
(255,635)
|
|
|
$
|
1,921
|
|
|
$
|
(940,834)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
(25,711)
|
|
|
383
|
|
|
11,961
|
|
|
(13,367)
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
6,281
|
|
|
10,463
|
|
|
16,744
|
|
|
Net other comprehensive income (loss)
|
(25,711)
|
|
|
6,664
|
|
|
22,424
|
|
|
3,377
|
|
|
Balance, December 2021
|
$
|
(712,831)
|
|
|
$
|
(248,971)
|
|
|
$
|
24,345
|
|
|
$
|
(937,457)
|
|
|
19 VF Corporation Q3 FY22 Form 10-Q
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 2020
|
(In thousands)
|
Foreign Currency Translation and Other
|
|
Defined Benefit Pension Plans
|
|
Derivative Financial Instruments
|
|
Total
|
Balance, September 2020
|
$
|
(700,137)
|
|
|
$
|
(264,304)
|
|
|
$
|
4,783
|
|
|
$
|
(959,658)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
36,274
|
|
|
(3,541)
|
|
|
(68,373)
|
|
|
(35,640)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
2,879
|
|
|
(3,544)
|
|
|
(665)
|
|
|
|
|
|
|
|
|
|
Net other comprehensive income (loss)
|
36,274
|
|
|
(662)
|
|
|
(71,917)
|
|
|
(36,305)
|
|
Balance, December 2020
|
$
|
(663,863)
|
|
|
$
|
(264,966)
|
|
|
$
|
(67,134)
|
|
|
$
|
(995,963)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 2021
|
|
(In thousands)
|
Foreign Currency Translation and Other
|
|
Defined Benefit Pension Plans
|
|
Derivative Financial Instruments
|
|
Total
|
|
Balance, March 2021
|
$
|
(700,173)
|
|
|
$
|
(257,747)
|
|
|
$
|
(51,080)
|
|
|
$
|
(1,009,000)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(12,658)
|
|
|
(2,355)
|
|
|
35,973
|
|
|
20,960
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
11,131
|
|
|
39,452
|
|
|
50,583
|
|
|
Net other comprehensive income (loss)
|
(12,658)
|
|
|
8,776
|
|
|
75,425
|
|
|
71,543
|
|
|
Balance, December 2021
|
$
|
(712,831)
|
|
|
$
|
(248,971)
|
|
|
$
|
24,345
|
|
|
$
|
(937,457)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 2020
|
|
(In thousands)
|
Foreign Currency Translation and Other
|
|
Defined Benefit Pension Plans
|
|
Derivative Financial Instruments
|
|
Total
|
|
Balance, March 2020
|
$
|
(737,709)
|
|
|
$
|
(262,472)
|
|
|
$
|
69,223
|
|
|
$
|
(930,958)
|
|
|
Other comprehensive income (loss) before reclassifications
|
31,482
|
|
|
(10,183)
|
|
|
(106,972)
|
|
|
(85,673)
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
42,364
|
|
|
7,689
|
|
|
(29,385)
|
|
|
20,668
|
|
|
Net other comprehensive income (loss)
|
73,846
|
|
|
(2,494)
|
|
|
(136,357)
|
|
|
(65,005)
|
|
|
Balance, December 2020
|
$
|
(663,863)
|
|
|
$
|
(264,966)
|
|
|
$
|
(67,134)
|
|
|
$
|
(995,963)
|
|
|
VF Corporation Q3 FY22 Form 10-Q 20
Reclassifications out of accumulated OCI were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Three Months Ended December
|
|
|
Nine Months Ended December
|
Details About Accumulated Other Comprehensive Income (Loss) Components
|
Affected Line Item in the Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
Losses on foreign currency translation and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation of foreign entities
|
Other income (expense), net
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
(42,364)
|
|
Total before tax
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(42,364)
|
|
Tax (expense) benefit
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net of tax
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(42,364)
|
|
Amortization of defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred actuarial losses
|
Other income (expense), net
|
|
|
(2,858)
|
|
|
|
(3,020)
|
|
|
|
(8,569)
|
|
|
|
(8,781)
|
|
Deferred prior service credits
|
Other income (expense), net
|
|
|
117
|
|
|
|
19
|
|
|
|
352
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension settlement charges
|
Other income (expense), net
|
|
|
(5,660)
|
|
|
|
(544)
|
|
|
|
(6,684)
|
|
|
|
(1,116)
|
|
Total before tax
|
|
|
|
(8,401)
|
|
|
|
(3,545)
|
|
|
|
(14,901)
|
|
|
|
(9,844)
|
|
Tax benefit
|
|
|
|
2,120
|
|
|
|
666
|
|
|
|
3,770
|
|
|
|
2,155
|
|
Net of tax
|
|
|
|
(6,281)
|
|
|
|
(2,879)
|
|
|
|
(11,131)
|
|
|
|
(7,689)
|
|
Gains (losses) on derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Net revenues
|
|
|
(9,284)
|
|
|
|
4,048
|
|
|
|
(16,045)
|
|
|
|
6,354
|
|
Foreign exchange contracts
|
Cost of goods sold
|
|
|
(3,974)
|
|
|
|
224
|
|
|
|
(26,644)
|
|
|
|
25,372
|
|
Foreign exchange contracts
|
Selling, general and administrative expenses
|
|
|
688
|
|
|
|
586
|
|
|
|
(418)
|
|
|
|
2,934
|
|
Foreign exchange contracts
|
Other income (expense), net
|
|
|
104
|
|
|
|
(613)
|
|
|
|
(2,958)
|
|
|
|
1,190
|
|
Interest rate contracts
|
Interest expense
|
|
|
27
|
|
|
|
26
|
|
|
|
81
|
|
|
|
80
|
|
Total before tax
|
|
|
|
(12,439)
|
|
|
|
4,271
|
|
|
|
(45,984)
|
|
|
|
35,930
|
|
Tax (expense) benefit
|
|
|
|
1,976
|
|
|
|
(727)
|
|
|
|
6,532
|
|
|
|
(6,545)
|
|
Net of tax
|
|
|
|
(10,463)
|
|
|
|
3,544
|
|
|
|
(39,452)
|
|
|
|
29,385
|
|
Total reclassifications for the period, net of tax
|
|
|
$
|
(16,744)
|
|
|
|
$
|
665
|
|
|
|
$
|
(50,583)
|
|
|
|
$
|
(20,668)
|
|
NOTE 13 — STOCK-BASED COMPENSATION
Incentive Equity Awards Granted
During the nine months ended December 2021, VF granted stock options to employees and nonemployee members of VF's Board of Directors to purchase 1,504,707 shares of its Common Stock at a weighted average exercise price of $77.76 per share. The exercise price of each option granted was equal to the fair market value of VF Common Stock on the date of grant. Employee stock options vest in equal annual installments over three years. Stock options granted to nonemployee members of VF's Board of Directors vest upon grant and become exercisable one year from the date of grant. All options have ten-year terms.
The grant date fair value of each option award was calculated using a lattice option-pricing valuation model, which incorporated a range of assumptions for inputs as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 2021
|
|
Expected volatility
|
|
28% to 41%
|
|
Weighted average expected volatility
|
|
36%
|
|
Expected term (in years)
|
|
6.1 to 7.9
|
|
Weighted average dividend yield
|
|
2.6%
|
|
Risk-free interest rate
|
|
0.04% to 1.63%
|
|
Weighted average fair value at date of grant
|
|
$20.19
|
|
During the nine months ended December 2021, VF granted 324,448 performance-based restricted stock units ("RSUs") to employees that enable them to receive shares of VF Common Stock at the end of a three-year performance cycle. The weighted average fair market value of VF Common Stock at the dates the units were granted was $77.77 per share. Each
performance-based RSU has a potential final payout ranging from zero to two shares of VF Common Stock. The number of shares earned by participants, if any, is based on achievement of three-year financial targets set by the Talent and Compensation Committee of the Board of Directors. Shares will be issued to participants in the year following the conclusion of the three-
21 VF Corporation Q3 FY22 Form 10-Q
year performance period. The financial targets include 50% weighting based on VF's revenue growth over the three-year period compared to a group of industry peers and 50% weighting based on VF's total shareholder return ("TSR") over the three-year period compared to the TSR for companies included in the Standard & Poor's 500 Consumer Discretionary Index. The grant date fair value of the TSR portion of the performance-based RSU grants was determined using a Monte Carlo simulation technique that incorporates option-pricing model inputs, and was $101.56 per share. Additionally, the actual number of performance-based RSUs earned may be adjusted upward or downward by 25% of the target award, based on VF's gross margin performance over the three-year period.
During the nine months ended December 2021, VF granted 12,023 nonperformance-based RSUs to nonemployee members of the Board of Directors. These units vest upon grant and will be settled in shares of VF Common Stock one year from the date of
grant. The fair market value of VF Common Stock at the date the units were granted was $77.78 per share.
In addition, VF granted 399,461 nonperformance-based RSUs to employees during the nine months ended December 2021. These units generally vest over periods of up to four years from the date of grant and each unit entitles the holder to one share of VF Common Stock. The weighted average fair market value of VF Common Stock at the dates the units were granted was $77.67 per share.
VF also granted 31,214 restricted shares of VF Common Stock to certain members of management during the nine months ended December 2021. These shares vest over periods of up to four years from the date of grant. The fair market value of VF Common Stock at the date the shares were granted was $77.78 per share.
NOTE 14 — INCOME TAXES
The effective income tax rate for the nine months ended December 2021 was 16.0% compared to 20.2% in the 2020 period. The nine months ended December 2021 included a net discrete tax expense of $43.7 million, which included a $92.3 million net tax expense related to unrecognized tax benefits and interest, a $9.6 million net tax benefit related to return to accrual adjustments, a $35.2 million net tax benefit related to withholding taxes on prior foreign earnings, a $1.7 million tax benefit related to stock compensation, and a $2.4 million net tax benefit related to tax rate change on deferred tax items. Excluding the $43.7 million net discrete tax expense in the 2021 period, the effective income tax rate would have been 12.8%. The nine months ended December 2020 included a net discrete tax expense of $3.7 million, which included a $15.2 million net tax expense related to unrecognized tax benefits and interest, a $2.3 million tax benefit related to stock compensation, a $4.9 million net tax benefit related to return to accrual adjustments, and a $4.3 million net tax benefit related to withholding taxes on prior foreign earnings. Excluding the $3.7 million net discrete tax expense in the 2020 period, the effective income tax rate would have been 19.2%. Without discrete items, the effective income tax rate for the nine months ended December 2021 decreased by 6.4% compared with the 2020 period primarily due to losses generated in the prior year and more favorable expectations to utilize foreign tax credits generated in the current year.
VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. In the U.S., the Internal Revenue Service ("IRS") examinations for tax years through 2015 have been effectively settled. The examination of Timberland’s 2011 tax return is ongoing.
In addition, VF is currently subject to examination by various state and international tax authorities. Management regularly assesses the potential outcomes of both ongoing and future examinations for the current and prior years and has concluded
that VF’s provision for income taxes is adequate. Management believes that some of these audits and negotiations will conclude during the next 12 months.
VF was granted a ruling which lowered the effective income tax rate on taxable earnings for years 2010 through 2014 under Belgium’s excess profit tax regime. During 2015, the European Union Commission (“EU”) investigated and announced its decision that these rulings were illegal and ordered the tax benefits to be collected from affected companies, including VF. Requests for annulment were filed by Belgium and VF Europe BVBA individually. During 2017 and 2018, VF Europe BVBA was assessed and paid €35.0 million tax and interest, which was recorded as an income tax receivable based on the expected success of the requests for annulment. During 2019, the General Court annulled the EU decision and the EU subsequently appealed the General Court’s annulment. In September 2021, the General Court's judgment was set aside by the Court of Justice of the EU and the case was sent back to the General Court to determine whether the excess profit tax regime amounted to illegal State aid. The case remains open and unresolved. If this matter is adversely resolved, these amounts will not be collected by VF.
During the nine months ended December 2021, the amount of net unrecognized tax benefits and associated interest increased by $98.9 million to $289.1 million, which includes an $87.1 million increase in the three months ended December 2021 resulting from updated estimates related to intellectual property transfers completed in a prior period. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits and interest may decrease during the next 12 months by approximately $270.4 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $10.6 million would reduce income tax expense.
VF Corporation Q3 FY22 Form 10-Q 22
NOTE 15 — REPORTABLE SEGMENT INFORMATION
The chief operating decision maker allocates resources and assesses performance based on a global brand view which represents VF's operating segments. The operating segments have been evaluated and combined into reportable segments because they meet the similar economic characteristics and qualitative aggregation criteria set forth in the relevant accounting guidance.
The Company's reportable segments have been identified as: Outdoor, Active and Work. We have included an Other category in the table below for purposes of reconciliation of revenues and profit, but it is not considered a reportable segment. Other includes results primarily related to the sale of non-VF products and sourcing activities related to transition services.
Financial information for VF's reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December
|
|
|
Nine Months Ended December
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
Segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor
|
|
$
|
1,928,427
|
|
|
|
$
|
1,571,043
|
|
|
|
$
|
4,052,802
|
|
|
|
$
|
3,066,678
|
|
Active
|
|
1,410,577
|
|
|
|
1,127,121
|
|
|
|
4,104,818
|
|
|
|
2,898,639
|
|
Work
|
|
285,101
|
|
|
|
270,182
|
|
|
|
858,999
|
|
|
|
686,163
|
|
Other
|
|
279
|
|
|
|
3,195
|
|
|
|
557
|
|
|
|
4,678
|
|
Total segment revenues
|
|
$
|
3,624,384
|
|
|
|
$
|
2,971,541
|
|
|
|
$
|
9,017,176
|
|
|
|
$
|
6,656,158
|
|
Segment profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Outdoor
|
|
$
|
450,432
|
|
|
|
$
|
311,767
|
|
|
|
$
|
662,761
|
|
|
|
$
|
283,531
|
|
Active
|
|
254,497
|
|
|
|
201,373
|
|
|
|
809,708
|
|
|
|
467,632
|
|
Work
|
|
47,672
|
|
|
|
16,900
|
|
|
|
150,649
|
|
|
|
13,672
|
|
Other
|
|
(44)
|
|
|
|
(4,435)
|
|
|
|
(696)
|
|
|
|
(9,322)
|
|
Total segment profit
|
|
752,557
|
|
|
|
525,605
|
|
|
|
1,622,422
|
|
|
|
755,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other expenses
|
|
(74,210)
|
|
|
|
(107,122)
|
|
|
|
(166,115)
|
|
|
|
(297,434)
|
|
Interest expense, net
|
|
(33,388)
|
|
|
|
(31,776)
|
|
|
|
(100,533)
|
|
|
|
(90,656)
|
|
Loss on debt extinguishment
|
|
(3,645)
|
|
|
|
—
|
|
|
|
(3,645)
|
|
|
|
—
|
|
Income from continuing operations before income taxes
|
|
$
|
641,314
|
|
|
|
$
|
386,707
|
|
|
|
$
|
1,352,129
|
|
|
|
$
|
367,423
|
|
NOTE 16 — EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December
|
|
|
Nine Months Ended December
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
Earnings per share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
517,801
|
|
|
|
$
|
327,659
|
|
|
|
$
|
1,135,826
|
|
|
|
$
|
293,163
|
|
Weighted average common shares outstanding
|
|
390,430
|
|
|
|
389,872
|
|
|
|
391,187
|
|
|
|
389,262
|
|
Earnings per share from continuing operations
|
|
$
|
1.33
|
|
|
|
$
|
0.84
|
|
|
|
$
|
2.90
|
|
|
|
$
|
0.75
|
|
Earnings per share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
517,801
|
|
|
|
$
|
327,659
|
|
|
|
$
|
1,135,826
|
|
|
|
$
|
293,163
|
|
Weighted average common shares outstanding
|
|
390,430
|
|
|
|
389,872
|
|
|
|
391,187
|
|
|
|
389,262
|
|
Incremental shares from stock options and other dilutive securities
|
|
2,065
|
|
|
|
2,979
|
|
|
|
2,360
|
|
|
|
2,345
|
|
Adjusted weighted average common shares outstanding
|
|
392,495
|
|
|
|
392,851
|
|
|
|
393,547
|
|
|
|
391,607
|
|
Earnings per share from continuing operations
|
|
$
|
1.32
|
|
|
|
$
|
0.83
|
|
|
|
$
|
2.89
|
|
|
|
$
|
0.75
|
|
Outstanding options to purchase approximately 2.8 million shares were excluded from the calculations of diluted earnings per share for both the three and nine-month periods ended December 2021, and outstanding options to purchase approximately 1.5 million and 4.1 million shares were excluded from the calculations of diluted earnings per share for the three and nine-month periods ended December 2020, respectively, because the effect of their inclusion would have been anti-dilutive.
In addition, 0.6 million shares of performance-based RSUs were excluded from the calculations of diluted earnings per share for both the three and nine-month periods ended December 2021, and 0.8 million and 0.6 million shares of performance-based RSUs were excluded from the calculations of diluted earnings per share for the three and nine-month periods ended December 2020, respectively, because these units were not considered to be contingent outstanding shares in those periods.
23 VF Corporation Q3 FY22 Form 10-Q
NOTE 17 — FAIR VALUE MEASUREMENTS
Financial assets and financial liabilities measured and reported at fair value are classified in a three-level hierarchy that prioritizes the inputs used in the valuation process. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs, as follows:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•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 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 — Prices or valuation techniques that require significant unobservable data inputs. These inputs would normally be VF’s 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 that are measured and recorded in the consolidated financial statements at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value
|
|
Fair Value Measurement Using (a)
|
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
December 2021
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
346,657
|
|
|
$
|
346,657
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Time deposits
|
305,576
|
|
|
305,576
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
57,466
|
|
|
—
|
|
|
57,466
|
|
|
—
|
|
|
Deferred compensation
|
139,551
|
|
|
139,551
|
|
|
—
|
|
|
—
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
32,987
|
|
|
—
|
|
|
32,987
|
|
|
—
|
|
|
Deferred compensation
|
145,399
|
|
|
—
|
|
|
145,399
|
|
|
—
|
|
|
Contingent consideration
|
49,000
|
|
|
—
|
|
|
—
|
|
|
49,000
|
|
|
|
Total Fair Value
|
|
Fair Value Measurement Using (a)
|
|
(In thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
March 2021
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
216,591
|
|
|
$
|
216,591
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Time deposits
|
102,914
|
|
|
102,914
|
|
|
—
|
|
|
—
|
|
|
Short-term investments
|
598,806
|
|
|
598,806
|
|
|
—
|
|
|
—
|
|
|
Derivative financial instruments
|
13,257
|
|
|
—
|
|
|
13,257
|
|
|
—
|
|
|
Deferred compensation
|
141,072
|
|
|
141,072
|
|
|
—
|
|
|
—
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
74,255
|
|
|
—
|
|
|
74,255
|
|
|
—
|
|
|
Deferred compensation
|
150,713
|
|
|
—
|
|
|
150,713
|
|
|
—
|
|
|
Contingent consideration
|
207,000
|
|
|
—
|
|
|
—
|
|
|
207,000
|
|
|
(a)There were no transfers among the levels within the fair value hierarchy during the nine months ended December 2021 or the year ended March 2021.
The following table presents the changes in fair value of the contingent consideration liability designated as Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Three Months Ended December 2021
|
|
Nine Months Ended December 2021
|
Beginning Balance
|
$
|
99,000
|
|
|
$
|
207,000
|
|
|
|
|
|
|
|
Change in fair value
|
(50,000)
|
|
|
(158,000)
|
|
|
Ending Balance
|
$
|
49,000
|
|
|
$
|
49,000
|
|
|
VF Corporation Q3 FY22 Form 10-Q 24
VF’s cash equivalents include money market funds and time deposits with maturities within three months of their purchase dates, that approximate fair value based on Level 1 measurements. The fair value of derivative financial instruments, which consist of foreign exchange forward contracts, is determined based on observable market inputs (Level 2), including spot and forward exchange rates for foreign currencies, and considers the credit risk of the Company and its counterparties. VF’s deferred compensation assets primarily represent investments held within plan trusts as an economic hedge of the related deferred compensation liabilities. These investments primarily include mutual funds (Level 1) that are valued based on quoted prices in active markets. Liabilities related to VF’s deferred compensation plans are recorded at amounts due to participants, based on the fair value of the participants’ selection of hypothetical investments. VF's short-term investments at March 2021 included excess cash invested in a managed income fund that approximated fair value based on Level 1 measurements.
The contingent consideration liability represents the estimated amount of additional cash consideration to be paid to the selling shareholders of Supreme, which is dependent upon the achievement of certain financial targets over the one-year earn-out period ending January 31, 2022. The estimated fair value of the contingent consideration liability, which could range from
zero to $300.0 million, was $207.0 million as of March 2021. The contingent consideration liability is remeasured at fair value with changes recognized in the selling, general and administrative expenses line item in the Consolidated Statements of Operations. As of December 2021, the fair value of the contingent consideration liability was remeasured to an estimated fair value of $49.0 million based on the probability-weighted present value of various future cash payment outcomes resulting from the estimated achievement levels of the financial targets. Refer to Note 4 for additional information on the acquisition of Supreme.
All other financial assets and financial liabilities are recorded in the consolidated financial statements at cost, except life insurance contracts which are recorded at cash surrender value. These other financial assets and financial liabilities include cash held as demand deposits, accounts receivable, short-term borrowings, accounts payable and accrued liabilities. At December 2021 and March 2021, their carrying values approximated fair value. Additionally, at December 2021 and March 2021, the carrying values of VF’s long-term debt, including the current portion, were $5,147.3 million and $5,710.2 million, respectively, compared with fair values of $5,383.7 million and $6,017.3 million at those respective dates. Fair value for long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings.
NOTE 18 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Summary of Derivative Financial Instruments
All of VF’s outstanding derivative financial instruments are foreign exchange forward contracts. Although derivatives meet the criteria for hedge accounting at the inception of the hedging relationship, a limited number of derivative contracts intended to hedge assets and liabilities are not designated as hedges for accounting purposes. The notional amounts of all outstanding
derivative contracts were $2.8 billion at December 2021 and $2.5 billion at both March 2021 and December 2020, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Swiss franc, Mexican peso, Swedish krona, South Korean won, Polish zloty, Japanese yen and New Zealand dollar. Derivative contracts have maturities up to 20 months.
The following table presents outstanding derivatives on an individual contract basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivatives
with Unrealized Gains
|
|
|
Fair Value of Derivatives
with Unrealized Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 2021
|
|
|
March 2021
|
|
December 2020
|
|
|
December 2021
|
|
|
March 2021
|
|
December 2020
|
Foreign currency exchange contracts designated as hedging instruments
|
|
$
|
55,000
|
|
|
|
$
|
12,301
|
|
|
$
|
12,457
|
|
|
|
$
|
(32,660)
|
|
|
|
$
|
(73,087)
|
|
|
$
|
(96,437)
|
|
Foreign currency exchange contracts not designated as hedging instruments
|
|
2,466
|
|
|
|
956
|
|
|
3,752
|
|
|
|
(327)
|
|
|
|
(1,168)
|
|
|
(1,398)
|
|
Total derivatives
|
|
$
|
57,466
|
|
|
|
$
|
13,257
|
|
|
$
|
16,209
|
|
|
|
$
|
(32,987)
|
|
|
|
$
|
(74,255)
|
|
|
$
|
(97,835)
|
|
25 VF Corporation Q3 FY22 Form 10-Q
VF records and presents the fair values of all of its derivative assets and liabilities in the Consolidated Balance Sheets on a gross basis, even though they are subject to master netting agreements. If VF were to offset and record the asset and liability balances of its foreign exchange forward contracts on a net basis in accordance with the terms of its master netting agreements, the amounts presented in the Consolidated Balance Sheets would be adjusted from the current gross presentation to the net amounts as detailed in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2021
|
|
|
March 2021
|
|
December 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Derivative
Asset
|
|
Derivative
Liability
|
|
|
Derivative
Asset
|
|
Derivative
Liability
|
|
Derivative
Asset
|
|
Derivative
Liability
|
Gross amounts presented in the Consolidated Balance Sheets
|
|
$
|
57,466
|
|
|
$
|
(32,987)
|
|
|
|
$
|
13,257
|
|
|
$
|
(74,255)
|
|
|
$
|
16,209
|
|
|
$
|
(97,835)
|
|
Gross amounts not offset in the Consolidated Balance Sheets
|
|
(22,964)
|
|
|
22,964
|
|
|
|
(13,246)
|
|
|
13,246
|
|
|
(16,209)
|
|
|
16,209
|
|
Net amounts
|
|
$
|
34,502
|
|
|
$
|
(10,023)
|
|
|
|
$
|
11
|
|
|
$
|
(61,009)
|
|
|
$
|
—
|
|
|
$
|
(81,626)
|
|
Derivatives are classified as current or noncurrent based on maturity dates, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 2021
|
|
|
March 2021
|
|
December 2020
|
Other current assets
|
|
$
|
50,298
|
|
|
|
$
|
7,440
|
|
|
$
|
15,510
|
|
Accrued liabilities
|
|
(28,326)
|
|
|
|
(66,351)
|
|
|
(77,317)
|
|
Other assets
|
|
7,168
|
|
|
|
5,817
|
|
|
699
|
|
Other liabilities
|
|
(4,661)
|
|
|
|
(7,904)
|
|
|
(20,518)
|
|
Cash Flow Hedges
VF uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, purchases, production costs, operating costs and intercompany royalties. The effects of cash flow hedging included in VF’s Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Gain (Loss) on Derivatives Recognized in OCI
Three Months Ended December
|
|
|
Gain (Loss) on Derivatives Recognized in OCI
Nine Months Ended December
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedging Relationships
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
Foreign currency exchange
|
|
$
|
14,185
|
|
|
|
$
|
(82,491)
|
|
|
|
$
|
43,983
|
|
|
|
$
|
(129,817)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Gain (Loss) Reclassified from Accumulated OCI into Income
Three Months Ended December
|
|
Gain (Loss) Reclassified from Accumulated OCI into Income
Nine Months Ended December
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
Net revenues
|
|
$
|
(9,284)
|
|
|
|
$
|
4,048
|
|
|
|
$
|
(16,045)
|
|
|
|
$
|
6,354
|
|
Cost of goods sold
|
|
(3,974)
|
|
|
|
224
|
|
|
|
(26,644)
|
|
|
|
25,372
|
|
Selling, general and administrative expenses
|
|
688
|
|
|
|
586
|
|
|
|
(418)
|
|
|
|
2,934
|
|
Other income (expense), net
|
|
104
|
|
|
|
(613)
|
|
|
|
(2,958)
|
|
|
|
1,190
|
|
Interest expense
|
|
27
|
|
|
|
26
|
|
|
|
81
|
|
|
|
80
|
|
Total
|
|
$
|
(12,439)
|
|
|
|
$
|
4,271
|
|
|
|
$
|
(45,984)
|
|
|
|
$
|
35,930
|
|
Derivative Contracts Not Designated as Hedges
VF uses derivative contracts to manage foreign currency exchange risk on third-party accounts receivable and payable, as well as intercompany borrowings. These contracts are not designated as hedges, and are recorded at fair value in the Consolidated Balance Sheets. Changes in the fair values of these instruments are recognized directly in earnings. Gains or losses on these contracts largely offset the net transaction losses or gains on the related assets and liabilities. In the case of derivative contracts executed on foreign currency exposures that are no longer probable of occurring, VF de-designates these hedges and the fair value changes of these instruments are also recognized directly in earnings.
The impact of de-designated derivative contracts and changes in the fair value of derivative contracts not designated as hedges, recognized as gains or losses in VF's Consolidated Statements of Operations were not material for the three and nine months ended December 2021 and December 2020.
Other Derivative Information
At December 2021, accumulated OCI included $13.4 million of pre-tax net deferred gains for foreign currency exchange contracts that are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on exchange rates in effect when outstanding derivative contracts are settled.
VF Corporation Q3 FY22 Form 10-Q 26
Net Investment Hedge
The Company has designated its euro-denominated fixed-rate notes, which represent €1.850 billion in aggregate principal, as a net investment hedge of VF’s investment in certain foreign operations. Because this debt qualified as a nonderivative hedging instrument, foreign currency transaction gains or losses of the debt are deferred in the foreign currency translation and other component of accumulated OCI as an offset to the foreign currency translation adjustments on the hedged investments.
During the three and nine-month periods ended December 2021, the Company recognized an after-tax gain of $29.1 million and $51.7 million, respectively, in OCI related to the net investment hedge transaction, and an after-tax loss of $79.2 million and $150.8 million for the three and nine-month periods ended December 2020, respectively. Any amounts deferred in accumulated OCI will remain until the hedged investment is sold or substantially liquidated.
NOTE 19 — RESTRUCTURING
The Company incurs restructuring charges related to strategic initiatives and cost optimization of business activities, primarily related to severance and employee-related benefits. During the three and nine months ended December 2021, VF recognized $3.6 million and $11.4 million, respectively, of restructuring charges, related to approved initiatives. Of the restructuring charges recognized in the three and nine months ended December 2021, $3.5 million and $9.8 million were reflected in selling, general and administrative expenses, respectively, and $0.1 million and $1.6 million in cost of goods sold, respectively.
The Company has not recognized any significant incremental costs related to accruals for the year ended March 2021 or prior periods.
Of the $31.1 million total restructuring accrual at December 2021, $30.1 million is expected to be paid out within the next 12 months and is classified within accrued liabilities. The remaining $1.0 million will be paid out beyond the next 12 months and thus is classified within other liabilities.
The components of the restructuring charges are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December
|
|
|
Nine Months Ended December
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
Severance and employee-related benefits
|
|
$
|
3,056
|
|
|
|
$
|
24,545
|
|
|
|
$
|
7,352
|
|
|
|
$
|
52,937
|
|
Asset impairments
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,557
|
|
Accelerated depreciation
|
|
590
|
|
|
|
3,429
|
|
|
|
4,057
|
|
|
|
10,093
|
|
Inventory write-downs
|
|
—
|
|
|
|
7,115
|
|
|
|
—
|
|
|
|
7,115
|
|
Contract termination and other
|
|
—
|
|
|
|
3,107
|
|
|
|
—
|
|
|
|
3,324
|
|
Total restructuring charges
|
|
$
|
3,646
|
|
|
|
$
|
38,196
|
|
|
|
$
|
11,409
|
|
|
|
$
|
84,026
|
|
Restructuring costs by business segment are as follows:
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|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December
|
|
|
Nine Months Ended December
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
Outdoor
|
|
$
|
1,529
|
|
|
|
$
|
2,676
|
|
|
|
$
|
4,206
|
|
|
|
$
|
9,271
|
|
Active
|
|
—
|
|
|
|
3,275
|
|
|
|
1,008
|
|
|
|
3,938
|
|
Work
|
|
1,527
|
|
|
|
8,409
|
|
|
|
2,315
|
|
|
|
27,216
|
|
Other
|
|
590
|
|
|
|
23,836
|
|
|
|
3,880
|
|
|
|
43,601
|
|
Total
|
|
$
|
3,646
|
|
|
|
$
|
38,196
|
|
|
|
$
|
11,409
|
|
|
|
$
|
84,026
|
|
The activity in the restructuring accrual for the nine-month period ended December 2021 was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Severance
|
|
Other
|
|
Total
|
|
Accrual at March 2021
|
$
|
59,810
|
|
|
$
|
6,944
|
|
|
$
|
66,754
|
|
|
Charges
|
7,352
|
|
|
—
|
|
|
7,352
|
|
|
Cash payments and settlements
|
(36,130)
|
|
|
(5,680)
|
|
|
(41,810)
|
|
|
Adjustments to accruals
|
(970)
|
|
|
(40)
|
|
|
(1,010)
|
|
|
Impact of foreign currency
|
(155)
|
|
|
(80)
|
|
|
(235)
|
|
|
Accrual at December 2021
|
$
|
29,907
|
|
|
$
|
1,144
|
|
|
$
|
31,051
|
|
|
27 VF Corporation Q3 FY22 Form 10-Q
NOTE 20 — CONTINGENCIES
The Company petitioned the U.S. Tax Court to resolve an IRS dispute regarding the timing of income inclusion associated with the 2011 Timberland acquisition. The Company remains confident in our timing and treatment of the income inclusion, and therefore this matter is not reflected in our consolidated financial statements. We are vigorously defending our position, and do not expect the resolution to have a material adverse impact on the Company's financial position, results of operations or cash flows. While the IRS argues immediate income inclusion, the Company's position is to include the income over a period of years. As the matter relates to 2011, nearly half of the timing at dispute has passed with the Company including the income, and paying the related tax, on our income tax returns. The Company
notes that should the IRS prevail in this timing matter, the net interest expense would be up to $196.7 million. Further, this timing matter is impacted by the Tax Cuts and Jobs Act that reduced the U.S. corporate income tax rate from 35% to 21%. If the IRS is successful, this rate differential would increase tax expense by approximately $136.3 million.
The Company is currently involved in other legal proceedings that are ordinary, routine litigation incidental to the business. The resolution of any particular proceeding is not currently expected to have a material adverse impact on the Company's financial position, results of operations or cash flows.
NOTE 21 — SUBSEQUENT EVENT
On January 25, 2022, VF’s Board of Directors declared a quarterly cash dividend of $0.50 per share, payable on March 21, 2022 to stockholders of record on March 10, 2022.
VF Corporation Q3 FY22 Form 10-Q 28