PURPOSE DRIVEN.
VF Corporation | 2017 Annual Report
PURPOSE DRIVEN.
VF Corporation | 2017 Annual Report
PURPOSE DRIVEN.
VF Corporation | 2017 Annual Report
We’re VF Corporation. And while we’re highly diversified
across brands, products, distribution channels and geographies, our
integrated and collaborative approach to doing business provides a
unique and powerful competitive advantage that’s made us a global
leader in branded lifestyle apparel, footwear and accessories. It’s all
part of a strong culture of achievement, authenticity, teamwork,
passion, innovation and integrity. We call it One VF.
It’s the women and men of VF who make it all happen.
Like Yusri, who regularly volunteers to help feed the
homeless population in downtown Los Angeles, and
who also works to support recent immigrants to the
United States. Or Alexa, who is an advocate for gender
equality and the advancement of women, promoting
childcare support and flexible work schedules. Or Carmen,
who leads our tree planting initiative in the Horqin
District of Inner Mongolia, in addition to supporting
efforts that help children in Cambodia.
They represent the face of One VF. And they clearly
do more than just deliver great products and customer
experiences. They’re focused on empowering people
to live sustainable and active lifestyles … helping
communities thrive … and preserving and protecting
the environment we share.
YUSRI
Senior Manager, Technical Design,
Product Development
Vans®, Americas
Costa Mesa, California
ALEXA
Retail & PSS Operations Director
The North Face®, EMEA
Stabio, Switzerland
CARMEN
Regional Marketing Director
Timberland®, APAC
Hong Kong
DELIVERING ON OUR
COMMITMENTS
To Our Shareholders,
2017 was a strong year for VF – a year
as long-term value creators and responsible
that began with an intense focus on
corporate citizens.
transforming VF Corporation into a more
consumer- and retail-centric company.
P E OP LE OF P UR P OS E
We made bold moves and achieved
extraordinary milestones, including
top-quartile value creation. Now it’s time
to build on our early momentum and
continue to deliver on our commitments
I am honored to be only the 11th CEO in
our storied 118-year history and thank
Eric Wiseman, our outgoing Chairman,
and our Board of Directors for the
succession process that has enabled
me to step into my new role.
Fueled by the passion and hard work
of our 69,000 associates – like the three
you met at the opening of this report –
there should be no doubt that VF will
be a purpose-driven company. And we’ll
continue to be a value-creation company,
as well, striving to consistently deliver
top-quartile total shareholder returns (TSR),
while operating our business with the
highest standards of integrity.
In 2017, we took several steps forward to
become more agile and consumer-centric.
As we explore new opportunities with
the potential for game-changing success,
I asked our teams around the world to
make business choices that leverage
VF’s differentiated business model and
winning formula.
We also challenged our teams to work with
senior leaders to increase our organization’s
metabolic rate – to move faster, collaborate
more and transform the way we work.
3
Shareholder Letter VF Corporation | 2017 Annual Report
OUR ST RAT EGY
2017 saw the introduction of our 2021
Global Business Strategy, which outlines
our five-year plan to transform VF and
accelerate growth around the world.
Our strategy focuses on a set of key
• Strengthened our ability to act vertically,
from design and innovation to responsibly
sourcing our apparel and footwear,
to placing it in our differentiated retail
channels and putting product into the
hands of our consumers;
mega-choices that will unlock new
• Invested in new capabilities and
opportunities for sustained success:
leveraged brand assets to fuel our
• Reshaping VF’s portfolio and enabling
our powerful brands;
digital platform, while also increasing
our brick-and-mortar productivity within
a streamlined, more profitable fleet
• Transforming to a more consumer- and
of stores;
retail-centric model;
• Elevating our direct-to-consumer (DTC)
business, while prioritizing digital; and,
• Distorting our investments toward Asia,
• The North Face® and Timberland® brands
drove efficiency in their go-to-market
process and have sharpened their focus
on capturing value through integrated
with a heightened focus on China.
marketplace segmentation;
We’ll empower these strategic choices
with increased investment and focus on
six critical capabilities:
• Design and innovation;
• Realigned our Senior Leadership Team
to strengthen its global composition
and activated an Executive Inclusion &
Diversity Council to further advance
our efforts to be a more inclusive and
• Demand creation and brand experience;
diverse employer; and,
• Insights and analytics;
• Retail excellence;
• Strengthened our business planning
and investment practices to increase
alignment, accountability and agility
• Demand and supply chain agility; and,
throughout our organization and brands.
• Talent.
As expected, our associates around the
world responded to the call in 2017. And
we’re beginning to see positive outcomes,
both in our financial results and in the
way we do business.
BY T HE NUM BE RS
Our 2021 strategy is built on a solid
foundation. As proof of our sharp focus on
long-term value creation, VF’s TSR in 2017
was 43 percent compared with 22 percent
for the Standard & Poor’s (S&P) 500 Index. Our
In year one of our new business strategy, we:
annualized TSR during the past five- and
• Began to reshape our portfolio with the
divestiture of the Licensed Sports Group
(LSG) business, the acquisition of
10-year periods was 17 percent and 19 percent
compared with 16 percent and 8 percent,
respectively, for the S&P 500.
Williamson-Dickie Mfg. Co., and our
• In 2017, revenue increased 7 percent to
announced agreement to acquire
$11.8 billion, including a $247 million
Icebreaker Holdings, Ltd., which we
contribution from the Williamson-Dickie
expect to complete in early April;
acquisition.
• Announced the planned sale of our
• On an organic basis1, we continue to see
Nautica® brand in the first half of 2018;
strong momentum in our International
VF Corporation | 2017 Annual Report Shareholder Letter
4
(up 10 percent or up 9 percent currency
investment capacity to fund our highest-
neutral2) and DTC (up 15 percent) platforms,
priority growth initiatives; and, 4) Create
and our Outdoor & Action Sports (up 8
and enable a high-performance culture.
percent or up 7 percent currency neutral)
and Imagewear (up 6 percent) businesses.
Along the way, we will sharpen our strategy
and our employee value proposition, further
• Gross margin from continuing operations3
uniting us in our commitment to be a catalyst
increased 120 basis points (up 180 basis
for movements that improve lives and make
points currency neutral) to a record high
our world a better place.
of 50.5 percent.
Consistent with our purpose-driven approach,
• Earnings per share (EPS) from continuing
we have formed a new Sustainability &
operations was $1.79. Adjusted EPS from
Responsibility strategy: Made for Change.
continuing operations4 increased 4 percent
This strategy will enable us to deliver on
to $2.98 (up 7 percent currency neutral),
our environmental and social commitments,
including a $0.04 per share contribution
while also inspiring us to drive further
from the Williamson-Dickie acquisition.
innovation and growth and create value
• 2017 cash flow from operations reached
for VF, our brands and our shareholders.
approximately $1.5 billion.
• We returned approximately $1.9 billion
to shareholders through share repurchases
and dividends.
• Leveraging the overachievement of
our Vans®, Europe and DTC businesses,
we were able to invest an incremental
$100 million to support our strategic
roadmap priorities.
A NOTE OF TH AN KS
A key element of our growth is a hands-
on, fully engaged Board of Directors that
pushes us to be our best as they review
and approve our business strategies. Since
last year’s Annual Report to Shareholders,
Juan Ernesto de Bedout and Eric Wiseman
have retired from our Board. As we salute
their years of service to our company and
• The Vans® brand had a remarkable year
our shareholders, we’re pleased to welcome
with global revenue up 19 percent –
new directors Carol Roberts and Benno Dorer.
an extraordinary performance that
Carol retired from International Paper in
positions it to soon become VF’s first
2017, where she was Senior Vice President
$3 billion brand.
• VF finished 2017 with five brands
bringing in more than $1 billion each,
representing 81 percent of our company’s
total revenue.
LOOK ING AHEAD
As we look to solid performance and results
in fiscal year 2019, we have identified four
areas of strategic focus that will further
elevate our performance. We will:
1) Maximize value creation and optimize
our portfolio; 2) Accelerate our consumer-
and Chief Financial Officer. Benno is
Chairman and CEO of The Clorox Company.
We’re lucky to have both of them and the
powerful mix of business knowledge and
experience they bring to our Board.
In closing, I thank VF’s associates, our
business partners and the consumers of
our brands for their constant support. And
I thank you, our shareholders, for your
continued confidence in VF Corporation.
I’m certain that the best is yet to come.
STEVEN E. RENDLE
centric transformation and growth;
3) Drive operational efficiency to create
Chairman, President & Chief Executive Officer
March 6, 2018
5
Shareholder Letter VF Corporation | 2017 Annual Report
FINANCIAL HIGHLIGHTS7
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2
REVENUES
(BILLIONS)
REPORTED
ADJUSTMENTS
ANNUAL EARNINGS
PER SHARE 4, 5, 6
(DILUTED)
ANNUAL DIVIDENDS
PER SHARE
CASH FLOW FROM
OPERATIONS
(BILLIONS)
1 Excludes Williamson-Dickie acquisition.
2Reported amounts under U.S. generally accepted accounting principles (“GAAP”) include translation and transactional impacts from foreign currency exchange rates. Currency
neutral amounts exclude both the impact of translating foreign currencies into U.S. dollars and the impact of currency rate changes on foreign currency denominated transactions.
3Adjusted gross margin in 2017 increased 100 basis points (up 160 basis points currency neutral) to 50.5 percent in 2017, and excludes transaction and deal-related costs
related to the acquisition of Williamson-Dickie of $3.6 million.
4GAAP EPS was $1.79 in 2017. Adjusted EPS in 2017 was $2.98, which excludes the impact of transaction and deal-related costs of $16.9 million ($0.04 per share), and the income
tax impact of the Tax Cuts and Jobs Act of $465.5 million ($1.15 per share).
5GAAP EPS was $2.56 in 2016. Adjusted EPS in 2016 was $2.88, which excludes the impact of impairment charges for goodwill and intangible assets of $79.6 million
($0.15 per share), a pension settlement charge of $50.9 million ($0.07 per share) and restructuring charges of $55.0 million ($0.10 per share).
6GAAP EPS was $2.41 in 2013. Adjusted EPS in 2013 was $2.43, which excludes the impact of transaction and deal-related costs of $10.7 million ($0.02 per share).
7Financial information reflects continuing operations, except cash flow from operations, which includes the results of continuing and discontinued operations.
OUR BRANDS
OUTDOOR &
ACTION SPORTS
Founded: 1998
Founded: 1966
Founded: 1994
JEANSWEAR
Founded: 1947
Founded: 1966
Founded: 1967
Founded: 1889
Founded: 1973
Founded: 1949
Founded: 1952
Founded: 1987
Founded: 1984
Founded: 1965
Founded: 2002
IMAGEWEAR
Founded: 1922
Founded: 1923
Founded: 1973
Founded: 1938
Founded: 1910
Founded: 1971
Founded: 1987
Founded: 1975
Founded: 2003
Founded: 1971
Founded: 1937
VF Corporation | 2017 Annual Report Financial Highlights/Our Brands
6
2021 GLOBAL BUSINESS STRATEGY
1
RESHAPE OUR PORTFOLIO
VF is a value-creation company.
We’ve grown and evolved over 118 years
based on our consistent ability to
transform ourselves. We understand
that the composition of our brand
portfolio is essential to positioning VF
to win in evolving market conditions.
That’s why reshaping our portfolio
continues to be a top priority. And it’s a
process that’s always moving forward.
Early last year, we continued our ongoing
transformation with the divestiture of
LSG. And, in October 2017, we acquired
Williamson-Dickie. Williamson-Dickie’s
workwear brands, Dickies®, Workrite®,
Kodiak®, Terra® and Walls®, joined our
current workwear offerings, Wrangler®
RIGGS Workwear®, Timberland PRO®,
Red Kap®, Bulwark® and Horace Small®.
VF is now a global leader in workwear,
allowing us to reach a broader set of
consumers and to outfit workers around
the world.
Later in 2017, we announced our
acquisition of Icebreaker Holdings. By
incorporating the Icebreaker® brand into
our portfolio, we’re not just staking our
claim in the growing natural fiber category.
We’re strengthening our ability to create
a natural-fiber platform that we will
leverage across our portfolio of brands.
The Icebreaker® brand’s product line – based
on merino wool, as well as plant-based
and recycled fibers – makes it a natural
complement to our Smartwool® brand.
Early in 2018, we also announced the
planned sale of the Nautica® brand.
Going forward, the brands in our portfolio
will continue to play different and distinct
roles. But collectively they contribute
to the superior TSR we’re committed
to deliver. As our portfolio continues to
evolve – and it will – that commitment
will remain at the center of our thinking.
VF Corporation | 2017 Annual Report Strategic Choices
Strategic Choices
VF Corporation | 2017 Annual Report
8
8
2TRANSFORM OUR
BUSINESS MODEL
As consumer preferences evolve, we
position ourselves closer to where our
consumers are. Often that requires us
to pivot in how we think and act, so
we can adapt with greater speed and
agility to changing market conditions.
It’s all part of an ongoing journey that
starts with putting consumers at the
center of everything we do.
We look at all aspects of how we operate
our business through this consumer-
centric lens. That includes how we design
and merchandise our products, how we
bring meaningful experiences into our
retail environments, how we organize
our supply chain and distribution
platforms, how we train and develop our
3
ELEVATE DIRECT-TO-CONSUMER,
PRIORITIZE DIGITAL
During the past five years, our brick-
and-mortar and digital platforms have
grown to represent 32 percent of our
total revenue. By 2021 we expect these
platforms to contribute more than half
of our total growth.
people and how we behave as a socially
This is a meaningful global market
responsible company.
From the design studio to the
manufacturing floor to the point of sale,
we’re looking to run our business in a
more vertical fashion. This includes an
opportunity, and we will continue to use
our stores and our digital environments to
represent the pinnacle expression of our
brands. Our goal? Create an even stronger
emotional connection with our consumers.
increasing emphasis on our growing
As we look toward 2021, we expect
online sales presence. By adopting best-
digital to increase from 7 percent of our
in-class practices from across and outside
total revenue to 13 percent, contributing
our industry, we will shorten our go-
more than $1 billion of our growth in the
to-market calendars and increase our
next five years. That’s why we’re placing
ability to quickly respond to consumer
special focus on elevating our digital
needs. It’s about being agile.
platforms, prioritizing digital marketing
and leveraging our consumer analytics
capabilities to better understand and meet
consumers where they are. By gathering
and analyzing insights about their specific
product needs and the type of experiences
they’re looking for, we will improve our
consumer touchpoints and address their
needs in exciting new ways.
9
Strategic Choices VF Corporation | 2017 Annual Report
4DISTORT TOWARD ASIA
Internationally, we’re seeing strong
growth in Europe and Asia. And we’re
accelerating our actions in these growing
regions – especially China – to unlock
opportunities for our brands.
Asia has been our fastest-growing
market for the past decade. In 2017, on an
organic basis1, our Asia business grew
5 percent, or 4 percent currency neutral,
and China grew 7 percent, or 8 percent
currency neutral. What’s more, as we’ve
grown, we’ve created a highly capable
team and a comprehensive operating
platform – assets that will serve us
well as we explore the vast potential
of this dynamic region.
As we look out over the next five years,
a number of market data points give us
confidence that our brands will continue to
see the kind of robust growth we’ve enjoyed
up to now. It’s widely acknowledged that
the Asian market is likely to contribute a
third of global GDP growth in the coming
years. China alone is expected to see
about 300 million new middle-class
consumers – close to the entire population
of the United States – enter its expanding
middle class. Our brands are uniquely
positioned to engage these consumers
and become part of their life experiences.
And, while Asia is our smallest regional
market in total revenue, it’s our largest
opportunity when it comes to the growth
of the local consumer and the potential
for our brands to connect with them in a
unique and powerful way.
2021 GLOBAL BUSINESS STRATEGY
DESIGN &
INNOVATION
DEMAND CREATION &
BRAND EXPERIENCE
INSIGHTS &
ANALYTICS
At VF, we are committed
Around the world,
For years, our sharp
to creating unique and
consumers are placing
focus on consumer insights
differentiated products that
even greater importance
has propelled our growth.
excite our consumers. Design
on engaging in activities
Today, we are relying
and product innovation are
that support their beliefs
more heavily on data
central to how we’ll compete
and lifestyles. It’s only by
and consumer analytics to
and win in our industry.
surpassing their expectations
advance our new business
We have an ever-present
that we can inspire them to
strategy. We’re committed
opportunity to make our
embrace and interact with
to establishing and
products accessible to a
our brands on a regular basis.
sustaining a best-in-class
diverse set of consumers,
That’s why we’re working
consumer and shopper
while creating new franchises
to amplify our success as a
insights practice to advance
that excite our core brand
retail- and consumer-centric
our understanding of our
consumer. Elevating our
organization that creates
consumers’ wants and
commitment to design and
powerful and authentic
needs. We know these
innovation is an essential
movements that connect
connections will lead
element of our commitment to
with consumers through
us to make more informed
continuously inspire consumers
a broad spectrum of demand-
decisions to advance
to engage with our brands.
creation tools.
the growth of our brands.
VF Corporation | 2017 Annual Report Capability Choices
12
RETAIL EXCELLENCE
DEMAND &
SUPPLY CHAIN AGILITY
TALENT
The global retail
Our pursuit of innovation
As a value-creating,
landscape continues to
doesn’t just live in the
purpose-driven company,
evolve, driven by the rise
apparel and footwear we
hiring, engaging and
of mobile technology and
create, but also in how we
retaining top talent are
the impact that it is having
create it. We’re connecting
crucial to executing our
on consumer behavior.
our global supply and
strategy. That’s why
At VF, we’re committed
demand chains to achieve
we’ve committed to be
to driving retail excellence
an integrated, end-to-end
the top employer of choice
by providing consumers
approach that improves
within our industry. We’re
with a seamless experience
speed to market, balances
backing that commitment
across all channels. Our goal
cost and fulfills our never-
up by doubling down on
is to continuously improve
ending obligation to source
our efforts to sustain
in-store and online shopping
products responsibly around
a performance-based
experiences, while giving
the world. In the process,
work environment that
our associates the tools to
we’ll give our innovation
celebrates authenticity,
deliver the highest levels
teams one more powerful
passion, diversity
of service that place our
resource that will make VF
and collaboration ...a
brands at the forefront of
quick and agile in satisfying
rallying point for our
consumers’ minds.
our consumers.
One VF culture.
13
Capability Choices VF Corporation | 2017 Annual Report
BOARD OF DIRECTORS‡
Steven E. Rendle 2,3*
Chairman, President &
Chief Executive Officer
Director since 2015, Age 58
Richard T. Carucci 1,2,3
Former President
Yum! Brands, Inc.
Louisville, Kentucky
Director since 2009, Age 60
Juliana L. Chugg 2,4,5
EVP, Chief Brands Officer
Mattel, Inc.
El Segundo, California
Director since 2009, Age 50
Mark S. Hoplamazian 3,5
President &
Chief Executive Officer
Hyatt Hotels Corporation
Chicago, Illinois
Director since 2015, Age 54
Robert J. Hurst 3,5
Managing Director
Crestview Partners LLC
New York, New York
Director since 1994, Age 72
Laura W. Lang 3,5
Managing Director
Narragansett Ventures, LLC
Delray Beach, Florida
Director since 2011, Age 62
W. Rodney McMullen 1,4
Chairman &
Chief Executive Officer
The Kroger Co.
Cincinnati, Ohio
Director since 2016, Age 57
Clarence Otis, Jr. 1,2,4
Former Chairman &
Chief Executive Officer
Darden Restaurants, Inc.
Orlando, Florida
Director since 2004, Age 61
Carol L. Roberts 1,3
Former Senior Vice President &
Chief Financial Officer
International Paper Company
Collierville, Tennessee
Director since 2017, Age 57
Benno Dorer 1,4
Chairman &
Chief Executive Officer
The Clorox Company
Oakland, California
Director since 2017, Age 53
W. Alan McCollough 2,4,5
Former Chairman of the Board
Circuit City Stores, Inc.
Richmond, Virginia
Director since 2000, Age 68
Lead Independent Director
Matthew J. Shattock 2,3,5
Chairman &
Chief Executive Officer
Beam Suntory Inc.
Chicago, Illinois
Director since 2013, Age 55
FROM LEFT TO RIGHT:
W. ALAN McCOLLOUGH
ROBERT J. HURST
JULIANA L. CHUGG
CLARENCE OTIS, JR.
MARK S. HOPLAMAZIAN
RICHARD T. CARUCCI
STEVEN E. RENDLE
MATTHEW J. SHATTOCK
LAURA W. LANG
BENNO DORER
CAROL L. ROBERTS
W. RODNEY McMULLEN
COMMITTEES OF THE BOARD:
1 AUDIT COMMITTEE
2 EXECUTIVE COMMITTEE
3 FINANCE COMMITTEE
4 NOMINATING AND GOVERNANCE COMMITTEE
5 TALENT AND COMPENSATION COMMITTEE
*EX OFFICIO MEMBER
‡as of December 31, 2017
VF Corporation | 2017 Annual Report Board of Directors
14
SENIOR LEADERSHIP TEAM‡
Steven E. Rendle
Chairman, President &
Chief Executive Officer
Thomas A. Glaser
Vice President & President,
Supply Chain
Laura C. Meagher
Vice President,
General Counsel & Secretary
Scott A. Roe
Vice President &
Chief Financial Officer
Anita Z. Graham
Vice President,
Chief Human Resources Officer
Aidan O’Meara
Group President,
VF International
FROM LEFT TO RIGHT:
SCOTT H. BAXTER
AIDAN O’MEARA
SCOTT A. DEITZ
ANITA Z. GRAHAM
KEVIN BAILEY
THOMAS A. GLASER
SCOTT A. ROE
STEVEN E. RENDLE
CURT HOLTZ
SANDRA HARRIS
DAVID WAGNER
LAURA C. MEAGHER
MARTINO SCABBIA GUERRINI
MARTIN S. SCHNEIDER
Kevin Bailey
Group President,
APAC
Scott H. Baxter
Group President,
Americas West
Scott A. Deitz
Vice President,
Public Affairs
Sandra Harris
Vice President,
Global Business Technology
Vice President &
Chief Information Officer
Effective January 1, 2018
Martino Scabbia Guerrini
Group President,
EMEA
Martin S. Schneider
Vice President &
Chief Information Officer
Retired December 31, 2017
Curt Holtz
Group President,
Americas East
David Wagner
Vice President,
Corporate Strategy
‡as of January 1, 2018
15
Senior Leadership Team VF Corporation | 2017 Annual Report
UNITED STATT TESAA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number: 1-5256
V. FVV . CORPORATION
(Exact name of registr
anrr
rr
t as specified in its charter)
(State or other jurisdiction of incorporarr tion or organiza
rr
tion)
Pennsylvania
23-1180120
(I.R.S. employo er identification number)
105 Corporate Center Boulevard
Greensboro, North Carolina 27408
s of principal executive offices)
(Addresrr
(336) 424-6000
(Registranrr
rr
’ elephone number, including ar
ea c
t’s t
rr
ode)
Common Stock, without par value, stated capital $.25 per share
New York Stock Exchange
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
(Name of each exchange on which regist
rr
rr
ered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES
NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES
NO
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.
YES
NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). YES
NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Smaller reporting company
Accelerated filer
Emerging growth company
(Do not check if a smaller reporting company)
Non-accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities and Exchange Act of
1934). YES
NO
The aggregate market value of Common Stock held by non-affiliates of V.F. Corporation on July 1, 2017, the last day of the registrant’s
second fiscal quarter, was approximately $18,323,000,000 based on the closing price of the shares on the New York Stock Exchange.
As of January 27, 2018, there were 396,690,429 shares of Common Stock of the registrant outstanding.
Documents Incorporated By Reference
Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 24, 2018 (Item 1 in Part I and Items
10, 11, 12, 13 and 14 in Part III), which definitive Proxy Statement shall be filed with the Securities and Exchange Commission within 120 days
after the end of the fiscal year to which this report relates.
This document (excluding exhibits) contains 97 pages.
The exhibit index begins on page 42.
PP
PART I
ITEM 1. BUSINESS.
V.F. Corporation, organized in 1899, is a global leader in the design,
production, procurement, marketing and distribution of branded
lifestyle apparel, footwear and related products. Unless the context
indicates otherwise, the terms “VF,” the "Company,” “we,” “us,”
and “our” used herein refer to V.F. Corporation and its consolidated
subsidiaries.
Excluding the 'Business Held-For-Sale' subsection, amounts and
percentages for all periods discussed below reflect the results of
operations and financial condition from VF’s continuing operations.
VF’s diverse portfolio of more than 30 brands meets consumer
needs across a broad spectrum of activities and lifestyles. Our
ability to connect with consumers, as diverse as our brand portfolio,
creates a unique platform for sustainable, long-term growth. Our
long-term growth strategy is focused on four drivers:
ll
•
• Reshape our portfolio. Investing in our brands to realize
their full potential, while ensuring the composition of our
portfolio positions us to win in evolving
market conditions;
Transform our model. Becoming consumer- and retail-
centric to meet and exceed consumers' needs across all
channels, and operate our business differently - from the
design studio to the factory floor to the point of sale - by
thinking and acting more like a vertical retailer;
Elevate direct-to-consumer.rr Investing in our direct-to-
consumer business to make it the pinnacle expression of
our brands, and prioritizing serving consumers through e-
commerce and digitally enabled transactions; and,
•
• Distort Asia. Accelerating our actions in Asia, especially
China, to unlock growth opportunities for our brands in this
fast-growing region.
VF is diversified across brands, product categories, channels of
distribution, geographies and consumer demographics. We own a
broad portfolio of brands in the outerwear, footwear, denim,
®, The North FacFF e®, Timberland®, WrWW angl
backpack, luggage, accessory and apparel categories. Our largest
brands are VansVV
er® and
Lee®. In connection with our acquisition of 100% of the outstanding
shares of Williamson-Dickie Mfg. Co. ("Williamson-Dickie") on
October 2, 2017, we acquired a portfolio of brands including
Dickies®, Workrit
e®, Kodiak®, TerrTT
arr ® and WallWW sll ®.
WW
rr
Our products are marketed to consumers shopping in specialty
stores, department stores, national chains, mass merchants and
our own direct-to-consumer operations, which include VF-
operated stores, concession retail stores and e-commerce sites.
Revenues from the direct-to-consumer business represented 32%
of VF’s total 2017 revenues. In addition to selling directly into
international markets, many of our brands sell products through
licensees, agents, distributors and independently-operated
partnership stores. In 2017, VF derived 65% of its revenues from
the Americas region, 24% from the Europe region and 11% from
the Asia-Pacific region.
To provide diversified products across multiple channels of
distribution in different geographic areas, we balance our own
manufacturing capabilities with sourcing of finished goods from
independent contractors. We utilize state-of-the-art technologies
for inventory replenishment that enable us to effectively and
efficiently get the right assortment of products that match
consumer demand.
For both management and internal financial reporting purposes,
VF is organized by groupings of businesses called “coalitions.” The
three coalitions are Outdoor & Action Sports, Jeanswear and
Imagewear, and represent our reportable segments for financial
reporting purposes. Coalition management has the responsibility
to build and operate their brands, with certain financial,
administrative and systems support and disciplines provided by
central functions within VF.
VF Corporation 2017 Form 10-K 1
The following table summarizes VF’s primary owned and licensed brands by coalition:
COALITION
PRIMARY BRANDS
PRIMARY PRODUCTS
Outdoor &
Action Sports
VansVV
®
The North FacFF e®
Timberland®
Kipling®
Napapijri®
Smartwool®
JanSport®
Eastpak®
Reef®ff
Eagle Creekrr
®
Jeanswear
Imagewear
WrWW angl
rr
er®
Lee®
Riders brr
y Lb
ee®
Rustler®
Rock & Republic®
Red Kap®
Bulwarkww
®
Horacrr e Small®
Dickies®
WW
Workrit
e®
Kodiak®
TerrTT
arr ®
WallWW sll ®
Youth culture/action sports-inspired footwear, apparel, ac
rr
cessories
High performance outdoor apparel, footwear, equipment, accessories
Outdoor lifestyle footwear, apparel, ac
rr
cessories
Handbags, luggage, backpacks, totes, accessories
Premium outdoor apparel, footwear, accessories
Performance-based merino wool socks, apparel, accessories
Backpacks, luggage
Backpacks, luggage
Surf-inspired footwear, apparel, ac
rr
cessories
Luggage, backpacks, travel accessories
Denim, casual apparel, footwear, accessories
Denim, casual apparel
Denim, casual apparel
Denim, casual apparel
Denim, casual apparel, accessories
Occupational apparel
Protective occupational apparel
Occupational apparel
Work and work-inspired lifestyle apparel and footwear
Protective occupational apparel
Protective work footwear and lifestyle footwear
Protective work footwear
Outdoor work and hunt apparel
Financial information regarding VF’s coalitions is included in Note R to the consolidated financial statements.
OUTDOOR & ACTION SPORTS COALITION
Our Outdoor & Action Sports coalition is a group of authentic
outdoor and activity-based lifestyle brands. Product offerings
footwear, equipment,
include performance-based apparel,
backpacks, luggage and accessories.
independent distributors, independently-operated partnership
stores, concession retail stores, over 200 VF-operated stores, on
brand websites with strategic digital partners and online at
www.thenorthface.com.
® is the largest brand in our Outdoor & Action Sports coalition.
VansVV
The VansVV
® brand offers performance and casual footwear and
apparel targeting younger consumers that sit at the center of action
sports, art, music and street fashion. VansVV
® products are available
globally through chain stores, specialty stores, independent
distributors and licensees, independently-operated partnership
stores, concession retail stores, more than 650 VF-owned stores,
on brand websites with strategic digital partners and online at
www.vans.com.
The North FacFF e® features performance-based apparel, outerwear,
sportswear and footwear for men, women and children. Its
equipment line includes tents, sleeping bags, backpacks and
accessories. Many of The North FacFF e® products are designed for
extreme winter sport activities,
such as high altitude
mountaineering, skiing, snowboarding and ice and rock climbing.
The North FacFF e® products are marketed globally, primarily through
specialty outdoor and premium sporting goods stores,
2 VF Corporation 2017 Form 10-K
The Timberland® brand offers outdoor,adventure-inspired lifestyle
footwear, apparel and accessories that combine performance
benefits and versatile styling for men, women and children. We
sell Timberland® products globally through chain, department and
licensees,
specialty
independently-operated partnership stores, concession retail
stores, over 250 VF-operated stores, on brand websites with
strategic digital partners and online at www.timberland.com.
independent distributors and
stores,
Kipling® branded handbags, luggage, backpacks, totes and
accessories are sold globally through department, specialty and
luggage stores,
independently-operated partnership stores,
independent distributors, concession retail stores, home shopping
television, 100 VF-operated stores, at www.kipling.com and on
brand websites with strategic digital partners.
The Napapijri® brand offers outdoor-inspired casual outerwear,
sportswear and accessories at a premium price. Products are
marketed to men, women and children in Europe, the Middle East,
Asia and Africa. Products are sold in department and specialty
shops, independently-operated partnership stores, concession
retail stores, independent distributors as well as 30 VF-operated
stores and online at www.napapijri.com and on brand websites with
strategic digital partners.
The Smartwool® brand offers active outdoor consumers a
premium, technical layering system of merino wool socks, apparel
and accessories that are designed to work together in fit, form and
function. Smartwool® products are sold globally through premium
outdoor and specialty retailers, global distributors, on brand
websites with strategic digital partners and online at
www.smartwool.com.
JanSport® backpacks and accessories are sold in North America,
South America and Asia through department, office supply and
chain stores, as well as sports specialty stores, college bookstores
and independent distributors. JanSport® products are also sold
online at www.jansport.com.
Eastpak® backpacks, travel bags and luggage are sold globally,
primarily through department and specialty stores and online at
www.eastpak.com and on brand websites with strategic digital
partners. Eastpak® products are also marketed throughout Asia by
distributors.
The Reef®ff brand of surf-inspired products includes sandals, shoes,
swimwear, casual apparel and accessories for men, women and
children. Products are sold globally through specialty shops,
sporting goods chains, department stores and independent
distributors. Products are also sold on brand websites with
strategic digital partners and online at www.reef.com.
Eagle Creekrr
® adventure travel gear products include luggage,
backpacks and accessories sold through specialty luggage,
outdoor and department stores primarily in North America and
Europe, on brand websites with strategic digital partners and
online at www.eaglecreek.com.
We expect continued long-term growth in our Outdoor & Action
Sports coalition as we focus on product innovation, extend our
brands into new product categories, open additional VF-owned
stores, expand wholesale partnerships, develop geographically
and acquire additional brands.
JEANSWEAR COALITION
Our Jeanswear coalition markets denim and related casual apparel
products globally.
rr
The WrWW angl
er® brand offers denim, apparel, accessories and
footwear through mass merchants, specialty stores and mid-tier
and traditional department stores in the U.S., VF-operated stores
and online at www.wrangler.com. WrWW angl
er® westernwear is
distributed primarily through western specialty stores, as well as
various online retail sites.
rr
Lee® brand products are sold through mid-tier and traditional
department stores in the U.S., and online at www.lee.com. The
Rustler® and Ridersrr ® by b Lee® brands are marketed to mass
merchant and regional discount stores in the U.S. Our Rock &
Republic® brand has an exclusive wholesale distribution and
licensing arrangement with Kohl’s Corporation that covers
all branded apparel, accessories and other merchandise
in
the U.S.
rr
rr
er® and Lee® products outside of the U.S. are positioned as
WrWW angl
higher fashion and have higher selling prices. VF’s largest
international jeanswear businesses are located in Europe and Asia,
where WrWW angl
er® and Lee® products are sold through department,
specialty and concession retail stores, independently-operated
partnership stores, online at www.wrangler.com and www.lee.com
and on brand websites with strategic digital accounts. We also
market WrWW angl
er® and Lee® products to mass merchant,
department and specialty stores in Canada and Mexico, as well as
to department and specialty stores in South America. In addition,
rr
IMAGEWEAR COALITION
Our Imagewear coalition consists of occupational workwear
apparel, footwear and uniforms sold through direct-to-consumer,
wholesale and business-to-business ("BTB") channels. On
October 2, 2017, VF completed the acquisition of Williamson-
Dickie, which includes the Dickies®, Workrit
arr ® and
WallWW sll ® brands.
e®, Kodiak®, TerrTT
WW
we currently have more than 70 VF-operated stores primarily
located in Europe, Asia and South America which are an important
vehicle for representing our brands' image and marketing
message directly to consumers. In international markets where VF
er® and Lee® products are
does not have retail operations, WrWW angl
marketed through distributors, agents, licensees and single-brand
or multi-brand partnership stores.
rr
Our world-class supply chain, including owned manufacturing
facilities, coupled with advanced vendor-managed inventory and
retail floor space management programs with many of our major
retailer customers, gives us a competitive advantage in our U.S.
jeanswear business. We receive periodic point-of-sale information
from these customers, at the individual store and style-size-color
stock keeping unit level. We then ship products based on that
customer data to ensure their selling floors are appropriately
stocked with products that match their shoppers’ needs. Our
system capabilities allow us to analyze our retail customers’ sales,
demographic and geographic data to develop product assortment
recommendations that maximize the productivity of their
jeanswear selling space and optimize their inventory investment.
We intend to drive growth through superior product innovation,
consumer insight and marketing strategies. Growth in the U.S.
includes opportunities within mass merchant, mid-tier and
traditional department stores and western specialty businesses.
International growth will be driven by expansion of our existing
businesses in Asia, Latin America and key European markets.
The Imagewear coalition provides uniforms and career
occupational apparel
for workers in North America and
internationally, under the Dickies® and Red Kap® brands (work
apparel and footwear), the Bulwarkww
e® brands (flame
resistant and protective apparel primarily for the petrochemical,
utility and mining industries), the WallWW sll ® brand (outdoor workwear),
WW
® and Workrit
VF Corporation 2017 Form 10-K 3
the Kodiak® brand (work and lifestyle footwear), the TerrTT
arr ® brand
(work footwear) and the Horacrr e Small® brand (apparel for law
enforcement and public safety personnel). Products include a wide
range of workwear pants, coveralls, shirts, medical scrubs,
outerwear, footwear and accessories. Imagewear revenues are
influenced by the general level of business activity in each market.
Imagewear BTB channels include
industrial laundries and
distributors who in turn supply customized workwear to employers
for production, service and white-collar personnel. Since industrial
laundries and distributors maintain minimal inventories of work
clothes, VF’s ability to offer rapid delivery of products in a broad
range of sizes is an important advantage in this market. Our
commitment to customer service, supported by an automated
central distribution center with several satellite locations, enables
customer orders to be filled within 24 hours of receipt. The Red
Kap®, Bulwarkww
e® brands have a strong
WW
presence in the reseller distributor market.
®, Dickies® and Workrit
The BTB business also develops and manages uniform programs
through custom-designed websites for major business customers
and governmental organizations. These websites provide the
employees of our customers with the convenience of shopping for
their work and career apparel via the internet.
Imagewear products are also available on a wholesale basis,
including product offerings at mass and specialty retailers, and a
direct-to-consumer basis through our e-commerce sites at
www.dickies.com, www.kodiakboots.com and www.walls.com and
over 75 VF-operated retail stores. The Dickies® brand, with a strong
workwear heritage, is a leader in this area with products that
address the workers needs on the job and work-inspiredrr
product
that allows the worker to stay involved with the brand while in a
non-traditional work-setting.
We believe there is a strategic opportunity for growth in our
Imagewear coalition in both existing and future markets and all
channels and geographies by introducing innovative products that
address workers’ desires for increased comfort and performance,
combined with our unique service model and increased presence
in the retail workwear market.
BUSINESS HELD-FOR-SALE
At December 30, 2017, the Nautica® brand business met the held-for-sale and discontinued operations accounting criteria. All disclosure
throughout Part I of this Form 10-K excludes the Nautica® brand business.
DIRECT-TO-CONSUMER OPERATIONS
Our direct-to-consumer business includes full-price stores, outlet
stores, e-commerce sites and concession retail locations. Direct-
to-consumer revenues were 32% of total VF revenues in 2017
compared with 29% in 2016.
Our full-price stores allow us to display a brand’s full line of
products with fixtures and imagery that support the brand’s
positioning and promise to consumers. These experiences provide
high visibility for our brands and products and enable us to stay
close to the needs and preferences of our consumers. The
complete and impactful presentation of products in our stores also
helps to increase sell-through of VF products at our wholesale
customers due to increased brand awareness, education and
visibility. VF-operated full-price stores generally provide gross
margins that are well above VF averages.
In addition, VF operates outlet stores in both premium outlet malls
and more traditional value-based locations. These outlet stores
carry merchandise that is specifically designed for sale in our outlet
inventory
stores and serve an important role in our overall
management and profitability by allowing VF to sell a significant
portion of excess, discontinued and out-of-season products at
better prices than otherwise available from outside parties, while
maintaining the integrity of our brands.
Our growing global direct-to-consumer operations included 1,518
stores at the end of 2017. We operate retail store locations for the
®, Timberland®, The North FacFF e®, Kipling®,
following brands: VansVV
er®. We also operate 80 VF
rr
Dickies®, Lee®, Napapijri® and WrWW angl
Outlet® stores in the U.S. that sell a broad selection of excess VF
products, as well as other non-VF products. Approximately 65% of
4 VF Corporation 2017 Form 10-K
VF-operated stores offer products at full price, and the remainder
are outlet locations. Approximately 60% of our stores are located
in the Americas region (55% in the U.S.), 25% in Europe and 15%
in the Asia-Pacific region. Additionally, we have approximately
1,100 concession retail stores located principally in Europe and
Asia.
E-commerce represented approximately 21% of our direct-to-
consumer business in 2017. We currently market the following
®, The North FacFF e®, Timberland®, Lee®, Kipling®,
brands online: VansVV
er®, Napapijri®, Smartwool®, JanSport®, Eastpak®, Eagle
WrWW angl
rr
Creekrr
®, Reef®ff , Dickies®, Kodiak® and WallWW sll ®. We continue to expand
our e-commerce initiatives by rolling out additional, country-
specific brand sites in Europe and Asia, which enhances our ability
to deliver a superior, localized consumer experience.
We expect our direct-to-consumer business to continue growing
at a faster pace than VF’s overall growth rate as we expand our e-
commerce presence and open new stores. We opened 111 stores
during 2017, concentrating on the brands with the highest retail
growth potential: VansVV
®, The North FacFF e® and Timberland®.
In addition to our direct-to-consumer operations, our licensees,
distributors and other independent parties own and operate over
3,000 partnership stores. These are primarily mono-brand retail
locations selling VF products that have the appearance of VF-
operated stores. Most of these partnership stores are located in
Europe and Asia, and are concentrated in the Timberland®, Lee®,
The North FacFF e®, VansVV
er®, Kipling® and Napapijri® brands.
rr
®, WrWW angl
LICENSING ARRANGEMENTS
As part of our strategy of expanding market penetration of VF-
licensing agreements with
into
owned brands, we enter
independent parties for specific apparel and complementary
product categories when such arrangements provide more
effective manufacturing, distribution and marketing than could be
achieved internally. We provide support to these business partners
and ensure the integrity of our brand names by taking an active
role in the design, quality control, advertising, marketing and
distribution of licensed products.
Licensing arrangements relate to a broad range of VF brands.
License agreements are for fixed terms of generally 3 to 5 years,
with conditional renewal options. Each licensee pays royalties to
VF based on its sales of licensed products, with most agreements
providing for a minimum royalty requirement. Royalties generally
range from 4% to 10% of the licensing partners’ net licensed
products sales. Royalty income was $75.5 million in 2017 (less than
®, Lee®, Timberland®
1% of total revenues), primarily from the VansVV
and WrWW angl
er® brands. In addition, licensees of our brands are
generally required to spend from 1% to 3% of their net licensed
product sales to advertise VF’s products. In some cases, these
advertising amounts are remitted to VF for advertising on behalf
of the licensees.
rr
MANUFACTURING, SOURCING AND DISTRIBUTION
Product design and innovation, including fit, fabric, finish and
quality, are important elements across our businesses. These
functions are performed by employees located in our global supply
chain organization and our branded business units across the
globe.
In addition to the design functions of each brand, VF has three
strategic global innovation centers that focus on technical and
performance product development for apparel, footwear and
jeanswear. The centers are staffed with dedicated scientists,
engineers and designers who combine proprietary insights with
consumer needs, and a deep understanding of technology and new
materials. These innovation centers are integral to VF’s long-term
growth as they allow us to deliver new products and experiences
that consistently delight consumers, which drives organic growth
and higher gross margins.
VF’s centralized global supply chain organization is responsible for
producing, procuring and delivering products to our customers. VF
is highly skilled in managing the complexities associated with our
global supply chain. VF sourced or produced approximately
473 million units spread across more than 30 brands. Our products
are obtained from 21 VF-operated manufacturing facilities and
approximately 1,000 contractor manufacturing facilities in over 50
countries. Additionally, we operate 38 distribution centers and
1,518 retail stores. Managing this complexity is made possible by
the use of a network of information systems for product
development, forecasting, order management and warehouse
management, along with our core enterprise resource
management platforms.
In 2017, 23% of our units were manufactured in VF-owned facilities
and 77% were obtained from independent contractors. Products
manufactured in VF facilities generally have a lower cost and
shorter lead times than products procured from independent
contractors. Products obtained from contractors in the Western
Hemisphere generally have a higher cost than products obtained
from contractors in Asia. However, contracting in the Western
Hemisphere gives us greater flexibility, shorter lead times and
allows for lower inventory levels. This combination of VF-owned
and contracted production, along with different geographic regions
and cost structures, provides a well-balanced, flexible approach to
product sourcing. We will continue to manage our supply chain
from a global perspective and adjust as needed to changes in the
global production environment.
VF operates manufacturing facilities in the U.S., Mexico, Central
America and the Caribbean. A significant percentage of denim
bottoms and occupational apparel is manufactured in these plants,
as well as a smaller percentage of footwear and other products.
For these owned production facilities, we purchase raw materials
from numerous U.S. and international suppliers to meet our
production needs. Raw materials include products made from
cotton, leather, rubber, wool, synthetics and blends of cotton and
synthetic yarn, as well as thread and trim (product identification,
buttons, zippers, snaps, eyelets and laces). In some instances, we
contract the sewing of VF-owned raw materials into finished
product with independent contractors. Fixed price commitments
for fabric and certain supplies are generally set on a quarterly basis
for the next quarter’s purchases. No single supplier represents
more than 10% of our total cost of goods sold.
Independent contractors generally own the raw materials and ship
finished, ready-for-sale products to VF. These contractors are
engaged through VF sourcing hubs in Hong Kong (with satellite
offices across Asia) and Panama. These hubs are responsible for
managing the manufacturing and procurement of product,
supplier oversight, product quality assurance, sustainability within
the supply chain, responsible sourcing and transportation and
shipping functions. In addition, our hubs leverage proprietary
knowledge and technology to enable certain contractors to more
effectively control costs and improve labor efficiency. Substantially
all products in the Outdoor & Action Sports coalition, as well as a
portion of products for our Jeanswear and Imagewear coalitions,
are obtained through these sourcing hubs.
risks
political
continually monitors
Management
and
developments related to duties, tariffs and quotas. We limit VF’s
sourcing exposure through, among other measures: (i) diversifying
geographies with a mix of VF-operated and contracted production,
(ii) shifting of production among countries and contractors,
(iii) sourcing production to merchandise categories where product
is readily available and (iv) sourcing from countries with tariff
preference and free trade agreements. VF does not directly or
indirectly source products from suppliers in countries that are
prohibited by the U.S. State Department.
All VF-operated production facilities throughout the world, as well
as all independent contractor facilities that manufacture VF
products, must comply with VF’s Global Compliance Principles.
These principles, established
in 1997 and consistent with
international labor standards, are a set of strict standards covering
legal and ethical business practices, worker age, work hours,
health and safety conditions, environmental standards and
compliance with local laws and regulations. In addition, our owned
VF Corporation 2017 Form 10-K 5
factories must also undergo certification by the independent,
nonprofit organization, Worldwide Responsible Accredited
Production
in
(“WRAP”), which promotes global
manufacturing.
ethics
VF, through its contractor monitoring program, audits the activities
of the independent businesses and contractors that produce VF
products at locations across the globe. Each of the approximately
1,000 independent contractor facilities, including those serving our
independent licensees, must be pre-certified before producing VF
products. This pre-certification includes passing a factory
inspection and signing a VF Terms of Engagement agreement. We
maintain an ongoing audit program to ensure compliance with
these requirements by using dedicated internal staff and externally
contracted firms. Additional
information about VF’s Code of
Business Conduct, Global Compliance Principles, Terms of
Engagement and Environmental Compliance Guidelines, along
with a Global Compliance Report, is available on the VF website at
www.vfc.com.
SEASONALITY
VF did not experience difficulty in fulfilling its raw material and
contracting production needs during 2017. Absent any material
changes, VF believes it would be able to largely offset any increases
in product costs through (i) the continuing shift in the mix of its
business to higher margin brands, geographies and channels of
distribution, (ii) increases in the prices of its products and (iii) cost
reduction efforts. The loss of any one supplier or contractor would
not have a significant adverse effect on our business.
Product is shipped from our independent suppliers and VF-
operated manufacturing facilities to distribution centers around
the world. In some instances, product is shipped directly to our
customers. Most distribution centers are operated by VF, and some
support more than one brand. A portion of our distribution needs
are met by contract distribution centers.
VF’s quarterly operating results vary due to the seasonality of our
individual businesses, and are historically stronger in the second
half of the year. On a quarterly basis in 2017, revenues ranged from
a low of 19% of full year revenues in the second quarter to a high
of 31% in the fourth quarter, while operating margin ranged from
a low of 7% in the second quarter to a high of 17% in the third
quarter. This variation results primarily from the seasonal
influences on revenues of our Outdoor & Action Sports coalition,
where 18% of the coalition’s revenues occurred in the second
quarter compared to 30% in the fourth quarter of 2017. With
changes in our mix of business and the growth of our retail
operations, historical quarterly revenue and profit trends may not
be indicative of future trends.
Working capital requirements vary throughout the year. Working
capital increases early in the year as inventory builds to support
peak shipping periods and then moderates later in the year as those
inventories are sold and accounts receivable are collected. Cash
provided by operating activities is substantially higher in the second
half of the year due to higher net income during that period and
reduced working capital requirements, particularly during the
fourth quarter.
ADVERTISING, CUSTOMER SUPPORT AND COMMUNITY OUTREACH
Fund™FF
In addition to sponsorships and activities that directly benefit our
products and brands, VF and its associates actively support our
communities and various charities. For example, The North
FacFF e® brand has committed to programs that encourage and
rr
enable outdoor participation, such as The North FacFF e Enduranc
e
Challenge® and The North FacFF e Explore rr
programs.
The Timberland® brand has a strong heritage of volunteerism,
including the PaPP th of Service™ program that offers full-time
employees up to 40 hours of paid time off a year to serve their local
communities through global service events such as Earth Day in
the spring and Serv-a-palooza in the fall. The WrWW angl
er® brand
Enough to Wear WW Pink™ program, which honors
launched the Tough
and raises money for breast cancer survivors, and the National
PaPP triot Progr
, which funds agencies that serve wounded and
fallen American military veterans and their families. The VansVV
®
brand has hosted annual VansVV
® Gives Back
Day events in which all employees at brand headquarters spend
the day volunteering in the community.
® Earth Day and VansVV
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During 2017, our advertising and promotion expense was $715.9
million, representing 6% of total revenues. We advertise in
consumer and trade publications, on radio and television and
through digital initiatives including social media and mobile
platforms on the Internet. We also participate in cooperative
advertising on a shared cost basis with major retailers in print and
digital media, radio and television. We sponsor sporting, musical
and special events, as well as athletes and personalities who
promote our products. We employ marketing sciences to optimize
the impact of advertising and promotional spending, and to identify
the types of spending that provide the greatest return on our
marketing investments.
We provide advertising support to our wholesale customers in the
form of point-of-sale fixtures and signage to enhance the
presentation and brand image of our products. We also participate
in shop-in-shops and concession retail arrangements, which are
separate sales areas dedicated to a specific VF brand within our
customers’ stores, to help differentiate and enhance the
presentation of our products.
incentive programs with our wholesale
We contribute to
customers, including cooperative advertising funds, discounts and
allowances. We also offer sales incentive programs directly to
consumers in the form of rebate and coupon offers.
6 VF Corporation 2017 Form 10-K
SUSTAINABILITY
VF is one of the world’s largest apparel, footwear and accessories
manufacturers, and our global scale is significant. Equally
significant is the responsibility we have to make an impact on the
industry and our planet in advancing sustainable business. VF has
set goals and made commitments to achieve significant progress
in several different key areas of sustainability in an effort to
accomplish this.
Dedication to continued sustainability progress is particularly
focused in the realm of VF product materials. In 2017, VF set a goal
of sourcing 50% recycled nylon and polyester for products by 2025,
with a targeted 35% reduction in negative impact of key materials.
This follows the issuance of a pledge to no longer allow the use of
fur in any of our products, in support of newly released Animal
Derived Materials & Forest Derived Materials policies.
VF is also dedicated to bringing about progress at our locations of
operation, both within our owned portfolio and our external supply
chain. In 2017, VF committed to measurably improve the lives of
one million supply chain workers and others within their
community, by 2030. Progress continues to be made toward the
goals set for our internal facilities that include (i) the sourcing of
100% of our electricity from renewable sources within our owned
and operated facilities by 2025, in line with our commitment to
RE100, and (ii) achieving Zero Waste at 100% of our internal
distribution center locations by 2020, which currently stands at
almost 50% completion with 17 facilities already certified.
OTHER MATTERS
Competitive Factors
Our business depends on our ability to stimulate consumer
demand for VF’s brands and products. VF is well-positioned to
compete in the apparel, footwear and accessories sector by
developing high quality, innovative products at competitive prices
that meet consumer needs, providing high service levels, ensuring
the right products are on the retail sales floor to meet consumer
demand, investing significant amounts into existing brands and
managing our brand portfolio
through acquisitions and
dispositions. Many of VF’s brands have long histories and enjoy
strong recognition within their respective consumer segments.
Intellectual Property
Trademarks, trade names, patents and domain names, as well as
related logos, designs and graphics, provide substantial value in
the development and marketing of VF’s products, and are important
to our continued success. We have registered this intellectual
property in the U.S. and in other countries where our products are
manufactured and/or sold. We vigorously monitor and enforce VF’s
infringement and
intellectual property against counterfeiting,
violations of other rights where and to the extent legal, feasible
and appropriate. In addition, we grant licenses to other parties to
manufacture and sell products utilizing our intellectual property
in product categories and geographic areas in which VF does not
operate.
Customers
VF products are sold on a wholesale basis to specialty stores, mid-
tier and traditional department stores, national chains and mass
The VF brands are equally committed to sustainability action in
their sectors. In 2017, VansVV
® opened its new LEED platinum
headquarters building operating with 50% renewable energy. This
brings the total count of LEED certified VF buildings in the U.S. up
to 11. The Timberland® brand also announced a commitment in
2017 to source 100% of leather from LWG silver or gold rated
tanneries by 2021. WrWW angl
er® launched a new initiative in 2017,
working with farmers and youth interested in farming, focused on
the implementation of climate beneficial land use practices and
the preservation of soil health.
rr
VF’s large global presence necessitates a comprehensive approach
to managing our impacts. The work that has been done to date has
allowed us to make great strides in promoting the responsible
stewardship of our scale. Success in this area has demonstrated
that the VF scale is not something that simply needs to be managed
for impact, but can also be used for good to create significant value.
ff
ff
Change strategy will
Our new Sustainability & Responsibility strategy, Made for
Change, launched in 2017, targets areas where we seek to drive
transformational change to create this value in the future. The
Made for
focus on investigating and
implementing new circular and sustainable business models that
harness retail opportunities
in new sectors, scaling our
foundational social and environmental programs to lead the
industry toward greater progress at a faster rate, and empowering
our brands, associates, and consumers to act with purpose and
impact with intention, wherever they may be.
merchants. In addition, we sell products on a direct-to-consumer
basis through VF-operated stores, concession retail stores and e-
commerce sites. Our sales in international markets are growing
and represented 41% of our total revenues in 2017, the majority of
which were in Europe.
Sales to VF’s ten largest customers, all of which are retailers based
in the U.S., amounted to 19% of total revenues in 2017, 21% in 2016
and 22% in 2015. Sales to the five largest customers amounted to
approximately 15% of total revenues in 2017 and 16% in both 2016
and 2015. Sales to VF’s largest customer totaled 8% of total
revenues in 2017 and 9% in both 2016 and 2015, the majority of
which were derived from the Jeanswear coalition.
Employees
VF had approximately 69,000 employees at the end of 2017, of which
approximately 31,000 were located in the U.S. In international
markets, a significant percentage of employees are covered by
trade-sponsored or governmental bargaining arrangements.
Employee relations are considered to be good.
Backlog
The dollar amount of VF’s order backlog as of any date may not be
indicative of actual future shipments and, accordingly, is not
material to an understanding of the business taken as a whole.
VF Corporation 2017 Form 10-K 7
EXECUTIVE OFFICERS OF VF
The following are the executive officers of VF Corporation as of
February 28, 2018. The executive officers are generally elected
annually and serve at the pleasure of the Board of Directors. None
of
the VF Corporation executive officers have any family
relationship with one another or with any of the directors of VF
Corporation.
2013 until March 2016, Vice President and Group President —
Jeanswear Americas and Imagewear from 2011 until May 2013,
President of Imagewear, composed of both the Image and VF's
former Licensed Sports Group businesses, from 2008 to 2011 and
President of VF's former Licensed Sports Group business from
2007 to 2008. Mr. Baxter joined VF in 2007.
Steven
E. Rendle, 58, has been Executive Chairman of the Board
vv
since November 2017, President and Chief Executive Officer of VF
since January 2017 and a Director of VF since June 2015. Mr. Rendle
served as President and Chief Operating Officer from June 2015 to
December 2016, Senior Vice President — Americas from April 2014
until June 2015, Vice President and Group President — Outdoor &
Action Sports Americas from May 2011 until April 2014, President
of VF’s Outdoor Americas businesses from 2009 to 2011, President
of The North FacFF e® brand from 2004 to 2009 and Vice President of
Sales of The North FacFF e® brand from 1999 to 2004. Mr. Rendle joined
VF in 1999.
Scott A. Roe, 53, has been Vice President and Chief Financial Officer
of VF since April 2015. He served as Vice President — Controller
and Chief Accounting Officer of VF from February 2013 until March
2015, Vice President — Finance of VF from 2012 to 2013, Vice
President — Chief Financial Officer of VF International from 2006
to 2012 and Vice President — Chief Financial Officer of VF’s former
intimate apparel business from 2002 to 2006. Mr. Roe joined VF in
1996.
KeKK vin D. Baileye , 57, has been Group President — APAC since
January 2018. He served as President, APAC from January 2017
until December 2017, President Action Sports & VF CASA from
March 2016 to December 2016, President Action Sports & the VansVV
®
brand from April 2014 to February 2016, Global President of the
® brand from June 2009 to March 2014 and Vice President
VansVV
® brand from June 2002 to
Direct-to-Consumer for the VansVV
November 2007. Mr. Bailey joined VF in 2004.
Scott H. Baxter, 53, has been Group President — Americas West
since January 2018. He served as Vice President and Group
President — Outdoor & Action Sports Americas from March 2016
until December 2017, Vice President and Group President —
Jeanswear Americas, Imagewear and South America from May
Martino Scabbia Guerrini, 53, has been Group President — EMEA
since January 2018. He served as President — VF EMEA from April
2017 until December 2017, Coalition President — Jeanswear,
Sportswear and Contemporary International from January 2013 to
November 2017, President — Sportswear and Contemporary
EMEA from February 2009 to December 2012 and President —
Sportswear and Packs from August 2006 to January 2009. Mr.
Guerrini joined VF in 2006.
Curtis A. Holtz, 55, has been Group President — Americas East
since January 2018. He served as Group President — Workwear,
Jeans and Sportswear from January 2017 until December 2017,
President — Imagewear from July 2015 to December 2016, Chief
Financial Officer of VF Imagewear and International from 2010 to
2015 and President — VF’s former intimate apparel business from
2005 to 2007. Mr. Holtz joined VF in 1990.
H. McNeill, 56, has been Vice President — Controller and
Bryr anyy
Chief Accounting Officer since April 2015. He served as Controller
and Supply Chain Chief Financial Officer of VF International from
January 2012 until March 2015 and Controller of VF International
from May 2010 until December 2011. Mr. McNeill joined VF in 1993.
Laurarr C. Meagher, 57, has been Vice President, General Counsel
and Secretary since 2012. She served as Vice President — Deputy
General Counsel from 2008 to 2012 and Assistant General Counsel
from 2004 to 2008. Ms. Meagher joined VF in 2004.
Additional information is included under the caption “Election of
Directors” in VF’s definitive Proxy Statement for the Annual Meeting
of Shareholders to be held April 24, 2018 (“2018 Proxy Statement”)
that will be filed with the Securities and Exchange Commission
within 120 days after the close of our fiscal year ended
December 30, 2017, which information is incorporated herein by
reference.
AVAILABLE INFORMATION
All periodic and current reports, registration statements and other
filings that VF has filed or furnished to the Securities and Exchange
Commission (“SEC”), including our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to
Section 13(a) of the Exchange Act, are available free of charge from
the SEC’s website (www.sec.gov) and public reference room at 100
F Street, NE, Washington, DC 20549 and on VF’s website at
www.vfc.com. Such documents are available as soon as reasonably
practicable after electronic filing of the material with the SEC.
Information on the operation of the public reference room can be
obtained by calling the SEC at 1-800-SEC-0330. Copies of these
reports may also be obtained free of charge upon written request
to the Secretary of VF Corporation, P.O. Box 21488, Greensboro,
NC 27420.
The following corporate governance documents can be accessed
on VF’s website: VF’s Corporate Governance Principles, Code of
Business Conduct, and the charters of our Audit Committee,
Compensation Committee, Finance Committee and Nominating
and Governance Committee. Copies of these documents also may
be obtained by any shareholder free of charge upon written request
to the Secretary of VF Corporation, P.O. Box 21488, Greensboro,
NC 27420.
After VF’s 2018 Annual Meeting of Shareholders, VF intends to file
with the New York Stock Exchange (“NYSE”) the certification
regarding VF’s compliance with the NYSE’s corporate governance
listing standards as required by NYSE Rule 303A.12. Last year, VF
filed this certification with the NYSE on May 12, 2017.
8 VF Corporation 2017 Form 10-K
ITEM 1A. RISK FACFF TORS.
The following risk factors should be read carefully in connection
with evaluating VF’s business and the forward-looking statements
contained in this Form 10-K. Any of the following risks could
materially adversely affect VF’s business, its operating results and
its financial condition.
and prorr fitstt depend on the level vv of consumer spending
VF’s’ rerr venues
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for
to global economic
twearww , rr which is sensitive vv
apparelrr
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conditions and other factors. rr A decline in consumer spending could
on VF.FF
have vv a material advervv se
and fooff
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effect
rr
The success of VF’s business depends on consumer spending on
apparel and footwear, and there are a number of factors that
influence consumer spending, including actual and perceived
economic conditions, disposable consumer income, interest rates,
consumer credit availability, unemployment, stock market
performance, weather conditions, energy prices, consumer
discretionary spending patterns and tax rates in the international,
national, regional and local markets where VF’s products are sold.
The current global economic environment is unpredictable, and
adverse economic trends or other factors could negatively impact
the level of consumer spending, which could have a material
adverse impact on VF.
VF’s’ result
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unable to accurarr tely l
stt of operarr tions could be materially l harmed if weww are rr
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demand for
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forff ecast
s.tt
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There can be no assurance that we will be able to successfully
anticipate changing consumer preferences and product trends or
economic conditions, and, as a result, we may not successfully
manage inventory levels to meet our future order requirements.
We often schedule internal production and place orders for
products with independent manufacturers before our customers’
orders are firm. If we fail to accurately forecast consumer demand,
we may experience excess inventory levels or a shortage of product
Inventory levels in excess of
required to meet the demand.
consumer demand may result in inventory write-downs, the sale
of excess inventory at discounted prices or excess inventory held
by our wholesale customers, which could have a negative impact
on future sales, an adverse effect on the image and reputation of
VF’s brands and negatively impact profitability. On the other hand,
if we underestimate demand for our products, our manufacturing
facilities or third-party manufacturers may not be able to produce
products to meet consumer requirements, and this could result in
delays in the shipment of products and lost revenues, as well as
damage to VF’s reputation and relationships. These risks could
have a material adverse effect on our brand image as well as our
results of operations and financial condition.
The apparelrr and fooff
successss depends on itstt ability to gauge consumer prerr ferff enc
product
industries are rr highly l competitive, vv and VF’s’
es and
to constantly l changing marketkk s.tt
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and to respond
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trends,
ww
twear
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VF competes with numerous apparel and footwear brands and
manufacturers. Competition is generally based upon brand name
recognition, price, design, product quality, selection, service and
purchasing convenience. Some of our competitors are larger and
have more resources than VF in some product categories and
regions. In addition, VF competes directly with the private label
brands of its wholesale customers. VF’s ability to compete within
the apparel and footwear industries depends on our ability to:
• Anticipate and respond to changing consumer preferences
and product trends in a timely manner;
• Develop attractive, innovative and high quality products that
meet consumer needs;
• Maintain strong brand recognition;
• Price products appropriately;
• Provide best-in-class marketing support and intelligence;
•
Ensure product availability and optimize supply chain
efficiencies;
• Obtain sufficient retail store space and effectively present
our products at retail; and
• Produce or procure quality products on a consistent basis.
Failure to compete effectively or to keep pace with rapidly changing
consumer preferences, markets and product trends could have a
material adverse effect on VF’s business, financial condition and
results of operations. Moreover, there are significant shifts
underway in the wholesale and retail (e-commerce and retail store)
channels. VF may not be able to manage its brands within and
across channels sufficiently, which could have a material adverse
effect on VF’s business, financial condition and results of
operations.
VF’s’ businessss and the successss of itstt product
is unable to maintain the images of itstt brands.
rr
rr
stt could be harmed if VF
VF’s success to date has been due in large part to the growth of its
brands’ images and VF’s customers’ connection to its brands. If we
are unable to timely and appropriately respond to changing
consumer demand, the names and images of our brands may be
impaired. Even if we react appropriately to changes in consumer
preferences, consumers may consider our brands’ images to be
outdated or associate our brands with styles that are no longer
popular. In addition, brand value is based in part on consumer
perceptions on a variety of qualities, including merchandise quality
and corporate integrity. Negative claims or publicity regarding VF,
its brands or its products, including licensed products, could
adversely affect our reputation and sales regardless of whether
such claims are accurate. Social media, which accelerates the
dissemination of information, can increase the challenges of
responding to negative claims.
In the past, many apparel
companies have experienced periods of rapid growth in sales and
earnings followed by periods of declining sales and losses. Our
businesses may be similarly affected in the future. In addition, we
have sponsorship contracts with a number of athletes, musicians
and celebrities and feature those individuals in our advertising and
marketing efforts. Actions taken by those individuals associated
with our products could harm their reputations, which could
adversely affect the images of our brands.
vv
VF’s’ rerr venues
nature rr of itstt business.ss
rr
and cash requir
emen
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tstt are rr affect
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ed by b the seasonal
VF’s business is increasingly seasonal, with a higher proportion of
revenues and operating cash flows generated during the second
half of the fiscal year, which includes the fall and holiday selling
seasons. Poor sales in the second half of the fiscal year would have
a material adverse effect on VF’s full year operating results and
cause higher inventories. In addition, fluctuations in sales and
operating income in any fiscal quarter are affected by the timing
of seasonal wholesale shipments and other events affecting retail
sales.
VF Corporation 2017 Form 10-K 9
VF’s’ prorr fitability may decline as a result
rr
margins.
rr
rr
of increasing
ss
presrr
sur
e rr on
factors,
including
The apparel industry is subject to significant pricing pressure
intense competition,
caused by many
consolidation in the retail industry, pressure from retailers to
reduce the costs of products and changes in consumer demand. If
these factors cause us to reduce our sales prices to retailers and
consumers, and we fail to sufficiently reduce our product costs or
operating expenses, VF’s profitability will decline. This could have
a material adverse effect on VF’s results of operations, liquidity and
financial condition.
VF may not succeed in itstt businessss strarr tegy.yy
One of VF’s key strategic objectives is growth. We seek to grow
organically and through acquisitions. We seek to grow by building
our lifestyle brands, expanding our share with winning customers,
stretching VF’s brands to new regions, managing costs, leveraging
our supply chain and information technology capabilities across VF
and expanding our direct-to-consumer business,
including
opening new stores, remodeling and expanding our existing stores
and growing our e-commerce business. However, we may not be
able to grow our existing businesses. For example:
• We may have difficulty completing acquisitions or
dispositions to reshape our portfolio, and we may not be
able to successfully integrate a newly acquired business or
achieve the expected growth, cost savings or synergies from
such integration.
• We may not be able to transform our model to be more
consumer- and retail-centric
• We may not be able to expand our market share with winning
customers, or our wholesale customers may encounter
financial difficulties and thus reduce their purchases of VF
products.
• We may not be able to expand our brands in Asia or other
geographies or achieve the expected results from our supply
chain initiatives.
• We may have difficulty recruiting, developing or retaining
qualified employees.
• We may not be able to achieve our direct-to-consumer
expansion goals, manage
effectively,
successfully integrate the planned new stores into our
operations or operate our new, remodeled and expanded
stores profitably.
our growth
Failure to implement our strategic objectives may have a material
adverse effect on VF’s business.
significantly l on informa
VF relies
tion technology. yy Any inadequacy, yy
rr
interruption, integrarr tion failure rr or security failure rr of this technology
could harm VF’s ’ ability to effectiv
elvv y l operarr te itstt business.ss
ff
ff
Our ability to effectively manage and operate our business depends
significantly on information technology systems. We rely heavily on
information technology to track sales and inventory and manage
our supply chain. We are also dependent on
information
technology, including the Internet, for our direct-to-consumer
sales, including our e-commerce operations and retail business
credit card transaction authorization. Despite our preventative
efforts, our systems and those of our third-party service providers
may be vulnerable to damage or interruption. The failure of these
systems to operate effectively, problems with transitioning to
upgraded or replacement systems, difficulty in integrating new
10 VF Corporation 2017 Form 10-K
systems or systems of acquired businesses or a breach in security
of these systems could adversely impact the operations of VF’s
business, including management of inventory, ordering and
retail
replenishment of products, e-commerce operations,
business credit card transaction authorization and processing,
corporate email communications and our interaction with the
public on social media.
vv
VF is subject to data security and privacy
stt of operarr tions or reputa
itstt businessss operarr tions, result
ff
affect
risks that could negativelvv y l
tion.
rr
rr
In the normal course of business, we often collect, retain and
transmit certain sensitive and confidential customer information,
including credit card information, over public networks. There is a
significant concern by consumers and employees over the security
of personal information transmitted over the Internet, identity theft
and user privacy. Despite the security measures we currently have
in place, our facilities and systems and those of our third-party
service providers may be vulnerable to security breaches, and VF
and its customers could suffer harm if customer and other
proprietary information were accessed by third parties due to a
security failure in VF’s systems or one of our third-party service
providers. It could require significant expenditures to remediate
any such failure or breach, severely damage our reputation and
our relationships with customers, and expose us to risks of
litigation and liability. In addition, as a result of recent security
breaches at a number of prominent retailers, the media and public
scrutiny of information security and privacy has become more
intense and the regulatory environment has become more
uncertain. As a result, we may incur significant costs to comply
with laws regarding the protection and unauthorized disclosure of
personal information and we may not be able to comply with new
regulations such as the General Data Protection Regulation in the
European Union.
ee
VF’s’ businessss is exposed
rarr te fluctuations. VF’s’ hedging strarr tegies may not be effectiv
mitigating those risks.
to the risks of forff eign
rr
currency
exee change
e vv in
ff
xx
rr
A growing percentage of VF’s total revenues (approximately 41% in
2017) is derived from markets outside the U.S. VF’s international
businesses operate in functional currencies other than the U.S.
dollar. Changes in currency exchange rates affect the U.S. dollar
value of the foreign currency-denominated amounts at which VF’s
international businesses purchase products, incur costs or sell
products. In addition, for VF’s U.S.-based businesses, the majority
of products are sourced from independent contractors or VF plants
located in foreign countries. As a result, the costs of these products
are affected by changes in the value of the relevant currencies.
Furthermore, much of VF’s licensing revenue is derived from sales
in foreign currencies. Changes in foreign currency exchange rates
could have an adverse impact on VF’s financial condition, results
of operations and cash flows.
In accordance with our operating practices, we hedge a significant
portion of our foreign currency transaction exposures arising in
the ordinary course of business to reduce risks in our cash flows
and earnings. Our hedging strategy may not be effective in reducing
all risks, and no hedging strategy can completely insulate VF from
foreign exchange risk.
Further, our use of derivative financial instruments may expose VF
to counterparty risks. Although VF only enters into hedging
contracts with counterparties having investment grade credit
ratings, it is possible that the credit quality of a counterparty could
be downgraded or a counterparty could default on its obligations,
which could have a material adverse impact on VF’s financial
condition, results of operations and cash flows.
Thererr arerr risks associa
ss
ted with VF’s’ acquisitions.
Any acquisitions or mergers by VF will be accompanied by the risks
commonly encountered in acquisitions of companies. These risks
include, among other things, higher than anticipated acquisition
costs and expenses, the difficulty and expense of integrating the
operations, systems and personnel of the companies and the loss
of key employees and customers as a result of changes in
management. In addition, geographic distances may make
integration of acquired businesses more difficult. We may not be
successful in overcoming these risks or any other problems
encountered in connection with any acquisitions.
Our acquisitions may cause large one-time expenses or create
goodwill or other intangible assets that could result in significant
impairment charges in the future. We also make certain estimates
and assumptions in order to determine purchase price allocation
and estimate the fair value of assets acquired and liabilities
assumed. If our estimates or assumptions used to value these
assets and liabilities are not accurate, we may be exposed to losses
that may be material.
VF’s’ operarr tions and earnings may be affect
political and economic risks.
ff
ed by b legal, regula
rr
toryr , yy
Our ability to maintain the current level of operations in our existing
markets and to capitalize on growth in existing and new markets
is subject to legal, regulatory, political and economic risks. These
include the burdens of complying with U.S. and international laws
and regulations, unexpected changes in regulatory requirements,
tariffs or other trade barriers and the economic uncertainty
associated with the pending exit of the United Kingdom from the
European Union ("Brexit") or any other similar referendums that
may be held.
A significant portion of VF's 2017 net income was earned in
jurisdictions outside the U.S. and most of our goods are
manufactured outside the U.S. VF is exposed to risks of changes
in U.S. policy for companies having business operations and
manufacturing products outside the U.S. We cannot predict any
changes to U.S. participation in or renegotiations of certain trade
agreements or whether quotas, duties, taxes, exchange controls
or other restrictions will be imposed by the U.S., the European
Union or other countries on the import or export of our products,
or what effect any of these actions would have on VF’s business,
financial condition or results of operations. Changes in regulatory,
geopolitical policies and other factors may adversely affect VF’s
business or may require us to modify our current business
practices. While enactment of any such change is not certain, if
such changes were adopted, our costs could increase, which would
reduce our earnings.
Changes in tax lawsww could increase
materially l affect
our financial position and result
rr
rr
ff
our worlww dwide tax rarr te and
stt of operarr tions.
We are subject to taxation in the U.S. and numerous foreign
jurisdictions. On December 22, 2017, the U.S. government enacted
comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (the “Tax Act”), which includes a broad range of
tax reform proposals affecting businesses, including a reduction
in the U.S. federal corporate tax rate from 35% to 21%, a one-time
mandatory deemed repatriation tax on earnings of certain foreign
subsidiaries that were previously tax deferred, and a new minimum
tax on certain foreign earnings. The Tax Act significantly impacts
our effective tax rate for 2017 as a result of the deemed repatriation
tax, and may impact several other elements of our operating model.
In future years, certain additional provisions of the Tax Act, such
as a minimum tax on foreign earnings, will also apply to VF and,
as a result, could increase our effective tax rate. Taxes due over a
period of time as a result of the new tax law could be accelerated
upon certain triggering events, including failure to pay such taxes
when due. The new law makes broad and complex changes to the
U.S. tax code and we expect to see future regulatory,administrative
or legislative guidance. We are analyzing the Tax Act to determine
the full impact of the new tax law, and to the extent any future
guidance differs from our preliminary interpretation of the law, it
could have a material effect on our financial position and results
of operations.
In addition, many countries in the European Union and around the
globe have adopted and/or proposed changes to current tax laws.
Further, organizations such as the Organization for Economic
Cooperation and Development have published action plans that, if
adopted by countries where we do business, could increase our tax
obligations in these countries. Due to the large scale of our U.S.
and international business activities, many of these enacted and
proposed changes to the taxation of our activities could increase
our worldwide effective tax rate and harm our financial position
and results of operations.
We WW may have vv additional tax liabilities.
As a global company, we determine our income tax liability in
various tax jurisdictions based on an analysis and interpretation of
local tax laws and regulations. This analysis requires a significant
amount of judgment and estimation and is often based on various
assumptions about the future actions of the local tax authorities.
These determinations are the subject of periodic U.S. and
international tax audits. Although we accrue for uncertain tax
positions, our accrual may be insufficient to satisfy unfavorable
findings. Unfavorable audit findings and tax rulings may result in
payment of taxes, fines and penalties for prior periods and higher
tax rates in future periods, which may have a material adverse
effect on our financial condition, results of operations or cash flows.
ss
VF’s’ balance sheet includes a significant amount of intangible asset
stt
or of
of an intangible asset
and goodwill. A decline in the fair value
vv
a businessss unit could result
which
impairment charge,
in an asset
rr
in VF’s’ Consolidated
rr
woulww d be recrr orded
Statement of Income and could be material.
as an operarr ting expense
ee
ss
ss
rr
VF’s policy is to evaluate indefinite-lived intangible assets and
goodwill for possible impairment as of the beginning of the fourth
quarter of each year, or whenever events or changes in
circumstances indicate that the fair value of such assets may be
below their carrying amount. In addition, intangible assets that are
being amortized are tested for impairment whenever events or
circumstances indicate that their carrying value may not be
recoverable. For these impairment tests, we use various valuation
methods to estimate the fair value of our business units and
intangible assets. If the fair value of an asset is less than its carrying
value, we would recognize an impairment charge for the difference.
It is possible that we could have an impairment charge for goodwill
or trademark and trade name intangible assets in future periods
if (i) overall economic conditions in 2018 or future years vary from
our current assumptions, (ii) business conditions or our strategies
for a specific business unit change from our current assumptions,
(iii) investors require higher rates of return on equity investments
VF Corporation 2017 Form 10-K 11
in the marketplace or (iv) enterprise values of comparable publicly
traded companies, or of actual sales transactions of comparable
companies, were to decline, resulting in lower comparable
taxes,
multiples of revenues and earnings before interest,
depreciation and amortization and, accordingly, lower implied
values of goodwill and intangible assets. A future impairment
charge for goodwill or intangible assets could have a material effect
on our consolidated financial position or results of operations.
rr
VF uses third-par
worlww dwide for
a substantial portion of itstt raw
ff
product
ty suppliersrr
tt which poses risks to VF’s’ businessss operarr tions.
s,
and manufacturing facilities
rr materials and finished
rr
During Fiscal 2017, approximately 77% of VF’s units were
purchased from independent manufacturers primarily located in
Asia, with substantially all of the remainder produced by VF-owned
and operated manufacturing facilities located in the U.S., Mexico,
Central America and the Caribbean. Any of the following could
impact our ability to produce or deliver VF products, or our cost of
producing or delivering products and, as a result, our profitability:
• Political or labor instability in countries where VF’s facilities,
contractors and suppliers are located;
• Changes in local economic conditions in countries where
VF’s facilities, contractors, and suppliers are located;
• Political or military conflict could cause a delay in the
transportation of raw materials and products to VF and an
increase in transportation costs;
• Disruption at ports of entry, such as the west coast dock
workers labor dispute that disrupted international trade at
seaports, could cause delays in product availability and
increase transportation times and costs;
• Heightened terrorism security concerns could subject
imported or exported goods to additional, more frequent or
more lengthy inspections, leading to delays in deliveries or
impoundment of goods for extended periods;
• Decreased scrutiny by customs officials for counterfeit
goods, leading to more counterfeit goods and reduced sales
of VF products, increased costs for VF’s anti-counterfeiting
measures and damage to the reputation of its brands;
• Disruptions at manufacturing or distribution facilities
caused by natural and man-made disasters;
• Disease epidemics and health-related concerns could
result in closed factories, reduced workforces, scarcity of
raw materials and scrutiny or embargo of VF’s goods
produced in infected areas;
•
•
•
Imposition of regulations and quotas relating to imports and
our ability to adjust timely to changes in trade regulations
could limit our ability to produce products in cost-effective
countries that have the required labor and expertise;
Imposition of duties, taxes and other charges on imports;
and
Imposition or the repeal of laws that affect intellectual
property rights.
Although no single supplier and no one country is critical to VF’s
production needs, if we were to lose a supplier it could result in
interruption of finished goods shipments to VF, cancellation of
orders by customers and termination of relationships. This, along
with the damage to our reputation, could have a material adverse
12 VF Corporation 2017 Form 10-K
effect on VF’s revenues and, consequently, our results of
operations.
rr
tions for
ff
, yy safety
Our businessss
regula
ff
rr
privacy
vv
the violation of, ff such lawsww and regula
stt
suppliersrr who manufacture rr product
ff
effect
is subject to national, state and local lawsww and
environmen
t,
and other matters.rr The coststt of compliance with, or
tions by b VF or by b independent
rr
VF could have vv an advervv se
ff
for
tion.
on our operarr tions and cash flows, ww as well ww as on our reputa
tal, consumer prorr tection, employmen
o
rr
rr
rr
Our business is subject to comprehensive national, state and local
laws and regulations on a wide range of environmental, consumer
protection, employment, privacy, safety and other matters. VF
could be adversely affected by costs of compliance with or
violations of those laws and regulations. In addition, while we do
not control their business practices, we require third-party
suppliers to operate in compliance with applicable laws, rules and
regulations regarding working conditions, employment practices
and environmental compliance. The costs of products purchased
by VF from independent contractors could increase due to the costs
of compliance by those contractors.
in
Failure by VF or its third-party suppliers to comply with such laws
and regulations, as well as with ethical, social, product, labor and
environmental standards, or related political considerations, could
result
interruption of finished goods shipments to VF,
cancellation of orders by customers and termination of
relationships. If one of our independent contractors violates labor
or other laws, implements labor or other business practices or
takes other actions that are generally regarded as unethical, it
could jeopardize our reputation and potentially lead to various
adverse consumer actions, including boycotts that may reduce
demand for VF’s merchandise. Damage to VF’s reputation or loss
of consumer confidence for any of these or other reasons could
have a material adverse effect on VF’s results of operations,
financial condition and cash flows, as well as require additional
resources to rebuild VF’s reputation.
Fluctuations in wage
rr materials and finished goods could increase
raw
rarr tes and the price, availability
vv
rr
costs.tt
ww
and quality of
Fluctuations in the price, availability and quality of fabrics, leather
or other raw materials used by VF in its manufactured products,
or of purchased finished goods, could have a material adverse
effect on VF’s cost of goods sold or its ability to meet its customers’
demands. The prices we pay depend on demand and market prices
for the raw materials used to produce them. The price and
availability of such raw materials may fluctuate significantly,
depending on many factors, including general economic conditions
and demand, crop yields, energy prices, weather patterns and
speculation in the commodities markets. Prices of purchased
finished products also depend on wage rates in Asia and other
geographic areas where our independent contractors are located,
as well as freight costs from those regions. In addition, fluctuations
in wage rates required by legal or industry standards could
increase our costs. In the future, VF may not be able to offset cost
increases with other cost reductions or efficiencies or to pass
higher costs on to its customers. This could have a material adverse
effect on VF’s results of operations, liquidity and financial condition.
We WW may be advervv sel
rr
ff
y l affect
ed by b weaww ther conditions.
Our business is adversely affected by unseasonable weather
conditions. A significant portion of the sales of our products is
dependent in part on the weather and is likely to decline in years
in which weather conditions do not favor the use of these products.
For example, periods of unseasonably warm weather in the fall or
winter can lead to inventory accumulation by our wholesale
customers, which can, in turn, negatively affect orders in future
seasons. In addition, abnormally harsh or inclement weather can
also negatively impact retail traffic and consumer spending. Any
and all of these risks may have a material adverse effect on our
financial condition, results of operations or cash flows.
a small number of large
vv
sss prorr fit is derived
A substantial portion of VF’s’ rerr venues
from
customers. rr The lossss of any of these
rr
customersrr or the inability of any of these customersrr to pay VF could
substantially l reduc
vv
e VF’s’ rerr venues
and prorr fits.tt
and grosrr
vv
rr
rr
A few of VF’s customers account for a significant portion of
revenues. Sales to VF’s ten largest customers were 19% of total
revenues in 2017, with our largest customer accounting for 8% of
revenues. Sales to our customers are generally on a purchase
order basis and not subject to long-term agreements. A decision
by any of VF’s major customers to significantly decrease the volume
of products purchased from VF could substantially reduce revenues
and have a material adverse effect on VF’s financial condition and
results of operations.
The retail
rr
rr
increase
VF's bad debt.
industry r has experienc
ee
ed financial difficulty that could
there have been consolidations,
Recently
reorganizations,
restructurings, bankruptcies and ownership changes in the retail
industry. These events individually, and together, could materially,
adversely affect VF's business. These changes could impact VF’s
opportunities in the market and increase VF’s reliance on a smaller
number of large customers. In the future, retailers are likely to
further consolidate, undergo restructurings or reorganizations or
bankruptcies, realign their affiliations or reposition their stores’
target markets. These developments could result in a reduction in
the number of stores that carry VF’s products, an increase in
ownership concentration within the retail industry, an increase in
credit exposure to VF or an increase in leverage by VF’s customers
over their suppliers.
Further, the global economy periodically experiences recessionary
conditions with rising unemployment, reduced availability of credit,
increased savings rates and declines in real estate and securities
values. These recessionary conditions could have a negative impact
on retail sales of apparel and other consumer products. The lower
sales volumes, along with the possibility of restrictions on access
to the credit markets, could result in our customers experiencing
financial difficulties including store closures, bankruptcies or
liquidations. This could result in higher credit risk to VF relating to
receivables from our customers who are experiencing these
financial difficulties. If these developments occur, our inability to
shift sales to other customers or to collect on VF’s trade accounts
receivable could have a material adverse effect on VF’s financial
condition and results of operations.
Our ability to obtain short-term or long-term financing on favorvv abl
terms, if needed, could be advervv sel
rr
tility in the capital marketkk s.tt
volavv
e
ed by b geopolitical risk and
ff
y l affect
rr
Any disruption in the capital markets could limit the availability of
funds or the ability or willingness of financial institutions to extend
capital in the future. This could adversely affect our liquidity and
funding resources or significantly increase our cost of capital. An
inability to access capital and credit markets may have an adverse
effect on our business, results of operations, financial condition
and cash flows.
of the
VF has a global rerr volvv ving credit
participating banks may not be able to honor their commitments,
tt
which could have vv an advervv se
facility.yy One or morerr
on VF’s’ business.ss
ff
effect
rr
rr
ll
credit facility that expires in
VF has a $2.25 billion global revolving
April 2020. If
the financial markets return to recessionary
conditions, this could impair the ability of one or more of the banks
participating in our
their
commitments. This could have an adverse effect on our business
if we were not able to replace those commitments or to locate other
sources of liquidity on acceptable terms.
credit agreements
to honor
The lossss of membersrr of VF’s’ exee ecutiv
employo ees
could have vv a material advervv se
xx
yy
rr
e vv management and other kekk y e
ff
effect
on itstt business.ss
VF depends on the services and management experience of its
executive officers and business leaders who have substantial
experience and expertise in VF’s business. The unexpected loss of
services of one or more of these individuals could have a material
adverse effect on VF. Our future success also depends on our ability
to recruit,
retain and engage our personnel sufficiently.
Competition for experienced and well-qualified personnel is
intense and we may not be successful in attracting and retaining
such personnel.
VF’s’ direct-t
rr
ff
effect
rr
advervv se
rr
on itstt result
stt of operarr tions.
o-consumer businessss includes risks that could havevv an
VF sells merchandise direct-to-consumer through VF-operated
stores and e-commerce sites. Its direct-to-consumer business is
subject to numerous risks that could have a material adverse effect
on its results. Risks include, but are not limited to, (a) U.S. or
international resellers purchasing merchandise and reselling it
overseas outside VF’s control, (b) failure of the systems that
operate the stores and websites, and their related support systems,
including computer viruses, theft of customer information, privacy
concerns, telecommunication failures and electronic break-ins
and similar disruptions, (c) credit card fraud and (d) risks related
to VF’s direct-to-consumer distribution centers and processes.
Risks specific to VF’s e-commerce business also include
(a) diversion of sales from VF stores or wholesale customers,
(b) difficulty in recreating the in-store experience through direct
channels, (c) liability for online content, (d) changing patterns of
consumer behavior and (e) intense competition from online
retailers. VF’s failure to successfully respond to these risks might
adversely affect sales in its e-commerce business, as well as
damage its reputation and brands.
investments
Our VF-operated stores and e-commerce business require
substantial fixed
in equipment and leasehold
improvements, information systems, inventory and personnel. We
have entered into substantial operating lease commitments for
retail space. Due to the high fixed-cost structure associated with
our direct-to-consumer operations, a decline in sales or the
closure of or poor performance of individual or multiple stores
could result in significant lease termination costs, write-offs of
equipment and leasehold improvements and employee-related
costs.
VF’s’ net sales depend on the volume
vv
availability
of suitable lease space.
vv
of trarr ffic to itstt stores
rr
and the
A growing portion of our revenues are direct-to-consumer sales
through VF-operated stores. In order to generate customer traffic,
we locate many of our stores in prominent locations within
successful retail shopping centers or in fashionable shopping
districts. Our stores benefit from the ability of the retail center and
VF Corporation 2017 Form 10-K 13
other attractions in an area to generate consumer traffic in the
vicinity of our stores. Part of our future growth is significantly
dependent on our ability to operate stores in desirable locations
with capital investment and lease costs providing the opportunity
to earn a reasonable return. We cannot control the development
of new shopping centers or districts; the availability or cost of
appropriate locations within existing or new shopping centers or
districts; competition with other retailers for prominent locations;
or the success of individual shopping centers or districts. Further,
if we are unable to renew or replace our existing store leases or
enter into leases for new stores on favorable terms, or if we violate
the terms of our current leases, our growth and profitability could
be harmed. All of these factors may impact our ability to meet our
growth targets and could have a material adverse effect on our
financial condition or results of operations.
VF may be unable to prorr tect itstt
proper
ty rights.tt
rr
rr
trademarks
and other intellectual
VF’s trademarks and other intellectual property rights are
important to its success and its competitive position. VF is
susceptible to others copying its products and infringing its
intellectual property rights, especially with the shift in product mix
to higher priced brands and innovative new products in recent
years. Some of VF’s brands, such as The North FacFF e®, Timberland®,
VansVV
er® and Lee®, enjoy significant
worldwide consumer recognition, and the higher pricing of those
products creates additional
and
infringement.
®, JanSport®, Dickies®, WrWW angl
of counterfeiting
risk
rr
VF’s trademarks, trade names, patents, trade secrets and other
intellectual property are important to VF’s success. Counterfeiting
of VF’s products or infringement on its intellectual property rights
could diminish the value of our brands and adversely affect VF’s
revenues. Actions we have taken to establish and protect VF’s
intellectual property rights may not be adequate to prevent copying
of its products by others or to prevent others from seeking to
invalidate its trademarks or block sales of VF’s products as a
violation of the trademarks and intellectual property rights of
others. In addition, unilateral actions in the U.S. or other countries,
including changes to or the repeal of laws recognizing trademark
or other intellectual property rights, could have an impact on VF’s
ability to enforce those rights.
The value of VF’s intellectual property could diminish if others
assert rights in or ownership of trademarks and other intellectual
property rights of VF, or trademarks that are similar to VF’s
trademarks, or trademarks that VF licenses from others. We may
be unable to successfully resolvl e these types of conflicts to our
satisfaction. In some cases, there may be trademark owners who
have prior rights to VF’s trademarks because the laws of certain
foreign countries may not protect intellectual property rights to the
same extent as do the laws of the U.S. In other cases, there may
be holders who have prior rights to similar trademarks. VF is from
time to time involvll ed in opposition and cancellation proceedings
with respect to some of its intellectual property rights.
We may be subject to liability if third parties successfully claim that
we infringe on their trademarks, copyrights, patents or other
intellectual property rights. Defending infringement claims could
be expensive and time-consuming and might result in our entering
into costly license agreements.
14 VF Corporation 2017 Form 10-K
VF is subject to the risk that itstt licensees may not generarr te expect
sales or maintain the value
of VF’s’ brands.
ee
vv
rr
ed
During 2017, $75.5 million of VF’s revenues were derived from
licensing royalties. Although VF generally has significant control
over its licensees’ products and advertising, we rely on our
licensees for, among other things, operational and financial
controls over their businesses. Failure of our licensees to
successfully market licensed products or our inability to replace
existing licensees,
if necessary, could adversely affect VF’s
revenues, both directly from reduced royalties received and
indirectly from reduced sales of our other products. Risks are also
associated with a licensee’s ability to:
• Obtain capital;
• Manage its labor relations;
• Maintain relationships with its suppliers;
• Manage its credit risk effectively;
• Maintain relationships with its customers; and
• Adhere to VF’s Global Compliance Principles.
In addition, VF relies on its licensees to help preserve the value of
its brands. Although we attempt to protect VF’s brands through
approval rights over design, production processes, quality,
packaging, merchandising, distribution, advertising and promotion
of our licensed products, we cannot completely control the use of
licensed VF brands by our licensees. The misuse of a brand by a
licensee could have a material adverse effect on that brand and on
VF.
If VF encountersrr probl
stt
rr
itstt product
to deliver
vv
rr
ems with itstt distribution sys styy em, VF’s’ ability
to the market kk could be advervv sel
ff
y l affect
ed.
rr
VF relies on owned or independently-operated distribution
facilities to warehouse and ship product to its customers. VF’s
distribution system includes computer-controlled and automated
equipment, which may be subject to a number of risks related to
security or computer viruses, the proper operation of software and
hardware, power interruptions or other system failures. Because
substantially all of VF’s products are distributed from a relatively
small number of locations, VF’s operations could also be
interrupted by earthquakes, floods, fires or other natural disasters
affecting its distribution centers. We maintain business
interruption insurance, but it may not adequately protect VF from
the adverse effects that could be caused by significant disruptions
in VF’s distribution facilities, such as the long-term loss of
customers or an erosion of brand image. In addition, VF’s
distribution capacity is dependent on the timely performance of
services by third parties, including the transportation of product to
and from its distribution facilities. If we encounter problems with
our distribution system, our ability to meet customer expectations,
manage inventory, complete sales and achieve operating
efficiencies could be materially adversely affected.
tility in securities marketkk s,
rr
interest
rr
increase
VolaVV
factorsrr could substantially l
costs.tt
tt
rarr tes and other economic
VF’s’ defined benefit pension
VF currently has obligations under its defined benefit pension
plans. The funded status of the pension plans is dependent on many
factors, including returns on investment assets and the discount
rate used to determine pension obligations. Unfavorable impacts
from returns on plan assets, decreases in discount rates, changes
in plan demographics or revisions in the applicable laws or
regulations could materially change the timing and amount of
pension funding requirements, which could reduce cash available
for VF’s business.
VF’s operating performance also may be negatively impacted by
the amount of expense recorded for its pension plans. Pension
expense is calculated using actuarial valuations that incorporate
assumptions and estimates about financial market, economic and
demographic conditions. Differences between estimated and
actual results give rise to gains and losses that are deferred and
amortized as part of future pension expense, which can create
volatility that adversely impacts VF’s future operating results.
TT
ITEM 1B. UNRESOLVED ST
AFF COMMENTS.
LL
None.
VF Corporation 2017 Form 10-K 15
ITEM 2. PROPERTIES.
The following is a summary of VF Corporation’s principal owned
and leased properties as of December 30, 2017.
VF’s global headquarters are located in a 180,000 square foot,
owned facility in Greensboro, North Carolina. VF owns other
facilities in Greensboro,
including the Jeanswear coalition
headquarters building. In addition, we own facilities in Stabio,
Switzerland and lease offices in Hong Kong, China, which serve as
regional headquarters,
our European and Asia-Pacific
respectively. We also own or
lease coalition and brand
headquarters facilities throughout the world.
VF owns a 236,000 square foot facility in Appleton, Wisconsin that
serves as a shared services center for our Outdoor & Action Sports
coalition in North America. Additionally, we own and lease shared
service facilities in Bornem, Belgium that support our international
operations. Our sourcing hubs are located in Panama City, Panama
and Hong Kong, China.
ITEM 3. LEGAL PROCEEDINGS.
Our largest distribution centers are located in Prague, Czech
Republic and Visalia, California. Additionally, we operate 36 other
owned or leased distribution centers primarily in the U.S., but also
in Argentina, Belgium, Canada, Chile, China, Mexico,
the
Netherlands and the United Kingdom. We operate 21 owned or
leased manufacturing plants primarily in Mexico, but also in the
Dominican Republic, Honduras, Nicaragua and the U.S.
In addition to the principal properties described above, we lease
many offices worldwide for sales and administrative purposes. We
operate 1,518 retail stores across the Americas, European and
Asia-Pacific regions. Retail stores are generally leased under
operating leases and include renewal options. We believe all
facilities and machinery and equipment are in good condition and
are suitable for VF’s needs.
There are no pending material legal proceedings, other than ordinary, routine litigation incidental to the business, to which VF or any of
its subsidiaries is a party or to which any of their property is the subject.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
16 VF Corporation 2017 Form 10-K
PP
PART II
ITEM 5. MARKET FOR VF’S COMMON EQUITY, RELATEDSTOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES.
VF’s Common Stock is listed on the New York Stock Exchange under the symbol “VFC”. The following table sets forth the high and low
sale prices of VF Common Stock, as reported on the NYSE Composite Tape in each fiscal quarter of 2017 and 2016, along with dividends
declared.
2017
Fourth quarter
Third quarter
Second quarter
First quarter
2016
Fourth quarter
Third quarter
Second quarter
First quarter
High
Low
Dividends
Declared
$
75.25 $
62.83 $
64.51
58.18
56.27
55.51
51.22
48.05
$
$
58.35 $
51.76 $
65.25
66.31
67.10
55.20
57.78
52.21
$
0.46
0.42
0.42
0.42
1.72
0.42
0.37
0.37
0.37
1.53
As of January 27, 2018, there were 3,435 shareholders of record. Quarterly dividends on VF Common Stock, when declared, are paid on
or about the 20th day of March, June, September and December.
VF Corporation 2017 Form 10-K 17
PERFORMANCE GRAPH:
The following graph compares the cumulative total shareholder
return on VF Common Stock with that of the Standard & Poor’s
(“S&P”) 500 Index and the S&P 1500 Apparel, Accessories & Luxury
Goods Subindustry Index (“S&P 1500 Apparel Index”) for the five
fiscal years ended December 30, 2017. The S&P 1500 Apparel Index
at the end of 2017 consisted of Carter’s, Inc., Fossil, Inc., G-III
Apparel Group, Ltd., Hanesbrands Inc., Michael Kors Holdings Ltd.,
Inc., Perry Ellis
Movado Group,
Inc., Oxford
Industries,
International, Inc., PVH Corp., Ralph Lauren Corporation, Tapestry,
Inc., Under Armour, Inc., Vera Bradley, Inc. and V.F. Corporation.
The graph assumes that $100 was invested at the end of 2012 in
each of VF Common Stock, the S&P 500 Index and the S&P 1500
Apparel Index, and that all dividends were reinvested. The graph
plots the respective values on the last trading day of 2012 through
2017. Past performance is not necessarily indicative of future
performance.
COMPARISON OF FIVE-
PP
YEAR CUMULATIVE T
AA
OTAL RETURN OF VF C
TT
OMMON STOCK,
s
r
a
l
l
o
D
250
200
150
100
50
0
Company / Index
VF Corporation
S&P 500 Index
S&P 500 INDEX AND S&P 1500 APPAREL INDEX
PP
VF Common Stock closing price on December 30, 2017 was $74.00
2012
2013
2014
2015
2016
2017
VF Corporation
S&P 500 Index
S&P 1500 Apparel, Accessories & Luxury Goods
Base
2012
2013
2014
2015
2016
2017
$ 100.00
$ 169.30
$ 206.23
$ 177.39
$ 155.86
$ 222.49
100.00
134.11
153.03
155.18
173.74
211.67
125.63
S&P 1500 Apparel, Accessories & Luxury Goods
100.00
140.32
147.88
117.05
105.25
18 VF Corporation 2017 Form 10-K
ISSUER PURCHASES OF EQUITY SECURITIES:
The following table sets forth VF’s repurchases of our Common Stock during the fiscal quarter ended December 30, 2017 under the
share repurchase program authorized by VF’s Board of Directors in 2017.
Fiscal Period
October 1 — October 28, 2017
October 29 — November 25, 2017
November 26 — December 30, 2017
Total
Total
Number of
Shares
Purchased
Weighted
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Programs
VV
Dollar Value
of Shares that May YetYY
be Purchased Under
the Program
— $
—
—
—
—
—
—
—
—
—
—
4,237,940,717
4,237,940,717
4,237,940,717
The VF Board of Directors approved a new $5.0 billion share repurchase authorization on March 29, 2017, which replaces all remaining
shares under the 2013 authorization. VF began repurchasing shares under this new authorization during the second quarter of 2017.
VF Corporation 2017 Form 10-K 19
ITEM 6. SELECTED FINANCIAL DATA.TT
The following table sets forth selected consolidated financial data
for the five years ended December 30, 2017. VF operates and
reports using a 52/53 week fiscal year ending on the Saturday
closest to December 31 of each year. All references to “2017”,
“2016” and “2015” relate to the 52-week fiscal periods ended
December 30, 2017, December 31, 2016 and January 2, 2016,
respectively, all references to “2014” relate to the 53-week fiscal
period ended January 3, 2015, and all references to “2013” relate
to the 52-week fiscal period ended December 28, 2013.
Unless otherwise indicated, the following disclosures reflect the
Company’s continuing operations, including financial position
metrics. Refer to Note C to VF’s consolidated financial statements
included in this report for additional information regarding
discontinued operations.
This selected financial data should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and VF’s consolidated financial statements
and accompanying notes included in this report. Historical results
presented herein may not be indicative of future results.
(Dollars and shares in thousands, except per share amounts)
2017
2016
2015
2014
2013
SUMMARY OF OPERATIONS (1)
Total revenues
Operating income
Income from continuing operations
Earnings per common share from continuing
operation – basic
Earnings per common share from continuing
operations – diluted
Dividends per share
Dividend payout ratio (2)
FINANCIAL POSITION (3)
Working capital
Current ratio
Total assets
Long-term debt, less current maturities
Stockholders’ equity
Debt to total capital ratio (4)
$ 11,811,177
$ 11,026,147
$ 10,996,393
$ 10,831,889
$ 9,967,493
1,503,090
721,209
1,368,260
1,078,854
1,644,828
1,217,056
1,663,387
1,233,711
1,460,172
1,076,891
$
1.81
$
2.59
$
2.86
$
2.85
$
2.45
1.79
1.7200
2.56
1.5300
2.82
1.3300
2.80
1.1075
2.41
0.9150
96.2%
59.9%
47.2%
39.5%
38.0%
$ 1,355,611
$ 2,383,174
$ 2,036,268
$ 2,221,957
$ 1,923,704
1.5
2.4
2.1
2.5
2.3
$ 9,556,437
$ 9,001,985
$ 8,587,064
$ 8,602,747
$ 8,469,172
2,187,789
3,719,900
2,039,180
4,940,921
1,401,820
5,384,838
1,403,919
5,630,882
1,406,050
6,077,038
44.0%
31.9%
25.6%
20.2%
19.0%
Weighted average common shares outstanding
399,223
416,103
425,408
432,611
438,657
Book value per common share
$
9.40
$
11.93
$
12.62
$
13.01
$
13.80
OTHER STATISTICS
Operating margin
Return on invested capital (5) (6)
Return on average stockholders’ equity (5)
Return on average total assets (5)
Cash provided by operations (7)
Cash dividends paid
12.7%
10.5%
18.9%
8.2%
12.4%
15.4%
23.8%
12.7%
15.0%
17.1%
25.3%
14.4%
15.4%
17.1%
22.5%
14.8%
14.6%
15.8%
21.2%
14.2%
$ 1,474,660
$ 1,480,568
$ 1,203,616
$ 1,761,841
$ 1,555,060
684,679
635,994
565,275
478,933
402,136
(1) VF recorded a $465.5 million provisional tax charge during the fourth quarter of 2017 related to the transitional impact of the Tax Act. The charge
impacted basic earnings per share by $1.17 and diluted earnings per share by $1.15. Operating results for 2016 include charges for the impairment
of goodwill and intangible assets, pension settlement and restructuring charges. The charges impacted pretax operating income by $185.6 million,
after-tax income from continuing operations by $137.3 million, basic earnings per share by $0.33 and diluted earnings per share by $0.33.
(2) Dividend payout ratio is defined as dividends per share divided by earnings per diluted share.
(3) VF early adopted the accounting standards update regarding intra-entity transfers in the first quarter of 2017, which resulted in a cumulative adjustment
to retained earnings and reduction in other assets in the Consolidated Balance Sheet at January 1, 2017 of $237.8 million.
(4) Total capital is defined as stockholders’ equity plus short-term and long-term debt.
(5) The numerator in the return calculations is defined as income from continuing operations plus total interest income/expense, net of taxes.
(6)
Invested capital is defined as average stockholders’ equity plus average short-term and long-term debt.
(7) The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows.
Accordingly, the information includes the results of continuing and discontinued operations.
20 VF Corporation 2017 Form 10-K
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OPERATIONS.
LL
OF FINANCIAL CONDITION AND RESULTSLL
OF
OVERVIEW
VF Corporation (together with its subsidiaries, collectively known
as “VF” or the "Company”) is a global leader in the design,
production, procurement, marketing and distribution of branded
lifestyle apparel, footwear and related products. VF’s diverse
portfolio of more than 30 brands meets consumer needs across a
broad spectrum of activities and lifestyles. Our long-term growth
strategy is focused on four drivers — reshape our portfolio,
transform our model, elevate direct-to-consumer and distort Asia.
VF is diversified across brands, product categories, channels of
distribution, geographies and consumer demographics. We own a
broad portfolio of brands in the outerwear, footwear, denim,
backpack,
luggage, accessory and apparel categories. Our
products are marketed to consumers shopping in specialty stores,
department stores, national chains, mass merchants and our own
direct-to-consumer operations, which
includes VF-operated
stores, concession retail stores and e-commerce sites.
VF is organized by groupings of businesses called “coalitions”.The
three coalitions are Outdoor & Action Sports, Jeanswear and
Imagewear. These coalitions are our reportable segments for
financial reporting purposes.
BASIS OF PRESENTATION
The Nautica® brand business, the Licensing Business (which
comprised the Licensed Sports Group and JanSport® brand
collegiate businesses), and the Contemporary Brands coalition
have been reported as discontinued operations in our Consolidated
Statements of Income, and the related assets and liabilities have
been presented as held-for-sale in the Consolidated Balance
Sheets, through their dates of disposal. These changes have been
applied to all periods presented. Unless otherwise noted,
amounts, percentages and discussion for all periods included
below reflect the results of operations and financial condition from
VF’s continuing operations. Refer to Note C to VF’s consolidated
financial statements for additional information on discontinued
operations.
VF operates and reports using a 52/53 week fiscal year ending on
the Saturday closest to December 31 of each year. All references
to “2017”, “2016” and “2015” relate to the 52-week fiscal years
ended December 30, 2017, December 31, 2016 and January 2,
2016, respectively. During the first quarter of 2017, the Company
approved a change in fiscal year end to the Saturday closest to
March 31 from the Saturday closest to December 31. Accordingly,
HIGHLIGHTS OF 2017
2017 marked the beginning of VF's renewed strategic journey, as
we focused our efforts and investments on the evolution of VF and
our brands to become more consumer and retail centric. Our focus
and investment in support of our strategies drove accelerated
growth and value creation across key pillars of our portfolio in 2017.
The choices and capabilities embedded in our strategic growth plan
have enabled our strong portfolio of diverse global brands to
connect more deeply with consumers, and the results in 2017
reflect initial success in the execution of our plan as VF's core
growth engines - international, direct-to-consumer, Outdoor &
Action Sports and our workwear platform - continued to show
strength.
We are still in the early phases of this strategic journey, and while
the consumer landscape is rapidly changing and the global retail
environment around the world is dynamic, we believe the choices
and capabilities embedded in our strategic growth plan will enable
our strong portfolio of diverse global brands to connect more
deeply with consumers and fuel growth into the future.
VF will report a transition quarter that runs from December 31,
2017 through March 31, 2018. The Company's next fiscal year will
run from April 1, 2018 through March 30, 2019 (“Fiscal 2019”).
All per share amounts are presented on a diluted basis. All
percentages shown in the tables below and the discussion that
follows have been calculated using unrounded numbers.
References to 2017 foreign currency amounts below reflect the
changes in foreign exchange rates from 2016 and their impact on
both translating foreign currencies into U.S. dollars and on
transactions denominated in a foreign currency. References to
2016 foreign currency amounts below reflect the changes in foreign
exchange rates from 2015 and their impact on both translating
foreign currencies
into U.S. dollars and on transactions
denominated in a foreign currency. VF’s most significant foreign
currency exposure relates to business conducted in euro-based
countries. However, VF conducts business in other developed and
emerging markets around the world with exposure to foreign
currencies other than the euro.
We continued reshaping our portfolio in 2017 to align with our
financial aspirations, as we closed on the acquisition of
Williamson-Dickie Mfg. Co. ("Williamson-Dickie") in the fourth
quarter of 2017, and announced the acquisition of Icebreaker
Holdings, Ltd., which we expect to close in the first quarter of Fiscal
2019. Further, we completed the sale of the Licensing Business in
2017 and have announced the planned sale of the Nautica® brand
business.
On December 22, 2017,
the U.S. government enacted
comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (“Tax Act”). The Tax Act significantly changes
U.S. corporate income tax laws by, among other things, reducing
the U.S. corporate income tax rate to 21% starting in 2018 and
moves from a global taxation regime to a modified territorial
regime. As part of the legislation, U.S. companies are required to
pay a tax on historical earnings generated offshore that have not
been repatriated to the U.S. and revalue deferred tax asset and
liability positions at the lower federal base tax rate of 21%. The
transitional impact of the Tax Act resulted in a provisional net
VF Corporation 2017 Form 10-K 21
charge of approximately of $465.5 million, or $1.15 cents per share,
during the fourth quarter of 2017.
The execution of our 2021 strategic choices, including the re-
shaping of our portfolio, and significant changes to the U.S.
corporate income tax laws, delivered the following results in 2017:
•
2017 revenues were up 7% to $11.8 billion compared to 2016.
• Outdoor & Action Sports coalition revenues increased 8%
over 2016 to $8.2 billion, including a 1% favorable impact
from foreign currency.
• Direct-to-consumer revenues increased 17% over 2016,
including a 1% favorable impact from foreign currency, and
accounted for 32% of VF’s total revenues in 2017. VF opened
111 retail stores in 2017. E-commerce revenues increased
34% in 2017.
•
including a 1%
International revenues increased 12%,
favorable impact from foreign currency, and represented
41% of VF’s total revenues in 2017.
•
•
•
•
•
Gross margin increased 120 basis points to 50.5% in 2017,
reflecting benefits from pricing and a mix-shift toward
higher margin businesses, partially offset by impacts from
foreign currency.
Cash flow from operations was $1.5 billion in 2017.
Earnings per share decreased 30% to $1.79 in 2017 from
$2.56 in 2016, driven by the negative impact from the recent
incremental transaction and deal-
U.S. tax legislation,
related costs and unfavorable impacts from foreign
currency that were partially offset by contributions related
to the Williamson-Dickie acquisition.
VF increased the quarterly dividend rate by 10% in the fourth
quarter, marking the 45th consecutive year of increase in the
rate of dividends paid per share.
VF repurchased $1.2 billion of its Common Stock and paid
$684.7 million in cash dividends, returning approximately
$1.9 billion to stockholders.
ANALYSIS OF RESULTS OF OPERATIONS
Consolidated Statements of Income
The following table presents a summary of the changes in total revenues during the last two years:
(In millions)
Total revenues — prior year
Organic growth
Acquisition
Impact of foreign currency
Total revenues — current year
2017
Compared to
2016
2016
Compared to
2015
$
$
11,026.1
$
489.3
247.2
48.6
11,811.2
$
10,996.4
125.7
—
(96.0)
11,026.1
2017 compared
rr
to 2016
2016 compared
rr
to 2015
VF reported a 7% increase in revenues in 2017. The 2017 results
were driven by an increase in the Outdoor & Action Sports coalition
and continued strength in our direct-to-consumer and
international businesses. The increase was also attributable to
growth in the Imagewear coalition, which included a $247.2 million
contribution from the Williamson-Dickie acquisition, which closed
on October 2, 2017. These increases were offset by declines in the
Jeanswear coalition. International sales grew in every region in
2017.
VF reported revenues in 2016 that were in line with 2015 revenues.
The 2016 results were primarily attributable to a 2% increase in
the Outdoor & Action Sports coalition and continued strength in
the international and direct-to-consumer businesses, which offset
foreign currency headwinds of 1% and softness in our Jeanswear
and Imagewear coalitions. Excluding the negative impact from
foreign currency, international sales grew in every region in 2016.
Additional details on revenues are provided in the section titled “Information by Business Segment”.
The following table presents the percentage relationship to total revenues for components of the Consolidated Statements of Income:
Gross margin (total revenues less cost of goods sold)
Selling, general and administrative expenses
Impairment of goodwill and intangible assets
Operating income
2017
2016
2015
50.5%
37.8
—
12.7%
49.3%
36.2
0.7
12.4%
49.0%
34.1
—
15.0%
22 VF Corporation 2017 Form 10-K
2017 compared
rr
to 2016
Gross margin improved 120 basis points to 50.5% in 2017 compared
to 49.3% in 2016, reflecting a 180 basis point benefit from pricing,
a mix-shift
lower
restructuring costs, which was partially offset by a 60 basis point
impact from foreign currency.
toward higher margin businesses and
Selling, general and administrative expenses as a percentage of
total revenues increased 160 basis points in 2017 compared to
2016. This increase is primarily due to investments in our key
growth priorities, which include direct-to-consumer, product
innovation, demand creation and technology initiatives. The
increases were offset by lower restructuring costs in 2017 and a
pension settlement charge of $50.9 million in 2016, which did not
recur in 2017.
In 2017, operating margin increased 30 basis points, to 12.7% from
12.4% in 2016. In addition to the items described above, the
increase in operating margin reflects a 70 basis point increase from
goodwill and intangible asset impairments in 2016 that did not
recur in 2017.
Net interest expense increased $0.3 million to $85.9 million in
2017. The increase in net interest expense was due to higher
interest rates on short-term borrowings and higher interest on
long-term debt balances due to a full year of interest on the €850
million euro-denominated 0.625% fixed-rate notes issued in
September 2016, which were partially offset by the payoff of the
$250.0 million of 5.95% fixed-rate notes on November 1, 2017 and
an increase in international short-term investment rates.
Outstanding interest-bearing debt averaged $3.2 billion for 2017
compared to $2.6 billion for 2016, with short-term borrowings
representing 27% and 37% of average debt outstanding for the
respective years. The weighted average
interest rates on
outstanding debt were 3.1% in 2017 and 3.5% in 2016, as the impact
of the issuance of €850 million euro-denominated 0.625% fixed-
rate notes in September of 2016 was offset by higher short-term
debt rates.
Other income (expense) primarily consists of foreign currency
gains and losses, the funding fee charged on the sale of our trade
receivables and non-operating gains and losses. Other income
(expense) netted to $(0.7) million and $2.0 million in 2017 and 2016,
respectively.
The effective income tax rate was 49.1% in 2017 compared to 16.0%
in 2016. The effective income tax rate is substantially higher in 2017
when compared to 2016 primarily due to discrete tax expense
associated with the Tax Act. The Tax Act reduces the federal tax
rate on U.S. earnings to 21% and moves from a global taxation
regime to a modified territorial regime. As part of the legislation,
U.S. companies are required to pay a tax on historical earnings
generated offshore that have not been repatriated to the U.S.
Additionally, revaluation of deferred tax asset and liability positions
at the lower federal base rate of 21% is also required. The
transitional impact of the Tax Act resulted in a provisional net
charge of $465.5 million, or $1.15 per share, during the fourth
quarter of 2017. This amount, which is included in the income
is
taxes line item in the Consolidated Statements of Income,
primarily comprised of approximately $512.4 million related to the
transition tax and approximately $89.5 million tax benefit related
to revaluing U.S. deferred tax assets and liabilities using the new
U.S. corporate tax rate of 21%. Other provisional charges of $42.6
million were primarily related to U.S. federal and state tax on
foreign income and dividends and establishing a deferred tax
liability for foreign withholding taxes.
The 2017 effective income tax rate included a net discrete tax
expense of $438.9 million, which included the provisional net
charge of $465.5 million related to the Tax Act, $25.2 million of tax
benefits related to stock compensation, $2.9 million of net tax
benefit related to the realization of previously unrecognized tax
benefits and interest, and $1.9 million of discrete tax expense
related to the effects of tax rate changes, exclusive of the Tax Act.
The $438.9 million net discrete tax expense in 2017 increased the
effective income tax rate by 31.0% compared to a favorable 3.4%
impact of discrete items in 2016. Without discrete items, the
effective tax rate during 2017 decreased by approximately 1.3%
primarily due to the negative tax impact related to the 2016 goodwill
impairment. The international effective tax rate was 13.1% and
10.9% for 2017 and 2016, respectively.
As a result of the above, net income in 2017 was $0.7 billion ($1.79
per diluted share), compared to $1.1 billion ($2.56 per diluted
share) in 2016.
2016 compared
rr
to 2015
In 2016, gross margin improved 30 basis points, reflecting a 130
basis point benefit from pricing, lower product costs and a mix-
shift toward higher margin businesses, which was partially offset
by a 20 basis point impact from restructuring activities and a
negative 80 basis point impact from foreign currency.
Selling, general and administrative expenses as a percentage of
total revenues increased 210 basis points compared to 2015. This
increase was primarily due to restructuring initiatives of $31.8
million, a pension settlement charge of $50.9 million, investments
in our key growth priorities, which include direct-to-consumer,
product innovation, demand creation and technology initiatives and
the benefit of a $16.6 million gain on the sale of a VF Outlet® location
in 2015.
As a result of management’s decision to merge the lucy® brand into
The North FacFF e® brand, VF recorded a $79.6 million noncash
impairment charge to write-off the goodwill and intangible assets
of the lucy® reporting unit during the fourth quarter of 2016. For
additional information, refer to Notes G, H and U to the consolidated
financial statements and the “Critical Accounting Policies and
Estimates” section below.
In 2016, operating margin decreased 260 basis points, to 12.4%
from 15.0% in 2015. The decrease in operating margin reflects a
170 basis point decrease from goodwill and intangible asset
impairment, restructuring, and pension settlement charges that
did not occur in 2015, a negative 60 basis point impact from changes
in foreign currency and investments in our key growth priorities,
which include direct-to-consumer, product innovation, demand
creation and technology initiatives.
In 2016, net interest expense increased $3.9 million to $85.5 million
primarily due to higher interest rates on short-term borrowings
and an increase in long-term debt due to the issuance of €850
million euro-denominated 0.625% fixed-rate notes in September
2016.
Outstanding interest-bearing debt averaged $2.6 billion for 2016
and $2.4 billion for 2015, with short-term borrowings representing
37% and 42% of average debt outstanding for the respective years.
The weighted average interest rate on outstanding debt was 3.5%
in both 2016 and 2015, as the impact of the issuance of €850 million
VF Corporation 2017 Form 10-K 23
euro-denominated 0.625% fixed-rate notes in September of 2016
was offset by higher short-term debt rates.
Other income (expense) netted to $2.0 million and $1.0 million in
2016 and 2015, respectively.
The effective income tax rate was 16.0% in 2016 compared to 22.2%
in 2015. The 2016 tax rate included a net discrete tax benefit of
$43.1 million, which included $27.9 million of tax benefits related
to the early adoption of the accounting standards update on stock
compensation, $13.2 million of net tax benefits related to the
realization of previously unrecognized tax benefits and interest,
and $4.1 million of discrete tax expense related to the effects of
tax rate changes. The $43.1 million net discrete tax benefit in 2016
reduced the effective income tax rate by 3.4% compared to a
favorable 2.8% impact of discrete items in 2015. Without discrete
items, the effective tax rate during 2016 decreased by
approximately 5.6% primarily due to i) a higher percentage of
foreign earnings in 2016, ii) the comparative impact of tax benefits
recorded in 2016 related to the utilization of foreign tax attributes,
iii) the full year benefits of the federal research tax credit and other
incentives signed into law in December 2015 and iv) the negative
tax impact related to the 2016 goodwill
impairment. The
international effective tax rate was 10.9% and 12.5% for 2016 and
2015, respectively.
As a result of the above, net income in 2016 was $1.1 billion ($2.56
per diluted share) compared to $1.2 billion ($2.82 per diluted share)
in 2015. The decrease in diluted earnings per share in 2016
compared to 2015 was the result of goodwill and intangible asset
impairment charges ($0.15 per share), restructuring charges
($0.10 per share) and a pension settlement charge ($0.07 per
share).
Refer to additional discussion in the “Information by Business
Segment” section below.
Information by Business Segment
Management at each of the coalitions has direct control over and
responsibility for its revenues and operating income, hereinafter
termed “coalition revenues” and “coalition profit”, respectively. VF
management evaluates operating performance and makes
investment and other decisions based on coalition revenues and
coalition profit. Common costs such as information systems
processing, retirement benefits and insurance are allocated to the
coalitions based on appropriate metrics such as sales, usage or
employment.
The following tables present a summary of the changes in coalition revenues and coalition profit during the last two years:
(In millions)
Outdoor
& Action Sports
Jeanswear
Imagewear
Other
Total
Coalition revenues — 2015
$
7,492.8 $
2,792.2 $
577.5 $
133.9 $
10,996.4
Operations
Impact of foreign currency
Coalition revenues — 2016
Organic growth
Acquisition
Impact of foreign currency
Coalition revenues — 2017
162.7
(36.9)
7,618.6
548.2
—
45.7
3.4
(57.9)
2,737.7
(84.7)
—
2.4
(24.5)
(1.2)
551.8
30.7
247.2
0.5
(15.9)
—
118.0
(4.9)
—
—
125.7
(96.0)
11,026.1
489.3
247.2
48.6
$
8,212.5 $
2,655.4 $
830.2 $
113.1 $
11,811.2
Coalition profit — 2015
$
1,288.8 $
535.4 $
105.9 $
15.0 $
1,945.1
Outdoor
& Action Sports
Jeanswear
Imagewear
Other
Total
Operations
Impact of foreign currency
Coalition profit — 2016
Organic growth
Acquisition
Impact of foreign currency
Coalition profit — 2017
36.8
(82.4)
1,243.2
192.0
—
(56.9)
(43.0)
(0.5)
491.9
(73.9)
—
3.9
(7.3)
5.4
104.0
(6.7)
14.2
1.8
(19.8)
—
(4.8)
1.7
—
—
(33.3)
(77.5)
1,834.3
113.1
14.2
(51.2)
$
1,378.3 $
421.9 $
113.3 $
(3.1) $
1,910.4
24 VF Corporation 2017 Form 10-K
The following section discusses the changes in revenues and profitability by coalition:
Outdoor & Action Sports
(Dollars in millions)
Coalition revenues
Coalition profit
Operating margin
$
2017
8,212.5
1,378.3
16.8%
2016
$
7,618.6
$
1,243.2
16.3%
2015
7,492.8
1,288.8
17.2%
ercent Change
2017
2016
7.8%
10.9%
1.7 %
(3.5)%
The Outdoor & Action Sports coalition includes the following brands: VansVV
Reef®ff , Smartwool®, Eastpak®, lucy® and Eagle Creekrr
®.
®, The North FacFF e®, Timberland®, Kipling®, Napapijri®, JanSport®,
2017 compared
rr
to 2016
2016 compared
rr
to 2015
Global revenues for Outdoor & Action Sports increased 8% in 2017,
driven by growth in the direct-to-consumer and wholesale
channels, including a 1% favorable impact from foreign currency.
The direct-to-consumer growth was driven by strong e-commerce
and comparable store growth. Revenues in the Americas region
increased 5% in 2017, reflecting 13% growth in the non-U.S.
Americas region, which included a 2% favorable impact from
foreign currency, and 4% growth in the U.S. Revenues in Europe
increased 14%, including a 1% favorable impact from foreign
currency. Revenues in the Asia-Pacific region increased 7% in 2017,
including a 1% favorable impact from foreign currency.
VansVV
® brand global revenues increased 19% in 2017, reflecting
strong operational growth in both the direct-to-consumer and
wholesale channels. The growth in the direct-to-consumer
channel was driven by strong comparable store and e-commerce
growth.
Global revenues for The North FacFF e® brand increased 4% in 2017,
as growth
in the direct-to-consumer channel, driven by
comparable store and e-commerce growth, and a 1% favorable
impact from foreign currency, were partially offset by relatively flat
wholesale revenues. Global wholesale revenues for The North
FacFF e® brand were tempered by U.S. retailer bankruptcies, lower
year-over-year off-price shipments and efforts to manage
inventory levels in certain markets.
Global revenues for the Timberland® brand increased 2% in 2017,
as growth
in the direct-to-consumer channel, driven by
comparable store and e-commerce growth, and a 1% favorable
impact from foreign currency, were partially offset by relatively flat
wholesale revenues.
Global direct-to-consumer revenues for Outdoor & Action Sports
grew 17% in 2017, driven by an expanding e-commerce business,
comparable store growth and a 1% favorable impact from foreign
currency. Wholesale revenues increased 2% in 2017, driven by
growth in the VansVV
® brand and Europe, partially offset by the above-
mentioned U.S. retailer bankruptcies, lower year-over-year off-
price shipments and efforts to manage inventory levels in certain
markets.
Operating margin increased 50 basis points in 2017 despite a
negative impact from foreign currency. Excluding the impact of
foreign currency, gross margin expansion, driven by a mix-shift to
higher margin businesses, pricing and lower product costs, was
partially offset by increased investments in direct-to-consumer,
product and innovation, demand creation and technology.
Global revenues for Outdoor & Action Sports increased 2% in 2016,
reflecting strong growth in the direct-to-consumer channel,
partially offset by weakness in the U.S. wholesale channel.
Revenues in the Americas region were consistent with 2015, and
revenues in the Asia-Pacific region increased 4% in 2016 despite
a 2% negative impact from foreign currency. European revenues
increased 5% in 2016, representing operational growth of 4% and
a favorable impact from foreign currency of 1%.
VansVV
® brand global revenues were up 6% in 2016, reflecting strong
operational growth in the direct-to-consumer channel, partially
offset by declines in the wholesale channel and a negative 1%
impact from foreign currency.
Global revenues for The North FacFF e® brand decreased 2% in 2016,
as strong operational growth in the direct-to-consumer channel
was more than offset by declines in the wholesale channel in the
U.S. and an unfavorable foreign currency impact of 1%. The
wholesale revenue declines for The North FacFF e® brand were
attributable to retailer bankruptcies and management’s proactive
approach to managing inventory levels in the market by reducing
off-price shipments in the U.S. during the fourth quarter. The
combination of both factors negatively impacted revenue growth
for the year by approximately 4%.
Global revenues for the Timberland® brand were up 1% in 2016
driven by growth in the direct-to-consumer channel and
international business, partially offset by weaker wholesale
revenues in the U.S.
Global direct-to-consumer revenues for Outdoor & Action Sports
grew 12% in 2016, driven by new store openings and an expanding
e-commerce business, partially offset by an unfavorable 1% impact
from foreign currency. Wholesale revenues were down 4% in 2016,
primarily due to retailer bankruptcies and reduced off-price
shipments in the U.S., and a negative impact from foreign currency
of 1%.
Operating margin decreased 90 basis points in 2016 as the negative
impact from foreign currency, increased investments in direct-to-
consumer, product development and innovation and restructuring
charges more than offset the benefits of favorable pricing and lower
product costs.
VF Corporation 2017 Form 10-K 25
Jeanswear
(Dollars in millions)
Coalition revenues
Coalition profit
Operating margin
2017
2016
2015
2017
2016
$
2,655.4
$
2,737.7
$
2,792.2
421.9
15.9%
491.9
18.0%
535.4
19.2%
(3.0)%
(14.2)%
(2.0)%
(8.1)%
ercent Change
The Jeanswear coalition consists of the global jeanswear businesses, led by the WrWW angl
rr
er® and Lee® brands.
2017 compared
rr
to 2016
2016 compared
rr
to 2015
Global Jeanswear revenues decreased 3% in 2017 compared to
2016, as growth in the direct-to-consumer channel was more than
offset by U.S. wholesale declines in the mass, mid-tier and
department store channels. Specifically, our U.S. wholesale
business has been impacted by a key customer's inventory
destocking decision and continued channel consolidation, which
was partially mitigated by strong growth with our digital wholesale
partners. Revenues in the Americas region decreased 4% in 2017,
driven by softness in the wholesale channel. Revenues in the Asia-
Pacific region decreased 3% in 2017 due to declines in the
wholesale channel in Asia and India, partially offset by growth in
the direct-to-consumer channel in Asia. European revenues
increased 4% in 2017 due to growth in our wholesale and direct-
to-consumer businesses and a 2% favorable impact from foreign
currency.
rr
Global revenues for the WrWW angl
er® brand decreased 1% in 2017,
driven by declines in the U.S. mass and western specialty
businesses. Global revenues for the Lee® brand were down 6% in
2017 compared to 2016, due to declines in the U.S. mid-tier and
department store channels, which were partially offset by growth
in the direct-to-consumer channel.
Operating margin decreased 210 basis points in 2017 over 2016,
primarily due to lower revenues, gross margin contraction from
higher product costs and additional investments in our strategic
growth priorities.
Global Jeanswear revenues decreased 2% in 2016 compared to
2015, due to a 2% negative impact from foreign currency. Revenues
in the Americas region decreased 2% in 2016, due to a 2% negative
impact from foreign currency. Revenues in the Asia-Pacific region
decreased 4% in 2016, driven by a 5% negative impact from foreign
currency. European revenues increased 3% in 2016, including a 1%
negative impact from foreign currency.
rr
Global revenues for the WrWW angl
er® brand decreased 1% in 2016, as
1% operational growth, which was tempered by aggressive
inventory management by key retailers, was offset by a negative
2% impact from foreign currency. Global revenues for the Lee®
brand were down 3% in 2016 compared to 2015, primarily driven
by a negative 2% impact from foreign currency and softness in the
U.S. mid-tier channel.
Operating margin decreased 120 basis points in 2016 over 2015,
primarily due to lower gross margin largely driven by restructuring
charges and higher product costs as a result of lower production
volumes.
26 VF Corporation 2017 Form 10-K
Imagewear
(Dollars in millions)
Coalition revenues
Coalition profit
Operating margin
2017
2016
2015
2017
2016
$
$
830.2
113.3
13.6%
$
551.8
104.0
18.9%
577.5
105.9
18.3%
50.5%
8.9%
(4.4)%
(1.8)%
ercent Change
The Imagewear coalition consists of occupational apparel and uniform product categories including the Red Kap® and Bulwarkww
industrial businesses, as well as the workwear apparel brands from the Williamson-Dickie acquisition including Dickies®, Workrit
WW
Kodiak®, TerrTT
Licensed Sports Group (the "LSG transition services") that commenced in the second quarter of 2017.
® brand
e®,
arr ® and WallWW sll ®. The Imagewear coalition also includes the results of certain transition services related to the sale of the
2017 compared
rr
to 2016
2016 compared
rr
to 2015
Global Imagewear revenues increased 50% in 2017 compared to
2016. Included in these 2017 results are revenues from the LSG
transition services of $19.9 million and revenues from the
Williamson-Dickie acquisition of $247.2 million. Excluding
revenues from the LSG transition services and Williamson-Dickie,
Imagewear revenues increased 2% in 2017 compared to 2016
® brand, which was fueled
primarily due to growth in our Bulwarkww
by increased oil and gas exploration activities, mostly offset by
industry consolidation.
Operating margin decreased 530 basis points in 2017 compared to
2016. Excluding the impact of the LSG transition services and the
Williamson-Dickie acquisition, operating margin
in 2017
decreased 250 basis points. The decrease was driven by lower
gross margin attributable to business mix and higher inventory
costs and higher selling, general and administrative expenses.
Imagewear revenues decreased 4% in 2016 compared to 2015
industrial
primarily due to continued weakness
manufacturing and energy sectors, which negatively impacted
® and Red Kap® brands.
sales of the Bulwarkww
the
in
The 60 basis point increase in operating margin in 2016 compared
to 2015 was driven by improved gross margin, primarily due to
favorable pricing, product mix and foreign currency impacts,
partially offset by restructuring charges.
Other
(Dollars in millions)
Revenues
Profit (loss)
Operating margin
2017
2016
2015
2017
2016
$
113.1
$
118.0
$
(3.1)
(2.7)%
(4.8)
(4.1)%
133.9
15.0
11.2%
(4.2)%
35.9 %
(11.8)%
(132.2)%
ercent Change
VF Outlet® stores in the U.S. sell both VF and non-VF products.
Revenues and profits of VF products sold in these stores are
reported as part of the operating results of the applicable coalition,
while revenues and profits of non-VF products are reported in this
“other” category. The improvement in profit and operating margin
in 2017 was due to no restructuring charges during the year. The
decrease in profit and operating margin in 2016 was primarily due
to a $16.6 million gain recognized on the sale of a VF
Outlet® location during 2015 and restructuring charges of $1.3
million in 2016.
Reconciliation of Coalition Profit to Consolidated Income Before Income TaTT xes
There are three types of costs necessary to reconcile total coalition
profit to consolidated income before income taxes. These costs are
(i) impairment of goodwill and intangible assets, which is excluded
from coalition profit because these costs are not part of the ongoing
operations of the respective businesses, (ii) interest expense, net,
which is excluded from coalition profit because substantially all
financing costs are managed at the corporate office and are not
under the control of coalition management, and (iii) corporate and
other expenses, discussed below, which are excluded from
coalition profit to the extent they are not allocated to the coalitions.
Impairment of goodwill and intangible assets and net interest
expense are discussed in the “Consolidated Statements of Income”
section, and corporate and other expenses are discussed below.
VF Corporation 2017 Form 10-K 27
Following is a summary of VF’s corporate and other expenses:
(In millions)
Information systems and shared services
Less costs allocated to coalitions
Information systems and shared services retained at
corporate
Corporate headquarters’ costs
Other
Corporate and other expenses
Informa
ff
tion SyS styy ems and Shared
rr
Services
These costs include management information systems and the
centralized finance, supply chain, human resources, direct-to-
consumer and customer management functions that support
worldwide operations. Operating costs of information systems and
shared services are charged to the coalitions based on utilization
of those services. Costs to develop new computer applications are
generally not allocated to the coalitions. The increases in
information systems and shared services costs in 2017 and 2016
primarily resulted from the costs associated with software system
implementations and upgrades and other strategic projects.
Corporarr te Headquartersrr ’ Coststt
Headquarters’ costs
include compensation and benefits
of corporate management and staff, legal and professional fees
and general and administrative expenses that have not been
allocated to the coalitions. The increase in corporate headquarters’
costs in 2017 compared to 2016 was primarily driven by higher
strategic project costs, an increase in cash and stock-based
International Operations
2017
2016
2015
365.0
$
(228.4)
333.0 $
(213.9)
136.6
218.4
53.0
119.1
169.1
96.2
408.0
$
384.4 $
307.6
(190.8)
116.8
138.1
44.3
299.2
$
$
compensation expense and charitable contributions. The increase
in corporate headquarters’ costs in 2016 compared to 2015 was
primarily driven by restructuring initiatives in the fourth quarter of
2016 and higher cash and stock-based compensation expense.
Other
This category includes (i) costs of corporate programs or
corporate-managed decisions that are not allocated to the
coalitions, (ii) costs of registering, maintaining and enforcing
certain of VF’s trademarks, and (iii) miscellaneous consolidated
costs, the most significant of which is related to the expense of VF’s
centrally-managed U.S. defined benefit pension plans. The
decrease in other expense in 2017 compared to 2016 and the
increase in other expense in 2016 compared to 2015 was largely
driven by a $50.9 million settlement charge in 2016 related to our
U.S. pension obligation, resulting from offering former employees
a one-time option to receive a lump sum distribution of their
deferred vested benefits.
International revenues increased 12% in 2017 compared to an
increase of 3% in 2016. Foreign currency favorably impacted
international revenue growth by 1% in 2017 and negatively
impacted growth by 3% in 2016. Revenues in Europe increased 15%
in 2017, reflecting operational growth and a 2% benefit from foreign
In the Asia-Pacific region, revenues increased 6%
currency.
primarily driven by strong growth across the region, particularly in
China. Revenues in the Americas (non-U.S.) region grew 13%,
reflecting operational growth and a 1% benefit from foreign
currency. International revenues represented 41% and 40% of total
VF revenues in 2017 and 2016, respectively.
Direct-to-Consumer Operations
Direct-to-consumer revenues grew 17% in 2017 compared to
growth of 10% in 2016, reflecting growth in all regions and in nearly
every brand with a retail format. Foreign currency favorably
impacted direct-to-consumer revenue growth by 1% in 2017 and
negatively impacted direct-to-consumer growth by 1% in 2016. The
increase in direct-to-consumer revenues in both periods was due
to comparable store growth for locations open at least twelve
months at each reporting date, and an expanding e-commerce
business which grew 34% and 23% in 2017 and 2016, respectively.
VF opened 111 stores in 2017, bringing the total number of VF-
owned retail stores to 1,518 at December 2017. Direct-to-
consumer revenues were 32% of total VF revenues in 2017
compared to 29% in 2016.
28 VF Corporation 2017 Form 10-K
ANALYSIS OF FINANCIAL CONDITION
Balance Sheets
The Williamson-Dickie acquisition significantly impacted the December 2017 Consolidated Balance Sheet. Accordingly, the table below
presents the December 2017 balance sheet accounts excluding the Williamson-Dickie balances at that date so that the remaining VF
balances are comparable with the December 2016 balances.
(In thousands)
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Intangible assets and goodwill
Other assets
Short-term borrowings
Current portion of long-term debt
Accounts payable
Accrued liabilities
Long-term debt
Other liabilities
December 2017
December 2016
As Reported
Williamson-Dickie
VF excluding
Williamson-Dickie
As Reported
$
1,422,101 $
132,402 $
1,289,699
$
1,705,171
296,712
1,002,700
3,782,425
781,253
729,384
6,165
755,569
1,143,330
2,187,789
1,305,613
236,749
10,601
100,520
488,570
12,291
—
2,285
84,425
48,987
25,490
21,811
1,468,422
286,111
902,180
3,293,855
768,962
729,384
3,880
671,144
1,094,343
2,162,299
1,283,802
1,148,797
1,424,571
293,888
895,960
3,088,595
922,312
26,029
253,689
620,194
812,032
2,039,180
885,825
Unless noted otherwise, the discussion that follows relates to VF's
businesses excluding
the Williamson-Dickie balances at
December 2017. The discussion refers to significant changes in
balances at December 2017 compared to December 2016:
•
•
•
in accounts recrr eivabl
Increase
e — primarily due to higher
rr
wholesale shipments in the fourth quarter of 2017 and the
impact of foreign currency fluctuations.
vv
Increase
rr
currency fluctuations.
in inventories — driven by the impact of foreign
Increase
rr
impact of foreign currency fluctuations.
in intangible assets and goodwill — driven by the
• Decrease
rr
in other assets — primarily due to the cumulative-
effect adjustment to retained earnings of a deferred charge
upon the early adoption of the accounting standards update
regarding intra-entity asset transfers; partially offset by an
increase in net pension assets for certain defined benefit
plans and the impact of foreign currency fluctuations.
•
Increase
in short-term borrorr wings — due to the increase in
rr
commercial paper borrowings primarily related to the
funding of the Williamson-Dickie acquisition.
• Decrease
rr
in currenrr
t portion of long-term debt — due to the
repayment of $250.0 million of notes that matured during
the year.
•
•
•
•
in accounts payabl
e — primarily due to the timing
rr
Increase
of inventory purchases and payments to vendors and the
impact of foreign currency fluctuations.
yy
Increase
in accrued liabilities — primarily due to changes in
rr
the fair value of derivative liabilities related to foreign
exchange contracts, an increase in accrued income taxes
related to the current portion of the transition tax related to
the Tax Act and the impact of foreign currency fluctuations.
Increase
rr
fluctuations of euro-denominated bonds.
in long-term debt — due to foreign currency
Increase
in other liabilities — primarily due to an increase in
rr
accrued income taxes from the noncurrent portion of the
transition tax related to the Tax Act, partially offset by a
decrease in deferred income tax liabilities resulting from
revaluation at the lower U.S. corporate rate required by the
Tax Act.
VF Corporation 2017 Form 10-K 29
Liquidity and Cash Flows
The financial condition of VF is reflected in the following:
(Dollars in millions)
Working capital
Current ratio
Debt to total capital
2017
$1,355.6
1.5 to 1
44.0%
2016
$2,383.2
2.4 to 1
31.9%
For the ratio of debt to total capital, debt is defined as short-term
and long-term borrowings, and total capital is defined as debt plus
stockholders’ equity. The increase in the debt to total capital ratio
at December 2017 compared to 2016 was primarily due to the
increase in short-term borrowings, partially offset by the decrease
in total long-term debt, as discussed in “Balance Sheets” above.
In addition, VF repurchased $1.2 billion of stock and paid $684.7
million in dividends in 2017, which reduced stockholders’ equity by
$1.9 billion. Stockholder's equity was also reduced by $237.8
million related to the cumulative-effect adjustment upon the early
adoption of the accounting standards update regarding intra-entity
asset transfers and the impact of the $465.5 million provisional net
charge related to the Tax Act.
VF’s primary source of liquidity is the strong annual cash flow
provided by operating activities. Cash from operations is typically
lower in the first half of the year as inventory builds to support peak
sales periods in the second half of the year. Cash provided by
operating activities in the second half of the year is substantially
higher as inventories are sold and accounts receivable are
collected. Additionally,direct-to-consumer sales are highest in the
fourth quarter of the year.
In summary, our cash flows were as follows:
(In millions)
Cash provided by operating activities
Cash used by investing activities
Cash used by financing activities
2017
2016
2015
$
1,474.7
$
1,480.6 $
(776.3)
(1,363.0)
(112.4)
(1,076.9)
1,203.6
(322.8)
(840.2)
The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows. Accordingly,
the information in the table above and cash flow discussion below include the results of continuing and discontinued operations.
Cash Prorr vided by b Operarr ting Activities
Cash flow provided by operating activities is dependent on the level
of net income, adjustments to net income and changes in working
capital. Cash provided by operating activities remained relatively
flat as lower net income was offset by working capital changes
primarily related to an increase in accrued income tax payable
resulting from the Tax Act.
Cash provided by operating activities increased $277.0 million in
2016 primarily due to i) a $250.0 million discretionary contribution
to the U.S. qualified pension plan in 2015 that did not recur in 2016,
and ii) a decrease in net cash usage from working capital changes
due in part to higher collections of accounts receivable and lower
increases of inventory, partially offset by higher levels of cash tax
payments compared to 2015.
Cash Used by b Investing
vv
Activities
VF’s investing activities in 2017 related primarily to the Williamson-
Dickie acquisition of $740.5 million, net of cash received.
Additionally, the activities included $215.0 million of proceeds from
the sale of LSG, which is $99.0 million higher than the proceeds
received from the sale of the Contemporary Brands coalition in
2016. Capital expenditures of $169.6 million and software
purchases of $65.2 million offset the proceeds received. Capital
expenditures decreased $6.3 million compared to 2016. Software
purchases increased $21.0 million in 2017 primarily due to system
implementations and investments in our digital platform.
VF’s investing activities in 2016 related primarily to capital
expenditures of $175.8 million and software purchases of
$44.2 million, partially offset by $116.0 million of proceeds from
the sale of its Contemporary Brands coalition. Capital expenditures
decreased $78.7 million compared to 2015 primarily due to the
purchase in 2015 of a headquarters building in the Outdoor & Action
Sports coalition. Software purchases decreased $19.1 million in
2016 primarily due to the completion of a major system
implementation that incurred significant costs through the middle
of 2015.
Cash Used by b Financing Activities
The increase in cash used by financing activities in 2017 compared
to 2016 was driven by i) no long-term debt borrowings in 2017
compared to $951.8 million in proceeds during 2016, ii) the $250.0
million repayment of long-term debt discussed in "Balance
Sheets" above,
iii) a $199.9 million increase in purchases of
treasury stock, and iv) a $48.7 million increase in cash dividends
paid. These increases were partially offset by the $1.1 billion
increase in net cash generated by short-term borrowings as
discussed in “Balance Sheets” above.
The increase in cash used by financing activities in 2016 compared
to 2015 was driven by i) the $853.3 million net decrease in short-
term borrowings, ii) a $267.8 million increase in purchases of
treasury stock and iii) a $70.7 million increase in cash dividends
paid. These increases were partially offset by $951.8 million of
proceeds from the issuance of long-term debt.
During 2017, 2016 and 2015, VF purchased 22.2 million, 15.9 million
and 10.0 million shares, respectively, of its Common Stock in open
market transactions. The respective cost was $1.2 billion,
$1.0 billion and $732.6 million with an average price per share of
$54.04 in 2017, $62.80 in 2016 and $73.00 in 2015.
In March 2017, VF's Board of Directors approved a $5.0 billion share
repurchase authorization, replacing the 2013 authorization. As of
30 VF Corporation 2017 Form 10-K
the end of 2017, VF has purchased 14.0 million shares of its
Common Stock in open market transactions at a total cost of $762.1
million (average price per share of $54.46) under the new share
repurchase authorization, and had $4.2 billion remaining for future
repurchases. VF will continue to evaluate its use of capital, giving
first priority to business acquisitions and then to direct shareholder
return in the form of dividends and share repurchases.
VF relied on continued strong cash generation to finance its
ongoing operations. In addition, VF has significant liquidity from its
available cash balances and credit facilities. VF maintains a $2.25
billion senior unsecured revolving line of credit (the “Global Credit
Facility”). The Global Credit Facility expires in April 2020 and VF
may request two extensions of one year each, subject to stated
terms and conditions. The Global Credit Facility may be used to
borrow funds in both U.S. dollar and certain non-U.S. dollar
currencies, and has a $50.0 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. Borrowings under the Global Credit Facility are
priced at a credit spread of 80.5 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 7.0 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.
VF has a commercial paper program that allows for borrowings up
to $2.25 billion to the extent that it has borrowing capacity under
the Global Credit Facility. Commercial paper borrowings and
standby letters of credit issued as of December 2017 were $705.0
million and $15.3 million, respectively, leaving $1.5 billion available
for borrowing against the Global Credit Facility at December 2017.
VF has $267.0 million of international lines of credit with various
banks, which are uncommitted and may be terminated at any time
and 2016,
by either VF or the banks. Total outstanding balances under these
arrangements were $24.4 million and $26.0 million at December
2017
these
arrangements had a weighted average interest rate of 9.9% and
7.2% at December 2017 and 2016, respectively, excluding accepted
letters of credit which are non-interest bearing to VF.
respectively. Borrowings
under
VF repaid $250.0 million of 5.95% fixed-rate notes on November 1,
2017, using a combination of operating cash flows and commercial
paper borrowings.
VF’s favorable credit agency ratings allow for access to additional
liquidity at competitive rates. At the end of 2017, VF’s long-term
debt ratings were ‘A’ by Standard & Poor’s Ratings Services and
‘A3’ by Moody’s Investors Service, and commercial paper ratings
by those rating agencies were ‘A-1’ and ‘Prime-2’, respectively.
None of VF’s long-term debt agreements contain acceleration of
maturity clauses based solely on changes in credit ratings.
However, if there were a change in control of VF and, as a result of
the change in control, the 2021, 2023 and 2037 notes were rated
below investment grade by recognized rating agencies, VF would
be obligated to repurchase the notes at 101% of the aggregate
principal amount of notes repurchased, plus any accrued and
unpaid interest.
Cash dividends totaled $1.72 per share in 2017, compared to $1.53
in 2016 and $1.33 in 2015. The dividend payout ratio was 96.2% of
diluted earnings per share in 2017, 59.9% in 2016 and 47.2% in
2015. Based on the quarterly dividend in place, the current
indicated annual dividend rate for 2018 is $1.84 per share.
Following is a summary of VF’s contractual obligations and commercial commitments at the end of 2017 that will require the use of
funds:
(In millions)
Recorded liabilities:
Long-term debt (1)
Other (2)
Unrecorded commitments:
Interest payment obligations (3)
Operating leases (4)
Minimum royalty payments (5)
Inventory obligations (6)
Other obligations (7)
Total
2018
Payment Due or Forecasted by Calendar Year
2022
2019
2020
2021
Thereafter
$
2,186
$
4
$
4 $
4 $
502 $
— $
1,672
452
840
1,156
31
1,820
442
123
65
346
16
1,820
365
82
65
272
7
—
48
59
65
207
5
—
12
45
64
138
3
—
8
41
47
86
—
—
3
102
534
107
—
—
6
$
6,927
$
2,739
$
478 $
352 $
760 $
177 $
2,421
(1)
(2)
Long-term debt consists of required principal payments on long-term debt and capital lease obligations.
Other recorded liabilities represent payments due for long-term liabilities in VF’s Consolidated Balance Sheet related to deferred compensation
and other employee-related benefits, product warranty claims and other liabilities. These amounts are based on historical and forecasted cash
outflows. Amounts exclude liabilities for unrecognized income tax benefits and deferred income taxes.
Obligations under our qualified defined benefit pension plans and unfunded supplemental executive retirement plan are not included in the table
above. Contractual cash obligations for these plans cannot be determined due to the number of assumptions required to estimate our future benefit
obligations, including return on assets, discount rate and future compensation increases. The liabilities associated with these plans are presented
in Note N to the consolidated financial statements. We currently estimate that we will make contributions of approximately $35.1 million to our
pension plans during calendar year 2018. Future contributions may differ from our planned contributions due to many factors, including changes
VF Corporation 2017 Form 10-K 31
in tax and other benefit laws, changes to the plan, or significant differences between expected and actual pension asset performance or interest
rates.
Interest payment obligations represent required interest payments on long-term debt and the interest portion of payments on capital leases. Amounts
exclude amortization of debt issuance costs, debt discounts and acquisition costs that would be included in interest expense in the consolidated
financial statements.
Operating leases represent required minimum lease payments during the noncancelable lease term. Most real estate leases also require payment
of related operating expenses such as taxes, insurance, utilities and maintenance, which are not included above.
(3)
(4)
(5) Minimum royalty payments represent obligations under license agreements to use trademarks owned by third parties and include required minimum
(6)
(7)
advertising commitments. Actual payments could exceed minimum royalty obligations.
Inventory obligations represent binding commitments to purchase finished goods, raw materials and sewing labor that are payable upon delivery
of the inventory to VF. This obligation excludes the amount included in accounts payable at December 2017 related to inventory purchases.
Other obligations represent other binding commitments for the expenditure of funds, including (i) amounts related to contracts not involving
the
ll
purchase of inventories, such as the noncancelable portion of service or maintenance agreements for management information systems, (ii) capital
expenditures for approved projects, and (iii) amounts related to the definitive merger agreement to acquire 100% of the stock of Icebreaker Holdings,
Ltd.
VF had other financial commitments at the end of 2017 that are not
included in the above table but may require the use of funds under
certain circumstances:
•
$123.9 million of surety bonds, custom bonds, standby
letters of credit and international bank guarantees are not
included in the above table because they represent
contingent guarantees of performance under self-
insurance and other programs and would only be drawn
upon if VF were to fail to meet its other obligations.
• Purchase orders for goods or services in the ordinary course
of business are not included in the above table because they
represent authorizations to purchase rather than binding
commitments.
Management believes that VF’s cash balances and funds provided
by operating activities, as well as its Global Credit Facility,
additional borrowing capacity and access to capital markets, taken
as a whole, provide (i) adequate liquidity to meet all of its current
and long-term obligations when due, (ii) adequate liquidity to fund
capital expenditures and to maintain the planned dividend payout
rate, and (iii) flexibility to meet investment opportunities that may
arise.
VF does not participate in transactions with unconsolidated entities
or financial partnerships established to facilitate off-balance sheet
arrangements or other limited purposes.
Risk Management
VF is exposed to risks in the ordinary course of business.
Management regularly assesses and manages exposures to these
risks through operating and financing activities and, when
appropriate, by (i) taking advantage of natural hedges within VF,
(ii) purchasing insurance from commercial carriers, or (iii) using
derivative financial
instruments. Some potential risks are
discussed below:
rr
Insured
risks
VF is self-insured for a significant portion of its employee medical,
workers’ compensation, vehicle and general liability exposures. VF
purchases insurance from highly-rated commercial carriers to
cover other risks, including directors and officers, property and
umbrella, and to establish stop-loss limits on self-insurance
arrangements.
Cash and equivalvv entstt risks
VF had $566.1 million of cash and equivalents at the end of 2017.
Management continually monitors the credit ratings of the
financial institutions with whom VF conducts business. Similarly,
management monitors the credit quality of cash equivalents.
Defined benefit pension plan risks
At the end of 2017, VF’s defined benefit pension plans were
underfunded by a net total of $134.2 million. The underfunded
status includes a $162.0 million liability related to our unfunded
U.S. nonqualified defined benefit plan, $48.5 million of net
liabilities related to our non-U.S. defined benefit plans, and a
$76.3 million asset related to our U.S. qualified defined benefit
32 VF Corporation 2017 Form 10-K
plan. VF has made significant cash contributions in recent years to
improve the funded status of its plans, including a discretionary
contribution to the U.S. qualified plan of $250.0 million in 2015. VF
will continue to evaluate the funded status and future funding
requirements of these plans, which depends in part on the future
performance of the plans’ investment portfolios. Management
believes that VF has sufficient liquidity to make any required
contributions to the pension plans in future years.
VF’s reported earnings are subject to risks due to the volatility of
its pension expense, which has ranged in recent years from $34.8
million in 2017 to $113.0 million in 2016, including the $50.9 million
settlement charge discussed below. These fluctuations are
primarily due to varying amounts of actuarial gains and losses that
are deferred and amortized to future years’ expense. The
assumptions that impact actuarial gains and losses include the
rate of return on investments held by the pension plans, the
discount rate used to value participant liabilities and demographic
characteristics of the participants.
During 2016, VF took an additional step in managing pension risk
by offering former employees in the U.S. qualified plan a one-time
option to receive a distribution of their deferred vested benefits,
pursuant to which the plan paid $197.1 million in lump-sum
distributions to settle $224.7 million of projected benefit
obligations. The Company recorded $50.9 million in settlement
charges during 2016 to recognize the related deferred actuarial
losses in accumulated other comprehensive income (loss). No
additional funding of the pension plan was required as all
distributions were paid out of existing plan assets, and the plan’s
funded status remained materially unchanged as a result of this
offer. However, assuming other key assumptions remain
unchanged, pension expense will decrease in future years due to
lower amortization of net deferred actuarial losses. Refer to Note
N to the consolidated financial statements and the “Critical
Accounting Policies and Estimates” section below.
VF has taken a series of steps to manage the risk and volatility in
the pension plans and their impact on the financial statements. In
2005, VF’s U.S. defined benefit plans were closed to new entrants,
which did not affect the benefits of existing plan participants at that
date or their accrual of future benefits. In more recent years, the
investment strategy of the U.S. qualified plan has been revised to
define dynamic asset allocation targets that are dependent upon
changes in the plan’s funded status, capital market expectations,
and risk tolerance. Additionally, VF completed the one-time lump-
sum offering noted above during 2016 which reduced the number
of plan participants in the U.S. qualified plan by 23%. Management
will continue to evaluate actions that may help to reduce VF’s risks
related to its defined benefit plans.
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Interest
rarr te risks
VF limits the risk of interest rate fluctuations by managing the mix
of fixed and variable interest rate debt. In addition, VF may use
derivative financial instruments to manage risk. Since all of VF’s
long-term debt has fixed interest rates, the exposure relates to
changes in interest rates on variable rate short-term borrowings
(which averaged approximately $870 million during 2017).
However, any change in interest rates would also affect interest
income earned on VF’s cash equivalents. Based on the average
amount of variable rate borrowings and cash equivalents during
2017, the effect of a hypothetical 1% increase in interest rates would
be a decrease in reported net income of approximately $3.6 million.
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ForFF eign
rr
currency
exee change
xx
rarr te risks
VF is a global enterprise subject to the risk of foreign currency
fluctuations. Approximately 41% of VF’s revenues in 2017 were
generated in international markets. Most of VF’s foreign
businesses operate in functional currencies other than the U.S.
dollar. In periods where the U.S. dollar strengthens relative to the
euro or other foreign currencies where VF has operations, there is
a negative impact on VF’s operating results upon translation of
those foreign operating results into the U.S. dollar. As discussed
later in this section, management hedges VF’s investments in
certain foreign operations and foreign currency transactions.
The reported values of assets and liabilities in these foreign
businesses are subject to fluctuations in foreign currency
exchange rates. For net advances to and investments in VF’s foreign
businesses that are considered to be long-term, the impact of
changes in foreign currency exchange rates on those long-term
advances is deferred as a component of accumulated OCI in
stockholders’ equity. The U.S. dollar value of net investments in
foreign subsidiaries fluctuates with changes in the underlying
functional currencies. On September 20, 2016, VF issued €850
million of euro-denominated fixed-rate notes which it has
designated 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. Any
amounts deferred in accumulated OCI will remain until the hedged
investment is sold or substantially liquidated.
VF monitors net foreign currency market exposures and enters into
derivative foreign currency contracts to hedge the effects of
exchange rate fluctuations for a significant portion of forecasted
foreign currency cash flows or specific foreign currency
transactions (relating to cross-border
inventory purchases,
production costs, product sales, operating costs and intercompany
royalty payments). VF’s practice is to buy or sell foreign currency
exchange contracts that cover up to 80% of foreign currency
exposures for periods of up to 24 months. Currently, VF uses only
foreign exchange forward contracts but may use options or collars
in the future. This use of financial instruments allows management
to reduce the overall exposure to risks from exchange rate
fluctuations on VF’s cash flows and earnings, since gains and
losses on these contracts will offset losses and gains on the
transactions being hedged.
For cash flow hedging contracts outstanding at the end of 2017, if
there were a hypothetical 10% change in foreign currency exchange
rates compared to rates at the end of 2017, it would result in a
change in fair value of those contracts of approximately $230
million. However, any change in the fair value of the hedging
contracts would be substantially offset by a change in the fair value
of the underlying hedged exposure impacted by the currency rate
changes.
Counterparty risks
losses
in the event of
VF is exposed to credit-related
nonperformance by counterparties
to derivative hedging
instruments. To manage this risk, we have established
counterparty credit guidelines and only enter into derivative
transactions with financial institutions that have ‘A minus/A3’
investment grade credit ratings or better. VF continually monitors
the credit rating of, and limits the amount hedged with, each
counterparty. Additionally, management utilizes a portfolio of
financial
to potential
counterparty defaults and adjusts positions as necessary. VF also
monitors counterparty risk for derivative contracts within the
defined benefit pension plans.
to minimize exposure
institutions
Commodity price risks
VF is exposed to market risks for the pricing of cotton, leather,
rubber, wool and other materials, which we either purchase
directly or in a converted form such as fabric or shoe soles. To
manage risks of commodity price changes, management
negotiates prices in advance when possible. VF has not historically
managed commodity price exposures by using derivative
instruments.
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Deferr
ed
ff
compensation and relarr
vv
ted investmen
t security risks
VF has nonqualified deferred compensation plans in which
liabilities to the plans’ participants are based on the market values
of
the participants’ selection of a hypothetical portfolio of
investment funds, including VF Common Stock. VF invests in a
portfolio of securities that substantially mirrors the participants’
investment selections. The increases and decreases in deferred
compensation liabilities (except for the participants’ investment
selections in VF Common Stock) are substantially offset by
corresponding increases and decreases in the market value of VF’s
investments, resulting in an insignificant net exposure to operating
results and financial position. The VF Common Stock is treated as
treasury shares for financial reporting purposes, so any gains or
losses on those shares result in exposure to operating results and
financial position as a result of the corresponding change in
participant liabilities.
VF Corporation 2017 Form 10-K 33
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
VF has chosen accounting policies that management believes are
appropriate to accurately and fairly report VF’s operating results
and financial position in conformity with accounting principles
generally accepted in the U.S. VF applies these accounting policies
in a consistent manner. Significant accounting policies are
summarized in Note A to the consolidated financial statements.
The application of these accounting policies requires that VF make
estimates and assumptions about
future events and apply
judgments that affect the reported amounts of assets, liabilities,
revenues, expenses, contingent assets and liabilities, and related
disclosures. These estimates, assumptions and judgments are
based on historical experience, current trends and other factors
believed to be reasonable under the circumstances. Management
evaluates these estimates and assumptions on an ongoing basis.
Because VF’s business cycle is relatively short (i.e., from the date
that inventory is received until that inventory is sold and the trade
receivable is collected), actual results related to most estimates
are known within a few months after any balance sheet date. In
addition, VF may retain outside specialists to assist in valuations
of business acquisitions, impairment testing of goodwill and
intangible assets, equity compensation, pension benefits and self-
insured liabilities. If actual results ultimately differ from previous
estimates, the revisions are included in results of operations when
the actual amounts become known.
VF believes the following accounting policies involvll e the most
significant management estimates, assumptions and judgments
used in preparation of the consolidated financial statements or are
the most sensitive to change from outside factors. The application
of these critical accounting policies and estimates is discussed with
the Audit Committee of the Board of Directors.
Inventories
VF’s inventories are stated at the lower of cost or net realizable
value. Cost includes all material, labor and overhead costs incurred
to manufacture or purchase the finished goods. Overhead allocated
to manufactured product is based on the normal capacity of plants
and does not include amounts related to idle capacity or abnormal
production inefficiencies. VF performs a detailed review at each
business unit, at least quarterly, of all inventories on the basis of
individual styles or individual style-size-color stock keeping units
to identify slow moving or excess products, discontinued and to-
be-discontinued products, and off-quality merchandise. This
review matches inventory on hand, plus current production and
purchase commitments, with current and expected future sales
orders. Management performs an evaluation to estimate net
realizable value using a systematic and consistent methodology of
forecasting future demand, market conditions and selling prices
less costs of disposal. If the estimated net realizable value is less
than cost, VF provides an allowance to reflect the lower value of
that inventory. This methodology recognizes inventory exposures
at the time such losses are evident rather than at the time goods
are actually sold. Historically, these estimates of future demand
and selling prices have not varied significantly from actual results
due to VF’s timely identification and ability to rapidly dispose of
these distressed inventories.
Existence of physical inventory is verified through periodic physical
inventory counts and ongoing cycle counts at most locations
throughout the year. VF provides for estimated inventory losses
that have likely occurred since the last physical inventory date.
Historically, physical inventory shrinkage has not been significant.
Long-Lived Assets, Including Intangible Assets and Goodwill
VF allocates the purchase price of an acquired business to the fair
values of the tangible and intangible assets acquired and liabilities
assumed, with any excess purchase price recorded as goodwill. VF
evaluates fair value at acquisition using three valuation techniques
- the replacement cost, market and income methods - and weights
the valuation methods based on what is most appropriate in the
circumstances. The process of assigning fair values, particularly
to acquired intangible assets, is highly subjective.
if any. VF’s amortization policies for definite-lived intangible assets
reflect judgments on the estimated amounts and duration of future
cash flows expected to be generated by those assets. In evaluating
the amortizable life for customer relationship intangible assets,
management considers historical attrition patterns for various
groups of customers. For license-related intangible assets,
management considers historical trends and anticipated license
renewal periods.
Fair value for acquired intangible assets is generally based on the
present value of expected cash flows. Indefinite-lived trademark
or trade name intangible assets (collectively referred to herein as
“trademarks”) represent individually acquired trademarks, some
of which are registered in multiple countries. Definite-lived
customer relationship intangible assets are based on the value of
relationships with wholesale customers at the time of acquisition.
Definite-lived license intangible assets relate to VF's licensing
contracts with customers. Goodwill represents the excess of cost
of an acquired business over the fair value of net tangible assets
and identifiable intangible assets acquired, and is assigned at the
reporting unit level.
VF’s depreciation policies for property, plant and equipment reflect
judgments on their estimated economic lives and residual value,
VF’s policy is to review property, plant and equipment and definite-
lived intangible assets for potential impairment whenever events
or changes in circumstances indicate that the carrying value of an
asset or asset group may not be recoverable. VF tests for potential
impairment at the asset or asset group level, which is the lowest
level for which there are identifiable cash flows that are largely
independent. VF measures recoverability of the carrying value of
an asset or asset group by comparison to the estimated
undiscounted cash flows expected to be generated by the asset. If
the forecasted undiscounted cash flows to be generated by the
asset are not expected to be adequate to recover the asset’s
carrying value, a fair value analysis must be performed, and an
impairment charge is recorded if there is an excess of the asset’s
carrying value over its estimated fair value.
34 VF Corporation 2017 Form 10-K
When testing customer relationship intangible assets for potential
impairment, management considers historical customer attrition
rates and projected revenues and profitability related to customers
that existed at acquisition. Management uses the multi-period
excess earnings method, which is a specific application of the
discounted cash flow method, to value customer relationship
assets. Under this method, VF calculates the present value of the
after-tax cash flows expected to be generated by the customer
relationship asset after deducting contributory asset charges.
VF’s policy is to evaluate indefinite-lived intangible assets and
goodwill for possible impairment as of the beginning of the fourth
quarter of each year, or whenever events or changes in
circumstances indicate that the fair value of such assets may be
below their carrying amount. As part of its annual impairment
testing, VF may elect to assess qualitative factors as a basis for
determining whether it is necessary to perform quantitative
these
impairment testing.
qualitative factors indicates that it is not more likely than not that
the fair value of the intangible asset or reporting unit is less than
its carrying value, then no further testing is required. Otherwise,
the intangible asset or reporting unit must be quantitatively tested
for impairment.
If management’s assessment of
An indefinite-lived intangible asset is quantitatively tested for
possible impairment by comparing the estimated fair value of the
asset to its carrying value. Fair value of an indefinite-lived
trademark is based on an income approach using the relief-from-
royalty method. Under this method, forecasted revenues for
products sold with the trademark are assigned a royalty rate that
would be charged to license the trademark (in lieu of ownership),
and the estimated fair value is calculated as the present value of
those forecasted royalties avoided by owning the trademark. The
appropriate discount rate is based on the reporting unit’s weighted
average cost of capital (“WACC”) that considers market participant
assumptions, plus a spread that factors in the risk of the intangible
asset. The royalty rate is selected based on consideration of i)
royalty rates included in active license agreements, if applicable,
ii) royalty rates received by market participants in the apparel
industry and iii) the current performance of the reporting unit. If
the estimated fair value of the trademark intangible asset exceeds
its carrying value, there is no impairment charge. If the estimated
fair value of the trademark is less than its carrying value, an
impairment charge would be recognized for the difference.
Goodwill is quantitatively evaluated for possible impairment by
comparing the estimated fair value of a reporting unit to its carrying
value. Reporting units are businesses with discrete financial
information that
is available and reviewed by coalition
management.
For goodwill impairment testing, VF estimates the fair value of a
reporting unit using both income-based and market-based
valuation methods. The income-based approach is based on the
reporting unit’s forecasted future cash flows that are discounted
to present value using the reporting unit’s WACC as discussed
above. For the market-based approach, management uses both
the guideline company and similar transaction methods. The
guideline company method analyzes market multiples of revenues
and earnings before interest, taxes, depreciation and amortization
(“EBITDA”) for a group of comparable public companies. The
market multiples used in the valuation are based on the relative
strengths and weaknesses of the reporting unit compared to the
selected guideline companies. Under the similar transactions
method, valuation multiples are calculated utilizing actual
transaction prices and revenue/EBITDA data from target
companies deemed similar to the reporting unit.
Based on the range of estimated fair values developed from the
income and market-based methods, VF determines the estimated
fair value for the reporting unit. If the estimated fair value of the
reporting unit exceeds its carrying value, the goodwill is not
impaired and no further review is required. However, if the
estimated fair value of the reporting unit is less than its carrying
value, VF calculates the impairment loss as the difference between
the carrying value of the reporting unit and the estimated fair value.
The income-based fair value methodology requires management’s
assumptions and judgments regarding economic conditions in the
markets in which VF operates and conditions in the capital markets,
many of which are outside of management’s control. At the
reporting unit level, fair value estimation requires management’s
assumptions and judgments regarding the effects of overall
economic conditions on the specific reporting unit, along with
assessment of the reporting unit’s strategies and forecasts of
future cash flows. Forecasts of individual reporting unit cash flows
involve management’s estimates and assumptions regarding:
• Annual cash flows, on a debt-free basis, arising from future
revenues and profitability, changes in working capital,
capital spending and income taxes for at least a 10-year
forecast period.
• A terminal growth rate for years beyond the forecast period.
The terminal growth rate is selected based on consideration
of growth rates used in the forecast period, historical
performance of the reporting unit and economic conditions.
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• A discount rate that reflects the risks inherent in realizing
the forecasted cash flows. A discount rate considers the
risk-free
rate of return on long-term treasury securities,
the risk premium associated with investing in equity
securities of comparable companies, the beta obtained from
comparable companies and the cost of debt for investment
grade issuers. In addition, the discount rate may consider
any company-specific risk in achieving the prospective
financial information.
Under the market-based fair value methodology, judgment is
required in evaluating market multiples and recent transactions.
Management believes that the assumptions used for
its
impairment tests are representative of those that would be used
by market participants performing similar valuations of VF’s
reporting units.
2017 impairment testing
During the third quarter of 2017, management determined that
there had been a triggering event related to the Nautica® brand
reporting unit that required an interim impairment analysis of the
goodwill and trademark intangible assets. VF early adopted the
accounting standard update that permits a single step quantitative
goodwill impairment test. Accordingly, the estimated fair value of
the reporting unit was compared to the carrying value, and a $104.7
million goodwill impairment was recorded in the third quarter of
2017. The Nautica® brand reporting unit has since been reported
in discontinued operations.
Management performed its annual goodwill and indefinite-lived
intangible asset impairment testing as of the beginning of the
fourth quarter of 2017. Management performed a qualitative
analysis for all reporting units and trademark intangible assets, as
discussed below in the “Qualitative impairment analyl sisyy
” section.
VF Corporation 2017 Form 10-K 35
Qualitative vv impairment analyl sisyy
For all reporting units, VF elected to perform a qualitative
assessment to determine whether it is more likely than not that
the goodwill and trademark intangible assets in those reporting
units were impaired. In this qualitative assessment, VF considered
relevant events and circumstances for each reporting unit,
including (i) current year results, ii) financial performance versus
management’s annual and five-year strategic plans, iii) changes in
the reporting unit carrying value since prior year, (iv) industry and
market conditions
in which the reporting unit operates,
(v) macroeconomic conditions, including discount rate changes,
and (vi) changes in products or services offered by the reporting
unit. If applicable, performance in recent years was compared to
forecasts included in prior valuations. Based on the results of the
qualitative assessment, VF concluded that it was not more likely
than not that the carrying values of the goodwill and trademark
intangible assets were greater than their fair values, and that
further quantitative testing was not necessary.
Management’s’ use of estimates and assump
ss
tions
Management made its estimates based on information available
as of the date of our assessment, using assumptions we believe
Stock Options
VF uses a lattice option-pricing model to estimate the fair value of
stock options granted to employees and nonemployee members
of the Board of Directors. VF believes that a lattice model provides
a refined estimate of the fair value of options because it can
incorporate (i) historical option exercise patterns and multiple
assumptions about future option exercise patterns for each of
several groups of option holders and (ii) inputs that vary over time,
such as assumptions for interest rates and volatility. Management
performs an annual review of all assumptions employed in the
valuation of option grants and believes they are reflective of the
outstanding options and underlying Common Stock and of groups
of option participants. The lattice valuation incorporates the
assumptions listed in Note P to the consolidated financial
statements.
One of the critical assumptions in the valuation process is
estimating the expected average life of the options before they are
exercised. For each option grant, VF estimated the expected
average life based on evaluations of the historical and expected
Pension Obligations
market participants would use in performing an independent
valuation of the business. It is possible that VF’s conclusions
regarding impairment or recoverability of goodwill or intangible
assets in any reporting unit could change in future periods. There
can be no assurance that the estimates and assumptions used in
our goodwill and intangible asset impairment testing will prove to
be accurate predictions of the future,
if, for example, (i) the
businesses do not perform as projected, (ii) overall economic
conditions in 2018 or future years vary from current assumptions
(including changes in discount rates), (iii) business conditions or
strategies for a specific reporting unit change from current
assumptions, including loss of major customers, (iv) investors
require higher rates of return on equity investments in the
marketplace or (v) enterprise values of comparable publicly traded
companies, or actual sales transactions of comparable companies,
were to decline, resulting in lower multiples of revenues and
EBITDA.
A future impairment charge for goodwill or intangible assets could
have a material effect on VF’s consolidated financial position and
results of operations.
option exercise patterns for each of the groups of option holders
that have historically exhibited different option exercise patterns.
These evaluations included (i) voluntary stock option exercise
patterns based on a combination of changes in the price of VF
Common Stock and periods of time that options are outstanding
before exercise and (ii) involuntary exercise patterns resulting
from turnover, retirement and death.
Volatility is another critical assumption requiring judgment.
Management bases its estimates of future volatility on a
combination of implied and historical volatility. Implied volatility is
based on short-term (6 to 9 months) publicly traded near-the-
money options on VF Common Stock. VF measures historical
volatility over a ten-year period, corresponding to the contractual
term of the options, using daily stock prices. Management’s
assumption for valuation purposes is that expected volatility starts
at a level equal to the implied volatility and then transitions to the
historical volatility over the remainder of the ten-year option term.
VF sponsors a qualified defined benefit pension plan covering most
full-time U.S. employees hired before 2005 and an unfunded
supplemental defined benefit pension plan that provides benefits
in excess of the limitations imposed by income tax regulations. VF
also sponsors certain non-U.S. defined benefit pension plans. The
selection of actuarial assumptions for determining the projected
pension benefit liabilities and annual pension expense is significant
due to amounts involvll ed and the long time period over which
benefits are accrued and paid.
Annually, management reviews the principal economic actuarial
assumptions summarized in Note N to the consolidated financial
statements, and revises them as appropriate based on current
rates and trends as of the valuation date. VF also periodically
reviews and revises, as necessary, other plan assumptions such
as rates of compensation increases, retirement, termination,
disability and mortality. VF believes the assumptions appropriately
reflect the participants’ demographics and projected benefit
obligations of the plans and result in the best estimate of the plans’
future experience. Actual results may vary from the actuarial
assumptions used.
The below discussion of discount rate, return on assets and
mortality assumptions relates specifically to the U.S. pension
plans, as they comprise approximately 91% of VF’s total defined
benefit plan assets and approximately 90% of VF’s total projected
benefit obligations of the combined U.S. and international plans.
One of the critical assumptions used in the actuarial model is the
discount rate, which is used to estimate the present value of future
cash outflows necessary to meet projected benefit obligations for
the specific plan. It is the estimated interest rate that VF could use
to settle its projected benefit obligations at the valuation date. The
discount rate assumption is based on current market interest
36 VF Corporation 2017 Form 10-K
rates. VF selects a discount rate for each of the U.S. pension plans
by matching high quality corporate bond yields to the timing of
projected benefit payments to participants in each plan. VF uses
the population of U.S. corporate bonds rated ‘Aa’ by Moody’s
Investors Service or Standard & Poor’s Ratings Services. VF
excludes the highest and lowest yielding bonds from this
population of approximately 623 such bonds having at least i) $500
million outstanding with 10 years or less to maturity or ii)
$50 million outstanding with 10 years or more to maturity. The
bonds must be noncallable/nonputable unless make-whole
provisions exist. Each plan’s projected benefit payments are
matched to current market interest rates over the expected
payment period to calculate an associated present value. A single
equivalent discount rate is then determined that produces the
same present value. The resulting discount rate is reflective of both
the current interest rate environment and the plan’s distinct
liability characteristics. VF believes that those ‘Aa’ rated issues
meet the “high quality” intent of the applicable accounting
standards and that the 2017 discount rates of 3.66% for the U.S.
qualified defined benefit pension plan and 3.70% for the unfunded
supplemental defined benefit plan appropriately reflect current
market conditions and the long-term nature of projected benefit
payments to participants in the U.S. pension plans. These lower
discount rates, compared with the rates of 4.10% for the U.S.
qualified defined benefit pension plan and 4.14% for the unfunded
supplemental defined benefit plan at the end of 2016, reflect the
general decrease in yields of U.S. government obligations and high
quality corporate bonds during 2017.
In 2015, VF adopted the spot rate approach to measure service and
interest costs. Under the spot rate approach, the full yield curve is
applied separately to cash flows for each projected benefit
obligation, service cost, and interest cost for a more precise
calculation.
Another critical assumption of the actuarial model is the expected
long-term rate of return on investments. VF’s investment objective
is to invest in a diversified portfolio of assets with an acceptable
level of risk to maximize the long-term return while minimizing
volatility in the value of plan assets relative to the value of plan
liabilities. These risks include market, interest rate, credit,
liquidity, regulatory and foreign securities risks. Investment assets
consist of U.S. and
international equity, corporate and
governmental fixed-income securities, insurance contracts, and
alternative assets. VF develops a projected rate of return for each
of the investment asset classes based on many factors, including
historical and expected returns, the estimated inflation rate, the
premium to be earned in excess of a risk-free
return, the premium
for equity risk and the premium for longer duration fixed-income
securities. The weighted average projected long-term rates of
return of the various assets held by the qualified plan provide the
basis for the expected long-term rate of return actuarial
assumption. VF’s rate of return assumption was 6.00% in 2017 and
2016 and 6.25% in 2015. In recent years, VF has altered the
investment mix by (i) increasing the allocation to fixed-income
investments and reducing the allocation to equity investments,
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(ii) increasing the allocation in equities to more international
investments and, (iii) adding alternative assets as an asset class.
The changes in asset allocation are anticipated, over time, to
reduce the year-to-year variability of the U.S. plan’s funded status
and resulting pension expense. Management monitors the plan’s
asset allocation to balance risk with anticipated investment returns
in a given year. Based on an evaluation of market conditions and
projected market returns, VF will be using a rate of return
assumption of 6.00% for the U.S. qualified defined benefit pension
plan for 2018.
We consistently review all of our demographic assumptions as part
of the normal management of our defined benefit plans, and update
these assumptions as appropriate. The Company performed a
demographic assumptions study
in 2017 and updated the
assumptions, as necessary, in the year end 2017 valuations.
In 2014, the Society of Actuaries (SOA) issued new mortality tables
(RP-2014) and mortality improvement scales (MP-2014) which
reflect longer life expectancies than the previous tables. In 2017,
the SOA issued updated scales (MP-2017), which were adjusted for
characteristics of our plan-specific populations and other data
where appropriate, in developing our best estimate of the expected
mortality rates of plan participants in the U.S. pension plans.
results
determined
Differences between actual results in a given year and the
actuarially
year
for
assumed
that
and other
(e.g., investment performance, discount rates
assumptions) do not affect that year’s pension expense, but instead
are deferred as unrecognized actuarial gains or losses in
accumulated other comprehensive
the
Consolidated Balance Sheet. At the end of 2017, there were $454.5
million of pretax accumulated deferred actuarial losses, plus $10.5
million of pretax deferred prior service costs, resulting in an after-
tax amount of $291.9 million in accumulated other comprehensive
income (loss) in the 2017 Consolidated Balance Sheet. These
deferred losses will be amortized as a component of pension
expense.
income
(loss)
in
Pension expense recognized
in the consolidated financial
statements was $34.8 million in 2017, $113.0 million in 2016 and
$64.8 million in 2015. Pension expense for 2016 was higher as it
included a $50.9 million settlement charge resulting from 9,400
participants accepting a one-time option to receive a distribution
of their deferred vested benefits (refer to Note N). The cost of
pension benefits actually earned each year by covered active
employees (commonly called “service cost”) was $24.9 million in
2017, $25.8 million in 2016 and $29.2 million in 2015. Pension
expense was significantly lower in 2017 due to the $50.9 million
settlement charge incurred in 2016, lower interest costs resulting
from lower interest rates and lower amortization of unrecognized
actuarial losses resulting from the 2016 one-time distribution.
Looking forward, VF expects pension expense for the next 12
months to decrease to approximately $20.4 million which reflects
lower amortization of unrecognized actuarial losses and higher
expected return on plan assets.
VF Corporation 2017 Form 10-K 37
The sensitivity of changes in actuarial assumptions on 2017 pension expense and on projected benefit obligations related to the U.S.
defined benefit pension plan at the end of 2017, all other factors being equal, is illustrated by the following:
(Dollars in millions)
0.50% decrease in discount rate
0.50% increase in discount rate
0.50% decrease in expected investment return
0.50% increase in expected investment return
0.50% decrease in rate of compensation change
0.50% increase in rate of compensation change
$
Increase (Decrease) in
Pension Expense
Projected Benefit Obligations
14 $
(14)
8
(8)
(1)
1
104
(94)
—
—
(5)
5
As discussed in the “Risk Management” section above, VF has taken a series of steps to reduce volatility in the pension plans and their
impact on the financial statements. On a longer-term basis, VF believes the year-to-year variability of the retirement benefit expense
should decrease.
Income TaTT xes
As a global company, VF is subject to income taxes and files income
tax returns in over 100 U.S. and foreign jurisdictions each year. As
discussed in Note Q to the consolidated financial statements, VF
has been granted a lower effective income tax rate on taxable
earnings in certain foreign jurisdictions. Due to economic and
political conditions, tax rates in various jurisdictions may be subject
to significant change. The Company could be subject to changes in
its tax rates, the adoption of new U.S. or international tax legislation
or exposure to additional tax liabilities. VF makes an ongoing
assessment to identify any significant exposure related to
increases in tax rates in the jurisdictions in which VF operates.
In February 2015, the European Union Commission (“EU”) opened
a state aid investigation into rulings granted to companies under
Belgium’s excess profit tax regime. On January 11, 2016, the EU
announced its decision that these rulings were illegal and ordered
that tax benefits granted under these rulings should be collected
from the affected companies,
including VF. The Belgian
government and VF have each filed appeals seeking annulment of
the EU decision. On January 10, 2017, VF Europe BVBA received an
assessment for €31.9 million tax and interest related to excess
profits benefits received in prior years and remitted €31.9 million
($33.9 million) on January 13, 2017. This was recorded as an income
tax receivable in 2017 based on the expected success of the
aforementioned requests for annulment. If this matter is adversely
resolvll ed, these amounts will not be collected by VF.
The calculation of income tax liabilities involvll es uncertainties in
the application of complex tax laws and regulations, which are
subject to legal interpretation and significant management
judgment. VF’s income tax returns are regularly examined by
federal, state and foreign tax authorities, and those audits may
result in proposed adjustments. VF has reviewed all issues raised
upon examination, as well as any exposure for issues that may be
raised in future examinations. VF has evaluated these potential
issues under
the
accounting literature. A tax position is recognized if it meets this
standard and is measured at the largest amount of benefit that has
a greater than 50% likelihood of being realized. Such judgments
and estimates may change based on audit settlements, court cases
and interpretation of tax laws and regulations. Income tax expense
could be materially affected to the extent VF prevails in a tax
position or when the statute of limitations expires for a tax position
for which a liability for unrecognized tax benefits or valuation
allowances have been established, or to the extent VF is required
the “more-likely-than-not” standard of
38 VF Corporation 2017 Form 10-K
to pay amounts greater than the established liability for
unrecognized tax benefits. VF does not currently anticipate any
material impact on earnings from the ultimate resolution of income
tax uncertainties. There are no accruals for general or unknown
tax expenses.
VF has $286.0 million of gross deferred income tax assets related
to operating loss and capital loss carryforwards, and $212.9 million
of valuation allowances against those assets. Realization of
deferred tax assets related to operating loss and capital loss
carryforwards is dependent on future taxable income in specific
jurisdictions, the amount and timing of which are uncertain, and
on possible changes in tax laws. If management believes that VF
will not be able to generate sufficient taxable income or capital
gains to offset losses during the carryforward periods, VF records
valuation allowances to reduce those deferred tax assets to
amounts expected to be ultimately realized. If in a future period
management determines that the amount of deferred tax assets
to be realized differs from the net recorded amount, VF would
record an adjustment to income tax expense in that future period.
On December 22, 2017, the U.S. government enacted the Tax Act.
The Tax Act included a broad range of complex provisions impacting
the taxation of multi-national companies. Generally, accounting for
the impacts of newly enacted tax legislation is required to be
completed in the period of enactment; however, in response to the
complexities and ambiguity surrounding the Tax Act, the SEC
released Staff Accounting Bulletin No. 118 (“SAB 118”) to provide
companies with relief around the initial accounting for the Tax Act.
Pursuant
to SAB 118, the SEC has provided a one-year
measurement period for companies to analyze and finalize
accounting for the Tax Act. During the one-year measurement
period, SAB 118 allows companies to recognize provisional
amounts when reasonable estimates can be made for the impacts
resulting from the Tax Act. VF will finalize accounting for the Tax
Act during the one-year measurement period, and any adjustments
to the provisional amounts will be included in income tax expense
or benefit in the appropriate period, in accordance with guidance
provided by SAB 118.
While our accounting for the Tax Act is not complete, we have
recognized a provisional charge of approximately $465.5 million
primarily comprised of approximately $512.4 million related to the
transition tax and approximately $89.5 million related to revaluing
U.S. deferred tax assets and liabilities using the new U.S. corporate
tax rate of 21%. Other provisional charges netting to $42.6 million
were primarily related to U.S. federal and state tax on foreign
income and dividends and establishing a deferred tax liability for
foreign withholding taxes.
The Tax Act has significant complexity and our final tax liability may
differ materially from provisional estimates due to additional
guidance and regulations that may be issued by the U.S. Treasury
Department and the Internal Revenue Service (“IRS”) and for VF’s
finalization of the relevant calculations required by the new tax
legislation.
VF continues to analyze the provisions of the Tax Act which are
effective after December 30, 2017, including but not limited to, the
creation of a new minimum tax called the base erosion anti-abuse
LL
tax (“BEAT”); a new provision that taxes U.S. allocated expenses
(e.g. interest and general administrative expenses) as well as
certain global intangible low-tax income (“GILTI”)
from foreign
operations; a general elimination of U.S. federal income taxes on
dividends from foreign subsidiaries; a new limitation on deductible
interest expense; and limitations on the deductibility of certain
employee compensation. Under generally accepted accounting
principles in the U.S (“GAAP”), companies are allowed to make an
accounting policy election to either treat taxes resulting from GILTI LL
as a current-period expense when they are incurred or factor such
amounts into the measurement of deferred taxes. The Company
has not completed its analysis of the effects of the GILTI LL provisions
and will further consider the accounting policy election within the
measurement period as provided under SAB 118.
Recently Issued and Adopted Accounting Standards
Refer to Note A to the consolidated financial statements for discussion of recently issued and adopted accounting standards.
Cautionary Statement on Forward-looking Statements
From time to time, VF may make oral or written statements,
including statements in this Annual Report that constitute
“forward-looking statements” within the meaning of the federal
securities laws. These include statements concerning plans,
objectives, projections and expectations relating to VF’s operations
or economic performance, and assumptions related thereto.
Forward-looking statements are made based on VF’s expectations
and beliefs concerning future events impacting VF and therefore
involve a number of risks and uncertainties. VF cautions that
forward-looking statements are not guarantees and actual results
could differ materially from those expressed or implied in the
forward-looking statements.
Known or unknown risks, uncertainties and other factors that could
cause the actual results of operations or financial condition of VF
to differ materially from those expressed or implied by such
forward-looking statements are summarized in Item 1A. of this
Annual Report.
TT
ITEM 7A. QUANTITATIVE AND QUALIT
ATIVE DISCL
TT
OSURES ABOUT MARKET RISK.
A discussion of VF’s market risks is incorporated by reference to “Risk Management” in Item 7. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in this Annual Report.
TT
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENT
ARY D
TT
ATA.TT
See “Index to Consolidated Financial Statements and Financial Statement Schedule” on page F-1 of this Annual Report for information
required by this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
TT
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision of the Chief Executive Officer and the Chief
Financial Officer, VF conducted an evaluation of the effectiveness
of the design and operation of VF’s “disclosure controls and
procedures” as defined in Rules 13a-15(e) or 15d-15(e) of the
Securities Exchange Act of 1934 (the “Exchange Act”) as of
December 30, 2017. These require that VF ensure that information
required to be disclosed by VF in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms and that information
required to be disclosed in the reports filed or submitted under the
is accumulated and communicated to VF’s
Exchange Act
VF Corporation 2017 Form 10-K 39
management,
including the principal executive officer and
principal financial officer, to allow timely decisions regarding
required disclosures. Based on VF’s evaluation, the principal
executive officer and the principal financial officer concluded that
VF’s disclosure controls and procedures were effective as of
December 30, 2017.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
VF’s management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined in
Exchange Act Rules 13a-15(f) or 15d-15(f). VF’s management
conducted an assessment of VF’s internal control over financial
reporting based on the framework described in Internal Control rr —
issued by the Committee of
Integrarr ted FrFF ame
Sponsoring Organizations of the Treadway Commission. Based on
this assessment, VF’s management has determined that VF’s
work (2013),
rr
internal control over financial reporting was effective as of
December 30, 2017. The effectiveness of VF’s internal control over
financial reporting as of December 30, 2017 has been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
See page F-2 of this Annual Report for “Management’s Report on
Internal Control Over Financial Reporting.”
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in VF’s internal control over financial
reporting that occurred during its last fiscal quarter that have
materially affected, or are reasonably likely to materially affect,
VF’s internal control over financial reporting. We excluded the
Williamson-Dickie Mfg. Co. from the assessment of internal
control over financial reporting as of December 30, 2017 because
it was acquired by VF in a business combination during 2017.
ITEM 9B. OTHER INFORMATION.
Not applicable.
40 VF Corporation 2017 Form 10-K
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
PP
PART III
Information regarding VF’s Executive Officers required by Item 10
of this Part III is set forth in Item 1 of Part I of this Annual Report
under the caption “Executive Officers of VF.” Information required
by Item 10 of Part III regarding VF’s Directors is included under the
caption “Election of Directors” in VF’s 2018 Proxy Statement that
will be filed with the Securities and Exchange Commission within
120 days after the close of our fiscal year ended December 30, 2017,
which information is incorporated herein by reference.
Information regarding compliance with Section 16(a) of the
Exchange Act of 1934 is included under the caption “Section 16(a)
Beneficial Ownership Reporting Compliance” in VF’s 2018 Proxy
Statement that will be filed with the Securities and Exchange
Commission within 120 days after the close of our fiscal year ended
December 30, 2017, which information is incorporated herein by
reference.
Information regarding the Audit Committee is included under the
caption “Corporate Governance at VF — Board Committees and
Their Responsibilities — Audit Committee” in VF’s 2018 Proxy
Statement that will be filed with the Securities and Exchange
Commission within 120 days after the close of our fiscal year ended
December 30, 2017, which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
VF has adopted a written code of ethics, “VF Corporation Code of
Business Conduct,” that is applicable to all VF directors, officers
and employees, including VF’s chief executive officer, chief
financial officer, chief accounting officer and other executive
officers identified pursuant
to this Item 10 (collectively, the
“Selected Officers”). In accordance with the Securities and
Exchange Commission’s rules and regulations, a copy of the code
has been filed as Exhibit 14 to this report. The code is also posted
on VF’s website, www.vfc.com. VF will disclose any changes in or
waivers from its code of ethics applicable to any Selected Officer
or director on its website at www.vfc.com.
Governance
The Board of Directors’ Corporate Governance Principles, the Audit
Committee, Nominating
Committee,
and
Compensation Committee and Finance Committee charters and
other corporate governance information, including the method for
interested parties to communicate directly with nonmanagement
members of the Board of Directors, are available on VF’s website.
These documents, as well as the VF Corporation Code of Business
Conduct, will be provided free of charge to any shareholder upon
request directed to the Secretary of VF Corporation at P.O. Box
21488, Greensboro, NC 27420.
Information required by Item 11 of this Part III is included under the captions “Corporate Governance at VF — Directors’ Compensation”
and “Executive Compensation” in VF’s 2018 Proxy Statement that will be filed with the Securities and Exchange Commission within 120
days after the close of our fiscal year ended December 30, 2017, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL O
STOCKHOLDER MATTERS.
TT
WNERS AND MANAGEMENT AND RELATED
Information required by Item 12 of this Part III is included under the caption “Security Ownership of Certain Beneficial Owners and
Management” in VF’s 2018 Proxy Statement that will be filed with the Securities and Exchange Commission within 120 days after the
close of our fiscal year ended December 30, 2017, which information is incorporated herein by reference.
CC
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSAC
TIONS, AND DIREC
TT
TOR INDEPENDENCE.
Information required by Item 13 of this Part III is included under the caption “Election of Directors” in VF’s 2018 Proxy Statement that
will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 30, 2017,
which information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
PP
Information required by Item 14 of this Part III is included under the caption “Professional Fees of PricewaterhouseCoopers LLP” in VF’s
2018 Proxy Statement that will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year
ended December 30, 2017, which information is incorporated herein by reference.
VF Corporation 2017 Form 10-K 41
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
TT
(a) The following documents are filed as a part of this 2017 report:
1. Financial statements
PP
PART IV
Management’s Report on Internal Control Over Financial Reporting
p
Report of Independent Regis
g tered Public Accounting Firmg
p
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprp ehensive Income
Consolidated Statements of Cash Flows
y
Consolidated Statements of Stockholders’ Equity
q
Notes to Consolidated Financial Statements
2. Financial statement schedules
Schedule II — Valuation and Qualifying Accounts
PAPP GE
NUMBER
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-10
PAPP GE
NUMBER
F-50
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable and therefore have been omitted.
3. Exhibits
NUMBER
3.
Articles of incorporation and bylaws:
DESCRIPTION
(A)
(B)
Articles of Incorporation, restated as of October 21, 2013 (Incorporated by reference to Exhibit 3(i) to Form
8-K filed October 21, 2013)
yy
Amended and Restated By-Laws (Incorporated by reference to Exhibit 3(B) to Form 10-K for the year
ended December 29, 2012)
4.
Instruments defining the rights of security holders, including indentures:
(A)
(B)
(C)
(D)
(E)
(F)
(G)
A specimen of VF’s Common Stock certificate (Incorporated by reference to Exhibit 3(C) to Form 10-K for
the year ended January 3, 1998)
Indenture between VF and United States Trust Company of New York, as Trustee, dated September 29,
2000 (Incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarter ended September 30, 2000)
Form of 6.00% Note due October 15, 2033 for $297,500,000 (Incorporated by reference to Exhibit 4.2 to
Form S-4 Registration Statement No. 110458 filed November 13, 2003)
p
Form of 6.00% Note due October 15, 2033 for $2,500,000 (Incorporated by reference to Exhibit 4.2 to Form
S-4 Registration Statement No. 110458 filed November 13, 2003)
p
Indenture between VF and The Bank of New York Trust Company, N.A., as Trustee, dated October 10, 2007
y
(Incorporated by reference to Exhibit 4.1 to Form S-3ASR Registration Statement No. 333-146594 filed
October 10, 2007)
First Supplemental Indenture between VF and The Bank of New York Trust Company, N.A., as Trustee,
dated October 15, 2007 (Incorporated by reference to Exhibit 4.2 to Form 8-K filed October 25, 2007)
Form of 6.45% Note due 2037 for $350,000,000 (Incorporated by reference to Exhibit 4.4 to Form 8-K filed
October 25, 2007)
42 VF Corporation 2017 Form 10-K
NUMBER
DESCRIPTION
(H)
(I)
(J)
(K)
Second Supplemental Indenture between VF and The Bank of New York Mellon Trust Company, N.A. dated
as of August 24, 2011 (Incorporated by reference to Exhibit 4.2 to Form 8-K filed August 24, 2011)
y
Form of Fixed Rate Notes due 2021 (Incorporated by reference to Exhibit 4.4 to Form 8-K filed August 24,
2011)
Third Supplemental Indenture between VF and The Bank of New York Mellon Trust Company, N.A. dated
as of September 20, 2016 (Incorporated by reference to Exhibit 4.2 to Form 8-K filed September 20, 2016)
Form of 0.625% Senior Notes due 2023 (Incorporated by reference to Exhibit 4.3 to Form 8-K filed
September 20, 2016)
10.
Material contracts:
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(I)
(J)
(K)
(L)
(M)
(N)
(O)
(P)
(Q)
(R)
1996 Stock Compensation Plan, as amended and restated as of February 10, 2015 (Incorporated by
reference to Appendix B to the 2015 Proxy Statement filed March 19, 2015)*
Form of VF Corporation 1996 Stock Compensation Plan Non-Qualified Stock Option Certificate
(Incorporated by reference to Exhibit 10(B) to Form 10-K for the year ended January 2, 2010)*
p
Form of VF Corporation 1996 Stock Compensation Plan Non-Qualified Stock Option Certificate for Non-
p y
Employee Directors (Incorporated by reference to Exhibit 10(C) to Form 10-K for the year ended December
31, 2011)*
Form of Award Certificate for Performance-Based Restricted Stock Units (Incorporated by reference to
Exhibit 10(D) to Form 10-K for the year ended January 2, 2010)*
Form of Award Certificate for Performance-Based Restricted Stock Units (Incorporated by reference to
Exhibit 10(E) to Form 10-K for the year ended December 29, 2012)*
Form of Award Certificate for Restricted Stock Units for Non-Employee Directors (Incorporated by
reference to Exhibit 10(E) to Form 10-K for the year ended January 2, 2010)*
p y
Form of Award Certificate for Restricted Stock Units (Incorporated by reference to Exhibit 10.1 to Form
8-K filed February 22, 2011)*
Form of Award Certificate for Restricted Stock Units for Executive Officers (Incorporated by reference to
Exhibit 10(H) to Form 10-K for the year ended December 29, 2012)*
Form of Award Certificate for Restricted Stock Award (Incorporated by reference to Exhibit 10.2 to Form
8-K filed February 22, 2011)*
Form of Award Certificate for Restricted Stock Award for Executive Officers (Incorporated by reference to
Exhibit 10(J) to Form 10-K for the year ended December 29, 2012)*
Deferred Compensation Plan, as amended and restated as of December 31, 2001 (Incorporated by
reference to Exhibit 10(A) to Form 10-Q for the quarter ended March 30, 2002)*
Executive Deferred Savings Plan, as amended and restated as of December 31, 2001 (Incorporated by
reference to Exhibit 10(B) to Form 10-Q for the quarter ended March 30, 2002)*
Executive Deferred Savings Plan II, as amended and restated January 1, 2015 (Incorporated by reference to
Item 10(M) to Form 10-K for the year ended January 3, 2015)*
Amendment to Executive Deferred Savings Plan (Incorporated by reference to Exhibit 10(b) to Form 8-K
filed December 17, 2004)*
Amended and Restated Second Supplemental Annual Benefit Determination under the Amended and
Restated Supplemental Executive Retirement Plan for Mid-Career Senior Management (Incorporated by
reference to Exhibit 10.2 to Form 10-Q for the quarter ended April 1, 2006)*
Amended and Restated Fourth Supplemental Annual Benefit Determination under the Amended and
Restated Supplemental Executive Retirement Plan for Participants in VF’s Deferred Compensation Plan
(Incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended April 1, 2006)*
p
Amended and Restated Seventh Supplemental Annual Benefit Determination under the Amended and
Restated Supplemental Executive Retirement Plan for Participants in VF’s Executive Deferred Savings
Plan (Incorporated by reference to Exhibit 10.5 to Form 10-Q for the quarter ended April 1, 2006)*
Amended and Restated Eighth Supplemental Annual Benefit Determination under the Amended and
Restated Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.6 to Form 10-
Q for the quarter ended April 1, 2006)*
VF Corporation 2017 Form 10-K 43
NUMBER
DESCRIPTION
(S)
(T)
(U)
(V)
(W)
(X)
(Y)
(Z)
Amended and Restated Ninth Supplemental Annual Benefit Determination under the Amended and
Restated Supplemental Executive Retirement Plan relating to the computation of benefits for Senior
orporated by reference to Exhibit 10.7 to Form 10-Q for the quarter ended April 1, 2006)*
Management (Inc
pp
Amended and Restated Tenth Supplemental Annual Benefit Determination under the Amended and
Restated Supplemental Executive Retirement Plan for Participants in VF’s Mid-TermTT
Incentive Plan
(Incorporated by reference to Exhibit 10.8 to Form 10-Q for the quarter ended April 1, 2006)*
Eleventh Supplemental Annual Benefit Determination Pursuant
to the Amended and Restated
Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.9 to Form 10-Q for the
quarter ended April 1, 2006)*
Twelfth Supplemental Benefit Determination Pursuant to the VF Corporation Amended and Restated
Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the
quarter ended September 27, 2014)*
Amended and Restated Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit
10.10 to Form 10-Q for the quarter ended April 1, 2006)*
Resolution of the Board of Directors dated December 3, 1996 relating to lump sum payments under
VF’s Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10(N) t
for the year ended January 4, 1997)*
p yy
pp
o Form 10-K
p
Form of Change in Control Agreement with Certain Senior Management of VF or its Subsidiaries
(Incorporated by reference to Exhibit 10.1 to Form 8-K filed October 21, 2008)*
2012 Form of Change in Control Agreement with Certain Senior Management of VF or its Subsidiaries
(Incorporated by reference to Exhibit 10(W) to Form 10-K for the year ended December 31, 2011)*
(AA)
Amended and Restated Executive Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1
to Form 8-K filed April 25, 2013)*
(BB)
Amended and Restated Management Incentive Compensation Plan*
(CC)
(DD)
(EE)
(FF)
(GG)
p y
VF Corporation Deferred Savings Plan for Non-Employee Directors (Incorporated by reference to Exhibit
10(W) to Form 10-K for the year ended January 3, 2009)*
Form of Indemnification Agreement with each of VF’s Non-Employee Directors (Incorporated by reference
to Exhibit 10.2 of the Form 10-Q for the quarter ended September 27, 2008)*
TT
2004 Mid-Term
Incentive Plan, a subplan under the 1996 Stock Compensation Plan, as amended and
restated as of October 18, 2017 (Incorporated by reference to Exhibit 10.1 to form 10-Q for the quarter
ended September 30, 2017)*
gg
Five-year Revolving Credit Agreement, dated April 14, 2015 (Incorporated by reference to Exhibit 10.1 to
Form 8-K filed April 15, 2015)
Accession No. 1 to Credit Agreement related to the Five-YearYY
14, 2015 (Incorporated by reference to Exhibit 10.1 to Form 8-K filed June 7, 2016)
Revolving Credit Agreement dated as of April
g
*
Management compensation plans
14.
Code of Business Conduct
The VF Corporation Code of Business Conduct is also available on VF’s website at www.vfc.com. A copy of the Code of
Business Conduct will be provided free of charge to any person upon request directed to the Secretary of VF Corporation,
at P.O.PP
Box 21488, Greensboro, NC 27420.
21.
23.
24.
31.1
31.2
32.1
32.2
Subsidiaries of the Corporation
Consent of independent registered public accounting firm
Power of attorney
Certification of the principal executive officer, Steven E. Rendle, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the principal financial officer, Scott A. Roe, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the principal executive officer, Steven E. Rendle, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification of the principal financial officer,Scott A. Roe, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
44 VF Corporation 2017 Form 10-K
NUMBER
DESCRIPTION
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
All other exhibits for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been omitted.
ITEM 16. FORM 10-K SUMMARY.
None.
VF Corporation 2017 Form 10-K 45
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, VF has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
V.F. CORPORATION
By:
/s/ Steven E. Rendle
Steven E. Rendle
Chairman, Chief Executive Officer and President
(Chief Executive Officer)
By:
/s/ Scott A. Roe
Scott A. Roe
Vice President and Chief Financial Officer
(Chief Financial Officer)
By:
/s/ Bryan H. McNeill
Bryan H. McNeill
Vice President — Controller
(Chief Accounting Officer)
February 28, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of VF and in the capacities and on the dates indicated:
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Richard T. Carucci*
Juliana L. Chugg*
Benno O. Dorer*
Mark S. Hoplamazian*
Robert J. Hurst*
Laura W. Lang*
W. Alan McCollough*
W. Rodney McMullen*
Clarence Otis, Jr.*
Steven E. Rendle*
Carol L. Roberts*
Matthew J. Shattock*
*By:
/s/ Laura C. Meagher
Laura C. Meagher, Attorney-in-Fact
February 28, 2018
46 VF Corporation 2017 Form 10-K
VF CORPORATION
Index to Consolidated Financial Statements
and Financial Statement Schedule
December 2017
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity
Notes to Consolidated Financial Statements
Schedule II — Valuation and Qualifying Accounts
PAPP GE
NUMBER
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-10
F-50
VF Corporation 2017 Form 10-K F-1
Management’s Report on Internal Control Over Financial Reporting
VF Corporation
Management of VF Corporation (“VF”) is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Exchange Act Rule 13a-15(f). VF’s management conducted an assessment of VF's internal control over financial reporting
based on the framework described in Internal Control —rr
work (2013), issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, VF’s management has determined that VF’s internal control over financial
reporting was effective as of December 30, 2017. Management has excluded Williamson-Dickie Manufacturing Company from its
assessment of internal control over financial reporting as of December 30, 2017 because it was acquired by VF in a business combination
during 2017. The total assets and total revenues of Williamson-Dickie Manufacturing Company represent 5.4% and 2.1%, respectively
of VF's consolidated revenues and assets as of and for the year ended December 30, 2017
Integrarr ted FrFF ame
rr
The effectiveness of VF’s internal control over financial reporting as of December 30, 2017 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their report which appears herein.
F-2
VF Corporation 2017 Form 10-K
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of VF Corporation
Opinions on the Financial Statementstt and Internal Controlrr over
vv
Financial Reporting
We have audited the accompanying consolidated balance sheets of VF Corporation and its subsidiaries as of December 30, 2017 and
December 31, 2016, and the related consolidated statements of income, comprehensive income, cash flows and stockholders’ equity for
each of the three years in the period ended December 30, 2017, including the related notes and schedule of valuation and qualifying
accounts for each of the three years in the period ended December 30, 2017 appearing under Item 15(a)(2) (collectively referred to as
the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December
30, 2017, based on criteria established in Internal Control rr
work (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
- Integrarr ted FrFF ame
rr
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 30, 2017 and December 31, 2016, and the results of their operations and their cash flows for each of the
three years in the period ended December 30, 2017 in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 30, 2017, based on criteria established in Internal Control rr
work (2013) issued by the COSO.
- Integrarr ted FrFF ame
rr
Change in Accounting Principle
As discussed in Note A to the consolidated financial statements, the Company changed the manner in which it accounts for the recognition
of current and deferred income taxes for intra-entity asset transfers.
Basis for
ff Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s
Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s
consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due
to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, management has excluded
Williamson-Dickie Manufacturing Company from its assessment of internal control over financial reporting as of December 30, 2017
because it was acquired by the Company in a purchase business combination during 2017. We have also excluded Williamson-Dickie
Manufacturing Company from our audit of internal control over financial reporting. Williamson-Dickie Manufacturing Company is a
wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal
control over financial reporting represent 5.4% and 2.1%, respectively, of the related consolidated financial statement amounts as of
and for the year ended December 30, 2017.
Definition and Limitations of Internal Controlrr over
vv
Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
VF Corporation 2017 Form 10-K F-3
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Greensboro, North Carolina
February 28, 2018
We have served as the Company’s auditor since 1995.
F-4
VF Corporation 2017 Form 10-K
VF CORPORATION
Consolidated Balance Sheets
(In thousands, except share amounts)
ASSETS
Current assets
Cash and equivalents
Accounts receivable, less allowance for doubtful accounts of $26,252 in 2017 and $20,538 in
2016
Inventories
Other current assets
Current assets of discontinued operations
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Other assets
Other assets of discontinued operations
TOTAL AS
TT
SETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short-term borrowings
Current portion of long-term debt
Accounts payable
Accrued liabilities
Current liabilities of discontinued operations
Total current liabilities
Long-term debt
Other liabilities
Other liabilities of discontinued operations
Commitments and contingencies
Total liabilities
Stockholders' equity
Preferred Stock, par value $1; shares authorized, 25,000,000; no shares outstanding in 2017
and 2016
Common Stock, stated value $0.25; shares authorized, 1,200,000,000; 395,821,781 shares
outstanding in 2017 and 414,012,954 shares outstanding in 2016
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Total stockholders’ equity
TOTAL LIABILITIES AND ST
TT
OCKHOLDERS' EQUITY
December
2017
2016
$
566,075
$
1,227,862
1,422,101
1,705,171
296,712
402,065
4,392,124
1,002,700
2,089,781
1,692,644
781,253
—
1,148,797
1,424,571
293,888
197,980
4,293,098
895,960
1,533,928
1,554,667
922,312
539,322
$
9,958,502
$
9,739,287
$
729,384
$
6,165
755,569
1,143,330
110,752
2,745,200
2,187,789
1,305,613
—
26,029
253,689
620,194
812,032
73,456
1,785,400
2,039,180
885,825
87,961
6,238,602
4,798,366
—
—
98,955
3,523,340
103,503
3,333,423
(926,140)
(1,041,463)
1,023,745
3,719,900
2,545,458
4,940,921
$
9,958,502
$
9,739,287
See notes to consolidated financial statements.
VF Corporation 2017 Form 10-K F-5
VF CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)
Net sales
Royalty income
Total revenues
Costs and operating expenses
Cost of goods sold
Selling, general and administrative expenses
Impairment of goodwill and intangible assets
Total costs and operating expenses
Operating income
Interest income
Interest expense
Other income (expense), net
Income from continuing operations before income taxes
Income taxes
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Earnings (loss) per common share - basic
Continuing operations
Discontinued operations
Total earnings per common share - basic
Earnings (loss) per common share - diluted
Continuing operations
Discontinued operations
Total earnings per common share - diluted
Cash dividends per common share
2017
Year Ended December
2016
2015
$
11,735,695
$
10,957,922 $
10,922,043
75,482
68,225
74,350
11,811,177
11,026,147
10,996,393
5,844,941
4,463,146
—
10,308,087
1,503,090
16,095
(101,975)
(715)
1,416,495
695,286
721,209
(106,286)
614,923
1.81
(0.27)
1.54
1.79
(0.26)
1.52
1.72
$
$
$
$
$
$
$
$
$
$
$
$
5,589,923
3,988,320
79,644
9,657,887
1,368,260
9,176
(94,722)
2,002
1,284,716
205,862
1,078,854
(4,748)
5,603,766
3,747,799
—
9,351,565
1,644,828
7,152
(88,751)
1,028
1,564,257
347,201
1,217,056
14,537
1,074,106 $
1,231,593
2.59 $
(0.01)
2.58 $
2.56 $
(0.01)
2.54 $
1.53 $
2.86
0.03
2.90
2.82
0.03
2.85
1.33
F-6
VF Corporation 2017 Form 10-K
See notes to consolidated financial statements.
VF CORPORATION
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income (loss)
Foreign currency translation and other
Gains (losses) arising during year
Less income tax effect
Defined benefit pension plans
Current year actuarial gains (losses), plan amendments and
curtailment losses
Amortization of net deferred actuarial losses
Amortization of deferred prior service costs
Reclassification of net actuarial loss from settlement charge
Less income tax effect
Derivative financial instruments
Gains (losses) arising during year
Less income tax effect
Reclassification to net income for (gains) losses realized
Less income tax effect
Marketable securities
Gains (losses) arising during year
Less income tax effect
Reclassification to net income for (gains) losses realized
Less income tax effect
Other comprehensive income (loss)
Comprehensive income
2017
Year Ended December
2016
2015
$
614,923
$
1,074,106 $
1,231,593
202,428
45,950
(18,130)
41,440
2,646
—
(15,208)
(138,716)
15,636
(24,067)
3,344
—
—
—
—
(52,028)
(24,382)
(5,384)
65,212
2,584
50,922
(43,836)
90,708
(9,672)
(107,457)
35,092
—
—
—
—
(361,814)
586
(62,556)
61,966
3,038
4,062
(1,571)
89,993
(34,668)
(64,976)
25,404
495
(195)
(1,177)
463
115,323
1,759
(340,950)
$
730,246
$
1,075,865 $
890,643
See notes to consolidated financial statements.
VF Corporation 2017 Form 10-K F-7
VF CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Impairment of goodwill and intangible assets
Depreciation and amortization
Stock-based compensation
Provision for doubtful accounts
Pension expense in excess of (less than) contributions
Deferred income taxes
Loss on sale of businesses
Other, net
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Accounts payable
Income taxes
Accrued liabilities
Other assets and liabilities
Cash provided by operating activities
INVESTING ACTIVITIES
Proceeds from sale of businesses, net of cash sold
Business acquisitions, net of cash received
Capital expenditures
Software purchases
Other, net
Cash used by investing activities
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings
Payments on long-term debt
Payment of debt issuance costs
Proceeds from long-term debt
Purchases of treasury stock
Cash dividends paid
Proceeds from issuance of Common Stock, net of shares withheld for taxes
Cash used by financing activities
Effect of foreign currency rate changes on cash, cash equivalents and
restricted cash
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash — beginning of year (a)
Cash, cash equivalents and restricted cash — end of year (a)
Balances per Consolidated Balance Sheets:
Cash and cash equivalents
Other current assets
Other assets
Year Ended December
2017
2016
2015
$
614,923
$
1,074,106 $
1,231,593
104,651
290,503
81,641
21,171
25,022
(79,838)
29,841
(2,006)
(107,083)
17,005
21,494
460,350
31,928
(34,942)
79,644
281,577
67,762
17,283
89,005
(71,625)
104,357
(15,232)
47,102
(37,210)
(9,553)
(129,574)
28,904
(45,978)
143,562
272,075
73,420
12,006
(208,709)
7,088
—
(34,784)
(124,248)
(175,098)
14,225
4,206
(14,505)
2,785
1,474,660
1,480,568
1,203,616
214,968
(740,541)
(169,553)
(65,177)
(15,948)
(776,251)
686,453
(254,314)
—
—
115,983
—
(175,840)
(44,226)
(8,331)
(112,414)
(421,069)
(13,276)
(6,807)
951,817
(1,200,356)
(1,000,468)
(684,679)
89,893
(635,994)
48,918
(1,363,003)
(1,076,879)
2,965
(661,629)
1,231,026
(6,645)
284,630
946,396
569,397
$
1,231,026 $
—
—
(254,501)
(63,283)
(5,038)
(322,822)
432,262
(3,975)
(1,475)
—
(732,623)
(565,275)
30,871
(840,215)
(66,680)
(26,101)
972,497
946,396
566,075
$
1,227,862 $
945,605
2,452
870
2,469
695
—
791
$
$
Total cash, cash equivalents and restricted cash
$
569,397
$
1,231,026 $
946,396
(a) The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows.
F-8
VF Corporation 2017 Form 10-K
See notes to consolidated financial statements.
VF CORPORATION
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
Common Stock
Shares
Amounts
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Balance, December 2014
432,859,891 $
108,215 $
2,993,186 $
(702,272) $
3,231,753
Net income
Dividends on Common Stock
Purchase of treasury stock
Stock-based compensation, net
Foreign currency translation and other
Defined benefit pension plans
Derivative financial instruments
Marketable securities
Balance, December 2015
Net income
Dividends on Common Stock
Purchase of treasury stock
Stock-based compensation, net
Foreign currency translation and other
Defined benefit pension plans
Derivative financial instruments
—
—
(10,036,100)
3,790,483
—
—
—
—
—
—
(2,509)
948
—
—
—
—
—
—
—
199,489
—
—
—
—
—
—
—
—
(361,228)
4,939
15,753
(414)
426,614,274
106,654
3,192,675
(1,043,222)
—
—
(15,932,075)
3,330,755
—
—
—
—
—
(3,983)
832
—
—
—
—
—
—
140,748
—
—
—
—
—
—
—
(76,410)
69,498
8,671
1,231,593
(565,275)
(730,114)
(39,226)
—
—
—
—
3,128,731
1,074,106
(635,994)
(996,485)
(24,900)
—
—
—
Balance, December 2016
414,012,954
103,503
3,333,423
(1,041,463)
2,545,458
Adoption of new accounting standard
Net income
Dividends on Common Stock
Purchase of treasury stock
Stock-based compensation, net
Foreign currency translation and other
Defined benefit pension plans
Derivative financial instruments
Balance, December 2017
—
—
—
(22,213,162)
4,021,989
—
—
—
—
—
—
(5,553)
1,005
—
—
—
—
—
—
—
189,917
—
—
—
—
—
—
—
—
248,378
10,748
(143,803)
(237,764)
614,923
(684,679)
(1,194,803)
(19,390)
—
—
—
395,821,781 $
98,955 $
3,523,340 $
(926,140) $
1,023,745
See notes to consolidated financial statements.
VF Corporation 2017 Form 10-K
F-9
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Businessss
VF Corporation (together with its subsidiaries, collectively known
as “VF” or the "Company”) is a global apparel and footwear
company based in the United States. VF designs, produces,
procures, markets and distributes a variety of products, including
jeanswear, outerwear, footwear, backpacks,
luggage, and
occupational and performance apparel for consumers of all ages.
Products are marketed primarily under VF-owned brand names.
Basis of Presen
rr
tation
The consolidated financial statements and related disclosures are
presented in accordance with generally accepted accounting
principles
in the U.S (“GAAP”). The consolidated financial
statements include the accounts of VF and its controlled
subsidiaries, after elimination of intercompany transactions and
balances.
The Nautica® brand business, the Licensing Business (which
comprised the Licensed Sports Group and JanSport® brand
collegiate businesses), and the Contemporary Brands coalition
have been reported as discontinued operations in our Consolidated
Statements of Income, and the related assets and liabilities have
been presented as held-for-sale in the Consolidated Balance
Sheets, through their dates of disposal. These changes have been
applied to all periods presented. Unless otherwise noted,
discussion within these notes to the consolidated financial
statements relates to continuing operations. Refer to Note C for
additional information on discontinued operations.
Fiscal YearYY
VF operates and reports using a 52/53 week fiscal year ending on
the Saturday closest to December 31 of each year. All references
to “2017”, “2016” and “2015” relate to the 52-week fiscal years
ended December 30, 2017, December 31, 2016 and January 2,
2016, respectively. Certain foreign subsidiaries report using a
December 31 year-end due to local statutory requirements. During
the first quarter of 2017, the Company approved a change in fiscal
year end to the Saturday closest to March 31 from the Saturday
closest to December 31. Accordingly, VF will report a transition
quarter that runs from December 31, 2017 through March 31, 2018.
The Company's next fiscal year will run from April 1, 2018 through
March 30, 2019 (“Fiscal 2019”).
Use of Estimates
In preparing the consolidated financial statements in accordance
with GAAP, management makes estimates and assumptions that
affect amounts reported in the consolidated financial statements
and accompanying notes. Actual results may differ from those
estimates.
rr
ForFF eign
rr
Currency
TrTT ansla
rr
rr
tion and TrTT ansaction
foreign subsidiaries are
The financial statements of most
measured using the foreign currency as the functional currency.
Assets and liabilities denominated in a foreign currency are
translated into U.S. dollars using exchange rates in effect at the
balance sheet date, and revenues and expenses are translated at
average exchange rates during the period. Resulting translation
gains and losses, and transaction gains and losses on long-term
F-10
VF Corporation 2017 Form 10-K
advances
comprehensive income (loss) (“OCI”).
to foreign subsidiaries, are reported
in other
Foreign currency transactions are denominated in a currency other
than the functional currency of a particular entity. These
transactions generally result in receivables or payables that are
fixed in the foreign currency. Transaction gains or losses arise
when exchange rate fluctuations either increase or decrease the
functional currency cash flows from the originally recorded
transaction. As discussed in Note V, VF enters into derivative
contracts to manage foreign currency risk on certain of these
transactions. Foreign currency transaction gains and losses
reported in the Consolidated Statements of Income, net of the
related hedging losses and gains, were a gain of $4.8 million in
2017, a loss of $9.7 million in 2016, and a loss of $8.7 million in
2015.
Cash and Equivalvv entstt
Cash and equivalents are demand deposits, receivables from third-
party credit card processors, and highly liquid investments that
mature within three months of their purchase dates. Cash
equivalents totaling $279.0 million and $855.6 million at December
2017 and 2016, respectively, consist of money market funds and
short-term time deposits.
Accountstt Receivabl
vv
e
Trade accounts receivable are recorded at invoiced amounts, less
estimated allowances for trade terms, sales incentive programs,
discounts, markdowns, chargebacks and returns as discussed
below in Revenue Recognition. Royalty receivables are recorded at
amounts earned based on the licensees’ sales of licensed products,
subject in some cases to contractual minimum royalties due from
individual licensees. VF maintains an allowance for doubtful
accounts for estimated losses that will result from the inability of
customers and licensees to make required payments. The
allowance is determined based on review of specific customer
accounts where collection is doubtful, as well as an assessment
of the collectability of total receivables considering the aging of
balances, historical and anticipated trends, and current economic
conditions. All accounts are subject to ongoing review of ultimate
collectability. Receivables are written off against the allowance
when it is probable the amounts will not be recovered.
Invenvv
tories
Inventories are stated at the lower of cost or net realizable value.
Cost is determined on the first-in, first-out (“FIFO”) method and is
net of discounts or rebates received from vendors.
Long-lived
vv
ss
Asset
s,tt
Including Intangible Asset
ss
stt and Goodwill
Property, plant and equipment, intangible assets and goodwill are
initially recorded at cost. VF capitalizes improvements to property,
plant and equipment that substantially extend the useful life of the
asset, and interest cost incurred during construction of major
assets. Assets under capital leases are recorded at the present
value of minimum lease payments. Repair and maintenance costs
are expensed as incurred.
Cost for acquired intangible assets represents the fair value at
acquisition date, which is generally based on the present value of
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
expected cash flows. Trademark intangible assets represent
individual acquired trademarks, some of which are registered in
multiple countries. Customer relationship intangible assets are
based on the value of relationships with wholesale customers in
place at the time of acquisition. License intangible assets relate to
VF's licensing contracts with customers.
Goodwill represents the excess of cost of an acquired business over
the fair value of net tangible assets and identifiable intangible
assets acquired. Goodwill is assigned at the reporting unit level.
Depreciation of property, plant and equipment is computed using
the straight-line method over the estimated useful lives of the
assets, ranging from 3 to 10 years for machinery and equipment
and up to 40 years for buildings. Amortization expense for
leasehold improvements and assets under capital leases is
recognized over the shorter of their estimated useful lives or the
lease terms, and is included in depreciation expense.
Intangible assets determined to have indefinite lives, consisting of
major trademarks and trade names, are not amortized. Other
intangible assets, primarily customer relationships,
license
intangible assets and trademarks determined to have a finite life,
are amortized over their estimated useful lives ranging from 3 to
24 years. Amortization of intangible assets is computed using
straight-line or accelerated methods consistent with the timing of
the expected benefits to be received.
Depreciation and amortization expense related to producing or
otherwise obtaining finished goods inventories is included in cost
of goods sold, and other depreciation and amortization expense is
included in selling, general and administrative expenses.
VF’s policy is to review property, plant and equipment and
amortizable intangible assets for possible impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset or asset group may not be recoverable. If
forecasted undiscounted cash flows to be generated by the asset
are not expected to recover the asset’s carrying value, an
impairment charge is recorded for the excess of the asset’s
carrying value over its estimated fair value.
VF’s policy is to evaluate indefinite-lived intangible assets and
goodwill for possible impairment as of the beginning of the fourth
quarter of each year, or whenever events or changes in
circumstances indicate that the fair value of such assets may be
below their carrying amount. VF may first assess qualitative factors
as a basis for determining whether it is necessary to perform
quantitative impairment testing. If VF determines that it is not more
likely than not that the fair value of an asset or reporting unit is
less than its carrying value, then no further testing is required.
for
the assets must be quantitatively
Otherwise,
impairment.
tested
An indefinite-lived intangible asset is quantitatively evaluated for
possible impairment by comparing the estimated fair value of the
asset with its carrying value. An impairment charge is recorded if
the carrying value of the asset exceeds its estimated fair value.
Goodwill is quantitatively evaluated for possible impairment by
comparing the estimated fair value of a reporting unit with its
carrying value, including the goodwill assigned to that reporting
unit. An impairment charge is recorded if the carrying value of the
reporting unit exceeds its estimated fair value.
Derivavv tive vv Financial Instrumentstt
Derivative financial instruments are measured at fair value in the
Consolidated Balance Sheets. Unrealized gains and losses are
recognized as assets and liabilities, respectively, and classified as
current or noncurrent based on the derivatives’ maturity dates. The
accounting for changes in the fair value of derivative instruments
(i.e., gains and losses) depends on the intended use of the
derivative, whether the Company has elected to designate a
derivative in a hedging relationship and apply hedge accounting
and whether the hedging relationship has satisfied the criteria
necessary to apply hedge accounting. To qualify for hedge
accounting treatment, all hedging relationships must be formally
documented at the inception of the hedges and must be highly
effective in offsetting changes to future cash flows of hedged
transactions. VF’s hedging practices are described in Note V. VF
does not use derivative instruments for trading or speculative
purposes. Hedging cash flows are classified in the Consolidated
Statements of Cash Flows in the same category as the items being
hedged.
VF formally documents hedging instruments and hedging
relationships at the inception of each contract. Further, at the
inception of a contract and on an ongoing basis, VF assesses
whether the hedging instruments are effective in offsetting the risk
of the hedged transactions. Occasionally, a portion of a derivative
instrument will be considered ineffective in hedging the originally
identified exposure due to a decline in amount or a change in timing
of the hedged exposure. In that case, hedge accounting treatment
that hedging
is discontinued for the ineffective portion of
instrument, and any change in fair value for the ineffective portion
is recognized in net income.
VF also uses derivative contracts to manage foreign currency
exchange risk on certain assets and liabilities, and to hedge the
exposure on the foreign currency denominated purchase price of
acquisitions. These contracts are not designated as hedges, and
are measured at fair value in the Consolidated Balance Sheets with
changes in fair value recognized directly in net income.
The counterparties to the derivative contracts are financial
institutions having at least A-rated investment grade credit ratings.
To manage its credit risk, VF continually monitors the credit risks
of its counterparties, limits its exposure in the aggregate and to
any single counterparty, and adjusts its hedging positions as
appropriate. The impact of VF’s credit risk and the credit risk of its
counterparties, as well as the ability of each party to fulfill its
obligations under the contracts, is considered in determining the
fair value of the derivative contracts. Credit risk has not had a
significant effect on the fair value of VF’s derivative contracts. VF
does not have any credit risk-relat
ed contingent features or
rr
collateral requirements with its derivative contracts.
Revenue
vv
Recognition
Revenue is recognized when (i) there is a contract or other
arrangement of sale, (ii) the sales price is fixed or determinable,
(iii) title and the risks of ownership have been transferred to the
the receivable is reasonably
customer and (iv) collection of
assured. Sales to wholesale customers are recognized when title
and the risks and rewards of ownership have passed to the
customer, based on the terms of sale. E-commerce sales are
generally recognized when the product has been received by the
customer. Sales at VF-operated and concession retail stores are
recognized at the time products are purchased by consumers.
VF Corporation 2017 Form 10-K F-11
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
Revenue from the sale of gift cards is deferred until the gift card is
redeemed by the customer or the Company determines that the
likelihood of redemption is remote and that it does not have a legal
obligation to remit the value of the unredeemed gift card to any
jurisdiction under unclaimed property regulations.
Various VF brands maintain customer loyalty programs where
customers earn rewards from qualifying purchases or activities.
VF recognizes revenue when (i) rewards are redeemed by the
customer, (ii) points or certificates expire or (iii) a breakage factor
is applied based on historical redemption patterns.
rentals, with many of the real estate leases requiring additional
payments for real estate taxes and occupancy-related costs.
Contingent rent expense, owed when sales at individual retail store
locations exceed a stated base amount, is recognized when the
liability is probable. Rent expense for leases having rent holidays,
landlord incentives or scheduled rent increases is recorded on a
straight-line basis over the lease term beginning with the earlier
of the lease commencement date or the date VF takes possession
or control of the leased premises. The amount of the excess
straight-line rent expense over scheduled payments is recorded
as a deferred liability.
Net sales reflect adjustments for estimated allowances for trade
terms, sales
incentive programs, discounts, markdowns,
chargebacks and returns. These allowances are estimated based
on evaluations of specific product and customer circumstances,
historical and anticipated trends and current economic conditions.
Shipping and handling costs billed to customers are included in
net sales. Sales taxes and value added taxes collected from
customers and remitted directly to governmental authorities are
excluded from net sales.
Royalty income is recognized as earned based on the greater of the
licensees’ sales of licensed products at rates specified in the
licensing contracts or contractual minimum royalty levels.
Cost of Goods Sold
Cost of goods sold for VF-manufactured goods includes all
materials, labor and overhead costs incurred in the production
process. Cost of goods sold for purchased finished goods includes
the purchase costs and related overhead. In both cases, overhead
includes all costs related to manufacturing or purchasing finished
goods, including costs of planning, purchasing, quality control,
depreciation, freight, duties, royalties paid to third parties and
shrinkage. For product lines with a warranty, a provision for
estimated future repair or replacement costs, based on historical
and anticipated trends, is recorded when these products are sold.
Selling, General rr
and Administrarr tive vv Expenses
Selling, general and administrative expenses include costs of
product development, selling, marketing and advertising, VF-
operated retail stores, concession retail stores, warehousing,
distribution, shipping and handling, licensing and administration.
Advertising costs are expensed as incurred and totaled $715.9
million in 2017, $637.6 million in 2016 and $652.5 million in 2015.
Advertising costs include cooperative advertising payments made
to VF’s customers as reimbursement for their costs of advertising
VF’s products, and totaled $44.6 million in 2017, $51.8 million in
2016 and $55.4 million in 2015. Shipping and handling costs for
delivery of products to customers totaled $349.1 million in 2017,
$307.3 million in 2016 and $324.1 million in 2015. Expenses related
to royalty income, including amortization of licensed intangible
assets, were $4.2 million in 2017 and $4.5 million in both 2016 and
2015.
Rent Expense
VF enters into noncancelable operating leases for retail stores,
office space, distribution facilities and equipment. Leases for real
estate typically have initial terms ranging from 3 to 15 years,
generally with renewal options. Leases for equipment typically
have initial terms ranging from 2 to 5 years. Most leases have fixed
F-12
VF Corporation 2017 Form 10-K
Self-insuranc
rr
e
VF is self-insured for a significant portion of its employee medical,
workers’ compensation, vehicle, property and general liability
exposures. Liabilities for self-insured exposures are accrued at the
present value of amounts expected to be paid based on historical
claims experience and actuarial data for forecasted settlements
of claims filed and for incurred but not yet reported claims.
Accruals for self-insured exposures are included in current and
noncurrent liabilities based on the expected periods of payment.
Excess liability insurance has been purchased to limit the amount
of self-insured risk on claims.
Income TaxTT esxx
Income taxes are provided on pre-tax income for financial reporting
purposes. Income taxes are based on amounts of taxes payable or
refundable in the current year and on expected future tax
consequences of events that are recognized in the consolidated
financial statements in different periods than they are recognized
in tax returns. As a result of timing of recognition and measurement
differences between financial accounting standards and income
tax laws, temporary differences arise between amounts of pretax
financial statement income and taxable income, and between
reported amounts of assets and liabilities in the Consolidated
Balance Sheets and their respective tax bases. Deferred income
tax assets and liabilities reported in the Consolidated Balance
Sheets reflect the estimated future tax impact of these temporary
differences and net operating
loss
carryforwards, based on tax rates currently enacted for the years
in which the differences are expected to be settled or realized.
Realization of deferred tax assets is dependent on future taxable
income in specific jurisdictions. Valuation allowances are used to
reduce deferred tax assets to amounts considered more likely than
not to be realized. Accrued income taxes in the Consolidated
Balance Sheets include unrecognized income tax benefits, along
with related interest and penalties, appropriately classified as
current or noncurrent. All deferred tax assets and liabilities are
classified as noncurrent in the Consolidated Balance Sheets. The
provision for income taxes also includes estimated interest and
penalties related to uncertain tax positions.
loss and net capital
Earnings Per Sharerr
Basic earnings per share is computed by dividing net income by
the weighted average number of shares of Common Stock
outstanding during the period. Diluted earnings per share assumes
conversion of potentially dilutive securities such as stock options,
restricted stock and restricted stock units.
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
Concentrarr tion of Risks
VF markets products to a broad customer base throughout the
world. Products are sold at a range of price points through multiple
wholesale and direct-to-consumer channels. VF’s ten largest
customers, all U.S.-based retailers, accounted for 19% of 2017 total
revenues, and sales to VF’s largest customer accounted for 8% of
2017 total revenues. Sales are generally made on an unsecured
basis under customary terms that may vary by product, channel of
distribution or geographic region. VF continuously monitors the
creditworthiness of its customers and has established internal
policies regarding customer credit limits. The breadth of product
offerings, combined with the large number and geographic
diversity of its customers, limits VF’s concentration of risks.
Legal and Other Contingencies
Management periodically assesses liabilities and contingencies in
connection with legal proceedings and other claims that may arise
from time to time. When it is probable that a loss has been or will
be incurred, an estimate of the loss is recorded in the consolidated
financial statements. Estimates of losses are adjusted when
additional
information becomes available or circumstances
change. A contingent liability is disclosed when there is at least a
reasonable possibility that a material loss may have been incurred.
Management believes that the outcome of any outstanding or
pending matters, individually and in the aggregate, will not have a
material adverse effect on the consolidated financial statements.
ss
Reclassifica
tions
Certain prior year amounts have been reclassified to conform with
the 2017 presentation, as discussed below in Recently l Adopted
.
Accounting Standardsrr
Recently l Adopted Accounting Standardsrr
FF
In July 2015, the FASB
issued an update to their accounting
guidance related to inventory that changes the measurement
principle from lower of cost or market to lower of cost or net
realizable value. This guidance became effective in the first quarter
of 2017, but did not impact VF’s consolidated financial statements.
In March 2016, the FASBFF
issued an update to their accounting
guidance on equity method accounting. The guidance eliminates
the requirement to retroactively apply the equity method when an
entity obtains significant
influence over a previously held
investment. This guidance became effective in the first quarter of
2017, but did not impact VF’s consolidated financial statements.
In March 2016, the FASBFF
issued an update to their accounting
guidance on derivative financial instruments when there is a
change in the counterparty to a derivative contract (novation). The
new guidance clarifies that the novation of a derivative contract
that has been designated as a hedging instrument does not, in and
of itself, require dedesignation of that hedging relationship,
provided that all other hedge accounting criteria continue to be
met. This guidance became effective in the first quarter of 2017,
but did not impact VF’s consolidated financial statements.
In March 2016, the FASBFF
issued an update to their accounting
guidance on derivative financial instruments that clarifies the steps
required to determine bifurcation of an embedded derivative. This
guidance became effective in the first quarter of 2017, but did not
impact VF’s consolidated financial statements.
FF
In October 2016, the FASB
issued an update to their accounting
guidance on the recognition of current and deferred income taxes
for intra-entity asset transfers. The new guidance requires an
entity to recognize the income tax consequences of an intra-entity
transfer of an asset other than inventory when the transfer occurs.
The Company early adopted this guidance in the first quarter of
2017 using the modified retrospective method, which requires a
cumulative adjustment to retained earnings as of the beginning of
the period of adoption. The cumulative adjustment to the January
1, 2017 Consolidated Balance Sheet was a reduction in both the
other assets and retained earnings line items of $237.8 million.
FF
In October 2016, the FASB
issued an update to their accounting
guidance that changes how a single decision maker will consider
its indirect interests when performing the primary beneficiary
analysis under the variable interest entity model. This guidance
became effective in the first quarter of 2017, but did not impact
VF’s consolidated financial statements.
FF
In November 2016, the FASB
issued an update that requires
restricted cash and restricted cash equivalents to be included with
cash and cash equivalents when reconciling the beginning-of-
period and end-of-period amounts shown on the statements of
cash flows. The Company early adopted this guidance in the first
quarter of 2017 on a retrospective basis and the Consolidated
Statements of Cash Flows included herein reflect $3.3 million, $3.2
million and $0.8 million of restricted cash for December 2017,
December 2016 and December 2015, respectively. The Company’s
restricted cash is generally held as collateral
for certain
transactions.
FF
In January 2017, the FASB
issued an update that eliminates the
second step from the quantitative goodwill impairment test. The
single step quantitative test requires companies to compare the
fair value of a reporting unit with its carrying amount and record
an impairment charge for the amount that the carrying amount
exceeds the fair value, up to the total amount of goodwill allocated
to that reporting unit. VF will continue to have the option of first
performing a qualitative assessment to determine whether it is
necessary to complete the quantitative goodwill impairment test.
The Company early adopted this guidance in the third quarter of
2017 and recorded a goodwill impairment charge for the Nautica®
brand reporting unit, which has since been reported
in
discontinued operations.
Recently l
ss
Issued
Accounting Standardsrr
In May 2014, the FASBFF
issued a new accounting standard on
revenue recognition that outlines a single comprehensive model
for entities to use in accounting for revenue arising from contracts
with customers. The FASBFF
has subsequently issued updates to the
standard to provide additional clarification on specific topics. The
standard prescribes a five-step approach to revenue recognition:
(1) identify the contracts with the customer;(2) identify the separate
performance obligations in the contracts; (3) determine the
transaction price; (4) allocate the transaction price to separate
performance obligations; and (5) recognize revenue when, or as,
each performance obligation is satisfied. The standard also
requires additional disclosure regarding the nature, amount,
timing and uncertainty of revenues and cash flows arising from
contracts with customers. A cross-functional implementation
team has completed VF’s impact analysis and is in the process of
performing the disclosure assessment phase of the project. The
new guidance is not expected to have a material impact on VF’s
VF Corporation 2017 Form 10-K F-13
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
revenue streams within the wholesale, direct-to-consumer and
royalty channels. Expected changes will include recognition of
revenues for certain wholesale and e-commerce transactions at
shipment rather than upon delivery to the customer based on our
evaluation of the transfer of control of the goods, and discontinued
capitalization of certain costs related to ongoing customer
to VF's
arrangements. Additionally, expected
Consolidated Balance Sheets will
include presentation of
allowances for sales incentive programs, discounts, markdowns,
chargebacks, and returns as accrued liabilities rather than as a
reduction to accounts receivable, and the presentation of estimated
cost of inventory associated with the allowance for sales returns
within other current assets rather than as a component of
inventory. VF is continuing its assessment of the new standard,
including the impact on processes, accounting policies,
disclosures and internal controls over financial reporting. The
Company will adopt the new standard utilizing the modified
retrospective method in the first quarter of Fiscal 2019.
changes
FF
In January 2016, the FASB
issued an update to their accounting
guidance related to the recognition and measurement of certain
financial instruments. This guidance affects the accounting for
equity investments, financial liabilities under the fair value option
and the presentation and disclosure requirements for financial
instruments. This guidance will be effective for VF in the first
quarter of Fiscal 2019. The Company does not expect the adoption
of this guidance to have a material impact on VF’s consolidated
financial statements.
FF
issued a new accounting standard on
In February 2016, the FASB
leasing. This new standard will require companies to record most
leased assets and liabilities on the balance sheet, and also retains
a dual model approach for assessing lease classification and
recognizing expense. VF's cross-functional implementation team
has completed the design and assessment phase of the project and
the implementation phase is in progress. VF’s assessment efforts
involved reviewing the standard's provisions, evaluating real estate
and non-real estate
identifying
arrangements that may contain embedded leases. VF is also
evaluating the impact of the new accounting standard on the
Company's systems, processes and controls. Based on the efforts
to date, VF expects this standard will have a material impact on
VF’s Consolidated Balance Sheets but does not expect it to have a
material impact on the Consolidated Statements of Income. The
Company will adopt the new standard in the first quarter of Fiscal
2020, but has not yet selected a transition method.
lease arrangements and
In March 2016, the FASBFF
issued an update to their accounting
guidance on extinguishments of financial liabilities that exempts
prepaid stored-value products, or gift cards, from the existing
guidance. The updated guidance requires that gift card liabilities
be subject to breakage accounting, consistent with the new revenue
recognition standard discussed above. This guidance will be
effective for VF in the first quarter of Fiscal 2019. The Company
does not expect the adoption of this guidance to have a material
impact on VF’s consolidated financial statements.
FF
In June 2016, the FASB
issued an update to their accounting
guidance on the measurement of credit losses on financial
instruments, which amends the impairment model by requiring
entities to use a forward-looking approach based on expected
losses to estimate credit losses on certain types of financial
instruments, including trade receivables. This guidance will be
effective for VF in the first quarter of Fiscal 2021 with early adoption
F-14
VF Corporation 2017 Form 10-K
permitted. The Company is evaluating the impact that adopting this
guidance will have on VF’s consolidated financial statements.
In August 2016, the FASBFF
issued an update to their accounting
guidance that addresses how certain cash receipts and cash
payments are presented and classified in the statement of cash
flows. This guidance will be effective for VF in the first quarter of
Fiscal 2019. The Company does not expect the adoption of this
guidance to have a material impact on VF’s consolidated financial
statements.
issued an update that provides a more
In January 2017, the FASBFF
narrow framework to be used in evaluating whether a set of assets
and activities constitutes a business. This guidance will be effective
for VF in the first quarter of Fiscal 2019 with early adoption
permitted. The Company will apply this guidance to any
transactions after adoption but does not expect it to have a material
impact on VF’s consolidated financial statements.
In March 2017, the FASBFF
issued an update which requires
employers to disaggregate the service cost component from other
components of net periodic benefit costs and to disclose the
amounts of net periodic benefit costs that are included in each
income statement line item. The standard requires employers to
report the service cost component in the same line item as other
compensation costs and to report the other components of net
periodic benefit costs (which include interest cost, expected return
on plan assets, amortization of prior service costs or credits and
actuarial gains and losses) separately and outside of operating
income. The update specifies that only the service cost component
is eligible for capitalization, which is consistent with VF’s current
practice (Refer to Note N for components of net periodic benefit
costs). The presentation change in the Consolidated Statements of
Income will be applied on a retrospective basis when VF adopts
this guidance in the first quarter of Fiscal 2019. Other than the
presentation changes noted above, the Company does not expect
the adoption of this guidance to have a material impact on VF’s
consolidated financial statements.
issued an update that amends the scope of
In May 2017, the FASBFF
modification accounting for share-based payment arrangements.
This update provides guidance on the types of changes to the terms
or conditions of share-based payment awards to which an entity
would be required to apply modification accounting. This guidance
will be effective for VF beginning in the first quarter of Fiscal 2019
and is required to be applied prospectively to an award modified
on or after the adoption date. The Company will apply this guidance
to any future changes made to the terms or conditions of share-
based payment awards after adoption but does not expect it to have
a material impact on VF’s consolidated financial statements.
In August 2017, the FASBFF
issued an update that amends and
simplifies certain aspects of hedge accounting rules to better
portray the economic results of risk management activities in the
financial statements. This guidance will be effective for VF in the
first quarter of Fiscal 2020 with early adoption permitted. The
Company is evaluating the impact that adopting this guidance will
have on VF’s consolidated financial statements.
FF
released guidance on the accounting for
In January 2018, the FASB
tax on the global intangible low-taxed income ("GILTI")
provisions
of the Tax Cuts and Jobs Act (the "Tax Act"). The GILTILL provisions
impose a tax on foreign income in excess of a deemed return on
tangible assets of foreign corporations. The guidance indicates that
companies must make a policy decision to either record deferred
LL
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
taxes related to GILTI LL
inclusions or treat any taxes on GILTI LL
inclusions as period costs. The Company has not completed its
analysis of the effects of the GILTI LL
provisions and will further
consider the accounting policy election within the measurement
period as provided under SAB 118.
due to the enactment of the Tax Act on items within accumulated
other comprehensive income (loss). The guidance will be effective
for VF in the first quarter of Fiscal 2020 with early adoption
permitted. The Company is evaluating the impact that adopting this
guidance will have on VF’s consolidated financial statements.
In February 2018, the FASB
issued an update that addresses the
effect of the change in the U.S. federal corporate income tax rate
FF
NOTE B — ACQUISITIONS
Williamson-Dickie
On August 11, 2017, VF entered into a definitive merger agreement
to acquire 100% of the outstanding shares of Williamson-Dickie
Mfg. Co. (“Williamson-Dickie”). The acquisition was completed on
October 2, 2017 for $800.7 million in cash, which is subject to
working capital and other adjustments. The purchase price was
primarily funded with short-term borrowings.
Williamson-Dickie was a privately held company based in Ft. Worth,
Texas, and is one of the largest companies in the workwear sector
with a portfolio of brands including Dickies®, Workrit
e®, Kodiak®,
TerrTT
arr ® and WallWW sll ®. The acquisition of Williamson-Dickie brings
together complementary assets and capabilities, and creates a
WW
workwear business that will now serve an even broader set of
consumers and industries around the world.
Williamson-Dickie contributed revenues of $247.2 million and net
income of $11.4 million to VF for the period from October 2, 2017
through December 30, 2017.
The allocation of the purchase price is preliminary and subject to
change, primarily for certain income tax matters and final
adjustments for net working capital. Accordingly,adjustments may
be made to the values of the assets acquired and liabilities
assumed as additional information is obtained about the facts and
circumstances that existed at the valuation date.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
(In thousands)
Cash and equivalents
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Intangible assets
Other assets
Total assets acquired
Short-term borrowings
Accounts payable
Other current liabilities
Deferred income tax liabilities
Other non-current liabilities
Total liabilities assumed
Net assets acquired
Goodwill
Purchase Price
October 2, 2017
$
$
60,172
146,403
251,778
8,447
105,119
397,755
9,665
979,339
17,565
88,052
117,621
15,160
33,066
271,464
707,875
92,837
800,712
The goodwill
is attributable to the acquired workforce of
Williamson-Dickie and the significant synergies expected to arise
as a result of the acquisition. All of the goodwill was assigned to
the Imagewear coalition and $53.6 million is expected to be
deductible for tax purposes.
The Dickies®, Kodiak®, TerrTT
arr ® and WallWW sll ® trademarks, which
management believes to have indefinite lives, have been valued at
$316.1 million. The Workrit
e® trademark, valued at $0.8 million,
will be amortized over three years.
WW
Amortizable intangible assets have been assigned values of $78.6
million for customer relationships and $2.3 million for distribution
VF Corporation 2017 Form 10-K F-15
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
agreements. Customer relationships are being amortized using an
accelerated method over periods ranging from 10 to 13 years.
Distribution agreements are being amortized on a straight-line
basis over four years.
The following unaudited pro forma summary presents consolidated information of VF as if the acquisition of Williamson-Dickie had
occurred on January 3, 2016:
(In thousands)
Total revenues
Income from continuing operations
Earnings per common share from continuing operations
Basic
Diluted
These pro forma amounts have been calculated after applying VF’s
accounting policies and adjusting the results of Williamson-Dickie
to reflect the additional depreciation and amortization that would
have been charged assuming the fair value adjustments to
property, plant, and equipment, and intangible assets had been
applied from January 3, 2016, with consequential tax effects.
The pro forma financial information in 2017 and 2016 excludes
$41.6 million and $4.1 million, respectively, of expense related to
Williamson-Dickie’s executive compensation plans, which were
terminated concurrent with the merger. The pro forma financial
information in 2016 includes $12.2 million of VF’s transaction
expenses related to the acquisition.
Pro forma financial information is not necessarily indicative of VF’s
operating results if the acquisition had been effected at the date
NOTE C — DISCONTINUED OPERATIONS
The Company continuously assesses the composition of our
portfolio to ensure it is aligned with our strategic objectives and
positioned to maximize growth and return to our shareholders.
Nautica® Brand
rr
Businessss
During the fourth quarter of 2017, the Company reached the
strategic decision to exit the Nautica® brand business, and
determined that it met the held-for-sale and discontinued
operations accounting criteria. Accordingly, the Company began to
report the results of the Nautica® brand business as discontinued
operations in the Consolidated Statements of Income and present
in the
the related assets and liabilities as held-for-sale
Consolidated Balance Sheets. These changes have been applied
for all periods presented.
The results of the Nautica® brand's North America business were
previously reported in the Sportswear coalition, and the results of
the Asia business were previously reported in the Outdoor & Action
Sports coalition. The results of the Nautica® brand business
recorded in the income (loss) from discontinued operations, net of
tax line item were losses of $95.2 million for 2017 (including an
estimated loss on sale of $25.5 million recorded in the fourth
quarter of 2017) and income of $31.4 million and $54.0 million for
2016 and 2015 respectively.
F-16
VF Corporation 2017 Form 10-K
Pro forma year
ended December
2017 (unaudited)
Pro forma year
ended December
2016 (unaudited)
$
$
12,475,116
$
763,563
11,888,704
1,097,572
$
1.91
1.89
2.64
2.60
indicated, nor is it necessarily indicative of future operating results.
Amounts do not include any marketing leverage, operating
efficiencies or cost savings that VF believes are achievable.
kk
Icebreakrr
er Hol
dings, Ltd.
On November 1, 2017, VF entered into a definitive merger
agreement to acquire 100% of the stock of Icebreaker Holdings,
Ltd., a privately held company based in Auckland, New Zealand.
The purchase price is NZ$288 million ($204.3 million at December
30, 2017), subject to working capital adjustments. VF has entered
into foreign exchange forward contracts to hedge the purchase
price. The acquisition is expected to close in the first quarter of
Fiscal 2019, subject to satisfaction of customary closing conditions.
Certain corporate overhead costs and coalition costs previously
allocated to the Nautica® brand business for segment reporting
purposes did not qualify for classification within discontinued
operations and have been reallocated to continuing operations. In
addition, the third quarter 2017 goodwill impairment charge of
$104.7 million related to the Nautica® reporting unit, previously
excluded from the calculation of coalition profit, was reclassified
to discontinued operations.
Licensing Businessss
In the first quarter of 2017, the company reached the strategic
decision to exit its Licensing Business, which comprised the
Licensed Sports Group (“LSG”) and JanSport® brand collegiate
businesses. Accordingly, the Company began to report the results
of the businesses as discontinued operations in the Consolidated
Statements of Income and present the related assets and liabilities
as held-for-sale in the Consolidated Balance Sheets. These
changes have been applied for all periods presented.
LSG included the Majestic® brand and was previously included
within our Imagewear coalition. On April 28, 2017, VF completed
the sale of LSG to Fanatics, Inc. The Company received proceeds
of $213.5 million, net of cash sold, and recorded an after-tax loss
on sale of $4.1 million, which is included in the income (loss) from
discontinued operations, net of tax line item in the 2017
Consolidated Statements of Income.
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
The LSG results recorded in the income (loss) from discontinued
operations, net of tax line item were losses of $4.6 million for 2017
(including the loss on sale of $4.1 million) and income of $63.3
million and $44.2 million for 2016 and 2015, respectively.
In the fourth quarter of 2017, VF completed the sale of the assets
associated with the JanSport® brand collegiate business, which
was previously included within our Outdoor & Action Sports
coalition. The Company received net proceeds of $1.5 million and
recorded an after-tax loss on sale of $0.2 million, which is included
in the income (loss) from discontinued operations, net of tax line
item in the 2017 Consolidated Statements of Income.
The JanSport® brand collegiate results recorded in the income
(loss) from discontinued operations, net of tax line item were losses
of $6.5 million (including the loss on sale of $0.2 million), $1.0
million and $0.2 million for 2017, 2016 and 2015, respectively.
Certain corporate overhead and other costs previously allocated
to the Licensing Business for segment reporting purposes did not
qualify for classification within discontinued operations and have
been reallocated to continuing operations.
Under the terms of the transition services agreement, the
Company is providing certain support services for periods ranging
from three to 24 months from the closing date of the transaction.
Revenue and expense items associated with the transition services
are primarily recorded in the Imagewear coalition.
Contemporarrr
rr
y r Brands
Coalition
Beginning in the second quarter of 2016, VF reported the results
of
the Contemporary Brands coalition within discontinued
operations in the Consolidated Statements of Income. These
changes have been applied for all periods presented.
On August 26, 2016, VF completed the sale of its Contemporary
Brands coalition to Delta Galil Industries, Ltd. for $116.0 million,
net of cash sold. The Contemporary Brands coalition included the
businesses of the 7 For FF
All Mankind®, Splendid® and Ella Moss®
brands and was previously disclosed as a separate reportable
segment of VF. The transaction resulted in an after-tax loss on sale
of $104.4 million which was included in the income (loss) from
discontinued operations, net of tax line item in the 2016
Consolidated Statement of Income.
The results of the Contemporary Brands coalition recorded in the
income (loss) from discontinued operations, net of tax line item
were losses of $98.4 million (including the loss on sale of $104.4
million) and $83.5 million for 2016 and 2015, respectively.
Certain corporate overhead costs and interest expense previously
allocated to the Contemporary Brands coalition for segment
reporting purposes did not qualify for classification within
discontinued operations and have been reallocated to continuing
operations. In addition, goodwill and intangible asset impairment
charges related to the Contemporary Brands coalition, previously
excluded from the calculation of coalition profit, were reclassified
to discontinued operations.
VF provided certain support services under transition services
agreements and completed these services during the third quarter
of 2017. These services did not have a material impact on VF’s 2017
Consolidated Statement of Income.
Summarized Discontinued Operarr tions Financial Informa
ff
tion
The following table summarizes the major line items included in the income (loss) from discontinued operations for the Nautica® brand
business, the Licensing Business and the Contemporary Brands coalition:
(In thousands)
Revenues
Cost of goods sold
Selling, general and administrative expenses
Impairment of goodwill and intangible assets
Interest income (expense), net
Other income (expense), net
Income (loss) from discontinued operations before income taxes
Loss on the sale of discontinued operations, before income taxes
Total income (loss) from discontinued operations before income taxes
Income tax (expense) benefit(a)
2017
2016
2015
$
588,383
$
1,180,677 $
1,380,351
349,382
191,898
104,651
(27)
6
(57,569)
(34,019)
(91,588)
(14,698)
691,715
354,773
—
(199)
2
133,992
(154,275)
(20,283)
15,535
790,034
430,587
143,562
(663)
627
16,132
—
16,132
(1,595)
Income (loss) from discontinued operations, net of tax
$
(106,286) $
(4,748) $
14,537
(a) The full year 2017 income tax expense is impacted by $8.6 million of tax expense related to GAAP and tax basis differences for LSG. Additionally,
the 2017 goodwill impairment charge and estimated loss on sale related to the Nautica® brand business were nondeductible for income tax
purposes.
VF Corporation 2017 Form 10-K F-17
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of
the periods presented.
(In thousands)
Accounts receivable, net
Inventories
Other current assets
Property, plant and equipment
Intangible assets
Goodwill
Other assets
2017
2016
$
35,826
$
44,735
2,771
26,852
262,352
49,005
6,053
(25,529)
402,065
22,421
21,408
13,449
53,474
$
$
48,881
144,754
4,345
43,690
305,770
182,292
7,570
—
737,302
44,450
29,006
14,624
73,337
110,752
$
161,417
Allowance to adjust assets to estimated fair value, less costs of disposal
Total assets of discontinued operations(a)
Accounts payable
Accrued liabilities
Other liabilities
Deferred income tax liabilities(b)
Total liabilities of discontinued operations(a)
$
$
$
(a) Amounts at December 2016 have been classified as current and long-term in the Consolidated Balance Sheet.
(b) Deferred income tax balances reflect VF's consolidated netting by jurisdiction.
The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash
Flows. The following table summarizes depreciation and amortization, capital expenditures and the significant operating noncash items
from discontinued operations for each of the periods presented:
(In thousands)
Depreciation and amortization
Capital expenditures
Impairment of goodwill and intangible assets
2017
2016
2015
$
14,023
$
27,360 $
2,592
104,651
4,795
—
39,189
13,536
143,562
NOTE D — ACCOUNTS RECEIVABLE
(In thousands)
Trade
Royalty and other
Total accounts receivable
Less allowance for doubtful accounts
Accounts receivable, net
2017
2016
$
1,357,424
$
1,106,018
90,929
1,448,353
26,252
63,317
1,169,335
20,538
$
1,422,101
$
1,148,797
VF has an agreement with a financial institution to sell selected
trade accounts receivable on a recurring, nonrecourse basis.
Under the agreement, up to $367.5 million of VF’s accounts
receivable may be sold to the financial institution and remain
outstanding at any point in time. VF removes the accounts
receivable from the Consolidated Balance Sheets at the time of
sale. VF does not retain any interests in the sold accounts
receivable but continues to service and collect outstanding
accounts receivable on behalf of the financial institution. During
2017 and 2016, VF sold total accounts receivable of $1,180.7 million
and $1,333.9 million, respectively. As of December 2017 and 2016,
$219.1 million and $209.5 million, respectively, of the sold accounts
receivable had been removed from the Consolidated Balance
Sheets but remained outstanding with the financial institution. The
funding fee charged by the financial institution is included in the
other income (expense), net line item in the Consolidated
Statements of Income, and was $3.9 million in 2017, $3.4 million
in 2016 and $1.9 million in 2015. Net proceeds of this program are
classified in operating activities in the Consolidated Statements of
Cash Flows.
F-18
VF Corporation 2017 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE E — INVENTORIES
(In thousands)
Finished products
Work-in-procrr ess
Raw materials
Total inventories
NOTE F — PROPERTY, PLANT AND EQUIPMENT
(In thousands)
Land and improvements
Buildings and improvements
Machinery and equipment
Property, plant and equipment, at cost
Less accumulated depreciation and amortization
Property, plant and equipment, net
2017
2016
1,490,738
$
1,233,018
109,911
104,522
97,256
94,297
1,705,171
$
1,424,571
$
$
2017
2016
$
103,232
$
1,052,859
1,301,633
2,457,724
1,455,024
$
1,002,700
$
85,704
931,190
1,216,762
2,233,656
1,337,696
895,960
VF Corporation 2017 Form 10-K F-19
NOTE G — INTANGIBLE ASSETS
(In thousands)
December 2017
Amortizable intangible assets:
Customer relationships
License agreements
Trademarks
Other
Amortizable intangible assets, net
Indefinite-lived intangible assets:
Trademarks and trade names
Intangible assets, net
(In thousands)
December 2016
Amortizable intangible assets:
Customer relationships
License agreements
Trademark
Other
Amortizable intangible assets, net
Indefinite-lived intangible assets:
Trademarks and trade names
Intangible assets, net
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
Weighted
AvAA erage
Amortization
Period
18 years
20 years
16 years
9 years
Weighted
AvAA erage
Amortization
Period
20 years
20 years
16 years
10 years
Amortization
Method
Cost
Accumulated
Amortization
Net
Carrying
Amount
Accelerated
$
338,209 $
133,994 $
204,215
Accelerated
Straight-line
Straight-line
19,996
58,932
9,001
13,660
7,333
3,648
Amortization
Method
Cost
Accumulated
Amortization
6,336
51,599
5,353
267,503
1,822,278
$
2,089,781
Net
Carrying
Amount
Accelerated
$
233,092 $
107,679 $
125,413
Accelerated
Straight-line
Straight-line
19,150
58,132
6,036
12,402
3,633
2,739
6,748
54,499
3,297
189,957
1,343,971
$
1,533,928
Intangible assets increased during 2017 due to the Williamson-
Dickie acquisition (Note B) and the impact of foreign currency
fluctuations.
VF did not record any impairment charges in 2017 or 2015. In 2016,
VF recorded an impairment charge of $40.3 million to write off the
remaining trademark asset balance for the lucy® brand, which was
part of the Outdoor & Action Sports Coalition. Refer to Note U for
additional information on the fair value measurements.
Amortization expense (excluding impairment charges) for 2017,
2016 and 2015 was $20.0 million, $18.8 million and $16.3 million,
respectively. Estimated amortization expense for calendar years
2018 through 2022 is $27.9 million, $26.7 million, $25.6 million,
$24.3 million and $22.4 million, respectively.
F-20
VF Corporation 2017 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE H — GOODWILL
Changes in goodwill are summarized by business segment as follows:
(In thousands)
Outdoor &
Action Sports
Jeanswear
Imagewear
Total
Balance, December 2015
$
1,363,133 $
212,871 $
30,111 $
1,606,115
Impairment charge
Currency translation
Balance, December 2016
2017 acquisition
Currency translation
(39,344)
(9,998)
1,313,791
—
36,757
—
(2,106)
210,765
—
8,523
—
—
30,111
92,837
(140)
(39,344)
(12,104)
1,554,667
92,837
45,140
Balance, December 2017
$
1,350,548 $
219,288 $
122,808 $
1,692,644
VF did not record any impairment charges in 2017 or 2015 based
on the results of its annual goodwill impairment testing. In 2016,
VF recorded an impairment charge of $39.3 million to write off the
remaining goodwill balance related to its lucy®brand reporting unit,
which was part of the Outdoor & Action Sports coalition. Refer to
Note U for additional information on fair value measurements.
Accumulated impairment charges for the Outdoor & Action Sports
coalition were $82.7 million as of December 2017 and December
2016.
NOTE I — OTHER ASSETS
(In thousands)
Deferred charge (Note Q)
Computer software, net of accumulated amortization of $171,147 in 2017 and $128,415
in 2016
Investments held for deferred compensation plans (Note N)
Deferred income taxes (Note Q)
Pension assets (Note N)
Deposits
Partnership stores and shop-in-shop costs, net of accumulated amortization of
p
p
p
$118,643 in 2017 and $91,764 in 2016
Derivative financial instruments (Note V)
Other investments
Deferred line of credit issuance costs
Other
Other assets
2017
2016
$
— $
276,473
232,237
201,744
103,601
82,296
44,847
34,149
2,199
12,697
1,078
66,405
194,685
192,477
42,171
41,281
33,761
33,773
18,821
10,860
1,545
76,465
$
781,253
$
922,312
VF Corporation 2017 Form 10-K F-21
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE J — SHORT-TERM BORROWINGS
(In thousands)
Commercial paper borrowings
International borrowing arrangements
Short-term borrowings
ll
VF maintains a $2.25 billion senior unsecured revolving
line of
credit (the “Global Credit Facility”). The Global Credit Facility
expires in April 2020 and VF may request two extensions of one
year each, subject to stated terms and conditions. The Global Credit
Facility may be used to borrow funds in both U.S. dollar and certain
non-U.S. dollar currencies, and has a $50.0 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. Borrowings under the Global Credit Facility are
priced at a credit spread of 80.5 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 7.0 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.
The Global Credit Facility contains certain restrictive covenants,
which include maintenance of a consolidated indebtedness to
consolidated capitalization ratio, as defined therein, equal to or
below 60%. If VF fails in the performance of any covenants, the
lenders may terminate their obligation to make advances and
NOTE K — ACCRUED LIABILITIES
(In thousands)
Compensation
Other taxes
Income taxes
Restructuring
Customer discounts and allowances
Advertising
Freight, duties and postage
Deferred compensation (Note N)
Interest
Derivative financial instruments (Note V)
Insurance
Product warranty claims (Note M)
Pension liabilities (Note N)
Other
Accrued liabilities
F-22
VF Corporation 2017 Form 10-K
2017
2016
$
$
705,000
24,384
729,384
$
$
—
26,029
26,029
declare any outstanding obligations to be immediately due and
payable. At the end of 2017, VF was in compliance with all
covenants.
VF’s commercial paper program allows for borrowings of up to
$2.25 billion to the extent it has borrowing capacity under the Global
Credit Facility. Outstanding commercial paper borrowings totaled
$705.0 million at December 2017. As of December 2016, there were
no outstanding commercial paper borrowings. The Global Credit
Facility also had $15.3 million of outstanding standby letters of
credit issued on behalf of VF as of December 2017, leaving $1.53
billion available for borrowing against this facility.
VF has $267.0 million of international lines of credit with various
banks, which are uncommitted and may be terminated at any time
by either VF or the banks. Total outstanding balances under these
arrangements were $24.4 million and $26.0 million at December
2017
these
arrangements had a weighted average interest rate of 9.9% and
7.2% at December 2017 and 2016, respectively, excluding accepted
letters of credit which are non-interest bearing to VF.
respectively. Borrowings
and 2016,
under
2017
2016
$
249,579
$
155,839
134,837
32,438
45,483
48,418
43,487
38,885
16,317
87,205
17,799
12,833
27,277
232,933
$
1,143,330
$
152,017
127,005
69,983
50,677
44,845
40,011
43,008
34,498
19,899
18,574
17,520
12,993
10,669
170,333
812,032
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE L — LONG-TERM DEBT
(In thousands)
5.95% notes, due 2017
3.50% notes, due 2021
0.625% notes, due 2023
6.00% notes, due 2033
6.45% notes, due 2037
Capital leases
Total long-term debt
Less current portion
2017
2016
$
— $
497,705
1,015,500
292,568
346,300
41,881
2,193,954
6,165
249,823
497,128
889,760
292,251
346,112
17,795
2,292,869
253,689
Long-term debt, due beyond one year
$
2,187,789
$
2,039,180
Interest payments are due annually on the 2023 notes and
semiannually on all other notes.
All notes, along with any amounts outstanding under the Global
Credit Facility (Note J), rank equally as senior unsecured
obligations of VF. All notes contain customary covenants and events
of default, including limitations on liens and sale-leaseback
transactions and a cross-acceleration event of default. The cross-
acceleration provision of the 2033 notes is triggered if more than
$50.0 million of other debt is in default and has been accelerated
by the lenders. For the other notes, the cross-acceleration trigger
is $100.0 million. If VF fails in the performance of any covenant
under the indentures that govern the respective notes, the trustee
or lenders may declare the principal due and payable immediately.
At the end of 2017, VF was in compliance with all covenants. None
of the long-term debt agreements contain acceleration of maturity
clauses based solely on changes in credit ratings. However, if there
were a change in control of VF and, as a result of the change in
control, the 2021, 2023 and 2037 notes were rated below investment
grade by recognized rating agencies, then VF would be obligated
to repurchase those notes at 101% of the aggregate principal
amount plus any accrued interest.
VF may redeem its notes, in whole or in part, at a price equal to the
greater of (i) 100% of the principal amount, plus accrued interest
to the redemption date, or (ii) the sum of the present value of the
remaining scheduled payments of principal and interest
discounted to the redemption date at an adjusted treasury rate, as
defined, plus 20 basis points for the 2021 notes, 15 basis points for
the 2023 and 2033 notes and 25 basis points for the 2037 notes,
plus accrued interest to the redemption date. In addition, the 2021
and 2023 notes can be redeemed at 100% of the principal amount
plus accrued interest to the redemption date within the three
months prior to maturity.
The 2021 notes have a principal balance of $500.0 million and are
recorded net of unamortized original issue discount and debt
issuance costs. Interest expense on these notes is recorded at an
effective annual interest rate of 4.69%, including amortization of a
deferred loss on an interest rate hedging contract (Note V), original
issue discount and debt issuance costs.
The 2023 notes have a principal balance of €850.0 million and are
recorded net of unamortized original issue discount and debt
issuance costs. Interest expense on these notes is recorded at an
includes
effective annual
amortization of original issue discount and debt issuance costs.
The Company has designated these notes as a net investment
hedge of VF's investment in certain foreign operations. Refer to
Note V for additional information.
rate of 0.712% which
interest
The 2033 notes have a principal balance of $300.0 million and are
recorded net of unamortized original issue discount and debt
issuance costs. Interest expense on these notes is recorded at an
effective annual interest rate of 6.19%, including amortization of a
deferred gain on an interest rate hedging contract (Note V), original
issue discount and debt issuance costs.
The 2037 notes have a principal balance of $350.0 million and are
recorded net of unamortized debt issuance costs.
The $250.0 million of 5.95% fixed-rate notes were repaid at their
maturity during 2017.
Capital leases, including additions from the Williamson-Dickie
acquisition, relate primarily to buildings and improvements (Note
F), expire at dates through 2036 and have an effective interest rate
of 3.49%. Assets under capital leases are included in property, plant
and equipment at a cost of $66.2 million, less accumulated
amortization of $33.8 million at the end of 2017, and a cost of $42.7
million, less accumulated amortization of $30.3 million at the end
of 2016.
VF Corporation 2017 Form 10-K F-23
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
The scheduled payments of long-term debt and future minimum lease payments for capital leases at the end of 2017 for the next five
calendar years and thereafter are summarized as follows:
(In thousands)
2018
2019
2020
2021
2022
Thereafter
Less unamortized debt discount
Less unamortized debt issuance costs
Less amounts representing interest
Total long-term debt
Less current portion
Notes and
Other
Capital
Leases
Total
$
— $
7,510 $
—
—
500,000
—
1,671,870
2,171,870
7,237
12,560
—
2,152,073
—
6,650
6,035
3,408
1,571
25,610
50,784
—
—
8,903
41,881
6,165
7,510
6,650
6,035
503,408
1,571
1,697,480
2,222,654
7,237
12,560
8,903
2,193,954
6,165
Long-term debt, due beyond one year
$
2,152,073 $
35,716 $
2,187,789
NOTE M — OTHER LIABILITIES
(In thousands)
Deferred income taxes (Note Q)
Deferred compensation (Note N)
Income taxes
Pension liabilities (Note N)
Deferred rent credits
Product warranty claims
Derivative financial instruments (Note V)
Other
Other liabilities
2017
2016
$
58,374
$
201,116
628,713
189,191
85,844
49,733
12,833
79,809
147,281
196,942
181,629
165,642
77,732
49,879
7,000
59,720
$
1,305,613
$
885,825
VF accrues warranty costs at the time revenue is recognized. Product warranty costs are estimated based on historical experience and
specific identification of the product requirements, which may fluctuate based on product mix. Activity relating to accrued product
warranty claims is summarized as follows:
(In thousands)
Balance, beginning of year
Accrual for products sold during the year
Repair or replacement costs incurred
Currency translation
Balance, end of year
Less current portion (Note K)
Long-term portion
2017
2016
2015
$
62,872
$
63,114 $
10,584
(12,654)
1,764
62,566
12,833
12,022
(11,956)
(308)
62,872
12,993
$
49,733
$
49,879 $
62,288
16,673
(14,136)
(1,711)
63,114
13,550
49,564
F-24
VF Corporation 2017 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE N — RETIREMENT AND SAVINGS BENEFIT PLANS
VF has several retirement and savings benefit plans covering
eligible employees. VF retains the right to curtail or discontinue
any of the plans, subject to local regulations.
Defined Benefit Pension Plans
Defined benefit plans provide pension benefits based on participant
compensation and years of service. VF sponsors a noncontributory
qualified defined benefit pension plan covering most full-time U.S.
employees employed before 2005 (the “U.S. qualified plan”) and an
unfunded supplemental defined benefit pension plan that provides
benefits in excess of limitations imposed by income tax regulations
(the “U.S. nonqualified plan”). The U.S. qualified plan is fully funded
at the end of 2017, and VF’s net underfunded status primarily
relates to obligations under the unfunded U.S. nonqualified plan.
The U.S. qualified and nonqualified plans comprise 91% of VF’s
total defined benefit plan assets and 90% of VF’s total projected
benefit obligations at December 2017, and the remainder relates
to non-U.S. defined benefit plans. A December 31 measurement
date is used to value plan assets and obligations for all pension
plans.
The amounts reported in these disclosures have not been
segregated between continuing and discontinued operations.
The components of pension cost for VF’s defined benefit plans were as follows:
(In thousands)
2017
2016
2015
Service cost — benefits earned during the year
$
Interest cost on projected benefit obligations
Expected return on plan assets
Settlement charges
Curtailments
Amortization of deferred amounts:
Net deferred actuarial losses
Deferred prior service costs
Total pension expense
24,890
58,989
(94,807)
—
1,671
41,440
2,646
$
25,839
$
68,020
(99,540)
50,922
—
65,212
2,584
$
34,829
$
113,037
$
Weighted average actuarial assumptions used to determine pension
expense:
Discount rate in effect for determining service cost
Discount rate in effect for determining interest cost
Expected long-term return on plan assets
Rate of compensation increase
4.08%
3.26%
5.72%
3.78%
4.54%
3.56%
5.81%
3.90%
In 2017, the Company recorded curtailment charges of $1.7 million which comprised (i) $1.1 million within the U.S. qualified plan related
to the sale of the Licensing Business (recorded in the income (loss) from discontinued operations, net of tax line item) and (ii) $0.6 million
within the U.S. nonqualified plan related to restructuring initiatives.
VF Corporation 2017 Form 10-K F-25
29,223
77,620
(111,095)
4,062
—
61,966
3,038
64,814
3.93%
3.93%
6.05%
3.91%
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
The following provides a reconciliation of the changes in fair value of VF’s defined benefit plan assets and projected benefit obligations
for each year, and the funded status at the end of each year:
(In thousands)
Fair value of plan assets, beginning of year
Actual return on plan assets
VF contributions
Participant contributions
Benefits paid
Currency translation
Fair value of plan assets, end of year
Projected benefit obligations, beginning of year
Service cost
Interest cost
Participant contributions
Actuarial loss
Benefits paid
Curtailments
Currency translation
Projected benefit obligations, end of year
Funded status, end of year
2017
2016
$
1,673,297
$
1,755,374
204,017
9,807
4,011
(93,900)
12,417
1,809,649
1,808,327
24,890
58,989
4,011
131,040
(93,900)
(5,664)
16,128
1,943,821
191,219
24,031
3,644
(286,271)
(14,700)
1,673,297
1,912,015
25,839
68,020
3,644
100,242
(286,271)
—
(15,162)
1,808,327
$
(134,172) $
(135,030)
Pension benefits are reported in the Consolidated Balance Sheets as a net asset or liability based on the overfunded or underfunded
status of the defined benefit plans, assessed on a plan-by-plan basis.
(In thousands)
Amounts included in Consolidated Balance Sheets:
Other assets (Note I)
Accrued liabilities (Note K)
Other liabilities (Note M)
Funded status
Accumulated other comprehensive loss, pretax:
Net deferred actuarial losses
Deferred prior service costs
Total accumulated other comprehensive loss, pretax
Accumulated benefit obligations
Weighted average actuarial assumptions used to determine pension obligations:
Discount rate
Rate of compensation increase
2017
2016
$
$
$
$
$
82,296
$
(27,277)
(189,191)
(134,172)
454,463
10,533
464,996
1,837,776
$
$
$
$
41,281
(10,669)
(165,642)
(135,030)
476,071
14,883
490,954
1,717,786
3.46%
3.73%
3.87%
3.78%
Accumulated benefit obligations at any measurement date are the
present value of vested and unvested pension benefits earned,
without considering projected future compensation increases.
Projected benefit obligations are the present value of vested and
unvested pension benefits earned, considering projected future
compensation increases.
At the end of 2015, the Company changed to the spot rate approach
to measure service and interest costs for our defined benefit plans.
Previously, the same single equivalent discount rate determined
for measuring the projected benefit obligation was also used to
determine service cost and interest cost. Under the spot rate
approach, the full yield curve is applied separately to cash flows
for each projected benefit obligation, service cost, and interest cost
for a more precise calculation. The Company has applied the spot
rate approach in calculating 2016 and 2017 pension expense.
In 2016, the Company offered former employees in the U.S.
qualified plan a one-time option to receive a distribution of their
deferred vested benefits. Approximately 9,400 participants
accepted a distribution, representing 66% of eligible participants
and a 23% reduction in the total number of plan participants at the
beginning of the year. In December 2016, the plan paid $197.1
million in lump-sum distributions to settle $224.7 million of
F-26
VF Corporation 2017 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
projected benefit obligations related to these participants. VF
recorded $50.9 million in settlement charges during 2016 to
recognize the related deferred actuarial losses in accumulated
OCI.
VF recorded $4.1 million in settlement charges during 2015, related
to the recognition of deferred actuarial losses resulting from lump-
sum payments of retirement benefits to participants in VF’s
supplemental defined benefit pension plan.
Deferred actuarial gains and losses are changes in the amount of
either the benefit obligation or the value of plan assets resulting
from differences between expected amounts for a year using
actuarial assumptions and the actual results for that year. These
amounts are deferred as a component of accumulated OCI and
amortized to pension expense in future years. For the U.S. qualified
plan, amounts in excess of 20% of projected benefit obligations at
the beginning of the year are amortized over five years; amounts
between (i) 10% of the greater of projected benefit obligations or
plan assets and (ii) 20% of projected benefit obligations are
amortized over the expected average remaining years of service of
active participants; and amounts less than the greater of 10% of
projected benefit obligations or plan assets are not amortized. For
the U.S. nonqualified plan, amounts in excess of 10% of the pension
benefit obligations are amortized on a straight-line basis over the
expected average remaining years of service of active participants.
Deferred prior service costs related to plan amendments are also
recorded in accumulated OCI and amortized to pension expense
on a straight-line basis over the average remaining years of service
for active employees. The estimated amounts of accumulated OCI
to be amortized to pension expense in calendar year 2018 are $34.1
million of deferred actuarial losses and $2.6 million of deferred
prior service costs.
Management’s investment objectives are to invest plan assets in a
diversified portfolio of securities to provide long-term growth,
minimize the volatility of the value of plan assets relative to plan
liabilities, and to ensure plan assets are sufficient to pay the benefit
obligations. Investment strategies focus on diversification among
multiple asset classes, a balance of long-term investment return
at an acceptable level of risk and liquidity to meet benefit payments.
The primary objective of the investment strategies is to more
closely align plan assets with plan liabilities by utilizing dynamic
asset allocation targets dependent upon changes in the plan’s
funded ratio, capital market expectations and risk tolerance.
Plan assets are primarily composed of common collective trust
funds that invest in liquid securities diversified across equity, fixed-
income, real estate and other asset classes. Fund assets are
allocated among independent investment managers who have full
discretion to manage their portion of the fund’s assets, subject to
strategy and risk guidelines established with each manager. The
overall strategy, the resulting allocations of plan assets and the
performance of funds and individual investment managers are
continually monitored. Derivative financial instruments may be
used by investment managers for hedging purposes to gain
exposure to alternative asset classes through the futures markets.
There are no direct investments in VF debt or equity securities and
no significant concentrations of security risk.
The expected long-term rate of return on plan assets was based
on an evaluation of the weighted average expected returns for the
major asset classes in which the plans have invested. Expected
returns by asset class were developed through analysis of
historical market returns, current market conditions, inflation
expectations and equity and credit risks. Inputs from various
investment advisors on long-term capital market returns and other
variables were also considered where appropriate.
VF Corporation 2017 Form 10-K F-27
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
The fair value of investments held by VF’s defined benefit plans at December 2017 and 2016, by asset class, is summarized below. Refer
to Note U for a description of the three levels of the fair value measurement hierarchy.
(In thousands)
December 2017
Plan assets
Cash equivalents
Fixed income securities:
U.S. Treasury and government agencies
Insurance contracts
Commodities
Total plan assets in the fair value hierarchy
Plan assets measured at net asset value
Cash equivalents
Equity securities:
Domestic
International
Fixed income securities:
Corporate and international bonds
Alternative investments
Total plan assets measured at net asset value
otal Plan
Assets
Fair Value Measurements
Level 1
Level 2
Level 3
$
8,191 $
8,191 $
— $
8
69,448
(372)
—
—
(372)
8
69,448
—
77,275 $
7,819 $
69,456 $
36,313
152,154
173,608
1,215,558
154,741
1,732,374
Total plan assets
$
1,809,649
(In thousands)
December 2016
Plan assets
Cash equivalents
Fixed income securities:
U.S. Treasury and government agencies
Insurance contracts
Commodities
Total plan assets in the fair value hierarchy
Plan assets measured at net asset value
Cash equivalents
Equity securities:
Domestic
International
Fixed income securities:
Corporate and international bonds
Alternative investments
Total plan assets measured at net asset value
Total Plan
Assets
Fair Value Measurements
Level 1
Level 2
Level 3
$
2,896 $
2,896 $
— $
10
63,013
506
—
—
506
10
63,013
—
66,425 $
3,402 $
63,023 $
27,486
134,254
142,772
1,140,894
161,466
1,606,872
Total plan assets
$
1,673,297
F-28
VF Corporation 2017 Form 10-K
—
—
—
—
—
—
—
—
—
—
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
Cash equivalents include cash held by individual investment
managers of other asset classes for liquidity purposes (Level 1),
and an institutional fund that invests primarily in short-term U.S.
government securities measured at their daily net asset value. The
fair values of insurance contracts are provided by the insurance
companies and are primarily based on accumulated contributions
plus returns guaranteed by the insurers (Level 2). Commodities
consist of derivative commodity futures contracts (Level 1).
generally
fixed-income securities
Equity and
represent
institutional funds measured at their daily net asset value derived
from quoted prices of the underlying investments. Alternative
investments are primarily in funds of hedge funds (“FoHFs”),which
are comprised of different and independent hedge funds with
various investment strategies. The administrators of the FoHFs
utilize unobservable inputs to calculate the net asset value of the
FoHFs on a monthly basis.
VF makes contributions to its defined benefit plans sufficient to
meet minimum funding requirements under applicable laws, plus
discretionary amounts as determined by management. VF made a
discretionary contribution of $250.0 million to the U.S. qualified
plan during 2015. VF does not currently plan to make any
contributions to the U.S. qualified plan during calendar year 2018,
and intends to make approximately $35.1 million of contributions
to its other defined benefit plans during calendar year 2018. The
estimated future benefit payments for all of VF’s defined benefit
plans, on a calendar year basis, are approximately $105.7 million
in 2018, $97.7 million in 2019, $95.5 million in 2020, $99.4 million
in 2021, $104.1 million in 2022 and $546.8 million for the years 2023
through 2027.
Other Retiremen
rr
t and Savings Plans
VF sponsors a nonqualified retirement savings plan for employees
whose contributions to a 401(k) plan would be limited by provisions
of the Internal Revenue Code. This plan allows participants to defer
a portion of their compensation and to receive matching
contributions for a portion of the deferred amounts. Participants
earn a return on their deferred compensation based on their
selection of a hypothetical portfolio of publicly traded mutual funds,
a separately managed fixed-income fund and VF Common Stock.
Changes in the fair value of
the participants’ hypothetical
investments are recorded as an adjustment to deferred
compensation liabilities and compensation expense. Expense
under this plan was $1.3 million in 2017, $1.7 million in 2016 and
$2.2 million in 2015. Deferred compensation,
including
accumulated earnings, is distributable in cash at participant-
specified dates upon retirement, death, disability or termination of
employment. VF sponsors a similar nonqualified plan that permits
nonemployee members of the Board of Directors to defer their
Board compensation and invest in hypothetical shares of VF
Common Stock. VF also has remaining obligations under other
deferred compensation plans, primarily related to acquired
companies. At December 2017, VF’s liability to participants under
all deferred compensation plans was $240.0 million, of which $38.9
million was recorded in accrued liabilities (Note K) and $201.1
million was recorded in other liabilities (Note M).
investments. These
VF has purchased (i) publicly traded mutual funds, a separately
managed fixed-income fund and VF Common Stock in the same
amounts as most of the participant-directed hypothetical
investments underlying the deferred compensation liabilities and
(ii) variable life insurance contracts that invest in institutional funds
that are substantially the same as the participant-directed
hypothetical
investment securities and
earnings thereon (other than VF Common Stock) are intended to
provide a source of funds to meet the deferred compensation
obligations, and serve as an economic hedge of the financial impact
of changes in deferred compensation liabilities. They are held in
an irrevocable trust but are subject to claims of creditors in the
event of VF’s insolvency. VF also has assets related to deferred
compensation plans of acquired companies, which are primarily
invested in life insurance contracts. At December 2017, the fair
value of investments held for all deferred compensation plans was
$234.3 million, of which $32.6 million was recorded in other current
assets and $201.7 million was recorded in other assets (Note I).
The VF Common Stock purchased to match participant-directed
hypothetical investments is treated as treasury stock for financial
reporting purposes (Note O), which is the primary reason for the
difference in carrying value of the deferred compensation assets
and liabilities. Realized and unrealized gains and losses on these
deferred compensation assets (other than VF Common Stock) are
recorded in compensation expense in the Consolidated Statements
of Income and substantially offset losses and gains resulting from
changes in deferred compensation liabilities to participants.
VF sponsors 401(k) plans as well as other domestic and foreign
retirement and savings plans. Expense for these plans totaled
$41.2 million in 2017, $39.7 million in 2016 and $40.0 million in
2015.
VF Corporation 2017 Form 10-K F-29
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE O — CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Common Stock
During 2017, the Company purchased 22.2 million shares of
Common Stock in open market transactions for $1.2 billion under
its share repurchase program authorized by VF’s Board of
Directors. These transactions were treated as treasury stock
transactions.
Common Stock outstanding is net of shares held in treasury which
are, in substance, retired. During 2017, 2016 and 2015, VF restored
22.3 million, 16.1 million and 10.1 million treasury shares,
respectively, 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 2017, 2016 or 2015. 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.
VF Common Stock is also held by the Company’s deferred
compensation plans (Note N) and is treated as treasury shares for
the Company
financial
purchased 6,540 shares of Common Stock in open market
transactions for $0.4 million.
reporting purposes. During 2017,
Balances related to shares held for deferred compensation plans are as follows:
(In thousands, except share amounts)
2017
2016
2015
Shares held for deferred compensation plans
317,515
439,667
Cost of shares held for deferred compensation plans
$
3,901
$
5,464 $
562,649
6,823
Accumulated Other Comprehensiv
e vv Income (Loss)ss
rr
Comprehensive income consists of net income and specified
components of OCI, which relates 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
in the Consolidated Statements of
is presented
income
Comprehensive Income.
The deferred components of OCI are reported, net of related income taxes, in accumulated OCI in stockholders’ equity, as follows:
(In thousands)
Foreign currency translation and other
Defined benefit pension plans
Derivative financial instruments
Accumulated other comprehensive income (loss)
2017
2016
(546,201)
$
(291,949)
(87,990)
(794,579)
(302,697)
55,813
(926,140) $
(1,041,463)
$
$
F-30
VF Corporation 2017 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
The changes in accumulated OCI, net of related taxes, are as follows:
Balance, December 2014
$
(356,941) $
(377,134) $
31,389 $
414 $
(702,272)
Foreign
Currency
Translation
and Other
Defined
Benefit
Pension Plans
Derivative
Financial
Instruments
Marketable
Securities
Total
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
Net other comprehensive income (loss)
Balance, December 2015
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
Net other comprehensive income (loss)
Balance, December 2016
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
Net other comprehensive income (loss)
(361,228)
(37,238)
55,325
—
(361,228)
(718,169)
42,177
4,939
(372,195)
(39,572)
15,753
47,142
(76,410)
(4,357)
81,036
—
(76,410)
(794,579)
73,855
69,498
(302,697)
(72,365)
8,671
55,813
248,378
(17,970)
(123,080)
—
248,378
28,718
10,748
(20,723)
(143,803)
300
(714)
(414)
—
—
—
—
—
—
—
—
(342,841)
1,891
(340,950)
(1,043,222)
269
1,490
1,759
(1,041,463)
107,328
7,995
115,323
Balance, December 2017
$
(546,201) $
(291,949) $
(87,990) $
— $
(926,140)
VF Corporation 2017 Form 10-K
F-31
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
Reclassifications out of accumulated OCI are as follows:
(In thousands)
Details About Accumulated Other
Comprehensive Income (Loss) Components
Amortization of defined benefit pension plans:
Affected Line Item in the
Consolidated Statements of
Income
2017
2016
2015
(a)
(a)
$
(41,440)
$
(65,212) $
(61,966)
(2,646)
(2,584)
(3,038)
Net deferred actuarial losses
Deferred prior service costs
Pension settlement charges
Pension curtailment loss
Pension curtailment loss
Gains (losses) on derivative financial
instruments:
Foreign exchange contracts
Foreign exchange contracts
Foreign exchange contracts
Selling, general and
administrative expenses
Income (loss) from
discontinued operations, net
of tax
Selling, general and
administrative expenses
Total before tax
Tax benefit
Net of tax
Net sales
Cost of goods sold
Selling, general and
administrative expenses
Foreign exchange contracts
Other income (expense), net
Interest rate contracts
Interest expense
Total before tax
Tax expense
Net of tax
Gains (losses) on sale of marketable securities:
Other income (expense), net
Total reclassifications for the year
Tax expense
Net of tax
Net of tax
—
(50,922)
(4,062)
(1,105)
(566)
(45,757)
17,039
(28,718)
33,641
610
(3,610)
(1,851)
(4,723)
24,067
(3,344)
20,723
—
—
—
—
—
(118,718)
44,863
(73,855)
28,798
84,613
(4,314)
2,864
(4,504)
107,457
(35,092)
72,365
—
—
—
—
—
(69,066)
26,889
(42,177)
(68,543)
132,432
(1,885)
7,267
(4,295)
64,976
(25,404)
39,572
1,177
(463)
714
$
(7,995) $
(1,490) $
(1,891)
(a) These accumulated OCI components are included in the computation of net periodic pension cost (refer to Note N for additional details).
F-32
VF Corporation 2017 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE P — STOCK-BASED COMPENSATION
Pursuant to the amended and restated 1996 Stock Compensation
Plan approved by stockholders, VF is authorized to grant
nonqualified stock options, restricted stock units (“RSUs”) and
restricted stock to officers, key employees and nonemployee
members of VF’s Board of Directors. Substantially all stock-based
compensation awards are classified as equity awards, which are
accounted for in stockholders’ equity in the Consolidated Balance
Sheets. On a limited basis, cash-settled stock appreciation rights
are granted to employees in certain international jurisdictions.
These awards are accounted for as liabilities in the Consolidated
Balance Sheets and remeasured to fair value each reporting period
until the awards are settled. Compensation cost for all awards
expected to vest is recognized over the shorter of the requisite
service period or the vesting period. Awards that do not vest are
forfeited.
The amounts reported in these disclosures have not been
segregated between continuing and discontinued operations.
Total stock-based compensation cost and the associated income tax benefits recognized in the Consolidated Statements of Income, and
stock-based compensation costs included in inventory in the Consolidated Balance Sheets, are as follows:
(In thousands)
Stock-based compensation cost
Income tax benefits
Stock-based compensation costs included in inventory
2017
2016
2015
$
81,641
$
67,762 $
26,697
1,938
22,870
1,332
73,420
28,090
1,345
At the end of 2017, there was $62.1 million of total unrecognized
compensation cost related to all stock-based compensation
arrangements that will be recognized over a weighted average
period of 1 year.
At the end of 2017, there were 32,735,057 shares available for future
grants of stock options and stock awards under the 1996 Stock
Compensation Plan. Shares for option exercises are issued from
VF’s authorized but unissued Common Stock. VF has a practice of
repurchasing shares of Common Stock in the open market to offset,
on a long-term basis, dilution caused by awards under equity
compensation plans.
Stock Options
Stock options are granted with an exercise price 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,
and compensation cost is recognized ratably over the shorter of
the requisite service period or the vesting period. Stock options
granted to nonemployee members of VF’s Board of Directors
become exercisable one year from the date of grant. All options
have ten-year terms.
The grant date fair value of each option award is calculated using a lattice option-pricing valuation model, which incorporates a range
of assumptions for inputs as follows:
Expected volatility
Weighted average expected volatility
Expected term (in years)
Weighted average dividend yield
Risk-free interest rate
2017
2016
2015
23% to 30%
21% to 29%
19% to 29%
24%
6.3 to 7.7
2.8%
24%
6.3 to 7.6
2.2%
22%
5.9 to 7.5
2.0%
0.7% to 2.4%
0.4% to 1.7%
0.1% to 2.3%
Weighted average fair value at date of grant
$9.90
$12.08
$13.72
Expected volatility over the contractual term of an option was based
on a combination of the implied volatility from publicly traded
options on VF Common Stock and the historical volatility of VF
Common Stock. The expected term represents the period of time
over which vested options are expected to be outstanding before
exercise. VF used historical data to estimate option exercise
behaviors and to estimate the number of options that would vest.
Groups of employees that have historically exhibited similar option
exercise behaviors were considered separately in estimating the
expected term for each employee group. Dividend yield represents
expected dividends on VF Common Stock for the contractual life of
the options. Risk-free
interest rates for the periods during the
contractual life of the option were the implied yields at the date of
grant from the U.S. Treasury zero coupon yield curve.
rr
VF Corporation 2017 Form 10-K
F-33
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
Stock option activity for 2017 is summarized as follows:
Number of Shares
Weighted AvAA erage
Exercise Price
Weighted AvAA erage
Remaining
Contractual
s)
TT
Term (Y
earYY
Aggregate
Intrinsic Value
(In thousands)
VV
Outstanding, December 2016
Granted
Exercised
Forfeited/cancelled
Outstanding, December 2017
Exercisable, December 2017
14,780,183 $
3,508,940
(3,342,247)
(696,792)
14,250,084
8,705,990
47.38
53.68
31.35
60.90
52.03
47.84
6.7 $
5.4 $
315,861
229,595
The total fair value of stock options that vested during 2017, 2016 and 2015 was $28.0 million, $26.7 million and $25.9 million, respectively.
The total intrinsic value of stock options exercised during 2017, 2016 and 2015 was $106.7 million, $86.6 million and $132.8 million,
respectively.
Restricted Stock Unitstt
VF grants performance-based RSUs that enable employees to
receive shares of VF Common Stock at the end of a three-year
period. Each 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 a three-year
baseline profitability goal and annually established performance
goals set by the Compensation Committee of the Board of
Directors. Shares are issued to participants in the year following
the conclusion of each three-year performance period.
The actual number of shares earned may also be adjusted upward
or downward by 25% of the target award, based on how VF’s total
shareholder return (“TSR”) over the three-year period compares
to the TSR for companies included in the Standard & Poor’s 500
Index. The grant date fair value of the TSR-based adjustment was
determined using a Monte Carlo simulation technique that
incorporates option-pricing model inputs, and was $2.67, $4.48
RSU activity for 2017 is summarized as follows:
and $3.78 per share for the 2017, 2016 and 2015 RSU grants,
respectively.
VF also grants nonperformance-based RSUs to certain key
employees in international jurisdictions and to nonemployee
members of the Board of Directors. Each RSU entitles the holder
to one share of VF Common Stock. The employee RSUs generally
vest four years from the date of grant. The RSUs granted to
nonemployee members of the Board of Directors vest upon grant
and will be settled in shares of VF Common Stock one year from
the date of grant.
Dividend equivalents on the RSUs accrue without compounding
and are payable in additional shares of VF Common Stock when
the RSUs vest. Dividend equivalents are subject to the same risk
of forfeiture as the RSUs.
Outstanding, December 2016
Granted
Issued as Common Stock
Forfeited/cancelled
Outstanding, December 2017
Vested, December 2017
Performance-based
Nonperformance-based
Number
Outstanding
Weighted
AvAA erage
Grant Date
VV
Fair Value
Number
Outstanding
Weighted
AvAA erage
Grant Date
VV
Fair Value
1,494,625 $
615,937
(524,488)
(81,523)
1,504,551
853,740
63.68
53.69
56.86
59.04
62.22
66.14
298,913 $
209,056
(155,013)
(17,863)
335,093
17,964
52.76
57.49
41.15
59.50
60.72
53.47
The weighted average fair value of performance-based RSUs
granted during 2017, 2016 and 2015 was $53.69, $61.31 and $75.33
per share, respectively, which was equal to the fair market value
of the underlying VF Common Stock on each grant date. The total
fair market value of awards outstanding at the end of 2017 was
$111.3 million. Awards earned and vested for the three-year
performance period ended in 2017 and distributable in early 2018
totaled 450,175 shares of VF Common Stock having a value of $36.4
million, as approved by the Compensation Committee of the Board
of Directors. Similarly, 480,855 shares of VF Common Stock having
a value of $24.3 million were earned for the performance period
ended in 2016, and 1,067,426 shares of VF Common Stock having
a value of $61.9 million were earned for the performance period
ended in 2015.
F-34
VF Corporation 2017 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
The weighted average fair value of nonperformance-based RSUs
granted during 2017, 2016 and 2015 was $57.49, $61.83 and $71.17
per share, respectively, which was equal to the fair market value
of the underlying VF Common Stock on each grant date. The total
market value of awards outstanding at the end of 2017 was $24.8
million.
Restricted Stock
VF grants restricted shares of VF Common Stock to certain
members of management. The fair value of the restricted shares,
equal to the fair market value of VF Common Stock at the grant
date, is recognized ratably over the vesting period. Restricted
shares vest over periods of up to five years from the date of grant.
Dividends accumulate in the form of additional restricted shares
and are subject to the same risk of forfeiture as the restricted stock.
Restricted stock activity for 2017 is summarized below:
Nonvested shares, December 2016
Granted
Dividend equivalents
Vested
Forfeited
Nonvested shares, December 2017
Nonvested Shares
Outstanding
Weighted AvAA erage
Grant Date Fair
VV
Value
622,692 $
423,076
17,848
(262,201)
(116,452)
684,963
53.45
56.52
61.56
47.13
59.13
57.01
Nonvested shares of restricted stock had a market value of $50.7 million at the end of 2017. The market value of the shares that vested
during 2017, 2016 and 2015 was $19.4 million, $3.9 million and $14.1 million, respectively.
NOTE Q — INCOME TAXES
The provision for income taxes was computed based on the following amounts of income from continuing operations before income
taxes:
(In thousands)
Domestic
Foreign
Income before income taxes
The provision for income taxes consisted of:
(In thousands)
Current:
Federal
Foreign
State
Deferred:
Federal and state
Foreign
Income taxes
2017
2016
2015
$
$
364,846
1,051,649
1,416,495
$
$
301,760 $
982,956
741,246
823,011
1,284,716 $
1,564,257
2017
2016
2015
$
618,611
$
115,570 $
135,007
21,506
775,124
(76,039)
(3,799)
123,960
37,957
277,487
(63,610)
(8,015)
194,776
111,976
33,361
340,113
401
6,687
$
695,286
$
205,862 $
347,201
On December 22, 2017,
the U.S. government enacted
comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (“Tax Act”). The Tax Act included a broad range
of complex provisions impacting the taxation of multi-national
companies. Generally, accounting for the impacts of newly enacted
tax legislation is required to be completed in the period of
enactment, however in response to the complexities and ambiguity
surrounding the Tax Act, the SEC released Staff Accounting Bulletin
No. 118 (“SAB 118”) to provide companies with relief around the
initial accounting for the Tax Act. Pursuant to SAB 118, the SEC has
VF Corporation 2017 Form 10-K F-35
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
provided a one-year measurement period for companies to analyze
and finalize accounting for the Tax Act. During the one-year
measurement period, SAB 118 allows companies to recognize
provisional amounts when reasonable estimates can be made for
the impacts resulting from the Tax Act. VF will finalize accounting
for the Tax Act during the one-year measurement period, and any
adjustments to the provisional amounts will be included in income
tax expense or benefit in the appropriate period, and disclosed if
material, in accordance with guidance provided by SAB 118.
While our accounting for the Tax Act is not complete, we have
recognized a provisional charge (based on information available as
of February 9, 2018) of approximately $465.5 million, primarily
comprised of approximately $512.4 million related to the transition
tax and approximately $89.5 million tax benefit related to revaluing
U.S. deferred tax assets and liabilities using the new U.S. corporate
tax rate of 21%. Other provisional charges of $42.6 million were
primarily related to U.S. federal and state tax on foreign income
and dividends and establishing a deferred tax liability for foreign
withholding taxes as the Company is not asserting indefinite
reinvestment on its foreign earnings.
The income tax payable attributable to the transition tax is due over
an 8-year period beginning in 2018. At December 30, 2017, a
noncurrent income tax payable of approximately $430.4 million
attributable to the transition tax is reflected in "other liabilities" of
the Consolidated Balance Sheet.
The Tax Act has significant complexity and our final tax liability may
materially differ from provisional estimates due to additional
guidance and regulations that may be issued by the U.S. Treasury
Department, the Internal Revenue Service (“IRS”) and state and
local tax authorities, and for VF’s finalization of the relevant
calculations required by the new tax legislation.
VF continues to analyze the provisions of the Tax Act which are
effective after December 30, 2017, including but not limited to, the
creation of a new minimum tax called the base erosion anti-abuse
tax (“BEAT”); a new provision that taxes U.S. allocated expenses
(e.g. interest and general administrative expenses) as well as
certain global intangible low-tax income (“GILTI”)
from foreign
operations; a general elimination of U.S. federal income taxes on
dividends from foreign subsidiaries; a new limitation on deductible
interest expense; and limitations on the deductibility of certain
employee compensation. Under GAAP, companies are allowed to
make an accounting policy election to either treat taxes resulting
from GILTI LL as a current-period expense when they are incurred or
factor such amounts into the measurement of deferred taxes. The
Company has not completed its analysis of the effects of the GILTI LL
provisions and will further consider the accounting policy election
within the measurement period as provided under SAB 118.
LL
The differences between income taxes computed by applying the statutory federal income tax rate and income tax expense reported in
the consolidated financial statements are as follows:
(In thousands)
Tax at federal statutory rate
State income taxes, net of federal tax benefit
Foreign rate differences
Tax reform
Capital losses
Valuation allowances (federal)
Stock compensation (federal)
Other
Income taxes
2017
2016
2015
$
495,772
$
449,650 $
23,684
(217,131)
465,501
(67,032)
37,296
(22,826)
(19,978)
24,426
(262,392)
—
—
—
(25,135)
19,313
$
695,286
$
205,862 $
547,489
20,383
(193,514)
—
—
—
—
(27,157)
347,201
Income tax expense includes tax benefits of $10.1 million, $19.4
million and $40.5 million in 2017, 2016 and 2015, respectively, from
favorable audit outcomes on certain tax matters and from
expiration of statutes of limitations.
On January 4, 2016, VF sold certain intellectual property rights
among various subsidiaries, which more closely aligns the
intellectual property rights for certain foreign operations with the
respective business activities of those operations, consistent with
how the intellectual property is used and developed within the
business. The sale of these intellectual property rights was
classified as an intra-entity transaction under GAAP, and as such,
the corresponding gain was eliminated from the 2016 consolidated
financial statements, and the tax impact of the gain was established
at the transaction date as a deferred charge of $291.1 million within
the other assets line item on the 2016 Consolidated Balance Sheet.
In October 2016, the FASB
issued an update to their accounting
guidance on the recognition of current and deferred income taxes
for intra-entity asset transfers. The new guidance requires an
FF
entity to recognize the income tax consequences of an intra-entity
transfer of an asset other than inventory when the transfer occurs.
The Company early adopted this guidance in the first quarter of
2017 using the modified retrospective method, which requires a
cumulative adjustment to retained earnings as of the beginning of
the period of adoption. The cumulative adjustment to the January
1, 2017 Consolidated Balance Sheet was a reduction in both the
other assets and retained earnings line items of $237.8 million.
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. In February 2015, the European
Union Commission (“EU”) opened a state aid investigation into
Belgium’s rulings. On January 11, 2016, the EU announced its
decision that these rulings were illegal and ordered that tax
benefits granted under these rulings should be collected from the
affected companies, including VF.
On March 22, 2016, the Belgium government filed an appeal
seeking annulment of the EU decision. Additionally, on June 21,
F-36
VF Corporation 2017 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
2016, VF Europe BVBA filed its own application for annulment of
the EU decision. Both of the listed requests for annulment remain
open and unresolvll ed.
On December 22, 2016, Belgium adopted a law which entitled the
Belgium tax authorities to issue tax assessments, and demand
timely payments from companies which benefited from the excess
profits regime. On January 10, 2017, VF Europe BVBA received an
assessment for €31.9 million tax and interest related to excess
profits benefits received in prior years. VF Europe BVBA remitted
€31.9 million ($33.9 million) on January 13, 2017, which was
recorded as an income tax receivable in 2017 based on the expected
success of the aforementioned requests for annulment. An
additional assessment of €3.1 million ($3.8 million) was received
and paid in January 2018. If this matter is adversely resolvl ed, these
amounts will not be collected by VF.
In addition, VF has been granted a lower effective income tax rate
on taxable earnings in another foreign jurisdiction for the years
2010 through 2019. This lower rate, when compared with the
country’s statutory rate, resulted in income tax reductions of $17.8
million ($0.04 per diluted share) in 2017, $12.0 million ($0.03 per
diluted share) in 2016 and $3.2 million ($0.01 per diluted share) in
2015.
Deferred income tax assets and liabilities consisted of the following:
(In thousands)
Deferred income tax assets:
Inventories
Deferred compensation
Other employee benefits
Stock compensation
Other accrued expenses
Capital loss carryforwards
Operating loss carryforwards
Gross deferred income tax assets
Valuation allowances
Net deferred income tax assets
Deferred income tax liabilities:
Depreciation
Intangible assets
Other deferred tax liabilities
Deferred income tax liabilities
Net deferred income tax assets (liabilities)
Amounts included in the Consolidated Balance Sheets:
Other assets (Note I)
Other liabilities (Note M)
VF has potential tax benefits totaling $216.3 million for foreign
operating loss carryforwards, of which $190.4 million have an
unlimited carryforward life. In addition, there are $0.8 million of
potential tax benefits for federal operating loss carryforwards that
expire in 2020, $34.7 million of potential tax benefits for capital loss
carryforwards that expire in 2022 and $34.2 million of potential tax
benefits for state operating loss and credit carryforwards that
expire between 2018 and 2037.
A valuation allowance has been provided where it is more likely
than not that the deferred tax assets related to those operating
loss carryforwards will not be realized. Valuation allowances
2017
2016
$
21,146
$
55,326
45,464
45,960
158,596
34,705
251,236
612,433
(225,141)
387,292
25,574
237,667
78,824
342,065
45,227
103,601
(58,374)
$
$
31,260
87,765
77,360
68,722
157,907
—
152,587
575,601
(114,990)
460,611
35,461
471,493
58,767
565,721
(105,110)
42,171
(147,281)
$
$
$
45,227
$
(105,110)
for available capital
totaled $163.5 million for available foreign operating loss
loss
carryforwards, $27.1 million
carryforwards, $22.3 million for available state operating loss and
credit carryforwards, and $12.2 million for other foreign deferred
income tax assets. During 2017, VF had a net increase in valuation
allowances of $27.1 million related to capital loss carryforwards,
$5.4 million related
loss and credit
carryforwards and an increase of $77.6 million related to foreign
operating loss carryforwards and other foreign deferred tax assets,
inclusive of foreign currency effects.
to state operating
VF Corporation 2017 Form 10-K F-37
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
A reconciliation of the change in the accrual for unrecognized income tax benefits is as follows:
(In thousands)
Balance, December 2014
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Reductions due to statute expirations
Payments in settlement
Currency translation
Balance, December 2015
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Reductions due to statute expirations
Payments in settlement
Currency translation
Balance, December 2016
Additions for current year tax positions
Additions for prior year tax positions
Reductions for prior year tax positions
Reductions due to statute expirations
Payments in settlement
Currency translation
Balance, December 2017
Unrecognized
Income TaTT x
Benefits
Accrued
Interest
and Penalties
Unrecognized
Income TaTT x
Benefits
Including Interest
and Penalties
$
113,604 $
17,219 $
130,823
13,470
4,396
(32,432)
(11,780)
(11,437)
(144)
75,677
121,025
6,164
(4,798)
(14,985)
(6,108)
(9)
176,966
28,049
22,968
(22,163)
(9,028)
(855)
55
—
3,188
(6,350)
(2,528)
(2,065)
(95)
9,369
—
2,880
(1,362)
(1,335)
(829)
(14)
8,709
—
6,808
(279)
(915)
(248)
11
13,470
7,584
(38,782)
(14,308)
(13,502)
(239)
85,046
121,025
9,044
(6,160)
(16,320)
(6,937)
(23)
185,675
28,049
29,776
(22,442)
(9,943)
(1,103)
66
$
195,992 $
14,086 $
210,078
(In thousands)
Amounts included in the Consolidated Balance Sheets:
Unrecognized income tax benefits, including interest and penalties
Less deferred tax benefits
Total unrecognized tax benefits
2017
2016
$
$
210,078
31,197
178,881
$
$
185,675
35,141
150,534
The unrecognized tax benefits of $178.9 million at the end of 2017,
if recognized, would reduce the annual effective tax rate.
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 IRS examinations for tax
years through 2013 have been effectively settled. The examination
of Timberland’s 2011 tax return is ongoing. The IRS has proposed
material adjustments to Timberland’s 2011 tax return that would
significantly impact tax expense and assessment of interest
charges. The Company has formally disagreed with the proposed
adjustments. During 2015, VF filed a petition to the U.S. Tax Court
to begin the process of resolving
this matter, but it has not yet
reached a resolution.
l
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. The outcome of any one
examination is not expected to have a material impact on VF’s
consolidated financial statements. Management believes that
some of these audits and negotiations will conclude during the next
12 months. Management also believes that it is reasonably possible
that the amount of unrecognized income tax benefits may decrease
by $27.0 million within the next 12 months due to settlement of
audits and expiration of statutes of limitations, $24.8 million of
which would reduce income tax expense.
F-38
VF Corporation 2017 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE R — BUSINESS SEGMENT INFORMATION
VF’s businesses are grouped into product categories, and by brands within those product categories, for internal financial reporting used
by management. These groupings of businesses within VF are referred to as “coalitions” and are the basis for VF’s reportable segments,
as described below:
• Outdoor & Action Sports
High performance outdoor apparel and footwear, backpacks, handbags and technic
tt
al equipment
• Jeanswear
Denim and casual apparel
• Imagewear
Occupational workwear
• Other
Sales of non-VF products at VF Outlet® stores
The results of Williamson-Dickie have been included in the
Imagewear coalition since the October 2, 2017 acquisition date. The
results of Kipling North America, which were previously included
in the Sportswear coalition, have been included in the Outdoor &
Action Sports coalition for all periods presented.
Management at each of the coalitions has direct control over and
responsibility for its revenues, operating income and assets,
hereinafter termed “coalition revenues,” “coalition profit” and
“coalition assets,” respectively. VF management evaluates
operating performance and makes investment and other decisions
based on coalition revenues and coalition profit. In light of recent
activity related to our active portfolio management strategy, along
with recently announced organizational realignments, we are
evaluating whether changes may need to be made to our internal
reporting structure to better support and assess the operations of
our business going forward. If changes are made, we will assess
the resulting effect on our reportable segments, operating
segments and reporting units, if any.
Accounting policies used for internal management reporting at the
individual coalitions are consistent with those in Note A, except as
stated below. Corporate costs (other than common costs allocated
to the coalitions), impairment charges and net interest expense
are not controlled by coalition management and therefore are
excluded from the measurement of coalition profit. Common costs
such as information systems processing, retirement benefits and
insurance are allocated from corporate costs to the coalitions
based on appropriate metrics such as usage or employment.
Corporate costs that are not allocated to the coalitions consist of
corporate headquarters expenses (including compensation and
benefits of corporate management and staff, certain legal and
professional fees and administrative and general costs) and other
expenses which include a portion of defined benefit pension costs,
development costs for management information systems, costs of
registering, maintaining and enforcing certain of VF’s trademarks
and miscellaneous consolidated costs. Defined benefit pension
plans in the U.S. are centrally managed. The current year service
cost component of pension cost is allocated to the coalitions, while
the remaining pension cost components are reported in corporate
and other expenses.
Coalition assets, for internal management purposes, are those
used directly in or resulting from the operations of each business
unit, such as accounts receivable, inventories and property, plant
and equipment. Corporate assets primarily include corporate
facilities, investments held in trust for deferred compensation
plans and information systems.
VF Corporation 2017 Form 10-K F-39
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
Financial information for VF’s reportable segments is as follows:
(In thousands)
Coalition revenues:
2017
2016
2015
Outdoor & Action Sports
$
8,212,456
$
7,618,564 $
Jeanswear
Imagewear
Other
Total coalition revenues
Coalition profit:
Outdoor & Action Sports
Jeanswear
Imagewear
Other (a)
Total coalition profit
Impairment of goodwill and intangible assets (b)
Corporate and other expenses (c) (d)
Interest expense, net (e)
$
$
2,655,361
830,215
113,145
11,811,177
1,378,294
421,945
113,252
(3,086)
$
$
2,737,701
551,808
118,074
7,492,789
2,792,244
577,462
133,898
11,026,147 $
10,996,393
1,243,201 $
1,288,789
491,912
104,023
(4,817)
535,385
105,946
14,979
1,910,405
1,834,319
1,945,099
—
(408,030)
(85,880)
(79,644)
(384,413)
(85,546)
—
(299,243)
(81,599)
Income from continuing operations before income taxes
$
1,416,495
$
1,284,716 $
1,564,257
(a) Reflects a $16.6 million gain in 2015 recognized on the sale of a VF Outlet® location.
(b) Represents goodwill and intangible asset impairment charges in 2016 related to the Outdoor & Action Sports coalition (Notes G, H and U). The
impairment charges were excluded from the profit of the Outdoor & Action Sports coalition since they are not part of the ongoing operations of the
business.
(c) Reflects a $50.9 million pension settlement charge in 2016 (Note N).
(d) Certain corporate overhead and other costs of $16.6 million, $44.3 million and $48.2 million in 2017, 2016 and 2015, respectively, previously allocated
to the Sportswear, Imagewear, Outdoor & Action Sports and Contemporary Brands coalitions for segment reporting purposes, have been reallocated
to continuing operations as discussed in Note C.
(e)
Interest expense of $2.3 million in 2015, previously allocated to the Contemporary Brands coalition for segment reporting purposes, has been
reallocated to continuing operations as discussed in Note C.
(In thousands)
Coalition assets:
Outdoor & Action Sports
Jeanswear
Imagewear
Other
Total coalition assets
Cash and equivalents
Intangible assets and goodwill
Deferred income taxes
Corporate assets
Assets of discontinued operations
Consolidated assets
F-40
VF Corporation 2017 Form 10-K
2017
2016
$
2,560,648
$
2,442,882
1,055,004
713,082
60,128
4,388,862
566,075
3,782,425
103,601
715,474
402,065
943,764
207,104
63,351
3,657,101
1,227,862
3,088,595
42,231
986,196
737,302
$
9,958,502
$
9,739,287
(In thousands)
Capital expenditures: (a)
Outdoor & Action Sports
Jeanswear
Imagewear
Other
Corporate
Depreciation and amortization expense: (b)
Outdoor & Action Sports
Jeanswear
Imagewear
Other
Corporate
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
2017
2016
2015
$
104,230
$
115,508 $
$
$
30,726
7,794
1,981
22,087
166,818
140,682
53,205
11,682
3,560
68,016
$
$
38,802
5,034
2,390
9,311
168,679
31,844
5,445
2,679
32,318
171,045 $
240,965
141,799 $
47,726
3,863
3,537
57,291
131,877
41,823
3,559
4,510
51,117
$
277,145
$
254,216 $
232,886
(a) Excludes $2.6 million, $4.8 million and $13.5 million of capital expenditures related to discontinued operations in 2017, 2016 and 2015, respectively.
These amounts are included in capital expenditures in our Consolidated Statements of Cash Flows as we did not segregate cash flows related to
discontinued operations (Note C).
(b) Excludes $14.0 million, $27.4 million and $39.2 million of depreciation and amortization related to discontinued operations in 2017, 2016 and 2015,
respectively. These amounts are included in depreciation and amortization in our Consolidated Statements of Cash Flows as we did not segregate
cash flows related to discontinued operations (Note C).
Supplemental information (with revenues by geographic area based on the location of the customer) is as follows:
(In thousands)
Total revenues:
U.S.
Foreign, primarily Europe
Property, plant and equipment:
U.S.
Foreign, primarily Europe
2017
2016
2015
$
$
$
$
6,785,196
5,025,981
11,811,177
595,499
407,201
1,002,700
$
$
$
$
6,526,223 $
4,499,924
6,654,226
4,342,167
11,026,147 $
10,996,393
547,036
348,924
895,960
No single customer accounted for 10% or more of the Company’s total revenues in 2017, 2016 and 2015.
VF Corporation 2017 Form 10-K F-41
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE S — COMMITMENTS
VF is obligated under noncancelable operating leases related primarily to retail stores, office space, distribution facilities and equipment.
Rent expense, net of sublease income that was not significant in any period, was included in the Consolidated Statements of Income as
follows:
(In thousands)
Minimum rent expense
Contingent rent expense
Rent expense
2017
2016
2015
$
$
355,217
24,410
379,627
$
$
337,879 $
18,062
355,941 $
297,724
23,002
320,726
Future minimum lease payments during the noncancelable lease
term are $346.4 million, $272.1 million, $206.8 million, $137.9
million and $85.5 million for calendar years 2018 through 2022,
respectively, and $106.6 million thereafter.
VF has entered into licensing agreements that provide VF rights to
market products under trademarks owned by other parties.
Royalties under these agreements are recognized in cost of goods
sold in the Consolidated Statements of Income. Certain of these
agreements contain minimum royalty and minimum advertising
requirements. Future minimum royalty payments, including any
required advertising payments, are $15.5 million, $7.2 million, $4.8
million, $3.5 million and $0.2 million for calendar years 2018
through 2022, respectively, and $0.1 million thereafter.
In the ordinary course of business, VF has entered into purchase
commitments for raw materials, contract production and finished
products. These agreements typically range from 3 to 6 months in
duration and require total payments of $1.8 billion in calendar year
2018.
VF has entered into commitments for (i) service and maintenance
agreements related to its management information systems,
(ii) capital spending and (iii) advertising. Future payments under
these agreements are $160.7 million, $48.1 million, $12.0 million,
$8.3 million and $3.1 million for calendar years 2018 through 2022,
respectively, and $5.6 million thereafter.
Surety bonds, customs bonds, standby letters of credit and
international bank guarantees, all of which represent contingent
guarantees of performance under self-insurance and other
programs, totaled $123.9 million as of December 2017. These
commitments would only be drawn upon if VF were to fail to meet
its claims or other obligations.
NOTE T — EARNINGS PER SHARE
(In thousands, except per share amounts)
Earnings per share — basic:
Income from continuing operations
Weighted average common shares outstanding
Earnings per share from continuing operations
Earnings per share — diluted:
Income from continuing operations
Weighted average common shares outstanding
Incremental shares from stock options and other dilutive securities
Adjusted weighted average common shares outstanding
Earnings per share from continuing operations
$
$
$
$
2017
2016
2015
$
$
$
721,209
399,223
1.81
721,209
399,223
4,336
403,559
1,078,854 $
1,217,056
416,103
2.59 $
425,408
2.86
1,078,854 $
1,217,056
416,103
5,978
422,081
425,408
6,671
432,079
2.82
1.79
$
2.56 $
Outstanding options to purchase 6.9 million, 5.8 million and 2.4
million shares of Common Stock were excluded from the
calculations of diluted earnings per share in 2017, 2016 and 2015,
respectively, because the effect of their inclusion would have been
antidilutive to those years. In addition, 0.9 million shares of
performance-based RSUs were excluded from the calculations of
diluted earnings per share in each of 2017, 2016 and 2015, because
these units were not considered to be contingent outstanding
shares.
F-42
VF Corporation 2017 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE U — 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
Recurring Fair
FF
VV
Value
rr
Measuremen
tstt
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
judgments about
normally be VF’s own data and
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:
Fair Value Measur
VV
ement Using (a)
(In thousands)
December 2017
Financial assets:
Cash equivalents:
Money market funds
Time deposits
Derivative financial instruments
Investment securities
Financial liabilities:
Derivative financial instruments
Deferred compensation
December 2016
Financial assets:
Cash equivalents:
Money market funds
Time deposits
Derivative financial instruments
Investment securities
Financial liabilities:
Derivative financial instruments
Deferred compensation
Total Fair
VV
Value
Level 1
Level 2
Level 3
$
265,432 $
265,432 $
13,591
22,970
197,837
100,038
235,359
13,591
—
185,723
—
—
$
840,842 $
840,842 $
14,774
103,340
194,853
25,574
230,900
14,774
—
177,788
—
—
— $
—
22,970
12,114
100,038
235,359
— $
—
103,340
17,065
25,574
230,900
—
—
—
—
—
—
—
—
—
—
—
—
(a) There were no transfers among the levels within the fair value hierarchy during 2017 or 2016.
VF’s cash equivalents include money market funds and short-term
time deposits 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. Investment
securities are held in VF’s deferred compensation plans as an
economic hedge of the related deferred compensation liabilities
(Note N). These investments are classified as trading securities
and primarily include mutual funds (Level 1) that are valued based
on quoted prices in active markets and a separately managed fixed-
income fund (Level 2) with underlying investments that are valued
based on quoted prices for similar assets in active markets or
quoted prices in inactive markets for identical assets. 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.
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
VF Corporation 2017 Form 10-K F-43
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
Our impairment testing of goodwill, trademarks, customer
relationships and license intangible assets utilizes significant
unobservable inputs (Level 3) to determine fair value.
The fair value of reporting units for goodwill impairment testing is
determined using a combination of two valuation methods: an
income approach and a market approach. The income approach is
based on projected future (debt-free) cash flows that are
discounted to present value. The appropriate discount rate is based
on the reporting unit’s weighted average cost of capital (“WACC”)
that takes market participant assumptions into consideration. For
the market approach, management uses both the guideline
company and similar transaction methods. The guideline company
method analyzes market multiples of revenues and earnings
before interest, taxes, depreciation and amortization (“EBITDA”)
for a group of comparable public companies. The market multiples
used in the valuation are based on the relative strengths and
weaknesses of the reporting unit compared to the selected
guideline companies. Under the similar transactions method,
valuation multiples are calculated utilizing actual transaction
prices and revenue/EBITDA data from target companies deemed
similar to the reporting unit.
Management uses the income-based relief-from-royalty method
to value trademark intangible assets. Under this method, revenues
expected to be generated by the trademark are multiplied by a
selected royalty rate. The royalty rate is selected based on
consideration of i) royalty rates included in active license
agreements, if applicable, ii) royalty rates received by market
the current
participants in the apparel
performance of the reporting unit. The estimated after-tax royalty
revenue stream is then discounted to present value using the
reporting unit’s WACC plus a spread that factors in the risk of the
intangible asset.
industry, and
iii)
For the valuation of customer relationship intangible assets,
management uses the multi-period excess earnings method which
is a specific application of the discounted cash flows method. Under
this method, VF calculates the present value of the after-tax cash
flows expected to be generated by the customer relationship asset
after deducting contributory asset charges.
Management’s revenue and profitability forecasts used in the
reporting unit and intangible asset valuations were developed in
conjunction with management’s strategic plan review performed
each fourth quarter, and our resulting revised outlook for business
performance, and considered recent performance and trends,
strategic initiatives and industry trends. Assumptions used in the
valuations are similar to those that would be used by market
participants performing
these
businesses.
independent valuations of
financial assets and financial liabilities include cash held as
demand deposits, accounts receivable, short-term borrowings,
accounts payable and accrued liabilities. At December 2017 and
2016,
their carrying values approximated their fair values.
Additionally, at December 2017 and 2016, the carrying values of
VF’s long-term debt, including the current portion, were $2,194.0
million and $2,292.9 million, respectively, compared with fair
values of $2,422.0 million and $2,486.6 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.
Nonrecurring
rr
FF
Fair
VV
Value
rr
Measuremen
tstt
In conjunction with the acquisition of Williamson-Dickie, the
Company measured tangible and intangible assets acquired and
liabilities assumed at fair value using valuation techniques
including the replacement cost, market and income methods.
Refer to Note B for additional details regarding the acquisition and
purchase price allocation.
Certain non-financial assets, primarily property, plant and
equipment, goodwill and intangible assets, are not required to be
measured at fair value on a recurring basis and are reported at
carrying value. However, these assets are required to be assessed
for impairment whenever events or circumstances indicate that
their carrying value may not be fully recoverable, and at least
annually for goodwill and indefinite-lived intangible assets. In the
event an impairment is required, the asset is adjusted to fair value,
using market-based assumptions.
The Company recorded $17.2 million and $8.2 million of fixed asset
impairments in 2017 and 2016, respectively, related to retail store
assets and other fixed assets. These impairments are recorded in
the selling, general and administrative expenses line item in the
Consolidated Statements of Income. There were no significant
impairment charges related to property, plant and equipment in
2015.
Management performed its annual impairment testing of goodwill
and indefinite-lived intangible assets as of the beginning of the
fourth quarter of 2017. Management performed a qualitative
analysis for all reporting units and trademark intangible assets.
No impairment charges of goodwill or intangible assets were
recorded in 2017 except for a goodwill impairment charge of $104.7
million recorded in the third quarter of 2017 related to the Nautica®
brand business, which has since been reported as discontinued
operations for 2017.
VF recognized impairment charges of $79.6 million in the 2016
Consolidated Statement of Income related to the lucy® brand, of
which $39.3 million related to the remaining goodwill and $40.3
million related to the remaining trademark intangible asset. No
other impairment charges were recorded as a result of the 2016
quantitative analyses. No impairment charges were recorded in
2015.
F-44
VF Corporation 2017 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE V — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Summary r of Derivavv tive vv Financial Instrumentstt
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 outstanding derivative
contracts were $2.9 billion at December 2017 and $2.2 billion at
December 2016, consisting primarily of contracts hedging
exposures to the euro, British pound, Canadian dollar, New Zealand
dollar, Swiss franc, Mexican peso, Chinese renminbi yuan, Swedish
krona, Japanese yen, Polish zloty and Korean won. Derivative
contracts have maturities up to 20 months.
The following table presents outstanding derivatives on an individual contract basis:
Fair Value of Deriv
VV
atives
with Unrealized Gains
VV
Fair Value of Deriv
atives
with Unrealized Losses
(In thousands)
Foreign currency exchange contracts designated as
hedging instruments
Foreign currency exchange contracts not designated as
hedging instruments
Total derivatives
$
$
2017
2016
2017
2016
17,639
$
103,340
$
(99,606)
$
(25,292)
5,331
—
(432)
(282)
22,970
$
103,340
$
(100,038) $
(25,574)
VF records and presents the fair values of all derivative assets and liabilities in the Consolidated Balance Sheets on a gross basis, even
though they are subject to master netting agreements. However, 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 as of December 2017 and December 2016 would be adjusted from the current gross presentation
to the net amounts as detailed in the following table:
(In thousands)
Gross amounts presented in the Consolidated Balance
Sheets
Gross amounts not offset in the Consolidated Balance
Sheets
Net amounts
2017
2016
Derivative
Asset
Derivative
Liability
Derivative
Asset
Derivative
Liability
$
$
22,970 $
(100,038)
$
103,340 $
(25,574)
(18,313)
18,313
(22,341)
4,657 $
(81,725) $
80,999 $
22,341
(3,233)
Derivatives are classified as current or noncurrent based on maturity dates, as follows:
(In thousands)
Other current assets
Accrued liabilities (Note K)
Other assets (Note I)
Other liabilities (Note M)
2017
2016
$
20,771
$
(87,205)
2,199
(12,833)
84,519
(18,574)
18,821
(7,000)
VF Corporation 2017 Form 10-K F-45
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
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 Income and
Consolidated Statements of Comprehensive Income are summarized as follows:
(In thousands)
Cash Flow Hedging R
g g elationshipsp
Foreign currency exchange
(In thousands)
Location of Gain (Los
(
s))
Net sales
Cost of goods sold
Selling, general and administrative expenses
Other income (expense), net
Interest expense
Total
Derivavv tive vv Contract
rr
stt Not Designated as Hedges
Gain (Loss) on Derivatives Recognized in OCI
2017
2016
2015
$
(138,716)
$
90,708 $
89,993
Gain (Loss) Reclassified
from Accumulated OCI into Income
2017
2016
2015
$
33,641
$
28,798 $
610
(3,610)
(1,851)
(4,723)
84,613
(4,314)
2,864
(4,504)
(68,543)
132,432
(1,885)
7,267
(4,295)
$
24,067
$
107,457 $
64,976
VF uses derivative contracts to manage foreign currency exchange
risk on third-party accounts receivable and payable and
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 addition, VF has entered into foreign exchange forward contracts
to hedge the purchase price of the Icebreaker Holdings, Ltd.
acquisition. 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.
Following is a summary of these derivatives included in VF’s Consolidated Statements of Income:
(In thousands)
Derivatives Not Designated as
Hedges
Location of Gain (Loss) on
Derivatives
Recognized in Income
Foreign currency exchange
Cost of goods sold
Foreign currency exchange
Other income (expense), net
Total
Gain (Loss) on Derivatives Recognized in Income
2017
2016
2015
$
$
(1,929)
$
1,674 $
1,028
83
(901) $
1,757 $
(4,179)
2,806
(1,373)
Other Derivavv tive vv Informa
ff
tion
There were no significant amounts recognized in earnings for the
ineffective portion of any hedging relationships during 2017, 2016
and 2015.
At December 2017, accumulated OCI included $63.7 million of
pretax net deferred losses for foreign 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 entered into interest rate swap derivative contracts in 2011 and
2003 to hedge the interest rate risk for issuance of long-term debt
due in 2021 and 2033, respectively. In each case, the contracts were
terminated concurrent with the issuance of the debt, and the
realized gain or loss was deferred in accumulated OCI. The
remaining pretax net deferred loss in accumulated OCI was $18.0
F-46
VF Corporation 2017 Form 10-K
million at December 2017, which will be reclassified into interest
expense in the Consolidated Statements of Income over the
remaining terms of the associated debt instruments. During 2017,
2016 and 2015, VF reclassified $4.7 million, $4.5 million and $4.3
million, respectively, of net deferred losses from accumulated OCI
into interest expense, and expects to reclassify $4.9 million to
interest expense during the next 12 months.
vv
Net Investmen
t Hedge
The Company has designated its €850.0 million of euro-
denominated fixed-rate notes 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 2017, the Company recognized an
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
after-tax loss of $92.9 million in OCI related to the net investment
hedge. During 2016, the Company recognized an after-tax gain of
$34.4 million in OCI related to the net investment hedge
transaction. Any amounts deferred in accumulated OCI will remain
until the hedged investment is sold or substantially liquidated. The
Company recorded no ineffectiveness from its net investment
hedge during 2017 or 2016.
NOTE W — SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands)
Income taxes paid, net of refunds
Interest paid, net of amounts capitalized
Noncash transactions:
2017
2016
2015
$
331,194
$
434,795 $
99,939
87,521
Property, plant and equipment expenditures included in accounts
payable or accrued liabilities
Computer software costs included in accounts payable or accrued
liabilities
26,146
22,880
28,103
15,143
339,010
83,850
9,445
4,394
The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash
Flows. Accordingly, the information above includes the results of continuing and discontinued operations.
NOTE X — RESTRUCTURING
The Company typically incurs restructuring costs related to the
cost optimization of ongoing business activities and the integration
of acquired businesses.
Of the $27.0 million of restructuring charges recognized in 2017,
$20.2 million were reflected in selling, general and administrative
expenses and $6.8 million in cost of goods sold. Of the $55.1 million
of restructuring charges recognized in 2016, $31.8 million were
reflected in selling, general and administrative expenses and $23.3
million in cost of goods sold.
The Company did not recognize significant incremental costs
relating to the 2016 actions during 2017, and has completed most
of the related restructuring activities as of December 2017. Of the
$38.2 million total restructuring accrual at December 2017, $27.2
million is expected to be paid out within the next 12 months and is
classified within accrued liabilities. The remaining $11.0 million
will be paid out beyond the next 12 months and thus is classified
within other liabilities.
The components of the restructuring charges in 2017 and 2016 are as follows:
(In thousands)
Severance and employee-related benefits
Asset impairments
Other
Total restructuring charges
Restructuring costs by business segment are as follows:
(In thousands)
Outdoor & Action Sports
Jeanswear
Imagewear
Other
Corporate
Total
2017 Charges
2016 Charges
22,611
$
—
4,436
27,047
$
50,395
3,394
1,310
55,099
2017 Charges
2016 Charges
12,793
$
6,993
3,895
—
3,366
27,047
$
18,083
20,357
1,308
1,277
14,074
55,099
$
$
$
$
VF Corporation 2017 Form 10-K F-47
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
The activity in the restructuring accrual for December 2017 and 2016 is as follows:
(In thousands)
Severance
Other
Total
Accrual at December 2015
$
— $
— $
Charges
Cash payments
Accrual at December 2016
Charges
Cash payments
Adjustments to accruals
Currency translation
Accrual at December 2017
50,395
(667)
49,728
22,611
(37,349)
(2,783)
1,601
1,310
(432)
878
4,436
(878)
—
—
$
33,808 $
4,436 $
—
51,705
(1,099)
50,606
27,047
(38,227)
(2,783)
1,601
38,244
NOTE Y — SUBSEQUENT EVENTS
On February 13, 2018, VF’s Board of Directors declared a quarterly cash dividend of $0.46 per share, payable on March 19, 2018 to
shareholders of record on March 9, 2018. The Board of Directors also granted approximately 1,800,000 stock options, 350,000
performance-based RSUs, 400,000 nonperformance-based RSUs and 50,000 shares of restricted VF Common Stock at market value.
F-48
VF Corporation 2017 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
December 2017
NOTE Z — QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
2017
Total revenues
Operating income
Income (loss) from continuing operations (c)
Income (loss) from discontinued operations,
net of tax
Net income (loss)
Earnings (loss) per common share - basic (d)
Continuing operations
Discontinued operations
Total earnings (loss) per common share -
basic
Earnings (loss) per common share - diluted (d)
Continuing operations
Discontinued operations
Total earnings (loss) per common share -
diluted
Dividends per common share
Total revenues
Operating income
Income from continuing operations
Income (loss) from discontinued operations,
net of tax
Net income
Earnings (loss) per common share - basic (d)
Continuing operations
Discontinued operations
Total earnings per common share - basic
Earnings (loss) per common share - diluted (d)
Continuing operations
Discontinued operations
Total earnings per common share - diluted
Dividends per common share
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter (a) (b) (c)
Full
YearYY
$
2,500,340 $
2,268,620 $
3,392,934 $
3,649,283 $
11,811,177
289,653
213,276
158,117
107,092
573,949
473,820
481,371
(72,979)
1,503,090
721,209
(4,113)
2,797
(87,680)
(17,290)
(106,286)
209,163 $
109,889 $
386,140 $
(90,269) $
614,923
0.52 $
0.27 $
1.20 $
(0.18) $
(0.01)
0.01
(0.22)
(0.04)
0.51 $
0.28 $
0.98 $
(0.23) $
0.51 $
0.27 $
1.19 $
(0.18) $
(0.01)
0.01
(0.22)
(0.04)
0.50 $
0.42 $
0.27 $
0.42 $
0.97 $
0.42 $
(0.23) $
0.46 $
1.81
(0.27)
1.54
1.79
(0.26)
1.52
1.72
2,538,568 $
2,231,203 $
3,218,833 $
3,037,543 $
11,026,147
304,733
236,252
186,252
130,450
594,849
474,069
282,426
238,083
1,368,260
1,078,854
24,017
(79,435)
24,420
26,250
(4,748)
260,269 $
51,015 $
498,489 $
264,333 $
1,074,106
0.56 $
0.31 $
1.15 $
0.58 $
0.06
(0.19)
0.06
0.06
0.62 $
0.12 $
1.21 $
0.64 $
0.55 $
0.31 $
1.13 $
0.57 $
0.06
0.61 $
0.37 $
(0.19)
0.12 $
0.37 $
0.06
1.19 $
0.37 $
0.06
0.63 $
0.42 $
2.59
(0.01)
2.58
2.56
(0.01)
2.54
1.53
$
$
$
$
$
$
$
$
$
$
$
$
$
(a) VF recorded the following charges during the fourth quarter of 2017: restructuring — $27.0 million ($18.6 million after-tax), transaction and deal-
related costs — $15.6 million ($13.6 million after-tax).
(b) VF recorded the following charges during the fourth quarter of 2016: restructuring — $55.1 million ($41.8 million after-tax), goodwill and intangible
asset impairment charges — $79.6 million ($64.1 million after-tax) and pension settlement charge — $50.9 million ($31.4 million after-tax).
(c) VF recorded a $465.5 million provisional tax charge during the fourth quarter of 2017 related to the transitional impact of the Tax Act (Note Q).
(d) Per share amounts are computed independently for each quarter presented using unrounded numbers. The sum of the quarters may not equal the
total year amount due to the impact of changes in average quarterly shares outstanding and rounding.
VF Corporation 2017 Form 10-K F-49
Schedule II — Valuation and Qualifying Accounts
COL. A
COL. B
COL. C
ADDITIONS
COL. D
COL. E
Description
p
(In thousands)
Fiscal year ended December 2017
Balance at
Beginning
of Period
(1)
Charged to
Costs and
Expenses
(2)
Charged to
Other
Accounts
Deductions
Balance at
End of
Period
Allowance for doubtful accounts
Other accounts receivable allowances
Valuation allowance for deferred income tax
assets
Fiscal year ended December 2016
Allowance for doubtful accounts
Other accounts receivable allowances
Valuation allowance for deferred income tax
assets
Fiscal year ended December 2015
Allowance for doubtful accounts
Other accounts receivable allowances
Valuation allowance for deferred income tax
assets
$
20,538
$ 157,835
$ 114,990
22,990
$
$ 161,745
$ 100,951
24,784
$
$ 151,575
$
96,802
$
21,046
1,613,257
$
15,332 (a) $
26,252
1,562,097 (b) $ 208,995
110,151 (c)
$ 225,141
16,684
1,482,855
—
—
19,136 (a)
20,538
1,486,765 (b) $ 157,835
$
—
14,039 (c)
—
$ 114,990
12,455
1,335,706
—
—
14,249 (a)
22,990
1,325,536 (b) $ 161,745
$
—
4,149 (c)
—
$ 100,951
(a) Deductions include accounts written off, net of recoveries, and the effects of foreign currency translation.
(b) Deductions include discounts, markdowns and returns, and the effects of foreign currency translation.
(c) Additions relate to circumstances where it is more likely than not that deferred income tax assets will not be realized and the effects of foreign currency
translation.
F-50
VF Corporation 2017 Form 10-K
STOCK INFORMATION
COMMON STOCK
DIVIDEND REINVESTMENT PLAN
Listed on the New York Stock Exchange – trading
symbol VFC.
SHAREHOLDERS OF RECORD
As of January 27, 2018, there were 3,435 shareholders
of record.
DIVIDEND POLICY
Quarterly dividends of VF Corporation Common Stock,
when declared, are paid on or about the 20th day of March,
June, September and December.
DIVIDEND DIRECT DEPOSIT
Shareholders may have their dividends deposited into
their savings or checking account at any bank that is a
member of the Automated Clearing House system. Questions
concerning this service should be directed to Computershare
Trust Company, N.A., at www.computershare.com/investor.
The Plan is offered to shareholders by Computershare Trust
Company, N.A. The Plan provides for automatic dividend
reinvestment and voluntary cash contributions for the
purchase of additional shares of VF Corporation Common
Stock. Questions concerning general Plan information should
be directed to the Office of the Vice President, General
Counsel and Secretary of VF Corporation.
QUARTERLY COMMON STOCK PRICE INFORMATION
The following table shows the high and low sales prices
on a fiscal quarter basis for the years 2015-2017.
QUARTERLY COMMON STOCK PRICE
2017
2016
2015
High
Low
High
Low
High
Low
$
56.27
$
48.05
$
67.10
$
52.21
$
77.83
$
67.85
58.18
64.51
75.25
51.22
55.51
62.83
66.31
65.25
58.35
57.78
55.20
51.76
76.18
77.40
73.81
68.12
66.90
61.17
Q1
Q2
Q3
Q4
CORPORATE INFORMATION
CORPORATE OFFICE
VF CONTACTS
TRANSFER AGENT AND REGISTRAR
VF World Headquarters
Scott Deitz
105 Corporate Center Blvd.
Greensboro, NC 27408
Vice President,
Public Affairs
Telephone: 336.424.6000
Joe Alkire
Communications concerning shareholder address changes,
stock transfers, changes of ownership, lost stock certificates,
payment of dividends, dividend check replacements,
duplicate mailings or other account services should be
directed to the following:
Facsimile: 336.424.7696
Mailing Address:
P.O. Box 21488
Greensboro, NC 27420-1488
Vice President, Investor
Relations and Financial
Planning & Analysis
Letitia Webster
Vice President,
Global Corporate
Sustainability
Craig Hodges
Senior Director, Corporate
Communications
MAILING ADDRESSES
Shareholder correspondence should be mailed to:
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
Overnight correspondence should be sent to:
Computershare
462 South 4th Street
Suite 1600
Louisville, KY 40202
FORWARD-LOOKING STATEMENTS
The VF Corporation 2017 Annual Report contains forward-
looking statements as defined by federal securities laws.
Important factors that could cause future results to differ
materially from those projected in the forward-looking
statements are discussed in VF Corporation's 2017 Form 10-K.
SHAREHOLDER WEBSITE
www.computershare.com/investor
SHAREHOLDER ONLINE INQUIRIES
https://www-us.computershare.com/investor/contact
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