V F C O R P ORATION
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A N NUA L RE POR T
FISCAL YEAR 2 019
... WITH A DIVERSE
PORTFOLIO OF ICONIC
BRANDS AND A LONG
TRACK RECORD OF
DELIVERING STRONG
SHAREHOLDER RETURNS.
NOW WE’RE BUILDING
ON THAT LEGACY OF
SUCCESS TO CREATE
AN EVEN BETTER VF
FOR THE FUTURE.
WE’VE EMBARKED ON A JOURNEY TO EVOLVE
OUR COMPANY’S CULTURE AND TRANSFORM OUR
OPERATIONS, BUILDING ON THREE COMMITMENTS:
Bring a deep sense of PURPOSE to all that we do – using our
talent, resources and scale to improve lives, make the world
a better place and drive new forms of accretive growth.
Ensure that, around the world, our company reflects the rich diversity of
the consumers and communities we serve. We see an inclusive and diverse
workforce and culture as powerful forces that drive greater PERFORMANCE,
more productive collaboration and a faster pace of innovation.
Create superior VALUE for our shareholders, as we’ve consistently
done in the past and as we’re doing today to keep delivering on our
integrated 2021 Global Business Strategy.
As we work to meet these commitments, we reject the zero-sum notion
of either-or. Instead, we seek to unlock “the power of and.”
In our priorities, decisions and actions, we believe we can find the balance
that lives at the intersection of purpose, performance and value. This
approach will help us lead by example and demonstrate that even the
largest companies can excel by doing good.
Today and in the future, you’ll see us continue to operate with the financial
rigor and operational discipline you’ve come to expect, but with a new
boldness that more fully aligns VF and our brands with the needs of our
associates, consumers, shareholders and stakeholders. That’s how we’ll
win in today’s fast-changing and dynamic marketplace.
WE’RE PURPOSE-LED.
WE’RE PERFORMANCE-DRIVEN.
WE’RE VALUE-CREATING.
WE’RE VF CORPORATION.
VF Corporation | FISCAL YEAR 2019 ANNUAL REPORT
1
STEVEN E. RENDLE
Chairman, President & Chief Executive Officer
To Our
Fiscal 20191 brought changes in our company that, taken together, mark the most
significant transformation in VF Corporation’s 120-year history. We have taken bold
actions to reshape our portfolio and evolve our company in ways we believe will lead
us into another century of success and value creation.
At the same time, we delivered the kind of financial results you’ve come to expect from
us – performance that demonstrates our intense focus on creating superior shareholder
value. Here are some highlights:
• VF’s Total Shareholder Return (TSR) was 20 percent compared with 9 percent for
the Standard & Poor’s 500 Index (S&P 500) and 13 percent for the S&P Consumer
Discretionary Index. Our annualized TSR during the past 10-year period was
23 percent compared with 16 percent for the S&P 500 and 21 percent for the
S&P Consumer Discretionary Index.
• Revenue increased 12 percent (13 percent in constant dollars2) to $13.8 billion,
including a $700 million contribution from the Williamson-Dickie, icebreaker®
and Altra® acquisitions. Excluding our Jeans business3, revenue increased
16 percent (18 percent in constant dollars) to $11.2 billion. Growth was driven by
our two largest brands – Vans® (up 24 percent, or 26 percent in constant dollars)
and The North Face® (up 9 percent, or 10 percent in constant dollars).
• On an organic basis4, revenue increased 7 percent (8 percent in constant dollars),
with our International platform up 5 percent (8 percent in constant dollars) and
our Direct-to-Consumer (DTC) platform up 11 percent (12 percent in constant
dollars). Our Work segment increased 6 percent, as our Dickies® brand increased
5 percent (6 percent in constant dollars). Excluding our Jeans business, organic
revenue increased 10 percent (11 percent in constant dollars) with our International
platform up 7 percent (10 percent in constant dollars) and our DTC platform up
12 percent (13 percent in constant dollars).
• Gross margin from continuing operations increased 10 basis points to 50.7 percent.
On an adjusted basis5, gross margin increased 30 basis points to 51 percent.
• Earnings per share (EPS) from continuing operations was $3.14. Adjusted EPS
from continuing operations6 increased 20 percent to $3.78 (22 percent in constant
dollars), including a $0.15 per share contribution from the Williamson-Dickie,
icebreaker® and Altra® acquisitions.
• Fiscal 2019 cash flow from operations reached approximately $1.7 billion, or
approximately $1.8 billion on an adjusted basis7 , and we returned over $900 million
to shareholders through share repurchases and dividends.
See inside back cover for shareholder letter footnotes.
VF Corporation | FISCAL YEAR 2019 ANNUAL REPORT
3
Boldly into the Future
Highlighting fiscal 2019 was our announcement to spin off our Jeans business as
an independent, publicly traded company comprising the Wrangler®, Lee® and
Rock & Republic® brands and the VF Outlet™ business. Separating this new company,
named Kontoor Brands, Inc., enables VF to sharpen our focus as a global apparel and
footwear powerhouse, anchored in activity-based outdoor, active and work lifestyle
brands. It also allows for enhanced strategic and management focus, reduced
complexity and more efficient allocation of capital.
With the separation of Kontoor Brands, VF will be an $11.2 billion company,
with approximately 80 percent of revenue driven by our four largest brands: Vans®,
The North Face®, Timberland® and Dickies®. Our global growth platforms of International
and DTC will represent 45 percent and over 35 percent of total revenue, respectively.
We also announced our decision to establish a shared global headquarters in Denver
to serve as the home for certain VF leaders and our The North Face®, JanSport®,
Eagle Creek®, Smartwool® and Altra® brands, as well as our Global Innovation Center
for technical apparel.
Co-locating these brands, along with VF leadership, at the base of the Rocky Mountains
not only simplifies our North American office footprint, but also better positions us to
collaborate across brands and functions, unlock innovation and business opportunities,
attract and retain talent, and better connect with our outdoor and active lifestyle consumers.
These moves underscore our bias for boldness as we evolve our company and shape
our future. Moreover, they underpin the transformational journey we’re on to be a
company that delivers on our commitment to be a purpose-led, performance-driven and
value-creating enterprise.
MILESTONES THAT HELPED SHAPE
the company we are today
VF acquires The North Face®
and Vans® brands – its two
largest today – laying the
foundation for the company’s
portfolio of powerful, activity-
based lifestyle brands.
VF acquires Blue Bell,
which includes the Wrangler®,
JanSport® and Red Kap®
brands – doubling its size
and creating the world’s
largest publicly traded
apparel company.
VF – then Vanity Fair –
enters the denim category
with the acquisition of the
Lee® brand and renames
itself VF Corporation.
4
SHAREHOLDER LETTER
Leading with Purpose
Much has been said in recent years about the importance of doing well in business by
also doing good for society. At VF, we view this as more than a business trend. We believe
it’s become a business imperative.
Without a doubt, a bitter mix of social, environmental, political and economic issues
is having a negative impact on our communities and our world. Many challenges
have grown so large and complex that the institutions traditionally responsible for
addressing them can’t deliver effective solutions at scale. Our world needs steady
and principled leadership. And, perhaps more than ever, we in the business community
have the responsibility to provide that leadership.
At VF and across our brand portfolio, we’re leaning into this opportunity by declaring our
commitment to be a purpose-led company that puts purpose on par with profit. This
means you’ll see us increasingly combine our relentless focus on shareholder value
creation with a complementary focus on stakeholder value and a commitment to use
our business as a force for good – true to the purpose we defined and launched last year:
WE POWER MOVEMENTS OF SUSTAINABLE AND ACTIVE
LIFESTYLES FOR THE BETTERMENT OF PEOPLE AND
OUR PLANET.
This purpose has galvanized our diverse organization behind one shared reason for
being. As we move forward, it will not only give greater meaning to our work, it will help
VF completes its largest
acquisition in the Timberland®
and Smartwool® brands,
immediately doubling its
global footwear business.
VF divests its namesake
brand, Vanity Fair, when it
sells the intimate apparel
business that represents a
sizeable part of its revenue.
VF announces the separation
of its Jeans business and
establishes a shared global
headquarters in Denver for VF
and five of its outdoor brands.
VF acquires Williamson-Dickie
Mfg. Co. and its portfolio of
workwear brands – including the
Dickies® brand – and establishes
itself as a global leader in the
workwear category.
VF Corporation | FISCAL YEAR 2019 ANNUAL REPORT
5
THE ADDITION OF
ICEBREAKER®– OUR FIRST
PURPOSE-LED ACQUISITION –
IS AN IDEAL COMPLEMENT
TO OUR SMARTWOOL® BRAND,
STRENGTHENING VF’S
INDUSTRY LEADERSHIP
IN THE USE OF NATURAL
AND SUSTAINABLE
PERFORMANCE MATERIALS.
fuel our business success as we more deeply engage with our consumers to advance
shared interests and widen our market reach. Most importantly, as we closely connect
purpose and profit, we will leverage our resources and scale to make a measurable
impact on millions of lives and the planet we all share.
Although we’re early in our journey, we’ve already made significant strides. For example,
we’re leading the industry in advancing the use of natural and sustainable performance
materials. That work directly links to our acquisition of the icebreaker® brand, our first
purpose-led acquisition. And we’re closely aligning our purpose commitment with our
Global Business Strategy and innovation agenda to prioritize and accelerate the pursuit
of more purpose-led acquisitions, innovations and strategic investments.
At the intersection of business and purpose we see new opportunities. And as we pursue
those opportunities and grow our business, you’ll see us lead by example – joining with
other like-minded organizations and individuals to become a catalyst for solutions to
some of society’s biggest challenges.
Driven to Perform
Our global workforce of approximately 50,000 associates powers our performance.
It’s essential that they are immersed in a workplace culture that encourages and enables
them to thrive personally and professionally.
We are evolving our culture to become an even better version of ourselves. In doing
so, we’re working to ensure that our culture aligns with and enables our purpose and
business strategy. Today, we’re working with clear intention to reinforce a collaborative,
performance-driven, One VF culture that builds on our legacy of financial discipline
and operational rigor by infusing a focus on innovation, agility and speed. We want
every associate to work with an inclusive, global, consumer-oriented mindset.
As we do these things, we’re working hard to make the very most of one of our greatest
assets: the intense bond that our iconic brands form with consumers. Succeeding at
that means making sure the workforce that powers our brands reflects the diversity
of the consumers we serve. Today, we aren’t where we want to be.
This past year we continued to advance our “Strategy for Inclusion” and commitment
to achieve gender parity globally at the director level and above by 2030, as well as
a commitment to 25 percent racial/ethnic representation in the U.S. at the director level
and above by that same year. We’ve also activated our Executive Inclusion & Diversity
Council (EIDC) to help guide our strategy and strengthen our understanding of the
multicultural marketplace. I lead the EIDC and am joined by other VF functional and
brand leaders from around the world who embody our commitment to foster an inclusive
environment that harnesses the power of diverse teams and thinking.
We believe that an inclusive and highly collaborative culture – when guided by purpose
and fully aligned with business strategy – is a mighty force that can propel our company
to deliver outsized performance. I’m excited about the deliberate evolution of our culture
at VF, and I’m confident in its potential to accelerate growth and value creation across
our global organization.
VF Corporation | FISCAL YEAR 2019 ANNUAL REPORT
7
Creating Value
Two years ago, we announced our 2021 Global Business Strategy, which outlines a clear
set of strategic choices and the roadmap for transforming our company. I’m extremely
proud of our progress, especially when you consider the intense workload our organization
has also taken on. Our financial performance demonstrates that the hard work and
dedication of our VF associates around the world is paying off.
Importantly, we’re investing in our business for the long term while upholding our
annual shareholder commitments and delivering top-quartile TSR. Since launching our
2021 strategy, VF has delivered an annualized TSR of 29 percent over this period, with
a strong balance of both earnings growth and cash returns. During the past two years,
our confidence in our people and our strategy has led us to invest an incremental
$165 million, relative to our original plan, in our highest-priority strategic choices –
with $100 million invested in calendar 2017, followed by an additional $65 million in
fiscal 2019. Even with this level of investment, our return on capital was over 22 percent
and we returned over $3 billion to shareholders through dividends and share repurchases,
all through a purpose-led lens.
We’re funding advancements in our core capabilities, including: Design and Innovation,
Demand Creation, Insights and Analytics, and Digital and Technology. These investments
contributed to the success of our Big 3 Brands in particular, which collectively grew
13 percent (14 percent in constant dollars) during the year.
Leading the way was our Vans® brand with 24 percent growth (26 percent in constant
dollars) in fiscal 2019, on the heels of a 29 percent increase (27 percent in constant dollars)
in fiscal 20181. The North Face® brand grew 9 percent (10 percent in constant dollars)
and made significant progress in reclaiming its rightful leadership position as one of
the world’s largest, most influential outdoor brands. And the Timberland® brand in
North America returned to growth this past year (up 5 percent) and continued its
momentum in China (up 38 percent, or 43 percent in constant dollars).
IN FISCAL 2019, WE MOVED FORWARD ON ALL THE KEY
ELEMENTS OF OUR 2021 GLOBAL BUSINESS STRATEGY:
RESHAPING VF’S PORTFOLIO:
In addition to spinning off our Jeans business, we took other steps to actively manage
our brand portfolio and optimize its value-creating composition. We divested
the Nautica® and Reef® brands and the Van Moer business, and acquired Altra®,
which brings to VF a unique and differentiated technical footwear brand with
plenty of room to run. We also completed our acquisition of icebreaker®, which,
combined with our Smartwool® brand, positions VF as a global leader in the
Merino wool and natural performance material categories.
8
SHAREHOLDER LETTER
TRANSFORMING TO A MORE CONSUMER- AND RETAIL-
CENTRIC MODEL:
By looking at our business through the lens of our consumers, we continue
to improve how we design and merchandise our products, create compelling
shopping experiences, and become highly efficient at getting the right product
to the right consumer at the right time. The North Face® brand in North America
increased revenue by 8 percent, with DTC up 9 percent. Much of the credit is
due to its multiyear Integrated Marketplace Segmentation strategy, as well
as to its efforts to streamline its global assortment and go-to-market process.
This new approach has simplified the brand’s style count and struck a balance
between tried-and-true franchises and new, on-trend styles and innovations.
Meanwhile, our investments in Design and Innovation led to the Napapijiri®
brand’s Ze-Knit collection. This new technical line of digitally knitted garments
meets consumers’ demand for sustainable apparel and presents a future
opportunity for on-demand apparel production at scale.
ELEVATING OUR DTC BUSINESS, WHILE PRIORITIZING DIGITAL:
We’re ensuring that these platforms work together to create the pinnacle
expression of our brands to drive even more powerful and authentic connections
with our consumers. We appointed VF’s first Chief Digital Officer, and we’re
investing to modernize our Digital and Technology infrastructure and enhance
our overall capabilities with new talent and tools. In partnership with our
Insights and Analytics team, the Vans® brand launched the Vans® Family Loyalty
program in the U.S. – leveraging data to deliver customized experiences to
the more than 7 million consumers who’ve joined.
DISTORTING OUR INVESTMENTS TOWARD ASIA, WITH A
HEIGHTENED FOCUS ON CHINA:
The Chinese apparel market is larger than all other Asian markets combined,
making the country a tremendous growth opportunity for the VF brands
that operate there. Through investments in Demand Creation, such as
the Timberland® brand’s Teeboolang 2 marketing campaign, and strong
partnerships with digital titans including Tmall and Alibaba, VF’s China
organic revenue increased 17 percent (20 percent in constant dollars) and
represents 6 percent of our total revenue. Dickies® brand lifestyle apparel
also continues to appeal to the Asian consumer. The brand’s China revenue
rose over 20 percent, demonstrating both its versatility and clear opportunities
ahead in the market.
In Remembrance
As we look ahead to an exciting future, I want to salute a very special person who played an
important role in VF’s past. This year, John E. Barbey Jr., a member of VF’s founding family,
VF Corporation | FISCAL YEAR 2019 ANNUAL REPORT
9
OUR GROWING
AND POWERFUL WORK
SEGMENT REACHED
$1.8 BILLION, AS ORGANIC
REVENUE ROSE 6 PERCENT
IN FISCAL 2019.
passed away at the age of 101. He was the son of John E. Barbey, who in 1899 co-founded
the Reading Glove and Mitten Manufacturing Company, which eventually became
VF Corporation. He worked for our company from 1947 to 1955, serving as Assistant
Treasurer, Secretary and a member of our Board of Directors.
John was a passionate philanthropist who fully embodied what it means to be purpose-led,
as he lived a life focused on helping others. We are thankful for his contributions to VF and
are inspired by his legacy.
World-Class Governance
Our ability to boldly pursue our transformation agenda wouldn’t be possible without the
constant guidance and support of our Board of Directors. I truly appreciate not only the
wisdom and oversight they provide, but also their steadfast confidence in our vision.
Since our last Annual Report, Bob Hurst retired from our Board. Bob served as a Director
for nearly 24 years. He played an integral role during several significant periods, including
VF’s expansion into international markets and our shift toward outdoor and activity-
based lifestyle brands in the early 2000s. We wish him all the best.
As we bid farewell to Bob, we welcome Veronica Wu. A Silicon Valley venture capitalist,
Veronica launched Hone Capital in 2015 and has since invested in more than 300 technology
companies. She previously served as Vice President of Tesla Motors, overseeing its China
operations. She also worked for Apple, Inc., where she led the launch of Apple’s Education
and Enterprise business in China. Veronica’s deep knowledge of the Chinese consumer and
China’s digital marketplace makes her a significant addition to our Board.
My Deepest Thanks
I am so proud of everything our teams have accomplished, and I extend a heartfelt
‘thank you’ to every VF associate around the world. Remaining sharply focused on delivering
business results while also leading our company through this critical transformation isn’t
easy. The dedication and perseverance that our associates have brought to the task is,
in a word, remarkable.
I also want to thank everyone in our Jeans business for their service to VF and wish them
well as they embark on their new journey as Kontoor Brands. The histories of VF Corporation
and Kontoor Brands are inextricably linked, woven together in the rich denim history
of North Carolina. We’re grateful for our time together and confident that Kontoor Brands
has a bright future ahead.
Finally, I thank you, our shareholders, for your confidence in our company and our vision.
With your support, we will further our commitment to be a purpose-led, performance-
driven and value-creating enterprise that continues to deliver sustainable, long-term value
for you, while also making a meaningful difference in the world.
Steven E. Rendle
Chairman, President & Chief Executive Officer
May 30, 2019
See inside back cover for shareholder letter footnotes.
VF Corporation | FISCAL YEAR 2019 ANNUAL REPORT
11
O U R B R A N D S
Outdoor
Active
Founded: 1966
Founded: 1973
Founded: 1995
Founded: 1966
Founded: 1987
Founded: 1987
Founded: 1994
Founded: 2009
Founded: 1952
Founded: 1967
Founded: 1975
Work
Jeans
Founded: 1922
Founded: 1923
Founded: 1971
Founded: 1998
Founded: 2003
Founded: 1938
Founded: 1947
Founded: 1889
Founded: 1971
Founded: 1973
Founded: 1910
Founded: 1937
Founded: 1949
Founded: 2002
B O A R D O F D I R E C T O R S
S E N I O R L E A D E R S H I P T E A M * * *
Steven E. Rendle 2,3*
Chairman, President &
Chief Executive Officer
Director since 2015, Age 59
Richard T. Carucci 1,2,3
Former President
Yum! Brands, Inc.
Louisville, Kentucky
Director since 2009, Age 61
Juliana L. Chugg 2,4,5
Former EVP, Chief Brands Officer
Mattel, Inc.
El Segundo, California
Director since 2009, Age 51
Benno Dorer 1,4
Chairman &
Chief Executive Officer
The Clorox Company
Oakland, California
Director since 2017, Age 54
Mark S. Hoplamazian 3,5
President &
Chief Executive Officer
Hyatt Hotels Corporation
Chicago, Illinois
Director since 2015, Age 55
W. Alan McCollough 2,4,5
Former Chairman of the Board
Circuit City Stores, Inc.
Richmond, Virginia
Director since 2000, Age 69
Lead Independent Director
W. Rodney McMullen 1,4
Chairman &
Chief Executive Officer
The Kroger Co.
Cincinnati, Ohio
Director since 2016, Age 58
Clarence Otis, Jr. 1,2,4
Former Chairman &
Chief Executive Officer
Darden Restaurants, Inc.
Orlando, Florida
Director since 2004, Age 62
Carol L. Roberts 1,3
Former Senior Vice President &
Chief Financial Officer
International Paper Company
Collierville, Tennessee
Director since 2017, Age 59
Matthew J. Shattock 2,3,5
Non-Executive Chairman
Beam Suntory, Inc.
Chicago, Illinois
Director since 2013, Age 56
Steven E. Rendle
Chairman, President &
Chief Executive Officer
Scott A. Roe
Executive Vice President &
Chief Financial Officer
Arne Arens**
Global Brand President,
The North Face®
Kevin D. Bailey
Executive Vice President &
Group President,
APAC
Velia M. Carboni
Executive Vice President,
Chief Digital &
Technology Officer
Thomas A. Glaser
Executive Vice President &
President,
Global Supply Chain
Martino Scabbia Guerrini
Executive Vice President &
Group President,
EMEA
Craig S. Hodges**
Vice President,
Corporate Affairs
Curtis A. Holtz
Executive Vice President &
Group President,
Workwear
Laura C. Meagher
Executive Vice President,
General Counsel & Secretary
Stephen M. Murray
Executive Vice President,
Strategic Projects
Doug C. Palladini**
Global Brand President,
Vans®
James A. Pisani**
Global Brand President,
Timberland®
Anita Z. Graham
Executive Vice President,
Chief Human Resources Officer &
Public Affairs
David L. Wagner
Executive Vice President,
Global Strategy &
Growth Platforms
Laura W. Lang 3, 5
Managing Director
Narragansett Ventures, LLC
Delray Beach, Florida
Director since 2011, Age 63
Veronica B. Wu 3,4
Founder
Hone Capital
Palo Alto, California
Director since 2019, Age 48
** Effective fiscal 2020
*** Scott H. Baxter, Executive Vice President, Jeanswear and
Scott A. Deitz, Vice President, Public Affairs, transitioned
to Kontoor Brands effective May 23, 2019.
COMMITTEES OF THE B OARD :
1Audit Committee, 2Executive Committee, 3Finance Committee, 4Nominating and Governance Committee, 5Talent and Compensation Committee *Ex officio member
12
OUR BRANDS | BOARD OF DIRECTORS | SENIOR LEADERSHIP TEAM
(F.P.O.) Begin 10K UNITED STATES
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 March 30, 2019
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. F. CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or organization)
23-1180120
(I.R.S. employer identification number)
105 Corporate Center Boulevard
Greensboro, North Carolina 27408
(Address of principal executive offices)
(336) 424-6000
(Registrant’s telephone number, including area code)
(Title of each class)
Securities registered pursuant to Section 12(b) of the Act:
(Trading Symbol(s))
(Name of each exchange on which registered)
Common Stock, without par value, stated capital
$.25 per share
0.625% Senior Notes due 2023
VFC
VFC23
New York Stock Exchange
New York Stock Exchange
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been
NO
subject to such filing requirements for the past 90 days. YES
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). YES
NO
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
Non-accelerated filer
Emerging growth company
Accelerated filer
Smaller reporting company
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 Act). YES
NO
The aggregate market value of Common Stock held by non-affiliates of V.F. Corporation on September 29, 2018, the last day of the
registrant’s second fiscal quarter, was approximately $30,425,000,000 based on the closing price of the shares on the New York Stock Exchange.
As of April 27, 2019, there were 397,145,529 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 July 16, 2019 (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 120 pages.
The exhibit index begins on page 56.
[THIS PAGE INTENTIONALLY LEFT BLANK]
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.
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 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:
•
• 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. 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,
backpack, luggage, accessory and apparel categories. Our largest
brands are Vans®, The North Face®, Timberland®, Wrangler® and
Lee®.
Our products are marketed to consumers through our wholesale
channel, primarily in specialty stores, department stores, national
chains, mass merchants, independently-operated partnership
stores and with strategic digital partners. Our products are also
marketed to consumers through our own direct-to-consumer
operations, which include VF-operated stores, concession retail
stores and brand e-commerce sites. Revenues from the direct-to-
consumer business represented 33% of VF’s total Fiscal 2019
revenues. In addition to selling directly into international markets,
many of our brands also sell products through licensees, agents
and distributors. In Fiscal 2019, 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.
In light of the recently completed portfolio management actions
and organizational realignments, the Company realigned its
internal reporting structure in the first quarter of Fiscal 2019 to
reflect the organizational changes to better support and assess
the operations of the business. The chief operating decision maker
allocates resources and assesses performance based on a global
brand view. The new reportable segments for financial reporting
purposes have been identified as: Outdoor, Active, Work and Jeans.
VF Corporation Fiscal 2019 Form 10-K 1
The following table summarizes VF’s primary brands by reportable segment:
REPORTABLE SEGMENT PRIMARY BRANDS
PRIMARY PRODUCTS
Outdoor
The North Face®
High performance outdoor apparel, footwear, equipment, accessories
Timberland® (excluding
Timberland PRO®)
Icebreaker® (1)
Smartwool®
Outdoor lifestyle footwear, apparel, accessories
High performance apparel based on natural, plant-based, recycled fibers
Performance merino wool and other natural fibers-based apparel and
accessories
Altra® (2)
Performance-based footwear
Active
Work
Vans®
Kipling®
Napapijri®
Eastpak®
JanSport®
Reef® (3)
Youth culture/action sports-inspired footwear, apparel, accessories
Handbags, luggage, backpacks, totes, accessories
Premium outdoor apparel, footwear, accessories
Backpacks, luggage
Backpacks, luggage
Surf-inspired apparel, footwear, accessories
Eagle Creek®
Luggage, backpacks, travel accessories
Dickies®
Red Kap®
Bulwark®
Work and work-inspired lifestyle apparel and footwear
Occupational apparel
Protective occupational apparel
Timberland PRO®
Protective work footwear and lifestyle apparel
VF Solutions®
Uniform programs for business and governmental organizations
Wrangler® RIGGS
Work apparel, accessories
Walls®
Terra®
Workrite®
Kodiak®
Outdoor work and sporting apparel
Protective work footwear
Protective occupational apparel
Protective work footwear and lifestyle footwear
Horace Small®
Occupational apparel
Jeans
Wrangler® (excluding
Wrangler® RIGGS)
Denim, casual apparel, footwear, accessories
Lee®
Lee® Riders®
Denim, casual apparel
Denim, casual apparel
Rock & Republic®
Denim, casual apparel, accessories
(1) VF acquired the Icebreaker® brand on April 3, 2018.
(2) VF acquired the Altra® brand on June 1, 2018.
(3) VF sold the Reef® brand on October 26, 2018.
Financial information regarding VF’s reportable segments is included in Note 19 to the consolidated financial statements.
OUTDOOR SEGMENT
Our Outdoor segment is a group of authentic outdoor-based
lifestyle brands. Product offerings include performance-based and
outdoor apparel, footwear and equipment.
The North Face® is the largest brand in our Outdoor segment. The
North Face® brand
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 Face® products are designed for
extreme winter sport activities, such as high altitude
mountaineering, skiing, snowboarding, and ice and rock climbing.
The North Face® products are marketed globally, primarily through
specialty outdoor and premium sporting goods stores,
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.
The Timberland® (excluding Timberland PRO®) brand offers
outdoor, adventure-inspired lifestyle footwear, apparel and
2 VF Corporation Fiscal 2019 Form 10-K
accessories that combine performance benefits and versatile
styling for men, women and children. We sell Timberland®
(excluding Timberland PRO®) products globally through chain,
department and specialty stores, independent distributors and
licensees, independently-operated partnership stores, concession
retail stores, approximately 250 VF-operated stores, on brand
websites with strategic digital partners and online at
www.timberland.com.
The Icebreaker® brand was acquired on April 3, 2018. Icebreaker®
specializes in performance apparel and accessories based on
natural fibers, including Merino wool and other plant-based fibers.
Icebreaker® products are sold globally through premium outdoor
and specialty stores, independent distributors, over 30 VF-
operated stores, on brand websites with strategic digital partners
and online at www.icebreaker.com.
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 stores, independent distributors, on brand
websites with strategic digital partners and online at
www.smartwool.com.
The Altra® brand was acquired by VF on June 1, 2018. Altra® is a
performance-based footwear brand primarily in the road and trail
running categories. Altra® products are sold through premium
outdoor and specialty stores, independent distributors, on brand
websites with strategic digital partners and online at
www.altrarunning.com.
We expect continued long-term growth in our Outdoor segment as
we focus on product innovation, extend our brands into new product
categories, open additional VF-operated stores, grow our e-
commerce presence, expand wholesale channel partnerships,
develop geographically and acquire additional brands.
ACTIVE SEGMENT
Our Active segment is a group of activity-based lifestyle brands.
Product offerings
footwear and
accessories.
include active apparel,
Vans® is the largest brand in our Active segment. The Vans® brand
offers performance and casual footwear and apparel targeting
younger consumers that sit at the center of action sports, art, music
and street fashion. Vans® products are available globally through
chain stores, specialty stores, independent distributors and
licensees, independently-operated partnership stores, concession
retail stores, more than 700 VF-operated stores, on brand websites
with strategic digital partners and online at www.vans.com.
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, more than 80 VF-operated stores, on brand websites
with strategic digital partners and online at www.kipling.com.
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
stores, independently-operated partnership stores, concession
retail stores, independent distributors, more than 25 VF-operated
stores, on brand websites with strategic digital partners and online
at www.napapijri.com.
Eastpak® backpacks, travel bags and luggage are sold primarily
through department and specialty stores across Europe, on brand
WORK SEGMENT
websites with strategic digital partners, throughout Asia by
distributors and online at www.eastpak.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 and independent
distributors. JanSport® products are also sold on brand websites
with strategic digital partners and online at www.jansport.com.
The Reef® brand of surf-inspired products includes sandals, shoes,
swimwear, casual apparel and accessories for men, women and
children. Products were sold globally through specialty stores,
sporting goods chains, department stores and independent
distributors. Products were also sold on brand websites with
strategic digital partners and online at www.reef.com. VF sold the
Reef® brand on October 26, 2018.
Eagle Creek® 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 Active segment as
we focus on product innovation, extend our brands into new product
categories, open additional VF-operated stores, grow our e-
commerce presence, expand wholesale channel partnerships,
develop geographically and acquire additional brands.
Our Work segment consists of work and work-inspired lifestyle
apparel and footwear and occupational apparel sold through
direct-to-consumer, wholesale and business-to-business ("BTB")
channels.
The Work segment 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 Bulwark® and Workrite® brands (flame resistant and protective
apparel primarily for the petrochemical, utility and mining
industries), the Timberland PRO® brand (premium work footwear
and apparel), the Wrangler® RIGGS brand (work apparel), the VF
for business and
Solutions® brand
(uniform programs
governmental organizations),
(outdoor
workwear), the Kodiak® brand (work and lifestyle footwear), the
Terra® brand (work footwear) and the Horace Small® brand (apparel
the Walls® brand
VF Corporation Fiscal 2019 Form 10-K 3
for law enforcement and public safety personnel). Products include
a wide range of workwear pants, coveralls, shirts, medical scrubs,
outerwear, footwear and accessories. Work segment revenues are
influenced by the general level of business activity in each market.
Work segment BTB channels include industrial laundries and
independent 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®, Bulwark®, Dickies® and Workrite® brands
have a strong presence in the reseller distributor market.
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.
JEANS SEGMENT
Our Jeans segment markets denim and related casual apparel
products globally.
The Wrangler® (excluding Wrangler® RIGGS) 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.
Wrangler® westernwear is distributed primarily through western
specialty stores, as well as various online retail sites.
Lee® brand products are sold through mid-tier and traditional
department stores in the U.S., and online at www.lee.com. The
Lee® Riders® brand is 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.
Wrangler® and Lee® products outside of the U.S. are positioned as
higher fashion and have higher selling prices. VF’s largest
international jeanswear businesses are located in Europe and Asia,
where Wrangler® 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 Wrangler® and Lee® products to mass merchant,
department and specialty stores in Canada and Mexico. In addition,
we currently have approximately 45 VF-operated stores primarily
Work segment 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.timberland.com, www.wrangler.com,
www.kodiakboots.com and www.walls.com, and over 65 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-inspired product that allows
the worker to stay involved with the brand while in a non-traditional
work-setting. The Timberland PRO® and Wrangler® RIGGS brands
are also contributors in this area with products that provide
comfort, durability and performance.
We believe there is a strategic opportunity for growth in our Work
segment 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.
located in Europe and Asia, which are an important vehicle for
representing our brands' image and marketing message directly
to consumers. In international markets where VF does not have
retail operations, Wrangler® and Lee® products are marketed
through distributors, agents, licensees and single-brand or multi-
brand partnership stores.
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.
On August 13, 2018, VF announced its intention to spin-off its Jeans
business, which includes the Wrangler®, Lee® and Rock & Republic®
brands, into an independent, publicly traded company. The spin-
off was completed on May 22, 2019. The Jeans business, which also
includes the Wrangler® RIGGS brand and the VF Outlet™ business,
represented approximately 19% of VF revenue and operating
income during the year ended March 2019 on a VF-historical
reporting basis.
4 VF Corporation Fiscal 2019 Form 10-K
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 33% of total VF revenues in the year
ended March 2019.
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
stores and serve an important role in our overall inventory
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 1,551
stores at the end of Fiscal 2019. We operate retail store locations
for the following brands: Vans®, Timberland®, The North Face®,
Kipling®, Dickies®, Lee®, Napapijri®, Icebreaker® and Wrangler®. We
also operate 79 VF Outlet™ stores in the U.S. that sell a broad
selection of excess VF products, as well as other non-VF products.
Approximately 66% of 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 (48% in the U.S.),
LICENSING ARRANGEMENTS
24% in the Europe region and 16% in the Asia-Pacific region.
Additionally, we have approximately 1,200 concession retail stores
located principally in Europe and Asia.
E-commerce represented approximately 25% of our direct-to-
consumer business in the year ended March 2019. The following
brands are marketed online: Vans®, The North Face®, Timberland®
(excluding Timberland PRO®), Dickies®, Lee®,
Icebreaker®,
Wrangler® (excluding Wrangler® RIGGS), Kipling®, Smartwool®,
Eastpak®, Napapijri®, JanSport®, Altra®, Timberland PRO®, Reef®,
Wrangler® RIGGS, Eagle Creek®, Walls®, Lee® Riders® and Kodiak®.
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
as we expand our e-commerce presence and open new stores. We
opened 110 stores during Fiscal 2019, concentrating on the brands
with the highest retail growth potential: Vans® and The North Face®.
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®, The
North Face®, Vans®, Lee®, Dickies®, Wrangler®, Kipling® and
Napapijri® brands.
The VF Outlet™ business and stores are included in the spin-off of
the Jeans business that was completed on May 22, 2019, which is
also discussed in the "Jeans Segment" section above.
As part of our strategy of expanding market penetration of VF-
owned brands, we enter
licensing agreements with
into
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 $95.9 million in the year ended
March 2019 (less than 1% of total revenues), primarily from the
Vans®, Dickies®, Lee®, Wrangler® and Timberland® brands.
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 560
million units spread across our brands. Our products are obtained
from 19 VF-operated manufacturing facilities and approximately
in
700
independent contractor manufacturing
facilities
VF Corporation Fiscal 2019 Form 10-K 5
approximately 60 countries. Additionally, we operate 40 distribution
centers and 1,551 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 the year ended March 2019, 21% of our units were manufactured
in VF-owned facilities and 79% 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 and Active segments, as well as a
portion of products for our Work and Jeans segments, are obtained
through these sourcing hubs.
Management
developments related to duties, tariffs and quotas. We limit VF’s
continually monitors
political
risks
and
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.
in 1997 and consistent with
These principles, established
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
factories must also undergo certification by the independent,
nonprofit organization, Worldwide Responsible Accredited
Production
in
manufacturing.
(“WRAP”), which promotes global 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
700 independent contractor facilities, including those serving our
independent licensees, must be pre-certified before producing VF
includes passing a factory
products. This pre-certification
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.
VF did not experience difficulty in fulfilling its raw material and
contracting production needs during Fiscal 2019. 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.
6 VF Corporation Fiscal 2019 Form 10-K
SEASONALITY
VF’s quarterly operating results vary due to the seasonality of our
individual brands, and are historically stronger in the second half
of the calendar year. On a quarterly basis in Fiscal 2019, revenues
ranged from a low of 20% of full year revenues in the first fiscal
quarter to a high of 29% in the third fiscal quarter, while operating
margin ranged from a low of 6% in the fourth fiscal quarter to a
high of 17% in the second fiscal quarter. This variation results
primarily from the seasonal influences on revenues of our Outdoor
segment, where 12% of the segment’s revenues occurred in the
first fiscal quarter compared to 35% in the third fiscal quarter of
Fiscal 2019. 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 calendar 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 calendar year due to higher net income during
that period and reduced working capital requirements, particularly
during the fourth quarter of the calendar year.
ADVERTISING, CUSTOMER SUPPORT AND COMMUNITY OUTREACH
During the year ended March 2019, our advertising and promotion
expense was $845.7 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,
including independent partnership stores, 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 and
other locations, to help differentiate and enhance the presentation
of our products.
We contribute to
incentive programs with our wholesale
customers, including cooperative advertising funds, discounts and
allowances. We also offer sales incentive programs directly to
consumers in the form of discounts, rebates and coupon offers that
are eligible for use in certain VF-operated stores, brand e-
commerce sites and concession retail locations.
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
Face® brand has committed to programs that encourage and
enable outdoor participation, such as The North Face Endurance
Challenge® and The North Face Explore Fund™ programs.
The Timberland® brand has a strong heritage of volunteerism,
including the Path 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 Wrangler® brand
launched the Tough Enough to Wear Pink™ program, which honors
and raises money for breast cancer survivors, and the National
Patriot Program™, which funds agencies that serve wounded and
fallen American military veterans and their families. The Vans®
brand has hosted annual Vans® Earth Day and Vans® Gives Back
Day events in which all employees at the brand's headquarters
spend the day volunteering in the community.
SUSTAINABILITY
VF is one of the world’s largest apparel, footwear and accessories
companies and has a responsibility to make a positive impact on
our industry and planet through advancing sustainable business
practices. VF plans to achieve significant progress in several key
areas of sustainability, including people, products, supply chains,
materials and facilities, to create a positive global impact.
VF’s Sustainability & Responsibility strategy, Made for Change,
launched in 2017, targets key areas to drive transformational
change and create value for our business. The strategy is focused
on new circular and sustainable business models to (i) harness
retail opportunities in new sectors, (ii) scale foundational social
and environmental programs to lead the industry toward greater
progress at a faster rate, and (iii) empower our brands, associates,
and consumers to act with purpose and impact with intention.
In 2017, VF committed to measurably improve the lives of two
million supply chain workers and others within their communities,
by 2030. Since then, VF launched a Worker and Community
Development Program with strategic initiatives focused on (i) water
and sanitation, (ii) health and nutrition, and (iii) childcare and
education. These programs have already impacted over one
hundred thousand people
in more than 30 factories and
communities. We are also prioritizing transparency to ensure our
global supply chain improves the lives of people and the planet. In
October 2018, VF successfully launched traceability maps to
demonstrate the end-to-end (farm-to-front door) traceability of
nine iconic VF-brand products. The enterprise will scale its
traceability efforts over the next three years with a plan to enhance
visibility across all VF brands.
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.
VF also pledged to not use fur in any of our products, in support of
newly released Animal Derived Materials & Forest Derived
Materials policies. VF is committed to using sustainable cotton
across the organization. We have a goal to procure cotton primarily
from the U.S. and Australia, since both countries use advanced and
VF Corporation Fiscal 2019 Form 10-K 7
efficient growing methods, or through the Better Cotton Initiative
(“BCI”), which helps small holder
farmers reduce their
environmental impact while improving farmers’ livelihoods. In
2018, VF used approximately 36,000 metric tons of certified BCI
cotton and 600 metric tons of organic cotton.
Progress continues to be made toward the goals set for VF internal
facilities that include (i) the sourcing of 100% of electricity from
renewable sources within VF-owned and operated facilities by
2025, in line with the enterprise commitment to RE100, and (ii)
achieving Zero Waste at 100% of VF internal distribution center
locations by 2020, with 17 facilities already certified.
VF brands are equally committed to sustainability action in their
sectors. In 2018, Vans® launched a shoe recycling pilot at 23
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
intellectual property against counterfeiting, infringement and
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
EXECUTIVE OFFICERS OF VF
southern California stores. Timberland® used 96% "Leather
Working Group" certified leather, 75% certified BCI or organic
cotton, and now produces 69% recycled, organic, or renewable
products. The North Face® expanded its Climate Beneficial Wool
collection, launched in 2017. These products are made in the U.S.
from sustainable farms. The North Face® also launched the
Renewed collection in 2018 selling previously owned, damage-and-
repaired or used products. The recommerce model addresses one
of the apparel industry’s biggest challenges, textile waste, and
offers our products at a lower price point, which allows new
consumers to experience our brands.
merchants. In addition, we sell products on a direct-to-consumer
basis through VF-operated stores, concession retail stores and
brand e-commerce sites. Our sales in international markets are
growing and represented 41% of our total revenues in the year
ended March 2019, 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 the year ended
March 2019. Sales to the five largest customers amounted to
approximately 15% of total revenues in the year ended March 2019.
Sales to VF’s largest customer totaled 8% of total revenues in the
year ended March 2019, the majority of which were derived from
the Jeans business that was included in the spin-off completed on
May 22, 2019.
Employees
VF had approximately 75,000 employees at the end of Fiscal 2019,
of which approximately 42% 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.
The following are the executive officers of VF Corporation as of
May 24, 2019. 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.
Action Sports Americas from May 2011 until April 2014, President
of VF’s Outdoor Americas businesses from 2009 to 2011, President
of The North Face® brand from 2004 to 2009 and Vice President of
Sales of The North Face® brand from 1999 to 2004. Mr. Rendle joined
VF in 1999.
Steven E. Rendle, 59, has been Executive Chairman of the Board
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 &
Scott A. Roe, 54, has been Executive Vice President and Chief
Financial Officer of VF since March 2019. He served as Vice
President and Chief Financial Officer of VF from April 2015 to
February 2019, 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
8 VF Corporation Fiscal 2019 Form 10-K
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.
Kevin D. Bailey, 58, 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 Vans®
brand from April 2014 to February 2016, Global President of the
Vans® brand from June 2009 to March 2014 and Vice President
Direct-to-Consumer for the Vans® brand from June 2002 to
November 2007. Mr. Bailey joined VF in 2004.
Scott H. Baxter, 54, has been Group President of Jeanswear since
August 2018. Previously, he was 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
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.
Martino Scabbia Guerrini, 54, 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 —
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.
Sportswear and Packs from August 2006 to January 2009. Mr.
Guerrini joined VF in 2006.
Curtis A. Holtz, 56, has been Group President, Workwear since
March 2019. He served as Group President — Americas East from
January 2018 to February 2019, 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.
Bryan H. McNeill, 57, has been Vice President — Controller and
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.
Laura C. Meagher, 59, has been Executive Vice President, General
Counsel and Secretary since March 2019. She served as Vice
President, General Counsel and Secretary from 2012 to February
2019. 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 July 16, 2019 (“2019 Proxy Statement”)
that will be filed with the Securities and Exchange Commission
within 120 days after the close of our fiscal year ended March 30,
2019, which information is incorporated herein by reference.
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, Talent
and 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 2019 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 10, 2018.
VF Corporation Fiscal 2019 Form 10-K 9
ITEM 1A. RISK FACTORS.
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.
VF’s revenues and profits depend on the level of consumer spending
for apparel and footwear, which is sensitive to global economic
conditions and other factors. A decline in consumer spending could
have a material adverse effect on VF.
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.
The apparel and footwear industries are highly competitive, and VF’s
success depends on its ability to gauge consumer preferences and
product trends, and to respond to constantly changing markets.
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;
• Produce or procure quality products on a consistent basis;
and,
• Adapt to a more digitally driven consumer landscape.
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
10 VF Corporation Fiscal 2019 Form 10-K
effect on VF’s business, financial condition and results of
operations.
VF’s results of operations could be materially harmed if we are
unable to accurately forecast demand for our products.
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
required to meet the demand. Inventory levels in excess of
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.
VF’s business and the success of its products could be harmed if VF
is unable to maintain the images of its brands.
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.
VF’s revenues and cash requirements are affected by the seasonal
nature of its business.
VF’s business is increasingly seasonal, with a higher proportion of
revenues and operating cash flows generated during the second
half of the calendar year, which includes the fall and holiday selling
seasons. Poor sales in the second half of the calendar 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 relies significantly on information technology. Any inadequacy,
interruption, integration failure or security failure of this technology
could harm VF’s ability to effectively operate its business.
VF’s profitability may decline as a result of increasing pressure on
margins.
factors,
in the retail
The apparel industry is subject to significant pricing pressure
intense competition,
including
caused by many
consolidation
industry, rising commodity and
conversion costs, pressure from retailers to reduce the costs of
products, changes in consumer demand and shifts to online
shopping and purchasing. Consumers may increasingly seek
markdown allowances, incentives and other forms of economic
support. 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 its business strategy.
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
including
and expanding our direct-to-consumer business,
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 our growth effectively,
successfully integrate the planned new stores into our
operations or operate our new, remodeled and expanded
stores profitably.
• We may not be able to offset rising commodity or
conversation costs in our product costs with pricing actions
or efficiency improvements.
Failure to implement our strategic objectives may have a material
adverse effect on VF’s business.
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, failure or interruption due to viruses,
data security incidents, technical malfunctions, natural disasters
or other causes, or in connection with upgrades to our system or
the implementation of new systems. The failure of these systems
to operate effectively, problems with transitioning to upgraded or
replacement systems, difficulty in integrating new 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 replenishment
of products, manufacturing and distribution or products, e-
commerce operations, retail business credit card transaction
authorization and processing, corporate email communications
and our interaction with the public on social media.
VF is subject to data security and privacy risks that could negatively
affect its business operations, results of operations or reputation.
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. Data security attacks are
increasingly
sophisticated, and if unauthorized parties gain access to our
networks or databases, or those of our third-party service
providers, they may be able to steal, publish, delete or modify our
private and sensitive information, including credit card information
and personal information. Despite the security measures we
currently have in place, our facilities and systems and those of our
third-party service providers may be vulnerable and unable to
anticipate or detect security breaches and data loss. In addition,
employees may intentionally or inadvertently cause data security
breaches that result in the unauthorized release of personal or
confidential information. VF and its customers could suffer harm
if valuable business data, or employee, customer and other
proprietary information were corrupted, lost or accessed or
misappropriated 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, results in unwanted media attention and lost sales,
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 increasingly uncertain, rigorous and complex. 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 and the California Consumer Privacy Act. Any failure to
comply with the laws and regulations surrounding the protection
of personal information could subject us to legal and reputational
VF Corporation Fiscal 2019 Form 10-K 11
risk, including significant fines for non-compliance, any of which
could have a negative impact on revenues and profits.
VF’s business is exposed to the risks of foreign currency exchange
rate fluctuations. VF’s hedging strategies may not be effective in
mitigating those risks.
A growing percentage of VF’s total revenues (approximately 41% in
Fiscal 2019) 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.
There are risks associated 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 operations and earnings may be affected by legal, regulatory,
political and economic risks.
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
12 VF Corporation Fiscal 2019 Form 10-K
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 Fiscal 2019 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., China, 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 laws could increase our worldwide tax rate and
materially affect our financial position and results of operations.
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 included 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
impacted our effective tax rate for the year ended December 2017
as a result of the deemed repatriation tax, and may continue to
impact several other elements of our operating model. Certain
additional provisions of the Tax Act, such as a minimum tax on
foreign earnings, could also apply to VF depending on certain facts
and circumstances 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 made broad and
complex changes
tax code and regulatory,
administrative and legislative guidance continues to be released.
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.
the U.S.
to
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 Organisation for Economic Co-
operation 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 may have 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.
The Company petitioned the U.S. Tax Court to resolve an Internal
Revenue Service ("IRS") dispute regarding the timing of income
inclusion associated with the 2011 Timberland acquisition. The
Company remains confident in our timing and treatment of the
income inclusion, and therefore this matter is not reflected in our
financial statements. We are vigorously defending our position, and
do not expect the resolution to have a material adverse impact on
the Company's financial position, results of operations or cash
flows. While the IRS argues immediate income inclusion, the
Company's position is to include the income over a period of years.
As the matter relates to 2011, nearly half of the timing at dispute
has passed with the Company including the income, and paying the
related tax, on our income tax returns. The Company notes that
should the IRS prevail in this timing matter, the net interest expense
would be up to $130 million. Further, this timing matter is impacted
by the Tax Act that reduced the U.S. corporate income tax rate from
35% to 21%. If the IRS is successful, this rate differential would
increase tax expense by approximately $136 million.
VF’s balance sheet includes a significant amount of intangible assets
and goodwill. A decline in the fair value of an intangible asset or of
a business unit could result in an asset impairment charge, which
would be recorded as an operating expense in VF’s Consolidated
Statement of Income and could be material.
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 Fiscal 2020 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 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 multiples of revenues and earnings before
interest, taxes, 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.
VF uses third-party suppliers and manufacturing facilities
worldwide for a substantial portion of its raw materials and finished
products, which poses risks to VF’s business operations.
During Fiscal 2019, approximately 79% 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
effect on VF’s revenues and, consequently, our results of
operations.
In addition, although we audit our third-party material suppliers
and contracted manufacturing facilities and set strict compliance
standards, actions by a third-party supplier or manufacturer that
fail to comply could expose VF to claims for damages, financial
penalties and reputational harm, any of which could have a material
adverse effect in our business and operations.
VF Corporation Fiscal 2019 Form 10-K 13
Our business is subject to national, state and local laws and
regulations for environmental, consumer protection, employment,
privacy, safety and other matters. The costs of compliance with, or
the violation of, such laws and regulations by VF or by independent
suppliers who manufacture products for VF could have an adverse
effect on our operations and cash flows, as well as on our reputation.
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
interruption of finished goods shipments to VF,
result
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 rates and the price, availability and quality of
raw materials and finished goods could increase costs.
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. Inflation can also have
a long-term impact on us because increasing costs of materials
and labor may impact our ability to maintain satisfactory margins.
For example, the cost of the materials, that are used in our
manufacturing process, such as oil-related commodity prices and
other raw materials, such as cotton, dyes and chemical and other
costs, such as fuel, energy and utility costs, can fluctuate as a result
of inflation and other factors. Similarly, a significant portion of our
products are manufactured in other countries and declines in the
values of the U.S. dollar may result in higher manufacturing
costs.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.
14 VF Corporation Fiscal 2019 Form 10-K
We may be adversely affected by weather 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 substantial portion of VF’s revenues and gross profit is derived
from a small number of large customers. The loss of any of these
customers or the inability of any of these customers to pay VF could
substantially reduce VF’s revenues and profits.
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 Fiscal 2019, 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 industry has experienced financial difficulty that could
adversely affect VF's business.
there have been consolidations, reorganizations,
Recently
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. In addition, consumers have continued to
transition away from traditional wholesale retailers to large online
retailers. 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 favorable
terms, if needed, could be adversely affected by geopolitical risk and
volatility in the capital markets.
could result in significant lease termination costs, write-offs of
equipment and leasehold improvements and employee-related
costs.
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.
VF has a global revolving credit facility. One or more of the
participating banks may not be able to honor their commitments,
which could have an adverse effect on VF’s business.
VF has a $2.25 billion global revolving credit facility that expires in
December 2023. If the financial markets return to recessionary
conditions, this could impair the ability of one or more of the banks
participating
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.
in our credit agreements
to honor
The loss of members of VF’s executive management and other key
employees could have a material adverse effect on its business.
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-to-consumer business includes risks that could have an
adverse effect on its results of operations.
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, (i) U.S. or
international resellers purchasing merchandise and reselling it
overseas outside VF’s control, (ii) 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, (iii) credit card fraud, and (iv) risks related
to VF’s direct-to-consumer distribution centers and processes.
include
Risks specific to VF’s e-commerce business also
(i) diversion of sales from VF stores or wholesale customers,
(ii) difficulty in recreating the in-store experience through direct
channels, (iii) liability for online content, (iv) changing patterns of
consumer behavior, and (v) 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
VF’s net sales depend on the volume of traffic to its stores and the
availability of suitable lease space.
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
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 protect its trademarks and other intellectual
property rights.
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 Face®, Timberland®,
Vans®, JanSport®, Dickies®, Wrangler® and Lee®, enjoy significant
worldwide consumer recognition, and the higher pricing of those
products creates additional
risk of counterfeiting and
infringement.
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 resolve 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 Corporation Fiscal 2019 Form 10-K 15
There have been, and there may in the future be, opposition and
cancellation proceedings from time to time with respect to some
of VF's intellectual property rights. In some cases, litigation may
be necessary to protect or enforce our trademarks and other
intellectual property rights. Furthermore, third parties may assert
intellectual property claims against us, and we may be subject to
liability, required to enter into costly license agreements, if
available at all, required to rebrand our products and/or prevented
from selling some of our products if third parties successfully
oppose or challenge our trademarks or successfully claim that we
infringe, misappropriate or otherwise violate their trademarks,
copyrights, patents or other intellectual property rights. Bringing
or defending any such claim, regardless or merit, and whether
successful or unsuccessful, could be expensive and time-
consuming and have a negative effect on VF's business, reputation,
results of operations and financial condition.
VF is subject to the risk that its licensees may not generate expected
sales or maintain the value of VF’s brands.
During Fiscal 2019, $95.9 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, including through the marketing or products under one
of our brand names that do not meet our quality standards, could
have a material adverse effect on that brand and on VF.
If VF encounters problems with its distribution system, VF’s ability
to deliver its products to the market could be adversely affected.
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
16 VF Corporation Fiscal 2019 Form 10-K
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.
Volatility in securities markets, interest rates and other economic
factors could substantially increase VF’s defined benefit pension
costs.
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.
The relocation of our global headquarters; The North Face®,
JanSport®, Smartwool®, Altra® and Eagle Creek® brands; and VF’s
Global Innovation Center for technical fabrics and Digital Lab could
adversely affect our operations, operating results and financial
condition, as we may experience disruptions to our business and
incur additional costs in connection with the relocation.
We announced on August 13, 2018 the relocation of our global
headquarters to the metro Denver area, which will also serve as
the home for The North Face®, JanSport®, Smartwool®, Altra® and
Eagle Creek® brands (the “Relocating Brands”) and VF’s Global
Innovation Center for technical fabrics and Digital Lab (the
“Innovation Center and Lab”). The process of moving our
headquarters, the Relocating Brands and the Innovation Center
and Lab is inherently complex and not part of our day-to-day
operations. The relocation process could cause significant
disruption to our operations, cause the temporary diversion of
management resources and result in the loss of key employees
who have substantial experience and expertise in our business, all
of which could have a material adverse effect on our operations,
operating results and financial condition. The need to replace
Company personnel who do not relocate, train new employees and
transition Company operating knowledge may cause disruptions
in our business. While we have implemented a transition plan to
provide for the move of our global headquarters, the Relocating
Brands and the Innovation Center and Lab, including relocation
benefits for employees who may be transferring, and severance
and retention benefits for employees who will not be continuing
with the Company after the move, we may encounter difficulties
retaining employees who elect to transfer and attracting new talent
in the Denver area to replace our employees who are unwilling to
relocate. We may also experience difficulties
in retaining
employees who will remain in Greensboro during the transition
period and who we are relying on to facilitate the transition of
operating knowledge. In addition, we may incur additional costs for
duplication in staff as we effect the transition. We can give no
assurance that the relocation will be completed as planned or
within the expected timeframe. In addition, the relocation may
involve significant additional costs to us and the expected benefits
of the move may not be fully realized due to associated disruption
to our operations and personnel.
We may be unable to achieve some or all of the benefits we expect
to achieve from the spin-off.
On May 22, 2019, we completed the spin-off of our Jeans business,
Kontoor Brands, Inc. ("Kontoor Brands"). Although we believe that
the spin-off will enhance our long-term value, we may not be able
to achieve some or all of the anticipated benefits from the
separation of our businesses, and the spin-off may adversely affect
our business. Separating the businesses resulted
in two
independent, publicly traded companies, each of which is now a
smaller, less diversified and more narrowly focused business than
before the spin-off, which makes us more vulnerable to changing
market and economic conditions. Additionally, a potential loss of
synergies from separating the businesses could negatively impact
the balance sheet, profit margins or earnings of both businesses
and the combined value of the common stock of the two publicly
traded companies may not be equal to or greater than the value of
VF common stock had the spin-off not occurred. If we fail to achieve
some or all of the benefits that we expect to achieve as a result of
the spin-off, or do not achieve them in the time we expect, our
results of operations and financial condition could be materially
adversely affected.
The Kontoor Brands spin-off could result in substantial tax liability
to us and our stockholders.
We received opinions of tax advisors substantially to the effect that,
for U.S. Federal income tax purposes, the spin-off and certain
related transactions qualify for tax-free treatment under certain
sections of the Internal Revenue Code. However, if the factual
assumptions or representations made by us in connection with the
delivery of the opinions are inaccurate or incomplete in any
material respect, including those relating to the past and future
conduct of our business, we will not be able to rely on the opinions.
Furthermore, the opinions are not binding on the IRS or the courts.
If, notwithstanding receipt of the opinions, the spin-off transaction
and certain related transactions are determined to be taxable, we
would be subject to a substantial tax liability. In addition, if the spin-
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
The following is a summary of VF Corporation’s principal owned
and leased properties as of March 30, 2019.
in Greensboro,
VF’s global headquarters are located in a 180,000 square foot,
owned facility in Greensboro, North Carolina. VF owns other
the Jeans segment
facilities
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 segment and brand
headquarters facilities throughout the world.
including
off transaction is taxable, each holder of our common stock who
received shares of Kontoor Brands in connection with the spin-off
would generally be treated as receiving a taxable distribution of
property in an amount equal to the fair market value of the shares
received.
Even if the spin-off otherwise qualifies as a tax-free transaction,
the distribution would be taxable to us (but not to our stockholders)
in certain circumstances if future significant acquisitions of our
stock or the stock of Kontoor Brands are deemed to be part of a
plan or series of related transactions that included the spin-off. In
this event, the resulting tax liability could be substantial. In
connection with the spin-off, we entered into a tax matters
agreement with Kontoor Brands, pursuant to which Kontoor
Brands agreed to not enter into any transaction that could cause
any portion of the spin-off to be taxable to us without our consent
and to indemnify us for any tax liability resulting from any such
transaction. In addition, these potential tax liabilities may
discourage, delay or prevent a change of control of us.
Certain directors who serve on our Board of Directors also serve as
directors of Kontoor Brands, and ownership of shares of common
stock of Kontoor Brands following the spin-off by our directors and
executive officers, may create, or appear to create, conflicts of
interest.
Certain of our directors who serve on our Board of Directors
currently serve on the Board of Directors of Kontoor Brands. This
may create, or appear to create, conflicts of interest when our or
Kontoor Brands' management and directors face decisions that
could have different implications for us and Kontoor Brands,
including the resolution of any dispute regarding the terms of the
agreements governing the spin-off and the relationship between
us and Kontoor Brands after the spin-off or any other commercial
agreements entered into in the future between us and Kontoor
Brands.
Most of our executive officers and non-employee directors
currently own shares of the common stock of Kontoor Brands. The
continued ownership of such common stock by our directors and
executive officers following the spin-off creates or may create the
appearance of a conflict of interest when these directors and
executive officers are faced with decisions that could have different
implications for us and Kontoor Brands.
VF owns a 236,000 square foot facility in Appleton, Wisconsin that
serves as a shared services center for certain Outdoor, Active and
Work brands in North America. Additionally, we own and lease
shared service facilities in Bornem, Belgium that support our
European operations. Our sourcing hubs are located in Panama
City, Panama and Hong Kong, China.
Our largest distribution centers are located in Prague, Czech
Republic and Visalia, California. Additionally, we operate 38 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 19 owned or
VF Corporation Fiscal 2019 Form 10-K 17
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 1,551 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.
ITEM 3. LEGAL PROCEEDINGS.
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.
18 VF Corporation Fiscal 2019 Form 10-K
PART II
ITEM 5. MARKET FOR VF’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
VF’s Common Stock is listed on the New York Stock Exchange under the symbol “VFC”. As of April 27, 2019 there were 3,281 shareholders
of record. Quarterly dividends on VF Common Stock, when declared, are paid on or about the 20th day of June, September, December
and March.
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 Fiscal
2014 through Fiscal 2019. The S&P 1500 Apparel Index at the end
of Fiscal 2019 consisted of Capri Holdings Limited, Carter’s, Inc.,
Fossil, Inc., G-III Apparel Group, Ltd., Hanesbrands Inc., Movado
Group, Inc., Oxford Industries, Inc., PVH Corp., Ralph Lauren
Corporation, Tapestry, Inc., Under Armour, Inc., Vera Bradley, Inc.
and VF Corporation. The graph assumes that $100 was invested at
the end of Fiscal 2013 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 Fiscal 2013 through Fiscal 2019. Past performance is not
necessarily indicative of future performance.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN OF VF COMMON STOCK,
S&P 500 INDEX AND S&P 1500 APPAREL INDEX
VF Common Stock closing price on March 30, 2019 was $86.91
s
r
a
l
l
o
D
250
200
150
100
50
0
12/28/2013
1/3/2015
1/2/2016
12/31/2016
12/30/2017
3/30/2019
VF Corporation
S&P 500 Index
S&P 1500 Apparel, Accessories & Luxury Goods
Company / Index
VF Corporation
S&P 500 Index
S&P 1500 Apparel, Accessories & Luxury Goods
Base
Period
12/28/13
1/3/15
1/2/16
12/31/16
12/30/17
3/30/19
$ 100.00
$ 121.81
$ 104.78
$
92.06
$ 131.42
$ 158.92
100.00
100.00
114.11
105.39
115.71
129.55
157.84
83.41
75.01
89.53
171.51
90.74
VF Corporation Fiscal 2019 Form 10-K 19
ISSUER PURCHASES OF EQUITY SECURITIES:
The following table sets forth VF’s repurchases of our Common Stock during the fiscal quarter ended March 30, 2019 under the share
repurchase program authorized by VF’s Board of Directors in 2017.
Fiscal Period
December 30, 2018 — January 26, 2019
January 27, 2019 — February 23, 2019
February 24, 2019 — March 30, 2019
Total
Total
Number of
Shares
Purchased
Weighted
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Programs
Dollar Value
of Shares that May
Yet be Purchased
Under the Program
— $
—
—
—
—
—
—
— $
3,836,982,574
—
—
—
3,836,982,574
3,836,982,574
20 VF Corporation Fiscal 2019 Form 10-K
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data
for the five years ended March 30, 2019 and transition period ended
March 31, 2018. VF operates and reports using a 52/53 week fiscal
year ending on the Saturday closest to March 31 of each year. VF
previously used a 52/53 week fiscal year ending on the Saturday
closest to December 31 of each year. All references to the periods
ended March 2019, December 2017, December 2016 and December
2015 relate to the 52-week fiscal years ended March 30, 2019,
December 30, 2017, December 31, 2016 and January 2, 2016,
respectively, and all references to the period ended December 2014
relate to the 53-week fiscal year ended January 3, 2015. All
references to the period ended March 2018 relate to the 13-week
transition period ended March 31, 2018.
Unless otherwise indicated, the following disclosures reflect the
Company’s continuing operations, including financial position
metrics. Refer to Note 4 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)
SUMMARY OF OPERATIONS (1)
Total revenues
Operating income (2)
Income from continuing
operations
Earnings per common share from
continuing operations – basic
Earnings per common share from
continuing operations – diluted
Dividends per share
Dividend payout ratio (3)
FINANCIAL POSITION (4)
Working capital
Current ratio
Total assets
Long-term debt, less current
maturities
Stockholders’ equity
Debt to total capital ratio (5)
Weighted average common shares
outstanding
Book value per common share
OTHER STATISTICS
Operating margin
Return on invested capital (6) (7)
Return on average stockholders’
equity (6)
Return on average total assets (6)
Cash provided (used) by
operations (8)
Cash dividends paid
Year Ended
March
2019
Three Months
Ended March
(Transition
Period)
Year Ended December
2018
2017
2016
2015
2014
$ 13,848,660
1,675,840
$ 3,045,446
310,065
$11,811,177
1,513,029
$11,026,147
1,455,458
$10,996,393
1,680,419
$10,831,889
1,697,172
1,259,004
261,164
721,209
1,078,854
1,217,056
1,233,711
$
3.19
$
0.66
$
1.81
$
2.59
$
2.86
$
2.85
3.14
1.9400
61.7%
0.65
0.4600
1.79
1.7200
2.56
1.5300
2.82
1.3300
2.80
1.1075
70.7%
96.2%
59.9%
47.2%
39.5%
$ 2,011,853
1.8
$ 10,356,785
$ 1,256,941
1.4
$ 9,937,730
$ 1,353,983
1.5
$ 9,577,802
$ 2,378,198
2.4
$ 9,015,694
$ 2,033,498
2.1
$ 8,600,426
$ 2,215,491
2.5
$ 8,611,545
2,115,884
4,298,516
2,212,555
3,688,096
2,187,789
3,719,900
2,039,180
4,940,921
1,401,820
5,384,838
1,403,919
5,630,882
39.3%
50.4%
44.0%
31.9%
25.6%
20.2%
395,189
395,253
399,223
416,103
425,408
432,611
$
10.83
$
9.35
$
9.40
$
11.93
$
12.62
$
13.01
12.1%
18.2%
33.3%
12.7%
10.2%
4.0%
7.4%
2.8%
12.8%
10.5%
18.9%
8.2%
13.2%
15.4%
23.8%
12.7%
15.3%
17.1%
25.3%
14.4%
15.7%
17.1%
22.5%
14.8%
$ 1,664,223
$
(243,223)
$ 1,474,660
$ 1,480,568
$ 1,203,616
$ 1,761,841
767,061
181,373
684,679
635,994
565,275
478,933
(1) VF recorded non-operating losses on sale related to the divestitures of the Reef® brand business and Van Moer business, totaling $36.8 million in the
year ended March 2019. The losses impacted after-tax income from operations by $33.1 million, basic earnings per share by $0.08 and diluted earnings
per share by $0.08. Operating results for the year ended March 2019 include costs associated with the relocation of VF's global headquarters and
certain brands to Denver, Colorado and separation and related expenses associated with the planned spin-off of the Jeans business. The costs
impacted pretax operating income by $158.9 million, after-tax income from continuing operations by $120.0 million, basic earnings per share by $0.30
and diluted earnings per share by $0.30. VF recorded a $465.5 million provisional tax charge in December 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 the year ended
December 2016 include charges for the impairment of goodwill and intangible assets and pension settlement. The charges impacted pretax operating
income by $130.5 million, after-tax income from continuing operations by $95.5 million, basic earnings per share by $0.23 and diluted earnings per
share by $0.23.
VF Corporation Fiscal 2019 Form 10-K 21
(2) Reflects adoption of accounting standards update 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost" and the restatement of prior periods to conform to current year presentation. For the years
ended December 2017, 2016, 2015 and 2014, operating income increased and other income (expense), net decreased by $9.9 million, $87.2 million,
$35.6 million and $33.8 million, respectively. In the three months ended March 2018, operating income decreased and other income (expense), net
increased by $1.3 million.
(3) Dividend payout ratio is defined as dividends per share divided by earnings per diluted share.
(4) 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. VF adopted the accounting
standards update regarding revenue recognition on April 1, 2018, which resulted in a cumulative adjustment to increase retained earnings by $2.0
million and had a material impact to the Consolidated Balance Sheet due to reclassifications of certain customer-related balances. Refer to Note 1
to VF’s consolidated financial statements for additional information.
(5) Total capital is defined as stockholders’ equity plus short-term and long-term debt.
(6) The numerator in the return calculations is defined as income from continuing operations plus total interest income/expense, net of taxes.
(7)
Invested capital is defined as average stockholders’ equity plus average short-term and long-term debt.
(8) 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
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 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,
stores, national
backpack, luggage, accessory and apparel categories. Our
products are marketed to consumers shopping in specialty stores,
department
chains, mass merchants,
independently-operated partnership stores and with strategic
digital partners, and our own direct-to-consumer operations,
which includes VF-operated stores, concession retail stores and
brand e-commerce sites.
VF is organized by groupings of businesses represented by its
reportable segments for financial reporting purposes. The four
reportable segments are Outdoor, Active, Work and Jeans.
BASIS OF PRESENTATION
VF changed to a 52/53 week fiscal year ending on the Saturday
closest to March 31 of each year. VF previously used a 52/53 week
fiscal year ending on the Saturday closest to December 31 of each
year. All references to the years ended March 2019 ("2019"),
December 2017 ("2017") and December 2016 ("2016") relate to the
52-week fiscal years ended March 30, 2019, December 30, 2017
and December 31, 2016, respectively. All references to the three
months ended March 2018 and March 2017 relate to the 13-week
transition period ended March 31, 2018 and the comparable 13-
week period ended April 1, 2017, respectively. All references to the
twelve months ended March 2018 ("2018") relate to the 52-week
period ended March 31, 2018. This period, when presented in
comparison to our results for the year ended March 2019, is
provided as we believe this comparison is more meaningful to our
reader's understanding of our Fiscal 2019 results of operations
than a comparison to the year ended December 2017. The
unaudited Condensed Consolidated Statements of Income and
Condensed Consolidated Statements of Cash Flows for the twelve
months ended March 2018 and the three months ended March 2017
are presented at the end of the "Analysis of Results of Operations"
section below for reference in the comparisons to the year ended
March 2019 and the three months ended March 2018, respectively.
The results for the twelve months ended March 2018 and the three
months ended March 2017 are unaudited.
22 VF Corporation Fiscal 2019 Form 10-K
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 the year ended March 2019 foreign currency
amounts below reflect the changes in foreign exchange rates from
the twelve months ended March 2018 and their impact on
translating foreign currencies into U.S. dollars and on foreign
currency-denominated transactions in countries with highly
inflationary economies. References to the year ended December
2017 foreign currency amounts below reflect the changes in foreign
exchange rates from the year ended December 2016 and their
impact on both translating foreign currencies into U.S. dollars and
on transactions denominated in a foreign currency. References to
the three months ended March 2018 foreign currency amounts
below reflect the changes in foreign exchange rates from the three
months ended March 2017 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. Additionally, VF conducts business in other developed
and emerging markets around the world with exposure to foreign
currencies other than the euro, such as Argentina, which is a highly
inflationary economy.
In light of the recently completed portfolio management actions
and organizational realignments, the Company realigned its
internal reporting structure to reflect the organizational changes
to better support and assess the operations of the business. The
chief operating decision maker allocates resources and assesses
performance based on a global brand view with the new reportable
segments: Outdoor, Active, Work and Jeans. In the tables below,
the Company has recast historical financial information to reflect
the new reportable segments. These changes had no impact on
previously reported consolidated results of operations. Refer to
additional discussion in the “Information by Reportable Segment”
section below and Note 19 to VF's consolidated financial
statements.
("Williamson-Dickie") and
On October 2, 2017, VF acquired 100% of the outstanding shares of
Williamson-Dickie Mfg. Co.
the
business results have been included in the Work segment. On April
3, 2018, VF acquired 100% of the stock of Icebreaker Holdings
Limited ("Icebreaker"). On June 1, 2018, VF acquired 100% of the
stock of Icon-Altra LLC, plus certain assets in Europe ("Altra"). The
business results for Icebreaker and Altra have been included in the
Outdoor segment. All references to contributions from acquisitions
below represent the operating results of Williamson-Dickie
through the one-year anniversary of the acquisition and the
operating results of Icebreaker and Altra from their respective
dates of acquisition. Refer to Note 3 to VF's consolidated financial
statements for additional information on acquisitions.
On October 5, 2018, VF completed the sale of the Van Moer
business, which was included in the Work segment. On October 26,
2018, VF completed the sale of the Reef® brand business, which
was included in the Active segment. All references to dispositions
below represent the impact of operating results of the Reef® brand
and the Van Moer business, beginning in the period of disposition.
The Nautica® brand business, the Licensing Business (which
comprised the Licensed Sports Group and JanSport® brand
collegiate businesses), and the former Contemporary Brands
segment have been reported as discontinued operations in our
Consolidated Statements of Income, and the related held-for-sale
assets and liabilities have been presented as assets and liabilities
of discontinued operations in the Consolidated Balance Sheets,
through their respective dates of disposal. 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.
On August 13, 2018, VF announced its intention to spin-off its Jeans
business, which includes the Wrangler®, Lee® and Rock & Republic®
brands, as well as the VF Outlet™ business. The spin-off creates two
independent, publicly traded companies. The transaction is
expected to be tax-free to VF and its shareholders and is effected
through a pro-rata distribution of the new company’s stock to
existing VF shareholders whereby each VF shareholder will receive
one share of the new company's stock for every seven shares of VF
stock held on the record date. The spin-off, which was completed
after March 30, 2019 on May 22, 2019, is not reflected in our
historical financial statements.
Refer to Note 4 to VF’s consolidated financial statements for
additional information on discontinued operations and other
divestitures.
HIGHLIGHTS OF THE YEAR ENDED MARCH 2019
•
Year ended March 2019 revenues were up 12% to $13.8
billion compared to the twelve months ended March 2018,
primarily due to the $1.0 billion contribution from organic
growth and a $696.3 million contribution from acquisitions,
including a 1% unfavorable impact from foreign currency.
• Active segment revenues increased 16% over the twelve
months ended March 2018 to $4.7 billion, including a 2%
unfavorable impact from foreign currency.
• Gross margin increased 10 basis points to 50.7% in the year
ended March 2019 compared to the twelve months ended
March 2018, reflecting benefits from a mix-shift to higher
margin businesses and increased pricing, partially offset by
costs related to the acquisition, integration and separation
of businesses and certain increases in product costs.
• Cash flow from operations was $1.7 billion in the year ended
March 2019.
• Outdoor segment revenues increased 9% over the twelve
months ended March 2018 to $4.6 billion, including a $224.4
million contribution from acquisitions and a 1% unfavorable
impact from foreign currency.
•
• Direct-to-consumer revenues increased 14% over the
twelve months ended March 2018,
including a 1%
unfavorable impact from foreign currency and a 3-
percentage point contribution from acquisitions. Direct-to-
consumer revenues accounted for 33% of VF’s total
revenues in the year ended March 2019. VF opened 110 retail
stores in the year ended March 2019. E-commerce revenues
increased 32% in the year ended March 2019 compared to
the twelve months ended March 2018, including a 1%
unfavorable impact from foreign currency and a 9-
percentage point contribution from acquisitions.
•
International revenues increased 10% over the twelve
months ended March 2018, including a 3% unfavorable
impact from foreign currency and a 6-percentage point
contribution from acquisitions. International revenues
represented 41% of VF’s total revenues in the year ended
March 2019.
Earnings per share increased 63% to $3.14 in the year ended
March 2019 from $1.92 in the twelve months ended March
2018. The twelve months ended March 2018 included a $1.15
negative transitional impact from the enactment of the Tax
Cuts and Jobs Act ("Tax Act") compared to a $0.09 negative
impact in the year ended March 2019 due to adjustments on
provisional amounts recorded. The increase was also driven
by organic growth in the Active, Outdoor and Work
segments, continued strength in our direct-to-consumer
and
international businesses and contributions from
acquisitions. These improvements were partially offset by
expenses related to the acquisition,
integration and
separation of businesses, costs related to relocation and
other strategic business decisions and declines in the Jeans
segment.
•
•
VF increased the quarterly dividend rate by 11% in the year
ended March 2019, marking the 46th consecutive year of
increase in the rate of dividends paid per share.
VF repurchased $150.7 million of its Common Stock and
paid $767.1 million in cash dividends, returning $917.8
million to stockholders.
VF Corporation Fiscal 2019 Form 10-K 23
ANALYSIS OF RESULTS OF OPERATIONS
Consolidated Statements of Income
The following table presents a summary of the changes in net revenues for the year ended March 2019 compared to the twelve months
ended March 2018 and the year ended December 2017 compared to the year ended December 2016:
(In millions)
Net revenues — prior period
Organic growth
Acquisitions
Dispositions
Impact of foreign currency
Net revenues — current period
Year Ended March 2019
Compared to Twelve Months
Ended March 2018 (unaudited)
Year Ended December 2017
Compared to Year Ended
December 2016
$
$
12,356.3
$
11,026.1
1,039.0
696.3
(89.0)
(153.9)
489.3
247.2
—
48.6
13,848.7
$
11,811.2
Year Ended March 2019 Compared to Twelve Months Ended March
2018 (unaudited)
VF reported a 12% increase in revenues in 2019. The 2019 results
were driven by organic growth in the Active, Outdoor and Work
segments, continued strength in our direct-to-consumer and
international businesses and contributions from acquisitions. The
increases were partially offset by an unfavorable impact from
foreign currency, lower revenues due to dispositions and declines
in the Jeans segment. International sales grew in every region in
2019.
Year Ended December 2017 Compared to Year Ended December 2016
VF reported a 7% increase in revenues in 2017. The 2017 results
were driven by increases in the Active and Outdoor segments and
continued strength in our direct-to-consumer and international
businesses. The increase was also attributable to growth in the
Work segment, 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 Jeans
segment. International sales grew in every region in 2017.
Additional details on revenues are provided in the section titled
“Information by Reportable Segment”.
The following table presents the percentage relationship to net revenues for components of the Consolidated Statements of Income:
Gross margin (net revenues less cost of goods sold)
Selling, general and administrative expenses
Impairment of goodwill and intangible assets
Operating income
Year Ended
March 2019
Twelve Months
Ended March
2018
(unaudited)
Year Ended December
2017
2016
50.7%
38.6
—
12.1%
50.6%
38.2
—
12.4%
50.5%
37.7
—
12.8%
49.3%
35.4
0.7
13.2%
Year Ended March 2019 Compared to Twelve Months Ended March
2018 (unaudited)
Gross margin increased 10 basis points to 50.7% in 2019 compared
to 50.6% in 2018. Gross margin in 2019 was positively impacted by
a mix-shift to higher margin businesses and increased pricing,
partially offset by $45.9 million of costs related to the acquisition,
integration and separation of businesses, and costs related to the
relocation of our global headquarters and certain brands to Denver,
Colorado.
Selling, general and administrative expenses as a percentage of
total revenues increased 40 basis points in 2019 compared to 2018.
This increase is primarily due to $186.7 million of expenses related
to the acquisition, integration and separation of businesses, and
relocation of our global headquarters and certain brands to Denver,
Colorado. The increase is also due to continued investments in our
key strategic growth initiatives. These costs were partially offset
by leverage of operating expenses on higher revenues.
In 2019, operating margin decreased 30 basis points, to 12.1% from
12.4% in 2018, primarily due to the items described above.
Net interest expense decreased $1.4 million to $85.4 million in
2019. The decrease in net interest expense was due to higher
international bank balances in high yielding currencies and the
payoff of the $250.0 million of 5.95% fixed-rate notes on November
1, 2017, which was partially offset by higher interest rates on
increased levels of short-term borrowings.
Outstanding interest-bearing debt averaged $3.4 billion for both
2019 and 2018, with short-term borrowings representing 35.3%
and 30.9% of average debt outstanding for the respective years.
The weighted average interest rates on outstanding debt were 3.1%
in 2019 and 2.9% in 2018.
Other income (expense), net primarily consists of foreign currency
gains and losses, the funding fee charged on the sale of our trade
receivables, other components of net periodic pension cost
(excluding the service cost component) and non-operating gains
and losses. Other income (expense) netted to $(63.0) million and
$(1.8) million in 2019 and 2018, respectively. Included in other
income (expense), net in 2019 is the loss on sale of the Reef® brand
business of $14.4 million and loss on sale of $22.4 million related
to the divestiture of the Van Moer business.
The effective income tax rate was 17.6% in 2019 compared to 46.6%
in 2018. The effective income tax rate is substantially lower in 2019
when compared to 2018 primarily due to discrete tax expense
24 VF Corporation Fiscal 2019 Form 10-K
associated with the Tax Act. In December 2017, VF recognized a
provisional charge of approximately $465.5 million to reflect the
impacts resulting from the Tax Act, primarily comprised of
approximately $512.4 million related to the transition tax and
approximately $89.5 million of tax benefits 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 short-term liquid assets of certain foreign
subsidiaries. All other foreign earnings, including basis differences
of certain foreign subsidiaries, continue to be considered
indefinitely reinvested.
The 2019 effective income tax rate included a net discrete tax
expense of $18.9 million, which included $37.3 million net tax
expense related to adjustments to provisional amounts recorded
in 2017 under the Tax Act, $31.9 million of tax benefit related to
stock compensation, $14.3 million of net tax expense related to
unrecognized tax benefits and interest, $1.9 million of tax benefit
related to adjustments of previously recorded amounts based on
proposed regulations, and $1.2 million of tax expense related to
adjustments to previously recognized state income tax credits. The
$18.9 million net discrete tax expense in 2019 increased the
effective income tax rate by 1.3% compared to an unfavorable 29.4%
impact of discrete items for 2018. Excluding discrete items, the
effective tax rate during 2019 decreased by approximately 0.9%
primarily due to a lower US corporate income tax rate that was
effective beginning January 1, 2018. The international effective tax
rate was 11.6% for 2019.
As a result of the above, income from continuing operations in 2019
was $1.3 billion ($3.14 per diluted share), compared to $0.8 billion
($1.92 per diluted share) in 2018.
Refer to additional discussion in the “Information by Reportable
Segment” section below.
Year Ended December 2017 Compared to Year Ended December 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 toward higher margin businesses and
lower
restructuring costs, which was partially offset by an unfavorable
60 basis point impact from foreign currency.
Selling, general and administrative expenses as a percentage of
total revenues increased 230 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 partially offset by lower restructuring costs in 2017.
In 2017, operating margin decreased 40 basis points, to 12.8% from
13.2% in 2016. In addition to the items described above, the
operating margin decrease was partially offset by 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
interest rates on
respective years. The weighted average
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), net primarily consists of foreign currency
gains and losses, the funding fee charged on the sale of our trade
receivables, other components of net periodic pension cost
(excluding the service cost component) and non-operating gains
and losses. Other income (expense) netted to $(10.7) million and
$(85.2) million in 2017 and 2016, respectively. A pension settlement
charge of $50.9 million was included in 2016, which did not recur
in 2017.
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 three
months ended December 2017. This amount, which is included
in the income taxes line item in the Consolidated Statements of
Income, is 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 short-term liquid assets
of certain foreign subsidiaries. All other foreign earnings, including
basis differences of certain foreign subsidiaries, continue to be
considered indefinitely reinvested.
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, income from continuing operations in 2017
was $0.7 billion ($1.79 per diluted share), compared to $1.1 billion
($2.56 per diluted share) in 2016.
Refer to additional discussion in the “Information by Reportable
Segment” section below.
VF Corporation Fiscal 2019 Form 10-K 25
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
The following table presents a summary of the changes in net revenues from the comparable period in 2017:
(In millions)
Net revenues — 2017
Organic growth
Acquisitions
Impact of foreign currency
Net revenues — 2018
Three Months Ended March
$
$
2,500.3
191.6
233.1
120.4
3,045.4
VF reported a 22% increase in revenues for the three months ended
March 2018 compared to the 2017 period. The revenue increase
was attributable to the Williamson-Dickie acquisition, organic
growth in the Active segment and continued strength in our direct-
to-consumer and international businesses. These increases were
partially offset by declines in the Jeans segment. Excluding the
impacts from foreign currency, international sales grew in every
region in the three months ended March 2018.
Additional details on revenues are provided in the section titled
“Information by Reportable Segment”.
The following table presents the percentage relationship to net revenues for components of the Consolidated Statements of Income:
Three Months Ended March
2018
2017
(unaudited)
50.5%
40.4
10.2%
50.3%
38.5
11.7%
March 2017. The three months ended March 2018 included a net
discrete tax benefit of $16.1 million, which included a $12.1 million
tax benefit related to stock compensation, a $7.3 million net tax
benefit related to the realization of previously unrecognized tax
benefits and interest, an $8.8 million tax expense related to the
change of a prior estimate of taxes payable, and a $5.1 million net
tax benefit related to adjustments to provisional amounts recorded
in 2017 under the Tax Act. The $16.1 million net discrete tax benefit
in the three months ended March 2018 reduced the effective
income tax rate by 5.5% compared to a favorable 0.4% impact of
discrete items in the three months ended March 2017. Without
discrete items, the effective income tax rate for the three months
ended March 2018 decreased by 4.5% compared with the estimated
annual effective tax rate applied to the three months ended March
2017 primarily due to a higher percentage of income in lower tax
rate jurisdictions, partially offset by an unfavorable impact from
the Tax Act.
As a result of the above, net income in the three months ended
March 2018 was $261.2 million ($0.65 per share) compared to
$213.3 million ($0.51 per share) in the 2017 period.
Refer to additional discussion in the “Information by Reportable
Segment” section below.
Gross margin (net revenues less cost of goods sold)
Selling, general and administrative expenses
Operating income
Gross margin increased 20 basis points in the three months ended
March 2018 compared to the 2017 period. Gross margin was
favorably impacted by increases in pricing, a mix-shift to higher
margin businesses in the Outdoor and Active segments, and foreign
currency changes, offset by lower margins attributable to the
Williamson-Dickie acquisition and certain increases in product
costs.
Selling, general and administrative expenses as a percentage of
total revenues increased 190 basis points during the three months
ended March 2018 compared to the 2017 period. The increase was
due to expenses related to the acquisition and integration of
businesses and higher investments in our key growth priorities,
which include demand creation, customer fulfillment, direct-to-
consumer and product innovation. Higher compensation costs also
impacted the three months ended March 2018.
Net interest expense increased $1.0 million during the three
months ended March 2018 compared to the 2017 period. This
increase was due to higher levels of short-term borrowings at
higher interest rates compared to 2017, which was partially offset
by lower interest on long-term debt due to the payoff of the $250.0
million of 5.95% fixed-rate notes on November 1, 2017. Total
outstanding debt averaged $3.2 billion in the three months ended
March 2018 and $2.6 billion in the same period in 2017, with
weighted average interest rates of 2.9% and 3.6%, respectively.
The effective income tax rate for the three months ended March
2018 was 11.2% compared to 20.8% in the three months ended
26 VF Corporation Fiscal 2019 Form 10-K
Information by Reportable Segment
As discussed above, VF realigned its internal reporting structure
in Fiscal 2019 to reflect organizational changes to better support
and assess the operations of the business. The new reportable
segments are: Outdoor, Active, Work and Jeans. We have included
an other category in the tables below for purposes of reconciliation
of revenues and profit, but it is not considered a reportable
segment. The Company has recast historical financial information
to reflect the new reportable segments. These changes had no
impact on previously reported consolidated results of operations.
The primary financial measures used by management to evaluate
the financial results of VF's reportable segments are segment
revenues and segment profit. Segment profit comprises the
operating income and other income (expense), net line items of
each segment.
Refer to Note 19 to the consolidated financial statements for a
summary of results of operations by segment, along with a
reconciliation of segment profit to income before income taxes.
Year Ended March 2019 Compared to Twelve Months Ended March 2018 (unaudited) and Year Ended December 2017 Compared to Year Ended
December 2016
The following tables present a summary of the changes in segment revenues and profit in the year ended March 2019 compared to the
twelve months ended March 2018 and the year ended December 2017 compared to the year ended December 2016:
Segment Revenues:
Year Ended March 2019 Compared to Twelve Months Ended March 2018 (unaudited)
(In millions)
Outdoor
Active
Work
Jeans
Other
Total
Segment revenues — Twelve Months Ended March
2018 (unaudited)
Organic growth
Acquisitions
Dispositions
Impact of foreign currency
Segment revenues — Year Ended March 2019
$ 4,261.9 $ 4,054.5 $ 1,342.0 $ 2,586.6 $
111.3 $ 12,356.3
222.2
224.4
—
(59.5)
776.0
—
(64.4)
(44.3)
79.4
471.9
(24.6)
(6.7)
(51.4)
—
—
(43.4)
12.8
—
—
—
1,039.0
696.3
(89.0)
(153.9)
$ 4,649.0 $ 4,721.8 $ 1,862.0 $ 2,491.8 $
124.1 $ 13,848.7
Year Ended December 2017 Compared to Year Ended December 2016
(In millions)
Outdoor
Active
Work
Jeans
Other
Total
Segment revenues — Year Ended December 2016
Organic growth
Acquisition
Impact of foreign currency
Segment revenues — Year Ended December 2017
$ 4,123.4 $ 3,318.4 $
776.2 $ 2,690.1 $
54.3
—
31.3
459.6
—
13.7
75.1
247.2
1.2
(94.9)
—
2.4
$ 4,209.0 $ 3,791.7 $ 1,099.7 $ 2,597.6 $
118.0 $ 11,026.1
489.3
247.2
48.6
113.2 $ 11,811.2
(4.8)
—
—
Segment Profit:
(In millions)
Segment profit — Twelve Months Ended March
2018 (unaudited)
Organic growth
Acquisitions
Dispositions
Impact of foreign currency
Segment profit — Year Ended March 2019
(In millions)
Segment profit — Year Ended December 2016
Organic growth
Acquisition
Impact of foreign currency
Segment profit — Year Ended December 2017
Year Ended March 2019 Compared to Twelve Months Ended March 2018 (unaudited)
Outdoor
Active
Work
Jeans
Other
Total
$
508.8 $
894.2 $
166.0 $
395.8 $
(4.0) $ 1,960.8
27.1
21.1
—
(12.6)
544.4 $ 1,125.7 $
247.3
—
(9.6)
(6.2)
17.0
39.7
(1.4)
(0.6)
220.7 $
(109.3)
—
—
14.0
300.5 $
186.6
4.5
60.8
—
(11.0)
—
—
(5.4)
0.5 $ 2,191.8
Year Ended December 2017 Compared to Year Ended December 2016
Outdoor
Active
Work
Jeans
Other
Total
594.5 $
(35.0)
—
(22.0)
537.5 $
628.2 $
211.8
—
(34.2)
805.8 $
137.3 $
14.2
11.0
1.1
163.6 $
479.2 $
(76.6)
—
3.9
406.5 $
(4.9) $ 1,834.3
116.3
1.9
11.0
—
(51.2)
—
(3.0) $ 1,910.4
$
$
$
VF Corporation Fiscal 2019 Form 10-K 27
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
The following tables present a summary of the changes in segment revenues and profit in the three months ended March 2018 from the
comparable period in 2017:
Segment Revenues:
(In millions)
Outdoor
Active
Work
Jeans
Other
Total
Segment revenues — Three Months Ended
March 2017 (unaudited)
$
835.1 $
808.8 $
200.0 $
634.3 $
22.1 $
2,500.3
Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
Organic growth
Acquisition
Impact of foreign currency
Segment revenues — Three Months
Ended March 2018
Segment Profit:
7.1
—
45.8
208.9
—
53.9
8.5
233.1
0.7
(31.0)
—
20.0
(1.9)
—
—
191.6
233.1
120.4
$
888.0 $
1,071.6 $
442.3 $
623.3 $
20.2 $
3,045.4
(In millions)
Outdoor
Active
Work
Jeans
Other
Total
Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
Segment profit — Three Months Ended
March 2017 (unaudited)
Organic growth
Acquisition
Impact of foreign currency
Segment profit — Three Months Ended
March 2018
$
73.5 $
149.3 $
37.7 $
114.5 $
(2.3) $
372.7
(29.0)
—
0.2
76.0
—
12.3
(3.4)
4.8
0.9
(17.9)
—
7.2
(0.8)
—
—
24.9
4.8
20.6
$
44.7 $
237.6 $
40.0 $
103.8 $
(3.1) $
423.0
28 VF Corporation Fiscal 2019 Form 10-K
The following sections outline the changes in revenues and profitability by segment. For purposes of this analysis, royalty revenues
have been included in the wholesale channel for all periods.
Outdoor
(Dollars in millions)
Year Ended
March 2019
Twelve Months
Ended March 2018
(unaudited)
Percent
Change
2017
2016
Segment revenues
$
4,649.0
$
Segment profit
Operating margin
544.4
11.7%
4,261.9
508.8
11.9%
9.1% $
4,209.0
$
4,123.4
7.0%
537.5
12.8%
594.5
14.4%
Percent
Change
2.1 %
(9.6)%
Year Ended December
The Outdoor segment includes the following brands: The North Face®, Timberland® (excluding Timberland PRO®), Icebreaker®, Smartwool®
and Altra®.
Year Ended March 2019 Compared to Twelve Months Ended March
2018 (unaudited)
Global revenues for Outdoor increased 9% in 2019, driven by growth
in the wholesale and direct-to-consumer channels, including a 1%
unfavorable impact due to foreign currency. Revenues in the
Americas region increased 8% in 2019, including a 1% unfavorable
impact from foreign currency. Revenues in the Europe region
increased 9%, including a 3% unfavorable impact from foreign
currency. Revenues in the Asia-Pacific region increased 12% in
2019, with a 2% unfavorable impact from foreign currency. Included
in these results are revenues from the Icebreaker acquisition of
$174.2 million and revenues from the Altra acquisition of $50.2
million. Excluding revenues from Icebreaker and Altra, Outdoor
revenues increased 4% in 2019, including a 1% unfavorable impact
from foreign currency.
Global revenues for The North Face® brand increased 9% in 2019,
including a 1% unfavorable impact from foreign currency. The
increase was due to strong operational growth across all channels
and regions, including strong performance in the wholesale
channel and growth in the direct-to-consumer channel driven by
an expanding e-commerce business, comparable store growth and
new store openings.
Global revenues for the Timberland® brand (excluding Timberland
PRO®) decreased 1% in 2019, as slight increases in the direct-to-
consumer and wholesale channels were more than offset by a 2%
unfavorable impact from foreign currency. Increases in the direct-
to-consumer channel were driven by growth in the Americas region
and China, as well as e-commerce growth across all regions,
partially offset by declines across the Europe and Asia-Pacific
(excluding China) regions.
Global direct-to-consumer revenues for Outdoor increased 7% in
2019, including a 1% unfavorable impact from foreign currency.
Excluding revenues from acquisitions, global direct-to-consumer
revenues increased 3%, including a 1% unfavorable impact from
foreign currency. The increase was primarily due to a growing e-
commerce business across all regions and new store openings.
Global wholesale revenues for Outdoor increased 11%, driven by
global growth in The North Face® brand and acquisitions, and
included a 1% unfavorable impact from foreign currency. Excluding
revenues from acquisitions, wholesale revenues increased 4%,
including a 2% unfavorable impact from foreign currency. The
increase was driven by growth across all regions.
Operating margin decreased 20 basis points in 2019 driven by costs
related to the relocation of certain brands to Denver, Colorado,
partially offset by leverage of operating expenses on higher
revenues.
Year Ended December 2017 Compared to Year Ended December 2016
Global revenues for Outdoor increased 2% in 2017, driven by growth
in the direct-to-consumer channel, including a 1% favorable
impact from foreign currency. Revenues in the Americas region
decreased 4% in 2017, reflecting a 5% decrease in the US, partially
offset by 9% growth in the non-U.S. Americas region, which
included a 3% favorable impact from foreign currency. Revenues
in the Europe region increased 15%, including a 2% favorable
impact from foreign currency. Revenues in the Asia-Pacific region
increased 1% in 2017 due to foreign currency.
Global revenues for The North Face® 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
Face® 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 (excluding Timberland
PRO®) increased 1% in 2017, as growth in the direct-to-consumer
channel, driven by comparable store and e-commerce growth, and
a 2% favorable impact from foreign currency, were partially offset
by declines in the wholesale channel.
Global direct-to-consumer revenues for Outdoor grew 9% in 2017,
driven by an expanding e-commerce business, comparable store
growth and a 1% favorable impact from foreign currency. Global
wholesale revenues for Outdoor decreased 2% in 2017, driven by
the above-mentioned U.S. retailer bankruptcies, lower year-over-
year off-price shipments and efforts to manage inventory levels in
certain markets.
investments
Operating margin decreased 160 basis points in 2017, reflecting
increased
in direct-to-consumer, product and
innovation, demand creation and technology, partially offset by
gross margin expansion driven by a mix-shift to higher margin
businesses, lower product costs and pricing.
VF Corporation Fiscal 2019 Form 10-K 29
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
(Dollars in millions)
Segment revenues
Segment profit
Operating margin
Three Months Ended March
2018
2017
(unaudited)
$
888.0
$
44.7
5.0%
835.1
73.5
8.8%
Percent
Change
6.3 %
(39.2)%
Global revenues for Outdoor increased 6% in the three months
ended March 2018 compared to 2017, driven by an overall 5%
favorable impact due to foreign currency as well as growth in the
direct-to-consumer channel, partially offset by a decline in the
wholesale channel. Revenues in the Americas region decreased
5% in the three months ended March 2018. Revenues in the Europe
region increased 24%, including a 13% favorable impact from
foreign currency. Revenues in the Asia-Pacific region increased
5%, with a 6% favorable impact from foreign currency.
Global revenues for The North Face® brand increased 11% in the
three months ended March 2018 compared to the 2017 period. The
increase in the period was primarily due to growth in the direct-
to-consumer channel, driven by comparable store and e-
commerce growth, and an overall 4% favorable impact from foreign
currency. Increases in the wholesale channel were driven by
growth in the Europe region and a favorable foreign currency
impact, partially offset by declines in the Americas and Asia-Pacific
regions.
Global revenues for the Timberland® brand (excluding Timberland
PRO®) increased 5% in the three months ended March 2018 due
to growth in the direct-to-consumer channel, driven by the Europe
region, and a 7% favorable impact from foreign currency. The
growth in the direct-to-consumer channel was due to comparable
store and e-commerce growth, and was more than offset by
declines in the wholesale channel.
Global direct-to-consumer revenues for Outdoor grew 18% in the
three months ended March 2018 compared to the 2017 period.
Growth in the direct-to-consumer channel was driven by an
expanding e-commerce business, comparable store growth and a
6% favorable impact from foreign currency. Wholesale revenues
decreased 1% in the three months ended March 2018, driven by
declines in the Asia-Pacific and Americas regions, partially offset
by growth in the Europe region and a 5% favorable impact from
foreign currency.
Operating margin decreased 380 basis points in the three months
ended March 2018 compared to the 2017 period, primarily due to
increased selling, general and administrative investments in
direct-to-consumer and demand creation initiatives and higher
product costs, partially offset by a mix-shift to higher margin
businesses.
30 VF Corporation Fiscal 2019 Form 10-K
Active
(Dollars in millions)
Segment revenues
$
Segment profit
Operating margin
Year Ended
March 2019
Twelve Months
Ended March 2018
(unaudited)
Percent
Change
2017
2016
$
4,721.8
1,125.7
23.8%
4,054.5
894.2
22.1%
16.5% $
3,791.7
$
3,318.4
25.9%
805.8
21.3%
628.2
18.9%
Percent
Change
14.3%
28.3%
The Active segment includes the following brands: Vans®, Kipling®, Napapijri®, Eastpak®, JanSport®, Reef® (through the date of sale) and
Eagle Creek®.
Year Ended December
Year Ended December 2017 Compared to Year Ended December 2016
Global revenues for Active increased 14% in 2017, driven by growth
in the direct-to-consumer and wholesale channels. Revenues in
the Americas region increased 15% in 2017, including a 1%
favorable impact from foreign currency. Revenues in the Europe
and Asia-Pacific regions each increased 14%, including a 1%
favorable impact from foreign currency.
Vans® 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 direct-to-consumer revenues for Active grew 25% in 2017,
driven by an expanding e-commerce business and comparable
store growth. Wholesale revenues increased 7% in 2017, including
a 1% favorable impact from foreign currency. The increase was
driven by growth in the Vans® brand and Europe region.
Operating margin increased 240 basis points in 2017. The increase
was due to gross margin expansion driven by a mix-shift to higher
margin businesses, pricing and lower product costs, partially offset
by increased investments in direct-to-consumer, product and
innovation, demand creation and technology.
Year Ended March 2019 Compared to Twelve Months Ended March
2018 (unaudited)
Global revenues for Active increased 16% in 2019, driven by growth
across all channels and regions, including a 2% unfavorable impact
from foreign currency. Revenues in the Americas region increased
21% in 2019, including a 1% unfavorable impact from foreign
currency. Revenues in the Europe region increased 7%, including
a 2% unfavorable impact from foreign currency. Revenues in the
Asia-Pacific region increased 17% in 2019, including a 1%
unfavorable impact from foreign currency. The year ended March
2019 was negatively impacted by the sale of the Reef® brand
business in October 2018, which resulted in lower revenues of $64.4
million. Excluding the impact of this divestiture, revenues
increased 18% compared to the 2018 period, including a 1%
unfavorable impact from foreign currency.
Vans® brand global revenues increased 24% in 2019, including a
2% unfavorable impact from foreign currency. The increase was
due to strong operational growth across all channels and regions,
including strong wholesale performance and direct-to-consumer
growth driven by an expanding e-commerce business, comparable
store growth and new store openings.
Global direct-to-consumer revenues for Active grew 22% in 2019,
including a 1% unfavorable impact from foreign currency. Growth
in the direct-to-consumer channel was driven by a growing e-
commerce business, comparable store growth and new store
openings. Global wholesale revenues for Active increased 12% in
2019, driven by global growth in the Vans® brand, and included a
1% unfavorable impact from foreign currency.
Operating margin increased 170 basis points in 2019, reflecting
gross margin expansion driven by a mix-shift to higher margin
businesses and products, and leverage of operating expenses on
higher revenues.
VF Corporation Fiscal 2019 Form 10-K 31
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
(Dollars in millions)
Segment revenues
Segment profit
Operating margin
Three Months Ended March
2018
2017
(unaudited)
Percent
Change
$
1,071.6
$
237.6
22.2%
808.8
149.3
18.5%
32.5%
59.2%
Global revenues for Active increased 32% in the three months
ended March 2018 compared to 2017, driven by growth in the direct-
to-consumer and wholesale channels and an overall 6% favorable
impact due to foreign currency. Revenues in the Americas region
increased 35% in the three months ended March 2018, including a
1% increase from foreign currency. Revenues in the Europe region
increased 33%, including a 15% favorable impact from foreign
currency. Revenues in the Asia-Pacific region increased 20%, with
a 7% favorable impact from foreign currency.
Global direct-to-consumer revenues for Active grew 45% in the
three months ended March 2018 compared to the 2017 period.
Growth in the direct-to-consumer channel was driven by an
expanding e-commerce business, comparable store growth and a
7% favorable impact from foreign currency. Wholesale revenues
increased 25% in the three months ended March 2018, driven by
global growth in the Vans® brand and broad-based growth across
our brands in the Europe region, in addition to a 7% favorable
impact from foreign currency.
Vans® brand global revenues increased 45% in the three months
ended March 2018 compared to the 2017 period. The increase in
the period was due to strong operational growth in both the
wholesale and direct-to-consumer channels in all regions,
including an overall 6% favorable impact from foreign currency.
The growth in the direct-to-consumer channel was driven by strong
comparable store and e-commerce growth.
Operating margin increased 370 basis points in the three months
ended March 2018 compared to the 2017 period, reflecting gross
margin expansion driven by a mix-shift to higher margin
businesses, pricing and lower product costs, partially offset by
increased selling, general and administrative investments in
direct-to-consumer and demand creation initiatives.
Work
(Dollars in millions)
Year Ended
March 2019
Twelve Months
Ended March 2018
(unaudited)
Percent
Change
2017
2016
Segment revenues
$
1,862.0
$
Segment profit
Operating margin
220.7
11.9%
1,342.0
166.0
12.4%
38.7% $
1,099.7
$
33.0%
163.6
14.9%
776.2
137.3
17.7%
Percent
Change
41.7%
19.1%
Year Ended December
The Work segment consists of occupational apparel and uniform product categories including the Bulwark®, Red Kap®, Timberland PRO®,
Wrangler® RIGGS and Horace Small® brand industrial businesses, as well as the workwear apparel brands from the Williamson-Dickie
acquisition including Dickies®, Workrite®, Walls®, Terra® and Kodiak®. The Work segment also includes the results of certain transition
services related to the sale of the Licensed Sports Group (the "LSG transition services") that commenced in the second quarter of 2017.
Year Ended March 2019 Compared to Twelve Months Ended March
2018 (unaudited)
driven by a mix-shift to higher margin businesses and pricing,
partially offset by certain higher product costs.
Global Work revenues increased 39% in 2019 compared to 2018.
Included in the 2019 results were revenues from the Williamson-
Dickie acquisition of $471.9 million through the one-year
anniversary of the acquisition. The year ended March 2019 was also
negatively impacted by the sale of the Van Moer business in October
2018, which resulted in lower revenues of $24.6 million. Excluding
the impact of the acquisition and divestiture, revenues increased
6% compared to the 2018 period. The revenue increase was due to
growth in the Timberland PRO®, Wrangler® RIGGS, Bulwark® and Red
Kap® brands, partially offset by a decline in the LSG transition
services revenues. The revenue increase was also due to growth in
the Dickies® brand in the six months ended March 2019 compared
to the six months ended March 2018.
Operating margin decreased 50 basis points in 2019 compared to
2018. Excluding amounts related to the acquisition, integration and
operating results of Williamson-Dickie through the one-year
anniversary of the acquisition, operating margin increased 60 basis
points in 2019. The increase reflected gross margin expansion
32 VF Corporation Fiscal 2019 Form 10-K
Year Ended December 2017 Compared to Year Ended December 2016
Global Work revenues increased 42% in 2017 compared to 2016.
Included in the 2017 results are revenues from the Williamson-
Dickie acquisition of $247.2 million and revenues from the LSG
transition services of $19.9 million. Excluding revenues from
Williamson-Dickie and the LSG transition services, Work revenues
increased 7% in 2017 compared to 2016 primarily due to growth in
our Bulwark® brand, which was fueled by increased oil and gas
exploration activities, partially offset by industry consolidation.
Operating margin decreased 280 basis points in 2017 compared to
2016. Excluding the impact of amounts related to the acquisition,
integration and operating results of Williamson-Dickie, and the
LSG transition services, operating margin in 2017 increased 40
basis points compared to 2016. The increase reflected gross
margin expansion driven by a mix-shift to higher margin
businesses.
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
(Dollars in millions)
Segment revenues
Segment profit
Operating margin
Three Months Ended March
2018
2017
(unaudited)
$
442.3
$
40.0
9.0%
200.0
37.7
18.8%
Percent
Change
121.2%
6.3%
Global Work revenues increased 121% in the three months ended
March 2018 compared to the 2017 period. Included in these results
are revenues from the Williamson-Dickie acquisition of $233.1
million and revenues from the LSG transition services of $1.5
million. Excluding revenues from Williamson-Dickie and the LSG
transition services, Work revenues increased 4% in the three
months ended March 2018 compared to the 2017 period. The
revenue increase was primarily due to growth in our Bulwark®
brand, which was fueled by sales in the oil and gas industry.
Operating margin decreased 980 basis points in the three months
ended March 2018 compared to the 2017 period. Excluding the
impact of amounts related to the acquisition, integration and
operating results of Williamson-Dickie, and the LSG transition
services, operating margin decreased 200 basis points in the three
months ended March 2018. The decrease was driven by higher
selling, general and administrative expenses and higher product
costs, partially offset by a mix-shift to higher margin businesses.
Jeans
(Dollars in millions)
Year Ended
March 2019
Twelve Months
Ended March 2018
(unaudited)
Percent
Change
2017
2016
Segment revenues
$
2,491.8
$
Segment profit
Operating margin
300.5
12.1%
2,586.6
395.8
15.3%
(3.7)% $
2,597.6
$
2,690.1
(24.1)%
406.5
15.6%
479.2
17.8%
Percent
Change
(3.4)%
(15.2)%
Year Ended December
The Jeans segment consists of the global jeanswear businesses, led by the Wrangler® (excluding Wrangler® RIGGS) and Lee® brands.
Year Ended March 2019 Compared to Twelve Months Ended March
2018 (unaudited)
Global Jeans revenues decreased 4% in 2019 compared to 2018,
driven primarily by declines in the wholesale channel and a 2%
unfavorable impact from foreign currency. Revenues in the
Americas region decreased 3% in 2019, driven primarily by declines
in the wholesale channel and a 1% unfavorable impact from foreign
currency. The wholesale channel revenues were negatively
impacted by a U.S. customer bankruptcy. Revenues in the Asia-
Pacific region decreased 1% in 2019 as increases in the wholesale
channel were more than offset by a 3% unfavorable impact from
foreign currency. Revenues in the Europe region decreased 9% in
2019 due to declines in the wholesale and direct-to-consumer
channels and a 3% unfavorable impact from foreign currency.
Global revenues for the Wrangler® brand (excluding Wrangler®
RIGGS) decreased 2% in 2019, as flat wholesale channel revenues
were offset by a 2% unfavorable impact from foreign currencies.
Global revenues for the Lee® brand were down 7% in 2019
compared to 2018, primarily due to declines in the wholesale
channel and included a 2% unfavorable impact from foreign
currencies. The wholesale channel revenues of both brands were
negatively impacted by a U.S. customer bankruptcy.
Operating margin decreased 320 basis points in 2019 over 2018,
primarily due to higher product costs, business mix, expenses
related to the separation of businesses and other strategic
business decisions, and lower leverage of operating expenses due
to decreased revenues, partially offset by increased pricing.
Year Ended December 2017 Compared to Year Ended December 2016
Global Jeans revenues decreased 3% in 2017 compared to 2016,
including a 1% favorable impact from foreign currency, 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 5% in 2017, including a 1% unfavorable
impact from foreign currency, 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.
Global revenues for the Wrangler® brand (excluding Wrangler®
RIGGS) decreased 2% in 2017, including a 1% favorable impact from
foreign currency, 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 220 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.
VF Corporation Fiscal 2019 Form 10-K 33
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
(Dollars in millions)
Segment revenues
Segment profit
Operating margin
Three Months Ended March
2018
2017
(unaudited)
$
$
623.3
103.8
16.7%
634.3
114.5
18.1%
Percent
Change
(1.7)%
(9.3)%
Global Jeans revenues decreased 2% in the three months ended
March 2018 compared to the 2017 period. Growth in direct-to-
consumer and digital wholesale, including expansion into new
channels, was more than offset by continued disruption in the U.S.
wholesale market. Global revenues reflect a 3% favorable impact
from foreign currency. Revenues in the Americas region decreased
5% in the three months ended March 2018, driven by softness in
the wholesale channel. Revenues in the Asia-Pacific region
decreased 3% in the three months ended March 2018 due to
declines in the wholesale channel, partially offset by an 8%
favorable impact from foreign currency. European revenues
increased 14% in the three months ended March 2018, primarily
due to a 13% favorable impact from foreign currency and growth
in our direct-to-consumer businesses.
Global revenues for the Wrangler® brand (excluding Wrangler®
RIGGS) brand increased 2% in the three months ended March 2018
compared to the 2017 period, driven by flat wholesale channel
revenues and a 2% favorable impact from foreign currency. Global
revenues for the Lee® brand decreased 6% in the three months
ended March 2018 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. Foreign currency favorably
impacted Lee® brand global revenues by 5%.
Operating margin decreased 140 basis points in the three months
ended March 2018 compared to the 2017 period. The decrease was
primarily due to lower revenues, higher product costs and
additional investments in our strategic growth priorities, partially
offset by pricing.
Other
(Dollars in millions)
Year Ended
March 2019
Twelve Months
Ended March 2018
(unaudited)
Percent
Change
2017
2016
Segment revenues
$
124.1
$
111.3
11.5% $
113.2
$
118.0
Segment profit (loss)
Operating margin
*Calculation not meaningful
0.5
0.4%
(4.0)
(3.6)%
*
(3.0)
(2.7)%
(4.9)
(4.1)%
Percent
Change
(4.2)%
35.7 %
Year Ended December
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 segment,
while revenues and profits of non-VF products are reported in this
"other" category. Also included in this category are results from
transition services related to the sales of the Nautica® and Reef®
brands that commenced in the three months ended June 2018 and
December 2018, respectively.
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
(Dollars in millions)
Segment revenues
Segment profit (loss)
Operating margin
Three Months Ended March
2018
2017
(unaudited)
$
$
20.2
(3.1)
(15.2)%
22.1
(2.3)
(9.9)%
Percent
Change
(8.4)%
(40.0)%
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 segment, while revenues and profits of non-VF products are reported in this “other”
category.
34 VF Corporation Fiscal 2019 Form 10-K
Reconciliation of Segment Profit to Consolidated Income Before Income Taxes
There are three types of costs necessary to reconcile total segment
profit to consolidated income before income taxes. These costs are
(i) impairment of goodwill and intangible assets, which is excluded
from segment profit because these costs are not part of the ongoing
operations of the respective businesses, (ii) interest expense, net,
which is excluded from segment profit because substantially all
financing costs are managed at the corporate office and are not
under the control of segment management, and (iii) corporate and
other expenses, discussed below, which are excluded from
segment profit to the extent they are not allocated to the segments.
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.
Following is a summary of VF’s corporate and other expenses:
(In millions)
Information systems and shared services
Less costs allocated to segments
Information systems and shared services retained at corporate
Corporate headquarters’ costs
Other
Corporate and other expenses
Information Systems and Shared 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 segments based on utilization
of those services. Costs to develop new computer applications are
generally not allocated to the segments. Included in information
systems and shared services costs in the year ended March 2019
and the year ended December 2017 are costs associated with
software system implementations and upgrades and other
strategic projects.
Corporate Headquarters’ Costs
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 segments. Included in corporate headquarters’
costs in the year ended March 2019 are certain expenses related
to the acquisition, integration and separation of businesses,
strategic project costs, cash and stock-based compensation
expense and charitable contributions. The increase in corporate
Year Ended
March 2019
Year Ended December
2017
2016
418.1
$
365.0 $
(255.6)
162.5
327.1
89.3
(228.4)
136.6
218.4
53.0
578.9
$
408.0 $
$
$
333.0
(213.9)
119.1
169.1
96.2
384.4
headquarters’ costs in the year ended December 2017 compared
to the year ended December 2016 was primarily driven by higher
strategic project costs, an increase in cash and stock-based
compensation expense and charitable contributions.
Other
includes (i) costs of corporate programs or
This category
corporate-managed decisions that are not allocated to the
segments, (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. Included in
other expense in the year ended March 2019 is the loss on sale of
the Reef® brand business of $14.4 million and loss on sale of $22.4
million related to the divestiture of the Van Moer business. The
decrease in other expense in the year ended December 2017
compared to the year ended December 2016 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.
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
(Dollars in millions)
Corporate and other expenses
Interest expense, net
Three Months Ended March
2018
$
107.8
$
21.2
2017
(unaudited)
Percent
Change
83.1
20.2
29.7%
4.8%
Corporate and other expenses are those that have not been
allocated to the segments for internal management reporting,
including (i) information systems and shared service costs,
(ii) corporate headquarters costs, and (iii) certain other income and
expenses. The increases in corporate and other expenses in the
three months ended March 2018 compared to the 2017 period
from higher compensation costs and
resulted primarily
investments in our key strategic growth initiatives, including
expenses related to the acquisition and integration of businesses.
Certain corporate overhead costs previously allocated in 2017 to
the former Sportswear segment, the former Outdoor and Action
Sports segment and the former Imagewear segment for segment
reporting purposes have been reallocated to continuing operations
as discussed in Note 4 to the consolidated financial statements.
VF Corporation Fiscal 2019 Form 10-K 35
International Operations
International revenues increased 10% in the year ended March
2019 over the twelve months ended March 2018 compared to an
increase of 12% in the year ended December 2017. Foreign
currency negatively impacted international revenue growth by 3%
in the year ended March 2019 compared to a favorable impact of
1% in the year ended December 2017. Revenues in the Europe
region increased 8% in the year ended March 2019, reflecting
operational growth and included a 2% unfavorable impact from
foreign currency. Revenues in the Europe region increased 15% in
the year ended December 2017, including a 2% benefit from foreign
currency. In the Asia-Pacific region, revenues increased 15% in the
year ended March 2019 over the twelve months ended March 2018,
driven by growth in China. Foreign currency negatively impacted
revenues in the Asia-Pacific region by 2%. For the year ended
December 2017, revenues in the Asia-Pacific region increased 6%.
Revenues in the Americas (non-U.S.) region grew 14% in the year
ended March 2019, reflecting operational growth, partially offset
by a 7% unfavorable impact from foreign currencies. Revenues in
the Americas (non-U.S.) region grew 13% in the year ended
December 2017, including a 1% benefit from foreign currency.
International revenue growth in the year ended March 2019
included a 6 percent contribution from acquisitions. International
revenues were 41% and 42% of total VF revenues in the year ended
March 2019 and the twelve months ended March 2018, respectively.
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
International revenues increased 27% in the three months ended
March 2018 compared to the 2017 period. Foreign currency
favorably impacted international revenue growth by 11% in the
three months ended March 2018. Revenues in the Europe region
increased 33% in the three months ended March 2018, reflecting
operational growth and a 14% favorable impact from foreign
currency. In the Asia-Pacific region, revenues increased 17% in the
three months ended March 2018, driven by growth across the
region, particularly in China. Foreign currency favorably impacted
revenues in the Asia-Pacific region by 7% in the three months
ended March 2018. Revenue growth in the Americas (non-U.S.)
region increased 22% in the three months ended March 2018,
reflecting operational growth and a 5% favorable impact from
foreign currencies in the region. International revenues were 46%
and 44% of total revenues in the three months ended March 2018
and 2017, respectively.
Direct-to-Consumer Operations
Direct-to-consumer revenues grew 14% in the year ended March
2019 over the twelve months ended March 2018 compared to
growth of 17% in the year ended December 2017, reflecting growth
in all regions. Foreign currency negatively impacted direct-to-
consumer revenue growth by 1% in the year ended March 2019 and
favorably impacted direct-to-consumer revenue growth by 1% in
the year ended December 2017. 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 32% and
34% in the year ended March 2019 and the year ended December
2017, respectively, including a 1% unfavorable impact from foreign
currency in the year ended March 2019. Acquisitions contributed
3 percent to the direct-to-consumer revenue growth and 9 percent
to the e-commerce revenue growth in the year ended March 2019.
VF opened 110 stores in the year ended March 2019, bringing the
total number of VF-owned retail stores to 1,551 at March 2019,
including 34 Icebreaker and Altra stores. There were 1,518 VF-
owned retail stores at December 2017. Direct-to-consumer
revenues were 33% of total VF revenues in the year ended March
2019 compared to 32% in the twelve months ended March 2018.
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
Direct-to-consumer revenues grew 34% in the three months ended
March 2018, reflecting growth in all regions and in nearly every
brand with a retail format, and a 5% favorable impact from foreign
currency. The increase in direct-to-consumer revenues 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 61% in the three months ended March 2018, including
a 7% favorable impact from foreign currency. There were 1,483 VF-
owned retail stores, including 81 Williamson-Dickie stores, at the
end of March 2018 compared to 1,433 at the end of March 2017.
Direct-to-consumer revenues were 32% and 29% of total revenues
in the three months ended March 2018 and 2017, respectively.
36 VF Corporation Fiscal 2019 Form 10-K
Year Ended March 2019 Compared to Twelve Months Ended March 2018 (unaudited) - Condensed Consolidated Statements of Income
The unaudited Condensed Consolidated Statement of Income for the twelve months ended March 2018 is presented below for reference
in the comparison to the year ended March 2019:
(In thousands, except per share amounts)
Net revenues
Costs and operating expenses
Cost of goods sold
Selling, general and administrative expenses
Total costs and operating expenses
Operating income (a)
Interest, net
Other income (expense), net (a)
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
Weighted average shares outstanding
Basic
Diluted
Year Ended
March 2019
Twelve Months
Ended March
2018
(unaudited)
$ 13,848,660
$
12,356,283
6,827,481
5,345,339
6,107,671
4,718,725
12,172,820
10,826,396
1,675,840
1,529,887
(85,425)
(63,011)
1,527,404
268,400
1,259,004
788
1,259,792
3.19
—
3.19
3.14
—
3.15
$
$
$
$
$
$
$
$
$
$
(86,857)
(1,799)
1,441,231
672,134
769,097
(110,544)
658,553
1.95
(0.28)
1.67
1.92
(0.28)
1.65
395,189
400,496
395,038
399,888
(a)
In the first quarter of Fiscal 2019, VF adopted ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Costs" and restated the prior periods to conform to current year presentation. For the twelve
months ended March 2018, operating income increased and other income (expense), net decreased by $5.1 million.
VF Corporation Fiscal 2019 Form 10-K 37
Year Ended March 2019 Compared to Twelve Months Ended March 2018 (unaudited) - Condensed Consolidated Statements of Cash Flows
The unaudited Condensed Consolidated Statement of Cash Flows for the twelve months ended March 2018 is presented below for
reference in the comparison to the year ended March 2019:
(In thousands)
OPERATING ACTIVITIES
Net income
Impairment of goodwill
Depreciation and amortization
Other adjustments
Cash provided by operating activities
INVESTING ACTIVITIES
Business acquisitions, net of cash received
Proceeds from sale of businesses, net of cash sold
Capital expenditures
Software purchases
Other, net
Cash used by investing activities
FINANCING ACTIVITIES
Net increase from short-term borrowings, long-term debt and other
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 period
Year Ended
March 2019
Twelve Months
Ended March
2018
(unaudited)
$
1,259,792
$
—
301,005
103,426
658,553
104,651
295,597
382,798
1,664,223
1,441,599
(320,405)
430,286
(250,634)
(56,207)
(23,672)
(740,541)
214,968
(183,071)
(63,809)
8,549
(220,632)
(763,904)
(872,564)
(150,676)
(767,061)
199,296
(1,591,005)
14,811
(132,603)
689,190
965,311
(1,012,341)
(693,339)
130,627
(609,742)
12,957
80,910
608,280
Cash, cash equivalents and restricted cash — end of period
$
556,587
$
689,190
The cash flows related to discontinued operations have not been segregated, and are included in the Condensed Consolidated Statements of Cash Flows.
38 VF Corporation Fiscal 2019 Form 10-K
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited) - Condensed Consolidated
Statements of Income
The unaudited Condensed Consolidated Statement of Income for the three months ended March 2017 is presented below for reference
in the comparison to the three months ended March 2018:
(In thousands, except per share amounts)
Net revenues
Costs and operating expenses
Cost of goods sold
Selling, general and administrative expenses
Total costs and operating expenses
Operating income (a)
Interest, net
Other income (expense), net (a)
Income from continuing operations before income taxes
Income taxes
Income from continuing operations
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
Weighted average shares outstanding
Basic
Diluted
Three Months
Ended March
(Transition Period)
Three Months
Ended March
(unaudited)
2018
2017
$
3,045,446 $
2,500,340
1,506,335
1,229,046
2,735,381
310,065
(21,165)
5,233
294,133
32,969
261,164
(8,371)
1,243,605
963,528
2,207,133
293,207
(20,188)
(3,622)
269,397
56,121
213,276
(4,113)
252,793 $
209,163
0.66 $
(0.02)
0.64 $
0.65 $
(0.02)
0.63 $
0.52
(0.01)
0.51
0.51
(0.01)
0.50
395,253
401,276
411,990
415,960
$
$
$
$
$
(a)
In the first quarter of Fiscal 2019, VF adopted ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost" and restated the prior periods to conform to current year presentation. Operating income
decreased and other income (expense), net increased by $1.3 million and operating income increased and other income (expense), net decreased by
$3.5 million for the three months ended March 2018 and March 2017, respectively.
VF Corporation Fiscal 2019 Form 10-K 39
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited) - Condensed Consolidated
Statements of Cash Flows
The unaudited Condensed Consolidated Statement of Cash Flows for the three months ended March 2017 is presented below for reference
in the comparison to the three months ended March 2018:
(In thousands)
OPERATING ACTIVITIES
Net income
Depreciation and amortization
Other adjustments
Cash used by operating activities
INVESTING ACTIVITIES
Capital expenditures
Software purchases
Other, net
Cash used by investing activities
FINANCING ACTIVITIES
Net increase from short-term borrowings, long-term debt and other
Purchases of treasury stock
Cash dividends paid
Proceeds from issuance of Common Stock, net of shares withheld for taxes
Cash provided (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 period
Three Months
Ended March
(Transition Period)
Three Months
Ended March
(unaudited)
2018
2017
$
252,793 $
71,532
(567,548)
(243,223)
(54,374)
(19,289)
17,673
(55,990)
794,424
(250,282)
(181,373)
44,017
406,786
12,220
119,793
569,397
209,163
66,438
(485,763)
(210,162)
(40,856)
(20,657)
(6,824)
(68,337)
261,252
(438,297)
(172,713)
3,283
(346,475)
2,228
(622,746)
1,231,026
Cash, cash equivalents and restricted cash — end of period
$
689,190 $
608,280
The cash flows related to discontinued operations have not been segregated, and are included in the Condensed Consolidated Statements of Cash Flows.
40 VF Corporation Fiscal 2019 Form 10-K
ANALYSIS OF FINANCIAL CONDITION
Balance Sheets
The following discussion refers to significant changes in balances
at March 2019 compared to March 2018:
The following discussion refers to significant changes in balances
at March 2018 compared to December 2017:
Increase in inventories — due to the seasonality of the
business.
Increase in other current assets — primarily due to higher
levels of prepaid expenses.
Increase in short-term borrowings — due to commercial
paper borrowings needed to support general corporate
purposes, share repurchases and
the
for
Icebreaker® transaction which closed on April 3, 2018.
funding
• Decrease in accounts payable — driven by the timing of
inventory purchases and payments to vendors.
• Decrease in accrued liabilities — primarily due to lower
accrued compensation, accrued income taxes and the
timing of payments for other accruals.
•
•
•
Increase in accounts receivable — primarily due to the
reclassification of certain allowances to accrued liabilities
due to the adoption of Financial Accounting Standards Board
Accounting Standards Codification Topic 606, Revenue from
Contracts with Customers ("ASC 606"), higher wholesale
shipments and the timing of cash collections.
•
•
•
Increase in other current assets — primarily due to the
reclassification of the right of return asset from inventories
due to the adoption of ASC 606 and an increase in derivative
assets.
Increase in other assets — primarily due to an increase in
net pension assets for certain defined benefit plans.
• Decrease in short-term borrowings — due to net repayment
of commercial paper borrowings.
•
•
Increase in accounts payable — driven by the timing of
inventory purchases and payments to vendors.
Increase in accrued liabilities — primarily due to the
reclassification of certain allowances from accounts
receivable due to the adoption of ASC 606 and higher
accrued compensation, partially offset by a decrease in
derivative liabilities.
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
March
2019
$2,011.9
1.8 to 1
39.3%
March
2018
$1,256.9
1.4 to 1
50.4%
December
2017
$1,354.0
1.5 to 1
44.0%
The increase in the current ratio at March 2019 compared to March
2018 was primarily due to a net decrease in current liabilities driven
by lower short-term borrowings and a net increase in current
assets driven by higher accounts receivable balances, as discussed
in the "Balance Sheets" section above. The decrease in the current
ratio at March 2018 compared to December 2017 was primarily
driven by the increase in short-term borrowings.
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 decrease in the debt to total capital ratio
at March 2019 compared to March 2018 was attributed to the
increase in stockholders' equity which was driven by net income
and stock-based compensation activity, partially offset by
payments of dividends and purchases of treasury stock. The
decrease in the debt to total capital ratio at March 2019 compared
to March 2018 was also due to the decrease in short-term
borrowings, as discussed in the "Balance Sheets" section above.
The increase in the debt to total capital ratio at March 2018
compared to December 2017 was due to the increase in short-term
borrowings, as discussed in the "Balance Sheets" section above.
VF’s primary source of liquidity is the strong annual cash flow from
operating activities. Cash from operations is typically lower in the
first half of the calendar year as inventory builds to support peak
sales periods in the second half of the calendar year. Cash provided
by operating activities in the second half of the calendar 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 calendar year.
VF Corporation Fiscal 2019 Form 10-K 41
In summary, our cash flows were as follows:
(In millions)
Year Ended
March 2019
Twelve Months
Ended March 2018
(unaudited)
Year Ended December
2017
2016
Cash provided by operating activities
$
1,664.2
$
1,441.6 $
1,474.7 $
Cash used by investing activities
Cash used by financing activities
(220.6)
(1,591.0)
(763.9)
(609.7)
(776.3)
(1,363.0)
1,480.6
(112.4)
(1,076.9)
The cash flows related to discontinued operations and held-for-sale assets and liabilities have not been segregated, and remain included in the major
classes of assets and liabilities within 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 Provided by Operating Activities
Cash flow related to operating activities is dependent on net
income, adjustments to net income and changes in working capital.
The increase in cash provided by operating activities in the year
ended March 2019 compared to the twelve months ended March
2018 is primarily due to higher net income in the year ended March
2019, partially offset by an increase in net cash usage for working
capital.
Cash provided by operating activities remained relatively flat in the
year ended December 2017 compared to the year ended December
2016 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 Used by Investing Activities
The decrease in cash used by investing activities in the year ended
March 2019 related primarily to $320.4 million of net cash paid for
acquisitions in the year ended March 2019 compared with $740.5
million of net cash paid for acquisitions during the twelve months
ended March 2018. Investing activities also included $430.3 million
of proceeds received from the sale of businesses in the year ended
March 2019, which is $215.3 million higher than the proceeds
received from the sales of businesses during the twelve months
ended March 2018. Capital expenditures increased $67.6 million
compared to the twelve months ended March 2018.
VF’s investing activities in the year ended December 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 former
Contemporary Brands segment in the year ended December 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 the year ended December
2016. Software purchases increased $21.0 million in the year ended
December 2017 primarily due to system implementations and
investments in our digital platform.
Cash Used by Financing Activities
The increase in cash used by financing activities in the year ended
March 2019 compared to the twelve months ended March 2018 was
primarily due to a $2.1 billion net decrease in cash generated by
short-term borrowings driven by lower net borrowings during the
year ended March 2019 compared to the twelve months ended
March 2018, partially offset by a $861.7 million decrease in treasury
stock purchases and a $248.6 million decrease in payments on
long-term debt.
42 VF Corporation Fiscal 2019 Form 10-K
The increase in cash used by financing activities in the year ended
December 2017 compared to the year ended December 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, and (iii) a $199.9 million increase in
purchases of treasury stock. These increases were partially offset
by the $1.1 billion increase in net cash generated by short-term
borrowings.
During the years ended March 2019, December 2017 and December
2016, VF purchased 1.9 million, 22.2 million and 15.9 million
shares, respectively, of its Common Stock in open market
transactions under the share repurchase program authorized by
VF's Board of Directors. The cost was $150.7 million, $1.2 billion
and $1.0 billion with an average price per share of $80.62 , $54.04
and $62.80 in the years ended March 2019, December 2017 and
December 2016, respectively.
As of the end of Fiscal 2019, the Company had $3.8 billion remaining
for future repurchases under its share repurchase program. 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 relies on continued strong cash generation to finance its ongoing
operations. In addition, VF has significant liquidity from its available
cash balances and credit facilities. In December 2018, VF entered
into a $2.25 billion senior unsecured revolving line of credit (the
“Global Credit Facility”) that expires in December 2023. The Global
Credit Facility replaced VF's $2.25 billion revolving facility which
was scheduled to expire in April 2020. VF may request an unlimited
number of one year extensions so long as each extension does not
cause the remaining life of the Global Credit Facility to exceed five
years, subject to stated terms and conditions. The Global Credit
Facility may be used to borrow funds in 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 and acquisitions. Outstanding short-term
balances may vary from period to period depending on the level of
corporate requirements. Borrowings under the Global Credit
Facility are priced at a credit spread of 81.0 basis points over the
appropriate LIBOR benchmark for each currency. VF is also
required to pay a facility fee to the lenders, currently equal to 6.5
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 March 2019 were $650.0
million and $15.3 million, respectively, leaving approximately $1.6
billion available for borrowing against the Global Credit Facility at
March 2019.
below investment grade by recognized rating agencies, VF would
be obligated to repurchase the notes at 101% of the aggregate
principal amount, plus any accrued and unpaid interest.
VF has $179.5 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 $15.1 million, $25.1 million and $24.4 million
at March 2019, March 2018 and December 2017, respectively.
Borrowings under these arrangements had a weighted average
interest rate of 24.6%, 12.0% and 9.9% at March 2019, March 2018
and December 2017, respectively, excluding accepted letters of
credit which are non-interest bearing to VF. The interest-bearing
borrowings include short-term borrowings in Argentina.
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 March 2019, 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
Cash dividends totaled $1.94 per share in the year ended March
2019 as compared to $1.72 and $1.53 in the years ended December
2017 and 2016, respectively. The dividend payout ratio was 61.7%
of diluted earnings per share in the year ended March 2019, as
compared to 96.2% and 59.9% in the years ended December 2017
and 2016, respectively. The Company has declared a dividend of
$0.51 per share that is payable in the first quarter of Fiscal 2020.
The Company intends to reduce its quarterly dividend following the
spin-off of the Jeans business in a manner that results in VF paying
an annual dividend with a long-term targeted payout ratio of 50%
to 55%.
On May 22, 2019, VF completed the spin-off of its Jeans business
with the new company now operating as an independent, publicly
traded company under the name Kontoor Brands, Inc. ("Kontoor
Brands"). The spin-off is effected through a distribution to VF
shareholders of one share of Kontoor Brands common stock for
every seven shares of VF common stock held on the record date of
May 10, 2019. In connection with the spin-off, Kontoor Brands
transferred net proceeds of approximately $1.0 billion to VF and its
subsidiaries from its new debt issuance, which VF intends to use
to pay off its short term borrowings. In addition, VF expects an
increase of approximately $150 million in capital expenditures
during Fiscal 2020 driven by infrastructure investments.
Transition Period Three Months Ended March 2018 Compared to Three Months Ended March 2017 (unaudited)
In summary, our cash flows were as follows:
(In millions)
Cash used by operating activities
Cash used by investing activities
Cash provided (used) by financing activities
Three Months Ended March
2017
(unaudited)
2018
$
(243.2) $
(56.0)
406.8
(210.2)
(68.3)
(346.5)
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 Used by Operating Activities
Cash Provided (Used) by Financing Activities
Cash flow related to operating activities is dependent on net
income, adjustments to net income and changes in working capital.
The increase in cash used by operating activities in the three
months ended March 2018 is primarily due to an increase in net
cash usage from working capital driven by the timing of payments
and cash collections, partially offset by higher net income in the
three months ended March 2018.
Cash Used by Investing Activities
The decrease in cash used by investing activities in the three
months ended March 2018 was primarily due to proceeds from the
sale of property, plant and equipment of $20.8 million, which was
partially offset by an increase in capital expenditures of $13.5
million compared to the 2017 period.
The increase in cash provided by financing activities during the
three months ended March 2018 was driven by a $533.8 million
increase in net cash generated by short-term borrowings and a
$188.0 million decline in treasury stock purchases.
its Common Stock
During the three months ended March 2018, VF purchased
3.4 million shares of
in open market
transactions at a total cost of $250.3 million (average price per
share of $74.46) under the share repurchase program authorized
by VF’s Board of Directors in 2017. During the three months ended
March 2017, VF purchased 8.2 million shares of its Common Stock
in open market transactions at a total cost of $438.3 million
(average price per share of $53.32). As of the end of March 2018,
the Company had $4.0 billion remaining for future repurchases
under its current share repurchase program.
VF Corporation Fiscal 2019 Form 10-K 43
Following is a summary of VF’s contractual obligations and commercial commitments at the end of March 2019 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
2020
2021
2022
2023
2024
Thereafter
Payment Due or Forecasted by Fiscal Year
$
2,138 $
5 $
5 $
502 $
1 $
955 $
463
757
1,434
61
2,583
174
157
65
366
26
2,551
108
71
65
315
13
18
19
58
54
229
8
7
16
50
47
164
3
7
12
43
44
107
2
—
7
670
84
482
253
9
—
12
$
7,610 $
3,278 $
506 $
874 $
284 $
1,158 $
1,510
(1)
(2)
(3)
(4)
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 15 to the consolidated financial
statements. We currently estimate that we will make contributions of approximately $17.7 million to our pension plans during Fiscal 2020. Future
contributions may differ from our planned contributions due to many factors, including changes 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.
(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 March 2019 related to inventory purchases.
Other obligations represent other binding commitments for the expenditure of funds, including (i) amounts related to contracts not involving the
purchase of inventories, such as the noncancelable portion of service or maintenance agreements for management information systems, and
(ii) capital expenditures for approved projects.
VF had other financial commitments at the end of Fiscal 2019 that
are not included in the above table but may require the use of funds
under certain circumstances:
•
$116.2 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.
44 VF Corporation Fiscal 2019 Form 10-K
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
instruments. Some potential risks are
derivative financial
discussed below:
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 15 to the consolidated
financial statements and the “Critical Accounting Policies and
Estimates” section below.
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 equivalents risks
VF had $543.0 million of cash and equivalents at the end of Fiscal
2019. 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 Fiscal 2019, VF’s defined benefit pension plans were
underfunded by a net total of $67.8 million. The underfunded status
includes a $118.4 million liability related to our unfunded U.S.
nonqualified defined benefit plan, $62.9 million of net liabilities
related to our non-U.S. defined benefit plans, and a $113.5 million
asset related to our U.S. qualified defined benefit plan. VF has made
significant cash contributions in recent years to improve the funded
status of its plans. 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 the year ended December 2017 to $113.0 million in the
year ended December 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.
In Fiscal 2019, VF approved a freeze of all future benefit accruals
under the U.S. qualified defined benefit pension plan and
supplemental defined benefit pension plan, effective December 31,
2018. During the year ended December 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 the year ended December
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
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 the year ended December 2016
which reduced the number of plan participants in the U.S. qualified
plan by 23%. Also, in Fiscal 2019, VF approved a freeze of all future
benefit accruals under the U.S. qualified defined benefit pension
plan and supplemental defined benefit pension plan, effective
December 31, 2018. Management will continue to evaluate actions
that may help to reduce VF’s risks related to its defined benefit
plans.
Interest rate 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 $1.2 billion during Fiscal 2019).
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
Fiscal 2019, the effect of a hypothetical 1% increase in interest
rates would be a decrease in reported net income of approximately
$8.8 million.
Foreign currency exchange rate risks
VF is a global enterprise subject to the risk of foreign currency
fluctuations. Approximately 41% of VF’s revenues in the year ended
March 2019 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
VF Corporation Fiscal 2019 Form 10-K 45
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 Fiscal
2019, if there were a hypothetical 10% change in foreign currency
exchange rates compared to rates at the end of Fiscal 2019, it would
result in a change in fair value of those contracts of approximately
$245 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
is exposed to credit-related
VF
in the event of
nonperformance by counterparties
to derivative hedging
this risk, we have established
instruments. To manage
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.
Deferred compensation and related investment 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. VF invests in a portfolio of securities that
substantially mirrors the participants’ investment selections. The
increases and decreases in deferred compensation liabilities 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.
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 1 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 involve 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
46 VF Corporation Fiscal 2019 Form 10-K
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 material.
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.
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,
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.
Testing of Definite-Lived Assets
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.
When testing property, plant and equipment for potential
impairment, VF uses the income-based discounted cash flow
method using the estimated cash flows of the respective asset or
asset group. The estimated undiscounted cash flows of the asset
or asset group through the end of its useful life are compared to
its carrying value. If the undiscounted cash flows of the asset or
asset group exceed its carrying value, there is no impairment
charge. If the undiscounted cash flows of the asset or asset group
are less than its carrying value, the estimated fair value of the asset
or asset group is calculated based on the after-tax discounted cash
flows using an appropriate weighted average cost of capital
("WACC"), and an impairment charge is recognized for the
difference between the estimated fair value of the asset or asset
group and its carrying value.
flows of the trademark
When testing definite-lived trademarks for potential impairment,
management uses the income-based 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
undiscounted cash
(representing
forecasted royalties avoided by owning the trademark) are
compared to its carrying value. If the undiscounted cash flows of
the trademark exceed its carrying value, there is no impairment
charge. If the undiscounted cash flows of the trademark are less
than its carrying value, the estimated fair value of the trademark
is calculated in a manner consistent with indefinite-lived intangible
assets discussed below, and an impairment charge is recognized
for the difference between the estimated fair value of the
trademark and its carrying value.
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.
Rock & Republic® Impairment Analysis
The Rock & Republic® brand has an exclusive wholesale distribution
and licensing arrangement with Kohl's Corporation that covers all
branded apparel, accessories and other merchandise. As of June
30, 2018, VF performed a quantitative impairment analysis of the
Rock & Republic® amortizing trademark intangible asset to
determine if the carrying value was recoverable. We determined
this testing was necessary based on the expectation that certain
customer contract terms would be modified. Management used
the income-based relief-from-royalty method and the contractual
4% royalty rate to calculate the pre-tax undiscounted future cash
flows. Based on the analysis performed, management concluded
that the trademark intangible asset did not require further testing
VF Corporation Fiscal 2019 Form 10-K 47
as the undiscounted cash flows exceeded the carrying value of
$49.0 million.
transaction prices and revenue/EBITDA data
companies deemed similar to the reporting unit.
from target
It is possible that VF's conclusion regarding the recoverability of
the intangible asset could change in future periods as there can be
no assurance that the estimates and assumptions used in the
analysis as of June 30, 2018 will prove to be accurate predictions
of the future.
Testing of Indefinite-Lived Assets and Goodwill
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
impairment testing. If management’s assessment of these
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.
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 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
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.
in the apparel
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
is available and reviewed by segment
management.
that
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
48 VF Corporation Fiscal 2019 Form 10-K
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.
• 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.
Timberland Reporting Unit Impairment Analysis
The historical Timberland reporting unit included the Timberland
PRO® brand and was included in the former Outdoor & Action
Sports segment. In connection with the segment reporting changes
in the first quarter of Fiscal 2019, Timberland PRO was identified
as a new reporting unit. Accordingly, VF was required to evaluate
whether there was any impairment at the historical Timberland
reporting unit, and allocate to Timberland PRO a portion of the
historical Timberland reporting unit goodwill of $844.6 million at
the April 1, 2018 assessment date.
Management performed a quantitative impairment analysis and
concluded that the estimated fair value of the historical Timberland
reporting unit exceeded the carrying value by a substantial amount,
and thus the goodwill was not impaired.
Management allocated $51.5 million of the historical Timberland
reporting unit goodwill balance to Timberland PRO, based on
estimated relative fair values. The goodwill for the Timberland PRO
reporting unit is included in the Work reportable segment. The
remaining goodwill from the historical Timberland reporting unit
is included in the Outdoor reportable segment.
Management’s revenue and profitability forecasts used in the Reef®
reporting unit and intangible asset valuations considered historical
Reef® performance, strategic initiatives for the Reef® reporting unit
and industry trends. Assumptions used in the valuations were
similar to those that would be used by market participants
performing independent valuations of the business.
Management considered whether there were any triggering events
that would require impairment testing for the new reporting units
and determined that there were none.
Key assumptions developed by VF management and used in the
quantitative analyses of the Reef® reporting unit and trademark
include:
Jeanswear North America Reporting Unit Impairment Analysis
The historical Jeanswear North America reporting unit included
the Wrangler® RIGGS brand and was included in the former
Jeanswear segment. In connection with the segment reporting
changes in the first quarter of Fiscal 2019, Wrangler RIGGS was
identified as a new reporting unit. Accordingly, VF was required to
evaluate whether there was any impairment at the historical
Jeanswear North America reporting unit, and allocate to Wrangler
RIGGS a portion of the historical Jeanswear North America
reporting unit goodwill of $142.1 million at the April 1, 2018
assessment date.
Management performed a quantitative impairment analysis and
concluded that the estimated fair value of the historical Jeanswear
North America reporting unit exceeded the carrying value by a
substantial amount, and thus the goodwill was not impaired.
Management allocated $7.4 million of the historical Jeanswear
North America reporting unit goodwill balance to Wrangler RIGGS,
based on estimated relative fair values. The goodwill for the
Wrangler RIGGS reporting unit is included in the Work reportable
segment. The remaining goodwill from the historical Jeanswear
North America reporting unit is included in the Jeans reportable
segment.
Management considered whether there were any triggering events
that would require impairment testing for the new reporting units
and determined that there were none.
Reef® Impairment Analysis
In May 2018, management commenced a strategic assessment of
the Reef® brand, which was considered a triggering event that
required management to perform a quantitative impairment
analysis of the goodwill and trademark intangible asset for the
Reef® reporting unit. Based on the analyses, management
concluded that the goodwill and trademark were not impaired. For
goodwill, the estimated fair value of the reporting unit exceeded
the carrying value by 16%. The estimated fair value of the
trademark exceeded its carrying value by a significant amount.
The Reef® brand, acquired in 2005, sold surf-inspired products
including sandals, shoes, swimwear, casual apparel and
accessories for men, women and children. Products were sold
globally through specialty stores, sporting goods chains,
department stores, independent distributors and online. As part of
the 2009 annual impairment analyses, VF recorded impairment
charges of $31.1 million and $5.6 million related to the goodwill
and trademark, respectively. The remaining carrying values of the
goodwill and trademark at the May 26, 2018 testing date were $48.3
million and $74.4 million, respectively. Until its sale in October
2018, the Reef® brand was included in the Active reportable
segment.
• Modest growth in the wholesale channel driven by new
product offerings and door expansion with existing and new
customers;
• Modest growth in the e-commerce business;
• Gross margin and selling, general and administrative
trending consistent with historical Reef®
expenses
performance;
• Royalty rates based on active license agreements of the
brand; and,
• Market-based discount rates.
Management made its estimates based on information available
as of the date of our assessment, using assumptions we believe
market participants would use in performing an independent
valuation of the business. VF completed the sale of the Reef® brand
business on October 26, 2018.
Fiscal 2019 Annual Impairment Testing
Management performed its annual goodwill and indefinite-lived
intangible asset impairment testing as of the beginning of the
fourth quarter of Fiscal 2019. Management performed a qualitative
analysis for all reporting units and trademark intangible assets, as
discussed below in the “Qualitative impairment analysis” section.
Qualitative Impairment Analysis
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 Assumptions
Management made its estimates based on information available
as of the date of our assessment, using assumptions we believe
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
VF Corporation Fiscal 2019 Form 10-K 49
businesses do not perform as projected, (ii) overall economic
conditions in Fiscal 2020 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,
loss of major customers,
(iv) investors require higher rates of return on equity investments
in the marketplace, or (v) enterprise values of comparable publicly
including
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.
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 17 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
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 ("U.S. pension plans")
that provides benefits in excess of the limitations imposed by
income tax regulations. In Fiscal 2019, VF approved a freeze of all
future benefit accruals under the U.S. qualified defined benefit
pension plan and supplemental defined benefit pension plan,
effective December 31, 2018. 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
involved and the long time period over which benefits are accrued
and paid.
Annually, management reviews the principal economic actuarial
assumptions summarized in Note 15 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 88% of VF’s total projected
benefit obligations of the combined U.S. and international plans.
50 VF Corporation Fiscal 2019 Form 10-K
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.
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
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 1,046 such bonds. 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 Fiscal 2019
discount rates of 3.98% for the U.S. qualified defined benefit
pension plan and 3.99% 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 higher discount rates, compared
with the rates of 3.66% for the U.S. qualified defined benefit pension
plan and 3.70% for the unfunded supplemental defined benefit plan
at the end of December 2017, reflect the general increase in yields
of U.S. government obligations and high quality corporate bonds
during Fiscal 2019.
VF utilizes 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 cash equivalents, 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 U.S. qualified plan
provide the basis for the expected long-term rate of return
actuarial assumption. VF’s rate of return assumption was 5.70%
in the year ended March 2019, 5.85% in the three months ended
March 2018 and 6.00% in the years ended December 2017 and 2016.
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, and (ii) increasing the allocation
in equities to more international investments. The changes in asset
allocation are anticipated, over time, to reduce the year-to-year
variability of the U.S. qualified 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 5.70% for the U.S. qualified defined benefit pension
plan for Fiscal 2020.
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 ended March 2019
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.
Management assessed the mortality assumption and concluded
no change was needed for the year ended March 2019.
for
that
results
Differences between actual results in a given year and the
actuarially determined assumed
year
(e.g., investment performance, discount rates and other
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 Fiscal 2019 for all
pension plans, there were $399.1 million of pretax accumulated
deferred actuarial losses, plus $0.6 million of pretax deferred prior
service costs, resulting in an after-tax amount of $243.2 million in
accumulated other comprehensive income (loss) in the March 2019
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 $39.7 million in the year ended March 2019, $4.6
million in the three months ended March 2018 and $34.8 million
and $113.0 million in the years ended December 2017 and 2016,
respectively. Pension expense for the year ended December 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
15). The cost of pension benefits actually earned each year by
covered active employees (commonly called “service cost”) was
$22.4 million in the year ended March 2019, $5.9 million in the three
months ended March 2018, $24.9 million in the year ended
December 2017 and $25.8 million in the year ended December
2016. Pension expense was higher in the year ended March 2019
compared to the year ended December 2017 due to settlement and
curtailment charges in the year ended March 2019 (discussed in
Note 15) and higher interest costs resulting from higher interest
rates for the U.S. pension plans, partially offset by lower
amortization of unrecognized actuarial losses. Looking forward,
VF expects pension income for the next 12 months of approximately
$3.3 million as a result of lower amortization of unrecognized
actuarial losses and lower services costs.
The sensitivity of changes in actuarial assumptions on Fiscal 2019 pension expense and on projected benefit obligations related to the
U.S. defined benefit pension plan at the end of Fiscal 2019, 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
$
15 $
(9)
8
(8)
(1)
1
91
(83)
—
—
—
—
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.
VF Corporation Fiscal 2019 Form 10-K 51
Income Taxes
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 18 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.
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.
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, 2016, VF
Europe BVBA filed its own application for annulment of the EU
decision. 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. On February 14, 2019 the
General Court annulled the EU decision and on April 26, 2019 the
EU appealed the General Court’s annulment. Both listed requests
for annulment remain open and unresolved. If this matter is
adversely resolved, these amounts will not be collected by VF.
the “more-likely-than-not” standard of
The calculation of income tax liabilities involves 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
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 $249.4 million of gross deferred income tax assets related
to operating loss and capital loss carryforwards, and $178.3 million
of valuation allowances against those assets. Realization of
52 VF Corporation Fiscal 2019 Form 10-K
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 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 allowed
companies to recognize provisional amounts when reasonable
estimates could be made for the impacts resulting from the Tax
Act.
VF finalized its accounting for the Tax Act during the one-year
measurement period under SAB 118, and recognized additional net
charges of $18.2 million, primarily comprised of $14.3 million tax
expense related to the transition tax, additional tax benefits of $0.3
million related to revaluing U.S. deferred tax assets and liabilities
using the new U.S. corporate tax rate of 21%, and $4.2 million tax
expense related to establishing a deferred tax liability for foreign
withholding taxes, resulting in a cumulative net charge of $483.7
million. The measurement period adjustments include $5.1 million
of net tax benefit recognized in the three months ended March 2018
and $23.3 million of net tax expense recognized during Fiscal 2019.
On January 15, 2019 final regulations under Section 965 related to
the transition tax were released. After analyzing these regulations,
the Company recorded an additional net charge of $13.9 million,
primarily comprised of $20.7 million tax expense related to
transition tax and a net tax benefit of $6.8 million related to a
reduction in unrecognized tax benefits as a result of the final
regulations.
The income tax payable attributable to the transition tax is due over
an 8-year period beginning in 2018. At March 30, 2019, a noncurrent
income tax payable of approximately $416.1 million attributable to
the transition tax is reflected in "other liabilities" of the
Consolidated Balance Sheet.
The Tax Act created a new tax on certain global intangible low-tax
income (“GILTI”) from foreign operations. Under GAAP, companies
may make an accounting policy election to either treat taxes
resulting from GILTI as a current-period expense when they are
incurred or factor such amounts into the measurement of deferred
taxes. The Company completed its analysis of the effects of the
GILTI provisions and determined it will treat the taxes resulting
from GILTI as a current-period expense, which is consistent with
the treatment prior to the accounting policy election.
Recently Issued and Adopted Accounting Standards
Refer to Note 1 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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.
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
March 30, 2019. 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
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
March 30, 2019.
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 —
Integrated Framework (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
March 30, 2019. The effectiveness of VF’s internal control over
financial reporting as of March 30, 2019 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.”
VF Corporation Fiscal 2019 Form 10-K 53
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.
ITEM 9B. OTHER INFORMATION.
Not applicable.
54 VF Corporation Fiscal 2019 Form 10-K
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
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 2019 Proxy Statement that
will be filed with the Securities and Exchange Commission within
120 days after the close of our fiscal year ended March 30, 2019,
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 2019 Proxy
Statement that will be filed with the Securities and Exchange
Commission within 120 days after the close of our fiscal year ended
March 30, 2019, 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 2019 Proxy
Statement that will be filed with the Securities and Exchange
Commission within 120 days after the close of our fiscal year ended
March 30, 2019, which information is incorporated herein by
reference.
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 and is incorporated by reference 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.
ITEM 11. EXECUTIVE COMPENSATION.
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 2019 Proxy Statement that will be filed with the Securities and Exchange Commission within 120
days after the close of our fiscal year ended March 30, 2019, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
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 2019 Proxy Statement that will be filed with the Securities and Exchange Commission within 120 days after the
close of our fiscal year ended March 30, 2019, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Information required by Item 13 of this Part III is included under the caption “Election of Directors” in VF’s 2019 Proxy Statement that
will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended March 30, 2019, which
information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Information required by Item 14 of this Part III is included under the caption “Professional Fees of PricewaterhouseCoopers LLP” in VF’s
2019 Proxy Statement that will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year
ended March 30, 2019, which information is incorporated herein by reference.
VF Corporation Fiscal 2019 Form 10-K 55
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as a part of this Fiscal 2019 report:
1. Financial statements
PART IV
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
2. Financial statement schedules
Schedule II — Valuation and Qualifying Accounts
PAGE
NUMBER
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-10
PAGE
NUMBER
F-60
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)
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)
(H)
(I)
(J)
(K)
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)
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)
Indenture between VF and The Bank of New York Trust Company, N.A., as Trustee, dated October 10, 2007
(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)
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)
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)
(L)
Description of Securities
56 VF Corporation Fiscal 2019 Form 10-K
NUMBER
10.
Material contracts:
DESCRIPTION
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(I)
(J)
(K)
(L)
(M)
(N)
(O)
(P)
(Q)
(R)
(S)
(T)
(U)
(V)
(W)
(X)
(Y)
(Z)
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)*
Form of VF Corporation 1996 Stock Compensation Plan Non-Qualified Stock Option Certificate for Non-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)*
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)*
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)*
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 Management
(Incorporated by reference to Exhibit 10.7 to Form 10-Q for the quarter ended April 1, 2006)*
Amended and Restated Tenth Supplemental Annual Benefit Determination under the Amended and Restated
Supplemental Executive Retirement Plan for Participants in VF’s Mid-Term 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) to Form 10-K for the year
ended January 4, 1997)*
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)*
VF Corporation Fiscal 2019 Form 10-K 57
NUMBER
DESCRIPTION
(AA)
(BB)
(CC)
Amended and Restated Executive Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 to Form
8-K filed April 25, 2013)*
Amended and Restated Management Incentive Compensation Plan (Incorporated by reference to Exhibit 10(BB)
to Form 10-K for the year ended December 30, 2017)*
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)*
(DD)
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)*
(EE)
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)*
(FF)
Five-year Revolving Credit Agreement, dated December 17, 2018 (Incorporated by reference to Exhibit 10.1 to
Form 10-Q filed February 4, 2019)
(GG)†
(HH)†
(II)†
(JJ)†
(KK)†
(LL)
Separation and Distribution Agreement dated May 22, 2019 (incorporated by reference to Exhibit 2.1 to Form 8-K
filed May 23, 2019)
Tax Matters Agreement dated May 22, 2019 (incorporated by reference to Exhibit 10.1 to Form 8-K filed May 23,
2019)
Transition Services Agreement dated May 22, 2019 (incorporated by reference to Exhibit 10.2 to Form 8-K filed
May 23, 2019)
VF Intellectual Property License Agreement dated May 17, 2019 (incorporated by reference to Exhibit 10.3 to Form
8-K filed May 23, 2019)
Kontoor Intellectual Property License Agreement dated May 17, 2019 (incorporated by reference to Exhibit 10.4
to Form 8-K filed May 23, 2019)
Employee Matters Agreement dated May 22, 2019 (incorporated by reference to Exhibit 10.5 to Form 8-K filed May
23, 2019)
*
Management compensation plans
14.
Code of Business Conduct (Incorporated by reference to Exhibit 14 to Form 10-K for the year ended December 30, 2017)
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. 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 chief 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 chief 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
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.
† The schedules to these agreements are omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to supplementary
furnish to the Securities and Exchange Commission, upon request, a copy of any omitted schedule.
ITEM 16. FORM 10-K SUMMARY.
None.
58 VF Corporation Fiscal 2019 Form 10-K
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, President and Chief Executive Officer
(Principal Executive Officer and Director)
By:
/s/ Scott A. Roe
Scott A. Roe
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
By:
/s/ Bryan H. McNeill
Bryan H. McNeill
Vice President, Controller and Chief Accounting Officer
(Principal Accounting Officer)
May 24, 2019
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:
Richard T. Carucci*
Juliana L. Chugg*
Benno O. Dorer*
Mark S. Hoplamazian*
Laura W. Lang*
W. Alan McCollough*
W. Rodney McMullen*
Clarence Otis, Jr.*
Steven E. Rendle*
Carol L. Roberts*
Matthew J. Shattock*
Veronica Wu*
*By:
/s/ Laura C. Meagher
Laura C. Meagher, Attorney-in-Fact
May 24, 2019
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
VF Corporation Fiscal 2019 Form 10-K 59
[THIS PAGE INTENTIONALLY LEFT BLANK]
VF CORPORATION
Index to Consolidated Financial Statements
and Financial Statement Schedule
March 2019
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
PAGE
NUMBER
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-10
F-60
VF Corporation Fiscal 2019 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 — Integrated Framework (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 March 30, 2019.
The effectiveness of VF’s internal control over financial reporting as of March 30, 2019 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their report which appears herein.
F-2 VF Corporation Fiscal 2019 Form 10-K
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of V. F. Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of V. F. Corporation and its subsidiaries (the “Company”) as of March
30, 2019, March 31, 2018 and December 30, 2017, and the related consolidated statements of income, comprehensive income,
stockholders’ equity and cash flows for the year ended March 30, 2019, for the three months ended March 31, 2018 and for the years
ended December 30, 2017 and December 31, 2016, including the related notes and the accompanying schedule of valuation and qualifying
accounts for the year ended March 30, 2019, for the three months ended March 31, 2018 and for the years ended December 30, 2017
and December 31, 2016 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal
control over financial reporting as of March 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of March 30, 2019, March 31, 2018 and December 30, 2017, and the results of its operations and its cash flows for the
year ended March 30, 2019, for the three months ended March 31, 2018 and for the years ended December 30, 2017 and December 31,
2016 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 March 30, 2019, based on criteria established
in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 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 in the year ended December 30, 2017 and the manner in which it
accounts for net periodic pension cost and the manner in which it accounts for revenues from contracts with customer in the year ended
March 30, 2019.
Basis for 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 the accompanying
Management’s Report on Internal Control over Financial Reporting. 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.
Definition and Limitations of Internal Control over 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
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
VF Corporation Fiscal 2019 Form 10-K F-3
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
May 24, 2019
We have served as the Company’s auditor since 1995.
F-4 VF Corporation Fiscal 2019 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: March 2019
- $28,376; March 2018 - $24,993; December 2017 - $26,266
Inventories
Other current assets
Current assets of discontinued operations
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Other assets
TOTAL ASSETS
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
Commitments and contingencies
Total liabilities
Stockholders' equity
March 2019
March 2018
December 2017
$
543,011
$
680,762 $
563,483
1,708,796
1,943,030
478,620
—
4,673,457
1,057,268
2,024,277
1,754,884
846,899
1,408,587
1,861,441
358,953
373,580
4,683,323
1,011,617
2,120,110
1,693,219
803,041
1,429,986
1,706,609
296,986
380,700
4,377,764
1,014,638
2,089,781
1,692,644
783,675
$
10,356,785
$
10,311,310 $
9,958,502
$
665,055
$
1,525,106 $
729,384
5,263
694,733
1,296,553
—
2,661,604
2,115,884
1,280,781
6,265
583,004
938,427
86,027
3,138,829
2,212,555
1,271,830
6,165
760,997
1,146,535
101,019
2,744,100
2,187,789
1,306,713
6,058,269
6,623,214
6,238,602
Preferred Stock, par value $1; shares authorized, 25,000,000; no shares
outstanding at March 2019, March 2018 or December 2017
Common Stock, stated value $0.25; shares authorized, 1,200,000,000;
shares outstanding at March 2019 - 396,824,662; March 2018 -
394,313,070; December 2017 - 395,821,781
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Total stockholders’ equity
—
—
—
99,206
3,921,784
(902,075)
1,179,601
4,298,516
98,578
3,607,424
(864,030)
846,124
3,688,096
98,955
3,523,340
(926,140)
1,023,745
3,719,900
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
10,356,785
$
10,311,310 $
9,958,502
See notes to consolidated financial statements.
VF Corporation Fiscal 2019 Form 10-K F-5
VF CORPORATION
Consolidated Statements of Income
(In thousands, except per share amounts)
Net 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
Weighted average shares outstanding
Basic
Diluted
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
Year Ended December
2018
2017
2016
$
13,848,660
$
3,045,446 $
11,811,177 $
11,026,147
6,827,481
5,345,339
—
12,172,820
1,675,840
22,643
(108,068)
(63,011)
1,527,404
268,400
1,259,004
788
1,259,792
3.19
—
3.19
3.14
—
3.15
$
$
$
$
$
$
$
$
$
$
5,589,923
3,901,122
79,644
9,570,689
1,455,458
9,176
(94,722)
(85,196)
1,506,335
1,229,046
—
5,844,941
4,453,207
—
2,735,381
10,298,148
310,065
1,513,029
3,228
(24,393)
5,233
294,133
32,969
261,164
(8,371)
16,095
(101,975)
(10,654)
1,416,495
1,284,716
695,286
721,209
(106,286)
205,862
1,078,854
(4,748)
252,793 $
614,923 $
1,074,106
0.66 $
(0.02)
0.64 $
0.65 $
(0.02)
0.63 $
1.81 $
(0.27)
1.54 $
1.79 $
(0.26)
1.52 $
2.59
(0.01)
2.58
2.56
(0.01)
2.54
395,189
400,496
395,253
401,276
399,223
403,559
416,103
422,081
See notes to consolidated financial statements.
F-6 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Consolidated Statements of Comprehensive Income
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
Year Ended December
2018
2017
2016
$
1,259,792
$
252,793 $
614,923 $
1,074,106
(In thousands)
Net income
Other comprehensive income (loss)
Foreign currency translation and other
Gains (losses) arising during the period
Income tax effect
Defined benefit pension plans
Current period actuarial gains (losses), including
plan amendments and curtailments
Amortization of net deferred actuarial losses
Amortization of deferred prior service costs
Reclassification of net actuarial loss from
settlement charge
Reclassification of deferred prior service cost due to
curtailments
Income tax effect
Derivative financial instruments
Gains (losses) arising during period
Income tax effect
Reclassification to net income for (gains) losses
realized
Income tax effect
Other comprehensive income (loss)
Comprehensive income
(225,295)
(23,515)
62,978
6,354
202,428
45,950
(52,028)
(24,382)
(5,384)
65,212
2,584
(19,801)
41,440
2,646
—
50,922
1,671
(15,208)
(138,716)
15,636
(24,067)
3,344
115,323
—
(43,836)
90,708
(9,672)
(107,457)
35,092
1,759
15,198
28,474
494
8,856
9,530
(16,118)
156,513
(19,295)
28,341
(1,228)
(38,045)
(6,405)
8,548
647
—
—
(459)
(25,530)
4,452
13,960
(2,435)
62,110
$
1,221,747
$
314,903 $
730,246 $
1,075,865
See notes to consolidated financial statements.
VF Corporation Fiscal 2019 Form 10-K F-7
VF CORPORATION
Consolidated Statements of Cash Flows
Year Ended
March
2019 (a)
Three Months
Ended March
(Transition Period)
Year Ended December
2018 (a)
2017 (a)
2016 (a)
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to cash provided (used) by
$
1,259,792
$
252,793 $
614,923 $ 1,074,106
operating activities:
Impairment of goodwill and intangible assets
Depreciation and amortization
Stock-based compensation
Provision for doubtful accounts
Pension expense (less than) in excess of 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 (used) by operating activities
INVESTING ACTIVITIES
Business acquisitions, net of cash received
Proceeds from sale of businesses, net of cash sold
Capital expenditures
Software purchases
Other, net
Cash used by investing activities
FINANCING ACTIVITIES
Net (decrease) increase 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) provided 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 period
Cash, cash equivalents and restricted cash — end of period
Balances per Consolidated Balance Sheets:
Cash and cash equivalents
Other current assets
Current assets of discontinued operations
Other assets
Total cash, cash equivalents and restricted cash
—
301,005
105,157
22,553
(1,850)
(62,901)
28,262
(31,612)
(373,012)
(135,099)
111,678
(19,974)
484,858
(24,634)
1,664,223
(320,405)
430,286
(250,634)
(56,207)
(23,672)
(220,632)
(864,177)
(6,264)
(2,123)
—
(150,676)
(767,061)
—
71,532
25,440
2,660
1,413
303
18,065
(7,148)
38,686
(156,292)
(187,553)
(65,234)
(172,396)
(65,492)
(243,223)
—
—
(54,374)
(19,289)
17,673
(55,990)
795,908
(1,484)
—
—
(250,282)
(181,373)
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)
1,474,660
(740,541)
214,968
(169,553)
(65,177)
(15,948)
(776,251)
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)
1,480,568
—
115,983
(175,840)
(44,226)
(8,331)
(112,414)
686,453
(254,314)
—
—
(1,200,356)
(684,679)
(421,069)
(13,276)
(6,807)
951,817
(1,000,468)
(635,994)
199,296
44,017
89,893
48,918
(1,591,005)
406,786
(1,363,003)
(1,076,879)
14,811
(132,603)
689,190
556,587
543,011
3,645
—
9,931
556,587
$
$
$
$
$
$
12,220
2,965
(6,645)
284,630
(661,629)
119,793
569,397
946,396
1,231,026
689,190 $ 569,397 $ 1,231,026
680,762 $
3,804
2,330
2,294
563,483 $ 1,224,975
2,469
2,887
695
689,190 $ 569,397 $ 1,231,026
2,452
2,592
870
(a) The cash flows related to discontinued operations have not been segregated, and remain included in the major classes of assets and liabilities.
Accordingly, the Consolidated Statements of Cash Flows include the results of continuing and discontinued operations.
See notes to consolidated financial statements.
F-8 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Consolidated Statements of Stockholders' Equity
Common Stock
Shares
Amounts
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
426,614,274 $ 106,654 $ 3,192,675 $
(1,043,222) $ 3,128,731 $ 5,384,838
(In thousands, except share amounts)
Balance, December 2015
Net income
Dividends on Common Stock ($1.53
per share)
—
—
—
—
—
—
—
Purchase of treasury stock
(15,932,075)
(3,983)
Stock-based compensation, net
3,330,755
832
140,748
Foreign currency translation and other
Defined benefit pension plans
Derivative financial instruments
—
—
—
—
—
—
—
—
—
—
—
—
—
(76,410)
69,498
8,671
1,074,106
1,074,106
(635,994)
(635,994)
(996,485)
(1,000,468)
(24,900)
—
—
—
116,680
(76,410)
69,498
8,671
Balance, December 2016
414,012,954
103,503
3,333,423
(1,041,463)
2,545,458
4,940,921
Adoption of new accounting standard
Net income
Dividends on Common Stock ($1.72
per share)
—
—
—
—
—
—
Purchase of treasury stock
Stock-based compensation, net
(22,213,162)
4,021,989
(5,553)
1,005
Foreign currency translation and other
Defined benefit pension plans
Derivative financial instruments
—
—
—
—
—
—
—
—
—
189,917
—
—
—
—
—
—
—
—
248,378
10,748
(143,803)
(237,764)
(237,764)
614,923
614,923
(684,679)
(684,679)
(1,194,803)
(1,200,356)
(19,390)
—
—
—
171,532
248,378
10,748
(143,803)
Balance, December 2017
395,821,781
98,955
3,523,340
(926,140)
1,023,745
3,719,900
Beginning balance adjustment (Note 1)
Net income
Dividends on Common Stock ($0.46
per share)
Purchase of treasury stock
Stock-based compensation, net
Foreign currency translation and other
Defined benefit pension plans
Derivative financial instruments
—
—
—
(3,361,101)
1,852,390
—
—
—
—
—
—
(840)
463
—
—
—
—
—
—
—
84,084
—
—
—
—
—
—
—
—
69,332
2,331
(9,553)
15,492
252,793
(181,373)
(249,442)
(15,091)
—
—
—
15,492
252,793
(181,373)
(250,282)
69,456
69,332
2,331
(9,553)
Balance, March 2018
394,313,070
98,578
3,607,424
(864,030)
846,124
3,688,096
Adoption of new accounting standard
Net income
Dividends on Common Stock ($1.94
per share)
Purchase of treasury stock
Stock-based compensation, net
Foreign currency translation and other
Defined benefit pension plans
Derivative financial instruments
—
—
—
—
—
—
(1,868,934)
4,380,526
(467)
1,095
—
—
—
—
—
—
—
—
—
—
314,360
—
—
—
—
—
—
—
—
(248,810)
46,434
164,331
1,956
1,956
1,259,792
1,259,792
(767,061)
(150,209)
(11,001)
—
—
—
(767,061)
(150,676)
304,454
(248,810)
46,434
164,331
Balance, March 2019
396,824,662 $ 99,206 $ 3,921,784 $
(902,075) $ 1,179,601 $ 4,298,516
See notes to consolidated financial statements.
VF Corporation Fiscal 2019 Form 10-K F-9
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
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 branded lifestyle
products,
including outerwear, footwear, occupational and
performance apparel, jeanswear, backpacks and luggage for
consumers of all ages. Products are marketed primarily under VF-
owned brand names.
Basis of Presentation
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 former Contemporary Brands
segment have been reported as discontinued operations in our
Consolidated Statements of Income, and the related held-for-sale
assets and liabilities have been presented as assets and liabilities
of discontinued operations 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 4 for additional information
on discontinued operations.
Fiscal Year
VF operates and reports using a 52/53 week fiscal year ending on
the Saturday closest to March 31 of each year. VF previously used
a 52/53 week fiscal year ending on the Saturday closest to
December 31 of each year. VF's current fiscal year ran from April
1, 2018 through March 30, 2019 ("Fiscal 2019"). All references to
the periods ended March 2019, December 2017 and December 2016
relate to the 52-week fiscal years ended March 30, 2019,
December 30, 2017 and December 31, 2016, respectively. All
references to the period ended March 2018 relate to the 13-week
transition period ended March 31, 2018. Certain foreign
subsidiaries reported using a December 31 year-end for the years
ended December 2017 and December 2016, and using a March 31
year-end for Fiscal 2019 due to local statutory requirements. The
impact to VF's consolidated financial statements is not material.
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.
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
advances
in other
comprehensive income (loss) (“OCI”).
foreign subsidiaries, are reported
to
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 23, 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 loss of $15.5 million in
the year ended March 2019, a gain of $6.8 million in the three
months ended March 2018, a gain of $4.8 million in the year ended
December 2017 and a loss of $9.7 million in the year ended
December 2016.
Cash and Equivalents
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 $256.8 million, $192.8 million and $279.0
million at March 2019, March 2018 and December 2017,
respectively, consist of money market funds and short-term time
deposits.
Accounts Receivable
Upon adoption of the new revenue recognition accounting standard
in Fiscal 2019 (see "Recently Adopted Accounting Standards"
section below), trade accounts receivable are recorded at invoiced
amounts, less contractual allowances for trade terms, sales
incentive programs and discounts. Prior to the adoption of the new
revenue recognition accounting standard,
trade accounts
receivable were recorded at invoiced amounts, less estimated
allowances for trade terms, sales incentive programs, discounts,
markdowns, chargebacks and returns as discussed below in the
"Revenue Recognition" section. 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.
Foreign Currency Translation and Transaction
Inventories
The financial statements of most foreign subsidiaries are
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
F-10 VF Corporation Fiscal 2019 Form 10-K
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.
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Long-lived Assets, Including Intangible Assets 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
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.
Derivative Financial Instruments
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 23. 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
is discontinued for the ineffective portion of that hedging
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-related contingent features or
collateral requirements with its derivative contracts.
VF Corporation Fiscal 2019 Form 10-K F-11
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Revenue Recognition
As discussed in the "Recently Adopted Accounting Standards"
section below, the Company adopted the new revenue recognition
standard at the beginning of Fiscal 2019. Accordingly, revenue is
recognized when performance obligations under the terms of a
contract with the customer are satisfied based on the transfer of
control of promised goods or services. The transfer of control
typically occurs at a point in time based on consideration of when
the customer has (i) an obligation to pay for, (ii) physical possession
of, (iii) legal title to, (iv) risks and rewards of ownership of, and (v)
accepted the goods or services. The timing of revenue recognition
within the wholesale channel occurs either on shipment or delivery
of goods based on contractual terms with the customer. The timing
of revenue recognition
in the direct-to-consumer channel
generally occurs at the point of sale within VF-operated or
concession retail stores and either on shipment or delivery of goods
for e-commerce transactions based on contractual terms with the
customer. For finished products shipped directly to customers
from our suppliers, the Company's promise to the customer is a
performance obligation to provide the specified goods, and thus
the Company is the principal in the arrangement and revenue is
recognized on a gross basis at the transaction price. For sourcing
arrangements, the Company's promise to the customer is to
arrange for certain goods, typically finished products, to be
provided and thus the Company is acting as an agent and revenue
is recognized on a net basis at the fee amount earned.
The duration of contractual arrangements with our customers in
the wholesale and direct-to-consumer channels is typically less
than one year. Payment terms with wholesale customers are
generally between 30 and 60 days while direct-to-consumer
arrangements have shorter terms. The Company does not adjust
the promised amount of consideration for the effects of a significant
financing component as it is expected, at contract inception, that
the period between the transfer of the promised good or service to
the customer and the customer payment for the good or service
will be one year or less.
for
The amount of revenue recognized in both wholesale and direct-
to-consumer channels reflects the expected consideration to be
received for providing the goods or services to the customer, which
includes estimates
variable consideration. Variable
consideration includes allowances for trade terms, sales incentive
programs, discounts, markdowns, chargebacks and product
returns. Estimates of variable consideration are determined at
contract inception and reassessed at each reporting date, at a
minimum, to reflect any changes in facts and circumstances. The
Company utilizes the expected value method in determining its
estimates of variable consideration, based on evaluations of
specific product and customer circumstances, historical and
anticipated trends, and current economic conditions.
Certain products sold by the Company include an assurance
warranty. Product warranty costs are estimated based on historical
and anticipated trends, and are recorded as cost of goods sold at
the time revenue is recognized.
Revenue from the sale of gift cards is deferred and recorded as a
contract liability until the gift card is redeemed by the customer,
factoring in breakage as appropriate.
Various VF brands maintain customer loyalty programs where
customers earn rewards from qualifying purchases or activities,
which are redeemable for discounts on future purchases or other
F-12 VF Corporation Fiscal 2019 Form 10-K
rewards. For its customer loyalty programs, the Company
estimates the standalone selling price of the loyalty rewards and
allocates a portion of the consideration for the sale of products to
the loyalty points earned. The deferred amount is recorded as a
contract liability, and is recognized as revenue when the points are
redeemed or when the likelihood of redemption is remote.
The Company has elected to treat all shipping and handling
activities as fulfillment costs and recognize the costs as selling,
general and administrative expenses at the time the related
revenue is recognized. Shipping and handling costs billed to
customers are included in net revenues. Sales taxes and value
added taxes collected from customers and remitted directly to
governmental authorities are excluded from the transaction price.
its symbolic
The Company has licensing agreements for
intellectual property, most of which include minimum guaranteed
royalties. Royalty income is recognized as earned over the
respective license term based on the greater of minimum
guarantees or the licensees' sales of licensed products at rates
specified in the licensing contracts. Royalty income related to the
minimum guarantees is recognized using a measure of progress
with variable amounts recognized only when the cumulative earned
royalty exceeds the minimum guarantees. As of March 2019, the
Company expects to recognize $109.4 million of fixed consideration
related to the future minimum guarantees in effect under its
licensing agreements and expects such amounts to be recognized
over time through December 2024. The variable consideration is
not disclosed as a remaining performance obligation as the
licensing arrangements qualify for the sales-based royalty
exemption.
The Company has applied the practical expedient to recognize
incremental costs of obtaining a contract as an expense when
incurred if the amortization period of the asset that otherwise
would have been recognized is one year or less.
For periods prior to the adoption of the new revenue recognition
standard, revenue was recognized when (i) there was a contract or
other arrangement of sale, (ii) the sales price was fixed or
determinable, (iii) title and the risks of ownership had been
transferred to the customer, and (iv) collection of the receivable
was reasonably assured. Sales to wholesale customers were
recognized when title and the risks and rewards of ownership had
passed to the customer, based on the terms of sale. E-commerce
sales were generally recognized when the product had been
received by the customer. Sales at the Company-operated and
concession retail stores were recognized at the time products were
purchased by consumers.
Revenue from the sale of gift cards was deferred until the gift card
was redeemed by the customer or the Company determined that
the likelihood of redemption was remote and that it did not have a
legal obligation to remit the value of the unredeemed gift card to
any jurisdiction under unclaimed property regulations.
Various VF brands maintained customer loyalty programs where
customers earned rewards from qualifying purchases or activities.
VF recognized revenue when (i) rewards were redeemed by the
customer, (ii) points or certificates expired, or (iii) a breakage factor
was applied based on historical redemption patterns.
Net revenues reflected adjustments for estimated allowances for
trade terms, sales incentive programs, discounts, markdowns,
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
chargebacks and returns. These allowances were 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 were included in
net revenues. Sales taxes and value added taxes collected from
customers and remitted directly to governmental authorities were
excluded from net revenues.
Royalty income was recognized as earned based on the greater of
the licensees’ sale 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 and Administrative 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 $845.7
million in the year ended March 2019, $185.7 million in the three
months ended March 2018, $715.9 million in the year ended
December 2017 and $637.6 million in the year ended December
2016. Advertising costs include cooperative advertising payments
made to VF’s customers as reimbursement for certain costs of
advertising VF’s products, which totaled $29.5 million in the year
ended March 2019, $7.1 million in the three months ended March
2018, $44.6 million in the year ended December 2017 and $51.8
million in the year ended December 2016. Shipping and handling
costs for delivery of products to customers totaled $484.9 million
in the year ended March 2019, $96.1 million in the three months
ended March 2018, $349.1 million in the year ended December 2017
and $307.3 million in the year ended December 2016. Expenses
related to royalty income, including amortization of licensed
intangible assets, were $3.6 million in the year ended March 2019,
$0.9 million in the three months ended March 2018, $4.2 million
in the year ended December 2017 and $4.5 million in the year ended
December 2016.
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
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.
Self-insurance
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 Taxes
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
loss
differences and net operating
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 Share
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.
Concentration 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 Fiscal
2019 total revenues. Sales to VF’s largest customer accounted for
8% of Fiscal 2019 total revenues, the majority of which were derived
VF Corporation Fiscal 2019 Form 10-K F-13
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
from the Jeans segment. 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.
Reclassifications
Certain prior year amounts have been reclassified to conform with
the Fiscal 2019 presentation, as discussed below in the "Recently
Adopted Accounting Standards" section.
Recently Adopted Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") No. 2014-09,
"Revenue from Contracts with Customers (Topic 606)", 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 FASB subsequently
issued updates to the standard to provide additional clarification
on specific topics. Collectively, the guidance is referred to as FASB
Accounting Standards Codification Topic 606 ("ASC 606"). 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. The Company adopted this standard on
April 1, 2018, utilizing the modified retrospective method and
applying this approach to contracts not completed as of that date.
The cumulative effect of initially applying the new standard has
been recognized in retained earnings. Comparative prior period
information has not been restated and continues to be reported
under accounting standards in effect for those periods.
The adoption of ASC 606 resulted in a net increase of $2.0 million
in the retained earnings line item of the Consolidated Balance
Sheet as of April 1, 2018. The cumulative effect adjustment relates
primarily to (i) 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, (ii) discontinued capitalization of certain costs related
to ongoing customer arrangements, and (iii) adjustments to the
timing of recognition for certain royalty amounts.
Other effects of the adoption include presentation of allowances
for sales incentive programs, discounts, markdowns, chargebacks,
and returns as refund liabilities rather than as a reduction to
accounts receivable and presentation of the right of return asset
within other current assets rather than as a component of inventory
in the Consolidated Balance Sheet. Additionally, sourcing fees
received from customers and advertising contributions from
licensees that had previously been reported as an offset to costs
or expenses are now reported as revenue in the Consolidated
Statements of Income. Refer to Note 2 for additional revenue
disclosures.
F-14 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
The following tables compare amounts reported in accordance with the requirements of ASC 606 to the amounts that would have
been reported had the new standard not been applied:
Condensed Consolidated Balance Sheet
(In thousands)
ASSETS
Cash and equivalents
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill and intangible assets, net
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings and current portion of long-term debt
Accounts payable
Accrued liabilities
Total current liabilities
Long-term debt
Other liabilities
Total liabilities
Total stockholders' equity
March 2019
As Reported
Impact of Adoption
Balances without
Adoption of ASC 606
$
543,011 $
— $
1,708,796
1,943,030
478,620
4,673,457
1,057,268
3,779,161
846,899
(207,941)
58,998
(55,668)
(204,611)
—
—
689
543,011
1,500,855
2,002,028
422,952
4,468,846
1,057,268
3,779,161
847,588
$
$
10,356,785 $
(203,922) $
10,152,863
670,318 $
— $
694,733
1,296,553
2,661,604
2,115,884
1,280,781
6,058,269
4,298,516
11,605
(207,191)
(195,586)
—
(1,073)
(196,659)
(7,263)
670,318
706,338
1,089,362
2,466,018
2,115,884
1,279,708
5,861,610
4,291,253
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
10,356,785 $
(203,922) $
10,152,863
Condensed Consolidated Statements of Income
(In thousands)
Net revenues
Cost of goods sold
Selling, general and administrative expenses
Total costs and operating expenses
Operating income
Interest income (expense) and 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
Year Ended March 2019
As Reported
Impact of Adoption
Balances without
Adoption of ASC 606
$
13,848,660 $
1,336 $
13,849,996
6,827,481
5,345,339
12,172,820
1,675,840
(148,436)
1,527,404
268,400
1,259,004
788
(16,056)
19,641
3,585
(2,249)
—
(2,249)
(398)
(1,851)
(3,456)
6,811,425
5,364,980
12,176,405
1,673,591
(148,436)
1,525,155
268,002
1,257,153
(2,668)
Net income
$
1,259,792 $
(5,307) $
1,254,485
VF Corporation Fiscal 2019 Form 10-K F-15
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Condensed Consolidated Statement of Cash Flows - Operating Activities
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization
Other adjustments, 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
Year Ended March 2019
As Reported
Impact of Adoption
Activities without
Adoption of ASC 606
$
1,259,792 $
(5,307) $
1,254,485
301,005
59,609
(373,012)
(135,099)
111,678
(19,974)
484,858
(24,634)
(162)
3,193
198,349
(53,427)
11,605
(398)
(207,158)
53,305
300,843
62,802
(174,663)
(188,526)
123,283
(20,372)
277,700
28,671
$
1,664,223 $
— $
1,664,223
There was no impact to investing or financing activities within the Consolidated Statement of Cash Flows as a result of the adoption of ASC 606.
(Subtopic
825-10): Recognition
In January 2016, the FASB issued ASU No. 2016-01, "Financial
Instruments—Overall
and
Measurement of Financial Assets and Financial Liabilities", an update
to the 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 became
effective for VF in the first quarter of Fiscal 2019, but did not impact
VF's consolidated
financial statements. The FASB has
subsequently issued an update to clarify the previous guidance.
The amendments in this updated guidance became effective for VF
in the second quarter of Fiscal 2019, but did not impact VF's
consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-04, "Liabilities—
Extinguishments of Liabilities (Subtopic 405-20): Recognition of
Breakage for Certain Prepaid Stored-Value Products", an update to
the 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 financial
liabilities related to prepaid stored-value products be subject to
breakage accounting, consistent with ASC 606. This guidance
became effective for VF in the first quarter of Fiscal 2019, but did
not impact VF’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of
Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments", an update to the accounting guidance that
addresses how certain cash receipts and cash payments are
presented and classified in the statement of cash flows. This
guidance became effective for VF in the first quarter of Fiscal 2019
but did not impact VF’s Consolidated Statements of Cash Flows.
In October 2016, the FASB issued ASU No. 2016-16, "Income Tax
(Topic 740): Intra-Entity Transfers of Assets Other Than Inventory", an
update to their accounting guidance on the recognition of current
and deferred income taxes for intra-entity asset transfers. The new
income tax
guidance requires an entity to recognize the
F-16 VF Corporation Fiscal 2019 Form 10-K
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 resulted in 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. During the three months
ended March 2018, the Company identified an error in the amounts
originally recorded when adopting ASU 2016-16 due to the use of
an inaccurate tax rate when establishing the deferred tax asset in
a certain jurisdiction. The Company recorded the out-of-period
correction of $15.5 million to other assets in the Consolidated
Balance Sheets and retained earnings in the Consolidated
Statements of Stockholders' Equity. The adjustment had no impact
on the Consolidated Statements of Income and did not have a
material
impact on the Consolidated Balance Sheets or
Consolidated Statements of Stockholders’ Equity for any period
presented.
In January 2017, the FASB issued ASU No. 2017-01, "Business
Combinations (Topic 805): Clarifying the Definition of a Business", an
update that provides a more narrow framework to be used in
evaluating whether a set of assets and activities constitutes a
business. This guidance became effective for VF in the first quarter
of Fiscal 2019 and was applied when accounting for the acquisitions
completed subsequent to the adoption date, but did not impact our
conclusions on whether they were a business. Refer to Note 3 for
further information related to acquisitions.
In March 2017, the FASB issued ASU No. 2017-07, "Compensation
—Retirement Benefits (Topic 715): Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost",
an update which requires employers to disaggregate the service
cost component from other components of net periodic benefit
costs. 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
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
of prior service costs or credits and deferred 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. The
presentation change in the Consolidated Statements of Income
requires application on a retrospective basis. The ASU was adopted
by the Company on April 1, 2018, and as a result, operating income
decreased and other income (expense), net increased by $1.3
million for the three months ended March 2018 and operating
income increased and other income (expense), net decreased by
$9.9 million and $87.2 million in the the years ended December
2017 and December 2016, respectively. VF applied the practical
expedient permitted under the guidance which allows entities to
use information previously disclosed in the pension and other post-
retirement benefit plans footnote as the basis to apply the
retrospective presentation requirements. Refer to pension
disclosure in Note 15.
In May 2017, the FASB issued ASU No. 2017-09, "Compensation—
Stock Compensation (Topic 718): Scope of Modification Accounting",
an update that amends the scope of 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 became effective
for VF beginning in the first quarter of Fiscal 2019, but did not
impact VF’s consolidated financial statements.
In January 2018, the FASB released guidance on the accounting for
tax on the global intangible low-taxed income ("GILTI") provisions
of the Tax Cuts and Jobs Act ("Tax Act"). The GILTI 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
taxes related to GILTI inclusions or treat any taxes on GILTI
inclusions as period costs. The Company has completed its analysis
related to this accounting policy election and has determined it will
treat the taxes resulting from GILTI as a current-period expense,
which is consistent with the treatment prior to the accounting policy
election.
In March 2018, the FASB issued ASU No. 2018-05, "Income Taxes
(Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff
Accounting Bulletin No. 118", which allowed the Company to record
provisional amounts in earnings for the year ended December 30,
2017 due to the complexities involved in accounting for the
enactment of the Tax Act. The Company recognized the estimated
income tax effects of the Tax Act in its 2017 consolidated financial
in accordance with Securities and Exchange
statements
Commission ("SEC") Staff Accounting Bulletin No. 118 ("SAB 118")
and recorded revisions of our provisional estimate during the three
months ended March 2018 and during the year ended March 2019.
VF finalized its accounting for the impact of the Tax Act during the
three months ended December 2018. Refer to Note 18 for more
information regarding the amounts recorded.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic
842)”, a new accounting standard on leasing. The FASB has
subsequently issued updates to the standard to provide additional
clarification on specific topics, including permitted transition
methods. This new standard will require companies to record most
leased assets and liabilities on the balance sheets, and also retains
a dual model approach for assessing lease classification and
recognizing expense. The new standard provides a number of
optional practical expedients for transition. The Company will elect
the package of practical expedients that must be taken together
that allows entities to (i) not reassess whether existing contracts
contain leases, (ii) carryforward the existing lease classification,
and (iii) not reassess initial direct costs associated with existing
leases. The Company will also elect the land easement expedient
that allows entities to not evaluate land easements under the new
standard at adoption if they were not previously accounted for as
leases, and the expedient that allows entities to not separate lease
and non-lease components for specified asset classes. Further,
the Company will elect a short-term lease exception policy that
permits not applying the recognition requirements of the standard
to leases with terms of 12 months or less. A cross functional
implementation team has completed its impact analysis and
expects the standard to have a material impact on the Consolidated
Balance Sheets related to the recognition of right-of-use assets
and lease liabilities primarily for the Company’s operating leases
for real estate space. Refer to Note 20 for disclosure of future
minimum lease payments under these arrangements as of March
2019. The Company does not expect the standard to have a material
impact on the Consolidated Statements of Income. The Company
will adopt the new standard as of the beginning of the year ending
March 28, 2020 (“Fiscal 2020”) utilizing the modified retrospective
method and will recognize in equity the immaterial cumulative
effect of initially applying the new standard. The effective date of
the standard will be used as the date of initial application and
comparative prior period financial information will not be restated.
In June 2016, the FASB issued ASU No. 2016-13, "Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments", which requires entities to use a
forward-looking approach based on expected losses to estimate
credit losses on certain types of financial instruments, including
trade receivables. The FASB has subsequently issued updates to
the standard to provide additional clarification on specific topics.
This guidance will be effective for VF in the first quarter of the year
ended April 3, 2021 ("Fiscal 2021") with early adoption permitted.
The Company is evaluating the impact that adopting this guidance
will have on VF’s consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and
Hedging (Topic 815): Targeted Improvements to Accounting for
Hedging Activities", 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.
The FASB has subsequently issued updates to the standard to
provide additional guidance on specific topics. This guidance will
be effective for VF in the first quarter of Fiscal 2020. The Company
does not expect the adoption of this guidance to have a material
impact on VF's consolidated financial statements.
(Topic
Income
In February 2018, the FASB issued ASU No. 2018-02, "Income
Statement-Reporting Comprehensive
220):
Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income", an update that addresses the effect of the
change in the U.S. federal corporate income tax rate 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 will elect to reclassify the income tax effects of the
Tax Act on items within accumulated other comprehensive income
(loss) of $61.9 million to retained earnings and provide related
VF Corporation Fiscal 2019 Form 10-K F-17
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
disclosures when the guidance is adopted during the first quarter
of Fiscal 2020.
In June 2018, the FASB issued ASU No. 2018-07, "Compensation—
Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting", an update that expands the
scope of Topic 718 to include share-based payment transactions
for acquiring goods and services from nonemployees. The
guidance will be effective for VF in the first quarter of Fiscal 2020.
The Company does not expect the adoption of this guidance to have
a material impact on VF's consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-09, "Codification
Improvements", an update that provides technical corrections,
clarifications and other
improvements across a variety of
accounting topics. The transition and effective date guidance is
based on the facts and circumstances of each update; however,
many of them will be effective for VF in the first quarter of Fiscal
2020. The Company does not expect the adoption of this guidance
to have a material
impact on VF's consolidated financial
statements.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value
Measurement (Topic 820): Disclosure Framework—Changes to the
Disclosure Requirements for Fair Value Measurement", an update
that modifies the disclosure requirements for fair value
measurements by removing, modifying or adding certain
disclosures. The guidance will be effective for VF in the first quarter
of Fiscal 2021 with early adoption permitted. The Company is
evaluating the impact that adopting this guidance will have on VF's
disclosures.
In August 2018, the FASB issued ASU No. 2018-14, "Compensation
— Retirement Benefits—Defined Benefit Plans—General (Subtopic
715-20): Disclosure Framework—Changes
the Disclosure
Requirements for Defined Benefit Plans", an update that modifies
the disclosure requirements for employers who sponsor defined
benefit pension or other postretirement plans. The guidance will
be effective for VF in the first quarter of Fiscal 2021 with early
adoption permitted. The Company is evaluating the impact that
adopting this guidance will have on VF's disclosures.
to
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles—
Goodwill and Other—Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract", an update that
aligns the requirements for capitalizing implementation costs
incurred in a hosting arrangement that is a service contract with
the requirements for capitalizing implementation costs incurred
to develop or obtain internal-use software. The guidance will be
effective for VF in the first quarter of Fiscal 2021 with early adoption
permitted. The Company is evaluating the impact that adopting this
guidance will have on VF's consolidated financial statements.
NOTE 2 — REVENUES
Performance Obligations
Disclosure is required for the aggregate transaction price allocated
to performance obligations that are unsatisfied at the end of a
reporting period, unless the optional practical expedients are
applicable. VF has elected the practical expedients to not disclose
the transaction price allocated to remaining performance
obligations for (i) variable consideration related to sales-based
royalty arrangements, and (ii) contracts with an original expected
duration of one year or less.
As of March 2019, there are no arrangements with transaction price
allocated to remaining performance obligations other than
contracts for which the Company has applied the practical
expedients and fixed consideration related to future minimum
guarantees discussed in Note 1.
For the year ended March 2019, revenue recognized from
performance obligations satisfied, or partially satisfied, in prior
periods was not material.
Contract Balances
Accounts receivable represent the Company's unconditional right
to receive consideration from a customer and are recorded at net
invoiced amounts, less an estimated allowance for doubtful
accounts.
Contract assets are rights to consideration in exchange for goods
or services that have been transferred to a customer when that
right is conditional on something other than the passage of time.
Once the Company has an unconditional right to consideration
under a contract, amounts are invoiced and contract assets are
reclassified to accounts receivable. The Company's primary
contract assets relate to sales-based royalty arrangements, which
are discussed in more detail within Note 1.
Contract
liabilities are recorded when a customer pays
consideration, or the Company has a right to an amount of
consideration that is unconditional, before the transfer of a good
or service to the customer and thus represent the Company's
obligation to transfer the good or service to the customer at a future
date. The Company's primary contract liabilities relate to gift cards,
loyalty programs and sales-based royalty arrangements, which are
discussed in more detail within Note 1.
F-18 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
The following table provides information about accounts receivable, contract assets and contract liabilities:
(In thousands)
Accounts receivable, net
Contract assets (b)
Contract liabilities (c)
March 2019
At Adoption - April 1, 2018 (a)
$
1,708,796
$
4,499
32,175
1,408,587
2,600
28,252
(a) The Company adopted ASC 606 on April 1, 2018. Refer to Note 1 for additional information.
(b)
Included in the other current assets line item in the Consolidated Balance Sheets.
Included in the accrued liabilities and other liabilities line items in the Consolidated Balance Sheets.
(c)
For the year ended March 2019, the Company recognized $65.3 million of revenue that was included in the contract liability balance
during the year. The change in the contract asset and contract liability balances primarily results from the timing differences between
the Company's satisfaction of performance obligations and the customer's payment.
Disaggregation of Revenue
The following table shows disaggregation of our revenues by channel and geography, which provides a meaningful depiction of how the
nature, timing and uncertainty of revenues are affected by economic factors. The wholesale channel includes fees generated from
sourcing activities as the customers and point-in-time revenue recognition are similar to other wholesale arrangements. As discussed
in Note 1, we adopted the guidance in ASC 606 effective April 1, 2018 using the modified retrospective method of adoption. As a result,
revenue reported for the three months ended March 2018 and years ended December 2017 and 2016 have not been presented.
(In thousands)
Channel revenues
Wholesale
Outdoor
Active
Work
Jeans
Other
Total
Year ended March 2019
$
2,865,630 $
2,460,692 $
1,678,473 $
2,169,088 $
22,343 $
9,196,226
Direct-to-consumer
1,770,580
2,234,053
12,814
27,047
160,970
22,574
289,196
33,485
101,715
4,556,514
—
95,920
Royalty
Total
Geographic revenues
United States
International
Total
$ 4,649,024 $ 4,721,792 $ 1,862,017 $ 2,491,769 $
124,058 $ 13,848,660
$
2,246,706 $
2,499,393 $
1,492,548 $
1,763,575 $
124,058 $
8,126,280
2,402,318
2,222,399
369,469
728,194
—
5,722,380
$ 4,649,024 $ 4,721,792 $ 1,862,017 $ 2,491,769 $
124,058 $ 13,848,660
VF Corporation Fiscal 2019 Form 10-K F-19
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
NOTE 3 — ACQUISITIONS
Williamson-Dickie
On October 2, 2017, VF acquired 100% of the outstanding shares of
Williamson-Dickie Mfg. Co. (“Williamson-Dickie”) for $800.7
million in cash, subject to working capital and other adjustments.
The purchase price was primarily funded with short-term
borrowings. During the three months ended March 2018, the
purchase consideration was reduced by $2.3 million associated
with the final working capital adjustment, resulting in a revised
purchase price of $798.4 million. No additional adjustments have
been made since that date, and the purchase price allocation was
finalized during the three months ended September 2018.
Williamson-Dickie was a privately held company based in Ft. Worth,
Texas, and was one of the largest companies in the workwear sector
with a portfolio of brands including Dickies®, Workrite®, Kodiak®,
Terra® and Walls®. The acquisition of Williamson-Dickie brings
together complementary assets and capabilities, and creates a
workwear business that will now serve an even broader set of
consumers and industries around the world.
For the six months ended September 2018, Williamson-Dickie
contributed revenues of $471.9 million and net income of $33.3
million, including restructuring charges. Given the ongoing
integration and change in operating nature of the acquired
business, it is impracticable to determine the revenues or
operating results contributed subsequent to September 2018.
Williamson-Dickie contributed revenues of $233.1 million and net
income of $4.9 million to VF in the three months ended March 2018,
including restructuring charges. For the period from October 2,
2017 through December 30, 2017, Williamson-Dickie contributed
revenues of $247.2 million and net income of $9.6 million to VF,
including restructuring charges.
The following table summarizes the estimated fair values of the Williamson-Dickie 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 noncurrent 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
109,964
15,160
33,066
263,807
715,532
82,863
798,395
$
$
is attributable to the acquired workforce of
The goodwill
Williamson-Dickie and the significant synergies expected to arise
as a result of the acquisition. All of the goodwill was assigned to
the Work segment and $52.3 million is expected to be deductible
for tax purposes.
The Dickies®, Kodiak®, Terra® and Walls® trademarks, which
management believes to have indefinite lives, have been valued at
$316.1 million. The Workrite® trademark, valued at $0.8 million, is
being amortized over three years.
Amortizable intangible assets have been assigned values of $78.6
million for customer relationships and $2.3 million for distribution
agreements. Customer relationships are being amortized using an
accelerated method over periods ranging from 10-13 years.
Distribution agreements are being amortized on a straight-line
basis over four years.
Total transaction expenses for the Williamson-Dickie acquisition
were $15.0 million, all of which were recognized in the year ended
December 2017 in the selling, general and administrative expenses
line item in the Consolidated Statements of Income.
F-20 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
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, except per share amounts)
Total revenues
Income from continuing operations
Earnings per common share from continuing operations
Basic
Diluted
Year Ended
December 2017
(unaudited)
Year Ended
December 2016
(unaudited)
12,475,116 $
763,563
11,888,704
1,097,572
1.91 $
1.89
2.64
2.60
$
$
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 related tax effects.
The pro forma financial information in the years ended December
2017 and 2016 exclude $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 the year ended December 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
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.
Icebreaker
On April 3, 2018, VF acquired 100% of the stock of Icebreaker
Holdings Limited ("Icebreaker") for NZ$274.4 million ($198.5
million) in cash, subject to working capital and other adjustments.
The purchase price was primarily funded with short-term
borrowings. The purchase price increased NZ$0.9 million ($0.7
million) during the three months ended March 2019 and decreased
NZ$ 1.4 million ($0.9 million) for the year ended March 2019,
related to working capital adjustments, resulting in a revised
purchase price of NZ$273.0 million ($197.6 million). The purchase
price allocation was finalized during the three months ended March
2019.
Icebreaker was a privately held company based in Auckland, New
Zealand. Icebreaker®, the primary brand, specializes in high-
performance apparel based on natural fibers, including Merino
wool, plant-based fibers and recycled fibers. It is an ideal
complement to VF's Smartwool® brand, which also features Merino
wool in its clothing and accessories. Together, the Smartwool® and
Icebreaker® brands will position VF as a global leader in the Merino
wool and natural fiber categories.
For the year ended March 2019, Icebreaker contributed revenues
of $174.2 million, representing 1.3% of VF's total revenue for the
period. Icebreaker contributed net income of $14.6 million during
the year ended March 2019, representing 1.2% of VF's net income
in the period.
VF Corporation Fiscal 2019 Form 10-K F-21
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
The following table summarizes the estimated fair values of the Icebreaker 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 noncurrent liabilities
Total liabilities assumed
Net assets acquired
Goodwill
Purchase price
April 3, 2018
6,444
16,781
31,728
3,931
3,858
98,041
4,758
165,541
7,235
2,075
21,262
26,870
433
57,875
107,666
89,943
197,609
$
$
Altra
On June 1, 2018, VF acquired 100% of the stock of Icon-Altra LLC,
plus certain assets in Europe ("Altra"). The purchase price was
$131.7 million in cash, subject to working capital and other
adjustments and was primarily
funded with short-term
borrowings. The purchase price decreased $0.1 million during the
year ended March 2019, related to working capital adjustments,
resulting in a revised purchase price of $131.6 million. The
allocation of the purchase price was finalized during the three
months ended December 2018, resulting in a decrease of goodwill
by $1.5 million related to a final adjustment to working capital
balances.
Altra®, the primary brand, is an athletic and performance-based
lifestyle footwear brand, based in Logan, Utah. Altra provides VF
with a unique and differentiated technical footwear brand and a
capability that, when applied across VF's footwear platforms, will
serve as a catalyst for growth.
Altra contributed revenues of $50.2 million and net income of $0.8
million during the year ended March 2019.
The goodwill is attributable to the acquired workforce of Icebreaker
and the significant synergies expected to arise as a result of the
acquisition. All of the goodwill has been assigned to the Outdoor
segment and none is expected to be deductible for tax purposes.
The Icebreaker® trademark, which management determined to
have an indefinite life, has been valued at $70.1 million.
Amortizable intangible assets have been assigned values of $27.8
million for customer relationships and $0.2 million for distribution
agreements. Customer relationships are being amortized using an
accelerated method over 11.5 years. Distribution agreements are
being amortized on a straight-line basis over four years.
Total transaction expenses for the Icebreaker acquisition of $7.4
million have been recognized
in the selling, general and
administrative expenses line item in the Consolidated Statements
of Income, of which $4.1 million, $1.4 million, and $1.9 million was
recognized during the year ended March 2019, the three months
ended March 2018, and the year ended December 2017,
respectively. In addition, the Company recognized a $9.9 million
gain on derivatives used to hedge the purchase price of Icebreaker
in the other income (expense), net line item in the Consolidated
Statements of Income, of which $0.3 million, $4.3 million, and $5.3
million was recognized during the year ended March 2019, the
three months ended March 2018, and the year ended December
2017, respectively.
Pro forma results of operations of the Company would not be
materially different as a result of the Icebreaker acquisition and
therefore are not presented.
F-22 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
The following table summarizes the estimated fair values of the Altra assets acquired and liabilities assumed at the date of acquisition:
(In thousands)
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Intangible assets
Total assets acquired
Accounts payable
Other current liabilities
Total liabilities assumed
Net assets acquired
Goodwill
Purchase price
June 1, 2018
11,629
9,310
575
1,107
59,700
82,321
5,068
7,415
12,483
69,838
61,719
131,557
$
$
The goodwill is attributable to the significant growth and synergies
expected to arise as a result of the acquisition. All of the goodwill
was assigned to the Outdoor segment and is expected to be
deductible for tax purposes.
Total transaction expenses for the Altra acquisition were $2.3
million, all of which were recognized in the selling, general and
administrative expenses line item in the Consolidated Statements
of Income during the year ended March 2019.
The Altra® trademark, which management determined to have an
indefinite life, has been valued at $46.4 million. Amortizable
intangible assets have been assigned values of $13.0 million for
customer relationships and $0.3 million
for distribution
agreements. Customer relationships are being amortized using an
accelerated method over 15 years. Distribution agreements are
being amortized on a straight-line basis over four years.
Pro forma results of operations of the Company would not be
materially different as a result of the Altra acquisition and therefore
are not presented.
NOTE 4 — DISCONTINUED OPERATIONS AND OTHER DIVESTITURES
The Company continuously assesses the composition of its portfolio to ensure it is aligned with its strategic objectives and positioned
to maximize growth and return to shareholders.
Discontinued Operations
Nautica® Brand Business
During the three months ended December 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 has
reported the results of the Nautica® brand business as discontinued
operations in the Consolidated Statements of Income and
presented the related held-for-sale assets and liabilities as assets
and liabilities of discontinued operations in the Consolidated
Balance Sheets through the date of sale.
On April 30, 2018, VF completed the sale of the Nautica® brand
business. The Company received proceeds of $285.8 million, net
of cash sold, resulting in a final after-tax loss on sale of $38.2
million, which includes a decrease of $5.4 million and an increase
of $18.1 million in the estimated loss on sale included in the income
(loss) from discontinued operations, net of tax line item in the
Consolidated Statements of Income for the year ended March 2019
and the three months ended March 2018, respectively. The year
ended December 2017 includes a $25.5 million estimated loss on
sale.
The results of the Nautica® brand's North America business were
previously reported in the former Sportswear segment, and the
results of the Asia business were previously reported in the former
Outdoor & Action Sports segment. The results of the Nautica®
brand business recorded in the income (loss) from discontinued
operations, net of tax line item in the Consolidated Statements of
Income were income of $0.8 million (including a $5.4 million
decrease in the estimated loss on sale), losses of $8.4 million
(including an $18.1 million increase in the estimated loss on sale),
losses of $95.2 million (including an estimated loss on sale of $25.5
million and an impairment charge of $104.7 million) and income
of $31.4 million for the year ended March 2019, the three months
ended March 2018 and the years ended December 2017 and 2016,
respectively.
VF Corporation Fiscal 2019 Form 10-K F-23
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Certain corporate overhead costs and segment 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 goodwill impairment charge recorded in the three
months ended September 30, 2017 of $104.7 million related to the
Nautica® reporting unit, previously excluded from the calculation
of segment profit, was reclassified to discontinued operations.
Consolidated Statements of Income were losses of $6.5 million
(including the loss on sale of $0.2 million) and $1.0 million for the
years ended December 2017 and 2016, 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 up to 12
months from the closing date of the transaction. Revenue and
related expense items associated with the transition services are
recorded
the Other category, and operating expense
reimbursements are recorded within the corporate and other
expenses line item, in the reconciliation of segment revenues and
segment profit in Note 19.
in
Under the terms of the transition services agreement, the
Company is providing certain support services for periods up to 24
months from the closing date of the transaction. Revenue and
related expense items associated with the transition services are
recorded
the Work segment, and operating expense
reimbursements are recorded within the corporate and other
expenses line item in the reconciliation of segment revenues and
segment profit in Note 19.
in
Licensing Business
Former Contemporary Brands Segment
During the three months ended April 1, 2017, the Company reached
the strategic decision to exit its Licensing Business, which
comprised the Licensed Sports Group (“LSG”) and the JanSport®
brand collegiate businesses. Accordingly, the Company has
reported the results of the businesses as discontinued operations
in the Consolidated Statements of Income through their respective
dates of sale.
LSG included the Majestic® brand and was previously reported
within the former Imagewear segment. On April 28, 2017, VF
completed the sale of the LSG business. The Company received
proceeds of $213.5 million, net of cash sold, resulting in a final
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 Consolidated Statement of Income for the year ended
December 2017.
The LSG results recorded in the income (loss) from discontinued
operations, net of tax line item in the Consolidated Statements of
Income were losses of $4.6 million (including the loss on sale of
$4.1 million) and income of $63.3 million for the years ended
December 2017 and 2016, respectively.
During the three months ended December 2017, VF completed the
sale of the assets associated with the JanSport® brand collegiate
business, which was previously included within the former Outdoor
& Action Sports segment. The Company received net proceeds of
$1.5 million and recorded a final 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 Consolidated Statement of
Income for the year ended December 2017.
The JanSport® brand collegiate results recorded in the income
(loss) from discontinued operations, net of tax line item in the
During the three months ended July 2, 2016, the Company reached
the strategic decision to sell the businesses in its former
Contemporary Brands segment. Accordingly, the Company has
reported the results of the former Contemporary Brands segment
as discontinued operations in the Consolidated Statements of
Income through the date of sale.
On August 26, 2016, VF completed the sale of its former
Contemporary Brands segment and received proceeds of $116.0
million, net of cash sold. The former Contemporary Brands
segment included the businesses of the 7 For 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 Consolidated Statement of Income for the year ended
December 2016.
The results of the former Contemporary Brands segment recorded
in the income (loss) from discontinued operations, net of tax line
item in the Consolidated Statement of Income were losses of $98.4
million (including the loss on sale of $104.4 million) for the year
ended December 2016.
Certain corporate overhead costs previously allocated to the
former Contemporary Brands segment for segment reporting
purposes did not qualify for classification within discontinued
operations and have been reallocated to continuing operations.
VF provided certain support services under transition services
agreements and completed these services during the three
months ended September 30, 2017. These services did not have a
material impact on VF’s Consolidated Statement of Income for the
year ended December 2017.
F-24 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Summarized Discontinued Operations Financial Information
The following table summarizes the major line items included for the Nautica® brand business, the Licensing Business and the former
Contemporary Brands segment that are included in the income (loss) from discontinued operations, net of tax line item in the Consolidated
Statements of Income:
(In thousands)
Net revenues
Cost of goods sold
Selling, general and administrative expenses
Impairment of goodwill
Interest expense, net
Other income, net
(Loss) income from discontinued operations before
income taxes
Gain (loss) on the sale of discontinued operations before
income taxes
Total loss from discontinued operations before income
taxes
Income tax benefit (expense) (a)
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
Year Ended December
2018
2017
2016
$
21,913
$
94,362 $
588,383 $
1,180,677
14,706
12,391
—
—
272
48,946
34,649
—
—
—
349,382
191,898
104,651
(27)
6
691,715
354,773
—
(199)
2
(4,912)
10,767
(57,569)
133,992
4,589
(323)
1,111
(18,065)
(34,019)
(154,275)
(7,298)
(1,073)
(91,588)
(14,698)
(20,283)
15,535
(4,748)
Income (loss) from discontinued operations, net of tax
$
788
$
(8,371) $
(106,286) $
(a)
Income tax expense for the year ended December 2017 was impacted by $8.6 million of tax expense related to GAAP and tax basis differences for the
LSG business. Additionally, the goodwill impairment charge and estimated loss on sale related to the Nautica® brand business for the year ended
December 2017 were nondeductible for income tax purposes.
The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of
the periods presented.
March 2019
March 2018
December 2017
$
— $
2,330 $
(In thousands)
Cash
Accounts receivable, net
Inventories
Other current assets
Property, plant and equipment, net
Intangible assets
Goodwill
Other assets
Allowance to reduce assets to estimated fair value, less costs to sell
Total assets of discontinued operations
Accounts payable
Accrued liabilities
Other liabilities
Deferred income tax liabilities (a)
Total liabilities of discontinued operations
(a) Deferred income tax balances reflect VF's consolidated netting by jurisdiction.
$
$
$
—
—
—
—
—
—
—
—
26,298
55,610
1,247
15,021
262,202
49,005
3,961
(42,094)
— $
373,580 $
— $
11,619 $
—
—
—
10,658
11,912
51,838
2,592
27,941
43,297
2,497
14,914
262,352
49,005
3,631
(25,529)
380,700
16,993
18,203
12,011
53,812
— $
86,027 $
101,019
VF Corporation Fiscal 2019 Form 10-K F-25
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
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 the years ended December 2017 and 2016:
(In thousands)
Depreciation and amortization
Capital expenditures
Impairment of goodwill
Year Ended December
2017
2016
$
14,023 $
2,592
104,651
27,360
4,795
—
Depreciation and amortization, capital expenditures and operating noncash items related to discontinued operations were not material
for year ended March 2019 and the three months ended March 2018.
Other Divestitures
Reef® Brand Business
Van Moer Business
During the three months ended September 29, 2018, the Company
reached the decision to sell the Reef® brand business, which was
included in the Active segment.
During the three months ended September 29, 2018, the Company
reached the decision to sell the Van Moer business, acquired with
Williamson-Dickie, which was included in the Work segment.
VF signed a definitive agreement for the sale of the Reef® brand
business on October 2, 2018, and completed the transaction on
October 26, 2018. VF received cash proceeds of $139.4 million, and
recorded a $14.4 million final loss on sale, which was included in
the other income (expense), net line item in the Consolidated
Statement of Income for the year ended March 2019.
Under the terms of the transition services agreement, the
Company is providing certain support services for periods up to 21
months from the closing date of the transaction. Revenue and
related expense items associated with the transition services and
operating expense reimbursements are recorded in the Other
category in the reconciliation of segment revenues and segment
profit in Note 19.
VF completed the sale of the Van Moer business on October 5, 2018,
and received cash proceeds of €7.0 million ($8.1 million). VF
recorded a $22.4 million final loss on sale, which was included in
the other income (expense), net line item in the Consolidated
Statement of Income for the year ended March 2019.
Spin-Off of Jeans Business
On August 13, 2018, VF announced its intention to spin-off its Jeans
business, which will include the Wrangler®, Lee® and Rock &
Republic® brands, as well as the VF Outlet™ business, into an
independent, publicly traded company. For the year ended March
2019, the Company incurred $131.7 million of separation and
related expenses associated with the spin-off. Of these expenses,
VF recognized $104.9 million in selling, general and administrative
expenses and $26.8 million in cost of goods sold for the year ended
March 2019. The spin-off was completed on May 22, 2019. Refer to
Note 26 for additional information.
NOTE 5 — ACCOUNTS RECEIVABLE
(In thousands)
Trade
Royalty and other
Total accounts receivable
Less allowance for doubtful accounts
Accounts receivable, net
March 2019
March 2018
December 2017
$
1,625,495
$
1,347,896 $
1,365,321
111,677
1,737,172
28,376
85,684
1,433,580
24,993
90,931
1,456,252
26,266
$
1,708,796
$
1,408,587 $
1,429,986
VF has an agreement with a financial institution to sell selected
trade accounts receivable on a recurring, nonrecourse basis. This
agreement was amended in August 2018 to permit up to $377.5
million of VF's accounts receivable to be sold to the financial
institution and remain outstanding at any point in time, compared
to the $367.5 million limit in place at March 2018 and December
2017. 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 the year ended March 2019, the three months
ended March 2018 and the years ended December 2017 and 2016,
VF sold total accounts receivable of $1,110.7 million, $258.5
million, $1,180.7 million and $1,333.9 million, respectively. As of
March 2019, March 2018 and December 2017, $182.1 million,
$191.2 million and $219.1 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
F-26 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Statements of Income, and was $5.8 million for the year ended
March 2019, $1.1 million for the three months ended March 2018,
$3.9 million for the year ended December 2017 and $3.4 million
for the year ended December 2016. Net proceeds of this program
are classified in operating activities in the Consolidated Statements
of Cash Flows.
NOTE 6 — INVENTORIES
(In thousands)
Finished products
Work-in-process
Raw materials
Total inventories
NOTE 7 — 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
NOTE 8 — INTANGIBLE ASSETS
(In thousands)
March 2019
Amortizable intangible assets:
Customer relationships
License agreements
Trademarks
Other
Amortizable intangible assets, net
Indefinite-lived intangible assets:
Trademarks and trade names
Intangible assets, net
Weighted
Average
Amortization
Period
17 years
19 years
16 years
8 years
March 2019
March 2018
December 2017
$
1,711,264
$
1,654,137 $
1,490,788
114,356
117,410
103,757
103,547
110,467
105,354
$
1,943,030
$
1,861,441 $
1,706,609
March 2019
March 2018
December 2017
$
100,715
$
103,158 $
104,257
1,113,917
1,377,306
2,591,938
1,534,670
1,076,091
1,295,186
2,474,435
1,462,818
1,070,884
1,314,382
2,489,523
1,474,885
$
1,057,268
$
1,011,617 $
1,014,638
Amortization
Method
Cost
Accumulated
Amortization
Net
Carrying
Amount
Accelerated
$
341,625 $
143,433 $
198,192
Accelerated
Straight-line
Straight-line
7,536
58,932
8,202
4,729
12,209
4,170
2,807
46,723
4,032
251,754
1,772,523
$
2,024,277
VF Corporation Fiscal 2019 Form 10-K F-27
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Weighted
Average
Amortization
Period
18 years
20 years
16 years
9 years
Weighted
Average
Amortization
Period
18 years
20 years
16 years
9 years
Amortization
Method
Cost
Accumulated
Amortization
Net
Carrying
Amount
Accelerated
$
344,613 $
143,069 $
201,544
Accelerated
Straight-line
Straight-line
20,171
58,932
9,194
13,915
8,309
4,024
Amortization
Method
Cost
Accumulated
Amortization
6,256
50,623
5,170
263,593
1,856,517
$
2,120,110
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
6,336
51,599
5,353
267,503
1,822,278
$
2,089,781
(In thousands)
March 2018
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 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
Intangible assets decreased during the year ended March 2019 due
to the divestiture of the Reef® brand business and foreign currency
fluctuations, which were partially offset by the addition of intangible
assets from the Icebreaker and Altra acquisitions.
VF did not record any impairment charges in the year ended March
2019, the three months ended March 2018 or the year ended
December 2017. In the year ended December 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
former Outdoor and Action Sports segment. Refer to Note 22 for
additional information on the fair value measurements.
Amortization expense (excluding impairment charges) for the year
ended March 2019, the three months ended March 2018 and the
years ended December 2017 and 2016 was $30.7 million, $7.6
million, $20.0 million and $18.8 million, respectively. Estimated
amortization expense for the next five fiscal years is $30.0 million,
$28.5 million, $26.8 million, $25.3 million and $24.3 million,
respectively.
Rock & Republic® Impairment Analysis
The Rock & Republic® brand has an exclusive wholesale distribution
and licensing arrangement with Kohl's Corporation that covers all
branded apparel, accessories and other merchandise. As of June
30, 2018, VF performed a quantitative impairment analysis of the
Rock & Republic® amortizing trademark intangible asset to
determine if the carrying value was recoverable. We determined
this testing was necessary based on the expectation that certain
customer contract terms would be modified. Management used
the income-based relief-from-royalty method and the contractual
4% royalty rate to calculate the pre-tax undiscounted future cash
flows. Based on the analysis performed, management concluded
that the trademark intangible asset did not require further testing
as the undiscounted cash flows exceeded the carrying value of
$49.0 million.
It is possible that VF's conclusion regarding the recoverability of
the intangible asset could change in future periods as there can be
no assurance that the estimates and assumptions used in the
analysis as of June 30, 2018 will prove to be accurate predictions
of the future.
F-28 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
NOTE 9 — GOODWILL
Changes in goodwill are summarized by reportable segment as follows:
(In thousands)
Outdoor
Active
Work
Jeans
Total
Balance, December 2016
$
832,937 $
429,354 $
89,011 $
203,365 $
1,554,667
2017 acquisition
Currency translation
Balance, December 2017
Measurement period adjustment to 2017
acquisition (Note 3)
Currency translation
Balance, March 2018
Fiscal 2019 acquisitions
Fiscal 2019 divestitures
Currency translation
Balance, March 2019
—
9,337
842,274
—
2,452
844,726
151,662
—
(12,499)
—
27,420
456,774
—
6,413
92,837
(140)
—
8,523
92,837
45,140
181,708
211,888
1,692,644
(9,974)
738
—
946
(9,974)
10,549
463,187
172,472
212,834
1,693,219
—
(48,329)
(20,902)
—
(52)
—
—
(1,604)
(6,611)
151,662
(48,381)
(41,616)
$
983,889 $
393,956 $
170,816 $
206,223 $
1,754,884
In connection with the realignment of the Company's segment
reporting structure, the Company allocated goodwill to any newly
identified reporting units using a relative fair value approach as of
the first day of the first quarter of Fiscal 2019. Balances as of March
2018, December 2017 and December 2016 have been
retrospectively adjusted to reflect the reallocation. Refer to Note
19 for additional information regarding the Company's reportable
segments.
VF did not record any impairment charges in the year ended March
2019, the three months ended March 2018 or the year ended
December 2017 based on the results of its goodwill impairment
testing. In the year ended December 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 former Outdoor and Action Sports segment. Refer
to Note 22 for additional information on fair value measurements.
During the three months ended March 2018, VF completed the
previously announced wind down of the lucy® brand operations. As
of March 2018, VF has removed $51.6 million of goodwill and
accumulated impairment charges related to the lucy® brand
reporting unit, which previously had been fully impaired.
During the year ended March 2019, the Company completed the
sales of the Reef® brand and Van Moer businesses, at which time
the remaining goodwill of $48.4 million related to these reporting
units was removed from the Consolidated Balance Sheet.
Accumulated impairment charges for the goodwill removed from
the Active segment were $31.1 million for the year ended March
2019. Refer to Note 4 for additional information regarding the
divestitures.
There are no remaining accumulated impairment charges as of
March 2019.
VF Corporation Fiscal 2019 Form 10-K F-29
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
NOTE 10 — OTHER ASSETS
(In thousands)
March 2019
March 2018
December 2017
Computer software, net of accumulated amortization of: March 2019 -
$215,491; March 2018 - $183,200; December 2017 - $171,147
$
224,601
$
239,935 $
206,633
109,551
117,405
53,602
31,655
9,189
13,071
2,121
79,071
201,870
105,493
76,671
45,321
33,161
4,659
12,433
961
82,537
232,237
203,780
103,601
82,296
45,225
34,149
2,199
12,697
1,078
66,413
$
846,899
$
803,041 $
783,675
March 2019
March 2018
December 2017
$
$
650,000
15,055
665,055
$
$
1,500,000 $
25,106
705,000
24,384
1,525,106 $
729,384
below 60%. If VF fails in the performance of any covenants, the
lenders may terminate their obligation to make advances and
declare any outstanding obligations to be immediately due and
payable. As of March 2019, 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
$650.0 million, $1.50 billion and $705.0 million at March 2019,
March 2018 and December 2017, respectively. The Global Credit
Facility also had $15.3 million of outstanding standby letters of
credit issued on behalf of VF as of March 2019, March 2018 and
December 2017, leaving $1.58 billion, $734.7 million and $1.53
billion as of March 2019, March 2018 and December 2017,
respectively, available for borrowing against this facility.
VF has $179.5 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 $15.1 million, $25.1 million and $24.4 million
at March 2019, March 2018 and December 2017, respectively.
Borrowings under these arrangements had a weighted average
interest rate of 24.6%, 12.0% and 9.9% at March 2019, March 2018
and December 2017, respectively, excluding accepted letters of
credit which are non-interest bearing to VF. The interest-bearing
borrowings include short-term borrowings in Argentina.
Investments held for deferred compensation plans (Note 15)
Deferred income taxes (Note 18)
Pension assets (Note 15)
Deposits
Partnership stores and shop-in-shop costs, net of accumulated
amortization of: March 2019 - $100,125; March 2018 - $123,812;
December 2017 - $118,643
Derivative financial instruments (Note 23)
Other investments
Deferred line of credit issuance costs
Other
Other assets
NOTE 11 — SHORT-TERM BORROWINGS
(In thousands)
Commercial paper borrowings
International borrowing arrangements
Short-term borrowings
In December 2018, VF entered into a $2.25 billion senior unsecured
revolving line of credit (the “Global Credit Facility”) that expires
December 2023. The Global Credit Facility replaced VF's $2.25
billion revolving facility which was scheduled to expire in April 2020.
VF may request an unlimited number of one year extensions so
long as each extension does not cause the remaining life of the
Global Credit Facility to exceed five years, subject to stated terms
and conditions. The Global Credit Facility may be used to borrow
funds in 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 and
acquisitions. Borrowings under the Global Credit Facility are priced
at a credit spread of 81.0 basis points over the appropriate LIBOR
benchmark for each currency. VF is also required to pay a facility
fee to the lenders, currently equal to 6.5 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 prior
revolving credit facility was priced at a credit spread of 80.5 basis
points over the appropriate LIBOR benchmark for each currency
and VF was required to pay a facility fee to the lenders equal to 7.0
basis points of the committed amount of the facility.
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
F-30 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
NOTE 12 — ACCRUED LIABILITIES
(In thousands)
Compensation
Customer discounts and allowances
Other taxes
Income taxes
Restructuring
Advertising
Freight, duties and postage
Deferred compensation (Note 15)
Interest
Derivative financial instruments (Note 23)
Insurance
Product warranty claims (Note 14)
Pension liabilities (Note 15)
Other
Accrued liabilities
NOTE 13 — LONG-TERM DEBT
(In thousands)
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
March 2019
March 2018
December 2017
$
341,988
$
135,247 $
225,484
153,355
68,054
86,602
40,938
40,703
18,226
23,250
18,590
15,634
12,618
10,260
28,604
160,173
67,417
42,757
40,322
46,281
33,590
25,483
96,087
18,867
12,862
32,814
249,929
46,169
155,969
134,837
32,438
48,554
43,584
38,885
16,317
87,205
17,814
12,833
27,277
240,851
197,923
234,724
$
1,296,553
$
938,427 $
1,146,535
March 2019
March 2018
December 2017
$
498,450
$
497,852 $
497,705
949,049
292,982
346,534
34,132
1,041,577
1,015,500
292,648
346,346
40,397
292,568
346,300
41,881
2,121,147
2,218,820
2,193,954
5,263
6,265
6,165
Long-term debt, due beyond one year
$
2,115,884
$
2,212,555 $
2,187,789
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 11), 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.
As of March 2019, 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 23),
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
VF Corporation Fiscal 2019 Form 10-K F-31
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
interest rate of 0.712% which
effective annual
includes
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 23 for additional information.
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 23),
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.
Capital leases relate primarily to buildings and improvements
(Note 7), expire at dates through 2036 and have an effective interest
rate of 3.37%. Assets under capital leases are included in property,
plant and equipment at a cost of $66.2 million, less accumulated
amortization of $40.6 million, $35.2 million and $33.8 million at
March 2019, March 2018 and December 2017, respectively.
The scheduled payments of long-term debt and future minimum lease payments for capital leases at the end of Fiscal 2019 for the next
five fiscal years and thereafter are summarized as follows:
(In thousands)
2020
2021
2022
2023
2024
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
$
— $
—
500,000
—
953,785
650,000
2,103,785
6,531
10,239
—
2,087,015
—
6,293 $
6,040
2,287
1,614
1,691
23,495
41,420
—
—
7,288
34,132
5,263
6,293
6,040
502,287
1,614
955,476
673,495
2,145,205
6,531
10,239
7,288
2,121,147
5,263
Long-term debt, due beyond one year
$
2,087,015 $
28,869 $
2,115,884
March 2019
March 2018
December 2017
$
68,864
$
40,887 $
181,110
629,176
174,982
96,276
49,301
3,747
77,325
198,780
632,321
176,582
87,267
49,689
10,087
76,217
58,036
201,116
628,713
189,191
85,857
49,733
12,833
81,234
$
1,280,781
$
1,271,830 $
1,306,713
NOTE 14 — OTHER LIABILITIES
(In thousands)
Deferred income taxes (Note 18)
Deferred compensation (Note 15)
Income taxes
Pension liabilities (Note 15)
Deferred rent credits
Product warranty claims
Derivative financial instruments (Note 23)
Other
Other liabilities
F-32 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
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 12)
Long-term portion
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
$
62,551
$
62,566 $
62,872 $
13,082
(12,778)
(936)
61,919
12,618
3,828
(4,126)
283
62,551
12,862
10,584
(12,654)
1,764
62,566
12,833
$
49,301
$
49,689 $
49,733 $
63,114
12,022
(11,956)
(308)
62,872
12,993
49,879
NOTE 15 — 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 Fiscal 2019, 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 88% of VF’s total projected
benefit obligations at March 2019, and the remainder relates to
non-U.S. defined benefit plans. A March 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)
Service cost — benefits earned during the period
$
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
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
Year Ended
March
2019
22,352
63,434
(93,409)
8,856
9,530
28,474
494
Three Months
Ended March
(Transition Period)
2018
$
5,912
$
14,825
(25,314)
—
—
8,548
647
Year Ended December
2017
2016
$
24,890
58,989
(94,807)
—
1,671
41,440
2,646
25,839
68,020
(99,540)
50,922
—
65,212
2,584
$
39,731
$
4,618
$
34,829
$
113,037
3.85%
3.51%
5.58%
3.73%
3.58%
3.13%
5.72%
3.73%
4.08%
3.26%
5.72%
3.78%
4.54%
3.56%
5.81%
3.90%
VF Corporation Fiscal 2019 Form 10-K F-33
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
In Fiscal 2019, VF approved a freeze of all future benefit accruals
under the U.S. qualified and U.S. nonqualified plans, effective
December 31, 2018. Accordingly, the Company recognized a $9.5
million pension curtailment loss in the other income (expense), net
line item in the Consolidated Statement of Income for the year
ended March 2019.
In the year ended December 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
from
Licensing Business
discontinued operations, net of tax line item), and (ii) $0.6 million
within the U.S. nonqualified plan related to restructuring initiatives
(recorded in the other income (expense), net line item in the
Consolidated Statement of Income).
(recorded
income
in the
(loss)
the Consolidated Statement of Income related to the recognition
of deferred actuarial losses resulting from lump sum payments of
retirement benefits in the supplemental defined benefit pension
plan.
In the year ended December 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 projected benefit obligations related to these
participants. VF recorded $50.9 million in settlement charges
during the year ended December 2016 to recognize the related
deferred actuarial losses in accumulated OCI.
In the year ended March 2019, VF reported $8.9 million in
settlement charges in the other income (expense), net line item in
The following provides a reconciliation of the changes in fair value of VF’s defined benefit plan assets and projected benefit obligations
for each period, and the funded status at the end of each period:
(In thousands)
March 2019
March 2018
December 2017
Fair value of plan assets, beginning of period
$
1,751,760
$
1,809,649 $
1,673,297
Actual return on plan assets
VF contributions
Participant contributions
Benefits paid
Currency translation
Fair value of plan assets, end of period
Projected benefit obligations, beginning of period
Service cost
Interest cost
Participant contributions
Actuarial loss (gain)
Benefits paid
Plan amendments
Curtailments
Currency translation
82,947
41,581
4,136
(118,513)
(10,817)
1,751,094
1,884,485
22,352
63,434
4,136
10,653
(118,513)
715
(33,826)
(14,505)
(39,495)
204,017
3,205
1,018
(27,441)
4,824
1,751,760
1,943,821
5,912
14,825
1,018
(59,511)
(27,441)
—
—
5,861
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
Projected benefit obligations, end of period
1,818,931
1,884,485
1,943,821
Funded status, end of period
$
(67,837) $
(132,725) $
(134,172)
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.
F-34 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
(In thousands)
Amounts included in Consolidated Balance Sheets:
Other assets (Note 10)
Accrued liabilities (Note 12)
Other liabilities (Note 14)
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 (a)
$
$
$
$
$
March 2019
March 2018
December 2017
117,405
$
76,671
$
(10,260)
(174,982)
(67,837)
399,093
563
399,656
1,778,910
$
$
$
$
(32,814)
(176,582)
82,296
(27,277)
(189,191)
(132,725) $
(134,172)
452,329
9,878
462,207
1,783,600
$
$
$
454,463
10,533
464,996
1,837,776
3.68%
2.74%
3.76%
3.73%
3.46%
3.73%
(a) Rate of compensation increase is calculated as the weighted average rate of compensation increase for active plans. Frozen plans are excluded
from the calculation.
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.
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 life expectancy of all
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 life expectancy of all 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 Fiscal 2020 are $16.0 million of deferred
actuarial losses and an insignificant amount 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 Fiscal 2019 Form 10-K F-35
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
The fair value of investments held by VF’s defined benefit plans at March 2019, March 2018 and December 2017, by asset class, is
summarized below. Refer to Note 22 for a description of the three levels of the fair value measurement hierarchy.
(In thousands)
March 2019
Plan assets
Cash equivalents
Fixed income securities:
Total Plan
Assets
Fair Value Measurements
Level 1
Level 2
Level 3
$
3,023 $
3,023 $
— $
U.S. Treasury and government agencies
Insurance contracts
Commodities
7
71,521
(347)
—
—
(347)
7
71,521
—
Total plan assets in the fair value hierarchy
$
74,204 $
2,676 $
71,528 $
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
36,349
82,659
97,766
1,309,123
150,993
1,676,890
$
1,751,094
(In thousands)
March 2018
Plan assets
Cash equivalents
Fixed income securities:
Total Plan
Assets
Fair Value Measurements
Level 1
Level 2
Level 3
$
14,694 $
14,694 $
— $
U.S. Treasury and government agencies
Insurance contracts
Commodities
8
67,444
(7,091)
—
—
(7,091)
8
67,444
—
Total plan assets in the fair value hierarchy
$
75,055 $
7,603 $
67,452 $
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
38,833
114,958
155,330
1,211,103
156,481
1,676,705
Total plan assets
$
1,751,760
F-36 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Total Plan
Assets
Fair Value Measurements
Level 1
Level 2
Level 3
$
8,191 $
8,191 $
— $
8
69,448
(372)
—
—
(372)
8
69,448
—
(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
$
77,275 $
7,819 $
69,456 $
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
36,313
152,154
173,608
1,215,558
154,741
1,732,374
Total plan assets
$
1,809,649
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).
fixed-income securities generally
represent
Equity and
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 does not
currently plan to make any contributions to the U.S. qualified plan
during Fiscal 2020, and intends to make approximately $17.7
million of contributions to its other defined benefit plans during
Fiscal 2020. The estimated future benefit payments for all of VF’s
defined benefit plans, on a calendar year basis, are approximately
$94.6 million in 2020, $96.2 million in 2021, $99.2 million in 2022,
$101.3 million in 2023, $103.1 million in 2024 and $531.3 million
for the years 2025 through 2029.
Other Retirement 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
and a separately managed fixed-income fund. Changes in the fair
value of the participants’ hypothetical investments are recorded as
an adjustment
liabilities and
to deferred compensation
compensation expense. Expense under this plan was $1.7 million
in the year ended March 2019, $0.5 million in the three months
ended March 2018, $1.3 million in the year ended December 2017
and $1.7 million in the year ended December 2016. 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. VF also has
remaining obligations under other deferred compensation plans,
primarily related to acquired companies. At March 2019, VF’s
liability to participants under all deferred compensation plans was
$199.3 million, of which $18.2 million was recorded in accrued
liabilities (Note 12) and $181.1 million was recorded in other
liabilities (Note 14).
VF has purchased (i) publicly traded mutual funds and a separately
managed fixed-income fund 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 investments. These
investment securities and earnings thereon 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
VF Corporation Fiscal 2019 Form 10-K F-37
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
plans of acquired companies, which are primarily invested in life
insurance contracts. At March 2019, the fair value of investments
held for all deferred compensation plans was $224.4 million, of
which $17.8 million was recorded in other current assets and
$206.6 million was recorded in other assets (Note 10). Realized and
unrealized gains and losses on these deferred compensation
assets 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
$46.4 million in the year ended March 2019, $16.8 million in the
three months ended March 2018, $41.2 million in the year ended
December 2017 and $39.7 million in the year ended December
2016.
NOTE 16 — CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Common Stock
During the year ended March 2019, the Company purchased 1.9
million shares of Common Stock in open market transactions for
$150.0 million 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 the year ended March 2019, the
three months ended March 2018 and the years ended December
2017 and 2016, VF restored 2.2 million, 3.4 million, 22.3 million and
16.1 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 March
2019, March 2018, December 2017 or December 2016. 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 was also held by the Company’s deferred
compensation plans (Note 15) and was treated as treasury shares
for financial reporting purposes. During the year ended March
2019, the Company purchased 7,680 shares of Common Stock in
open market transactions for $0.7 million. As of March 2019, there
were no shares held in the Company's deferred compensation
plans.
Balances related to shares held for deferred compensation plans were as follows:
(In thousands, except share amounts)
Shares held for deferred compensation plans
Cost of shares held for deferred compensation plans
$
Accumulated Other Comprehensive Income (Loss)
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
Year Ended December
2018
2017
2016
—
— $
284,785
317,515
3,621 $
3,901 $
439,667
5,464
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 income is presented in the Consolidated Statements of Comprehensive Income. The
deferred components of OCI are reported, net of related income taxes, in accumulated OCI in stockholders’ equity, as follows:
(In thousands)
March 2019
March 2018
December 2017
Foreign currency translation and other
$
(725,679)
$
(476,869) $
Defined benefit pension plans
Derivative financial instruments
(243,184)
66,788
(289,618)
(97,543)
(546,201)
(291,949)
(87,990)
Accumulated other comprehensive income (loss)
$
(902,075) $
(864,030) $
(926,140)
F-38 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
The changes in accumulated OCI, net of related taxes, are as follows:
(In thousands)
Balance, December 2015
Foreign
Currency
Translation
and Other
Defined
Benefit
Pension Plans
Derivative
Financial
Instruments
Total
$
(718,169) $
(372,195) $
47,142 $ (1,043,222)
Other comprehensive income (loss) before reclassifications
(76,410)
(4,357)
81,036
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)
Balance, December 2017
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
income (loss)
Net other comprehensive income (loss)
Balance, March 2018
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive
income (loss)
Net other comprehensive income (loss)
Balance, March 2019
—
(76,410)
(794,579)
248,378
—
248,378
(546,201)
69,332
—
69,332
(476,869)
(248,810)
—
(248,810)
73,855
69,498
(302,697)
(17,970)
28,718
10,748
(291,949)
(4,852)
7,183
2,331
(289,618)
10,444
35,990
46,434
269
1,490
1,759
(1,041,463)
(72,365)
8,671
55,813
(123,080)
107,328
(20,723)
(143,803)
(87,990)
(21,078)
11,525
(9,553)
(97,543)
137,218
27,113
164,331
7,995
115,323
(926,140)
43,402
18,708
62,110
(864,030)
(101,148)
63,103
(38,045)
$
(725,679) $
(243,184) $
66,788 $
(902,075)
VF Corporation Fiscal 2019 Form 10-K F-39
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Reclassifications out of accumulated OCI are as follows:
(In thousands)
Details About Accumulated Other
Comprehensive Income (Loss)
Components
Affected Line Item in the
Consolidated Statements of
Income
Amortization of defined benefit pension plans:
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
Net deferred actuarial losses
Other income (expense), net
$
(28,474)
$
(8,548) $
(41,440) $
(65,212)
Deferred prior service costs
Other income (expense), net
Pension settlement charges
Other income (expense), net
Pension curtailment losses
Other income (expense), net
Pension curtailment loss
Income (loss) from
discontinued operations,
net of tax
Total before tax
Tax benefit
Net of tax
Gains (losses) on derivative financial instruments:
Foreign exchange contracts
Net revenues
Foreign exchange contracts
Cost of goods sold
Foreign exchange contracts
Foreign exchange contracts
Selling, general and
administrative expenses
Other income (expense), net
Interest rate contracts
Interest expense
Total before tax
Tax benefit (expense)
Net of tax
(494)
(8,856)
(9,530)
—
(47,354)
11,364
(35,990)
1,774
(20,686)
(4,772)
355
(5,012)
(28,341)
1,228
(27,113)
(647)
(2,646)
—
—
—
(9,195)
2,012
(7,183)
4,948
(13,286)
(1,981)
(2,427)
(1,214)
(13,960)
2,435
(11,525)
—
(566)
(1,105)
(45,757)
17,039
(28,718)
33,641
610
(3,610)
(1,851)
(4,723)
24,067
(3,344)
20,723
(2,584)
(50,922)
—
—
(118,718)
44,863
(73,855)
28,798
84,613
(4,314)
2,864
(4,504)
107,457
(35,092)
72,365
Total reclassifications for the period, net of tax
$
(63,103) $
(18,708) $
(7,995) $
(1,490)
F-40 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
NOTE 17 — 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)
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
Stock-based compensation cost
$
105,157
$
25,440 $
81,641 $
Income tax benefits
Stock-based compensation costs included in inventory at
period end
23,650
3,165
5,771
2,236
26,697
1,938
67,762
22,870
1,332
At the end of March 2019, there was $56.0 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 March 2019, there were 27,710,266 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
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
22% to 29%
24% to 29%
23% to 30%
21% to 29%
25%
6.1 to 7.5
2.6%
25%
24%
24%
6.1 to 7.6
6.3 to 7.7
6.3 to 7.6
2.9%
2.8%
2.2%
2.1% to 3.2%
1.9% to 2.9%
0.7% to 2.4%
0.4% to 1.7%
Weighted average fair value at date of grant
$16.82
$15.34
$9.90
$12.08
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.
VF Corporation Fiscal 2019 Form 10-K F-41
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Stock option activity for the three-month period ended March 2018 and the year ended March 2019 is summarized as follows:
Number of Shares
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic Value
(In thousands)
Outstanding, December 2017
14,250,084 $
Granted
Exercised
Forfeited/cancelled
Outstanding, March 2018
Granted
Exercised
Forfeited/cancelled
Outstanding, March 2019
Exercisable, March 2019
1,843,749
(1,484,537)
(117,782)
14,491,514
101,197
(4,316,539)
(365,962)
9,910,210 $
7,781,198 $
52.03
74.80
38.94
66.36
56.15
81.01
46.86
65.27
60.11
58.60
6.7 $
6.2 $
265,734
220,251
The total fair value of stock options that vested during the year ended March 2019, the three months ended March 2018 and the years
ended December 2017 and 2016 was $26.8 million, $28.3 million, $28.0 million and $26.7 million, respectively. The total intrinsic value
of stock options exercised during the year ended March 2019, the three months ended March 2018 and the years ended December 2017
and 2016 was $171.6 million, $57.3 million, $106.7 million and $86.6 million, respectively.
Restricted Stock Units
VF grants performance-based RSUs that enable employees to
receive shares of VF Common Stock at the end of a three-year
period. Each performance-based RSU has a potential final payout
ranging from zero to two shares of VF Common Stock. For
performance-based RSUs granted prior to February 2018, 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 Talent and Compensation
Committee of the Board of Directors. For performance-based
RSUs granted in the three months ended March 2018 and Fiscal
2019, the number of shares earned by participants, if any, is based
on achievement of three-year financial targets set by the Talent
and Compensation Committee of the Board of Directors. For all
performance-based RSUs, 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
Consumer Discretionary Index for grants issued in the three
months ended March 2018 and Fiscal 2019, and the Standard &
Poor's 500 Index for grants issued in the years ended December
2017 and 2016. 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
$4.61, $4.61, $2.67 and $4.48 per share for the year ended March
2019, three-month period ended March 2018 and years ended
December 2017 and 2016 performance-based 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 nonperformance-based
RSU entitles the holder to one share of VF Common Stock. The
employee nonperformance-based RSUs generally vest over
periods of up to four years from the date of grant. The
nonperformance-based 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.
In addition, VF began making nonperformance-based RSU grants
to employees as part of its annual stock compensation program
beginning
in the three months ended March 2018. Each
nonperformance-based RSU entitles the holder to one share of VF
Common Stock. These awards generally vest 50% over a two-year
period and 50% over a four-year period 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.
F-42 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
RSU activity for the three-month period ended March 2018 and the year ended March 2019 is summarized as follows:
Outstanding, December 2017
Granted
Issued as Common Stock
Forfeited/cancelled
Outstanding, March 2018
Granted
Issued as Common Stock
Forfeited/cancelled
Outstanding, March 2019
Vested, March 2019
Performance-based
Nonperformance-based
Number
Outstanding
Weighted Average
Grant Date
Fair Value
Number
Outstanding
Weighted Average
Grant Date
Fair Value
1,504,551 $
351,490
(405,871)
(12,154)
1,438,016
19,099
—
(60,439)
1,396,676 $
859,332 $
62.22
74.80
75.33
63.64
61.58
80.39
—
65.20
61.68
61.37
335,093 $
407,074
(34,964)
(10,780)
696,423
82,799
(58,165)
(56,224)
664,833 $
69,139 $
60.72
74.80
56.11
72.45
69.00
79.21
69.08
73.54
69.88
74.80
The weighted average fair value of nonperformance-based RSUs
granted during the year ended March 2019, the three months ended
March 2018 and the years ended December 2017 and 2016 was
$79.21, $74.80, $57.49 and $61.83 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 March 2019 was $57.8 million.
The weighted average fair value of performance-based RSUs
granted during the year ended March 2019, the three months ended
March 2018 and the years ended December 2017 and 2016 was
$80.39, $74.80, $53.69 and $61.31 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 March 2019 was $121.4 million. Awards
earned and vested for the three-year performance period ended
in December 2017 and distributed in early 2018 totaled 450,175
shares of VF Common Stock having a value of $36.4 million.
Similarly, 480,555 shares of VF Common Stock having a value of
$24.3 million were earned for the performance period ended in
December 2016.
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 the three-month period ended March 2018 and the year ended March 2019 is summarized below:
Nonvested shares, December 2017
Granted
Dividend equivalents
Vested
Forfeited
Nonvested shares, March 2018
Granted
Dividend equivalents
Vested
Forfeited
Nonvested shares, March 2019
Nonvested Shares
Outstanding
Weighted Average
Grant Date Fair
Value
684,963 $
56,331
4,188
(53,203)
(11,068)
681,211
79,188
15,468
(99,682)
(49,460)
626,725 $
57.01
74.70
74.40
57.90
68.25
58.33
79.99
82.02
67.41
62.76
59.86
VF Corporation Fiscal 2019 Form 10-K F-43
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Nonvested shares of restricted stock had a market value of $54.5 million at the end of March 2019. The market value of the shares that
vested during the year ended March 2019, the three months ended March 2018 and the years ended December 2017 and 2016 was $8.7
million, $3.9 million, $19.4 million and $3.9 million, respectively.
NOTE 18 — 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
Year Ended
March
2019
337,066
1,190,338
1,527,404
$
$
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
$
$
4,163 $
364,846 $
289,970
1,051,649
301,760
982,956
294,133 $
1,416,495 $
1,284,716
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
$
143,872
$
(4,864) $
618,611 $
164,974
22,455
331,301
(53,715)
(9,186)
(62,901)
36,634
896
32,666
(13,656)
13,959
303
135,007
21,506
775,124
(76,039)
(3,799)
(79,838)
115,570
123,960
37,957
277,487
(63,610)
(8,015)
(71,625)
$
268,400
$
32,969 $
695,286 $
205,862
the U.S. government enacted
On December 22, 2017,
comprehensive tax legislation commonly referred to as 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 SAB 118 to provide companies with relief around the initial
accounting for the Tax Act. Pursuant to SAB 118, the SEC 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 allowed companies to recognize
provisional amounts when reasonable estimates could be made
for the impacts resulting from the Tax Act.
VF finalized its accounting for the Tax Act during the one-year
measurement period under SAB 118, and recognized additional net
charges of $18.2 million, primarily comprised of $14.3 million tax
expense related to the transition tax, additional tax benefits of $0.3
million related to revaluing U.S. deferred tax assets and liabilities
using the new U.S. corporate tax rate of 21%, and $4.2 million tax
expense related to establishing a deferred tax liability for foreign
withholding taxes, resulting in a cumulative net charge of $483.7
million. The measurement period adjustments include $5.1 million
of net tax benefit recognized in the three months ended March 2018
and $23.3 million of net tax expense recognized during the year
ended March 2019.
On January 15, 2019 final regulations under Section 965 related to
the transition tax were released. After analyzing these regulations,
the Company recorded an additional net charge of $13.9 million,
primarily comprised of $20.7 million tax expense related to
transition tax and a net tax benefit of $6.8 million related to a
reduction in unrecognized tax benefits as a result of the final
regulations.
The income tax payable attributable to the transition tax is due over
an 8-year period beginning in 2018. At March 30, 2019, a noncurrent
income tax payable of approximately $416.1 million attributable to
the transition tax is reflected in the other liabilities line item of the
Consolidated Balance Sheet.
The Tax Act created a new tax on certain GILTI from foreign
operations. Under GAAP, companies may make an accounting
policy election to either treat taxes resulting from GILTI as a
current-period expense when they are incurred or factor such
amounts into the measurement of deferred taxes. The Company
completed its analysis of the effects of the GILTI provisions and
determined it will treat the taxes resulting from GILTI as a current-
period expense, which is consistent with the treatment prior to the
accounting policy election.
F-44 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
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
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
$
320,755
$
61,768 $
495,772 $
32,954
(84,702)
37,262
—
—
(26,398)
(11,471)
(4,745)
(9,227)
(5,107)
—
977
(10,060)
(637)
23,684
(217,131)
465,501
(67,032)
37,296
(22,826)
(19,978)
449,650
24,426
(262,392)
—
—
—
(25,135)
19,313
$
268,400
$
32,969 $
695,286 $
205,862
Income tax expense includes tax benefits of $6.3 million, $9.8
million, $10.1 million and $19.4 million in the year ended March
2019, the three months ended March 2018 and the years ended
December 2017 and 2016, 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
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,
2016, VF Europe BVBA filed its own application for annulment of
the EU decision.
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. On February 14, 2019 the General Court
annulled the EU decision and on April 26, 2019 the EU appealed
the General Court's annulment. Both listed requests for annulment
remain open and unresolved. If this matter is adversely resolved,
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 $15.7
million ($0.04 per diluted share) in the year ended March 2019, $7.5
million ($0.02 per diluted share) in the three months ended March
2018, $17.8 million ($0.04 per diluted share) in the year ended
December 2017 and $12.0 million ($0.03 per diluted share) in the
year ended December 2016.
VF Corporation Fiscal 2019 Form 10-K F-45
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Deferred income tax assets and liabilities consisted of the following:
March 2019
March 2018
December 2017
$
32,647
$
24,797 $
51,913
69,594
37,317
127,684
19,423
229,955
568,533
(188,258)
380,275
25,355
222,769
91,464
339,588
40,687
109,551
(68,864)
40,687
$
$
$
$
$
$
53,843
52,456
38,244
155,635
46,069
252,695
623,739
(226,269)
397,470
27,023
223,435
82,406
332,864
64,606 $
21,146
55,326
45,464
45,960
158,632
34,705
251,236
612,469
(225,141)
387,328
25,272
237,667
78,824
341,763
45,565
105,493 $
103,601
(40,887)
64,606 $
(58,036)
45,565
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
totaled $150.5 million for available foreign operating loss
carryforwards, $5.1 million
loss
carryforwards, $22.7 million for available state operating loss and
credit carryforwards, and $10.0 million for other foreign deferred
income tax assets. During Fiscal 2019, VF had a net decrease in
valuation allowances of $25.5 million related to capital loss
carryforwards,a net increase of $1.7 million related to state
operating loss and credit carryforwards and a decrease of $17.1
million related to foreign operating loss carryforwards and other
foreign deferred tax assets, inclusive of foreign currency effects.
for available capital
(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 10)
Other liabilities (Note 14)
At the end of Fiscal 2019, the Company is not asserting indefinite
reinvestment with regards to short-term liquid assets of certain
foreign subsidiaries. All other foreign earnings, including basis
differences of certain foreign subsidiaries, continue to be
considered
indefinitely reinvested. The Company has not
determined the deferred tax liability associated with these
undistributed earnings and basis differences, as such
determination is not practicable.
VF has potential tax benefits totaling $199.3 million for foreign
operating loss carryforwards, of which $171.3 million have an
unlimited carryforward life. In addition, there are $0.1 million of
potential tax benefits for federal operating loss carryforwards that
expire in 2020, $19.4 million of potential tax benefits for federal
and state capital loss carryforwards that begin to expire in 2022
and $30.5 million of potential tax benefits for state operating loss
and credit carryforwards that expire between 2020 and 2039.
F-46 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
A reconciliation of the change in the accrual for unrecognized income tax benefits is as follows:
(In thousands)
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
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, March 2018
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, March 2019
Unrecognized
Income Tax
Benefits
Accrued
Interest
and Penalties
Unrecognized
Income Tax
Benefits
Including Interest
and Penalties
$
75,677 $
9,369 $
121,025
6,164
(4,798)
(14,985)
(6,108)
(9)
176,966
28,049
22,968
(22,163)
(9,028)
(855)
55
195,992
2,012
477
(201)
(9,222)
—
17
189,075
8,511
16,211
(18,753)
(30)
(6,754)
(35)
—
2,880
(1,362)
(1,335)
(829)
(14)
8,709
—
6,808
(279)
(915)
(248)
11
14,086
—
2,340
(3)
(985)
—
2
15,440
—
12,521
(467)
(7)
(919)
(3)
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
210,078
2,012
2,817
(204)
(10,207)
—
19
204,515
8,511
28,732
(19,220)
(37)
(7,673)
(38)
$
188,225 $
26,565 $
214,790
(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
March 2019
March 2018
December 2017
$
$
214,790
40,862
173,928
$
$
204,515 $
35,474
210,078
31,197
169,041 $
178,881
The unrecognized tax benefits of $173.9 million at the end of Fiscal
2019, if recognized, would reduce the annual effective tax rate.
years through 2014 have been effectively settled. The examination
of Timberland’s 2011 tax return is ongoing.
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
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
VF Corporation Fiscal 2019 Form 10-K F-47
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
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 $28.5 million within the next 12 months due to settlement of
audits and expiration of statutes of limitations, $27.1 million of
which would reduce income tax expense.
NOTE 19 — REPORTABLE SEGMENT INFORMATION
In light of recently completed portfolio management actions and
organizational realignments, the Company realigned its internal
reporting structure in the year ended March 2019 to reflect the
organizational changes to better support and assess the
operations of the business. The chief operating decision maker
allocates resources and assesses performance based on a global
brand view which represents VF's operating segments. The
operating segments have been evaluated and combined into
reportable segments because they have met the similar economic
characteristics and qualitative aggregation criteria set forth in the
relevant accounting guidance. Based on this assessment, the
Company's reportable segments have been identified as: Outdoor,
Active, Work and Jeans.
Below is a description of VF's reportable segments and the primary brands included within each:
REPORTABLE SEGMENT
Outdoor - Outdoor apparel, footwear and equipment
PRIMARY BRANDS
The North Face®
Timberland® (excluding Timberland PRO®)
Active - Active apparel, footwear and accessories
Icebreaker®
Smartwool®
Altra®
Vans®
Kipling®
Napapijri®
Eastpak®
JanSport®
Reef®
Eagle Creek®
Work - Work and work-inspired lifestyle apparel, footwear and occupational apparel
Dickies®
Red Kap®
Bulwark®
Timberland PRO®
VF Solutions®
Wrangler® RIGGS
Walls®
Terra®
Workrite®
Kodiak®
Horace Small®
Jeans - Denim and casual apparel
Wrangler® (excluding Wrangler® RIGGS)
Lee®
Lee® Riders®
Rock and Republic®
Other - included in the tables below for purposes of reconciliation of revenues and profit, but it is not considered a reportable segment.
Includes sales of non-VF products at VF Outlet™ stores and results from transition services related to the sales of the Nautica® and Reef®
brand businesses.
F-48 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
In the tables below, the Company has recast historical financial
information to reflect the new reportable segments. The recast
historical information has no impact on the Company's previously
reported consolidated financial statements.
The results of Williamson-Dickie have been included in the Work
segment since the October 2, 2017 acquisition date. The results of
Kipling North America, which were previously included in the
former Sportswear segment, have been included in the Active
segment for all periods presented. The results of Icebreaker and
Altra have been included in the Outdoor segment since their
acquisition dates of April 3, 2018 and June 1, 2018, respectively.
The results of the Van Moer business have been included in the
Work segment through the October 5, 2018 date of sale. The results
of the Reef® brand business have been included in the Active
segment through the October 26, 2018 date of sale.
The primary financial measures used by management to evaluate
the financial results of VF's reportable segments are segment
revenues and segment profit. Segment profit comprises the
operating income and other income (expense), net line items of
each segment.
Accounting policies used for internal management reporting at the
individual segments are consistent with those in Note 1, except as
stated below. Corporate costs (other than common costs allocated
to the segments), impairment charges and net interest expense
are not controlled by segment management and therefore are
excluded from the measurement of segment profit. Common costs
such as information systems processing, retirement benefits and
insurance are allocated from corporate costs to the segments
based on appropriate metrics such as usage or employment.
Corporate costs that are not allocated to the segments 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 segments, while
the remaining pension cost components are reported in corporate
and other expenses.
Segment assets, for internal management purposes, are those
used directly in or resulting from the operations of each business,
which are accounts receivable and inventories. Segment assets
included in the Other category represent balances related to the
VF Outlet™ business, transition services and other corporate
activities, and are provided for purposes of reconciliation as the
Other category is not considered a reportable segment. Total
expenditures for additions to long-lived assets are not disclosed
as this information is not regularly provided to the chief operating
decision maker at the segment level.
VF Corporation Fiscal 2019 Form 10-K F-49
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Financial information for VF’s reportable segments is as follows:
(In thousands)
Segment revenues:
Outdoor
Active
Work
Jeans
Other
Total segment revenues
Segment profit:
Outdoor
Active
Work
Jeans
Other
Total segment profit
Impairment of goodwill and intangible assets (a)
Corporate and other expenses (b) (c)
Interest expense, net
Income from continuing operations before income
taxes
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
$
4,649,024
$
888,039 $
4,208,958 $
$
$
$
$
4,721,792
1,862,017
2,491,769
124,058
13,848,660
544,425
1,125,709
220,670
300,502
457
2,191,763
—
(578,934)
(85,425)
4,123,372
3,318,428
776,214
2,690,059
118,074
594,485
628,163
137,301
479,179
(4,809)
1,071,598
442,258
623,266
20,285
3,791,737
1,099,714
2,597,623
113,145
3,045,446 $
11,811,177 $
11,026,147
44,673 $
537,543 $
237,620
40,024
103,805
(3,074)
423,048
—
(107,750)
(21,165)
805,843
163,585
406,524
(3,090)
1,910,405
1,834,319
—
(408,030)
(85,880)
(79,644)
(384,413)
(85,546)
$
1,527,404
$
294,133 $
1,416,495 $
1,284,716
(a) Represents goodwill and intangible asset impairment charges in 2016 related to the Outdoor segment (lucy® brand discussed in Notes 8, 9 and 22).
The impairment charges were excluded from the profit of the Outdoor segment since they are not part of the ongoing operations of the business.
(b) Reflects a $50.9 million pension settlement charge in 2016 (Note 15).
(c) Certain corporate overhead and other costs of, $16.6 million and $44.3 million during the years ended December 2017 and 2016, respectively, previously
allocated to the former Sportswear, Imagewear, Outdoor & Action Sports and Contemporary Brands segments for segment reporting purposes, have
been reallocated to continuing operations as discussed in Note 4.
March
2019
March
2018
December
2017
$
1,108,274
$
924,870 $
1,082,264
981,033
742,329
720,620
99,570
3,651,826
543,011
1,057,268
3,779,161
1,325,519
—
873,737
669,641
710,481
91,299
3,270,028
680,762
1,011,617
3,813,329
1,161,994
373,580
686,991
657,025
629,648
80,667
3,136,595
563,483
1,014,638
3,782,425
1,080,661
380,700
$
10,356,785
$
10,311,310 $
9,958,502
(In thousands)
Segment assets:
Outdoor
Active
Work
Jeans
Other
Total segment assets
Cash and equivalents
Property, plant and equipment, net
Intangible assets and goodwill
Other assets
Assets of discontinued operations
Consolidated assets
F-50 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
(In thousands)
Depreciation and amortization expense: (a)
Outdoor
Active
Work
Jeans
Other
Corporate
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
$
82,259
$
16,998 $
86,838 $
73,395
34,446
38,505
2,542
69,858
18,953
10,149
8,710
609
15,501
70,219
12,926
35,586
3,560
68,016
83,070
66,031
5,051
39,237
3,537
57,290
$
301,005
$
70,920 $
277,145 $
254,216
(a) Excludes $0.6 million, $14.0 million and $27.4 million of depreciation and amortization related to discontinued operations in the three months ended
March 2018 and the years ended December 2017 and 2016, 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 4).
Supplemental information (with revenues by geographic area based on the origin of the shipment) is as follows:
(In thousands)
Total revenues:
U.S.
Foreign, primarily Europe
Property, plant and equipment:
U.S.
Foreign, primarily Europe
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
$
$
$
$
8,126,280
5,722,380
13,848,660
644,839
412,429
1,057,268
$
$
$
$
1,643,991 $
6,923,749 $
1,401,455
4,887,428
6,669,026
4,357,121
3,045,446 $
11,811,177 $
11,026,147
605,487 $
406,130
607,437
407,201
1,011,617 $
1,014,638
No single customer accounted for 10% or more of the Company’s total revenues in the year ended March 2019, the three months ended
March 2018 and the years ended December 2017 and 2016.
NOTE 20 — COMMITMENTS AND CONTINGENCIES
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
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
$
$
386,544
34,267
420,811
$
$
104,235 $
355,217 $
6,791
24,410
111,026 $
379,627 $
337,879
18,062
355,941
Future minimum lease payments during the noncancelable lease
term are $366.4 million, $314.8 million, $228.9 million, $163.5
million and $106.9 million for fiscal years 2020 through 2024,
respectively, and $252.8 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 $25.6 million, $13.1 million,
$8.3 million, $3.1 million and $1.8 million for fiscal years 2020
through 2024, respectively, and $8.8 million thereafter.
VF Corporation Fiscal 2019 Form 10-K F-51
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
In the ordinary course of business, VF has entered into purchase
commitments for raw materials, contract production and finished
products. Total payments required under these agreements are
$2.6 billion, $17.8 million, $6.8 million, and $7.0 million for fiscal
years 2020 through 2023, respectively and no commitments
thereafter.
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 $108.0 million, $18.8 million, $16.3 million,
$11.7 million and $7.4 million for fiscal years 2020 through 2024,
respectively, and $12.1 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 $116.2 million as of March 2019. These
commitments would only be drawn upon if VF were to fail to meet
its claims or other obligations.
Contingencies
The Company petitioned the U.S. Tax Court to resolve an IRS dispute
regarding the timing of income inclusion associated with the 2011
NOTE 21 — EARNINGS PER SHARE
Timberland acquisition. The Company remains confident in our
timing and treatment of the income inclusion, and therefore this
matter is not reflected in our financial statements. We are
vigorously defending our position, and do not expect the resolution
to have a material adverse impact on the Company's financial
position, results of operations or cash flows. While the IRS argues
immediate income inclusion, the Company's position is to include
the income over a period of years. As the matter relates to 2011,
nearly half of the timing at dispute has passed with the Company
including the income, and paying the related tax, on our income
tax returns. The Company notes that should the IRS prevail in this
timing matter, the net interest expense would be up to $130 million.
Further, this timing matter is impacted by the Tax Act that reduced
the U.S. corporate income tax rate from 35% to 21%. If the IRS is
successful, this rate differential would increase tax expense by
approximately $136 million.
The Company is currently involved in other legal proceedings that
are ordinary, routine litigation incidental to the business. The
resolution of any particular proceeding is not currently expected
to have a material adverse impact on the Company's financial
position, results of operations or cash flows.
(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
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
$
$
$
1,259,004
395,189
3.19
1,259,004
395,189
$
$
$
261,164 $
721,209 $
1,078,854
395,253
399,223
0.66 $
1.81 $
416,103
2.59
261,164 $
721,209 $
1,078,854
395,253
399,223
416,103
5,307
6,023
4,336
5,978
Earnings per share from continuing operations
$
3.14
$
0.65 $
1.79 $
400,496
401,276
403,559
422,081
2.56
Outstanding options to purchase 0.5 million, 6.9 million and 5.8
million shares of Common Stock were excluded from the
calculations of diluted earnings per share in the years ended March
2019, December 2017 and December 2016, respectively, because
the effect of their inclusion would have been antidilutive to those
years. For the three months ended March 2018, all outstanding
options to purchase shares were dilutive and included in the
calculation of diluted earnings per share. In addition, 0.8 million
shares of performance-based RSUs were excluded from the
calculations of diluted earnings per share in the year ended March
2019, and 0.9 million shares were excluded in each of the three
months ended March 2018 and the years ended December 2017
and 2016 because these units were not considered to be contingent
outstanding shares.
NOTE 22 — 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.
F-52 VF Corporation Fiscal 2019 Form 10-K
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
•
Level 2 — Significant directly observable data (other than
Level 1 quoted prices) or significant indirectly observable
data through corroboration with observable market data.
Inputs would normally be (i) quoted prices in active markets
for similar assets or liabilities, (ii) quoted prices in inactive
markets for identical or similar assets or liabilities, or (iii)
information derived from or corroborated by observable
market data.
Recurring Fair Value Measurements
•
Level 3 — Prices or valuation techniques that require
significant unobservable data inputs. These inputs would
normally be VF’s own data and
judgments about
assumptions that market participants would use in pricing
the asset or liability.
The following table summarizes financial assets and financial liabilities that are measured and recorded in the consolidated financial
statements at fair value on a recurring basis:
(In thousands)
March 2019
Financial assets:
Cash equivalents:
Money market funds
Time deposits
Derivative financial instruments
Investment securities
Financial liabilities:
Derivative financial instruments
Deferred compensation
(In thousands)
March 2018
Financial assets:
Cash equivalents:
Money market funds
Time deposits
Derivative financial instruments
Investment securities
Financial liabilities:
Derivative financial instruments
Deferred compensation
(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
Total Fair
Value
Fair Value Measurement Using (a)
Level 1
Level 2
Level 3
$
248,560 $
248,560 $
8,257
92,771
186,698
22,337
199,336
8,257
—
176,209
—
—
— $
—
92,771
10,489
22,337
199,336
Total Fair
Value
Fair Value Measurement Using (a)
Level 1
Level 2
Level 3
$
185,118 $
185,118 $
7,714
31,400
194,160
106,174
227,808
7,714
—
183,802
—
—
— $
—
31,400
10,358
106,174
227,808
Total Fair
Value
Fair Value Measurement Using (a)
Level 1
Level 2
Level 3
$
265,432 $
265,432 $
13,591
22,970
197,837
100,038
235,359
13,591
—
185,723
—
—
— $
—
22,970
12,114
100,038
235,359
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(a) There were no transfers among the levels within the fair value hierarchy during the year ended March 2019, the three months ended March 2018 or
the year ended December 2017.
VF Corporation Fiscal 2019 Form 10-K F-53
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
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 15). These investments 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
financial assets and financial liabilities include cash held as
demand deposits, accounts receivable, short-term borrowings,
accounts payable and accrued liabilities. At March 2019, March
2018 and December 2017, their carrying values approximated their
fair values. Additionally, at March 2019, March 2018 and December
2017, the carrying values of VF’s long-term debt, including the
current portion, were $2,121.1 million, $2,218.8 million and
$2,194.0 million, respectively, compared with fair values of
$2,318.6 million, $2,403.9 million and $2,422.0 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 Fair Value Measurements
In conjunction with the acquisitions of Williamson-Dickie,
Icebreaker and Altra, 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 3 for additional details
regarding the acquisitions 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 $6.0 million, $17.2 million and $8.2 million
of fixed asset impairments in the years ended March 2019,
December 2017 and December 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 the three months ended March 2018.
Due to the change in VF's reportable segments during the first
quarter of the year ended March 2019, the Timberland PRO® and
F-54 VF Corporation Fiscal 2019 Form 10-K
Wrangler® RIGGS brands were identified as new reporting units.
Accordingly, VF was required to evaluate whether there was
impairment at the historical Timberland and Jeanswear North
America reporting units, and allocate to Timberland PRO and
Wrangler RIGGS a portion of the respective historical reporting unit
goodwill. Management performed a quantitative impairment
analysis and concluded the estimated fair value of the historical
reporting units exceeded the carrying value by a substantial
amount, and thus the goodwill was not impaired. Management
allocated $51.5 million and $7.4 million to Timberland Pro and
Wrangler RIGGS, respectively, based on estimated relative fair
values. The fair values of the reporting units were estimated using
valuation techniques described in the Critical Accounting Policies
and Estimates included in the "Management’s Discussion and
Analysis" section of this Form 10-K.
Management performed its annual impairment testing of goodwill
and indefinite-lived intangible assets as of the beginning of the
fourth quarter of Fiscal 2019. Management performed a qualitative
analysis for all reporting units and trademark intangible assets.
No impairment charges of goodwill or intangible assets were
recorded in the year ended March 2019 or the three months ended
March 2018. See Critical Accounting Policies and Estimates within
Management's Discussion and Analysis for additional discussion
regarding non-recurring fair value measurements during the year
ended March 2019.
No impairment charges of goodwill or intangible assets were
recorded in the year ended December 2017 except for a goodwill
impairment charge of $104.7 million recorded in the the three
months ended September 30, 2017 related to the Nautica® brand
business, which has since been reported as discontinued
operations.
VF recognized impairment charges of $79.6 million in the year
ended December 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.
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
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
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
participants
industry, and (iii) the current
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.
in the apparel
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
these
participants performing
businesses.
independent valuations of
NOTE 23 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Summary of Derivative Financial Instruments
All of VF’s outstanding derivative financial instruments are foreign
exchange forward contracts. Although derivatives meet the criteria
for hedge accounting at the inception of the hedging relationship,
a limited number of derivative contracts intended to hedge assets
and liabilities are not designated as hedges for accounting
purposes. The notional amounts of all outstanding derivative
contracts were $2.8 billion at March 2019 and $2.9 billion at both
March 2018 and December 2017, consisting primarily of contracts
hedging exposures to the euro, British pound, Canadian dollar,
Mexican peso, Swiss franc, Swedish krona, New Zealand dollar,
South Korean won, Japanese yen, and Polish zloty. Derivative
contracts have maturities up to 20 months.
The following table presents outstanding derivatives on an individual contract basis:
(In thousands)
Foreign currency exchange contracts
designated as hedging instruments
Foreign currency exchange contracts not
designated as hedging instruments
Fair Value of Derivatives
with Unrealized Gains
Fair Value of Derivatives
with Unrealized Losses
March
2019
March
2018
December
2017
March
2019
March
2018
December
2017
$
92,356
$
21,496 $
17,639
$
(21,798)
$ (105,795) $
(99,606)
415
9,904
5,331
(539)
(379)
(432)
Total derivatives
$
92,771
$
31,400 $
22,970
$ (22,337) $ (106,174) $ (100,038)
VF records and presents the fair values of all of its derivative assets and liabilities in the Consolidated Balance Sheets on a gross basis,
even though they are subject to master netting agreements. If VF were to offset and record the asset and liability balances of its foreign
exchange forward contracts on a net basis in accordance with the terms of its master netting agreements, the amounts presented in
the Consolidated Balance Sheets as of March 2019, March 2018 and December 2017 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
March 2019
March 2018
December 2017
Derivative
Asset
Derivative
Liability
Derivative
Asset
Derivative
Liability
Derivative
Asset
Derivative
Liability
$
92,771 $
(22,337)
$
31,400 $ (106,174) $
22,970 $ (100,038)
(22,274)
22,274
(20,918)
20,918
(18,313)
18,313
$
70,497 $
(63) $
10,482 $ (85,256) $
4,657 $ (81,725)
Derivatives are classified as current or noncurrent based on maturity dates, as follows:
(In thousands)
Other current assets
Accrued liabilities (Note 12)
Other assets (Note 10)
Other liabilities (Note 14)
March 2019
March 2018
December 2017
$
83,582
$
26,741 $
(18,590)
9,189
(3,747)
(96,087)
4,659
(10,087)
20,771
(87,205)
2,199
(12,833)
VF Corporation Fiscal 2019 Form 10-K F-55
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
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 Relationships
Foreign currency exchange
(In thousands)
Location of Gain (Loss)
Net revenues
Cost of goods sold
Selling, general and administrative expenses
Other income (expense), net
Interest expense
Total
Derivative Contracts Not Designated as Hedges
VF uses derivative contracts to manage foreign currency exchange
risk on third-party accounts receivable and payable, as well as
intercompany borrowings. These contracts are not designated as
hedges, and are recorded at fair value in the Consolidated Balance
Sheets. Changes in the fair values of these instruments are
recognized directly in earnings. Gains or losses on these contracts
largely offset the net transaction losses or gains on the related
assets and liabilities. In the case of derivative contracts executed
on foreign currency exposures that are no longer probable of
occurring, VF de-designates these hedges and the fair value
changes of these instruments are also recognized directly in
earnings.
In addition, VF entered into foreign exchange forward contracts to
hedge the purchase price of the Icebreaker acquisition. These
contracts were not designated as hedges, and were recorded at
fair value in the Consolidated Balance Sheets. Changes in the fair
values of these instruments were recognized directly in earnings.
All contracts were settled in conjunction with the acquisition.
The changes in fair value of derivative contracts not designated as
hedges that have been recognized as gains or losses in VF's
Consolidated Statements of Income were not material for the year
ended March 2019, the three months ended March 2018, and the
years ended December 2017 and 2016.
Other Derivative Information
There were no significant amounts recognized in earnings for the
ineffective portion of any hedging relationships during the year
ended March 2019, the three months ended March 2018 and the
years ended December 2017 and 2016.
F-56 VF Corporation Fiscal 2019 Form 10-K
Gain (Loss) on Derivatives Recognized in OCI
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
$
156,513
$
(25,530) $
(138,716) $
90,708
Gain (Loss) Reclassified
from Accumulated OCI into Income
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
$
1,774
$
4,948 $
33,641 $
(20,686)
(4,772)
355
(5,012)
(13,286)
(1,981)
(2,427)
(1,214)
610
(3,610)
(1,851)
(4,723)
28,798
84,613
(4,314)
2,864
(4,504)
$
(28,341) $
(13,960) $
24,067 $
107,457
At March 2019, accumulated OCI included $70.3 million of pre-tax
net deferred losses for foreign currency exchange contracts that
are expected to be reclassified to earnings during the next 12
months. The amounts ultimately reclassified to earnings will
depend on exchange rates in effect when outstanding derivative
contracts are settled.
VF 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 pre-tax net deferred loss in accumulated OCI was $11.7
million at March 2019, which will be reclassified into interest
expense in the Consolidated Statements of Income over the
remaining terms of the associated debt instruments. During the
year ended March 2019, the three months ended March 2018 and
the years ended December 2017 and 2016, VF reclassified $5.0
million, $1.2 million, $4.7 million and $4.5 million, respectively, of
net deferred losses from accumulated OCI into interest expense.
VF expects to reclassify $5.3 million to interest expense during the
next 12 months.
Net Investment 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 the year ended March 2019, the three
months ended March 2018 and the years ended December 2017
and 2016, the Company recognized an after-tax gain of $69.5
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
million, an after-tax loss of $19.2 million, an after-tax loss of $92.9
million and an after-tax gain of $34.4 million, respectively, 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
the year ended March 2019, the three months ended March 2018
and the years ended December 2017 and 2016.
NOTE 24 — SUPPLEMENTAL CASH FLOW INFORMATION
(In thousands)
Income taxes paid, net of refunds
Interest paid, net of amounts capitalized
Noncash transactions:
Year Ended
March
2019
Three Months
Ended March
(Transition Period)
2018
Year Ended December
2017
2016
$
359,821
$
105,635 $
331,194 $
434,795
102,749
13,553
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
29,824
14,842
22,495
26,146
28,103
21,144
22,880
15,143
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 25 — RESTRUCTURING
The Company typically incurs restructuring charges related to
strategic initiatives and cost optimization of business activities,
primarily related to severance and employee-related benefits.
Of the $107.6 million of restructuring charges recognized in the
year ended March 2019, $70.2 million were reflected in selling,
general and administrative expenses and $37.4 million in cost of
goods sold. Of the $14.9 million million of restructuring charges
recognized in the three months ended March 2018, $10.8 million
were reflected in selling, general and administrative expenses and
$4.1 million in cost of goods sold. Of the $27.0 million of
restructuring charges recognized in the year ended December
2017, $20.2 million were reflected in selling, general and
administrative expenses and $6.8 million in cost of goods sold. Of
The components of the restructuring charges are as follows:
the $55.1 million of restructuring charges recognized in the year
ended December 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
related to the actions for the years ended December 2017 and 2016
during the three months ended March 2018 or the year ended
March 2019, and has completed most of the related restructuring
activities as of March 2019. Of the total restructuring accrual at
March 2019, $86.6 million is expected to be paid out within the next
12 months and is classified within accrued liabilities. The
remaining $5.7 million will be paid out beyond the next 12 months
and thus is classified within other liabilities.
(In thousands)
Year Ended March
2019 Charges
Three Months
Ended March
2018 Charges
Year Ended
December 2017
Charges
Year Ended
December 2016
Charges
Severance and employee-related benefits
$
79,693
$
14,927 $
22,611 $
Asset impairments
Inventory write-downs
Contract termination and other
Total restructuring charges
5,705
6,574
15,643
—
—
—
—
—
4,436
$
107,615
$
14,927 $
27,047 $
50,395
3,394
—
1,310
55,099
VF Corporation Fiscal 2019 Form 10-K F-57
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
Restructuring costs by business segment are as follows:
14,137
3,946
1,308
20,357
1,277
14,074
55,099
50,606
27,047
(38,227)
(2,783)
1,601
38,244
14,927
(8,650)
(1,033)
101
43,589
95,336
(40,447)
(5,700)
(507)
92,271
(In thousands)
Outdoor
Active
Work
Jeans
Other
Corporate
Total
Year Ended March
2019 Charges
Three Months
Ended March
2018 Charges
Year Ended
December 2017
Charges
Year Ended
December 2016
Charges
$
38,952
$
4,550 $
10,393 $
13,579
10,003
39,936
167
4,978
—
7,802
2,575
—
—
2,400
3,895
6,993
—
3,366
$
107,615
$
14,927 $
27,047 $
The activity in the restructuring accrual is as follows:
(In thousands)
Severance
Other
Total
Accrual at December 2016
$
49,728 $
878 $
Charges
Cash payments and settlements
Adjustments to accruals
Currency translation
Accrual at December 2017
Charges
Cash payments and settlements
Adjustments to accruals
Currency translation
Accrual at March 2018
Charges
Cash payments and settlements
Adjustments to accruals
Currency translation
Accrual at March 2019
22,611
(37,349)
(2,783)
1,601
33,808
14,927
(4,658)
(1,033)
101
43,145
79,693
(35,530)
(5,800)
(272)
4,436
(878)
—
—
4,436
—
(3,992)
—
—
444
15,643
(4,917)
100
(235)
$
81,236 $
11,035 $
The Company has incurred costs associated with the relocation of VF's global headquarters and certain brands to Denver, Colorado. The
total amount of charges recognized for the year ended March 2019 was $47.4 million, of which $18.8 million relates to severance and
employee-related benefits and is included in the tables above. The remaining $28.6 million relates to other relocation costs, the majority
of which has been paid as of March 2019.
NOTE 26 — SUBSEQUENT EVENTS
On May 14, 2019, VF’s Board of Directors declared a quarterly cash
dividend of $0.51 per share, payable on June 20, 2019 to
shareholders of record on June 10, 2019.
On May 19, 2019, Switzerland voted to approve the Federal Act on
Tax Reform and AHV Financing (“Swiss Tax Act”). The Company
is currently evaluating the Swiss Tax Act and the associated tax
effects will be reflected in VF’s first quarter of Fiscal 2020, which
is the period that the Swiss Tax Act was enacted. We believe the
Swiss Tax Act may have a material impact to the Company’s tax
expense.
On May 22, 2019, VF completed the spin-off of its Jeans business
with the new company now operating as an independent, publicly
F-58 VF Corporation Fiscal 2019 Form 10-K
traded company under the name Kontoor Brands, Inc. ("Kontoor
Brands"). As a result, beginning in the first quarter of Fiscal 2020,
Kontoor Brands' historical financial results through the date of
separation will be reported as a discontinued operation in VF's
consolidated financial statements. The spin-off is effected through
a distribution to VF shareholders of one share of Kontoor Brands
common stock for every seven shares of VF common stock held on
the record date of May 10, 2019. In connection with the spin-off,
Kontoor Brands transferred net proceeds of approximately $1.0
billion to VF and its subsidiaries from its new debt issuance.
VF CORPORATION
Notes to Consolidated Financial Statements
March 2019
NOTE 27 — QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
Year Ended March 2019
Net revenues
Operating income
Income from continuing operations
Income from discontinued operations, net of tax
Net income
Earnings per common share - basic (g)
Continuing operations
Discontinued operations
Total earnings per common share - basic
Earnings per common share - diluted (g)
Continuing operations
Discontinued operations
Total earnings per common share - diluted
Dividends per common share
(In thousands, except per share amounts)
Year Ended December 2017
Net revenues
Operating income (f)
Income (loss) from continuing operations
Loss (income) from discontinued operations, net of
tax
Net income
Earnings (loss) per common share - basic (g)
Continuing operations
Discontinued operations
Total earnings (loss) per common share - basic
Earnings (loss) per common share - diluted (g)
Continuing operations
Discontinued operations
Total earnings (loss) per common share - diluted
Dividends per common share
First
Quarter (a)
Second
Quarter (a) (b)
Third
Quarter (a) (b)
Fourth
Quarter (a) (b) (c)
Full
Year
$ 2,788,146 $ 3,907,386 $ 3,940,159 $ 3,212,969 $ 13,848,660
1,675,840
1,259,004
788
128,804 $ 1,259,792
591,905
463,126
383
463,509 $
658,669
507,121
—
507,121 $
230,882
159,953
405
160,358 $
194,384
128,804
—
$
$
$
$
$
$
0.41 $
—
0.41 $
0.40 $
—
0.40 $
0.46 $
1.28 $
—
1.28 $
1.26 $
—
1.26 $
0.46 $
1.17 $
—
1.17 $
1.16 $
—
1.16 $
0.51 $
0.33 $
—
0.33 $
0.32 $
—
0.32 $
0.51 $
3.19
—
3.19
3.14
—
3.15
1.94
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter (d) (e)
Full
Year
$ 2,500,340 $ 2,268,620 $ 3,392,934 $ 3,649,283 $ 11,811,177
1,513,029
721,209
484,619
(72,979)
293,207
213,276
575,527
473,820
159,676
107,092
(4,113)
2,797
(87,680)
(17,290)
(106,286)
209,163 $
109,889 $
386,140 $
(90,269) $
614,923
0.52 $
(0.01)
0.51 $
0.51 $
(0.01)
0.50 $
0.42 $
0.27 $
0.01
0.28 $
0.27 $
0.01
0.27 $
0.42 $
1.20 $
(0.22)
0.98 $
1.19 $
(0.22)
0.97 $
0.42 $
(0.18) $
(0.04)
(0.23) $
(0.18) $
(0.04)
(0.23) $
0.46 $
1.81
(0.27)
1.54
1.79
(0.26)
1.52
1.72
$
$
$
$
$
$
(a) VF recorded transaction and deal-related costs of $18.8 million ($15.3 million after-tax), $53.2 million ($45.5 million after-tax), $62.6 million ($47.5
million after-tax) and $57.1 million ($43.7 million after-tax) during the three months ended June 30, 2018, September 29, 2018, December 29, 2018
and March 30, 2019, respectively. Full year transaction and deal-related costs totaled $191.7 million ($152.0 million after-tax). Transaction and deal-
related costs include acquisition and integration costs related to the acquisitions of Williamson-Dickie, Icebreaker and Altra, and divestiture costs
related to the sale of the Reef® brand business. The costs also include separation and related expenses associated with the planned spin-off of the
Jeans business and non-operating losses on sale related primarily to the divestitures of the Reef® brand business and Van Moer business.
(b) VF recorded relocation costs of $10.7 million ($8.0 million after-tax), $6.0 million ($4.4 million after-tax) and $30.7 million ($22.9 million after-tax)
during the three months ended September 29, 2018, December 29, 2018 and March 30, 2019, respectively. Full year relocation costs totaled $47.4
million ($35.3 million after-tax). Relocation costs primarily include costs associated with the relocation of VF's global headquarters and certain brands
to Denver, Colorado.
(c) VF recorded costs related to strategic business decisions to cease operations in Argentina and planned business model changes in certain other
countries in Central and South America, which totaled $30.5 million ($30.5 million after-tax) during the three months ended March 30, 2019.
(d) VF recorded transaction and deal-related costs of $15.6 million ($13.6 million after-tax) during the fourth quarter of the year ended December 2017.
(e) VF recorded a $465.5 million provisional tax charge during the fourth quarter of the year ended December 2017 related to the transitional impact of
(f)
the Tax Act (Note 18).
In the first quarter of Fiscal 2019, VF adopted ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost" and restated the prior periods to conform to current year presentation. Operating income
increased and other income (expense), net decreased by $3.5 million, $1.6 million, $1.5 million and $3.3 million for the three months ended April 1,
2017, July, 1 2017, September 30, 2017 and December 30, 2017, respectively. Full year operating income increased and other income (expense), net
decreased by $9.9 million.
(g) 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 Fiscal 2019 Form 10-K F-59
Schedule II — Valuation and Qualifying Accounts
COL. A
COL. B
COL. C
ADDITIONS
COL. D
COL. E
Balance at
Beginning
of Period
(1)
Charged to
Costs and
Expenses
(2)
Charged to
Other
Accounts
Deductions
Balance at
End of
Period
Description
(In thousands)
Year Ended March 2019
Allowance for doubtful accounts
Valuation allowance for deferred income tax
assets
Three Months Ended March 2018
Allowance for doubtful accounts
Other accounts receivable allowances
Valuation allowance for deferred income tax
assets
Year Ended December 2017
Allowance for doubtful accounts
Other accounts receivable allowances
Valuation allowance for deferred income tax
assets
Year Ended December 2016
$
26,266
$ 208,995
$ 225,141
20,538
$
$ 157,835
$ 114,990
$
24,993
$
22,553
$
$ 226,269
—
2,659
465,413
—
—
—
—
$
19,170 (a) $
28,376
(b)
38,011
$ 188,258
3,932 (a) $
24,993
478,453 (c) $ 195,955
—
1,128 (d)
—
$ 226,269
21,046
1,613,257
—
—
15,318 (a) $
26,266
1,562,097 (c) $ 208,995
—
110,151 (d)
—
$ 225,141
Allowance for doubtful accounts
Other accounts receivable allowances
$
22,990
$ 161,745
16,684
1,482,855
—
—
19,136 (a) $
20,538
1,486,765 (c) $ 157,835
Valuation allowance for deferred income tax
assets
$ 100,951
—
14,039 (d)
—
$ 114,990
(a) Deductions include accounts written off, net of recoveries, and the effects of foreign currency translation.
(b) Deductions relate to changes in circumstances which increase the amount of deferred income tax assets that will, more likely than not, be realized,
and the effects of foreign currency translation.
(c) Deductions include discounts, markdowns and returns, and the effects of foreign currency translation.
(d) 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-60 VF Corporation Fiscal 2019 Form 10-K
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S T O C K I N F O R M A T I O N
COMMON STOCK
DIVIDEND DIRECT DEPOSIT
Listed on the New York Stock Exchange – trading symbol VFC.
SHAREHOLDERS OF RECORD
As of April 27, 2019, there were 3,281 shareholders of record.
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.
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 REINVESTMENT PLAN
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 Executive Vice President,
General Counsel & Secretary of VF Corporation.
C O R P O R A T E I N F O R M A T I O N
CORPORATE OFFICE
VF CONTACTS
TRANSFER AGENT AND REGISTRAR
VF World Headquarters
105 Corporate Center Blvd.
Greensboro, NC 27408
Craig Hodges
Vice President,
Corporate Affairs
Telephone: 336.424.6000
Facsimile: 336.424.7696
MAILING ADDRESS
P.O. Box 21488
Greensboro, NC 27420-1488
Joe Alkire
Vice President,
Corporate Development,
Investor Relations &
Treasury
FORWARD-LOOKING STATEMENTS
The VF Corporation Fiscal 2019 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 Fiscal
2019 Form 10-K.
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:
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
SHAREHOLDER WEBSITE
www.computershare.com/investor
SHAREHOLDER ONLINE INQUIRIES
https://www-us.computershare.com/investor/contact
SHAREHOLDER LETTER FOOTNOTES
1 VF Corporation changed its fiscal year end to the Saturday closest to March 31 from the Saturday closest to December 31, effective March 31, 2018. Fiscal 2019 represents
the period from April 1, 2018, through March 30, 2019. Fiscal 2018 represents the period from April 1, 2017, to March 31, 2018.
2 Constant dollar amounts exclude the impact of translating foreign currencies into U.S. dollars and on foreign currency-denominated transactions in countries with highly
inflationary economies.
3 The Jeans business comprises the Wrangler®, Lee® and Rock & Republic® brands, and the VF Outlet™ business.
4 Excludes the impact of acquisitions and recent divestitures.
5 Adjusted gross margin excludes the impact of transaction and deal-related costs of $28.3 million and relocation and other strategic business costs of $17.6 million.
6 GAAP EPS from continuing operations was $3.14 in fiscal 2019. Adjusted EPS in fiscal 2019 was $3.78, which excludes the impact of transaction and deal-related costs
of $151.1 million ($0.38 per share), relocation and other strategic business costs of $66.8 million ($0.17 per share) and the provisional impact of tax reform of $37.3 million
($0.09 per share).
7 Adjusted cash flow from operations excludes the impact of the cash-related acquisition, divestiture, integration, separation, relocation and other strategic business decision
costs paid in fiscal 2019.
VF CORPORATION
105 Corporate Center Blvd.
Greensboro, NC 27408
For additional information
visit VFC.com
V F C O R P ORATION
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