V F CORP 10-Q

ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED). VF CORPORATION Consolidated Balance Sheets (Unaudited) (In thousands, except share amounts) September 2021 March 2021 September 2020 ASSETS Current assets Cash and equivalents $ 1,360,138 $ 815,750 $ 1,877,398 Accounts receivable, less allowance for doubtful accounts of: September 2021 - $ 33,822 ; March 2021 - $ 33,654 ; September 2020 - $ 36,121 1,787,331 1,298,020 1,606,479 Inventories 1,464,714 1,061,839 1,434,843 Short-term investments — 598,806 800,000 Other current assets 357,687 423,877 408,809 Current assets of discontinued operations — 587,578 552,677 Total current assets 4,969,870 4,785,870 6,680,206 Property, plant and equipment, net 1,011,415 975,876 933,990 Intangible assets, net 3,018,242 3,029,545 1,851,093 Goodwill 2,415,767 2,425,427 1,173,514 Operating lease right-of-use assets 1,380,106 1,474,434 1,385,121 Other assets 1,093,687 1,062,877 917,342 TOTAL ASSETS $ 13,889,087 $ 13,754,029 $ 12,941,266 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Short-term borrowings $ 10,173 $ 11,061 $ 13,237 Current portion of long-term debt 1,001,037 1,023 1,127 Accounts payable 534,365 463,208 450,109 Accrued liabilities 1,838,790 1,609,928 1,505,703 Current liabilities of discontinued operations — 125,257 114,356 Total current liabilities 3,384,365 2,210,477 2,084,532 Long-term debt 4,682,751 5,709,149 5,679,440 Operating lease liabilities 1,146,944 1,236,461 1,129,840 Other liabilities 1,076,546 1,541,778 1,102,216 Total liabilities 10,290,606 10,697,865 9,996,028 Commitments and contingencies Stockholders’ equity Preferred Stock, par value $ 1 ; shares authorized, 25,000,000 ; no shares outstanding at September 2021, March 2021 or September 2020 — — — Common Stock, stated value $ 0.25 ; shares authorized, 1,200,000,000 ; shares outstanding at September 2021 - 392,758,016 ; March 2021 - 391,941,477 ; September 2020 - 389,964,718 98,190 97,985 97,491 Additional paid-in capital 3,854,687 3,777,645 3,852,358 Accumulated other comprehensive income (loss) ( 940,834 ) ( 1,009,000 ) ( 959,658 ) Retained earnings (accumulated deficit) 586,438 189,534 ( 44,953 ) Total stockholders’ equity 3,598,481 3,056,164 2,945,238 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,889,087 $ 13,754,029 $ 12,941,266 See notes to consolidated financial statements. 3 VF Corporation Q2 FY22 Form 10-Q Table of Contents VF CORPORATION Consolidated Statements of Operations (Unaudited) Three Months Ended September Six Months Ended September (In thousands, except per share amounts) 2021 2020 2021 2020 Net revenues $ 3,198,235 $ 2,608,324 $ 5,392,792 $ 3,684,617 Costs and operating expenses Cost of goods sold 1,479,446 1,282,406 2,434,997 1,789,357 Selling, general and administrative expenses 1,160,303 1,005,970 2,196,425 1,822,121 Total costs and operating expenses 2,639,749 2,288,376 4,631,422 3,611,478 Operating income 558,486 319,948 761,370 73,139 Interest income 1,518 3,176 3,660 4,489 Interest expense ( 35,888 ) ( 34,107 ) ( 70,805 ) ( 63,369 ) Other income (expense), net 7,549 4,644 16,590 ( 33,543 ) Income (loss) from continuing operations before income taxes 531,665 293,661 710,815 ( 19,284 ) Income tax expense 67,612 50,415 92,790 15,212 Income (loss) from continuing operations 464,053 243,246 618,025 ( 34,496 ) Income from discontinued operations, net of tax — 13,476 170,273 5,605 Net income (loss) $ 464,053 $ 256,722 $ 788,298 $ ( 28,891 ) Earnings (loss) per common share - basic Continuing operations $ 1.18 $ 0.62 $ 1.58 $ ( 0.09 ) Discontinued operations — 0.03 0.43 0.01 Total earnings (loss) per common share - basic $ 1.18 $ 0.66 $ 2.01 $ ( 0.07 ) Earnings (loss) per common share - diluted Continuing operations $ 1.18 $ 0.62 $ 1.57 $ ( 0.09 ) Discontinued operations — 0.03 0.43 0.01 Total earnings (loss) per common share - diluted $ 1.18 $ 0.66 $ 2.00 $ ( 0.07 ) Weighted average shares outstanding Basic 391,779 389,219 391,565 388,957 Diluted 394,017 391,180 394,072 390,986 See notes to consolidated financial statements. VF Corporation Q2 FY22 Form 10-Q 4 Table of Contents VF CORPORATION Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended September Six Months Ended September (In thousands) 2021 2020 2021 2020 Net income (loss) $ 464,053 $ 256,722 $ 788,298 $ ( 28,891 ) Other comprehensive income (loss) Foreign currency translation and other Gains (losses) arising during the period ( 12,314 ) ( 33,483 ) 20,857 ( 29,629 ) Reclassification of foreign currency translation losses — — — 42,364 Income tax effect ( 11,686 ) 18,582 ( 7,804 ) 24,837 Defined benefit pension plans Current period actuarial losses ( 439 ) ( 8,853 ) ( 4,452 ) ( 8,853 ) Amortization of net deferred actuarial losses 2,871 2,898 5,711 5,761 Amortization of deferred prior service credits ( 117 ) ( 17 ) ( 235 ) ( 34 ) Reclassification of net actuarial loss from settlement charge 76 572 1,024 572 Income tax effect ( 595 ) 386 64 722 Derivative financial instruments Gains (losses) arising during the period 34,361 ( 39,731 ) 29,798 ( 47,326 ) Income tax effect ( 5,978 ) 7,197 ( 5,786 ) 8,727 Reclassification of net (gains) losses realized 22,986 ( 11,379 ) 33,545 ( 31,659 ) Income tax effect ( 4,113 ) 1,711 ( 4,556 ) 5,818 Other comprehensive income (loss) 25,052 ( 62,117 ) 68,166 ( 28,700 ) Comprehensive income (loss) $ 489,105 $ 194,605 $ 856,464 $ ( 57,591 ) See notes to consolidated financial statements. 5 VF Corporation Q2 FY22 Form 10-Q Table of Contents VF CORPORATION Consolidated Statements of Cash Flows (Unaudited) Six Months Ended September (In thousands) 2021 2020 OPERATING ACTIVITIES Net income (loss) $ 788,298 $ ( 28,891 ) Income from discontinued operations, net of tax 170,273 5,605 Income (loss) from continuing operations, net of tax 618,025 ( 34,496 ) Adjustments to reconcile net income (loss) to cash provided (used) by operating activities: Depreciation and amortization 134,553 138,853 Reduction in the carrying amount of right-of-use assets 208,687 205,635 Stock-based compensation 44,283 26,113 Provision for doubtful accounts 3,345 15,727 Pension expense less than contributions ( 12,312 ) ( 7,953 ) Other, net ( 191,547 ) 15,852 Changes in operating assets and liabilities: Accounts receivable ( 502,675 ) ( 275,436 ) Inventories ( 412,058 ) ( 115,515 ) Accounts payable 72,757 36,019 Income taxes 112,331 ( 40,770 ) Accrued liabilities 233,369 161,785 Operating lease right-of-use assets and liabilities ( 228,969 ) ( 150,170 ) Other assets and liabilities ( 257,016 ) 63,866 Cash provided (used) by operating activities - continuing operations ( 177,227 ) 39,510 Cash provided by operating activities - discontinued operations 6,090 43,298 Cash provided (used) by operating activities ( 171,137 ) 82,808 INVESTING ACTIVITIES Business acquisitions, net of cash received 3,760 — Proceeds from sale of businesses, net of cash sold 616,529 — Purchases of short-term investments — ( 800,000 ) Proceeds from sale of short-term investments 598,806 — Capital expenditures ( 144,582 ) ( 112,501 ) Software purchases ( 42,119 ) ( 38,345 ) Other, net 20,491 ( 3,839 ) Cash provided (used) by investing activities - continuing operations 1,052,885 ( 954,685 ) Cash used by investing activities - discontinued operations ( 525 ) ( 2,693 ) Cash provided (used) by investing activities 1,052,360 ( 957,378 ) FINANCING ACTIVITIES Net decrease in short-term borrowings ( 889 ) ( 1,215,575 ) Payments on long-term debt ( 508 ) ( 768 ) Payment of debt issuance costs — ( 21,430 ) Proceeds from long-term debt — 2,996,090 Cash dividends paid ( 384,427 ) ( 373,638 ) Proceeds from issuance of Common Stock, net of (payments) for tax withholdings 25,971 ( 7,221 ) Cash provided (used) by financing activities ( 359,853 ) 1,377,458 Effect of foreign currency rate changes on cash, cash equivalents and restricted cash ( 10,958 ) ( 8,082 ) Net change in cash, cash equivalents and restricted cash 510,412 494,806 Cash, cash equivalents and restricted cash – beginning of year 851,205 1,411,322 Cash, cash equivalents and restricted cash – end of period $ 1,361,617 $ 1,906,128 Continued on next page. See notes to consolidated financial statements. VF Corporation Q2 FY22 Form 10-Q 6 Table of Contents VF CORPORATION Consolidated Statements of Cash Flows (Unaudited) Six Months Ended September (In thousands) 2021 2020 Balances per Consolidated Balance Sheets: Cash and cash equivalents $ 1,360,138 $ 1,877,398 Other current assets 1,421 1,301 Current assets of discontinued operations — 26,846 Other assets 58 583 Total cash, cash equivalents and restricted cash $ 1,361,617 $ 1,906,128 See notes to consolidated financial statements. 7 VF Corporation Q2 FY22 Form 10-Q Table of Contents VF CORPORATION Consolidated Statements of Stockholders’ Equity (Unaudited) Three Months Ended September 2021 Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Common Stock (In thousands, except share amounts) Shares Amounts Total Balance, June 2021 392,621,561 $ 98,155 $ 3,824,656 $ ( 965,886 ) $ 317,105 $ 3,274,030 Net income (loss) — — — — 464,053 464,053 Dividends on Common Stock ($ 0.49 per share) — — — — ( 192,296 ) ( 192,296 ) Stock-based compensation, net 136,455 35 30,031 — ( 2,424 ) 27,642 Foreign currency translation and other — — — ( 24,000 ) — ( 24,000 ) Defined benefit pension plans — — — 1,796 — 1,796 Derivative financial instruments — — — 47,256 — 47,256 Balance, September 2021 392,758,016 $ 98,190 $ 3,854,687 $ ( 940,834 ) $ 586,438 $ 3,598,481 Three Months Ended September 2020 Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Common Stock (In thousands, except share amounts) Shares Amounts Total Balance, June 2020 389,641,245 $ 97,410 $ 4,010,817 $ ( 897,541 ) $ ( 298,088 ) $ 2,912,598 Net income (loss) — — — — 256,722 256,722 Dividends on Common Stock ($ 0.48 per share) — — ( 186,892 ) — — ( 186,892 ) Stock-based compensation, net 323,473 81 28,433 — ( 3,587 ) 24,927 Foreign currency translation and other — — — ( 14,901 ) — ( 14,901 ) Defined benefit pension plans — — — ( 5,014 ) — ( 5,014 ) Derivative financial instruments — — — ( 42,202 ) — ( 42,202 ) Balance, September 2020 389,964,718 $ 97,491 $ 3,852,358 $ ( 959,658 ) $ ( 44,953 ) $ 2,945,238 Continued on next page. See notes to consolidated financial statements. VF Corporation Q2 FY22 Form 10-Q 8 Table of Contents VF CORPORATION Consolidated Statements of Stockholders’ Equity (Unaudited) Six Months Ended September 2021 Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Common Stock (In thousands, except share amounts) Shares Amounts Total Balance, March 2021 391,941,477 $ 97,985 $ 3,777,645 $ ( 1,009,000 ) $ 189,534 $ 3,056,164 Net income (loss) — — — — 788,298 788,298 Dividends on Common Stock ($ 0.98 per share) — — ( 2,597 ) — ( 381,830 ) ( 384,427 ) Stock-based compensation, net 816,539 205 79,639 — ( 9,564 ) 70,280 Foreign currency translation and other — — — 13,053 — 13,053 Defined benefit pension plans — — — 2,112 — 2,112 Derivative financial instruments — — — 53,001 — 53,001 Balance, September 2021 392,758,016 $ 98,190 $ 3,854,687 $ ( 940,834 ) $ 586,438 $ 3,598,481 Six Months Ended September 2020 Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings (Accumulated Deficit) Common Stock (In thousands, except share amounts) Shares Amounts Total Balance, March 2020 388,812,158 $ 97,203 $ 4,183,780 $ ( 930,958 ) $ 7,309 $ 3,357,334 Net income (loss) — — — — ( 28,891 ) ( 28,891 ) Dividends on Common Stock ($ 0.96 per share) — — ( 373,638 ) — — ( 373,638 ) Stock-based compensation, net 1,152,560 288 42,216 — ( 23,371 ) 19,133 Foreign currency translation and other — — — 37,572 — 37,572 Defined benefit pension plans — — — ( 1,832 ) — ( 1,832 ) Derivative financial instruments — — — ( 64,440 ) — ( 64,440 ) Balance, September 2020 389,964,718 $ 97,491 $ 3,852,358 $ ( 959,658 ) $ ( 44,953 ) $ 2,945,238 See notes to consolidated financial statements. 9 VF Corporation Q2 FY22 Form 10-Q Table of Contents VF CORPORATION Notes to Consolidated Financial Statements (Unaudited) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PAGE NUMBER NOTE 1 Basis of Presentation 11 NOTE 2 Recently Adopted and Issued Accounting Standards 11 NOTE 3 Revenues 11 NOTE 4 Acquisition 13 NOTE 5 Discontinued Operations 15 NOTE 6 Inventories 16 NOTE 7 Intangible Assets 17 NOTE 8 Goodwill 17 NOTE 9 Leases 17 NOTE 10 Pension Plans 18 NOTE 11 Capital and Accumulated Other Comprehensive Income (Loss) 18 NOTE 12 Stock-based Compensation 20 NOTE 13 Income Taxes 21 NOTE 14 Reportable Segment Information 21 NOTE 15 Earnings Per Share 22 NOTE 16 Fair Value Measurements 23 NOTE 17 Derivative Financial Instruments and Hedging Activities 24 NOTE 18 Restructuring 26 NOTE 19 Contingencies 27 NOTE 20 Subsequent Event 27 VF Corporation Q2 FY22 Form 10-Q 10 Table of Contents NOTE 1 — BASIS OF PRESENTATION VF Corporation (together with its subsidiaries, collectively known as “VF” or the “Company”) uses a 52/53 week fiscal year ending on the Saturday closest to March 31 of each year. The Company's current fiscal year runs from April 4, 2021 through April 2, 2022 ("Fiscal 2022"). Accordingly, this Form 10-Q presents our second quarter of Fiscal 2022. For presentation purposes herein, all references to periods ended September 2021 and September 2020 relate to the fiscal periods ended on October 2, 2021 and September 26, 2020, respectively. References to March 2021 relate to information as of April 3, 2021. On June 28, 2021, VF completed the sale of its Occupational Workwear business. The Occupational Workwear business was comprised primarily of the following brands and businesses: Red Kap ® , VF Solutions ® , Bulwark ® , Workrite ® , Walls ® , Terra ® , Kodiak ® , Work Authority ® and Horace Small ® . The business also included the license of certain Dickies ® occupational workwear products that have historically been sold through the business-to-business channel. The results of the Occupational Workwear business and the related cash flows have been reported as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively, through the date of sale. The related held-for-sale assets and liabilities have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets, through the date of sale. These changes have been applied to all periods presented. Unless otherwise noted, discussion within these notes to the interim consolidated financial statements relates to continuing operations. Refer to Note 5 for additional information on discontinued operations. Certain prior year amounts have been reclassified to conform to the Fiscal 2022 presentation. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and notes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. Similarly, the March 2021 consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations and cash flows of VF for the interim periods presented. Operating results for the three and six months ended September 2021 are not necessarily indicative of results that may be expected for any other interim period or for Fiscal 2022. For further information, refer to the consolidated financial statements and notes included in VF’s Annual Report on Form 10-K for the year ended April 3, 2021 (“Fiscal 2021 Form 10-K”). In preparing the interim consolidated financial statements, management makes estimates and assumptions that affect amounts reported in the interim consolidated financial statements and accompanying notes. The duration and severity of the novel coronavirus ("COVID-19") pandemic, which is subject to uncertainty, continues to impact VF's business. Management's estimates and assumptions have contemplated both current and expected impacts related to COVID-19 based on available information. Actual results may differ from those estimates. NOTE 2 — RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS Recently Adopted Accounting Standards In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" , an update that amends and simplifies the accounting for income taxes by removing certain exceptions in existing guidance and providing new guidance to reduce complexity in certain areas. The guidance became effective for VF in the first quarter of Fiscal 2022, but did not have a material impact on VF's consolidated financial statements. Recently Issued Accounting Standards In March 2020 and January 2021, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and ASU No. 2021-01 , "Reference Rate Reform (Topic 848): Scope" , respectively. This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The optional guidance is provided to ease the potential burden of accounting for reference rate reform. The guidance is effective and can be adopted no later than December 31, 2022. The Company is evaluating the impact that adopting this guidance would have on VF's consolidated financial statements. NOTE 3 — REVENUES Contract Balances The following table provides information about contract assets and contract liabilities: (In thousands) September 2021 March 2021 September 2020 Contract assets (a) $ 1,773 $ 880 $ 2,573 Contract liabilities (b) 58,841 49,869 44,010 (a) Included in the other current assets line item in the Consolidated Balance Sheets. (b) Included in the accrued liabilities line item in the Consolidated Balance Sheets. 11 VF Corporation Q2 FY22 Form 10-Q Table of Contents For the three and six months ended September 2021, the Company recognized $ 71.0 million and $ 162.0 million, respectively, of revenue that was included in the contract liability balance during the periods, including amounts recorded as a contract liability and subsequently recognized as revenue as performance obligations were satisfied within the same period, such as order deposits from customers. The change in the contract asset and contract liability balances primarily results from the timing differences between the Company's satisfaction of performance obligations and the customer's payment. Performance Obligations As of September 2021, the Company expects to recognize $ 80.8 million of fixed consideration related to the future minimum guarantees in effect under its licensing agreements and expects such amounts to be recognized over time based on the con tract ual terms through March 2031. The variable consideration related to licensing arrangements is not disclosed as a remaining performance obligation as it qualifies for the sales-based royalty exemption. VF has also elected the practical expedient to not disclose the transaction price allocated to remaining performance obligations for contracts with an original expected duration of one year or less. As of September 2021, there were no arrangements with transaction price allocated to remaining performance obligations other than contracts for which the Company has applied the practical expedients and the fixed consideration related to future minimum guarantees discussed above. For the three and six months ended September 2021, revenue recognized from performance obligations satisfied, or partially satisfied, in prior periods was not material. Disaggregation of Revenue The following tables disaggregate our revenues by channel and geography, which provides a meaningful depiction of how the nature, timing and uncertainty of revenues are affected by economic factors. Three Months Ended September 2021 (In thousands) Outdoor Active Work Other Total Channel revenues Wholesale $ 1,132,068 $ 605,523 $ 252,016 $ 278 $ 1,989,885 Direct-to-consumer 371,109 780,826 40,140 — 1,192,075 Royalty 3,444 5,824 7,007 — 16,275 Total $ 1,506,621 $ 1,392,173 $ 299,163 $ 278 $ 3,198,235 Geographic revenues United States $ 691,538 $ 714,085 $ 209,370 $ 278 $ 1,615,271 International: Europe 536,522 410,670 25,420 — 972,612 Asia-Pacific 182,302 188,178 48,061 — 418,541 Americas (non-U.S.) 96,259 79,240 16,312 — 191,811 Total $ 1,506,621 $ 1,392,173 $ 299,163 $ 278 $ 3,198,235 Three Months Ended September 2020 (In thousands) Outdoor Active Work Other Total Channel revenues Wholesale $ 823,954 $ 664,868 $ 208,902 $ — $ 1,697,724 Direct-to-consumer 329,661 530,231 40,028 164 900,084 Royalty 792 5,103 4,621 — 10,516 Total $ 1,154,407 $ 1,200,202 $ 253,551 $ 164 $ 2,608,324 Geographic revenues United States $ 522,676 $ 586,377 $ 161,458 $ — $ 1,270,511 International: Europe 414,054 372,012 31,104 164 817,334 Asia-Pacific 155,696 172,004 43,758 — 371,458 Americas (non-U.S.) 61,981 69,809 17,231 — 149,021 Total $ 1,154,407 $ 1,200,202 $ 253,551 $ 164 $ 2,608,324 VF Corporation Q2 FY22 Form 10-Q 12 Table of Contents Six Months Ended September 2021 (In thousands) Outdoor Active Work Other Total Channel revenues Wholesale $ 1,466,943 $ 1,151,548 $ 478,887 $ 278 $ 3,097,656 Direct-to-consumer 650,767 1,532,061 82,952 — 2,265,780 Royalty 6,665 10,632 12,059 — 29,356 Total $ 2,124,375 $ 2,694,241 $ 573,898 $ 278 $ 5,392,792 Geographic revenues United States $ 974,696 $ 1,409,920 $ 426,896 $ 278 $ 2,811,790 International: Europe 755,077 717,886 39,616 — 1,512,579 Asia-Pacific 270,362 426,651 74,200 — 771,213 Americas (non-U.S.) 124,240 139,784 33,186 — 297,210 Total $ 2,124,375 $ 2,694,241 $ 573,898 $ 278 $ 5,392,792 Six Months Ended September 2020 (In thousands) Outdoor Active Work Other Total Channel revenues Wholesale $ 982,460 $ 906,032 $ 326,506 $ 1,275 $ 2,216,273 Direct-to-consumer 509,675 854,432 80,643 208 1,444,958 Royalty 3,500 11,054 8,832 — 23,386 Total $ 1,495,635 $ 1,771,518 $ 415,981 $ 1,483 $ 3,684,617 Geographic revenues United States $ 675,153 $ 851,884 $ 276,090 $ — $ 1,803,127 International: Europe 513,078 497,538 44,405 1,483 1,056,504 Asia-Pacific 234,963 334,418 68,267 — 637,648 Americas (non-U.S.) 72,441 87,678 27,219 — 187,338 Total $ 1,495,635 $ 1,771,518 $ 415,981 $ 1,483 $ 3,684,617 NOTE 4 — ACQUISITION On December 28, 2020, VF acquired 100 % of the outstanding shares of Supreme Holdings, Inc. ("Supreme") for $ 2.2 billion in cash, subject to working capital and other adjustments. The transaction also included $ 0.2 billion of cash acquired by VF. The purchase price was primarily funded with cash on hand. During the three months ended September 2021, the purchase consideration was reduced by $ 3.8 million associated with the final working capital adjustment. The acquisition of Supreme includes a contingent arrangement that may require additional cash consideration to be paid to the selling shareholders of Supreme ranging from zero to $ 300.0 million, subject to the achievement of certain financial targets over the one-year earn-out period ending January 31, 2022. The initial estimated fair value of the contingent consideration of $ 207.0 million is included in the purchase price and was reported in the other liabilities line item in the Consolidated Balance Sheet at March 2021. The estimated fair value of the contingent consideration was determined based on the probability-weighted present value of various future cash payment outcomes. In subsequent reporting periods, the contingent consideration liability is remeasured at fair value with changes recognized in the selling, general and administrative expenses line item in the Consolidated Statements of Operations. Refer to Note 16 for additional information on fair value measurements. Supreme was a privately-held company based in New York, New York and is a global streetwear leader that sells apparel, accessories and footwear under its namesake brand , Supreme ® , through direct-to-consumer channels, including digital. The acquisition of Supreme accelerates VF's long-term growth strategy and builds on a long-standing relationship between Supreme and VF, with the Supreme ® brand being a regular collaborator with VF's Vans ® , The North Face ® and Timberland ® brands. The acquisition also provides VF with deeper access to attractive consumer segments and the ability to leverage VF's enterprise platforms and capabilities to enable sustainable long-term growth. In connection with the acquisition, VF deposited in escrow 605,050 shares of VF Common Stock. The common shares are 13 VF Corporation Q2 FY22 Form 10-Q Table of Contents subject to certain future service requirements and vest over periods of up to four years . For accounting purposes, VF will recognize the stock-based compensation cost for the fair value of these awards of $ 51.7 million over the vesting periods. For the three and six months ended September 2021, Supreme contributed revenues of $ 99.6 million and $ 245.3 million, respectively, and net income of $ 6.1 million and $ 32.4 million, respectively. The results of Supreme have been reported in the Active segment since the date of acquisition. Total transaction expenses for the Supreme acquisition were $ 8.7 million, all of which were recognized in the year ended March 2021 in the selling, general and administrative expenses line item in the Consolidated Statement of Operations. The allocation of the purchase price is preliminary and subject to change, primarily for certain income tax matters. Accordingly, adjustments may be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the valuation date. Goodwill decreased by $ 4.3 million during the three months ended September 2021, primarily related to the final working capital adjustment. The following table summarizes the preliminary estimated fair values of the Supreme assets acquired and liabilities assumed at the date of acquisition: (In thousands) December 28, 2020 Cash and equivalents $ 218,104 Accounts receivable 19,698 Inventories 44,937 Other current assets 35,091 Property, plant and equipment 18,914 Intangible asset 1,201,000 Operating lease right-of-use assets 55,668 Other assets 58,479 Total assets acquired 1,651,891 Accounts payable 25,717 Other current liabilities 77,640 Operating lease liabilities 53,062 Deferred income tax liabilities 275,718 Other liabilities 35,245 Total liabilities assumed 467,382 Net assets acquired 1,184,509 Goodwill 1,245,986 Purchase price $ 2,430,495 The purchase price consisted of the following components: (In thousands) December 28, 2020 Cash consideration $ 2,223,495 Contingent consideration 207,000 Purchase price $ 2,430,495 The goodwill is attributable to our ability to expand the Supreme ® brand into new markets, the acquired workforce and future collaboration opportunities for the Supreme ® brand. All of the goodwill was assigned to the Active segment and will not be deductible for tax purposes. The Supreme ® trademark, which management believes to have an indefinite life, has been valued at $ 1.2 billion using the relief-from-royalty method, which is an income valuation approach. The relief-from-royalty method requires the use of significant estimates and assumptions, including but not limited to, future revenues, growth rates, royalty rate, tax rates and discount rate. VF Corporation Q2 FY22 Form 10-Q 14 Table of Contents The following unaudited pro forma summary presents consolidated information of VF as if the acquisition of Supreme had occurred on March 31, 2019: (In thousands, except per share amounts) Three Months Ended September 2020 (unaudited) Six Months Ended September 2020 (unaudited) Total revenues $ 2,743,359 $ 3,933,644 Income from continuing operations 274,425 9,962 Earnings per common share from continuing operations Basic $ 0.71 $ 0.03 Diluted 0.70 0.03 These pro forma amounts have been calculated after applying VF’s accounting policies and adjusting the results of Supreme to reflect the fair value adjustments to intangible assets, property, plant and equipment and inventory. The results of Supreme have also been adjusted for historical interest expense as the acquired business was debt-free on the acquisition date . These changes have been applied from March 31, 20 19, with related tax effects. Pro forma financial information is not necessarily indicative of VF’s operating results if the acquisition had been effected at the date indicated, nor is it necessarily indicative of future operating results. Amounts do not include any marketing leverage, or operating efficiencies that VF believes are achievable. NOTE 5 — DISCONTINUED OPERATIONS The Company continuously assesses the composition of its portfolio to ensure it is aligned with its strategic objectives and positioned to maximize growth and return to shareholders. Occupational Workwear Business On January 21, 2020, VF announced its decision to explore the divestiture of its Occupational Workwear business. The Occupational Workwear business was comprised primarily of the following brands and businesses: Red Kap ® , VF Solutions ® , Bulwark ® , Workrite ® , Walls ® , Terra ® , Kodiak ® , Work Authority ® and Horace Small ® . The business also included the license of certain Dickies ® occupational workwear products that have historically been sold through the business-to-business channel. As of March 28, 2020, the Occupational Workwear business met the held-for-sale and discontinued operations accounting criteria. Accordingly, the Company has reported the results of the Occupational Workwear business and the related cash flows as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively, through the date of sale. The related held-for-sale assets and l iabilities have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets, through the date of sale. On June 28, 2021, VF completed the sale of the Occupational Workwear business. The Company received proceeds of $ 616.5 million, net of cash sold, resulting in an estimated after-tax gain on sale of $ 145.6 million, which is included in the income from discontinued operations, net of tax line item in the Consolidated Statement of Operations for the six months ended September 2021, and is subject to working capital and other adjustments. The results of the Occupational Workwear business were previously reported in the Work segment. The results of the Occupational Workwear business recorded in the income from discontinued operations, net of tax line item in the Consolidated Statements of Operations were income of $ 170.3 million (including an estimated after-tax gain on sale of $ 145.6 million) for the six months ended September 2021, and income of $ 13.5 million and $ 5.6 million for the three and six months ended September 2020, respectively. Under the terms of a transition services agreement, the Company will provide certain support services for periods generally up to 12 months from the closing date of the transaction. 15 VF Corporation Q2 FY22 Form 10-Q Table of Contents Summarized Discontinued Operations Financial Information The following table summarizes the major line items for the Occupational Workwear business that are included in the income from discontinued operations, net of tax line item in the Consolidated Statements of Operations: Three Months Ended September Six Months Ended September (In thousands) 2021 2020 2021 2020 Net revenues $ — $ 162,310 $ 181,424 $ 287,643 Cost of goods sold — 113,147 117,193 214,617 Selling, general and administrative expenses — 34,911 38,735 68,167 Interest income, net — 180 194 473 Other income (expense), net — 79 6 79 Income from discontinued operations before income taxes — 14,511 25,696 5,411 Gain on the sale of discontinued operations before income taxes — — 133,571 — Total income from discontinued operations before income taxes — 14,511 159,267 5,411 Income tax expense (benefit) (a) — 1,035 ( 11,006 ) ( 194 ) Income from discontinued operations, net of tax $ — $ 13,476 $ 170,273 $ 5,605 (a) Income tax benefit for the six months ended September 2021 includes $ 12.0 million of deferred tax benefit related to capital and other losses realized upon the sale of the Occupational Workwear business. The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations as of March 2021 and September 2020. (In thousands) March 2021 September 2020 Cash and equivalents $ 34,132 $ 26,846 Accounts receivable, net 103,835 82,520 Inventories 245,227 241,519 Other current assets 8,208 7,773 Property, plant and equipment, net 49,394 47,964 Intangible assets, net 54,471 54,471 Goodwill 43,530 43,530 Operating lease right-of-use assets 43,220 42,445 Other assets 5,561 5,609 Total assets of discontinued operations $ 587,578 $ 552,677 Accounts payable $ 59,965 $ 46,493 Accrued liabilities 38,956 32,322 Operating lease liabilities 31,301 34,688 Other liabilities 3,863 5,177 Deferred income tax liabilities (a) ( 8,828 ) ( 4,324 ) Total liabilities of discontinued operations $ 125,257 $ 114,356 (a) Deferred income tax balances reflect VF's consolidated netting by jurisdiction. NOTE 6 — INVENTORIES (In thousands) September 2021 March 2021 September 2020 Finished products $ 1,397,988 $ 983,472 $ 1,358,593 Work-in-process 50,473 54,386 59,855 Raw materials 16,253 23,981 16,395 Total inventories $ 1,464,714 $ 1,061,839 $ 1,434,843 VF Corporation Q2 FY22 Form 10-Q 16 Table of Contents NOTE 7 — INTANGIBLE ASSETS September 2021 March 2021 (In thousands) Weighted Average Amortization Period Amortization Method Cost Accumulated Amortization Net Carrying Amount Net Carrying Amount Amortizable intangible assets: Customer relationships 19 years Accelerated $ 262,079 $ 153,139 $ 108,940 $ 117,207 License agreements 20 years Accelerated 6,652 4,322 2,330 2,448 Other 9 years Straight-line 5,861 4,292 1,569 1,986 Amortizable intangible assets, net 112,839 121,641 Indefinite-lived intangible assets: Trademarks and trade names 2,905,403 2,907,904 Intangible assets, net $ 3,018,242 $ 3,029,545 Amortization expense for the three and six months ended September 2021 was $ 4.0 million and $ 8.1 million, respectively. Based on the carrying amounts of amortizable intangible assets noted above, estimated amortization expense for the next five years beginning in Fiscal 2022 is $ 15.5 million, $ 14.5 million, $ 14.0 million, $ 13.5 million and $ 12.5 million, respectively. NOTE 8 — GOODWILL Changes in goodwill are summarized by reportable segment as follows: (In thousands) Outdoor Active Work Total Balance, March 2021 $ 665,278 $ 1,645,769 $ 114,380 $ 2,425,427 Measurement period adjustment to Supreme acquisition (Note 4) — ( 4,325 ) — ( 4,325 ) Currency translation ( 1,508 ) ( 3,841 ) 14 ( 5,335 ) Balance, September 2021 $ 663,770 $ 1,637,603 $ 114,394 $ 2,415,767 Accum ulated impairm ent charges for the Outdoor segment were $ 323.2 million as of September 2021 and March 2021. No impairment charges were recorded during the six months ended September 2021. NOTE 9 — LEASES The Company leases certain retail locations, office space, distribution facilities, machinery and equipment, and vehicles. The substantial majority of these leases are operating leases. Total lease cost includes operating lease cost, variable lease cost, finance lease cost, short-term lease cost and impairment. Components of lease cost were as follows: Three Months Ended September Six Months Ended September (In thousands) 2021 2020 2021 2020 Operating lease cost $ 110,160 $ 106,679 $ 223,660 $ 215,531 Other lease costs 22,491 19,572 50,430 34,570 Total lease cost $ 132,651 $ 126,251 $ 274,090 $ 250,101 During the six months ended September 2021 and 2020, the Company paid $ 241.8 million and $ 176.1 million of cash for operating leases, respectively. The increase was primarily driven by the timing of payments and lease concessions related to the effects of COVID-19 in the six months ended September 2020. During the six months ended September 2021 and 2020, the Company obtained $ 123.1 million and $ 326.3 million of right-of-use assets in exchange for lease liabilities, respectively. The decrease was primarily driven by the commencement of a new distribution center lease during the six months ended September 2020. 17 VF Corporation Q2 FY22 Form 10-Q Table of Contents NOTE 10 — PENSION PLANS The components of pension cost (income) for VF’s defined benefit plans were as follows: Three Months Ended September Six Months Ended September (In thousands) 2021 2020 2021 2020 Service cost – benefits earned during the period $ 3,577 $ 3,783 $ 7,190 $ 7,415 Interest cost on projected benefit obligations 9,367 11,981 18,842 23,929 Expected return on plan assets ( 19,368 ) ( 20,571 ) ( 38,753 ) ( 41,110 ) Settlement charges 76 572 1,024 572 Amortization of deferred amounts: Net deferred actuarial losses 2,871 2,898 5,711 5,761 Deferred prior service credits ( 117 ) ( 17 ) ( 235 ) ( 34 ) Net periodic pension cost (income) $ ( 3,594 ) $ ( 1,354 ) $ ( 6,221 ) $ ( 3,467 ) The amounts reported in these disclosures have not been segregated between continuing and discontinued operations. VF has reported the service cost component of net periodic pension cost (income) in operating income and the other components, which include interest cost, expected return on plan assets, settlement charges and amortization of deferred actuarial losses and prior service credits, in the other income (expense), net line item in the Consolidated Statements of Operations. VF contributed $ 6.1 million to its defined benefit plans during the six months ended September 2021, and intends to make approximately $ 26.8 million of contributions during the remainder of Fiscal 2022. VF recorded $ 0.1 million and $ 1.0 million in settlement charges in the other income (expense), net line item in the Consolidated Statements of Operations for the three and six months ended September 2021, respectively, as well as $ 0.6 million for both the three and six months ended September 2020. The settlement charges related to the recognition of deferred actuarial losses resulting from lump sum payments of retirement benefits in the supplemental defined benefit pension plan. Actuarial assumptions used in the interim valuations were reviewed and revised as appropriate. The discount rate used to determine the supplemental defined benefit pension obligation as of September 2021 and June 2021 was 2.91 % and 2.90 %, respectively. NOTE 11 — CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Common Stock During the six months ended September 2021, the Company did no t purchase shares of Common Stock in open market transactions under its share repurchase program authorized by VF’s Board of Directors. These are treated as treasury stock transactions when shares are repurchased. Common Stock outstanding is net of shares held in treasury which are, in substance, retired. There were no shares held in treasury at the end of September 2021, March 2021 or September 2020. The excess of the cost of treasury shares acquired over the $ 0.25 per share stated value of Common Stock is deducted from retained earnings. Accumulated Other Comprehensive Income (Loss) Comprehensive income (loss) consists of net income (loss) and specified components of other comprehensive income (“OCI”), which relate to changes in assets and liabilities that are not included in net income (loss) under GAAP but are instead deferred and accumulated within a separate component of stockholders’ equity in the balance sheet. VF’s comprehensive income (loss) is presented in the Consolidated Statements of Comprehensive Income (Loss). The deferred components of OCI are reported, net of related income taxes, in accumulated OCI in stockholders’ equity, as follows: (In thousands) September 2021 March 2021 September 2020 Foreign currency translation and other $ ( 687,120 ) $ ( 700,173 ) $ ( 700,137 ) Defined benefit pension plans ( 255,635 ) ( 257,747 ) ( 264,304 ) Derivative financial instruments 1,921 ( 51,080 ) 4,783 Accumulated other comprehensive income (loss) $ ( 940,834 ) $ ( 1,009,000 ) $ ( 959,658 ) VF Corporation Q2 FY22 Form 10-Q 18 Table of Contents The changes in accumulated OCI, net of related taxes, were as follows: Three Months Ended September 2021 (In thousands) Foreign Currency Translation and Other Defined Benefit Pension Plans Derivative Financial Instruments Total Balance, June 2021 $ ( 663,120 ) $ ( 257,431 ) $ ( 45,335 ) $ ( 965,886 ) Other comprehensive income (loss) before reclassifications ( 24,000 ) ( 327 ) 28,383 4,056 Amounts reclassified from accumulated other comprehensive income (loss) — 2,123 18,873 20,996 Net other comprehensive income (loss) ( 24,000 ) 1,796 47,256 25,052 Balance, September 2021 $ ( 687,120 ) $ ( 255,635 ) $ 1,921 $ ( 940,834 ) Three Months Ended September 2020 (In thousands) Foreign Currency Translation and Other Defined Benefit Pension Plans Derivative Financial Instruments Total Balance, June 2020 $ ( 685,236 ) $ ( 259,290 ) $ 46,985 $ ( 897,541 ) Other comprehensive income (loss) before reclassifications ( 14,901 ) ( 7,629 ) ( 32,534 ) ( 55,064 ) Amounts reclassified from accumulated other comprehensive income (loss) — 2,615 ( 9,668 ) ( 7,053 ) Net other comprehensive income (loss) ( 14,901 ) ( 5,014 ) ( 42,202 ) ( 62,117 ) Balance, September 2020 $ ( 700,137 ) $ ( 264,304 ) $ 4,783 $ ( 959,658 ) Six Months Ended September 2021 (In thousands) Foreign Currency Translation and Other Defined Benefit Pension Plans Derivative Financial Instruments Total Balance, March 2021 $ ( 700,173 ) $ ( 257,747 ) $ ( 51,080 ) $ ( 1,009,000 ) Other comprehensive income (loss) before reclassifications 13,053 ( 2,738 ) 24,012 34,327 Amounts reclassified from accumulated other comprehensive income (loss) — 4,850 28,989 33,839 Net other comprehensive income (loss) 13,053 2,112 53,001 68,166 Balance, September 2021 $ ( 687,120 ) $ ( 255,635 ) $ 1,921 $ ( 940,834 ) Six Months Ended September 2020 (In thousands) Foreign Currency Translation and Other Defined Benefit Pension Plans Derivative Financial Instruments Total Balance, March 2020 $ ( 737,709 ) $ ( 262,472 ) $ 69,223 $ ( 930,958 ) Other comprehensive income (loss) before reclassifications ( 4,792 ) ( 6,642 ) ( 38,599 ) ( 50,033 ) Amounts reclassified from accumulated other comprehensive income (loss) 42,364 4,810 ( 25,841 ) 21,333 Net other comprehensive income (loss) 37,572 ( 1,832 ) ( 64,440 ) ( 28,700 ) Balance, September 2020 $ ( 700,137 ) $ ( 264,304 ) $ 4,783 $ ( 959,658 ) 19 VF Corporation Q2 FY22 Form 10-Q Table of Contents Reclassifications out of accumulated OCI were as follows: (In thousands) Three Months Ended September Six Months Ended September Details About Accumulated Other Comprehensive Income (Loss) Components Affected Line Item in the Consolidated Statements of Operations 2021 2020 2021 2020 Losses on foreign currency translation and other: Liquidation of foreign entities Other income (expense), net $ — $ — $ — $ ( 42,364 ) Total before tax — — — ( 42,364 ) Tax (expense) benefit — — — — Net of tax — — — ( 42,364 ) Amortization of defined benefit pension plans: Net deferred actuarial losses Other income (expense), net ( 2,871 ) ( 2,898 ) ( 5,711 ) ( 5,761 ) Deferred prior service credits Other income (expense), net 117 17 235 34 Pension settlement charges Other income (expense), net ( 76 ) ( 572 ) ( 1,024 ) ( 572 ) Total before tax ( 2,830 ) ( 3,453 ) ( 6,500 ) ( 6,299 ) Tax benefit 707 838 1,650 1,489 Net of tax ( 2,123 ) ( 2,615 ) ( 4,850 ) ( 4,810 ) Gains (losses) on derivative financial instruments: Foreign exchange contracts Net revenues ( 4,963 ) 2,135 ( 6,761 ) 2,306 Foreign exchange contracts Cost of goods sold ( 16,501 ) 8,443 ( 22,670 ) 25,148 Foreign exchange contracts Selling, general and administrative expenses ( 189 ) 741 ( 1,106 ) 2,348 Foreign exchange contracts Other income (expense), net ( 1,360 ) 33 ( 3,062 ) 1,803 Interest rate contracts Interest expense 27 27 54 54 Total before tax ( 22,986 ) 11,379 ( 33,545 ) 31,659 Tax (expense) benefit 4,113 ( 1,711 ) 4,556 ( 5,818 ) Net of tax ( 18,873 ) 9,668 ( 28,989 ) 25,841 Total reclassifications for the period, net of tax $ ( 20,996 ) $ 7,053 $ ( 33,839 ) $ ( 21,333 ) NOTE 12 — STOCK-BASED COMPENSATION Incentive Equity Awards Granted During the six months ended September 2021, VF granted stock options to employees and nonemployee members of VF's Board of Directors to purchase 1,495,961 shares of its Common Stock at a weighted average exercise price of $ 77.79 per share. The exercise price of each option granted was equal to the fair market value of VF Common Stock on the date of grant. Employee stock options vest in equal annual installments over three years . Stock options granted to nonemployee members of VF's Board of Directors vest upon grant and become exercisable one year from the date of grant. All options have ten-year terms. The grant date fair value of each option award was calculated using a lattice option-pricing valuation model, which incorporated a range of assumptions for inputs as follows: Six Months Ended September 2021 Expected volatility 28 % to 41 % Weighted average expected volatility 36 % Expected term (in years) 6.2 to 7.9 Weighted average dividend yield 2.6 % Risk-free interest rate 0.04 % to 1.56 % Weighted average fair value at date of grant $ 20.20 During the six months ended September 2021, VF granted 323,718 performance-based restricted stock units ("RSUs") to employees that enable them to receive shares of VF Common Stock at the end of a three-year performance cycle. The fair market value of VF Common Stock at the date the units were granted was $ 77.78 per share. Each performance-based RSU has a potential final payout ranging from zero to two shares of VF Common Stock. The number of shares earned by participants, if any, is based on achievement of three-year financial targets set by the Tal ent and Compensation Committee of the Board of Directors. Shares will be issued to participants in the year following the conclusion of the three-year performance VF Corporation Q2 FY22 Form 10-Q 20 Table of Contents period. The financial targets include 50 % weighting based on VF's revenue growth over the three-year period compared to a group of industry peers and 50 % weighting based on VF's total shareholder return ("TSR") over the three-year period compared to the TSR for companies included in the Standard & Poor's 500 Consumer Discretionary Index. The grant date fair value of the TSR portion of the performance-based RSU grants was determined using a Monte Carlo simulation technique that incorporates option-pricing model inputs, and was $ 101.56 per share. Additionally, the actual number of performance-based RSUs earned may be adjusted upward or downward by 25 % of the target award, based on VF's gross margin performance over the three-year period. During the six months ended September 2021, VF granted 12,023 nonperformance-based RSUs to nonemployee members of the Board of Directors. These units vest upon grant and will be settled in shares of VF Common Stock one year from the date of grant. The fair market value of VF Common Stock at the date the units were granted was $ 77.78 per share. In addition, VF granted 345,599 nonperformance-based RSUs to employees during the six months ended September 2021. These units generally vest over periods of up to four years from the date of grant and each unit entitles the holder to one share of VF Common Stock. The weighted average fair market value of VF Common Stock at the dates the units were granted was $ 78.55 per share. VF also granted 31,214 restricted shares of VF Common Stock to certain members of management during the six months ended September 2021. These shares vest over periods of up to four years from the date of grant. The fair market value of VF Common Stock at the date the shares were granted was $ 77.78 per share. NOTE 13 — INCOME TAXES The effective income tax rate for the six months ended September 2021 was 13.1 % compared to ( 78.9 )% in the 2020 period. The six months ended September 2021 included a net discrete tax benefit of $ 0.2 million, which included a $ 3.4 million net tax expense related to unrecognized tax benefits and interest, a $ 1.4 million tax benefit related to stock compensation, and a $ 2.4 million net tax benefit related to tax rate change on deferred tax items. The $ 0.2 million net discrete tax benefit in the 2021 period had an insignificant impact on the effective income tax rate. The six months ended September 2020 included a net discrete tax expense of $ 3.9 million, which included a $ 2.0 million net tax expense related to unrecognized tax benefits and interest and a $ 1.8 million tax expense related to withholding taxes on prior foreign earnings. Excluding the $ 3.9 million net discrete tax expense in the 2020 period, the effective income tax rate would have been ( 58.9 )%. Without discrete items, the effective income tax rate for the six months ended September 2021 increased by 72.0 % compared with the 2020 period primarily due to losses generated in the prior year. VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. In the U.S., the Internal Revenue Service ("IRS") examinations for tax years throug h 2015 have been effectively settled. The examination of Timberland’s 2011 tax return is ongoing. In addition, VF is currently subject to examination by various state and international tax authorities. Management regularly assesses the potential outcomes of both ongoing and future examinations for the current and prior years and has concluded that VF’s provision for income taxes is adequate. 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. VF was granted a ruling which lowered the effective income tax rate on taxable earnings for years 2010 through 2014 under Belgium’s excess profit tax regime. During 2015, the European Union Commission (“EU”) investigated and announced its decision that these rulings were illegal and ordered the tax benefits to be collected from affected companies, including VF. Requests for annulment were filed by Belgium and VF Europe BVBA individually. During 2017 and 2018, VF Europe BVBA was assessed and paid € 35.0 million tax and interest, which was recorded as an income tax receivable based on the expected success of the requests for annulment. During 2019, the General Court annulled the EU decision and the EU subsequently appealed the General Court’s annulment. In September 2021, the General Court's judgment was set aside by the Court of Justice of the EU and the case was sent back to the General Court to determine whether the excess profit tax regime amounted to illegal State aid. The case remains open and unresolved. If this matter is adversely resolved, these amounts will not be collected by VF. During the six months ended September 2021, the amount of net unrecognized tax benefits and associated interest increased by $ 8.9 million to $ 199.1 million. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits and interest may decrease during the next 12 months by approximately $ 34.5 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $ 10.4 million would reduce income tax expense. NOTE 14 — REPORTABLE SEGMENT INFORMATION The chief operating decision maker allocates resources and assesses performance based on a global brand view which represents VF's operating segments. The operating segments have been evaluated and combined into reportable segments because they meet the similar economic characteristics and qualitative aggregation criteria set forth in the relevant accounting guidance. The Company's reportable segments have been identified as: Outdoor, Active and Work. We have included an Other category in the table below for purposes of reconciliation of revenues and profit, but it is not considered a reportable segment. Other includes results primarily related to the sale of non-VF products and sourcing activities related to transition services. 21 VF Corporation Q2 FY22 Form 10-Q Table of Contents Financial information for VF's reportable segments is as follows: Three Months Ended September Six Months Ended September (In thousands) 2021 2020 2021 2020 Segment revenues: Outdoor $ 1,506,621 $ 1,154,407 $ 2,124,375 $ 1,495,635 Active 1,392,173 1,200,202 2,694,241 1,771,518 Work 299,163 253,551 573,898 415,981 Other 278 164 278 1,483 Total segment revenues $ 3,198,235 $ 2,608,324 $ 5,392,792 $ 3,684,617 Segment profit (loss): Outdoor $ 284,076 $ 132,475 $ 212,329 $ ( 28,236 ) Active 284,349 259,123 555,211 266,259 Work 61,973 8,173 102,977 ( 3,228 ) Other ( 370 ) ( 2,526 ) ( 652 ) ( 4,887 ) Total segment profit 630,028 397,245 869,865 229,908 Corporate and other expenses ( 63,993 ) ( 72,653 ) ( 91,905 ) ( 190,312 ) Interest expense, net ( 34,370 ) ( 30,931 ) ( 67,145 ) ( 58,880 ) Income (loss) from continuing operations before income taxes $ 531,665 $ 293,661 $ 710,815 $ ( 19,284 ) NOTE 15 — EARNINGS PER SHARE Three Months Ended September Six Months Ended September (In thousands, except per share amounts) 2021 2020 2021 2020 Earnings (loss) per share – basic: Income (loss) from continuing operations $ 464,053 $ 243,246 $ 618,025 $ ( 34,496 ) Weighted average common shares outstanding 391,779 389,219 391,565 388,957 Earnings (loss) per share from continuing operations $ 1.18 $ 0.62 $ 1.58 $ ( 0.09 ) Earnings (loss) per share – diluted: Income (loss) from continuing operations $ 464,053 $ 243,246 $ 618,025 $ ( 34,496 ) Weighted average common shares outstanding 391,779 389,219 391,565 388,957 Incremental shares from stock options and other dilutive securities 2,238 1,961 2,507 2,029 Adjusted weighted average common shares outstanding 394,017 391,180 394,072 390,986 Earnings (loss) per share from continuing operations $ 1.18 $ 0.62 $ 1.57 $ ( 0.09 ) Outstanding options to purchase approximately 2.8 million shares were excluded from the calculations of diluted earnings per share for both the three and six-month periods ended September 2021, and outstanding options to purchase approximately 5.4 million shares were excluded from the calculations of diluted earnings per share for both the three and six-month periods ended September 2020, because the effect of their inclusion would have been anti-dilutive. In addition, 0.6 million shares of performance-based RSUs were excluded from the calculations of diluted earnings per share for both the three and six-month periods ended September 2021, and 0.8 million and 0.6 million shares of performance-based RSUs were excluded from the calculations of diluted earnings per share for the three and six-month periods ended September 2020, respectively, because these units were not considered to be contingent outstanding shares in those periods. VF Corporation Q2 FY22 Form 10-Q 22 Table of Contents NOTE 16 — FAIR VALUE MEASUREMENTS Financial assets and financial liabilities measured and reported at fair value are classified in a three-level hierarchy that prioritizes the inputs used in the valuation process. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs, as follows: • Level 1 — Quoted prices in active markets for identical assets or liabilities. • Level 2 — Significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities, or (iii) information derived from or corroborated by observable market data. • Level 3 — Prices or valuation techniques that require significant unobservable data inputs. These inputs would normally be VF’s own data and judgments about assumptions that market participants would use in pricing the asset or liability. The following table summarizes financial assets and financial liabilities that are measured and recorded in the consolidated financial statements at fair value on a recurring basis: Total Fair Value Fair Value Measurement Using (a) (In thousands) Level 1 Level 2 Level 3 September 2021 Financial assets: Cash equivalents: Money market funds $ 224,728 $ 224,728 $ — $ — Time deposits 2,626 2,626 — — Derivative financial instruments 35,828 — 35,828 — Deferred compensation 132,985 132,985 — — Financial liabilities: Derivative financial instruments 33,723 — 33,723 — Deferred compensation 140,711 — 140,711 — Contingent consideration 99,000 — — 99,000 Total Fair Value Fair Value Measurement Using (a) (In thousands) Level 1 Level 2 Level 3 March 2021 Financial assets: Cash equivalents: Money market funds $ 216,591 $ 216,591 $ — $ — Time deposits 102,914 102,914 — — Short-term investments 598,806 598,806 — — Derivative financial instruments 13,257 — 13,257 — Deferred compensation 141,072 141,072 — — Financial liabilities: Derivative financial instruments 74,255 — 74,255 — Deferred compensation 150,713 — 150,713 — Contingent consideration 207,000 — — 207,000 (a) There were no transfers among the levels within the fair value hierarchy during the six months ended September 2021 or the year ended March 2021. 23 VF Corporation Q2 FY22 Form 10-Q Table of Contents The following table presents the changes in fair value of the contingent consideration liability designated as Level 3: (In thousands) Three Months Ended September 2021 Six Months Ended September 2021 Beginning Balance $ 134,000 $ 207,000 Change in fair value ( 35,000 ) ( 108,000 ) Ending Balance $ 99,000 $ 99,000 VF’s cash equivalents include money market funds and time deposits with maturities within three months of their purchase dates, that approximate fair value based on Level 1 measurements. The fair value of derivative financial instruments, which consist of foreign exchange forward contracts, is determined based on observable market inputs (Level 2), including spot and forward exchange rates for foreign currencies, and considers the credit risk of the Company and its counterparties. VF’s deferred compensation assets primarily represent investments held within plan trusts as an economic hedge of the related deferred compensation liabilities. These investments primarily include mutual funds (Level 1) that are valued based on quoted prices in active markets. Liabilities related to VF’s deferred compensation plans are recorded at amounts due to participants, based on the fair value of the participants’ selection of hypothetical investments. VF's short-term investments at March 2021 included excess cash invested in a managed income fund that approximated fair value based on Level 1 measurements. The contingent consideration liability represents the estimated amount of additional cash consideration to be paid to the selling shareholders of Supreme, which is dependent upon the achievement of certain financial targets over the one-year earn-out period ending January 31, 2022. The estimated fair value of the contingent consideration liability, which could range from zero to $ 300.0 million, was $ 207.0 million as of March 2021. The contingent consideration liability is remeasured at fair value with changes recognized in the selling, general and administrative expenses line item in the Consolidated Statements of Operations. As of September 2021, the fair value of the contingent consideration liability was remeasured to an estimated fair value of $ 99.0 million based on the probability-weighted present value of various future cash payment outcomes resulting from the estimated achievement levels of the financial targets. Refer to Note 4 for additional information on the acquisition of Supreme. All other financial assets and financial liabilities are recorded in the consolidated financial statements at cost, except life insurance contracts which are recorded at cash surrender value. These other financial assets and financial liabilities include cash held as demand deposits, accounts receivable, short-term borrowings, accounts payable and accrued liabilities. At September 2021 and March 2021, their carrying values approximated fair value. Additionally, at September 2021 and March 2021, the carrying values of VF’s long-term debt, including the current portion, were $ 5,683.8 million and $ 5,710.2 million, respectively, compared with fair values of $ 5,996.9 million and $ 6,017.3 million at those respective dates. Fair value for long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings. NOTE 17 — 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 $ 2.5 billion at September 2021 , March 2021 and September 2020, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Swiss franc, Mexican peso, Swedish krona, South Korean won, Polish zloty, Japanese yen and New Zealand dollar. Derivative contracts have maturities up to 20 months. The following table presents outstanding derivatives on an individual contract basis: Fair Value of Derivatives with Unrealized Gains Fair Value of Derivatives with Unrealized Losses (In thousands) September 2021 March 2021 September 2020 September 2021 March 2021 September 2020 Foreign currency exchange contracts designated as hedging instruments $ 35,674 $ 12,301 $ 28,676 $ ( 32,853 ) $ ( 73,087 ) $ ( 31,157 ) Foreign currency exchange contracts not designated as hedging instruments 154 956 4,500 ( 870 ) ( 1,168 ) ( 1,161 ) Total derivatives $ 35,828 $ 13,257 $ 33,176 $ ( 33,723 ) $ ( 74,255 ) $ ( 32,318 ) VF Corporation Q2 FY22 Form 10-Q 24 Table of Contents VF records and presents the fair values of all of its derivative assets and liabilities in the Consolidated Balance Sheets on a gross basis, even though they are subject to master netting agreements. If VF were to offset and record the asset and liability balances of its foreign exchange forward contracts on a net basis in accordance with the terms of its master netting agreements, the amounts presented in the Consolidated Balance Sheets would be adjusted from the current gross presentation to the net amounts as detailed in the following table: September 2021 March 2021 September 2020 (In thousands) Derivative Asset Derivative Liability Derivative Asset Derivative Liability Derivative Asset Derivative Liability Gross amounts presented in the Consolidated Balance Sheets $ 35,828 $ ( 33,723 ) $ 13,257 $ ( 74,255 ) $ 33,176 $ ( 32,318 ) Gross amounts not offset in the Consolidated Balance Sheets ( 17,201 ) 17,201 ( 13,246 ) 13,246 ( 23,491 ) 23,491 Net amounts $ 18,627 $ ( 16,522 ) $ 11 $ ( 61,009 ) $ 9,685 $ ( 8,827 ) Derivatives are classified as current or noncurrent based on maturity dates, as follows: (In thousands) September 2021 March 2021 September 2020 Other current assets $ 27,903 $ 7,440 $ 27,615 Accrued liabilities ( 31,609 ) ( 66,351 ) ( 22,946 ) Other assets 7,925 5,817 5,561 Other liabilities ( 2,114 ) ( 7,904 ) ( 9,372 ) Cash Flow Hedges VF uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, purchases, production costs, operating costs and intercompany royalties. The effects of cash flow hedging included in VF’s Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss) are summarized as follows: (In thousands) Gain (Loss) on Derivatives Recognized in OCI Three Months Ended September Gain (Loss) on Derivatives Recognized in OCI Six Months Ended September Cash Flow Hedging Relationships 2021 2020 2021 2020 Foreign currency exchange $ 34,361 $ ( 39,731 ) $ 29,798 $ ( 47,326 ) (In thousands) Gain (Loss) Reclassified from Accumulated OCI into Income (Loss) Three Months Ended September Gain (Loss) Reclassified from Accumulated OCI into Income (Loss) Six Months Ended September Location of Gain (Loss) 2021 2020 2021 2020 Net revenues $ ( 4,963 ) $ 2,135 $ ( 6,761 ) $ 2,306 Cost of goods sold ( 16,501 ) 8,443 ( 22,670 ) 25,148 Selling, general and administrative expenses ( 189 ) 741 ( 1,106 ) 2,348 Other income (expense), net ( 1,360 ) 33 ( 3,062 ) 1,803 Interest expense 27 27 54 54 Total $ ( 22,986 ) $ 11,379 $ ( 33,545 ) $ 31,659 Derivative Contracts Not Designated as Hedges VF uses derivative contracts to manage foreign currency exchange risk on third-party accounts receivable and payable, as well as intercompany borrowings. These contracts are not designated as hedges, and are recorded at fair value in the Consolidated Balance Sheets. Changes in the fair values of these instruments are recognized directly in earnings. Gains or losses on these contracts largely offset the net transaction losses or gains on the related assets and liabilities. In the case of derivative contracts executed on foreign currency exposures that are no longer probable of occurring, VF de-designates these hedges and the fair value changes of these instruments are also recognized directly in earnings. The impact of de-designated derivative contracts and changes in the fair value of derivative contracts not designated as hedges, recognized as gains or losses in VF's Consolidated Statements of Operations were not material for the three and six months ended September 2021 and September 2020. Other Derivative Information At September 2021, accumulated OCI included $ 20.9 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 25 VF Corporation Q2 FY22 Form 10-Q Table of Contents earnings will depend on exchange rates in effect when outstanding derivative contracts are settled. Net Investment Hedge The Company has designated its euro-denominated fixed-rate notes, which represent € 1.850 billion in aggregate principal, as a net investment hedge of VF’s investment in certain foreign operations. Because this debt qualified as a nonderivative hedging instrument, foreign currency transaction gains or losses of the debt are deferred in the foreign currency translation and other component of accumulated OCI as an offset to the foreign currency translation adjustments on the hedged investments. During the three and six-month periods ended September 2021, the Company recognized an after-tax gain of $ 34.1 million and $ 22.6 million, respectively, in OCI related to the net investment hedge transaction, and an after-tax loss of $ 53.5 million and $ 71.6 million for the three and six -month periods ended September 2020 , respectively. Any amounts deferred in accumulated OCI will remain until the hedged investment is sold or substantially liquidated. NOTE 18 — RESTRUCTURING The Company incurs restructuring charges related to strategic initiatives and cost optimization of business activities, primarily related to severance and employee-related benefits. During the three and six months ended September 2021, VF recognized $ 3.5 million and $ 7.8 million, respectively, of restructuring charges, related to approved initiatives. Of the restructuring charges recognized in the three and six months ended September 2021, $ 3.4 million and $ 6.3 million were reflected in selling, general and administrative expenses, respectively, and $ 0.1 million and $ 1.5 million in cost of goods sold, respectively. The Company has not recognized any significant incremental costs related to accruals for the year ended March 2021 or prior periods. Of the $ 43.3 million total restructuring accrual at September 2021, $ 43.0 million is expected to be paid out within the next 12 months and is classified within accrued liabilities. The remaining $ 0.3 million will be paid out beyond the next 12 months and thus is classified within other liabilities. The components of the restructuring charges are as follows: Three Months Ended September Six Months Ended September (In thousands) 2021 2020 2021 2020 Severance and employee-related benefits $ 1,422 $ 9,883 $ 4,296 $ 28,392 Asset impairments — 10,557 — 10,557 Accelerated depreciation 2,036 2,857 3,467 6,664 Contract termination and other — 76 — 217 Total restructuring charges $ 3,458 $ 23,373 $ 7,763 $ 45,830 Restructuring costs by business segment are as follows: Three Months Ended September Six Months Ended September (In thousands) 2021 2020 2021 2020 Outdoor $ 454 $ 1,845 $ 2,677 $ 6,595 Active 276 293 1,008 663 Work 788 18,378 788 18,807 Other 1,940 2,857 3,290 19,765 Total $ 3,458 $ 23,373 $ 7,763 $ 45,830 The activity in the restructuring accrual for the six-month period ended September 2021 was as follows: (In thousands) Severance Other Total Accrual at March 2021 $ 59,810 $ 6,944 $ 66,754 Charges 4,296 — 4,296 Cash payments and settlements ( 23,961 ) ( 3,666 ) ( 27,627 ) Adjustments to accruals 2 ( 40 ) ( 38 ) Impact of foreign currency ( 66 ) ( 50 ) ( 116 ) Accrual at September 2021 $ 40,081 $ 3,188 $ 43,269 VF Corporation Q2 FY22 Form 10-Q 26 Table of Contents NOTE 19 — CONTINGENCIES The Company petitioned the U.S. Tax Court to resolve an IRS dispute regarding the timing of income inclusion associated with the 2011 Timberland acquisition. The Company remains confident in our timing and treatment of the income inclusion, and therefore this matter is not reflected in our consolidated financial statements. We are vigorously defending our position, and do not expect the resolution to have a material adverse impact on the Company's financial position, results of operations or cash flows. While the IRS argues immediate income inclusion, the Company's position is to include the income over a period of years. As the matter relates to 2011, nearly half of the timing at dispute has passed with the Company including the income, and paying the related tax, on our income tax returns. The Company notes that should the IRS prevail in this timing matter, the net interest expense would be up to $ 191.4 million. Further, this timing matter is impacted by the Tax Cuts and Jobs Act that reduced the U.S. corporate income tax rate from 35% to 21%. If the IRS is successful, this rate differential would increase tax expense by approximately $ 136.3 million. The Company is currently involved in other legal proceedings that are ordinary, routine litigation incidental to the business. The resolution of any particular proceeding is not currently expected to have a material adverse impact on the Company's financial position, results of operations or cash flows. NOTE 20 — SUBSEQUENT EVENT On October 19, 2021, VF’s Board of Directors declared a quarterly cash dividend of $ 0.50 per share, payable on December 20, 2021 to stockholders of record on December 10, 2021. 27 VF Corporation Q2 FY22 Form 10-Q Table of Contents