V F CORP 10-Q

ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED). VF CORPORATION Consolidated Balance Sheets (Unaudited) (In thousands, except share amounts) December 2021 March 2021 December 2020 ASSETS Current assets Cash and equivalents $ 1,333,839 $ 815,750 $ 3,254,236 Accounts receivable, less allowance for doubtful accounts of: December 2021 - $ 33,363 ; March 2021 - $ 33,654 ; December 2020 - $ 39,622 1,495,859 1,298,020 1,411,565 Inventories 1,287,210 1,061,839 1,075,983 Short-term investments — 598,806 599,403 Other current assets 483,738 423,877 383,384 Current assets of discontinued operations — 587,578 560,648 Total current assets 4,600,646 4,785,870 7,285,219 Property, plant and equipment, net 1,049,691 975,876 955,845 Intangible assets, net 3,010,517 3,029,545 1,862,042 Goodwill 2,409,260 2,425,427 1,194,212 Operating lease right-of-use assets 1,302,545 1,474,434 1,476,503 Other assets 1,163,663 1,062,877 970,520 TOTAL ASSETS $ 13,536,322 $ 13,754,029 $ 13,744,341 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Short-term borrowings $ 106,010 $ 11,061 $ 299,748 Current portion of long-term debt 500,915 1,023 1,006 Accounts payable 559,716 463,208 412,324 Accrued liabilities 2,057,237 1,609,928 1,664,760 Current liabilities of discontinued operations — 125,257 120,185 Total current liabilities 3,223,878 2,210,477 2,498,023 Long-term debt 4,646,379 5,709,149 5,786,552 Operating lease liabilities 1,093,013 1,236,461 1,211,655 Other liabilities 919,652 1,541,778 1,109,937 Total liabilities 9,882,922 10,697,865 10,606,167 Commitments and contingencies Stockholders’ equity Preferred Stock, par value $ 1 ; shares authorized, 25,000,000 ; no shares outstanding at December 2021, March 2021 or December 2020 — — — Common Stock, stated value $ 0.25 ; shares authorized, 1,200,000,000 ; shares outstanding at December 2021 - 388,885,032 ; March 2021 - 391,941,477 ; December 2020 - 390,985,837 97,221 97,985 97,746 Additional paid-in capital 3,884,935 3,777,645 3,735,896 Accumulated other comprehensive income (loss) ( 937,457 ) ( 1,009,000 ) ( 995,963 ) Retained earnings 608,701 189,534 300,495 Total stockholders’ equity 3,653,400 3,056,164 3,138,174 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,536,322 $ 13,754,029 $ 13,744,341 See notes to consolidated financial statements. 3 VF Corporation Q3 FY22 Form 10-Q Table of Contents VF CORPORATION Consolidated Statements of Operations (Unaudited) Three Months Ended December Nine Months Ended December (In thousands, except per share amounts) 2021 2020 2021 2020 Net revenues $ 3,624,384 $ 2,971,541 $ 9,017,176 $ 6,656,158 Costs and operating expenses Cost of goods sold 1,592,604 1,345,024 4,027,601 3,134,381 Selling, general and administrative expenses 1,353,338 1,214,518 3,549,763 3,036,639 Total costs and operating expenses 2,945,942 2,559,542 7,577,364 6,171,020 Operating income 678,442 411,999 1,439,812 485,138 Interest income 606 2,539 4,266 7,028 Interest expense ( 33,994 ) ( 34,315 ) ( 104,799 ) ( 97,684 ) Loss on debt extinguishment ( 3,645 ) — ( 3,645 ) — Other income (expense), net ( 95 ) 6,484 16,495 ( 27,059 ) Income from continuing operations before income taxes 641,314 386,707 1,352,129 367,423 Income tax expense 123,513 59,048 216,303 74,260 Income from continuing operations 517,801 327,659 1,135,826 293,163 Income from discontinued operations, net of tax — 19,581 170,273 25,186 Net income $ 517,801 $ 347,240 $ 1,306,099 $ 318,349 Earnings per common share - basic Continuing operations $ 1.33 $ 0.84 $ 2.90 $ 0.75 Discontinued operations — 0.05 0.44 0.06 Total earnings per common share - basic $ 1.33 $ 0.89 $ 3.34 $ 0.82 Earnings per common share - diluted Continuing operations $ 1.32 $ 0.83 $ 2.89 $ 0.75 Discontinued operations — 0.05 0.43 0.06 Total earnings per common share - diluted $ 1.32 $ 0.88 $ 3.32 $ 0.81 Weighted average shares outstanding Basic 390,430 389,872 391,187 389,262 Diluted 392,495 392,851 393,547 391,607 See notes to consolidated financial statements. VF Corporation Q3 FY22 Form 10-Q 4 Table of Contents VF CORPORATION Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended December Nine Months Ended December (In thousands) 2021 2020 2021 2020 Net income $ 517,801 $ 347,240 $ 1,306,099 $ 318,349 Other comprehensive income (loss) Foreign currency translation and other Gains (losses) arising during the period ( 15,757 ) 9,495 5,100 ( 20,134 ) Reclassification of foreign currency translation losses — — — 42,364 Income tax effect ( 9,954 ) 26,779 ( 17,758 ) 51,616 Defined benefit pension plans Current period actuarial gains (losses) 514 ( 4,636 ) ( 3,938 ) ( 13,489 ) Amortization of net deferred actuarial losses 2,858 3,020 8,569 8,781 Amortization of deferred prior service credits ( 117 ) ( 19 ) ( 352 ) ( 53 ) Reclassification of net actuarial loss from settlement charge 5,660 544 6,684 1,116 Income tax effect ( 2,251 ) 429 ( 2,187 ) 1,151 Derivative financial instruments Gains (losses) arising during the period 14,185 ( 82,491 ) 43,983 ( 129,817 ) Income tax effect ( 2,224 ) 14,118 ( 8,010 ) 22,845 Reclassification of net (gains) losses realized 12,439 ( 4,271 ) 45,984 ( 35,930 ) Income tax effect ( 1,976 ) 727 ( 6,532 ) 6,545 Other comprehensive income (loss) 3,377 ( 36,305 ) 71,543 ( 65,005 ) Comprehensive income $ 521,178 $ 310,935 $ 1,377,642 $ 253,344 See notes to consolidated financial statements. 5 VF Corporation Q3 FY22 Form 10-Q Table of Contents VF CORPORATION Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended December (In thousands) 2021 2020 OPERATING ACTIVITIES Net income $ 1,306,099 $ 318,349 Income from discontinued operations, net of tax 170,273 25,186 Income from continuing operations, net of tax 1,135,826 293,163 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 199,652 204,580 Reduction in the carrying amount of right-of-use assets 309,588 309,579 Stock-based compensation 65,833 46,109 Provision for doubtful accounts 3,143 22,494 Pension expense less than contributions ( 27,514 ) ( 12,111 ) Loss on extinguishment of debt 3,645 — Other, net ( 291,054 ) ( 83 ) Changes in operating assets and liabilities: Accounts receivable ( 214,644 ) ( 46,835 ) Inventories ( 237,285 ) 266,713 Accounts payable 99,565 ( 6,696 ) Income taxes 219,097 ( 18,235 ) Accrued liabilities 250,170 248,679 Operating lease right-of-use assets and liabilities ( 342,322 ) ( 254,544 ) Other assets and liabilities ( 382,410 ) 31,464 Cash provided by operating activities - continuing operations 791,290 1,084,277 Cash provided by operating activities - discontinued operations 6,090 57,779 Cash provided by operating activities 797,380 1,142,056 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 and maturities of short-term investments 598,806 200,000 Capital expenditures ( 214,220 ) ( 152,446 ) Software purchases ( 63,758 ) ( 51,964 ) Other, net 12,819 ( 9,116 ) Cash provided (used) by investing activities - continuing operations 953,936 ( 813,526 ) Cash used by investing activities - discontinued operations ( 525 ) ( 3,171 ) Cash provided (used) by investing activities 953,411 ( 816,697 ) FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings 94,958 ( 929,074 ) Payments on long-term debt ( 503,943 ) ( 1,152 ) Payment of debt issuance costs ( 2,415 ) ( 21,438 ) Proceeds from long-term debt — 2,996,090 Share repurchases ( 299,999 ) — Cash dividends paid ( 579,194 ) ( 564,904 ) Proceeds from issuance of Common Stock, net of payments for tax withholdings 32,929 45,867 Cash provided (used) by financing activities ( 1,257,664 ) 1,525,389 Effect of foreign currency rate changes on cash, cash equivalents and restricted cash ( 9,339 ) 12,513 Net change in cash, cash equivalents and restricted cash 483,788 1,863,261 Cash, cash equivalents and restricted cash – beginning of year 851,205 1,411,322 Cash, cash equivalents and restricted cash – end of period $ 1,334,993 $ 3,274,583 Continued on next page. See notes to consolidated financial statements. VF Corporation Q3 FY22 Form 10-Q 6 Table of Contents VF CORPORATION Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended December (In thousands) 2021 2020 Balances per Consolidated Balance Sheets: Cash and cash equivalents $ 1,333,839 $ 3,254,236 Other current assets 1,124 1,104 Current assets of discontinued operations — 18,771 Other assets 30 472 Total cash, cash equivalents and restricted cash $ 1,334,993 $ 3,274,583 See notes to consolidated financial statements. 7 VF Corporation Q3 FY22 Form 10-Q Table of Contents VF CORPORATION Consolidated Statements of Stockholders’ Equity (Unaudited) Three Months Ended December 2021 Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Common Stock (In thousands, except share amounts) Shares Amounts Total Balance, September 2021 392,758,016 $ 98,190 $ 3,854,687 $ ( 940,834 ) $ 586,438 $ 3,598,481 Net income — — — — 517,801 517,801 Dividends on Common Stock ($ 0.50 per share) — — — — ( 194,767 ) ( 194,767 ) Share repurchases ( 4,029,722 ) ( 1,007 ) — — ( 298,992 ) ( 299,999 ) Stock-based compensation, net 156,738 38 30,248 — ( 1,779 ) 28,507 Foreign currency translation and other — — — ( 25,711 ) — ( 25,711 ) Defined benefit pension plans — — — 6,664 — 6,664 Derivative financial instruments — — — 22,424 — 22,424 Balance, December 2021 388,885,032 $ 97,221 $ 3,884,935 $ ( 937,457 ) $ 608,701 $ 3,653,400 Three Months Ended December 2020 Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Common Stock (In thousands, except share amounts) Shares Amounts Total Balance, September 2020 389,964,718 $ 97,491 $ 3,852,358 $ ( 959,658 ) $ ( 44,953 ) $ 2,945,238 Net income — — — — 347,240 347,240 Dividends on Common Stock ($ 0.49 per share) — — ( 191,266 ) — — ( 191,266 ) Stock-based compensation, net 1,021,119 255 74,804 — ( 1,792 ) 73,267 Foreign currency translation and other — — — 36,274 — 36,274 Defined benefit pension plans — — — ( 662 ) — ( 662 ) Derivative financial instruments — — — ( 71,917 ) — ( 71,917 ) Balance, December 2020 390,985,837 $ 97,746 $ 3,735,896 $ ( 995,963 ) $ 300,495 $ 3,138,174 Continued on next page. See notes to consolidated financial statements. VF Corporation Q3 FY22 Form 10-Q 8 Table of Contents VF CORPORATION Consolidated Statements of Stockholders’ Equity (Unaudited) Nine Months Ended December 2021 Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings 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 — — — — 1,306,099 1,306,099 Dividends on Common Stock ($ 1.48 per share) — — ( 2,597 ) — ( 576,597 ) ( 579,194 ) Share repurchases ( 4,029,722 ) ( 1,007 ) — — ( 298,992 ) ( 299,999 ) Stock-based compensation, net 973,277 243 109,887 — ( 11,343 ) 98,787 Foreign currency translation and other — — — ( 12,658 ) — ( 12,658 ) Defined benefit pension plans — — — 8,776 — 8,776 Derivative financial instruments — — — 75,425 — 75,425 Balance, December 2021 388,885,032 $ 97,221 $ 3,884,935 $ ( 937,457 ) $ 608,701 $ 3,653,400 Nine Months Ended December 2020 Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings 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 — — — — 318,349 318,349 Dividends on Common Stock ($ 1.45 per share) — — ( 564,904 ) — — ( 564,904 ) Stock-based compensation, net 2,173,679 543 117,020 — ( 25,163 ) 92,400 Foreign currency translation and other — — — 73,846 — 73,846 Defined benefit pension plans — — — ( 2,494 ) — ( 2,494 ) Derivative financial instruments — — — ( 136,357 ) — ( 136,357 ) Balance, December 2020 390,985,837 $ 97,746 $ 3,735,896 $ ( 995,963 ) $ 300,495 $ 3,138,174 See notes to consolidated financial statements. 9 VF Corporation Q3 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 12 NOTE 4 Acquisition 14 NOTE 5 Discontinued Operations 15 NOTE 6 Inventories 16 NOTE 7 Intangible Assets 17 NOTE 8 Goodwill 17 NOTE 9 Leases 17 NOTE 10 Short-term Borrowings and Long-term Debt 18 NOTE 11 Pension Plans 18 NOTE 12 Capital and Accumulated Other Comprehensive Income (Loss) 19 NOTE 13 Stock-based Compensation 21 NOTE 14 Income Taxes 22 NOTE 15 Reportable Segment Information 23 NOTE 16 Earnings Per Share 23 NOTE 17 Fair Value Measurements 24 NOTE 18 Derivative Financial Instruments and Hedging Activities 25 NOTE 19 Restructuring 27 NOTE 20 Contingencies 28 NOTE 21 Subsequent Event 28 VF Corporation Q3 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 third quarter of Fiscal 2022. For presentation purposes herein, all references to periods ended December 2021 and December 2020 relate to the fiscal periods ended on January 1, 2022 and December 26, 2020, respectively. References to March 2021 relate to information as of April 3, 2021. On June 28, 2021, VF completed the sale of its Occupational Workwear business. The Occupational Workwear business was comprised primarily of the following brands and businesses: Red Kap ® , VF Solutions ® , Bulwark ® , Workrite ® , Walls ® , Terra ® , Kodiak ® , Work Authority ® and Horace Small ® . The business also included the license of certain Dickies ® occupational workwear products that have historically been sold through the business-to-business channel. The results of the Occupational Workwear business and the related cash flows have been reported as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively, through the date of sale. The related held-for-sale assets and liabilities have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets, through the date of sale. These changes have been applied to all periods presented. Unless otherwise noted, discussion within these notes to the interim consolidated financial statements relates to continuing operations. Refer to Note 5 for additional information on discontinued operations. Certain prior year amounts have been reclassified to conform to the Fiscal 2022 presentation. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and notes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. Similarly, the March 2021 consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations and cash flows of VF for the interim periods presented. Operating results for the three and nine months ended December 2021 are not necessarily indicative of results that may be expected for any other interim period or for Fiscal 2022. For further information, refer to the consolidated financial statements and notes included in VF’s Annual Report on Form 10-K for the year ended April 3, 2021 (“Fiscal 2021 Form 10-K”). In preparing the interim consolidated financial statements, management makes estimates and assumptions that affect amounts reported in the interim consolidated financial statements and accompanying notes. The duration and severity of the novel coronavirus ("COVID-19") pandemic, which is subject to uncertainty, continues to impact VF's business. Management's estimates and assumptions have contemplated both current and expected impacts related to COVID-19 based on available information. Actual results may differ from those estimates. NOTE 2 — RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS Recently Adopted Accounting Standards In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" , an update that amends and simplifies the accounting for income taxes by removing certain exceptions in existing guidance and providing new guidance to reduce complexity in certain areas. The guidance became effective for VF in the first quarter of Fiscal 2022, but did not have a material impact on VF's consolidated financial statements. Recently Issued Accounting Standards In March 2020 and January 2021, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and ASU No. 2021-01 , "Reference Rate Reform (Topic 848): Scope" , respectively. This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The optional guidance is provided to ease the potential burden of accounting for reference rate reform. The guidance is effective and can be adopted no later than December 31, 2022. The Company is evaluating the impact that adopting this guidance would have on VF's consolidated financial statements. In November 2021, the FASB issued ASU No. 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance" , an update that requires annual disclosures about government assistance, including the types of assistance and the effect on the financial statements. The guidance will be effective for VF in Fiscal 2023 with early adoption permitted. The Company is evaluating the impact that adopting this guidance will have on VF's disclosures. 11 VF Corporation Q3 FY22 Form 10-Q Table of Contents NOTE 3 — REVENUES Contract Balances The following table provides information about contract assets and contract liabilities: (In thousands) December 2021 March 2021 December 2020 Contract assets (a) $ 1,425 $ 880 $ 1,512 Contract liabilities (b) 73,890 49,869 55,995 (a) Included in the other current assets line item in the Consolidated Balance Sheets. (b) Included in the accrued liabilities line item in the Consolidated Balance Sheets. For the three and nine months ended December 2021, the Company recognized $ 81.6 million and $ 243.6 million, respectively, of revenue that was included in the contract liability balance during the periods, including amounts recorded as a contract liability and subsequently recognized as revenue as performance obligations were satisfied within the same period, such as order deposits from customers. The change in the contract asset and contract liability balances primarily results from the timing differences between the Company's satisfaction of performance obligations and the customer's payment. Performance Obligations As of December 2021, the Company expects to recognize $ 75.5 million of fixed consideration related to the future minimum guarantees in effect under its licensing agreements and expects such amounts to be recognized over time based on the contractual terms through March 2031. The variable consideration related to licensing arrangements is not disclosed as a remaining performance obligation as it qualifies for the sales-based royalty exemption. VF has also elected the practical expedient to not disclose the transaction price allocated to remaining performance obligations for contracts with an original expected duration of one year or less. As of December 2021, there were no arrangements with transaction price allocated to remaining performance obligations other than contracts for which the Company has applied the practical expedients and the fixed consideration related to future minimum guarantees discussed above. For the three and nine months ended December 2021, revenue recognized from performance obligations satisfied, or partially satisfied, in prior periods was not material. Disaggregation of Revenue The following tables disaggregate our revenues by channel and geography, which provides a meaningful depiction of how the nature, timing and uncertainty of revenues are affected by economic factors. Three Months Ended December 2021 (In thousands) Outdoor Active Work Other Total Channel revenues Wholesale $ 960,020 $ 448,690 $ 215,023 $ 279 $ 1,624,012 Direct-to-consumer 964,016 956,393 61,077 — 1,981,486 Royalty 4,391 5,494 9,001 — 18,886 Total $ 1,928,427 $ 1,410,577 $ 285,101 $ 279 $ 3,624,384 Geographic revenues United States $ 945,218 $ 788,839 $ 213,535 $ 279 $ 1,947,871 International: Europe 651,252 333,415 18,631 — 1,003,298 Asia-Pacific 236,348 214,638 37,361 — 488,347 Americas (non-U.S.) 95,609 73,685 15,574 — 184,868 Total $ 1,928,427 $ 1,410,577 $ 285,101 $ 279 $ 3,624,384 VF Corporation Q3 FY22 Form 10-Q 12 Table of Contents Three Months Ended December 2020 (In thousands) Outdoor Active Work Other Total Channel revenues Wholesale $ 763,743 $ 465,857 $ 200,872 $ 3,106 $ 1,433,578 Direct-to-consumer 804,711 655,922 63,470 89 1,524,192 Royalty 2,589 5,342 5,840 — 13,771 Total $ 1,571,043 $ 1,127,121 $ 270,182 $ 3,195 $ 2,971,541 Geographic revenues United States $ 776,674 $ 620,261 $ 170,760 $ — $ 1,567,695 International: Europe 502,000 256,282 32,381 3,195 793,858 Asia-Pacific 213,271 199,202 51,858 — 464,331 Americas (non-U.S.) 79,098 51,376 15,183 — 145,657 Total $ 1,571,043 $ 1,127,121 $ 270,182 $ 3,195 $ 2,971,541 Nine Months Ended December 2021 (In thousands) Outdoor Active Work Other Total Channel revenues Wholesale $ 2,426,963 $ 1,600,238 $ 693,910 $ 557 $ 4,721,668 Direct-to-consumer 1,614,783 2,488,454 144,029 — 4,247,266 Royalty 11,056 16,126 21,060 — 48,242 Total $ 4,052,802 $ 4,104,818 $ 858,999 $ 557 $ 9,017,176 Geographic revenues United States $ 1,919,914 $ 2,198,759 $ 640,431 $ 557 $ 4,759,661 International: Europe 1,406,329 1,051,301 58,247 — 2,515,877 Asia-Pacific 506,710 641,289 111,561 — 1,259,560 Americas (non-U.S.) 219,849 213,469 48,760 — 482,078 Total $ 4,052,802 $ 4,104,818 $ 858,999 $ 557 $ 9,017,176 Nine Months Ended December 2020 (In thousands) Outdoor Active Work Other Total Channel revenues Wholesale $ 1,746,203 $ 1,371,889 $ 527,378 $ 4,381 $ 3,649,851 Direct-to-consumer 1,314,386 1,510,354 144,113 297 2,969,150 Royalty 6,089 16,396 14,672 — 37,157 Total $ 3,066,678 $ 2,898,639 $ 686,163 $ 4,678 $ 6,656,158 Geographic revenues United States $ 1,451,827 $ 1,472,145 $ 446,850 $ — $ 3,370,822 International: Europe 1,015,078 753,820 76,786 4,678 1,850,362 Asia-Pacific 448,234 533,620 120,125 — 1,101,979 Americas (non-U.S.) 151,539 139,054 42,402 — 332,995 Total $ 3,066,678 $ 2,898,639 $ 686,163 $ 4,678 $ 6,656,158 13 VF Corporation Q3 FY22 Form 10-Q Table of Contents NOTE 4 — ACQUISITION On December 28, 2020, VF acquired 100 % of the outstanding shares of Supreme Holdings, Inc. ("Supreme") for $ 2.2 billion in cash, subject to working capital and other adjustments. The transaction also included $ 0.2 billion of cash acquired by VF. The purchase price was primarily funded with cash on hand. The purchase price was unchanged during the three months ended December 2021 and decreased by $ 3.8 million during the nine months ended December 2021, related to the final working capital adjustment. The acquisition of Supreme includes a contingent arrangement that may require additional cash consideration to be paid to the selling shareholders of Supreme ranging from zero to $ 300.0 million, subject to the achievement of certain financial targets over the one-year earn-out period ending January 31, 2022. The initial estimated fair value of the contingent consideration of $ 207.0 million was included in the purchase price and reported in the other liabilities line item in the Consolidated Balance Sheet at March 2021. The estimated fair value of the contingent consideration was determined based on the probability-weighted present value of various future cash payment outcomes. In subsequent reporting periods, the contingent consideration liability has been remeasured at fair value with changes recognized in the selling, general and administrative expenses line item in the Consolidated Statements of Operations. Refer to Note 17 for additional information on fair value measurements. Supreme was a privately-held company based in New York, New York and is a global streetwear leader that sells apparel, accessories and footwear under its namesake brand , Supreme ® , through direct-to-consumer channels, including digital. The acquisition of Supreme accelerates VF's long-term growth strategy and builds on a long-standing relationship between Supreme and VF, with the Supreme ® brand being a regular collaborator with VF's Vans ® , The North Face ® and Timberland ® brands. The acquisition also provides VF with deeper access to attractive consumer segments and the ability to leverage VF's enterprise platforms and capabilities to enable sustainable long-term growth. In connection with the acquisition, VF deposited in escrow 605,050 shares of VF Common Stock. The common shares are subject to certain future service requirements and vest over periods of up to four years . For accounting purposes, VF will recognize the stock-based compensation cost for the fair value of these awards of $ 51.7 million over the vesting periods. For the three and nine months ended December 2021, Supreme contributed revenues of $ 193.2 million and $ 438.5 million, respectively, and net income of $ 43.8 million and $ 76.2 million, respectively. The results of Supreme have been reported in the Active segment since the date of acquisition. Total transaction expenses for the Supreme acquisition were $ 8.7 million, all of which were recognized in the year ended March 2021 in the selling, general and administrative expenses line item in the Consolidated Statement of Operations. Goodwill increased by $ 3.6 million during the three months ended December 2021 due to a measurement period adjustment for income tax matters, and decreased by $ 0.7 million during the nine months ended December 2021, which was also impacted by the final working capital adjustment. The purchase price allocation was finalized during the three months ended December 2021. The following table summarizes the estimated fair values of the Supreme assets acquired and liabilities assumed at the date of acquisition: (In thousands) December 28, 2020 Cash and equivalents $ 218,104 Accounts receivable 19,698 Inventories 44,937 Other current assets 40,912 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 1,657,712 Accounts payable 25,717 Other current liabilities 81,816 Operating lease liabilities 53,062 Deferred income tax liabilities 280,971 Other liabilities 35,245 Total liabilities assumed 476,811 Net assets acquired 1,180,901 Goodwill 1,249,594 Purchase price $ 2,430,495 VF Corporation Q3 FY22 Form 10-Q 14 Table of Contents 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. The following unaudited pro forma summary presents consolidated information of VF as if the acquisition of Supreme had occurred on March 31, 2019: (In thousands, except per share amounts) Three Months Ended December 2020 (unaudited) Nine Months Ended December 2020 (unaudited) Total revenues $ 3,160,826 $ 7,094,470 Income from continuing operations 377,987 387,949 Earnings per common share from continuing operations Basic $ 0.97 $ 1.00 Diluted 0.96 0.99 These pro forma amounts have been calculated after applying VF’s accounting policies and adjusting the results of Supreme to reflect the fair value adjustments to intangible assets, property, plant and equipment and inventory. The results of Supreme have also been adjusted for historical interest expense as the acquired business was debt-free on the acquisition date . These changes have been applied from March 31, 20 19, with related tax effects. The pro forma financial information in the three and nine months ended December 2020 excludes $ 30.6 million of expenses related to Supreme's transaction and deal-related costs, including employee compensation costs and accelerated vesting of stock options, which are directly attributable to the transaction. Pro forma financial information is not necessarily indicative of VF’s operating results if the acquisition had been effected at the date indicated, nor is it necessarily indicative of future operating results. Amounts do not include any marketing leverage, or operating efficiencies that VF believes are achievable. NOTE 5 — DISCONTINUED OPERATIONS The Company continuously assesses the composition of its portfolio to ensure it is aligned with its strategic objectives and positioned to maximize growth and return to shareholders. Occupational Workwear Business On January 21, 2020, VF announced its decision to explore the divestiture of its Occupational Workwear business. The Occupational Workwear business was comprised primarily of the following brands and businesses: Red Kap ® , VF Solutions ® , Bulwark ® , Workrite ® , Walls ® , Terra ® , Kodiak ® , Work Authority ® and Horace Small ® . The business also included the license of certain Dickies ® occupational workwear products that have historically been sold through the business-to-business channel. As of March 28, 2020, the Occupational Workwear business met the held-for-sale and discontinued operations accounting criteria. Accordingly, the Company has reported the results of the Occupational Workwear business and the related cash flows as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively, through the date of sale. The related held-for-sale assets and 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 nine months ended December 2021, and is subject to working capital and other adjustments. The results of the Occupational Workwear business were previously reported in the Work segment. The results of the Occupational Workwear business recorded in the income from discontinued operations, net of tax line item in the Consolidated Statements of Operations were income of $ 170.3 million (including an estimated after-tax gain on sale of $ 145.6 million) for the nine months ended December 2021, and income of $ 19.6 million and $ 25.2 million for the three and nine months ended December 2020, respectively. Under the terms of a transition services agreement, the Company will provide certain support services for periods generally up to 12 months from the closing date of the transaction. 15 VF Corporation Q3 FY22 Form 10-Q 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 December Nine Months Ended December (In thousands) 2021 2020 2021 2020 Net revenues $ — $ 176,464 $ 181,424 $ 464,107 Cost of goods sold — 115,801 117,193 330,418 Selling, general and administrative expenses — 35,576 38,735 103,743 Interest income, net — 68 194 541 Other income (expense), net — 22 6 101 Income from discontinued operations before income taxes — 25,177 25,696 30,588 Gain on the sale of discontinued operations before income taxes — — 133,571 — Total income from discontinued operations before income taxes — 25,177 159,267 30,588 Income tax expense (benefit) (a) — 5,596 ( 11,006 ) 5,402 Income from discontinued operations, net of tax $ — $ 19,581 $ 170,273 $ 25,186 (a) Income tax benefit for the nine months ended December 2021 includes $ 12.0 million of deferred tax benefit related to capital and other losses realized upon the sale of the Occupational Workwear business. The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations as of March 2021 and December 2020. (In thousands) March 2021 December 2020 Cash and equivalents $ 34,132 $ 18,771 Accounts receivable, net 103,835 91,554 Inventories 245,227 242,204 Other current assets 8,208 12,802 Property, plant and equipment, net 49,394 48,605 Intangible assets, net 54,471 54,472 Goodwill 43,530 43,530 Operating lease right-of-use assets 43,220 42,930 Other assets 5,561 5,780 Total assets of discontinued operations $ 587,578 $ 560,648 Accounts payable $ 59,965 $ 50,434 Accrued liabilities 38,956 34,470 Operating lease liabilities 31,301 33,073 Other liabilities 3,863 6,303 Deferred income tax liabilities (a) ( 8,828 ) ( 4,095 ) Total liabilities of discontinued operations $ 125,257 $ 120,185 (a) Deferred income tax balances reflect VF's consolidated netting by jurisdiction. NOTE 6 — INVENTORIES (In thousands) December 2021 March 2021 December 2020 Finished products $ 1,218,099 $ 983,472 $ 1,008,796 Work-in-process 49,933 54,386 55,352 Raw materials 19,178 23,981 11,835 Total inventories $ 1,287,210 $ 1,061,839 $ 1,075,983 VF Corporation Q3 FY22 Form 10-Q 16 Table of Contents NOTE 7 — INTANGIBLE ASSETS December 2021 March 2021 (In thousands) Weighted Average Amortization Period Amortization Method Cost Accumulated Amortization Net Carrying Amount Net Carrying Amount Amortizable intangible assets: Customer relationships and other 19 years Accelerated $ 268,018 $ 159,541 $ 108,477 $ 121,641 Indefinite-lived intangible assets: Trademarks and trade names 2,902,040 2,907,904 Intangible assets, net $ 3,010,517 $ 3,029,545 Amortization expense for the three and nine months ended December 2021 was $ 3.8 million and $ 11.9 million, respectively. Based on the carrying amounts of amortizable intangible assets noted above, estimated amortization expense for the next five years beginning in Fiscal 2022 is $ 15.3 million, $ 14.3 million, $ 13.8 million, $ 13.3 million and $ 12.3 million, respectively. NOTE 8 — GOODWILL Changes in goodwill are summarized by reportable segment as follows: (In thousands) Outdoor Active Work Total Balance, March 2021 $ 665,278 $ 1,645,769 $ 114,380 $ 2,425,427 Measurement period adjustment to Supreme acquisition (Note 4) — ( 717 ) — ( 717 ) Currency translation ( 3,173 ) ( 12,011 ) ( 266 ) ( 15,450 ) Balance, December 2021 $ 662,105 $ 1,633,041 $ 114,114 $ 2,409,260 Accum ulated impairm ent charges for the Outdoor segment were $ 323.2 million as of December 2021 and March 2021. No impairment charges were recorded during the nine months ended December 2021. NOTE 9 — LEASES The Company leases certain retail locations, office space, distribution facilities, machinery and equipment, and vehicles. The substantial majority of these leases are operating leases. Total lease cost includes operating lease cost, variable lease cost, finance lease cost, short-term lease cost and impairment. Components of lease cost were as follows: Three Months Ended December Nine Months Ended December (In thousands) 2021 2020 2021 2020 Operating lease cost $ 105,888 $ 110,970 $ 329,548 $ 326,501 Other lease costs 34,092 19,336 84,522 53,906 Total lease cost $ 139,980 $ 130,306 $ 414,070 $ 380,407 During the nine months ended December 2021 and 2020, the Company paid $ 357.9 million and $ 289.4 million of cash for operating leases, respectively. The increase was primarily driven by the timing of payments and lease concessions related to the effects of COVID-19 in the nine months ended December 2020. During the nine months ended December 2021 and 2020, the Company obtained $ 147.2 million and $ 506.7 million of right-of-use assets in exchange for lease liabilities, respectively. The decrease was primarily driven by the commencement of a new distribution center lease during the nine months ended December 2020. 17 VF Corporation Q3 FY22 Form 10-Q Table of Contents NOTE 10 — SHORT-TERM BORROWINGS AND LONG-TERM DEBT Revolving Credit Facility In November 2021, VF entered into a $ 2.25 billion senior unsecured revolving line of credit (the "Global Credit Facility") that expires November 2026. The Global Credit Facility replaced VF's $ 2.25 billion revolving facility which was scheduled to expire in December 2023. VF may request an unlimited number of one year extensions so long as each extension does not cause the remaining life of the Global Credit Facility to exceed five years , subject to stated terms and conditions. The Global Credit Facility may be used to borrow funds in U.S. dollars or any alternative currency (including euros and any other currency that is freely convertible into U.S. dollars, approved at the request of the Company by the lenders) and has a $ 75.0 million letter of credit sublimit. In addition, the Global Credit Facility supports VF’s U.S. commercial paper program for short-term, seasonal working capital requirements and general corporate purposes, including share repurchases and acquisitions. Borrowings under the Global Credit Facility are priced at a credit spread of 91.0 basis points over the appropriate LIBOR benchmark for each currency. VF is also required to pay a facility fee to the lenders, currently equal to 9.0 basis points of the committed amount of the facility. The credit spread and facility fee are subject to adjustment based on VF’s credit ratings. Outstanding short-term balances may vary from period to period depending on the level of corporate requirements. The Global Credit Facility contains certain restrictive covenants, which include maintenance of a consolidated net indebtedness to consolidated net capitalization ratio. The consolidated net indebtedness to consolidated net capitalization ratio financial covenant, as of the last day of any fiscal quarter, cannot be greater than 0.70 to 1.00 through the last day of the fiscal quarter ending April 1, 2023, then 0.65 to 1.00 through the last day of the fiscal quarter ending March 30, 2024, and 0.60 to 1.00 thereafter. The calculation of consolidated net indebtedness (and, thereby consolidated net capitalization) is net of unrestricted cash of VF and its subsidiaries. As of December 2021, VF was in compliance with all covenants. Redemption In December 2021, VF completed an early redemption of $ 500.0 million in aggregate principal amount of its outstanding 2.050 % Senior Notes due April 2022. The redemption price was equal to the sum of the present value of the remaining scheduled payments of principal and interest discounted to the redemption date at 38.7 basis points, which resulted in a make-whole premium of $ 3.2 million. Additionally, in connection with the redemption, $ 0.5 million of unamortized original issue discount and debt issuance costs were recognized. The make-whole premium and amortization were recorded in the loss on debt extinguishment line item in the Consolidated Statements of Operations in the three and nine months ended December 2021. Supply Chain Financing Program During the three months ended December 2021, VF began offering a voluntary supply chain finance ("SCF") program that enables certain suppliers of inventory to leverage VF's credit rating to receive payment from participating financial institutions prior to the payment date specified in the terms between VF and the supplier. The transactions are at the sole discretion of both the suppliers and financial institutions, and VF is not a party to the agreements. The terms between VF and the supplier, including the amount due and scheduled payment dates, are not impacted by a supplier's participation in the SCF program. The amount financed by suppliers and outstanding under this program is primarily included in the short-term borrowings line item in VF's Consolidated Balance Sheet and was $ 99.0 million at December 2021. Invoices selected for financing by the suppliers are primarily reported as operating cash outflows and financing cash inflows. Payments made by VF to the banks to settle the invoices on the originally scheduled payment dates are primarily reflected as financing cash outflows. Subsequent to the quarter end, VF decided to temporarily suspend the SCF program to implement certain modifications to the program. NOTE 11 — PENSION PLANS The components of pension cost (income) for VF’s defined benefit plans were as follows: Three Months Ended December Nine Months Ended December (In thousands) 2021 2020 2021 2020 Service cost – benefits earned during the period $ 3,547 $ 3,837 $ 10,737 $ 11,252 Interest cost on projected benefit obligations 9,332 11,764 28,174 35,693 Expected return on plan assets ( 19,347 ) ( 20,586 ) ( 58,100 ) ( 61,696 ) Settlement charges 5,660 544 6,684 1,116 Amortization of deferred amounts: Net deferred actuarial losses 2,858 3,020 8,569 8,781 Deferred prior service credits ( 117 ) ( 19 ) ( 352 ) ( 53 ) Net periodic pension cost (income) $ 1,933 $ ( 1,440 ) $ ( 4,288 ) $ ( 4,907 ) The amounts reported in these disclosures have not been segregated between continuing and discontinued operations. VF Corporation Q3 FY22 Form 10-Q 18 Table of Contents VF has reported the service cost component of net periodic pension cost (income) in operating income and the other components, which include interest cost, expected return on plan assets, settlement charges and amortization of deferred actuarial losses and prior service credits, in the other income (expense), net line item in the Consolidated Statements of Operations. VF contributed $ 23.2 million to its defined benefit plans during the nine months ended December 2021, and intends to make approximately $ 10.3 million of contributions during the remainder of Fiscal 2022. VF recorded $ 5.7 million and $ 6.7 million in settlement charges in the other income (expense), net line item in the Consolidated Statements of Operations for the three and nine months ended December 2021, respectively, as well as $ 0.5 million and $ 1.1 million for the three and nine months ended December 2020, respectively. The settlement charges related to the recognition of deferred actuarial losses resulting from lump sum payments of retirement benefits in the supplemental defined benefit pension plan. Actuarial assumptions used in the interim valuations were reviewed and revised as appropriate . The discount rate used to determine the supplemental defined benefit pension obligation as of December 2021, September 2021 and June 2021 was 2.96 %, 2.91 % and 2.90 %, respectively. NOTE 12 — CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Common Stock During the nine months ended December 2021, the Company purchased 4.0 million shares of Common Stock in open market transactions for $ 300.0 million under its share repurchase program authorized by VF’s Board of Directors. These transactions are treated as treasury stock transactions. Common Stock outstanding is net of shares held in treasury which are, in substance, retired. During the nine months ended December 2021, VF restored 4.0 million treasury shares to an unissued status, after which they were no longer recognized as shares held in treasury. There were no shares held in treasury at the end of December 2021, March 2021 or December 2020. The excess of the cost of treasury shares acquired over the $ 0.25 per share stated value of Common Stock is deducted from retained earnings. Accumulated Other Comprehensive Income (Loss) Comprehensive income consists of net income and specified components of other comprehensive income (“OCI”), which relate to changes in assets and liabilities that are not included in net income under GAAP but are instead deferred and accumulated within a separate component of stockholders’ equity in the balance sheet. VF’s comprehensive income is presented in the Consolidated Statements of Comprehensive Income. The deferred components of OCI are reported, net of related income taxes, in accumulated OCI in stockholders’ equity, as follows: (In thousands) December 2021 March 2021 December 2020 Foreign currency translation and other $ ( 712,831 ) $ ( 700,173 ) $ ( 663,863 ) Defined benefit pension plans ( 248,971 ) ( 257,747 ) ( 264,966 ) Derivative financial instruments 24,345 ( 51,080 ) ( 67,134 ) Accumulated other comprehensive income (loss) $ ( 937,457 ) $ ( 1,009,000 ) $ ( 995,963 ) The changes in accumulated OCI, net of related taxes, were as follows: Three Months Ended December 2021 (In thousands) Foreign Currency Translation and Other Defined Benefit Pension Plans Derivative Financial Instruments Total Balance, September 2021 $ ( 687,120 ) $ ( 255,635 ) $ 1,921 $ ( 940,834 ) Other comprehensive income (loss) before reclassifications ( 25,711 ) 383 11,961 ( 13,367 ) Amounts reclassified from accumulated other comprehensive income (loss) — 6,281 10,463 16,744 Net other comprehensive income (loss) ( 25,711 ) 6,664 22,424 3,377 Balance, December 2021 $ ( 712,831 ) $ ( 248,971 ) $ 24,345 $ ( 937,457 ) 19 VF Corporation Q3 FY22 Form 10-Q Table of Contents Three Months Ended December 2020 (In thousands) Foreign Currency Translation and Other Defined Benefit Pension Plans Derivative Financial Instruments Total Balance, September 2020 $ ( 700,137 ) $ ( 264,304 ) $ 4,783 $ ( 959,658 ) Other comprehensive income (loss) before reclassifications 36,274 ( 3,541 ) ( 68,373 ) ( 35,640 ) Amounts reclassified from accumulated other comprehensive income (loss) — 2,879 ( 3,544 ) ( 665 ) Net other comprehensive income (loss) 36,274 ( 662 ) ( 71,917 ) ( 36,305 ) Balance, December 2020 $ ( 663,863 ) $ ( 264,966 ) $ ( 67,134 ) $ ( 995,963 ) Nine Months Ended December 2021 (In thousands) Foreign Currency Translation and Other Defined Benefit Pension Plans Derivative Financial Instruments Total Balance, March 2021 $ ( 700,173 ) $ ( 257,747 ) $ ( 51,080 ) $ ( 1,009,000 ) Other comprehensive income (loss) before reclassifications ( 12,658 ) ( 2,355 ) 35,973 20,960 Amounts reclassified from accumulated other comprehensive income (loss) — 11,131 39,452 50,583 Net other comprehensive income (loss) ( 12,658 ) 8,776 75,425 71,543 Balance, December 2021 $ ( 712,831 ) $ ( 248,971 ) $ 24,345 $ ( 937,457 ) Nine Months Ended December 2020 (In thousands) Foreign Currency Translation and Other Defined Benefit Pension Plans Derivative Financial Instruments Total Balance, March 2020 $ ( 737,709 ) $ ( 262,472 ) $ 69,223 $ ( 930,958 ) Other comprehensive income (loss) before reclassifications 31,482 ( 10,183 ) ( 106,972 ) ( 85,673 ) Amounts reclassified from accumulated other comprehensive income (loss) 42,364 7,689 ( 29,385 ) 20,668 Net other comprehensive income (loss) 73,846 ( 2,494 ) ( 136,357 ) ( 65,005 ) Balance, December 2020 $ ( 663,863 ) $ ( 264,966 ) $ ( 67,134 ) $ ( 995,963 ) VF Corporation Q3 FY22 Form 10-Q 20 Table of Contents Reclassifications out of accumulated OCI were as follows: (In thousands) Three Months Ended December Nine Months Ended December Details About Accumulated Other Comprehensive Income (Loss) Components Affected Line Item in the Consolidated Statements of Operations 2021 2020 2021 2020 Losses on foreign currency translation and other: Liquidation of foreign entities Other income (expense), net $ — $ — $ — $ ( 42,364 ) Total before tax — — — ( 42,364 ) Tax (expense) benefit — — — — Net of tax — — — ( 42,364 ) Amortization of defined benefit pension plans: Net deferred actuarial losses Other income (expense), net ( 2,858 ) ( 3,020 ) ( 8,569 ) ( 8,781 ) Deferred prior service credits Other income (expense), net 117 19 352 53 Pension settlement charges Other income (expense), net ( 5,660 ) ( 544 ) ( 6,684 ) ( 1,116 ) Total before tax ( 8,401 ) ( 3,545 ) ( 14,901 ) ( 9,844 ) Tax benefit 2,120 666 3,770 2,155 Net of tax ( 6,281 ) ( 2,879 ) ( 11,131 ) ( 7,689 ) Gains (losses) on derivative financial instruments: Foreign exchange contracts Net revenues ( 9,284 ) 4,048 ( 16,045 ) 6,354 Foreign exchange contracts Cost of goods sold ( 3,974 ) 224 ( 26,644 ) 25,372 Foreign exchange contracts Selling, general and administrative expenses 688 586 ( 418 ) 2,934 Foreign exchange contracts Other income (expense), net 104 ( 613 ) ( 2,958 ) 1,190 Interest rate contracts Interest expense 27 26 81 80 Total before tax ( 12,439 ) 4,271 ( 45,984 ) 35,930 Tax (expense) benefit 1,976 ( 727 ) 6,532 ( 6,545 ) Net of tax ( 10,463 ) 3,544 ( 39,452 ) 29,385 Total reclassifications for the period, net of tax $ ( 16,744 ) $ 665 $ ( 50,583 ) $ ( 20,668 ) NOTE 13 — STOCK-BASED COMPENSATION Incentive Equity Awards Granted During the nine months ended December 2021, VF granted stock options to employees and nonemployee members of VF's Board of Directors to purchase 1,504,707 shares of its Common Stock at a weighted average exercise price of $ 77.76 per share. The exercise price of each option granted was equal to the fair market value of VF Common Stock on the date of grant. Employee stock options vest in equal annual installments over three years . Stock options granted to nonemployee members of VF's Board of Directors vest upon grant and become exercisable one year from the date of grant. All options have ten-year terms. The grant date fair value of each option award was calculated using a lattice option-pricing valuation model, which incorporated a range of assumptions for inputs as follows: Nine Months Ended December 2021 Expected volatility 28 % to 41 % Weighted average expected volatility 36 % Expected term (in years) 6.1 to 7.9 Weighted average dividend yield 2.6 % Risk-free interest rate 0.04 % to 1.63 % Weighted average fair value at date of grant $ 20.19 During the nine months ended December 2021, VF granted 324,448 performance-based restricted stock units ("RSUs") to employees that enable them to receive shares of VF Common Stock at the end of a three-year performance cycle. The weighted average fair market value of VF Common Stock at the dates the units were granted was $ 77.77 per share. Each performance-based RSU has a potential final payout ranging from zero to two shares of VF Common Stock. The number of shares earned by participants, if any, is based on achievement of three-year financial targets set by the 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- 21 VF Corporation Q3 FY22 Form 10-Q Table of Contents year performance period. The financial targets include 50 % weighting based on VF's revenue growth over the three-year period compared to a group of industry peers and 50 % weighting based on VF's total shareholder return ("TSR") over the three-year period compared to the TSR for companies included in the Standard & Poor's 500 Consumer Discretionary Index. The grant date fair value of the TSR portion of the performance-based RSU grants was determined using a Monte Carlo simulation technique that incorporates option-pricing model inputs, and wa s $ 101.56 per share. Additionally, the actual number of performance-based RSUs earned may be adjusted upward or downward by 25 % of the target award, based on VF's gross margin performance over the three-year period. During the nine months ended December 2021, VF granted 12,023 nonperformance-based RSUs to nonemployee members of the Board of Directors. These units vest upon grant and will be settled in shares of VF Common Stock one year from the date of grant. The fair market value of VF Common Stock at the date the units were granted was $ 77.78 per share. In addition, VF granted 399,461 nonperformance-based RSUs to employees during the nine months ended December 2021. These units generally vest over periods of up to four years from the date of grant and each unit entitles the holder to one share of VF Common Stock. The weighted average fair market value of VF Common Stock at the dates the units were granted was $ 77.67 per share. VF also granted 31,214 restricted shares of VF Common Stock to certain members of management during the nine months ended December 2021. These shares vest over periods of up to four years from the date of grant. The fair market value of VF Common Stock at the date the shares were granted was $ 77.78 per share. NOTE 14 — INCOME TAXES The effective income tax rate for the nine months ended December 2021 was 16.0 % compared to 20.2 % in the 2020 period. The nine months ended December 2021 included a net discrete tax expense of $ 43.7 million, which included a $ 92.3 million net tax expense related to unrecognized tax benefits and interest, a $ 9.6 million net tax benefit related to return to accrual adjustments, a $ 35.2 million net tax benefit related to withholding taxes on prior foreign earnings, a $ 1.7 million tax benefit related to stock compensation, and a $ 2.4 million net tax benefit related to tax rate change on deferred tax items. Excluding the $ 43.7 million net discrete tax expense in the 2021 period, the effective income tax rate would have been 12.8 %. The nine months ended December 2020 included a net discrete tax expense of $ 3.7 million, which included a $ 15.2 million net tax expense related to unrecognized tax benefits and interest, a $ 2.3 million tax benefit related to stock compensation, a $ 4.9 million net tax benefit related to return to accrual adjustments, and a $ 4.3 million net tax benefit related to withholding taxes on prior foreign earnings. Excluding the $ 3.7 million net discrete tax expense in the 2020 period, the effective income tax rate would have been 19.2 %. Without discrete items, the effective income tax rate for the nine months ended December 2021 decreased by 6.4 % compared with the 2020 period primarily due to losses generated in the prior year and more favorable expectations to utilize foreign tax credits generated in the current year. VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. In the U.S., the Internal Revenue Service ("IRS") examinations for tax years 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. Management believes that some of these audits and negotiations will conclude during the next 12 months. VF was granted a ruling which lowered the effective income tax rate on taxable earnings for years 2010 through 2014 under Belgium’s excess profit tax regime. During 2015, the European Union Commission (“EU”) investigated and announced its decision that these rulings were illegal and ordered the tax benefits to be collected from affected companies, including VF. Requests for annulment were filed by Belgium and VF Europe BVBA individually. During 2017 and 2018, VF Europe BVBA was assessed and paid € 35.0 million tax and interest, which was recorded as an income tax receivable based on the expected success of the requests for annulment. During 2019, the General Court annulled the EU decision and the EU subsequently appealed the General Court’s annulment. In September 2021, the General Court's judgment was set aside by the Court of Justice of the EU and the case was sent back to the General Court to determine whether the excess profit tax regime amounted to illegal State aid. The case remains open and unresolved. If this matter is adversely resolved, these amounts will not be collected by VF. During the nine months ended December 2021, the amount of net unrecognized tax benefits and associated interest increased by $ 98.9 million to $ 289.1 million, which includes an $ 87.1 million increase in the three months ended December 2021 resulting from updated estimates related to intellectual property transfers completed in a prior period. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits and interest may decrease during the next 12 months by approximately $ 270.4 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $ 10.6 million would reduce income tax expense. VF Corporation Q3 FY22 Form 10-Q 22 Table of Contents NOTE 15 — REPORTABLE SEGMENT INFORMATION The chief operating decision maker allocates resources and assesses performance based on a global brand view which represents VF's operating segments. The operating segments have been evaluated and combined into reportable segments because they meet the similar economic characteristics and qualitative aggregation criteria set forth in the relevant accounting guidance. The Company's reportable segments have been identified as: Outdoor, Active and Work. We have included an Other category in the table below for purposes of reconciliation of revenues and profit, but it is not considered a reportable segment. Other includes results primarily related to the sale of non-VF products and sourcing activities related to transition services. Financial information for VF's reportable segments is as follows: Three Months Ended December Nine Months Ended December (In thousands) 2021 2020 2021 2020 Segment revenues: Outdoor $ 1,928,427 $ 1,571,043 $ 4,052,802 $ 3,066,678 Active 1,410,577 1,127,121 4,104,818 2,898,639 Work 285,101 270,182 858,999 686,163 Other 279 3,195 557 4,678 Total segment revenues $ 3,624,384 $ 2,971,541 $ 9,017,176 $ 6,656,158 Segment profit (loss): Outdoor $ 450,432 $ 311,767 $ 662,761 $ 283,531 Active 254,497 201,373 809,708 467,632 Work 47,672 16,900 150,649 13,672 Other ( 44 ) ( 4,435 ) ( 696 ) ( 9,322 ) Total segment profit 752,557 525,605 1,622,422 755,513 Corporate and other expenses ( 74,210 ) ( 107,122 ) ( 166,115 ) ( 297,434 ) Interest expense, net ( 33,388 ) ( 31,776 ) ( 100,533 ) ( 90,656 ) Loss on debt extinguishment ( 3,645 ) — ( 3,645 ) — Income from continuing operations before income taxes $ 641,314 $ 386,707 $ 1,352,129 $ 367,423 NOTE 16 — EARNINGS PER SHARE Three Months Ended December Nine Months Ended December (In thousands, except per share amounts) 2021 2020 2021 2020 Earnings per share – basic: Income from continuing operations $ 517,801 $ 327,659 $ 1,135,826 $ 293,163 Weighted average common shares outstanding 390,430 389,872 391,187 389,262 Earnings per share from continuing operations $ 1.33 $ 0.84 $ 2.90 $ 0.75 Earnings per share – diluted: Income from continuing operations $ 517,801 $ 327,659 $ 1,135,826 $ 293,163 Weighted average common shares outstanding 390,430 389,872 391,187 389,262 Incremental shares from stock options and other dilutive securities 2,065 2,979 2,360 2,345 Adjusted weighted average common shares outstanding 392,495 392,851 393,547 391,607 Earnings per share from continuing operations $ 1.32 $ 0.83 $ 2.89 $ 0.75 Outstanding options to purchase approximately 2.8 million shares were excluded from the calculations of diluted earnings per share for both the three and nine-month periods ended December 2021, and outstanding options to purchase approximately 1.5 million and 4.1 million shares were excluded from the calculations of diluted earnings per share for the three and nine-month periods ended December 2020, respectively, because the effect of their inclusion would have been anti-dilutive. In addition, 0.6 million shares of performance-based RSUs were excluded from the calculations of diluted earnings per share for both the three and nine-month periods ended December 2021, and 0.8 million and 0.6 million shares of performance-based RSUs were excluded from the calculations of diluted earnings per share for the three and nine-month periods ended December 2020, respectively, because these units were not considered to be contingent outstanding shares in those periods. 23 VF Corporation Q3 FY22 Form 10-Q Table of Contents NOTE 17 — FAIR VALUE MEASUREMENTS Financial assets and financial liabilities measured and reported at fair value are classified in a three-level hierarchy that prioritizes the inputs used in the valuation process. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs, as follows: • Level 1 — Quoted prices in active markets for identical assets or liabilities. • Level 2 — Significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities, or (iii) information derived from or corroborated by observable market data. • Level 3 — Prices or valuation techniques that require significant unobservable data inputs. These inputs would normally be VF’s own data and judgments about assumptions that market participants would use in pricing the asset or liability. The following table summarizes financial assets and financial liabilities that are measured and recorded in the consolidated financial statements at fair value on a recurring basis: Total Fair Value Fair Value Measurement Using (a) (In thousands) Level 1 Level 2 Level 3 December 2021 Financial assets: Cash equivalents: Money market funds $ 346,657 $ 346,657 $ — $ — Time deposits 305,576 305,576 — — Derivative financial instruments 57,466 — 57,466 — Deferred compensation 139,551 139,551 — — Financial liabilities: Derivative financial instruments 32,987 — 32,987 — Deferred compensation 145,399 — 145,399 — Contingent consideration 49,000 — — 49,000 Total Fair Value Fair Value Measurement Using (a) (In thousands) Level 1 Level 2 Level 3 March 2021 Financial assets: Cash equivalents: Money market funds $ 216,591 $ 216,591 $ — $ — Time deposits 102,914 102,914 — — Short-term investments 598,806 598,806 — — Derivative financial instruments 13,257 — 13,257 — Deferred compensation 141,072 141,072 — — Financial liabilities: Derivative financial instruments 74,255 — 74,255 — Deferred compensation 150,713 — 150,713 — Contingent consideration 207,000 — — 207,000 (a) There were no transfers among the levels within the fair value hierarchy during the nine months ended December 2021 or the year ended March 2021. The following table presents the changes in fair value of the contingent consideration liability designated as Level 3: (In thousands) Three Months Ended December 2021 Nine Months Ended December 2021 Beginning Balance $ 99,000 $ 207,000 Change in fair value ( 50,000 ) ( 158,000 ) Ending Balance $ 49,000 $ 49,000 VF Corporation Q3 FY22 Form 10-Q 24 Table of Contents VF’s cash equivalents include money market funds and time deposits with maturities within three months of their purchase dates, that approximate fair value based on Level 1 measurements. The fair value of derivative financial instruments, which consist of foreign exchange forward contracts, is determined based on observable market inputs (Level 2), including spot and forward exchange rates for foreign currencies, and considers the credit risk of the Company and its counterparties. VF’s deferred compensation assets primarily represent investments held within plan trusts as an economic hedge of the related deferred compensation liabilities. These investments primarily include mutual funds (Level 1) that are valued based on quoted prices in active markets. Liabilities related to VF’s deferred compensation plans are recorded at amounts due to participants, based on the fair value of the participants’ selection of hypothetical investments. VF's short-term investments at March 2021 included excess cash invested in a managed income fund that approximated fair value based on Level 1 measurements. The contingent consideration liability represents the estimated amount of additional cash consideration to be paid to the selling shareholders of Supreme, which is dependent upon the achievement of certain financial targets over the one-year earn-out period ending January 31, 2022. The estimated fair value of the contingent consideration liability, which could range from zero to $ 300.0 million, was $ 207.0 million as of March 2021. The contingent consideration liability is remeasured at fair value with changes recognized in the selling, general and administrative expenses line item in the Consolidated Statements of Operations. As of December 2021, the fair value of the contingent consideration liability was remeasured to an estimated fair value of $ 49.0 million based on the probability-weighted present value of various future cash payment outcomes resulting from the estimated achievement levels of the financial targets. Refer to Note 4 for additional information on the acquisition of Supreme. All other financial assets and financial liabilities are recorded in the consolidated financial statements at cost, except life insurance contracts which are recorded at cash surrender value. These other financial assets and financial liabilities include cash held as demand deposits, accounts receivable, short-term borrowings, accounts payable and accrued liabilities. At December 2021 and March 2021, their carrying values approximated fair value. Additionally, at December 2021 and March 2021, the carrying values of VF’s long-term debt, including the current portion, were $ 5,147.3 million and $ 5,710.2 million, respectively, compared with fair values of $ 5,383.7 million and $ 6,017.3 million at those respective dates. Fair value for long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings. NOTE 18 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES Summary of Derivative Financial Instruments All of VF’s outstanding derivative financial instruments are foreign exchange forward contracts. Although derivatives meet the criteria for hedge accounting at the inception of the hedging relationship, a limited number of derivative contracts intended to hedge assets and liabilities are not designated as hedges for accounting purposes. The notional amounts of all outstanding derivative contracts were $ 2.8 billion at December 2021 and $ 2.5 billion at both March 2021 and December 2020, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Swiss franc, Mexican peso, Swedish krona, South Korean won, Polish zloty, Japanese yen and New Zealand dollar. Derivative contracts have maturities up to 20 months. The following table presents outstanding derivatives on an individual contract basis: Fair Value of Derivatives with Unrealized Gains Fair Value of Derivatives with Unrealized Losses (In thousands) December 2021 March 2021 December 2020 December 2021 March 2021 December 2020 Foreign currency exchange contracts designated as hedging instruments $ 55,000 $ 12,301 $ 12,457 $ ( 32,660 ) $ ( 73,087 ) $ ( 96,437 ) Foreign currency exchange contracts not designated as hedging instruments 2,466 956 3,752 ( 327 ) ( 1,168 ) ( 1,398 ) Total derivatives $ 57,466 $ 13,257 $ 16,209 $ ( 32,987 ) $ ( 74,255 ) $ ( 97,835 ) 25 VF Corporation Q3 FY22 Form 10-Q 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: December 2021 March 2021 December 2020 (In thousands) Derivative Asset Derivative Liability Derivative Asset Derivative Liability Derivative Asset Derivative Liability Gross amounts presented in the Consolidated Balance Sheets $ 57,466 $ ( 32,987 ) $ 13,257 $ ( 74,255 ) $ 16,209 $ ( 97,835 ) Gross amounts not offset in the Consolidated Balance Sheets ( 22,964 ) 22,964 ( 13,246 ) 13,246 ( 16,209 ) 16,209 Net amounts $ 34,502 $ ( 10,023 ) $ 11 $ ( 61,009 ) $ — $ ( 81,626 ) Derivatives are classified as current or noncurrent based on maturity dates, as follows: (In thousands) December 2021 March 2021 December 2020 Other current assets $ 50,298 $ 7,440 $ 15,510 Accrued liabilities ( 28,326 ) ( 66,351 ) ( 77,317 ) Other assets 7,168 5,817 699 Other liabilities ( 4,661 ) ( 7,904 ) ( 20,518 ) Cash Flow Hedges VF uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, purchases, production costs, operating costs and intercompany royalties. The effects of cash flow hedging included in VF’s Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income are summarized as follows: (In thousands) Gain (Loss) on Derivatives Recognized in OCI Three Months Ended December Gain (Loss) on Derivatives Recognized in OCI Nine Months Ended December Cash Flow Hedging Relationships 2021 2020 2021 2020 Foreign currency exchange $ 14,185 $ ( 82,491 ) $ 43,983 $ ( 129,817 ) (In thousands) Gain (Loss) Reclassified from Accumulated OCI into Income Three Months Ended December Gain (Loss) Reclassified from Accumulated OCI into Income Nine Months Ended December Location of Gain (Loss) 2021 2020 2021 2020 Net revenues $ ( 9,284 ) $ 4,048 $ ( 16,045 ) $ 6,354 Cost of goods sold ( 3,974 ) 224 ( 26,644 ) 25,372 Selling, general and administrative expenses 688 586 ( 418 ) 2,934 Other income (expense), net 104 ( 613 ) ( 2,958 ) 1,190 Interest expense 27 26 81 80 Total $ ( 12,439 ) $ 4,271 $ ( 45,984 ) $ 35,930 Derivative Contracts Not Designated as Hedges VF uses derivative contracts to manage foreign currency exchange risk on third-party accounts receivable and payable, as well as intercompany borrowings. These contracts are not designated as hedges, and are recorded at fair value in the Consolidated Balance Sheets. Changes in the fair values of these instruments are recognized directly in earnings. Gains or losses on these contracts largely offset the net transaction losses or gains on the related assets and liabilities. In the case of derivative contracts executed on foreign currency exposures that are no longer probable of occurring, VF de-designates these hedges and the fair value changes of these instruments are also recognized directly in earnings. The impact of de-designated derivative contracts and changes in the fair value of derivative contracts not designated as hedges, recognized as gains or losses in VF's Consolidated Statements of Operations wer e not material f or the three and nine months ended December 2021 and December 2020. Other Derivative Information At December 2021, accumulated OCI included $ 13.4 million of pre-tax net deferred gains for foreign currency exchange contracts that are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on exchange rates in effect when outstanding derivative contracts are settled. VF Corporation Q3 FY22 Form 10-Q 26 Table of Contents Net Investment Hedge The Company has designated its euro-denominated fixed-rate notes, which represent € 1.850 billion in aggregate principal, as a net investment hedge of VF’s investment in certain foreign operations. Because this debt qualified as a nonderivative hedging instrument, foreign currency transaction gains or losses of the debt are deferred in the foreign currency translation and other component of accumulated OCI as an offset to the foreign currency translation adjustments on the hedged investments. During the three and nine-month periods ended December 2021, the Company recognized an after-tax gain of $ 29.1 million and $ 51.7 million, respectively, in OCI related to the net investment hedge transaction, and an after-tax loss of $ 79.2 million and $ 150.8 million for the three and nine -month periods ended December 2020 , respectively. Any amounts deferred in accumulated OCI will remain until the hedged investment is sold or substantially liquidated. NOTE 19 — RESTRUCTURING The Company incurs restructuring charges related to strategic initiatives and cost optimization of business activities, primarily related to severance and employee-related benefits. During the three and nine months ended December 2021, VF recognized $ 3.6 million and $ 11.4 million, respectively, of restructuring charges, related to approved initiatives. Of the restructuring charges recognized in the three and nine months ended December 2021, $ 3.5 million and $ 9.8 million were reflected in selling, general and administrative expenses, respectively, and $ 0.1 million and $ 1.6 million in cost of goods sold, respectively. The Company has not recognized any significant incremental costs related to accruals for the year ended March 2021 or prior periods. Of the $ 31.1 million total restructuring accrual at December 2021, $ 30.1 million is expected to be paid out within the next 12 months and is classified within accrued liabilities. The remaining $ 1.0 million will be paid out beyond the next 12 months and thus is classified within other liabilities. The components of the restructuring charges are as follows: Three Months Ended December Nine Months Ended December (In thousands) 2021 2020 2021 2020 Severance and employee-related benefits $ 3,056 $ 24,545 $ 7,352 $ 52,937 Asset impairments — — — 10,557 Accelerated depreciation 590 3,429 4,057 10,093 Inventory write-downs — 7,115 — 7,115 Contract termination and other — 3,107 — 3,324 Total restructuring charges $ 3,646 $ 38,196 $ 11,409 $ 84,026 Restructuring costs by business segment are as follows: Three Months Ended December Nine Months Ended December (In thousands) 2021 2020 2021 2020 Outdoor $ 1,529 $ 2,676 $ 4,206 $ 9,271 Active — 3,275 1,008 3,938 Work 1,527 8,409 2,315 27,216 Other 590 23,836 3,880 43,601 Total $ 3,646 $ 38,196 $ 11,409 $ 84,026 The activity in the restructuring accrual for the nine-month period ended December 2021 was as follows: (In thousands) Severance Other Total Accrual at March 2021 $ 59,810 $ 6,944 $ 66,754 Charges 7,352 — 7,352 Cash payments and settlements ( 36,130 ) ( 5,680 ) ( 41,810 ) Adjustments to accruals ( 970 ) ( 40 ) ( 1,010 ) Impact of foreign currency ( 155 ) ( 80 ) ( 235 ) Accrual at December 2021 $ 29,907 $ 1,144 $ 31,051 27 VF Corporation Q3 FY22 Form 10-Q Table of Contents NOTE 20 — CONTINGENCIES The Company petitioned the U.S. Tax Court to resolve an IRS dispute regarding the timing of income inclusion associated with the 2011 Timberland acquisition. The Company remains confident in our timing and treatment of the income inclusion, and therefore this matter is not reflected in our consolidated financial statements. We are vigorously defending our position, and do not expect the resolution to have a material adverse impact on the Company's financial position, results of operations or cash flows. While the IRS argues immediate income inclusion, the Company's position is to include the income over a period of years. As the matter relates to 2011, nearly half of the timing at dispute has passed with the Company including the income, and paying the related tax, on our income tax returns. The Company notes that should the IRS prevail in this timing matter, the net interest expense would be up to $ 196.7 million. Further, this timing matter is impacted by the Tax Cuts and Jobs Act that reduced the U.S. corporate income tax rate from 35% to 21%. If the IRS is successful, this rate differential would increase tax expense by approximately $ 136.3 million. The Company is currently involved in other legal proceedings that are ordinary, routine litigation incidental to the business. The resolution of any particular proceeding is not currently expected to have a material adverse impact on the Company's financial position, results of operations or cash flows. NOTE 21 — SUBSEQUENT EVENT On January 25, 2022, VF’s Board of Directors declared a quarterly cash dividend of $ 0.50 per share, payable on March 21, 2022 to stockholders of record on March 10, 2022. VF Corporation Q3 FY22 Form 10-Q 28 Table of Contents