V F CORP 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW VF Corporation (together with its subsidiaries, collectively known as “VF” or the "Company”) is a global leader in the design, procurement, marketing and distribution of branded lifestyle apparel, footwear and related products. VF’s diverse portfolio meets consumer needs across a broad spectrum of activities and lifestyles. Our long-term growth strategy is focused on four drivers — drive and optimize our portfolio, distort investments to Asia, elevate direct channels and accelerate our consumer-minded, retail-centric, hyper-digital business model transformation. VF is diversified across brands, product categories, channels of distribution, geographies and consumer demographics. We own a broad portfolio of brands in the outerwear, footwear, apparel, backpack, luggage and accessories categories. Our products are marketed to consumers through our wholesale channel, primarily in specialty stores, national chains, mass merchants, department stores, independently-operated partnership stores and with strategic digital partners. Our products are also marketed to consumers through our own direct-to-consumer operations, which include VF-operated stores, concession retail stores, brand e-commerce sites and other digital platforms. VF is organized by groupings of brands and businesses represented by its reportable segments for financial reporting purposes. The three reportable segments are Outdoor, Active and Work. BASIS OF PRESENTATION VF operates and reports using a 52/53 week fiscal year ending on the Saturday closest to March 31 of each year. All references to the years ended March 2022 ("Fiscal 2022"), March 2021 ("Fiscal 2021") and March 2020 ("Fiscal 2020") relate to the 52-week fiscal year ended April 2, 2022, the 53-week fiscal year ended April 3, 2021 and the 52-week fiscal year ended March 28, 2020, respectively. The following discussion and analysis focuses on our financial results for the years ended March 2022 and 2021 and year-to-year comparisons between these years. A discussion of our results of operations for the year ended March 2021 compared to the year ended March 2020 is included in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of o ur Annual Report on Form 10-K for the year ended April 3, 2021 , filed with the SEC on May 27, 2021, and is incorporated by reference into this Form 10-K. All per share amounts are presented on a diluted basis. All percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers. References to the year ended March 2022 foreign currency amounts below reflect the changes in foreign exchange rates from the year ended March 2021 and their impact on translating foreign currencies into U.S. dollars. VF’s most significant foreign currency exposure relates to business conducted in euro-based countries. Additionally, VF conducts business in other developed and emerging markets around the world with exposure to foreign currencies other than the euro. On December 28, 2020, VF acquired 100% of the outstanding shares of Supreme Holdings, Inc. ("Supreme"). The business results for Supreme have been included in the Active segment. All references to contributions from acquisition below represent the operating results of Supreme through the one-year anniversary of the acquisition. Refer to Note 3 to VF's consolidated financial statements for additional information on the acquisition. 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 VF Corporation Fiscal 2022 Form 10-K 23 Table of Contents 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. Refer to Note 4 for additional information on discontinued operations. Unless otherwise noted, amounts, percentages and discussion for all periods included below reflect the results of operations and financial condition from VF's continuing operations. RECENT DEVELOPMENTS Russia-Ukraine Conflict In response to the ongoing conflict in Ukraine, all VF-operated retail locations within Russia are currently closed and commercial shipments to both Russia and Ukraine are suspended. Revenues in Russia and Ukraine represented less than 1% of VF's total Fiscal 2022 revenue. While we are not able to determine the ultimate length and severity of the conflict, we currently do not expect significant disruption to our business. Impact of COVID-19 The coronavirus ("COVID-19") pandemic significantly impacted global economic conditions, as well as VF's business operations and financial performance during Fiscal 2022 and Fiscal 2021. As the global impact of COVID-19 continues, VF remains first and foremost focused on a people-first approach that prioritizes the health and well-being of its employees, customers, trade partners and consumers around the world. To help mitigate the spread of COVID-19 and in response to health advisors and governmental actions and regulations, VF has modified its business practices including the temporary closing of offices and retail stores, instituting travel bans and restrictions and implementing health and safety measures including social distancing and quarantines. VF has also implemented measures that are designed to ensure the health, safety and well-being of associates employed in its distribution and fulfillment centers around the world. VF-operated retail stores across the globe were impacted during Fiscal 2022 and 2021 due to temporary closures for varying periods of time due to COVID-19. The table below indicates the approximate percentage of VF-operated retail stores that were open and operating at the end of each fiscal quarter for Fiscal 2022 and Fiscal 2021 in North America, the Europe region (excluding current closures in Russia) and the Asia-Pacific region. Fiscal 2022 Approximate % of VF-Operated Retail Stores Open First Quarter Second Quarter Third Quarter Fourth Quarter North America 100 % 100 % 100 % 100 % Europe 100 % 100 % 94 % 100 % Asia-Pacific 95 % 99 % 100 % 88 % Fiscal 2021 First Quarter (a) Second Quarter Third Quarter Fourth Quarter North America 75 % 95 % 85 % 95 % Europe 90 % 99 % 50 % 40 % Asia-Pacific 100 % 99 % 99 % 99 % (a) As of the end of the fourth quarter of Fiscal 2020, all VF-operated retail stores in North America and the Europe region were closed, while the majority of VF-operated retail stores in the Asia-Pacific region were open. VF is continuing to monitor the COVID-19 outbreak globally and will comply with guidance from government entities and public health authorities to prioritize the health and well-being of its employees, customers, trade partners and consumers. As COVID-19 uncertainty continues, retail store reclosures may occur. Consistent with VF’s long-term strategy, the Company’s digital platform remains a high priority through which its brands stay connected with consumer communities while providing experiential content. Prior to the COVID-19 pandemic, consumer spending had started shifting to brand e-commerce sites and other digital platforms, which accelerated due to changes in the retail landscape resulting from the COVID-19 pandemic. COVID-19 has also impacted some of VF's suppliers, including raw material suppliers, third-party manufacturers, logistics providers and other vendors. At this time, the majority of VF's supply chain is operational. Suppliers are complying with local health advisories and governmental restrictions which has resulted in product delays. The resurgence of COVID-19 lockdowns in key sourcing countries resulted in additional manufacturing capacity constraints during Fiscal 2022; however, the situation improved over time. Additionally, Fiscal 2022 was impacted by continued port congestion, lengthened transit times, equipment availability and other logistics challenges. These issues caused significant product delays, which resulted in challenges to timely meet customer demand in Fiscal 2022. VF worked with its suppliers to minimize disruption and employed expedited freight as needed. VF's distribution centers are 24 VF Corporation Fiscal 2022 Form 10-K Table of Contents operational in accordance with local government guidelines while maintaining enhanced health and safety protocols. In response to COVID-19, various government programs were announced to provide financial relief to affected businesses including the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The CARES Act, among other things, provides employer payroll tax credits for wages paid to employees unable to work during the COVID-19 pandemic and options to defer payroll tax payments. Other foreign government programs available to VF also provide certain payroll tax credits and wage subsidies. The Company recognized $81.4 million during the year ended March 2021 as a result of relief from the CARES Act and other governmental packages, which were recorded as a reduction in selling, general and administrative expenses. The COVID-19 pandemic is ongoing and dynamic in nature, and has driven global uncertainty and disruption. While we are not able to determine the ultimate length and severity of the COVID-19 pandemic, we expect ongoing disruption to our business. Enterprise Protection Strategy VF has taken actions to advance its Enterprise Protection Strategy in response to the COVID-19 pandemic. At March 2022, VF had approximately $1.3 billion of cash and equivalents. Additionally, VF had approximately $1.9 billion available for borrowing against the Global Credit Facility, subject to certain restrictions. The Company made the decision to temporarily pause its share repurchase program on April 7, 2020. The Company decided to reinstate the program during the third quarter of Fiscal 2022 and completed $350.0 million of repurchases during Fiscal 2022, which leaves VF with $2.5 billion remaining under its share repurchase authorization. The Company paid a cash dividend of $1.98 per share during the year ended March 2022, and has declared a cash dividend of $0.50 per share that is payable in the first quarter of Fiscal 2023. Subject to approval by its Board of Directors, VF intends to continue to pay its regularly scheduled dividend. The Company has also commenced a multi-year initiative designed to enable our ability to accelerate and advance VF's business model transformation. One of the key objectives of this initiative is to deliver global cost savings over a three-year period that will be used to support the transformation agenda and highest-priority growth drivers. The Company is on track to deliver the cost savings as contemplated in this initiative. As VF continues to actively monitor the situation and advance our business model transformation, we may take further actions that affect our operations. We believe the Company has sufficient liquidity and flexibility to operate and continue to execute our strategy during the disruptions caused by the COVID-19 pandemic and related governmental actions and regulations and health authority advisories, and meet its obligations as they become due. However, there continues to be uncertainty about the duration and extent of the impact of COVID-19, governmental actions in response to the pandemic, and the impact on us and our consumers, customers and suppliers. See "Item 1A. Risk Factors." for additional discussion. HIGHLIGHTS OF THE YEAR ENDED MARCH 2022 • Revenues increased 28% to $11.8 billion compared to the year ended March 2021, including the recovery from the negative impact of COVID-19 on the prior year, a 5% contribution from the Supreme acquisition and a 1% favorable impact from foreign currency. • Active segment revenues increased 29% to $5.4 billion compared to the year ended March 2021, including a $438.5 million (10%) contribution from the Supreme acquisition, through the one-year anniversary of the acquisition. • Outdoor segment revenues increased 29% to $5.3 billion compared to the year ended March 2021, including a 1% favorable impact from foreign currency. • Work segment revenues increased 20% to $1.1 billion compared to the year ended March 2021, including a 1% favorable impact from foreign currency. • Direct-to-consumer revenues were up 31% compared to the year ended March 2021, including a 10% contribution from the Supreme acquisition. Direct-to-consumer revenues accounted for 46% of VF’s total revenues in the year ended March 2022. E-commerce revenues increased 14% in the year ended March 2022 compared to the year ended March 2021, driven by a 15% contribution from the Supreme acquisition and a 1% favorable impact from foreign currency. • International revenues increased 23% compared to the year ended March 2021, including a 1% favorable impact from foreign currency. Greater China (which includes Mainland China, Hong Kong and Taiwan) revenues were up 1%, including a 5% favorable impact from foreign currency, partially offset by COVID-19 resurgence in Fiscal 2022. International revenues represented 48% of VF’s total revenues in the year ended March 2022. • Gross margin increased 180 basis points to 54.5% in the year ended March 2022 compared to the year ended March 2021, primarily driven by reduced promotional activity and a higher proportion of full-price sales, which was partially offset by expedited freight costs. • Cash flows provided by operating activities were $858.2 million in the year ended March 2022. • Earnings per share increased to $3.10 in the year ended March 2022 from $0.91 in the year ended March 2021. The increase was primarily driven by recovery from the negative impact of COVID-19 on the prior year and contribution from the Supreme acquisition. • VF repurchased $350.0 million of its Common Stock and paid $773.2 million in cash dividends, returning $1.1 billion to stockholders. VF Corporation Fiscal 2022 Form 10-K 25 Table of Contents ANALYSIS OF RESULTS OF OPERATIONS Consolidated Statements of Operations The following table presents a summary of the changes in net revenues for the year ended March 2022 compared to the year ended March 2021: (In millions) Year Ended March Net revenues — 2021 $ 9,238.8 Organic 2,098.7 Acquisition 438.5 Impact of foreign currency 65.8 Net revenues — 2022 $ 11,841.8 Year Ended March 2022 Compared to Year Ended March 2021 VF reported a 28% increase in revenues in Fiscal 2022 compared to Fiscal 2021, including a 1% favorable impact from foreign currency. The revenue increase w as primarily attributable to recovery from the negative impact of COVID-19 on demand and distribution channels in the prior year, which included temporary closures of VF-operated retail and VF's wholesale customer stores. The growth rate has also been impacted in the current year by supply chain disruption, including port delays, lengthened transit times, logistics challenges and supplier production issues. Fiscal 2022 also included a $438.5 million (5%) contribution from the Supreme acquisiti on, through the one-year anniversary of the acquisition. Fiscal 2021 included an extra week when compared to Fiscal 2022 due to VF's 53-week Fiscal 2021. Reve nues increased across all regions in the ye ar ended March 2022 . The largest increases were in the United States, Europe and Americas (non-U.S.) regions, which experienced the most significant negative impact of COVID-19 in the prior year . Revenues in the Asia-Pacific region in the year ended March 2022 have been negatively impacted by COVID-19 resurgence, which has caused disruption and consumption pressure in the region, particularly in Greater China. Rev enues increased in both our wholesale and direct-to-consumer channels in the year ended March 2022 . The overall increase in the direct-to-consumer channel was driven by reopenings of our owned retail stores, which had temporary closures in the prior year due to COVID-19, and the contribution from the Supreme acquisition. The overall increase in the wholesale channel also reflects recovery from the negative impact of COVID-19 on the prior year. Additional details on revenues are provided in the section titled “Information by Reportable Segment”. The following table presents the percentage relationship to net revenues for components of the Consolidated Statements of Operations: Year Ended March 2022 2021 Gross margin (net revenues less cost of goods sold) 54.5 % 52.7 % Selling, general and administrative expenses 40.7 45.9 Impairment of goodwill and intangible assets — 0.2 Operating margin 13.8 % 6.6 % Year Ended March 2022 Compared to Year Ended March 2021 Gross margin increased 180 basis points to 54.5% in Fiscal 2022 compared to 52.7% in Fiscal 2021. The increase in gross margin in Fiscal 2022 was driven by higher levels of full-price sales as increased promotional activity was used to clear elevated inventory levels relative to demand in the prior year, p rimarily due to the negative impact of COVID-19. Fiscal 2022 also include d a 20 basis point contribution from the Supreme acquisition. The increase in gross margin was partially offset by expedited freight costs, which were the direct result of the supply chain disruption. Selling, general and administrative expenses as a percentage of total revenues decreased in Fiscal 2022 compared to Fiscal 2021, primarily reflecting leverage of operating expenses due to increased revenues compared to the prior year, which was negatively impacted by COVID-19. Selling, general and administrative expenses increased $583.2 million in Fiscal 2022 compared to Fiscal 2021 primarily due to cost controls taken in the prior year in response to COVID-19 and payroll relief in the prior year period from the CARES Act and other governmental packages. The Company reco gnized $81.4 million during Fiscal 2021 as a result of relief from the CARES Act an d other governmental packages. The increase was also due to higher advertising expenses, continued investments in direct-to-consumer and digital strategic growth initiatives, higher distribution spending and the impact from Supreme. The increase in Fiscal 2022 was partially offset by a $150.0 million decrease in the estimated fair value of the contingent consideration liability associated with the Supreme acquisition, which was recognized in the selling, general and administrative expense line item for the year ended March 2022. 26 VF Corporation Fiscal 2022 Form 10-K Table of Contents In Fiscal 2021, VF recorded a $20.4 million write-off of certain trademark and customer relationship balances, which resulted from strategic actions taken by the Company. In Fiscal 2022, operating margin increased to 13.8% from 6.6% in Fiscal 2021, primarily due to the items described above. Net interest expense increased $5.0 million to $131.5 million in Fiscal 2022. The increase in net interest expense was primarily due to lower invested balances and lower investment interest rates . Total outstanding interest-bearing debt averaged $5.6 billion and $5.8 billion for Fiscal 2022 and Fiscal 2021, respectively, with short-term borrowings representing 1.1% and 4.2% of average debt outstanding for the respective years. The weighted average interest rate on outstanding debt was 2.1% in both Fiscal 2022 and Fiscal 2021. Loss on debt extinguishment of $3.6 million was recorded in Fiscal 2022 as a result of the early redemption of $500.0 million in aggregate principal amount of VF's outstanding 2.050% Senior Notes due April 2022. Other income (expense), net primarily consists of components of net periodic pension cost (excluding the service cost component), foreign currency gains and losses and other non-operating gains and losses. Other income (expense) netted to $26.2 million and $(24.7) million in Fiscal 2022 and Fiscal 2021, re spectively. Other income (expense), net in Fiscal 2022 included $21.6 million of net periodic pension income driven by the expected return on plan assets and a $6.8 million gain related to certain insurance recoveries. Other income (expense), net in Fiscal 2021 included $42.4 million expense related to the release of currency translation amounts associated with the substantial liquidation of foreign entities in certain countries in South America and $21.5 million of net periodic pension income driven by the expected return on plan assets. The effective income tax rate was 20.2% in Fiscal 2022 compared to 22.3% in Fiscal 2021. The Fiscal 2022 effective income tax rate included a net discrete tax expense of $104.7 million, which included a $99.6 million net tax expense related to unrecognized tax benefits and interest, an $18.9 million tax benefit related to return to accrual adjustments, a $67.4 million net tax expense related to changes to deferred tax benefits previously recognized under Switzerland's Federal Act on Tax Reform and AHV Financing ("Swiss Tax Act") reform, and a $35.2 million tax benefit related to withholding taxes on prior foreign earnings. The $104.7 million net discrete tax expense in Fiscal 2022 increased the effective income tax rate by 6.9% compared to an unfavorable 2.2% impact of discrete items for Fiscal 2021. Excluding discrete items, the effective tax rate during Fiscal 2022 decreased by approximately 6.8% primarily due to losses generated in the prior year, more favorable expectations to utilize foreign tax credits generated in the current year and non-taxable contingent consideration fair value adjustments recorded in the current year. As a result of the above, income from continuing operations in Fiscal 2022 was $1.2 billion ($3.10 per diluted share), compared to $354.9 million ($0.91 per diluted share) in Fiscal 2021. Refer to additional discussion in the “Information by Reportable Segment” section below. Information by Reportable Segment VF's reportable segments are: Outdoor, Active and Work. We have included an Other category in the tables below for purposes of reconciliation of revenues and profit, but it is not considered a reportable segment. Included in this Other category are results primarily related to the sale of non-VF products and sourcing activities related to transition services. The primary financial measures used by management to evaluate the financial results of VF's reportable segments are segment revenues and segment profit. Segment profit comprises the operating income and other income (expense), net line items of each segment. Refer to Note 20 to the consolidated financial statements for a summary of results of operations by segment, along with a reconciliation of segment profit to income before income taxes. VF Corporation Fiscal 2022 Form 10-K 27 Table of Contents Year Ended March 2022 Compared to Year Ended March 2021 The following tables present a summary of the changes in segment revenues and profit in the year ended March 2022 compared to the year ended March 2021 and revenues by region for our Top 4 brands for the years ended March 2022 and 2021: Segment Revenues: Year Ended March (In millions) Outdoor Active Work Other Total Segment revenues — 2021 $ 4,127.6 $ 4,160.9 $ 945.7 $ 4.6 $ 9,238.8 Organic 1,173.3 748.6 180.6 (3.8) 2,098.7 Acquisition — 438.5 — — 438.5 Impact of foreign currency 26.7 32.3 6.8 — 65.8 Segment revenues — 2022 $ 5,327.6 $ 5,380.3 $ 1,133.1 $ 0.8 $ 11,841.8 Segment Profit (Loss): Year Ended March (In millions) Outdoor Active Work Other Total Segment profit (loss) — 2021 $ 342.2 $ 648.5 $ 27.1 $ (5.4) $ 1,012.4 Organic 448.0 232.5 164.8 4.8 850.1 Acquisition — 93.2 — — 93.2 Impact of foreign currency 5.3 5.5 1.6 0.1 12.5 Segment profit (loss) — 2022 $ 795.5 $ 979.7 $ 193.5 $ (0.5) $ 1,968.2 Top Brand Revenues: Year Ended March 2022 (In millions) Vans ® The North Face ® Timberland ® (a) Dickies ® Total United States $ 2,368.4 $ 1,553.9 $ 829.5 $ 584.1 $ 5,335.9 International: Europe 917.7 1,129.9 628.4 89.5 2,765.5 Asia-Pacific 603.4 422.1 250.6 143.9 1,420.0 Americas (non-U.S.) 272.4 153.9 114.6 20.2 561.1 Global $ 4,161.9 $ 3,259.7 $ 1,823.1 $ 837.7 $ 10,082.5 Year Ended March 2021 (In millions) Vans ® The North Face ® Timberland ® (a) Dickies ® Total United States $ 1,945.0 $ 1,211.8 $ 615.8 $ 415.4 $ 4,188.0 International: Europe 702.0 807.3 533.2 103.2 2,145.7 Asia-Pacific 627.0 329.4 280.5 161.1 1,398.0 Americas (non-U.S.) 191.7 108.9 83.5 21.8 405.9 Global $ 3,465.7 $ 2,457.4 $ 1,513.0 $ 701.5 $ 8,137.6 (a) The global Timberland brand includes Timberland ® , reported within the Outdoor segment and Timberland PRO ® , reported within the Work segment. Note: Amounts may not sum due to rounding. 28 VF Corporation Fiscal 2022 Form 10-K Table of Contents The following sections discuss the changes in revenues and profitability by segment. For purposes of this analysis, royalty revenues have been included in the wholesale channel for all periods. Outdoor Year Ended March (Dollars in millions) 2022 2021 Percent Change Segment revenues $ 5,327.6 $ 4,127.6 29.1 % Segment profit 795.5 342.2 132.5 % Operating margin 14.9 % 8.3 % The Outdoor segment includes the following brands: The North Face ® , Timberland ® , Smartwool ® , Icebreaker ® and Altra ® . Year Ended March 2022 Compared to Year Ended March 2021 Global revenues for Outdoor increased 29% in Fiscal 2022 compared to Fiscal 2021, including a 1% favorable impact due to foreign currency. The overall increase in revenues during the year was driven by recovery from the negative impact of COVID-19 on the prior year. Revenues in the United States increased 33% in Fiscal 2022. Revenues in the Europe region increased 31%, including a 1% unfavorable impact from foreign currency. Revenues in the Asia-Pacific region increased 10% in Fiscal 2022, with a 4% favorable impact from foreign currency. Revenues in the Americas (non-U.S.) region increased 40% in Fiscal 2022, including a 5% favorable impact from foreign currency. Global revenues for The North Face ® brand increased 33% in Fiscal 2022, including a 1% favorable impact from foreign currency. The overall revenue growth reflects increases in all regions and channels compared to the prior year . The overall growth was led by the Europe region, which increased 40% in Fiscal 2022. Global revenues for the Timberland ® brand increased 20% in Fiscal 2022. The increase was driven by recovery from the negative impact of COVID-19 on the prior year. The overall growth was led by an increase of 41% in the United States, and an increase of 19% in the Europe region, including a 1% unfavorable impact from foreign currency in Fiscal 2022. The increase was partially offset by an 11% decrease in the Asia-Pacific region during Fiscal 2022, including a 2% favorable impact from foreign currency. Revenues in the Asia-Pacific region have been negatively impacted by COVID-19 resurgence during Fiscal 2022. Global direct-to-consumer revenues for Outdoor increased 21% in Fiscal 2022, including a 1% favorable impact from foreign currency. The increase was primarily due to the reopening of VF-operated retail stores, which had significant temporary closures in the prior year due to COVID-19. Global wholesale revenues for Outdoor increased 35%, which also reflects recovery from the negative impact of COVID-19 on the prior year. Operating margin increased in Fiscal 2022 compared to Fiscal 2021, primarily due to leverage of operating expenses on increased revenues and reduced promotional activity compared to Fiscal 2021, which was negatively impacted by COVID-19. The increase was partially offset by higher advertising expenses, increased expedited freight costs, continued investments in direct-to-consumer and digital strategic growth initiatives and higher distribution spending. Fiscal 2021 also included cost controls taken in response to COVID-19 and payroll relief from the CARES Act and other governmental packages. VF Corporation Fiscal 2022 Form 10-K 29 Table of Contents Active Year Ended March (Dollars in millions) 2022 2021 Percent Change Segment revenues $ 5,380.3 $ 4,160.9 29.3 % Segment profit 979.7 648.5 51.1 % Operating margin 18.2 % 15.6 % The Active segment includes the following brands: Vans ® , Supreme ® , Napapijri ® , Kipling ® , Eastpak ® and JanSport ® . Year Ended March 2022 Compared to Year Ended March 2021 Global revenues for Active increased 29% in Fiscal 2022 compared to Fiscal 2021. Included in these results are revenues from the Supreme acquisition of $438.5 million through the one-year anniversary of the acquisition, which provided a 10% contribution to the overall increase. The overall increase in revenues was driven by recovery from the negative impact of COVID-19 on the prior year. Revenues in the United States increased 33%, including a 12% contribution from the Supreme acquisition . Revenues in the Europe region increased 33%, including a 6% contribution from the Supreme acquisition. Revenues in the Asia-Pacific region increased 9%, including a 3% favorable impact from foreign currency and a 15% contribution from the Supreme acquisition, which were partially offset by a 7% decrease in Greater China (including a 5% favorable impact from foreign currency) primarily due to the negative impact of COVID-19 resurgence in Fiscal 2022. Revenues in the Americas (non-U.S.) region increased 41% , including a 5% favorable impact from foreign currency. Vans ® brand global revenues increased 20% in Fiscal 2022, including a 1% favorable impact from foreign currency. The increase was driven by recovery from the negative impact of COVID-19 on the prior year. The overall growth in Fiscal 2022 was led by a n increase of 22% in the United States, and an increase of 31% in the Europe region, including a 1% favorable impact from foreign currency in the year ended March 2022. The increase in the year ended March 2022 was partially offset by a 4% decrease in the Asia-Pacific region, including a 3% favorable impact from foreign currency, primarily due to the negative impact of COVID-19 resurgence in Fiscal 2022. Global direct-to-consumer revenues for Active increased 43% in Fiscal 2022, including a 1% favorable impact from foreign currency. Excluding revenues from Supreme through the one-year anniversary of the acquisition, global direct-to-consumer revenues increased 23%, including a 1% favorable impact from foreign currency. The increase in the direct-to-consumer channel was primarily due to the reopening of VF-operated retail stores, which had significant temporary closures in Fiscal 2021. Global wholesale revenues for Active increased 14% in Fiscal 2022, and included a 1% favorable impact from foreign currency. The increase in Fiscal 2022 also reflects recovery from the negative impact of COVID-19 on the prior year. Operating margin increased in Fiscal 2022 compared to Fiscal 2021, primarily due to leverage of operating expenses on increased revenues, less promotional activity compared to Fiscal 2021, which was negatively impacted by COVID-19, and the impact from Supreme. The increase was partially offset by continued investments in direct-to-consumer and digital strategic growth initiatives, higher advertising expenses, higher distribution spending and increased expedited freight costs. Fiscal 2021 also included cost controls taken in response to COVID-19 and payroll relief from the CARES Act and other governmental packages. 30 VF Corporation Fiscal 2022 Form 10-K Table of Contents Work Year Ended March (Dollars in millions) 2022 2021 Percent Change Segment revenues $ 1,133.1 $ 945.7 19.8 % Segment profit 193.5 27.1 * Operating margin 17.1 % 2.9 % *Calculation not meaningful The Work segment includes the following brands: Dickies ® and Timberland PRO ® . Year Ended March 2022 Compared to Year Ended March 2021 Global Work revenues increased 20% in Fiscal 2022 compared to Fiscal 2021, including a 1% favorable impact from foreign currency. The increase in revenues was attributed to overall growth in both the Dickies ® and Timberland PRO ® brands, including recovery from the negative impact of COVID-19 on the prior year. Revenues in the United States increased 35% in Fiscal 2022. Revenues in the Europe region decreased 17%, including a 1% unfavorable impact from foreign currency, due to strategic business model changes. Revenues in the Asia-Pacific region decreased 11%, including a 2% favorable impact from foreign currency, driven by declines in Greater China primarily due to the negative impact of COVID-19 resurgence in Fiscal 2022. Revenues in the Americas (non-U.S.) region increased 13% in Fiscal 2022, including a 6% favorable impact from foreign currency. Dickies ® brand global revenues increased 19% in Fiscal 2022. The overall growth wa s led by an increase of 41% in the United States, driven by growth in the wholesale channel both in work and work-inspired lifestyle products. The increase in the year ended March 2022 was partially offset by declines in the Europe and Asia-Pacific regions. Operating margin increased in Fiscal 2022 compared to Fiscal 2021. The increase was primarily due to leverage of operating expenses on increased revenues compared to Fiscal 2021, which was negatively impacted by COVID-19. The increase was also due to lower cost optimization activity and other charges indirectly related to the strategic review of the Occupational Workwear business in the prior year and other operating efficiency gains. The increase was partially offset by higher advertising expenses and expedited freight costs. Fiscal 2021 also included cost controls taken in response to COVID-19 and payroll relief from the CARES Act and other governmental packages. Reconciliation of Segment Profit to Consolidated Income Before Income Taxes There are three types of costs necessary to reconcile total segment profit to consolidated income before income taxes. These costs are (i) impairment of goodwill and indefinite-lived intangible assets, which is excluded from segment profit because these costs are not part of the ongoing operations of the respective businesses, (ii) interest expense, net, and loss on debt extinguishment which are excluded from segment profit because substantially all financing costs are managed at the corporate office and are not under the control of segment management, and (iii) corporate and other expenses, which are excluded from segment profit to the extent they are not allocated to the segments. Impairment of goodwill and indefinite-lived intangible assets, net interest expense and loss on debt extinguishment are discussed in the “Consolidated Statements of Operations” section, and corporate and other expenses are discussed below. Year Ended March (In millions) 2022 2021 Impairment of indefinite-lived intangible assets $ — $ 12.4 Interest expense, net and loss on debt extinguishment 135.1 126.5 Corporate and other expenses 309.8 417.0 Corporate and other expenses are those that have not been allocated to the segments for internal management reporting, including (i) information systems and shared service costs, (ii) corporate headquarters costs, and (iii) certain other income and expenses. Information Systems and Shared Services These costs include management information systems and the centralized finance, supply chain and human resources functions that support worldwide operations. The costs also include software system implementations and upgrades and other strategic projects. Operating costs of information systems and shared services are charged to the segments based on utilization of those services. Costs to develop new software and related applications are generally not allocated to the segments. Corporate Headquarters’ Costs Headquarters’ costs include compensation and benefits of corporate management and staff, legal and professional fees, and general and administrative expenses that have not been allocated to the segments. Other This category includes (i) costs of corporate programs or corporate-managed decisions that are not allocated to the segments, (ii) costs of registering, maintaining and enforcing certain of VF’s trademarks, and (iii) miscellaneous consolidated VF Corporation Fiscal 2022 Form 10-K 31 Table of Contents activities, the most significant of which is related to VF’s centrally-managed U.S. defined benefit pension plans. Corporate and other expenses decreased $107.2 million in Fiscal 2022 when compared to the prior year. The decrease was primarily attributed to the impact of a $150.0 million decrease in the estimated fair value of the contingent consideration liability associated with the Supreme acquisition during Fiscal 2022 and the impact of $42.4 million expense related to the release of currency translation amounts associated with the substantial liquidation of foreign entities in certain countries in South America during Fiscal 2021. The decrease was partially offset by $74.3 million of higher information technology costs driven by those related to digital contracts, employee expenses, project spending and other services, and overall lower cost reimbursements associated with transition services provided to Kontoor Brands, primarily related to information technology services, during Fiscal 2022. International Operations International revenues increased 23% in Fiscal 2022 compared to Fiscal 2021, driven by recovery from the negative impact of COVID-19 on the prior year, and included a 4% contribution from the Supreme acquisition. Foreign currency had a favorable impact of 1% on international revenues in Fiscal 2022 . Revenues in the Europe region increased 30% in Fiscal 2022, including a 3% contribution from the Supreme acquisition. In the Asia-Pacific region, revenues increased 7% in Fiscal 2022 over Fiscal 2021, and included a 7% contribution from the Supreme acquisition. Foreign currency positively impacted revenues in the Asia-Pacific region by 3%. Revenues in Greater China increased 1% in Fiscal 2022, including a 5% favorable impact from foreign currency. The Asia-Pacific region was negatively impacted by COVID-19 resurgence during Fiscal 2022. Revenues in the Americas (non-U.S.) region increased 37% in Fiscal 2022, including a 5% favorable impact from foreign currency. International revenues were 48% and 50% of total VF revenues in Fiscal 2022 and Fiscal 2021, respectively. Direct-to-Consumer Operations Direct-to-consumer revenues increased 31% in Fiscal 2022 over Fiscal 2021, including a 10% contribution from the Supreme acquisition. The increase in direct-to-consumer revenues was primarily due to the reopening of VF-operated retail stores, which had significant temporary closures in Fiscal 2021 due to COVID-19, as discussed in the "Impact of COVID-19" section above. Our e-commerce business grew 14% in Fiscal 2022, including a 1% favorable impact from foreign currency and a 15% contribution from the Supreme acquisition. Excluding the Supreme acquisition, e-commerce revenu es decreased 1% in Fiscal 2022, including a 1% favorable impact from foreign currency. The deceleration of e-commerce growth rates when compared to the prior year was primarily due to the reopening of VF-operated retail and wholesale customer stores, which had significant temporary closures in the prior year due to COVID-19, as consumer spending shifted to VF's brand e-commerce sites and other digital platforms during the temporary store closures. Consistent with VF’s long-term strategy, the Company’s digital platform remains a high priority and e-commerce revenues in Fiscal 2022 remain well above levels in periods prior to COVID-19. VF opened 47 stores in Fiscal 2022, bringing the total number of VF-owned retail stores to 1,322 at March 2022, which also reflects 99 store closures during the period. There were 1,374 VF-owned retail stores at March 2021. Direct-to-consumer revenues were 46% of total VF revenues in Fiscal 2022 compared to 45% in Fiscal 2021. ANALYSIS OF FINANCIAL CONDITION Balance Sheets The following discussion refers to significant changes in balances for continuing operations at March 2022 compared to March 2021: • Increase in accounts receivable — primarily due to higher wholesale shipments driven by recovery from the negative impact of COVID-19 on the comparative period. • Increase in inventories — primarily due to recovery from the negative impact of COVID-19 on the comparative period. • Decrease in short-term investments — due to the sale of short-term investments. • Increase in short-term borrowings — due to an increase in commercial paper borrowings. • Increase in the current portion of long-term debt — due to the reclassification of $500.0 million of long-term notes due in April 2022. • Increase in accrued liabilities — primarily due to an increase in accrued income taxes resulting from the reclassification of a portion of the accrual for unrecognized tax benefits and certain deferred income taxes from other liabilities due to the timing of expected settlement and payment, and the reclassification of the contingent consideration liability associated with the Supreme acquisition from other liabilities. • Decrease in long-term debt — due to the reclassification of $500.0 million of long-term notes due in April 2022 and the early redemption of $500.0 million of long-term notes in December 2021. • Decrease in other liabilities — primarily due to lower deferred income taxes and a decrease in the accrual for unrecognized tax benefits resulting from the reclassification of certain amounts to accrued liabilities, and the reclassification of the contingent consideration liability associated with the Supreme acquisition to accrued liabilities. 32 VF Corporation Fiscal 2022 Form 10-K Table of Contents Liquidity and Cash Flows We consider the following to be measures of our liquidity and capital resources: (Dollars in millions) March 2022 March 2021 Working capital $1,272.7 $2,113.1 Current ratio 1.4 to 1 2.0 to 1 Net debt to total capital 61.0% 68.2% The decrease in the current ratio at March 2022 compared to March 2021 was primarily due to a net increase in current liabilities driven by a higher current portion of long-term debt, higher short-term borrowings and higher accrued liabilities, as discussed in the "Balance Sheets" section above. For the ratio of net debt to total capital, net debt is defined as short-term and long-term borrowings, in addition to operating lease liabilities, net of unrestricted cash. Total capital is defined as net debt plus stockholders’ equity. The decrease in the net debt to total capital ratio at March 2022 compared to March 2021 was primarily driven by a decrease in net debt due to the $500.0 million early redemption of 2.050% Senior Notes due April 2022 during Fiscal 2022 and higher cash balances at March 2022, partially offset by higher short-term borrowings at March 2022. The decrease in the net debt to total capital ratio was also due to an increase in stockholders' equity, which was driven by net income in the period, partially offset by payments of dividends and share repurchases. VF’s primary source of liquidity is its expected annual cash flow from operating activities. Cash from operations is typically lower in the first half of the calendar year as inventory builds to support peak sales periods in the second half of the calendar year. Cash provided by operating activities in the second half of the calendar year is substantially higher as inventories are sold and accounts receivable are collected. Additionally, direct-to-consumer sales are typically highest in the fourth quarter of the calendar year . VF's additional sources of liquidity include available borrowing capacity against its Global Credit Facility, available cash balances and international lines of credit. In summary, our cash flows from continuing operations were as follows: Year Ended March (In millions) 2022 2021 Cash provided by operating activities $ 858.2 $ 1,233.3 Cash provided (used) by investing activities 904.3 (2,892.0) Cash provided (used) by financing activities (1,268.8) 1,052.9 Cash Provided by Operating Activities Cash flow related to operating activities is dependent on net income, adjustments to net income and changes in working capital. The decrease in cash provided by operating activities in Fiscal 2022 compared to Fiscal 2021 is primarily due to a decrease in net cash provided by working capital, partially offset by higher earnings for the periods compared. Cash Provided (Used) by Investing Activities The decrease in cash used by investing activities in Fiscal 2022 compared to Fiscal 2021 was primarily due to $616.9 million of net proceeds from the sale of the Occupational Workwear business and $598.8 million of proceeds from the sale of short-term investments in Fiscal 2022, compared to the cash paid to acquire Supreme of $2.0 billion, net of cash received in Fiscal 2021. Fiscal 2021 also included purchases of short-term investments of $800.0 million and proceeds from maturities of short-term investments of $200.0 million. Capital expenditures increased $46.8 million and software purchases increased $7.3 million in Fiscal 2022 compared to the Fiscal 2021 period. Cash Provided (Used) by Financing Activities The decrease in cash provided by financing activities in Fiscal 2022 compared to Fiscal 2021 was primarily due to the net proceeds from long-term debt issuances of $3.0 billion fixed-rate notes in Fiscal 2021, a $502.5 million increase in payments on long-term debt and a $350.0 million increase in share repurchases in Fiscal 2022, which were partially offset by a $1.5 billion net decrease in short-term borrowings for the periods compared. Share Repurchases During Fiscal 2022, VF purchased 4.8 million shares of its Common Stock in open market transactions at a total cost of $350.0 million (average price per share of $72.84) under the share repurchase program authorized by VF's Board of Directors. VF did not purchase shares of its Common Stock in the open market during Fiscal 2021. As of the end of Fiscal 2022, VF had $2.5 billion remaining for future repurchases under its share repurchase authorization. VF will continue to evaluate its use of capital, g iving first priority to investments in organic growth and business acquisitions, then to direct shareholder return in the form of dividends and share repurchases, and enterprise protection. Revolving Credit Facility and Short-term Borrowings VF relies on its ability to generate cash flows to finance its ongoing operations. In addition, VF has significant liquidity from its available cash balances and credit facilities. 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 VF Corporation Fiscal 2022 Form 10-K 33 Table of Contents 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 acquisitions and share repurchases. Outstanding short-term balances may vary from period to period depending on the level of corporate requirements. Borrowings under the Global Credit Facility are priced at a credit spread of 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. VF has restrictive covenants on its Global Credit Facility, including a consolidated net indebtedness to consolidated net capitalization financial ratio covenant starting at 70% with future step downs. The calculation of consolidated net indebtedness is net of unrestricted cash. As of March 2022, the covenant calculation includes cash and equivalents and excludes consolidated operating lease liabilities. As of March 2022, VF was in compliance with all covenants. VF has a commercial paper program that allows for borrowings up to $2.25 billion to the extent that it has borrowing capacity under the Global Credit Facility. There was $330.0 million in commercial paper borrowings as of March 2022. Standby letters of credit issued as of March 2022 were $24.3 million, leaving approximately $1.9 billion available for borrowing against the Global Credit Facility at March 2022. Additionally, VF had approximately $1.3 billion of cash and equivalents at March 2022. VF has $55.7 million of international lines of credit with various banks, which are uncommitted and may be terminated at any time by either VF or the banks. Total outstanding balances under these arrangements were $5.5 million at March 2022. Borrowings under these arrangements had a weighted average interest rate of 26.0% at March 2022. Redemption and Maturity 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. On April 25, 2022, VF repaid the remaining $500.0 million in aggregate principal amount of its outstanding 2.050% Senior Notes due April 2022, in accordance with the terms of the notes. 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. Subsequent to the end of the third quarter of Fiscal 2022, VF decided to temporarily suspend the SCF program to implement certain modifications to the program. There were no amounts outstanding under the SCF program as of March 2022. In May 2022, the SCF program was reinstated. In Fiscal 2023, amounts due to suppliers who voluntarily participate in the SCF program will be included in the accounts payable line item in VF's Consolidated Balance Sheets and all payments made under the SCF program will be reflected in cash flows from operating activities in VF's Consolidated Statements of Cash Flows. Rating Agencies VF’s favorable credit agency ratings allow for access to additional liquidity at competitive rates. At the end of March 2022, VF’s long-term debt ratings were ‘A-’ by Standard & Poor’s ("S&P") Global Ratings and ‘Baa1’ by Moody’s Investors Service, both with 'stable' outlooks, and commercial paper ratings by those rating agencies were ‘A-2’ and ‘P-2’, respectively. None of VF’s long-term debt agreements contain acceleration of maturity clauses based solely on changes in credit ratings. However, if there were a change in control of VF and, as a result of the change in control the notes were rated below investment grade by recognized rating agencies, then VF would be obligated to repurchase the notes at 101% of the aggregate principal amount, plus any accrued and unpaid interest, if required by the respective holders of the notes. The change of control provision applies to all notes, except for the 2033 notes. Dividends Cash dividends totaled $1.98 per share in Fiscal 2022 compared to $1.94 in Fiscal 2021. The dividend payout ratio was 56.0% of diluted earnings per share in Fiscal 2022 compared to 186.5% in Fiscal 2021. The Company has declared a dividend of $0.50 per share that is payable in the first quarter of Fiscal 2023. Subject to approval by its Board of Directors, VF intends to continue to pay its regularly scheduled dividend. 34 VF Corporation Fiscal 2022 Form 10-K Table of Contents Contractual Obligations Following is a summary of VF’s material contractual obligations and commercial commitments at the end of March 2022 that will require the use of funds: Payment Due or Forecasted by Fiscal Year (In millions) Total 2023 2024 2025 2026 2027 Thereafter Recorded liabilities: Long-term debt (1) $ 5,128 $ 501 $ 939 $ 2 $ 752 $ 2 $ 2,932 Operating leases (2) 1,465 375 281 211 146 108 344 Unrecorded commitments: Interest payment obligations (3) 999 126 107 102 100 83 481 Inventory obligations (4) 3,155 3,014 73 68 — — — $ 10,747 $ 4,016 $ 1,400 $ 383 $ 998 $ 193 $ 3,757 (1) Long-term debt consists of required principal payments on long-term debt and finance lease obligations. (2) Operating leases represent required lease payments during the noncancelable lease term. Variable payments for occupancy-related costs, real estate taxes, insurance and contingent rent are not included above. (3) Interest payment obligations represent required interest payments on long-term debt. Amounts exclude amortization of debt issuance costs, debt discounts and acquisition costs that would be included in interest expense in the consolidated financial statements. (4) Inventory obligations represent binding commitments to purchase finished goods and raw materials that are payable upon VF taking ownership of the inventory. This obligation excludes the amount included in accounts payable at March 2022 related to inventory purchases. VF had other financial commitments and contingent obligations at the end of Fiscal 2022 that are not included in the above table but may require the use of funds under certain circumstances: • $110.2 million of surety bonds, custom bonds, standby letters of credit and international bank guarantees are not included in the table above because they represent contingent guarantees of performance under self-insurance and other programs and would only be drawn upon if VF were to fail to meet its other obligations. • Purchase orders for goods or services in the ordinary course of business are not included in the above table because they represent authorizations to purchase rather than binding commitments. • As previously reported, VF petitioned the U.S. Tax Court (the “Court”) to resolve an Internal Revenue Service (“IRS”) dispute regarding the timing of income inclusion associated with VF’s acquisition of The Timberland Company in September 2011. While the IRS argues that all such income should have been immediately included in 2011, VF has reported periodic income inclusions in subsequent tax years. Both parties moved for summary judgment on the issue, and on January 31, 2022, the Court issued its opinion in favor of the IRS. VF believes the opinion of the Court was in error based on the technical merits and intends to appeal; however, VF will be required to pay the 2011 taxes and interest being disputed or post a surety bond. It is anticipated that during Fiscal 2023, the IRS will assess, and VF will pay, the 2011 taxes and interest, which would be recorded as a tax receivable based on the technical merits of our position with regards to the case. The gross amount of taxes and interest as of April 2, 2022 was estimated at approximately $845.0 million and will continue to accrue interest until paid. If VF chooses to post a surety bond, in lieu of making the payment for tax and interest, the cash impact in Fiscal 2023 is estimated to be approximately $2.0 million. VF continues to believe its timing and treatment of the income inclusion is appropriate and VF is vigorously defending its position. However, should the Court opinion ultimately be upheld on appeal, the tax receivable may not be collected by VF. If the Court opinion is upheld, VF should be entitled to a refund of taxes paid on the periodic inclusions that VF has reported. However, any such refund could be substantially reduced by potential indirect tax effects resulting from application of the Court opinion. Deferred tax liabilities, representing VF’s future tax on annual inclusions, would also be released. The net impact to tax expense estimated as of April 2, 2022 could be up to $700.0 million. Management believes that VF’s cash and equivalents balances and expected funds to be provided by operating activities, as well as its Global Credit Facility, additional borrowing capacity and access to capital markets, taken as a whole, provide (i) adequate liquidity to meet all of its current and long-term obligations when due, (ii) adequate liquidity to fund capital expenditures and to maintain the planned dividend, and (iii) flexibility to meet investment opportunities that may arise. There continues to be uncertainty about the duration and extent of the impact of COVID-19. However, management believes that VF has sufficient liquidity and flexibility to continue to operate during and after the disruptions caused by the COVID-19 pandemic and related governmental actions and regulations and health authority advisories, and meet its current and long-term obligations as they become due. VF does not participate in transactions with unconsolidated entities or financial partnerships established to facilitate off-balance sheet arrangements or other limited purposes. VF Corporation Fiscal 2022 Form 10-K 35 Table of Contents Risk Management VF is exposed to risks in the ordinary course of business. Management regularly assesses and manages exposures to these risks through operating and financing activities and, when appropriate, by (i) taking advantage of natural hedges within VF, (ii) purchasing insurance from commercial carriers, or (iii) using derivative financial instruments. Some potential risks are discussed below: Insured risks VF is self-insured for a significant portion of its employee medical, workers’ compensation, vehicle and general liability exposures. VF purchases insurance from highly-rated commercial carriers to cover other risks, including directors and officers, cyber, property, cargo, employment practices, wage and hour and umbrella, and to establish stop-loss limits on self-insurance arrangements. Cash and equivalents risks VF had $1.3 billion of cash and equivalents at the end of Fiscal 2022. Management continually monitors the credit ratings of the financial institutions with whom VF conducts business and geopolitical risks that may impact countries where VF has cash balances. Management also monitors the credit quality of cash equivalents. Defined benefit pension plan risks At the end of Fiscal 2022, VF’s defined benefit pension plans were overfunded by a net total of $85.7 million. The overfunded status includes a $93.6 million liability related to our U.S. unfunded supplemental defined benefit plan, $20.5 million of net liabilities related to our non-U.S. defined benefit plans, and a $199.8 million net asset related to our U.S. qualified defined benefit plan. VF will continue to evaluate the funded status and future funding requirements of these plans, which depends in part on the future performance of the plans’ investment portfolios. Management believes that VF has sufficient liquidity to make any required contributions to the pension plans in future years. VF’s reported earnings are subject to risks due to the volatility of its pension cost (income), which has ranged in recent years from cost of $23.6 million in the year ended March 2020 to income of $7.3 million in the year ended March 2022. These fluctuations are primarily due to differences in the amount of settlement charges recorded in the respective periods. The changes are also impacted by varying amounts of actuarial gains and losses that are deferred and amortized to future years’ expense. The assumptions that impact actuarial gains and losses include the rate of return on investments held by the pension plans, the discount rate used to value participant liabilities and demographic characteristics of the participants. VF has taken a series of steps to manage the risk and volatility in the pension plans and their impact on the financial statements. The U.S. qualified and supplemental defined benefit plans were closed to new entrants at the end of 2004 and all future benefit accruals were frozen as of December 31, 2018. During the year ended March 2020, VF offered former employees in the U.S. qualified plan a lump-sum option to receive a distribution of their deferred vested benefits. The U.S. qualified plan participants were reduced by 10% as a result of this offer. No additional funding of the pension plan was required as all distributions were paid out of existing plan assets, and the plan’s funded status remained materially unchanged. The investment strategy of the U.S. qualified plan continues to define dynamic asset allocation targets that are dependent upon changes in the plan’s funded status, capital market expectations, and risk tolerance. Management will continue to evaluate actions that may help to reduce VF’s risks related to its defined benefit plans. Interest rate risks VF limits the risk of interest rate fluctuations by managing the mix of fixed and variable interest rate debt. In addition, VF may use derivative financial instruments to manage risk. Since all of VF’s long-term debt has fixed interest rates, the exposure relates to changes in interest rates on variable rate short-term borrowings (which averaged approximately $64.0 million at a 2.1% rate during Fiscal 2022). However, any change in interest rates would also affect interest income earned on VF’s cash equivalents. Based on the average amount of variable rate borrowings and cash equivalents during Fiscal 2022, the effect of a hypothetical 1% increase in interest rates would be an increase in reported net income of approximately $8.1 million and a hypothetical 1% decrease in interest rates would be a decrease in reported net income of approximately $8.3 million. Foreign currency exchange rate risks VF is a global enterprise subject to the risk of foreign currency fluctuations. Approximately 48% of VF’s revenues in the year ended March 2022 were generated in international markets. Most of VF’s foreign businesses operate in functional currencies other than the U.S. dollar. In periods where the U.S. dollar strengthens relative to the euro or other foreign currencies where VF has operations, there is a negative impact on VF’s operating results upon translation of those foreign operating results into the U.S. dollar. As discussed later in this section, management hedges VF’s investments in certain foreign operations and foreign currency transactions. The reported values of assets and liabilities in these foreign businesses are subject to fluctuations in foreign currency exchange rates. For net advances to and investments in VF’s foreign businesses that are considered to be long-term, the impact of changes in foreign currency exchange rates on those long-term advances is deferred as a component of accumulated OCI in stockholders’ equity. The U.S. dollar value of net investments in foreign subsidiaries fluctuates with changes in the underlying functional currencies. In February 2020, VF issued €1.0 billion of euro-denominated fixed-rate notes and in September 2016, VF issued €850.0 million of euro-denominated fixed-rate notes. These notes have been designated as net investment hedges of VF’s investment in certain foreign operations. Because this debt qualified as a nonderivative hedging instrument, foreign currency transaction gains or losses of the debt are deferred in the foreign currency translation and other component of accumulated OCI as an offset to the foreign currency translation adjustments on the hedged investments. Any amounts deferred in accumulated OCI will remain until the hedged investment is sold or substantially liquidated. VF monitors net foreign currency market exposures and enters into derivative foreign currency contracts to hedge the effects of exchange rate fluctuations for a significant portion of forecasted 36 VF Corporation Fiscal 2022 Form 10-K Table of Contents foreign currency cash flows or specific foreign currency transactions (relating to cross-currency inventory purchases, product sales, operating costs and intercompany royalty payments). VF’s practice is to buy or sell foreign currency exchange contracts that cover up to 80% of foreign currency exposures for periods of up to 24 months. Currently, VF uses only foreign exchange forward contracts but may use options or collars in the future. This use of financial instruments allows management to reduce the overall exposure to risks from exchange rate fluctuations on VF’s cash flows and earnings, since gains and losses on these contracts will offset losses and gains on the transactions being hedged. For cash flow hedging contracts outstanding at the end of Fiscal 2022, a hypothetical 10% decrease and 10% increase in foreign currency exchange rates compared to rates at the end of Fiscal 2022, would result in an increase in the unrealized net gain of approximately $7.4 million and a decrease in the unrealized net gain of approximately $5.8 million, respectively. However, any change in the fair value of the hedging contracts would be substantially offset by a change in the fair value of the underlying hedged exposure impacted by the currency rate changes. Counterparty risks VF is exposed to credit-related losses in the event of nonperformance by counterparties to derivative hedging instruments. To manage this risk, we have established counterparty credit guidelines and only enter into derivative transactions with financial institutions that have ‘A minus/A3’ investment grade credit ratings or better. VF continually monitors the credit rating of, and limits the amount hedged with, each counterparty. Additionally, management utilizes a portfolio of financial institutions to minimize exposure to potential counterparty defaults and adjusts positions as necessary. VF also monitors counterparty risk for derivative contracts within the defined benefit pension plans. Commodity price risks VF is exposed to market risks for the pricing of cotton, leather, rubber, wool and other materials, primarily due to the impact on the cost of sourced finished goods from independent contractors. To manage risks of commodity price changes, management negotiates prices of finished goods in advance when possible. VF has not historically managed commodity price exposures by using derivative instruments. Deferred compensation and related investment security risks VF has nonqualified deferred compensation plans in which liabilities to the plans’ participants are based on the market values of the participants’ selection of a hypothetical portfolio of investment funds. VF invests in a portfolio of securities that substantially mirrors the participants’ investment selections. The increases and decreases in deferred compensation liabilities are substantially offset by corresponding increases and decreases in the market value of VF’s investments, resulting in an insignificant net exposure to operating results and financial position. CRITICAL ACCOUNTING POLICIES AND ESTIMATES VF has chosen accounting policies that management believes are appropriate to accurately and fairly report VF’s operating results and financial position in conformity with accounting principles generally accepted in the U.S. VF applies these accounting policies in a consistent manner. Significant accounting policies are summarized in Note 1 to the consolidated financial statements. The application of these accounting policies requires that VF make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, contingent assets and liabilities, and related disclosures. These estimates, assumptions and judgments are based on historical experience, current trends and other factors believed to be reasonable under the circumstances. Management evaluates these estimates and assumptions on an ongoing basis. Because VF’s business cycle is relatively short (i.e., from the date that inventory is received until that inventory is sold and the trade receivable is collected), actual results related to most estimates are known within a few months after any balance sheet date. In addition, VF may retain outside specialists to assist in valuations of business acquisitions and impairment testing of goodwill and intangible assets. If actual results ultimately differ from previous estimates, the revisions are included in results of operations when the actual amounts become known. VF believes the following accounting policies involve the most significant management estimates, assumptions and judgments used in preparation of the consolidated financial statements or are the most sensitive to change from outside factors. The application of these critical accounting policies and estimates is discussed with the Audit Committee of the Board of Directors. Business Combinations VF accounts for business combinations using the acquisition method of accounting. Under the acquisition method, the consolidated financial statements reflect the operations of an acquired business starting from the closing date of the acquisition. All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. VF allocates the purchase price of an acquired business to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, with any excess purchase price recorded as goodwill. Contingent consideration, if any, is included within the purchase price and is recognized at its fair value on the acquisition date. The application of the acquisition method of accounting for business combinations and determination of fair value requires management to make judgments and may involve the use of significant estimates, including assumptions related to estimated future revenues, growth rates, cash flows, discount rates and royalty rates, among other items. VF generally evaluates fair value at acquisition using three valuation techniques - the replacement cost, market and income methods - and weights the valuation methods based on what is most appropriate in the circumstances. The process of assigning fair values, particularly to acquired intangible assets, is highly subjective. VF also typically utilizes third-party valuation VF Corporation Fiscal 2022 Form 10-K 37 Table of Contents specialists to assist management in the determination of the fair value of assets acquired and liabilities assumed. Management estimates of fair value are based on assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. If the actual results differ from the estimates and judgments used, the amounts recorded in the consolidated financial statements may be exposed to potential impairment of the intangible assets and goodwill, as discussed in the "Long-Lived Assets, Including Intangible Assets and Goodwill" section below. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. During the fourth quarter of Fiscal 2021, VF completed the acquisition of Supreme Holdings, Inc. ("Supreme") for $2.4 billion. Management allocated the purchase price of the acquired Supreme business to the estimated fair values of the acquired assets and assumed liabilities at the date of acquisition, which resulted in excess purchase price of $1.25 billion that was recorded as goodwill. The acquired assets included the estimated fair value of $1.20 billion for the Supreme ® trademark, which is an identifiable intangible asset management believes to have an indefinite life. The estimated fair value of the Supreme ® trademark was determined using the relief-from-royalty method of the income valuation approach, which required the use of significant estimates and assumptions, including future revenues, growth rates, royalty rate, tax rates and discount rate associated with the acquired intangible asset. Management's estimates and assumptions utilized internal forecasts of Supreme's future business performance and relevant market information. Management also utilized a third-party valuation specialist to assist in the determination of the estimated fair value of the Supreme ® trademark. Management believes the assumptions used in determining the estimated fair value of the Supreme ® trademark were reasonable, but are inherently uncertain and unpredictable. As a result, actual results may differ from estimates. Refer to the "Long-Lived Assets, Including Intangible Assets and Goodwill" section below for additional discussion regarding impairment considerations during Fiscal 2022 related to the Supreme reporting unit goodwill and indefinite-lived trademark intangible asset. Refer to Note 3 to the consolidated financial statements for additional information related to the Supreme acquisition. Long-Lived Assets, Including Intangible Assets and Goodwill Definite-Lived Assets VF’s depreciation policies for property, plant and equipment reflect judgments on the estimated economic lives and residual values, if any. VF’s amortization policies for definite-lived intangible assets reflect judgments on the estimated amounts and duration of future cash flows expected to be generated by those assets. In evaluating the amortizable life for customer relationship intangible assets, management considers historical attrition patterns for various groups of customers. In determining the lease term used to amortize operating lease right-of-use assets, VF considers initial terms and any renewal or termination options that may exist. When deemed reasonably certain, the renewal and termination options are included in the determination of lease term. VF’s policy is to review property, plant and equipment, definite-lived intangible assets and operating lease right-of-use assets for potential impairment whenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable. VF tests for potential impairment at the asset or asset group level, which is the lowest level for which there are identifiable cash flows that are largely independent. VF measures recoverability of the carrying value of an asset or asset group by comparison to the estimated pre-tax undiscounted cash flows expected to be generated by the asset. If the forecasted pre-tax undiscounted cash flows to be generated by the asset are not expected to be adequate to recover the asset’s carrying value, a fair value analysis must be performed, and an impairment charge is recorded if there is an excess of the asset’s carrying value over its estimated fair value. When testing property, plant and equipment for potential impairment, VF uses the income-based discounted cash flow method using the estimated cash flows of the respective asset or asset group. The estimated pre-tax undiscounted cash flows of the asset or asset group through the end of its useful life are compared to its carrying value. If the pre-tax undiscounted cash flows of the asset or asset group exceed its carrying value, there is no impairment charge. If the pre-tax undiscounted cash flows of the asset or asset group are less than its carrying value, the estimated fair value of the asset or asset group is calculated based on the after-tax discounted cash flows using an appropriate weighted average cost of capital ("WACC"), and an impairment charge is recognized for the difference between the estimated fair value of the asset or asset group and its carrying value. When testing customer relationship intangible assets for potential impairment, management considers historical customer attrition rates and projected revenues and profitability related to customers that existed at acquisition. Management uses the multi-period excess earnings method, which is a specific application of the discounted cash flow method, to value customer relationship assets. The estimated pre-tax undiscounted cash flows of the asset through the end of its useful life are compared to its carrying value. If the pre-tax undiscounted cash flows of the asset exceed its carrying value, there is no impairment charge. If the pre-tax undiscounted cash flows of the asset are less than its carrying value, the estimated fair value of the asset is calculated based on the present value of the after-tax cash flows expected to be generated by the customer relationship asset after deducting contributory asset charges, and an impairment charge is recognized for the difference between the estimated fair value of the asset and its carrying value. When testing operating lease right-of-use assets for potential impairment, VF uses the income-based discounted cash flow method using the estimated cash flows of the respective asset or asset group. The estimated pre-tax undiscounted cash flows of the asset or asset group through the end of its useful life are compared to its carrying value. If the pre-tax undiscounted cash flows of the asset exceed its carrying value, there is no impairment charge. If the pre-tax undiscounted cash flows of the asset or asset group are less than its carrying value, the 38 VF Corporation Fiscal 2022 Form 10-K Table of Contents estimated fair value of the asset or asset group is calculated considering what a market participant would pay to lease the asset for its highest and best use, and an impairment charge is recognized for the difference between the estimated fair value of the asset or asset group and its carrying value. The impairment loss is allocated to the long-lived assets of the group on a pro-rata basis using the relative carrying amounts of those assets. Indefinite-Lived Intangible Assets and Goodwill Fair value for acquired intangible assets is generally based on the present value of expected cash flows. Indefinite-lived trademark or trade name intangible assets (collectively referred to herein as “trademarks”) represent individually acquired trademarks, some of which are registered in multiple countries. Goodwill represents the excess of cost of an acquired business over the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, and is assigned at the reporting unit level. VF’s policy is to evaluate indefinite-lived intangible assets and goodwill for possible impairment as of the beginning of the fourth quarter of each fiscal year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount. As part of its annual impairment testing, VF may elect to assess qualitative factors as a basis for determining whether it is necessary to perform quantitative impairment testing. If management’s assessment of these qualitative factors indicates that it is more likely than not that the fair value of the intangible asset or reporting unit is more than its carrying value, then no further testing is required. Otherwise, the intangible asset or reporting unit must be quantitatively tested for impairment. An indefinite-lived intangible asset is quantitatively tested for possible impairment by comparing the estimated fair value of the asset to its carrying value. Fair value of an indefinite-lived trademark is based on an income approach using the relief-from-royalty method. Under this method, forecasted revenues for products sold with the trademark are assigned a royalty rate that would be charged to license the trademark (in lieu of ownership), and the estimated fair value is calculated as the present value of those forecasted royalties avoided by owning the trademark. The discount rate is based on the reporting unit’s WACC that considers market participant assumptions and is adjusted, as appropriate, to factor in the risk of the intangible asset. The royalty rate is selected based on consideration of (i) royalty rates included in active license agreements, if applicable, (ii) royalty rates received by market participants in the apparel industry, and (iii) the current performance of the reporting unit. If the estimated fair value of the trademark intangible asset exceeds its carrying value, there is no impairment charge. If the estimated fair value of the trademark is less than its carrying value, an impairment charge would be recognized for the difference. Goodwill is quantitatively evaluated for possible impairment by comparing the estimated fair value of a reporting unit to its carrying value. Reporting units are businesses with discrete financial information that is available and reviewed by management. For goodwill impairment testing, VF estimates the fair value of a reporting unit using both income-based and market-based valuation methods. The income-based approach is based on the reporting unit’s forecasted future cash flows that are discounted to present value using the reporting unit’s WACC as discussed above. For the market-based approach, management uses both the guideline company and similar transaction methods. The guideline company method analyzes market multiples of revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for a group of comparable public companies. The market multiples used in the valuation are based on the relative strengths and weaknesses of the reporting unit compared to the selected guideline companies. Under the similar transactions method, valuation multiples are calculated utilizing actual transaction prices and revenue/EBITDA data from target companies deemed similar to the reporting unit. Based on the range of estimated fair values developed from the income and market-based methods, VF determines the estimated fair value for the reporting unit. If the estimated fair value of the reporting unit exceeds its carrying value, the goodwill is not impaired and no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, VF calculates the impairment loss as the difference between the carrying value of the reporting unit and the estimated fair value. The income-based fair value methodology requires management’s assumptions and judgments regarding economic conditions in the markets in which VF operates and conditions in the capital markets, many of which are outside of management’s control. At the reporting unit level, fair value estimation requires management’s assumptions and judgments regarding the effects of overall economic conditions on the specific reporting unit, along with assessment of the reporting unit’s strategies and forecasts of future cash flows. Forecasts of individual reporting unit cash flows involve management’s estimates and assumptions regarding: • Annual cash flows, on a debt-free basis, arising from future revenues and profitability, changes in working capital, capital spending and income taxes for at least a 10-year forecast period. • A terminal growth rate for years beyond the forecast period. The terminal growth rate is selected based on consideration of growth rates used in the forecast period, historical performance of the reporting unit and economic conditions. • A discount rate that reflects the risks inherent in realizing the forecasted cash flows. A discount rate considers the risk-free rate of return on long-term treasury securities, the risk premium associated with investing in equity securities of comparable companies, the beta obtained from comparable companies and the cost of debt for investment grade issuers. In addition, the discount rate may consider any company-specific risk in achieving the prospective financial information. Under the market-based fair value methodology, judgment is required in evaluating market multiples and recent transactions. Management believes that the assumptions used for its impairment tests are representative of those that would be used by market participants performing similar valuations of VF’s reporting units. Fiscal 2022 Impairment Testing Management performed its annual goodwill and indefinite-lived intangible asset impairment testing as of the beginning of the fourth quarter of Fiscal 2022. VF elected to bypass the qualitative VF Corporation Fiscal 2022 Form 10-K 39 Table of Contents analysis for the Supreme reporting unit goodwill and indefinite-lived trademark intangible asset. See additional discussion in the "Supreme Reporting Unit and Indefinite-Lived Intangible Asset Impairment Analysis" section below. Management performed a qualitative analysis for all other reporting units and trademark intangible assets, as discussed below in the “Other Reporting Units - Qualitative Impairment Analysis” section. Supreme Reporting Unit and Indefinite-Lived Intangible Asset Impairment Analysis In conjunction with VF's annual goodwill and indefinite-lived intangible asset impairment testing as of the beginning of the fourth quarter of Fiscal 2022, management performed a quantitative impairment analysis of the Supreme reporting unit goodwill and indefinite-lived trademark intangible asset. The decision to bypass the optional qualitative impairment assessment and proceed directly to a quantitative impairment analysis was primarily based on Fiscal 2022 financial results falling below estimates used in the initial business combination valuation and the overall significance of the related assets. Based on the quantitative impairment analysis, management concluded the goodwill and indefinite-lived trademark intangible asset were not impaired. The estimated fair values of the reporting unit and indefinite-lived trademark intangible asset exceeded the carrying values by 5% and 3%, respectively. The carrying values of the reporting unit goodwill and indefinite-lived trademark intangible asset at the January 2, 2022 testing date were $1.24 billion and $1.19 billion, respectively. Supreme is a global streetwear leader that sells apparel, accessories and footwear under its namesake brand, Supreme ® . Products are sold globally through VF-operated stores and online. The Supreme reporting unit is included in the Active reportable segment. Management's revenue and profitability forecasts used in the Supreme reporting unit and indefinite-lived trademark intangible asset valuations considered historical performance, strategic initiatives and industry trends. Assumptions used in the valuations were similar to those that would be used by market participants performing independent valuations of the business. Key assumptions developed by management and used in the quantitative analysis of the Supreme reporting unit and indefinite-lived trademark intangible asset include: • Financial projections and future cash flows, including a base year reflecting actual results lower than the forecast used in the initial business combination valuation primarily driven by the impact of short-term supply chain disruptions in Fiscal 2022, revenue growth and profitability improvement throughout the forecast period that reflects the long-term strategy for the business which is unchanged from the business combination valuation, and terminal growth rates based on the expected long-term growth rate of the business; • Tax rates based on the statutory rates for the countries in which the brand operates and the related intellectual property is domiciled, which consider intellectual property transfers completed by the Company during Fiscal 2022 that resulted in lower tax rates when compared to the business combination valuation assumptions; • Royalty rates based on market data as well as active license agreements with similar VF brands, which are consistent with the business combination valuation assumptions; and, • Market-based discount rates. The valuation model used by management in the impairment testing assumes revenue growth and profitability improvement, including recovery from the supply chain disruption in Fiscal 2022, and execution of its long-term growth strategy. If the brand is unable to achieve the financial projections, an impairment of the indefinite-lived trademark intangible asset or the reporting unit goodwill could occur in the future. Management performed sensitivity analyses on the impairment models used to test the Supreme reporting unit goodwill and indefinite-lived trademark intangible asset. In doing so, management determined that individual changes of a 10% decrease in the compound annual growth rate for EBITDA or a 50 basis-point increase in the discount rate used in the discounted cash flow model resulted in the estimated fair value of the reporting unit to be below its carrying value, which would result in impairment. Management also determined that individual changes of a 10% decrease in the compound annual growth rate for revenues or a 50 basis-point increase in the discount rate used in the relief-from-royalty model resulted in the estimated fair value of the indefinite-lived trademark intangible asset to be below its carrying value, which would result in impairment. Other Reporting Units - Qualitative Impairment Analysis For all other reporting units, VF elected to perform a qualitative assessment during the annual goodwill and indefinite-lived intangible asset impairment testing to determine whether it was more likely than not that the goodwill and indefinite-lived trademark intangible assets in those reporting units were impaired. In this qualitative assessment, VF considered relevant events and circumstances for each reporting unit, including (i) current year results and performance versus management's annual and strategic plans, (ii) financial outlook based on the latest strategic plan, (iii) changes in the reporting unit carrying value since prior year and the amounts relative to the size of the respective business, (iv) industry and market conditions in which the reporting unit operates, (v) macroeconomic conditions, including discount rate changes, and (vi) changes in products or services offered by the reporting unit. If applicable, performance in recent years was compared to forecasts included in prior valuations. Based on the results of the qualitative assessment, VF concluded it was more likely than not the carrying values of the goodwill and indefinite-lived trademark intangible assets were less than their fair values, and that further quantitative testing was not necessary. Management’s Use of Estimates and Assumptions Management made its estimates based on information available as of the date of our assessments, using assumptions we believe market participants would use in performing an independent valuation of the business. It is possible that VF’s conclusions regarding impairment of goodwill or indefinite-lived intangible assets in any reporting unit could change in future periods. There can be no assurance that the estimates and assumptions used in our goodwill and indefinite-lived intangible asset impairment testing will prove to be accurate predictions of the future, if, for example, (i) the businesses do not perform as projected, (ii) overall economic conditions in Fiscal 2023 or future years vary from current assumptions (including changes 40 VF Corporation Fiscal 2022 Form 10-K Table of Contents in discount rates), (iii) business conditions or strategies for a specific reporting unit change from current assumptions, including loss of major customers, (iv) investors require higher rates of return on equity investments in the marketplace, or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and EBITDA. A future impairment charge for goodwill or indefinite-lived intangible assets could have a material effect on VF’s consolidated financial position and results of operations. Income Taxes As a global company, VF is subject to income taxes and files income tax returns in over 100 U.S. and foreign jurisdictions each year. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or changes in interpretation of existing tax laws and regulations or rulings by courts or government authorities leading to exposure to additional tax liabilities. In particular, tax authorities and the courts have increased their focus on income earned in no- or low-tax jurisdictions or income that is not taxed in any jurisdiction. Tax authorities have also become skeptical of special tax rulings provided to companies offering lower taxes than may be applicable in other countries. VF makes an ongoing assessment to identify any significant exposure related to increases in tax rates in the jurisdictions in which VF operates. Furthermore, 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. The calculation of income tax liabilities involves uncertainties in the application of complex tax laws and regulations, which are subject to legal interpretation and significant management judgment. VF’s income tax returns are regularly examined by federal, state and foreign tax authorities, and those audits may result in proposed adjustments. VF has reviewed all issues raised upon examination, as well as any exposure for issues that may be raised in future examinations. VF has evaluated these potential issues under the “more-likely-than-not” standard of the accounting literature. A tax position is recognized if it meets this standard and is measured at the largest amount of benefit that has a greater than 50% likelihood of being realized. Such judgments and estimates may change based on audit settlements, court cases and interpretation of tax laws and regulations. Income tax expense could be materially affected to the extent VF prevails in a tax position or when the statute of limitations expires for a tax position for which a liability for unrecognized tax benefits or valuation allowances has been established, or to the extent VF is required to pay amounts greater than the established liability for unrecognized tax benefits. Under the more-likely-than-not standard, VF does not currently anticipate any material impact on earnings from the ultimate resolution of income tax uncertainties. There are no accruals for general or unknown tax expenses. As previously reported, VF petitioned the U.S. Tax Court (the “Court”) to resolve an Internal Revenue Service ("IRS") dispute regarding the timing of income inclusion associated with VF’s acquisition of The Timberland Company in September 2011. While the IRS argues that all such income should have been immediately included in 2011, VF has reported periodic income inclusions in subsequent tax years. Both parties moved for summary judgment on the issue, and on January 31, 2022, the Court issued its opinion in favor of the IRS. VF believes the opinion of the Court was in error based on the technical merits and intends to appeal. VF continues to believe its timing and treatment of the income inclusion is appropriate and VF is vigorously defending its position. No impact of the Court opinion has been recorded in the consolidated financial statements based on our assessment of the position under the more-likely-than-not standard. As of March 2022, VF had $679.0 million of gross deferred income tax assets related to operating loss and capital loss carryforwards, and $608.5 million of valuation allowances against those assets. Realization of deferred tax assets related to operating loss and capital loss carryforwards is dependent on future taxable income in specific jurisdictions, the amount and timing of which are uncertain, and on possible changes in tax laws. If management believes that VF will not be able to generate sufficient taxable income or capital gains to offset losses during the carryforward periods, VF records valuation allowances to reduce those deferred tax assets to amounts expected to be ultimately realized. If in a future period management determines that the amount of deferred tax assets to be realized differs from the net recorded amount, VF would record an adjustment to income tax expense in that future period. Recently Issued and Adopted Accounting Standards Refer to Note 1 to the consolidated financial statements for discussion of recently issued and adopted accounting standards. VF Corporation Fiscal 2022 Form 10-K 41 Table of Contents ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. A discussion of VF’s market risks is incorporated by reference to “Risk Management” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See “Index to Consolidated Financial Statements and Financial Statement Schedule” on page F-1 of this Annual Report for information required by this Item 8. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable.