V F CORP 10-Q

ITEM 2 — MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. VF Corporation (together with its subsidiaries, collectively known as “VF” or the “Company”) uses a 52/53 week fiscal year ending on the Saturday closest to March 31 of each year. The Company's current fiscal year runs from April 2, 2023 through March 30, 2024 ("Fiscal 2024"). Accordingly, this Form 10-Q presents our first quarter of Fiscal 2024. For presentation purposes herein, all references to periods ended June 2023 and June 2022 relate to the fiscal periods ended on July 1, 2023 and July 2, 2022, respectively. References to March 2023 relate to information as of April 1, 2023. All per share amounts are presented on a diluted basis and all percentages shown in the tables below and the following discussion have been calculated using unrounded numbers. References to the three months ended June 2023 foreign currency amounts and impacts below reflect the changes in foreign exchange rates from the three months ended June 2022 when 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. RECENT DEVELOPMENTS Executive Leadership Transition On June 16, 2023, the Board of Directors approved the appointment of Bracken Darrell as President and Chief Executive Officer of the Company, effective as of July 17, 2023. Mr. Darrell will replace Benno Dorer, who has been serving as the Company's Interim President and Chief Executive Officer. Mr. Dorer will remain a VF Board member. In connection with Mr. Darrell's appointment as President and Chief Executive Officer of the Company, the Board approved an increase in the size of the Board by one and the appointment of Mr. Darrell as a member of the Board and as an ex officio member of the Finance Committee of the Board, all effective August 1, 2023. On June 16, 2023, the Board also approved the appointment of Richard Carucci, a member of the Board since 2009 and Interim Chair of the Board during VF's recent leadership transition period, as independent Chair of the Board, effective immediately. Macroeconomic Environment and Uncertainties The macroeconomic environment continues to dynamically evolve. Global trends, including inflationary pressures, are weakening consumer sentiment, negatively impacting consumer spending behavior and creating variable traffic patterns across channels. These conditions have led to elevated inventories in certain markets and an increased promotional environment. The Company is also operating in a higher interest rate environment, resulting in increased borrowing costs. There is ongoing uncertainty around the global economy and macroeconomic environment, which we expect to continue and cause disruption and near-term challenges for our business. Though not expected to have a significant impact in the current year, the coronavirus ("COVID-19") pandemic resulted in temporary closures of VF-operated retail stores in the first quarter of Fiscal 2023, most notably in the Asia-Pacific region, which significantly impacted prior year revenues in the region. The ongoing conflict between Russia and Ukraine continues to cause disruption in the region and unknown impacts to the global economy; however, we currently do not expect significant disruption to our business. For additional information, see the risk factors discussed in Part I, “Item 1A. Risk Factors” in the Fiscal 2023 Form 10-K. HIGHLIGHTS OF THE FIRST QUARTER OF FISCAL 2024 • Revenues were down 8% to $2.1 billion compared to the three months ended June 2022. • Outdoor segment revenues increased 8% to $829.7 million compared to the three months ended June 2022. • Active segment revenues decreased 15% to $1.1 billion compared to the three months ended June 2022. • Work segment revenues decreased 20% to $190.6 million compared to the three months ended June 2022. • Direct-to-consumer revenues were down 3% over the 2022 period, including a 1% unfavorable impact from foreign currency. E-commerce revenues decreased 4% in the current period, including a 1% unfavorable impact from foreign currency. Direct-to-consumer revenues accounted for 47% of VF's net revenues for the three months ended June 2023. • Wholesale revenues were down 12% compared to the three months ended June 2022. • International revenues increased 3% compared to the three months ended June 2022, including a 1% unfavorable impact from foreign currency. Revenues in Europe decreased 2%, including a 1% favorable impact from foreign currency. Greater China (which includes Mainland China, Hong Kong and Taiwan) revenues increased 24%, including a 7% unfavorable impact from foreign currency. International revenues represented 49% of VF's net revenues for the three months ended June 2023. • Gross margin decreased 110 basis points to 52.8% compared to the three months ended June 2022, primarily driven by higher promotional activity, partially offset by favorable mix. • Net loss per share was $(0.15) compared to $(0.14) in the 2022 period. The loss per share was primarily driven by lower profitability in the Active segment for the three months ended June 2023, compared to being primarily driven by a pension settlement charge during the three months ended June 2022. VF Corporation Q1 FY24 Form 10-Q 22 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 three months ended June 2023 from the comparable period in 2022: (In millions) Three Months Ended June Net revenues — 2022 $ 2,261.6 Organic (171.7) Impact of foreign currency (3.6) Net revenues — 2023 $ 2,086.3 VF reported an 8% decrease in revenues for the three months ended June 2023 compared to the 2022 period. The revenue decrease was primarily driven by declines in the Active segment in the three months ended June 2023. Revenues in the Active segment during the three months ended June 2023 were most significantly impacted by weakness in the Americas region, primarily driven by declines in the Vans ® brand. The revenue decrease in the three months ended June 2023 was also due to declines in the Work segment and the Europe region. The decrease was partially offset by global growth in the Outdoor segment driven by increases in The North Face ® brand across all regions. The revenue decrease was also partially offset by growth in the Asia-Pacific region in the three months ended June 2023, which was negatively impacted by COVID-19 resurgence in Mainland China in the prior year period. Additional details on revenues are provided in the section titled “Information by Reportable Segment.” The following table presents the percentage relationships to net revenues for components of the Consolidated Statements of Operations: Three Months Ended June 2023 2022 Gross margin (net revenues less cost of goods sold) 52.8 % 53.9 % Selling, general and administrative expenses 53.2 51.1 Operating margin (0.4) % 2.8 % Gross margin decreased 110 basis points in the three months ended June 2023 compared to the 2022 period. The decrease was primarily driven by higher promotional activity, partially offset by favorable mix. Selling, general and administrative expenses as a percentage of total revenues increased 210 basis points during the three months ended June 2023 compared to the 2022 period. Selling, general and administrative expenses decreased $45.2 million in the three months ended June 2023 compared to the 2022 period. The decrease was due to lower compensation and administrative costs, direct-to-consumer expenses and corporate restructuring charges in the three months ended June 2023. Net interest exp ense increased $18.5 million during the three months ended June 2023 compared to the 2022 period. The increase in net interest expense in the three months ended June 2023 was primarily due to additional borrowings on long-term debt at higher rates, partially offset by lower short-term commercial paper borrowings and higher investment rates. Total outstanding debt averaged $6.8 billion in the three months ended June 2023 and $5.4 billion in the same period in 2022, with weighted average interest rates of 3.1% and 2.1% in the three months ended June 2023 and 2022, respectively. Other income (expense), net decreased $91.1 million during the three months ended June 2023 compared to the 2022 period. The decrease in the three months ended June 2023 was primarily due to a $91.8 million pension settlement charge recorded in the three months ended June 2022, which resulted from the purchase of a group annuity contract and transfer of a portion of the assets and liabilities associated with the U.S. qualified defined benefit pension plan to an insurance company. The effective income tax rate for the three months ended June 2023 was 7.8% compared to 10.6% in the 2022 period. The three months ended June 2023 included a net discrete tax expense of $0.2 million, which included a $4.7 million net tax expense related to unrecognized tax benefits and interest, a $3.1 million tax expense related to stock compensation and a $7.5 million net tax benefit for interest on the income tax receivable related to the Timberland court case. Excluding the $0.2 million net discrete tax benefit in the 2023 period, the effective income tax rate would have been 8.2%. The three months ended June 2022 included a net discrete tax expense of $0.8 million, which included a $1.6 million net tax expense related to unrecognized tax benefits and interest and a $0.8 million net tax benefit related to withholding taxes on prior foreign earnings. Excluding the $0.8 million net discrete tax expense in the 2022 period, the effective income tax rate would have been 12.0%. Without discrete items, the effective income tax rate for the three months ended June 2023 decreased by 3.8% compared with the 2022 period primarily due to disproportionate year-to-date losses in jurisdictions with no tax benefit. As a result of the above, net loss in the three months ended June 2023 was $(57.4) million ($(0.15) per diluted share) compared to $(56.0) million ($(0.14) per diluted share) in the 2022 period. Refer to additional discussion in the “Information by Reportable Segment” section below. 23 VF Corporation Q1 FY24 Form 10-Q Table of Contents 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. Other primarily includes sourcing activities related to transition services. Refer to Note 13 to the consolidated financial statements for a summary of results of operations by segment, along with a reconciliation of segment profit to loss before income taxes. The following tables present a summary of the changes in segment revenues and profit (loss) in the three months ended June 2023 from the comparable period in 2022 and revenues by region for our top 4 brands for the three months ended June 2023 and 2022: Segment Revenues: Three Months Ended June (In millions) Outdoor Active Work Other Total Segment revenues — 2022 $ 768.6 $ 1,253.9 $ 238.9 $ 0.2 $ 2,261.6 Organic 63.4 (187.8) (47.1) (0.2) (171.7) Impact of foreign currency (2.3) (0.1) (1.2) — (3.6) Segment revenues — 2023 $ 829.7 $ 1,066.0 $ 190.6 $ — $ 2,086.3 Segment Profit (Loss): Three Months Ended June (In millions) Outdoor Active Work Other Total Segment profit (loss) — 2022 $ (46.9) $ 214.0 $ 35.0 $ (0.1) $ 202.0 Organic 4.3 (89.7) (28.1) 0.1 (113.3) Impact of foreign currency (1.1) (0.5) (0.1) — (1.7) Segment profit (loss) — 2023 $ (43.7) $ 123.8 $ 6.8 $ — $ 87.0 Note: Amounts may not sum due to rounding. Top Brand Revenues: Three Months Ended June 2023 (In millions) Vans ® The North Face ® Timberland ® (a) Dickies ® Total Americas $ 466.3 $ 279.9 $ 111.2 $ 99.6 $ 957.0 Europe 159.2 171.1 100.8 19.0 450.1 Asia-Pacific 112.1 87.1 41.8 18.1 259.1 Global $ 737.5 $ 538.2 $ 253.8 $ 136.6 $ 1,666.1 Three Months Ended June 2022 (In millions) Vans ® The North Face ® Timberland ® (a) Dickies ® Total Americas $ 633.7 $ 257.4 $ 140.2 $ 131.1 $ 1,162.4 Europe 192.3 165.2 94.9 16.3 468.7 Asia-Pacific 120.9 58.5 34.4 22.9 236.7 Global $ 946.8 $ 481.1 $ 269.5 $ 170.4 $ 1,867.8 (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. VF Corporation Q1 FY24 Form 10-Q 24 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 Three Months Ended June (Dollars in millions) 2023 2022 Percent Change Segment revenues $ 829.7 $ 768.6 7.9 % Segment loss (43.7) (46.9) (6.8) % Operating margin (5.3) % (6.1) % The Outdoor segment includes the following brands: The North Face ® , Timberland ® , Smartwool ® , Altra ® and Icebreaker ® . Global revenues for Outdoor increased 8% in the three months ended June 2023 compared to 2022. Revenues in the Asia-Pacific region increased 38%, including a 7% unfavorable impact from foreign currency and a 48% increase in Greater China (including an 8% unfavorable impact from foreign currency). Revenues in the Americas region increased 3%. Revenues in the Europe region increased 5%, including a 2% favorable impact from foreign currency. Global revenues for The North Face ® brand increased 12% in the three months ended June 2023 compared to the 2022 period. The increase reflects growth in all regions and channels compared to the three months ended June 2022. Revenues in the Asia-Pacific region increased 49% in the three months ended June 2023, including an 8% unfavorable impact from foreign currency. Revenues in the Americas region increased 9% in the three months ended June 2023. Revenues in the Europe region increased 4% in the three months ended June 2023, including a 2% favorable impact from foreign currency. Global revenues for the Timberland ® brand decreased 1% in the three months ended June 2023 compared to the 2022 period. Revenues in the Americas region decreased 20% in the three months ended June 2023, including a 1% favorable impact from foreign currency. Revenues in the Europe region increased 6% in the three months ended June 2023, including a 2% favorable impact from foreign currency. Revenues in the Asia-Pacific region increased 22% in the three months ended June 2023 compared to the 2022 period, including a 4% unfavorable impact from foreign currency. Global direct-to-consumer revenues for Outdoor increased 15% in the three months ended June 2023 compared to the 2022 period, including a 1% unfavorable impact from foreign currency. The increase was primarily due to strength in The North Face ® brand and e-commerce growth. Global wholesale revenues increased 4% in the three months ended June 2023 compared to the 2022 period. Operating margin improved slightly in the three months ended June 2023 compared to the 2022 period primarily due to higher gross margin, partially offset by increased operating expenses. Active Three Months Ended June (Dollars in millions) 2023 2022 Percent Change Segment revenues $ 1,066.0 $ 1,253.9 (15.0) % Segment profit 123.8 214.0 (42.2) % Operating margin 11.6 % 17.1 % The Active segment includes the following brands: Vans ® , Supreme ® , Kipling ® , Napapijri ® , Eastpak ® and JanSport ® . Global revenues for Active decreased 15% in the three months ended June 2023 compared to the 2022 period. Revenues in the Americas region decreased 21%. Revenues in the Europe region decreased 9%, including a 1% favorable impact from foreign currency. Revenues in the Asia-Pacific region increased 2%, including a 4% unfavorable impact from foreign currency, and a 7% increase in Greater China (including a 7% unfavorable impact from foreign currency). The prior year period was negatively impacted by COVID-19 resurgence in Mainland China. Vans ® brand global revenues decreased 22% in the three months ended June 2023 compared to the 2022 period. The overall decline was most significantly impacted by a 26% decrease in the Americas region for the three months ended June 2023, including a 1% favorable impact from foreign currency, primarily driven by the negative performance in the wholesale channel. Revenues in the Europe region decreased 17% in the three months ended June 2023, including a 1% favorable impact from foreign currency. Revenues in the Asia-Pacific region decreased 7% in the three months ended June 2023, including a 4% unfavorable impact from foreign currency. The prior year period was negatively impacted by COVID-19 resurgence in Mainland China. Global direct-to-consumer revenues for Active decreased 10% in the three months ended June 2023, compared to the 2022 period. The decrease was primarily due to declines in the Americas region, which decreased 17% in the three months ended June 2023. Direct-to-consumer revenues in the Asia-Pacific region increased 5% in the three months ended June 2023, including a 5% unfavorable impact from foreign currency. The prior year period was negatively impacted by COVID-19 resurgence in Mainland China, which resulted in temporary closures of VF-operated stores. Global wholesale revenues 25 VF Corporation Q1 FY24 Form 10-Q Table of Contents decreased 20% in the three months ended June 2023, including a 1% favorable impact from foreign currency. The decrease was primarily due to a 27% decrease in the Americas region in the three months ended June 2023. Wholesale revenues in the Europe region decreased 15% in the three months ended June 2023, including a 1% favorable impact from foreign currency. Wholesale revenues in the Asia-Pacific region decreased 3% in the three months ended June 2023 and included a 3% unfavorable impact from foreign currency. Operating margin decreased in the three months ended June 2023 compared to the 2022 period, reflecting lower leverage of operating expenses due to decreased revenues. The decrease was also impacted by increased discounts and other promotional activity, which was partially offset by favorable mix. Work Three Months Ended June (Dollars in millions) 2023 2022 Percent Change Segment revenues $ 190.6 $ 238.9 (20.2) % Segment profit 6.8 35.0 (80.5) % Operating margin 3.6 % 14.7 % The Work segment includes the following brands: Dickies ® and Timberland PRO ® . Global Work revenues decreased 20% in the three months ended June 2023 compared to the 2022 period. Revenues in the Americas region decreased 23%. Revenues in the Europe region increased 17%, including a 2% favorable impact from foreign currency. Revenues in the Asia-Pacific region decreased 21%, including a 3% unfavorable impact from foreign currency. Dickies ® brand global revenues decreased 20% in the three months ended June 2023 compared to the 2022 period, including a 1% unfavorable impact from foreign currency. The decline was primarily driven by a decrease of 24% in the Americas region in the three months ended June 2023, reflecting lower inventory replenishment and weakness in certain key U.S. wholesale customer accounts. The decline in the three months ended June 2023 was also attributed to a decrease in the Asia-Pacific region of 21%, including a 3% unfavorable impact from foreign currency. Revenues in the Europe region increased 17% in the three months ended June 2023, including a 2% favorable impact from foreign currency. Operating margin decreased in the three months ended June 2023 compared to the 2022 period, reflecting lower leverage of operating expenses due to decreased revenues. The decrease was also impacted by higher material costs, which was partially offset by price increases and channel mix. Reconciliation of Segment Profit to Loss Before Income Taxes There are two types of costs necessary to reconcile total segment profit to consolidated loss before income taxes. These costs are (i) corporate and other expenses, discussed below, and (ii) interest expense, net, which was discussed in the “Consolidated Statements of Operations” section. Three Months Ended June (Dollars in millions) 2023 2022 Percent Change Corporate and other expenses $ 99.5 $ 233.3 (57.3) % Interest expense, net 49.7 31.3 59.0 % 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. The decrease in corporate and other expenses was primarily due to a $91.8 million pension settlement charge recorded in the three months ended June 2022. The decrease was also due to lower compensation and administrative costs and lower corporate restructuring charges in the three months ended June 2023. International Operations International revenues increased 3% in the three months ended June 2023, compared to the 2022 period. Foreign currency had an unfavorable impact of 1% on international revenues in the three months ended June 2023. In the Asia-Pacific region, revenues increased 13% in the three months ended June 2023. Foreign currency had an unfavorable impact of 5% on Asia-Pacific revenues in the three months ended June 2023. Revenues in Greater China increased 24% in the three months ended June 2023, including a 7% unfavorable impact from foreign currency. The prior year period was negatively impacted by COVID-19 resurgence in Mainland China. Revenues in the Europe region decreased 2% in the three months ended June 2023, including a 1% favorable impact from foreign currency. International revenues were 49% and 44% of total revenues in the three-month periods ended June 2023 and 2022, respectively. VF Corporation Q1 FY24 Form 10-Q 26 Table of Contents Direct-to-Consumer Operations Direct-to-consumer revenues decreased 3% in the three months ended June 2023, compared to the 2022 period, including a 1% unfavorable impact from foreign currency. VF's e-commerce business decreased 4% during the three months ended June 2023, including a 1% unfavorable impact from foreign currency. The decrease was primarily driven by declines in the Active and Work segments e-commerce business, partially offset by growth in the Outdoor segment. Revenues from VF-operated retail stores decreased 5% during the three months ended June 2023. There were 1,250 VF-operated retail stores at June 2023 compared to 1,297 at June 2022. Direct-to-consumer revenues were 47% and 44% of total revenues in the three-month periods ended June 2023 and 2022, respectively. ANALYSIS OF FINANCIAL CONDITION Consolidated Balance Sheets The following discussion refers to significant changes in balances at June 2023 compared to March 2023: • Decrease in accounts receivable — primarily due to the seasonality of the business and the timing of collections. • Increase in inventories — primarily due to the seasonality of the business and planned inventory purchases. • Increase in accounts payable — primarily due to the timing of payments to vendors and seasonality of inventory purchases. The following discussion refers to significant changes in balances at June 2023 compared to June 2022: • Increase in inventories — driven primarily by the impact of supply chain challenges where prolonged manufacturing and logistics lead times forced earlier buy commitments during Fiscal 2023 and softening consumer demand, which have resulted in elevated inventory levels in certain markets, primarily in core and replenishment products. • Decrease in intangible assets — primarily due to $340.9 million of impairment charges related to the Supreme ® indefinite-lived trademark intangible asset recorded in Fiscal 2023. • Decrease in goodwill — primarily due to $394.1 million of impairment charges related to the Supreme reporting unit recorded in Fiscal 2023. • Increase in other assets — primarily due to the $875.7 million payment related to the 2011 taxes and interest being disputed in The Timberland Company court case, which was recorded as an income tax receivable based on the technical merits of our position with regards to the case. • Decrease in short-term borrowings — primarily due to a decrease in commercial paper borrowings. • Increase in the current portion of long-term debt — due to the reclassification of €850.0 million ($927.8 million) of long-term notes due in September 2023. • Increase in accounts payable — primarily due to the extension of payment terms with eligible inventory suppliers. • Increase in long-term debt — due to the March 2023 issuance of €500.0 million euro-denominated 4.125% fixed-rate notes maturing in March 2026 and €500.0 million euro-denominated 4.250% fixed-rate notes maturing in March 2029, and borrowings of $1.0 billion under the delayed draw Term Loan Agreement (the "DDTL Agreement") in the third quarter of Fiscal 2023, partially offset by the reclassification of €850.0 million ($927.8 million) of long-term notes due in September 2023. • Decrease in other liabilities — primarily due to a $94.9 million favorable adjustment to VF's transition tax liability under the Tax Cuts and Jobs Act pursuant to IRS examinations and a decrease in deferred income tax liabilities. Liquidity and Capital Resources We consider the following to be measures of our liquidity and capital resources: June March June (Dollars in millions) 2023 2023 2022 Working capital $1,397.1 $1,606.9 $1,147.7 Current ratio 1.4 to 1 1.5 to 1 1.3 to 1 Net debt to total capital 73.1% 71.6% 64.6% The decrease in working capital and the current ratio at June 2023 compared to March 2023 was primarily due to a net increase in current liabilities driven by higher accounts payable, which was partially offset by the net impact of higher inventories and lower accounts receivable for the periods compared as discussed in the "Consolidated Balance Sheets" section above. The increase in working capital and the current ratio at June 2023 compared to June 2022 was primarily due to a net increase in current assets driven by higher inventories as discussed in the "Consolidated Balance Sheets" section above, and higher cash balances. The overall increase was partially offset by a net increase in current liabilities driven by a higher current portion 27 VF Corporation Q1 FY24 Form 10-Q Table of Contents of long-term debt and higher accounts payable, which were partially offset by lower short-term borrowings for the periods compared as discussed in the "Consolidated 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 increase in the net debt to total capital ratio at June 2023 compared to March 2023 was driven by a decrease in stockholders' equity for the periods compared. The decrease in stockholders' equity was primarily driven by payments of dividends and the net loss in the period. The increase in the net debt to total capital ratio at June 2023 compared to June 2022 was primarily driven by an increase in net debt at June 2023 and a decrease in stockholders' equity. The increase in net debt was primarily attributed to the issuance of €1.0 billion euro-denominated fixed-rate notes and $1.0 billion of borrowings under the DDTL Agreement in Fiscal 2023, as discussed in the "Consolidated Balance Sheet" section above. The increase in net debt at June 2023 compared to June 2022 was partially offset by lower short-term borrowings in the three months ended June 2023. The decrease in stockholders' equity at June 2023 compared to June 2022 was primarily driven by payments of dividends. 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 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 operations were as follows: Three Months Ended June (In thousands) 2023 2022 Cash provided (used) by operating activities $ 163,575 $ (358,320) Cash used by investing activities (90,562) (69,519) Cash used by financing activities (71,885) (261,221) Cash Provided (Used) by Operating Activities Cash flows related to operating activities are dependent on net loss, adjustments to net loss and changes in working capital. The increase in cash provided by operating activities in the three months ended June 2023 compared to June 2022 was primarily due to a decrease in net cash used by working capital. Cash Used by Investing Activities The increase in cash used by investing activities in the three months ended June 2023 was primarily due to increased capital expenditures of $9.1 million compared to the 2022 period and proceeds from the sale of assets of $8.2 million included in the three months ended June 2022. Software purchases decreased $4.1 million in the three months ended June 2023 compared to the 2022 period. Cash Used by Financing Activities The decrease in cash used by financing activities during the three months ended June 2023 was primarily due to a $500.0 million payment of long-term debt and the $57.0 million payment of Supreme contingent consideration in the three months ended June 2022. The decrease was also due to a $77.6 million decrease in dividends paid for the periods compared. The decrease was partially offset by a $444.9 million net decrease in short-term borrowings for the periods compared. Share Repurchases VF did not purchase shares of its Common Stock in the open market during the three months ended June 2023 or the three months ended June 2022 under the share repurchase program authorized by VF's Board of Directors. As of the end of June 2023, VF h a d $2.5 billion remaining for future repurchases under its share repurchase authorization. VF's capital deployment priorities in the near-to-medium term will be focused on optimizing and driving the performance of the current portfolio, reducing leverage and returning capital to shareholders in the form of dividends. 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. VF maintains a $2.25 billion senior unsecured revolving line of credit (the “Global Credit Facility”) that expires in November 2026. 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 dividends, acquisitions and share repurchases. Outstanding short-term balances may vary from period to period depending on the level of corporate requirements. VF Corporation Q1 FY24 Form 10-Q 28 Table of Contents VF has restrictive covenants on its Global Credit Facility, including a consolidated net indebtedness to consolidated net capitalization financial ratio covenant, as defined in the agreement as amended in February 2023, starting at 70% with future step downs. The calculation of consolidated net indebtedness is net of unrestricted cash and the calculation of consolidated net capitalization permits certain addbacks, including non-cash impairment charges, as defined in the amended agreement. The covenant calculation also excludes consolidated operating lease liabilities. As of June 2023, VF was in compliance with all covenants. VF has a commercial paper program that allows for borrowings of up to $2.25 billion to the extent that it has borrowing capacity under the Global Credit Facility. There were $50.0 million in commercial paper borrowings as of June 2023 . Standby letters of credit issued under the Global Credit Facility as of June 2023 were $7.6 million, leaving approximately $2.2 billion available for borrowing against the Global Credit Facility at June 2023. Additionally, VF had $806.5 million of cash and equivalents at June 2023. VF has $81.9 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 $8.5 million at June 2023. Supply Chain Financing Program VF facilitates a voluntary supply chain finance ("SCF") program that enables a significant portion of our 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 SCF program is administered through third-party platforms that allow participating suppliers to track payments from VF and elect which receivables, if any, to sell to the financial institutions. The transactions are at the sole discretion of both the suppliers and financial institutions, and VF is not a party to the agreements and has no economic interest in the supplier's decision to sell a receivable. The terms between VF and the supplier, including the amount due and scheduled payment terms (which are generally within 90 days of the invoice date) are not impacted by a supplier's participation in the SCF program. All amounts due to suppliers that are eligible to participate in the SCF program are included in the accounts payable line item in VF's Consolidated Balance Sheets and VF payments made under the SCF program are reflected in cash flows from operating activities in VF's Consolidated Statements of Cash Flows. At June 2023, March 2023 and June 2022, the accounts payable line item in VF’s Consolidated Balance Sheets included total outstanding obligations of $931.0 million, $510.9 million and $506.5 million, respectively, due to suppliers that are eligible to participate in the SCF program. In the second quarter of Fiscal 2023, VF extended its payment terms with eligible suppliers under the SCF program. VF expects a positive impact in Fiscal 2024; however, the change is not expected to have a material impact on VF's long-term overall liquidity or capital resources. Rating Agencies VF’s credit agency ratings allow for access to additional liquidity at competitive rates. At the end of June 2023, VF’s long-term debt ratings were ‘BBB’ by Standard & Poor’s ("S&P") Global Ratings and ‘Baa2’ by Moody’s Investors Service ("Moody's"), and commercial paper ratings by those rating agencies were ‘A-2’ and ‘P-2’, respectively. VF's credit rating outlook by both S&P and Moody's at the end of June 2023 was 'stable'. 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 notes due in 2033. Dividends The Company paid cash dividends of $0.30 per share during the three months ended June 2023, and the Company has declared a cash dividend of $0.30 per share that is payable in the second quarter of Fiscal 2024. Subject to approval by its Board of Directors, VF intends to continue to pay quarterly dividends. Other Matters 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. On January 31, 2022, the Court issued its opinion in favor of the IRS and on July 14, 2022 issued its final decision. VF believes the opinion of the Court was in error based on the technical merits and filed a notice of appeal on October 7, 2022. On October 19, 2022, VF paid $875.7 million related to the 2011 taxes and interest being disputed, which was recorded as an income tax receivable based on the technical merits of our position with regards to the case and will accrue interest income. 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, this income tax receivable will 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 is estimated to be up to $730.0 million, plus the reversal of any interest income accrued on the payment, which was approximately $19.6 million at June 2023. Contractual Obligations Management’s Discussion and Analysis in the Fiscal 2023 Form 10-K provided a table summarizing VF’s material contractual obligations and commercial commitments at the end of Fiscal 2023 that would require the use of funds. As of June 2023, there have been no material changes in the amounts of unrecorded commitments disclosed in the Fiscal 2023 Form 10-K, except as noted below: • Inventory purchase obligations decreased by approximately $584.0 million at the end of June 2023 29 VF Corporation Q1 FY24 Form 10-Q Table of Contents primarily due to timing of inventory shipments, increased inventory levels and decreased demand. There continues to be uncertainty about the duration and extent of the impact of the challenging macroeconomic environment. However, management believes that VF has sufficient liquidity and flexibility to operate during and after the disruptions caused by the challenging macroeconomic environment, and meet its current and long-term obligations as they become due. Recent Accounting Pronouncements Refer to Note 2 to VF’s consolidated financial statements for information on recently adopted accounting standards. Critical Accounting Policies and Estimates Management has chosen accounting policies it considers to be appropriate to accurately and fairly report VF’s operating results and financial position in conformity with generally accepted accounting principles in the United States of America. Our critical accounting policies are applied in a consistent manner. Significant accounting policies are summarized in Note 1 to the consolidated financial statements included in the Fiscal 2023 Form 10-K. The application of these accounting policies requires management to 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, and may retain outside consultants to assist in the evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known. The accounting policies that involve the most significant estimates, assumptions and management judgments used in preparation of the consolidated financial statements, or are the most sensitive to change from outside factors, are discussed in Management’s Discussion and Analysis in the Fiscal 2023 Form 10-K. Except as disclosed in Note 2 to VF's consolidated financial statements, there have been no material changes in VF's accounting policies. Cautionary Statement on Forward-looking Statements From time to time, VF may make oral or written statements, including statements in this quarterly report, that constitute “forward-looking statements” within the meaning of the federal securities laws. You can identify these statements by the fact that they use words such as "will," "anticipate," "estimate," "expect," "should," and "may," and other words and terms of similar meaning or use of future dates. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. Forward-looking statements include statements concerning plans, objectives, projections and expectations relating to VF’s operations or economic performance and assumptions related thereto. Forward-looking statements are made based on management’s expectations and beliefs concerning future events impacting VF and therefore involve a number of risks and uncertainties. Forward-looking statements are not guarantees, and actual results could differ materially from those expressed or implied in the forward-looking statements. VF undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Potential risks and uncertainties that could cause the actual results of operations or financial condition of VF to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: the level of consumer demand for apparel and footwear; disruption to VF’s distribution system; changes in global economic conditions and the financial strength of VF’s customers, including as a result of current inflationary pressures; fluctuations in the price, availability and quality of raw materials and finished products; disruption and volatility in the global capital and credit markets; VF’s response to changing fashion trends, evolving consumer preferences and changing patterns of consumer behavior; VF's ability to maintain the image, health and equity of its brands; intense competition from online retailers and other direct-to-consumer business risks; third-party manufacturing and product innovation; increasing pressure on margins; VF’s ability to implement its business strategy; VF’s ability to grow its international, direct-to-consumer and digital businesses; VF's ability to find and amplify consumer tailwinds, build brands on multiple growth horizons and leverage platforms for speed to scale and efficiency; retail industry changes and challenges; VF's ability to create and maintain an agile and efficient operating model and organizational structure; VF’s and its vendors’ ability to maintain the strength and security of information technology systems; the risk that VF’s facilities and systems and those of our third-party service providers may be vulnerable to and unable to anticipate or detect data or information security breaches and data or financial loss; VF’s ability to properly collect, use, manage and secure business, consumer and employee data and comply with privacy and security regulations; foreign currency fluctuations; stability of VF's vendors' manufacturing facilities and VF's ability to establish and maintain effective supply chain capabilities; continued use by VF’s suppliers of ethical business practices; VF’s ability to accurately forecast demand for products; VF's ability to recruit, develop or retain key executive or employee talent or successfully transition executives; continuity of members of VF’s management; changes in the availability and cost of labor; VF’s ability to protect trademarks and other intellectual property rights; possible goodwill and other asset impairment such as the impairment charges related to the Supreme ® reporting unit goodwill and indefinite-lived trademark intangible asset; maintenance by VF’s licensees and distributors of the value of VF’s brands; VF’s ability to execute acquisitions and dispositions, integrate acquisitions and manage its brand portfolio; business resiliency in response to natural or man-made economic, public health, political or environmental disruptions; changes in tax laws and additional tax liabilities, VF Corporation Q1 FY24 Form 10-Q 30 Table of Contents including the timing of income inclusion associated with our acquisition of the Timberland ® brand in 2011; legal, regulatory, political, economic, and geopolitical risks, including those related to the current conflict in Ukraine; changes to laws and regulations; adverse or unexpected weather conditions, including any potential effects from climate change; VF's indebtedness and its ability to obtain financing on favorable terms, if needed, could prevent VF from fulfilling its financial obligations; VF's ability to pay and declare dividends or repurchase its stock in the future; climate change and increased focus on environmental, social and governance issues; VF's ability to execute on its sustainability strategy and achieve its sustainability-related goals and targets; risks arising from the widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the coronavirus (COVID-19) global pandemic; and tax risks associated with the spin-off of our Jeanswear business completed in 2019. More information on potential factors that could affect VF’s financial results is included from time to time in VF’s public reports filed with the Securities and Exchange Commission, including VF’s Annual Report on Form 10-K. ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. There have been no significant changes in VF’s market risk exposures from what was disclosed in Item 7A in the Fiscal 2023 Form 10-K.