V F CORP 10-Q

ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED). VF CORPORATION Consolidated Balance Sheets (Unaudited) (In thousands, except share amounts) September 2023 March 2023 September 2022 ASSETS Current assets Cash and equivalents $ 498,912 $ 814,887 $ 552,811 Accounts receivable, less allowance for doubtful accounts of: September 2023 - $ 28,080 ; March 2023 - $ 28,075 ; September 2022 - $ 27,515 1,889,804 1,610,295 1,834,598 Inventories 2,481,051 2,292,790 2,749,894 Other current assets 373,795 434,737 550,940 Total current assets 5,243,562 5,152,709 5,688,243 Property, plant and equipment, net 916,571 942,440 984,115 Intangible assets, net 2,630,795 2,642,821 2,776,022 Goodwill 1,961,220 1,978,413 2,102,700 Operating lease right-of-use assets 1,307,643 1,372,182 1,217,172 Other assets 1,082,561 1,901,923 1,015,890 TOTAL ASSETS $ 13,142,352 $ 13,990,488 $ 13,784,142 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Short-term borrowings $ 1,023,276 $ 11,491 $ 1,692,745 Current portion of long-term debt 966 924,305 832,136 Accounts payable 992,911 936,319 1,022,408 Accrued liabilities 1,527,680 1,673,651 1,798,702 Total current liabilities 3,544,833 3,545,766 5,345,991 Long-term debt 5,656,725 5,711,014 3,526,101 Operating lease liabilities 1,121,658 1,171,941 1,022,451 Other liabilities 609,091 651,054 803,963 Total liabilities 10,932,307 11,079,775 10,698,506 Commitments and contingencies Stockholders’ equity Preferred Stock, par value $ 1 ; shares authorized, 25,000,000 ; no shares outstanding at September 2023, March 2023 or September 2022 — — — Common Stock, stated value $ 0.25 ; shares authorized, 1,200,000,000 ; shares outstanding at September 2023 - 388,883,825 ; March 2023 - 388,665,531 ; September 2022 - 388,569,062 97,221 97,166 97,142 Additional paid-in capital 3,638,029 3,775,979 3,952,786 Accumulated other comprehensive loss ( 1,011,705 ) ( 1,019,518 ) ( 844,165 ) Retained earnings (accumulated deficit) ( 513,500 ) 57,086 ( 120,127 ) Total stockholders’ equity 2,210,045 2,910,713 3,085,636 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,142,352 $ 13,990,488 $ 13,784,142 See notes to consolidated financial statements. 3 VF Corporation Q2 FY24 Form 10-Q Table of Contents VF CORPORATION Consolidated Statements of Operations (Unaudited) Three Months Ended September Six Months Ended September (In thousands, except per share amounts) 2023 2022 2023 2022 Net revenues $ 3,034,239 $ 3,080,600 $ 5,120,575 $ 5,342,195 Costs and operating expenses Cost of goods sold 1,479,028 1,498,177 2,464,297 2,541,159 Selling, general and administrative expenses 1,192,284 1,251,320 2,302,343 2,406,571 Impairment of goodwill and intangible assets — 421,922 — 421,922 Total costs and operating expenses 2,671,312 3,171,419 4,766,640 5,369,652 Operating income (loss) 362,927 ( 90,819 ) 353,935 ( 27,457 ) Interest income 4,808 823 10,302 2,106 Interest expense ( 60,452 ) ( 34,726 ) ( 115,665 ) ( 67,271 ) Other income (expense), net ( 3,510 ) ( 9,280 ) ( 7,077 ) ( 103,994 ) Income (loss) before income taxes 303,773 ( 134,002 ) 241,495 ( 196,616 ) Income tax expense (benefit) 754,470 ( 15,570 ) 749,617 ( 22,224 ) Net loss $ ( 450,697 ) $ ( 118,432 ) $ ( 508,122 ) $ ( 174,392 ) Net loss per common share Basic $ ( 1.16 ) $ ( 0.31 ) $ ( 1.31 ) $ ( 0.45 ) Diluted $ ( 1.16 ) $ ( 0.31 ) $ ( 1.31 ) $ ( 0.45 ) Weighted average shares outstanding Basic 388,338 387,688 388,249 387,625 Diluted 388,338 387,688 388,249 387,625 See notes to consolidated financial statements. VF Corporation Q2 FY24 Form 10-Q 4 Table of Contents VF CORPORATION Consolidated Statements of Comprehensive Loss (Unaudited) Three Months Ended September Six Months Ended September (In thousands) 2023 2022 2023 2022 Net loss $ ( 450,697 ) $ ( 118,432 ) $ ( 508,122 ) $ ( 174,392 ) Other comprehensive income (loss) Foreign currency translation and other Gains (losses) arising during the period 17,094 ( 21,894 ) 564 ( 73,418 ) Income tax effect ( 22,383 ) ( 28,786 ) ( 19,002 ) ( 58,796 ) Defined benefit pension plans Current period actuarial gains (losses) 3,742 5,426 4,743 ( 14,142 ) Amortization of net deferred actuarial losses 4,170 3,953 8,402 7,674 Amortization of deferred prior service credits ( 137 ) ( 111 ) ( 272 ) ( 223 ) Reclassification of net actuarial loss from settlement charges 7 1,141 3,299 92,902 Income tax effect ( 2,209 ) ( 2,815 ) ( 4,118 ) ( 22,466 ) Derivative financial instruments Gains arising during the period 59,895 102,685 37,155 202,115 Income tax effect ( 9,852 ) ( 16,356 ) ( 5,714 ) ( 31,731 ) Reclassification of net (gains) losses realized ( 10,238 ) ( 14,906 ) ( 20,918 ) ( 23,148 ) Income tax effect 1,735 2,374 3,674 3,647 Other comprehensive income 41,824 30,711 7,813 82,414 Comprehensive loss $ ( 408,873 ) $ ( 87,721 ) $ ( 500,309 ) $ ( 91,978 ) See notes to consolidated financial statements. 5 VF Corporation Q2 FY24 Form 10-Q VF CORPORATION Consolidated Statements of Cash Flows (Unaudited) Six Months Ended September (In thousands) 2023 2022 OPERATING ACTIVITIES Net loss $ ( 508,122 ) $ ( 174,392 ) Adjustments to reconcile net loss to cash used by operating activities: Impairment of goodwill and intangible assets — 421,922 Depreciation and amortization 142,701 130,623 Reduction in the carrying amount of right-of-use assets 190,423 185,880 Stock-based compensation 35,204 37,474 Provision for doubtful accounts 5,585 1,004 Pension expense in excess of (less than) contributions ( 10,151 ) 85,779 Deferred income taxes ( 256,048 ) ( 40,396 ) Write-off of income tax receivables and interest 921,409 — Other, net 4,363 33,308 Changes in operating assets and liabilities: Accounts receivable ( 313,866 ) ( 461,904 ) Inventories ( 222,116 ) ( 1,434,470 ) Accounts payable 72,314 494,424 Income taxes 41,718 ( 193,671 ) Accrued liabilities 85,205 138,510 Operating lease right-of-use assets and liabilities ( 193,298 ) ( 190,171 ) Other assets and liabilities ( 14,582 ) 52,123 Cash used by operating activities ( 19,261 ) ( 913,957 ) INVESTING ACTIVITIES Capital expenditures ( 96,343 ) ( 89,958 ) Software purchases ( 42,597 ) ( 47,858 ) Other, net ( 10,791 ) 6,112 Cash used by investing activities ( 149,731 ) ( 131,704 ) FINANCING ACTIVITIES Contingent consideration payment — ( 56,976 ) Net increase in short-term borrowings 1,017,895 1,357,284 Payments on long-term debt ( 907,656 ) ( 500,522 ) Payment of debt issuance costs ( 576 ) ( 807 ) Cash dividends paid ( 233,172 ) ( 388,284 ) Proceeds from issuance of Common Stock, net of (payments) for tax withholdings ( 2,392 ) ( 1,931 ) Cash provided (used) by financing activities ( 125,901 ) 408,764 Effect of foreign currency rate changes on cash, cash equivalents and restricted cash ( 21,190 ) ( 85,888 ) Net change in cash, cash equivalents and restricted cash ( 316,083 ) ( 722,785 ) Cash, cash equivalents and restricted cash – beginning of year 816,319 1,277,082 Cash, cash equivalents and restricted cash – end of period $ 500,236 $ 554,297 Balances per Consolidated Balance Sheets: Cash and cash equivalents $ 498,912 $ 552,811 Other current assets 1,197 1,360 Other assets 127 126 Total cash, cash equivalents and restricted cash $ 500,236 $ 554,297 See notes to consolidated financial statements. VF Corporation Q2 FY24 Form 10-Q 6 Table of Contents VF CORPORATION Consolidated Statements of Stockholders’ Equity (Unaudited) Three Months Ended September 2023 Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings (Accumulated Deficit) Common Stock (In thousands, except share amounts) Shares Amounts Total Balance, June 2023 388,836,545 $ 97,209 $ 3,733,777 $ ( 1,053,529 ) $ ( 60,694 ) $ 2,716,763 Net loss — — — — ( 450,697 ) ( 450,697 ) Dividends on Common Stock ($ 0.30 per share) — — ( 116,597 ) — — ( 116,597 ) Stock-based compensation, net 47,280 12 20,849 — ( 2,109 ) 18,752 Foreign currency translation and other — — — ( 5,289 ) — ( 5,289 ) Defined benefit pension plans — — — 5,573 — 5,573 Derivative financial instruments — — — 41,540 — 41,540 Balance, September 2023 388,883,825 $ 97,221 $ 3,638,029 $ ( 1,011,705 ) $ ( 513,500 ) $ 2,210,045 Three Months Ended September 2022 Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings (Accumulated Deficit) Common Stock (In thousands, except share amounts) Shares Amounts Total Balance, June 2022 388,490,713 $ 97,123 $ 3,941,440 $ ( 874,876 ) $ 188,806 $ 3,352,493 Net loss — — — — ( 118,432 ) ( 118,432 ) Dividends on Common Stock ($ 0.50 per share) — — ( 5,343 ) — ( 188,806 ) ( 194,149 ) Stock-based compensation, net 78,349 19 16,689 — ( 1,695 ) 15,013 Foreign currency translation and other — — — ( 50,680 ) — ( 50,680 ) Defined benefit pension plans — — — 7,594 — 7,594 Derivative financial instruments — — — 73,797 — 73,797 Balance, September 2022 388,569,062 $ 97,142 $ 3,952,786 $ ( 844,165 ) $ ( 120,127 ) $ 3,085,636 Continued on next page. See notes to consolidated financial statements. 7 VF Corporation Q2 FY24 Form 10-Q Table of Contents VF CORPORATION Consolidated Statements of Stockholders’ Equity (Unaudited) Six Months Ended September 2023 Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings (Accumulated Deficit) Common Stock (In thousands, except share amounts) Shares Amounts Total Balance, March 2023 388,665,531 $ 97,166 $ 3,775,979 $ ( 1,019,518 ) $ 57,086 $ 2,910,713 Net loss — — — — ( 508,122 ) ( 508,122 ) Dividends on Common Stock ($ 0.60 per share) — — ( 176,086 ) — ( 57,086 ) ( 233,172 ) Stock-based compensation, net 218,294 55 38,136 — ( 5,378 ) 32,813 Foreign currency translation and other — — — ( 18,438 ) — ( 18,438 ) Defined benefit pension plans — — — 12,054 — 12,054 Derivative financial instruments — — — 14,197 — 14,197 Balance, September 2023 388,883,825 $ 97,221 $ 3,638,029 $ ( 1,011,705 ) $ ( 513,500 ) $ 2,210,045 Six Months Ended September 2022 Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings (Accumulated Deficit) Common Stock (In thousands, except share amounts) Shares Amounts Total Balance, March 2022 388,298,375 $ 97,075 $ 3,916,384 $ ( 926,579 ) $ 443,475 $ 3,530,355 Net loss — — — — ( 174,392 ) ( 174,392 ) Dividends on Common Stock ($ 1.00 per share) — — ( 5,343 ) — ( 382,941 ) ( 388,284 ) Stock-based compensation, net 270,687 67 41,745 — ( 6,269 ) 35,543 Foreign currency translation and other — — — ( 132,214 ) — ( 132,214 ) Defined benefit pension plans — — — 63,745 — 63,745 Derivative financial instruments — — — 150,883 — 150,883 Balance, September 2022 388,569,062 $ 97,142 $ 3,952,786 $ ( 844,165 ) $ ( 120,127 ) $ 3,085,636 See notes to consolidated financial statements. VF Corporation Q2 FY24 Form 10-Q 8 Table of Contents VF CORPORATION Notes to Consolidated Financial Statements (Unaudited) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS PAGE NUMBER NOTE 1 Basis of Presentation 10 NOTE 2 Recently Adopted Accounting Standards 10 NOTE 3 Revenues 11 NOTE 4 Inventories 12 NOTE 5 Intangible Assets 13 NOTE 6 Goodwill 13 NOTE 7 Leases 13 NOTE 8 Short-term Borrowings and Long-term Debt 13 NOTE 9 Supply Chain Financing Program 14 NOTE 10 Pension Plans 14 NOTE 11 Capital and Accumulated Other Comprehensive Loss 14 NOTE 12 Stock-based Compensation 16 NOTE 13 Income Taxes 17 NOTE 14 Reportable Segment Information 18 NOTE 15 Net Loss Per Share 19 NOTE 16 Fair Value Measurements 19 NOTE 17 Derivative Financial Instruments and Hedging Activities 21 NOTE 18 Restructuring 23 NOTE 19 Subsequent Event 24 9 VF Corporation Q2 FY24 Form 10-Q Table of Contents NOTE 1 — BASIS OF PRESENTATION Fiscal Year 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 second quarter of Fiscal 2024. For presentation purposes herein, all references to periods ended September 2023 and September 2022 relate to the fiscal periods ended on September 30, 2023 and October 1, 2022, respectively. References to March 2023 relate to information as of April 1, 2023. Basis of Presentation The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and notes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. Similarly, the March 2023 consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations and cash flows of VF for the interim periods presented. Operating results for the three and six months ended September 2023 are not necessarily indicative of results that may be expected for any other interim period or for Fiscal 2024. For further information, refer to the consolidated financial statements and notes included in VF’s Annual Report on Form 10-K for the year ended April 1, 2023 (“Fiscal 2023 Form 10-K”). Recent Developments and Uncertainties 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. Macroeconomic conditions include inflationary pressures, higher interest rates and weakened consumer sentiment. These conditions have led to elevated inventories in certain markets, a volatile promotional environment, and increased borrowing costs. VF has considered the impact of these developments on the estimates and assumptions used when preparing the interim consolidated financial statements and accompanying notes. The duration and severity of these recent developments, and the related impacts on VF's business are subject to uncertainty; however, the estimates and assumptions made by management are based on available information. Use of Estimates In preparing the interim consolidated financial statements, management makes estimates and assumptions that affect amounts reported in the interim consolidated financial statements and accompanying notes. Actual results may differ from those estimates. NOTE 2 — RECENTLY ADOPTED ACCOUNTING STANDARDS In March 2020, January 2021 and December 2022, the Financial Accounting Standards Board (" FASB") issued Accounting Standards Update (" ASU") No. 2020-04, " Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ", ASU No. 2021-01, " Reference Rate Reform (Topic 848): Scope " and ASU No. 2022-06, " Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 ", respectively. This guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging r elationships and other transactions affected by reference rate reform if certain criteria are met. The guidance is provided to ease the potential burden of accounting for reference rate reform. During the first quarter of Fiscal 2024, the Company amended the terms of its $ 2.25 billion senior unsecured revolving line of credit (the “Global Credit Facility”), which replaced the LIBOR benchmark interest rate with a benchmark interest rate based on the forward-looking secured overnight financing rate ("Term SOFR"). This guidance was adopted in the first quarter of Fiscal 2024, but did not impact VF's consolidated financial statements. In September 2022, the FASB issued ASU No. 2022-04, " Liabilities — Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations " . This guidance requires companies with supplier finance programs to disclose sufficient qualitative and quantitative information about the program to allow a user of the financial statements to understand the nature of, activity in, and potential magnitude of the program. The guidance became effective for VF in the first quarter of Fiscal 2024, except for the rollforward information that will be effective for annual periods beginning in Fiscal 2025 on a prospective basis. Early adoption is permitted. The Company adopted the required guidance in the first quarter of Fiscal 2024 and is evaluating the impact of adopting the guidance related to the rollforward information. Refer to Note 9 for disclosures related to the Company’s supply chain financing program. VF Corporation Q2 FY24 Form 10-Q 10 Table of Contents NOTE 3 — REVENUES Contract Balances The following table provides information about contract assets and contract liabilities: (In thousands) September 2023 March 2023 September 2022 Contract assets (a) $ 3,267 $ 2,294 $ 2,772 Contract liabilities (b) 63,820 62,214 77,466 (a) Included in the other current assets line item in the Consolidated Balance Sheets. (b) Included in the accrued liabilities and other liabilities line items in the Consolidated Balance Sheets. For the three and six months ended September 2023, the Company recognized $ 59.0 million and $ 127.2 million, respectively, of revenue that was included in the contract liability balance during the periods, including amounts recorded as a contract liability and subsequently recognized as revenue as performance obligations were satisfied within the same period, such as order deposits from customers. The change in the contract asset and contract liability balances primarily results from the timing differences between the Company's satisfaction of performance obligations and the customer's payment. Performance Obligations As of September 2023, the Company expects to recognize $ 57.4 million of fixed consideration related to the future minimum guarantees in effect under its licensing agreements and expects such amounts to be recognized over time based on the contractual terms through March 2031. The variable consideration related to licensing arrangements is not disclosed as a remaining performance obligation as it qualifies for the sales-based royalty exemption. VF has also elected the practical expedient to not disclose the transaction price allocated to remaining performance obligations for contracts with an original expected duration of one year or less. As of September 2023, there were no arrang ements with transaction price allocated to remaining performance obligations other than contracts for which the Company has applied the practical expedients and the fixed consideration related to future minimum guarantees discussed above. For the three and six months ended September 2023, revenue recognized from performance obligations satisfied, or partially satisfied, in prior periods was not material. Disaggregation of Revenues The following tables disaggregate our revenues by channel and geography, which provides a meaningful depiction of how the nature, timing and uncertainty of revenues are affected by economic factors. Three Months Ended September 2023 (In thousands) Outdoor Active Work Other Total Channel revenues Wholesale $ 1,275,543 $ 437,003 $ 192,620 $ — $ 1,905,166 Direct-to-consumer 433,071 638,545 39,957 — 1,111,573 Royalty 5,065 6,739 5,696 — 17,500 Total $ 1,713,679 $ 1,082,287 $ 238,273 $ — $ 3,034,239 Geographic revenues Americas $ 795,748 $ 585,884 $ 186,868 $ — $ 1,568,500 Europe 657,206 370,885 33,946 — 1,062,037 Asia-Pacific 260,725 125,518 17,459 — 403,702 Total $ 1,713,679 $ 1,082,287 $ 238,273 $ — $ 3,034,239 11 VF Corporation Q2 FY24 Form 10-Q Table of Contents Three Months Ended September 2022 (In thousands) Outdoor Active Work Other Total Channel revenues Wholesale $ 1,157,170 $ 541,031 $ 216,825 $ — $ 1,915,026 Direct-to-consumer 394,324 710,547 41,252 — 1,146,123 Royalty 3,834 8,532 7,085 — 19,451 Total $ 1,555,328 $ 1,260,110 $ 265,162 $ — $ 3,080,600 Geographic revenues Americas $ 820,756 $ 724,882 $ 208,497 $ — $ 1,754,135 Europe 528,568 378,651 25,210 — 932,429 Asia-Pacific 206,004 156,577 31,455 — 394,036 Total $ 1,555,328 $ 1,260,110 $ 265,162 $ — $ 3,080,600 Six Months Ended September 2023 (In thousands) Outdoor Active Work Other Total Channel revenues Wholesale $ 1,765,474 $ 899,268 $ 338,789 $ — $ 3,003,531 Direct-to-consumer 769,404 1,236,166 79,611 — 2,085,181 Royalty 8,498 12,862 10,503 — 31,863 Total $ 2,543,376 $ 2,148,296 $ 428,903 $ — $ 5,120,575 Geographic revenues Americas $ 1,200,154 $ 1,211,731 $ 340,439 $ — $ 2,752,324 Europe 945,427 648,011 52,947 — 1,646,385 Asia-Pacific 397,795 288,554 35,517 — 721,866 Total $ 2,543,376 $ 2,148,296 $ 428,903 $ — $ 5,120,575 Six Months Ended September 2022 (In thousands) Outdoor Active Work Other Total Channel revenues Wholesale $ 1,629,452 $ 1,123,191 $ 410,016 $ 148 $ 3,162,807 Direct-to-consumer 687,009 1,376,703 81,501 — 2,145,213 Royalty 7,491 14,161 12,523 — 34,175 Total $ 2,323,952 $ 2,514,055 $ 504,040 $ 148 $ 5,342,195 Geographic revenues Americas $ 1,215,271 $ 1,515,611 $ 408,157 $ 148 $ 3,139,187 Europe 803,613 681,926 41,503 — 1,527,042 Asia-Pacific 305,068 316,518 54,380 — 675,966 Total $ 2,323,952 $ 2,514,055 $ 504,040 $ 148 $ 5,342,195 NOTE 4 — INVENTORIES (In thousands) September 2023 March 2023 September 2022 Finished products $ 2,427,948 $ 2,240,215 $ 2,689,412 Work-in-process 42,482 39,508 46,584 Raw materials 10,621 13,067 13,898 Total inventories $ 2,481,051 $ 2,292,790 $ 2,749,894 VF Corporation Q2 FY24 Form 10-Q 12 Table of Contents NOTE 5 — INTANGIBLE ASSETS September 2023 March 2023 (In thousands) Weighted Average Amortization Period Amortization Method Cost Accumulated Amortization Net Carrying Amount Net Carrying Amount Amortizable intangible assets: Customer relationships and other 19 years Accelerated $ 260,142 $ 178,878 $ 81,264 $ 88,902 Indefinite-lived intangible assets: Trademarks and trade names 2,549,531 2,553,919 Intangible assets, net $ 2,630,795 $ 2,642,821 Amortization expense for the three and six months ended September 2023 was $ 3.4 million and $ 6.9 million, respectively. Based on the carrying amounts of amortizable intangible assets noted above, estimated amortization expense for the next five years beginning in Fiscal 2024 is $ 13.6 million, $ 13.0 million, $ 12.1 million, $ 11.6 million and $ 10.7 million, respectively. NOTE 6 — GOODWILL Changes in goodwill are summarized by reportable segment as follows: (In thousands) Outdoor Active Work Total Balance, March 2023 $ 653,787 $ 1,211,244 $ 113,382 $ 1,978,413 Currency translation ( 4,197 ) ( 12,361 ) ( 635 ) ( 17,193 ) Balance, September 2023 $ 649,590 $ 1,198,883 $ 112,747 $ 1,961,220 Accum ulated impairm ent charges were $ 323.2 million for the Outdoor segment and $ 394.1 million for the Active segment as of the dates presented above. No impairment charges were recorded during the six months ended September 2023. NOTE 7 — LEASES The Company leases certain retail locations, office space, distribution facilities, machinery and equipment, and vehicles. The substantial majority of these leases are operating leases. Total lease cost includes operating lease cost, variable lease cost, finance lease cost, short-term lease cost and impairment. Components of lease cost were as follows: Three Months Ended September Six Months Ended September (In thousands) 2023 2022 2023 2022 Operating lease cost $ 105,971 $ 101,427 $ 212,102 $ 203,132 Other lease cost 36,970 34,011 72,289 67,176 Total lease cost $ 142,941 $ 135,438 $ 284,391 $ 270,308 During the six months ended September 2023 and 2022, the Company paid $ 217.6 million and $ 204.5 million for operating leases, respectively. During the six months ended September 2023 and 2022, the Company obtained $ 140.0 million and $ 215.1 million of right-of-use assets in exchange for lease liabilities, respectively. NOTE 8 — SHORT-TERM BORROWINGS AND LONG-TERM DEBT Euro Commercial Paper Program During the three months ended September 2023, VF commenced a euro commercial paper program, which in addition to the existing U.S. commercial paper program, is supported by VF's $ 2.25 billion Global Credit Facility. Commercial paper borrowings under this new program were € 218.0 million ($ 230.6 million) as of September 2023 and had a weighted average interest rate of 4.09 %. The Company has designated the euro commercial paper borrowings as a net investment hedge of VF's investment in certain foreign operations. Refer to Note 17 for additional information. There were also $ 778.0 million and $ 1.7 billion in U.S. commercial paper borrowings as of September 2023 and September 2022, respectively. Senior Notes Maturity On September 18, 2023, VF repaid € 850.0 million ( $ 907.1 million) in aggregate principal amount of its outstanding 0.625 % Senior Notes due in September 2023, in accordance with the terms of the notes. 13 VF Corporation Q2 FY24 Form 10-Q Table of Contents NOTE 9 — 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 September 2023, March 2023 and September 2022, the accounts payable line item in VF’s Consolidated Balance Sheets included total outstanding obligations of $ 688.0 million, $ 510.9 million and $ 626.1 million, respectively, due to suppliers that are eligible to participate in the SCF program. NOTE 10 — PENSION PLANS The components of pension cost for VF’s defined benefit plans were as follows: Three Months Ended September Six Months Ended September (In thousands) 2023 2022 2023 2022 Service cost – benefits earned during the period $ 2,237 $ 2,626 $ 4,429 $ 5,272 Interest cost on projected benefit obligations 11,775 10,680 23,587 23,311 Expected return on plan assets ( 15,902 ) ( 14,752 ) ( 31,779 ) ( 33,612 ) Settlement charges 7 1,141 3,299 92,902 Amortization of deferred amounts: Net deferred actuarial losses 4,170 3,953 8,402 7,674 Deferred prior service credits ( 137 ) ( 111 ) ( 272 ) ( 223 ) Net periodic pension cost $ 2,150 $ 3,537 $ 7,666 $ 95,324 VF has reported the service cost component of net periodic pension cost in operating income (loss) and the other components, which include interest cost, expected return on plan assets, settlement charges and amortization of deferred actuarial losses and prior service credits, in the other income (expense), net line item in the Consolidated Statements of Operations. VF contributed $ 17.8 million to its defined benefit plans during the six months ended September 2023, and intends to make approximately $ 12.1 million of contributions during the remainder of Fiscal 2024. VF recorded $ 3.3 million in settlement charges in the other income (expense), net line item in the Consolidated Statement of Operations for the six months ended September 2023, as well as $ 1.1 million for both the three and six months ended September 2022. The settlement charges related to the recognition of deferred actuarial losses resulting from lump sum payments of retirement benefits in the supplemental defined benefit pension plan. Actuarial assumptions used in the interim valuations were reviewed and revised as appropriate. The discount rate used to determine the supplemental defined benefit pension obligation as of September 2023 and June 2023 was 6.10 % and 5.44 %, respectively. Additionally, in the first quarter of Fiscal 2023, VF entered into an agreement with The Prudential Insurance Company of America (“Prudential”) to purchase an irrevocable group annuity contract relating to approximately $ 330.0 million of the U.S. qualified defined benefit pension plan obligations. The transaction closed on June 30, 2022 and was funded entirely by existing assets of the plan. Under the group annuity contract, Prudential assumed responsibility for benefit payments and annuity administration for approximately 17,700 retirees and beneficiaries. The transaction did not change the amount or timing of monthly retirement benefit payments. VF recorded a $ 91.8 million settlement charge in the other income (expense), net line item in the Consolidated Statement of Operations during the six months ended September 2022 to recognize the related deferred actuarial losses in accumulated other comprehensive loss (“OCL”). NOTE 11 — CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE LOSS Common Stock During the six months ended September 2023, the Company did no t purchase shares of Common Stock in open market transactions under its share repurchase program authorized by VF’s Board of Directors. These are treated as treasury stock transactions when shares are repurchased. VF Corporation Q2 FY24 Form 10-Q 14 Table of Contents Common Stock outstanding is net of shares held in treasury which are, in substance, retired. There were no shares held in treasury at the end of September 2023, March 2023 or September 2022. The excess of the cost of treasury shares acquired over the $ 0.25 per share stated value of Common Stock is deducted from retained earnings. Accumulated Other Comprehensive Loss Comprehensive loss consists of net loss and specified components of other comprehensive income (loss), which relate to changes in assets and liabilities that are not included in net loss under GAAP but are instead deferred and accumulated within a separate component of stockholders’ equity in the balance sheet. VF’s comprehensive loss is presented in the Consolidated Statements of Comprehensive Loss. The deferred components of other comprehensive income (loss) are reported, net of related income taxes, in accumulated OCL in stockholders’ equity, as follows: (In thousands) September 2023 March 2023 September 2022 Foreign currency translation and other $ ( 878,089 ) $ ( 859,651 ) $ ( 883,846 ) Defined benefit pension plans ( 155,638 ) ( 167,692 ) ( 166,545 ) Derivative financial instruments 22,022 7,825 206,226 Accumulated other comprehensive loss $ ( 1,011,705 ) $ ( 1,019,518 ) $ ( 844,165 ) The changes in accumulated OCL, net of related taxes, were as follows: Three Months Ended September 2023 (In thousands) Foreign Currency Translation and Other Defined Benefit Pension Plans Derivative Financial Instruments Total Balance, June 2023 $ ( 872,800 ) $ ( 161,211 ) $ ( 19,518 ) $ ( 1,053,529 ) Other comprehensive income (loss) before reclassifications ( 5,289 ) 2,676 50,043 47,430 Amounts reclassified from accumulated other comprehensive loss — 2,897 ( 8,503 ) ( 5,606 ) Net other comprehensive income (loss) ( 5,289 ) 5,573 41,540 41,824 Balance, September 2023 $ ( 878,089 ) $ ( 155,638 ) $ 22,022 $ ( 1,011,705 ) Three Months Ended September 2022 (In thousands) Foreign Currency Translation and Other Defined Benefit Pension Plans Derivative Financial Instruments Total Balance, June 2022 $ ( 833,166 ) $ ( 174,139 ) $ 132,429 $ ( 874,876 ) Other comprehensive income (loss) before reclassifications ( 50,680 ) 4,108 86,329 39,757 Amounts reclassified from accumulated other comprehensive loss — 3,486 ( 12,532 ) ( 9,046 ) Net other comprehensive income (loss) ( 50,680 ) 7,594 73,797 30,711 Balance, September 2022 $ ( 883,846 ) $ ( 166,545 ) $ 206,226 $ ( 844,165 ) Six Months Ended September 2023 (In thousands) Foreign Currency Translation and Other Defined Benefit Pension Plans Derivative Financial Instruments Total Balance, March 2023 $ ( 859,651 ) $ ( 167,692 ) $ 7,825 $ ( 1,019,518 ) Other comprehensive income (loss) before reclassifications ( 18,438 ) 3,764 31,441 16,767 Amounts reclassified from accumulated other comprehensive loss — 8,290 ( 17,244 ) ( 8,954 ) Net other comprehensive income (loss) ( 18,438 ) 12,054 14,197 7,813 Balance, September 2023 $ ( 878,089 ) $ ( 155,638 ) $ 22,022 $ ( 1,011,705 ) 15 VF Corporation Q2 FY24 Form 10-Q Table of Contents Six Months Ended September 2022 (In thousands) Foreign Currency Translation and Other Defined Benefit Pension Plans Derivative Financial Instruments Total Balance, March, 2022 $ ( 751,632 ) $ ( 230,290 ) $ 55,343 $ ( 926,579 ) Other comprehensive income (loss) before reclassifications ( 132,214 ) ( 10,376 ) 170,384 27,794 Amounts reclassified from accumulated other comprehensive loss — 74,121 ( 19,501 ) 54,620 Net other comprehensive income (loss) ( 132,214 ) 63,745 150,883 82,414 Balance, September 2022 $ ( 883,846 ) $ ( 166,545 ) $ 206,226 $ ( 844,165 ) Reclassifications out of accumulated OCL were as follows: (In thousands) Three Months Ended September Six Months Ended September Details About Accumulated Other Comprehensive Loss Components Affected Line Item in the Consolidated Statements of Operations 2023 2022 2023 2022 Amortization of defined benefit pension plans: Net deferred actuarial losses Other income (expense), net $ ( 4,170 ) $ ( 3,953 ) $ ( 8,402 ) $ ( 7,674 ) Deferred prior service credits Other income (expense), net 137 111 272 223 Pension settlement charges Other income (expense), net ( 7 ) ( 1,141 ) ( 3,299 ) ( 92,902 ) Total before tax ( 4,040 ) ( 4,983 ) ( 11,429 ) ( 100,353 ) Tax benefit 1,143 1,497 3,139 26,232 Net of tax ( 2,897 ) ( 3,486 ) ( 8,290 ) ( 74,121 ) Gains (losses) on derivative financial instruments: Foreign exchange contracts Net revenues ( 516 ) ( 6,421 ) 574 ( 9,955 ) Foreign exchange contracts Cost of goods sold 9,399 23,658 17,474 35,014 Foreign exchange contracts Selling, general and administrative expenses 1,007 1,955 2,308 3,564 Foreign exchange contracts Other income (expense), net ( 750 ) ( 4,313 ) ( 1,261 ) ( 5,529 ) Interest rate contracts Interest expense 1,098 27 1,823 54 Total before tax 10,238 14,906 20,918 23,148 Tax expense ( 1,735 ) ( 2,374 ) ( 3,674 ) ( 3,647 ) Net of tax 8,503 12,532 17,244 19,501 Total reclassifications for the period, net of tax $ 5,606 $ 9,046 $ 8,954 $ ( 54,620 ) NOTE 12 — STOCK-BASED COMPENSATION Incentive Equity Awards Granted During the six months ended September 2023, VF granted stock options to employees and nonemployee members of VF's Board of Directors to purchase 5,671,370 shares of its Common Stock at a weighted average exercise price of $ 18.24 per share. The exercise price of each option granted was equal to the fair market value of VF Common Stock on the date of grant. Employee stock options typically vest and become exercisable in equal annual installments over three years . St ock options granted to nonemployee members of VF's Board of Directors vest upon grant and become exercisable one year from the date of grant. All options have ten-year terms. VF Corporation Q2 FY24 Form 10-Q 16 Table of Contents The grant date fair value of each option award was calculated using a lattice option-pricing valuation model, which incorporated a range of assumptions for inputs as follows: Six Months Ended September 2023 Expected volatility 33 % to 52 % Weighted average expected volatility 41 % Expected term (in years) 6.0 to 7.8 Weighted average dividend yield 3.8 % Risk-free interest rate 3.80 % to 5.50 % Weighted average fair value at date of grant $ 5.74 During the six months ended September 2023, VF granted 677,582 performance-based restricted stock units ("RSUs") to executives that enable them to receive shares of VF Common Stock at the end of a three-year performance cycle. The weighted average fair market value of VF Common Stock at the dates the units were granted was $ 18.49 per share. Each performance-based RSU has a potential final payout ranging from zero to two and one-quarter shares of VF Common Stock. The number of shares earned by participants, if any, is based on achievement of three-year financial and relative total shareholder return targets set by the Talent and Compensation Committee of the Board of Directors. Shares will be issued to participants in the year following the conclusion of the three-year performance period. The financial targets include 50 % weighting based on VF's revenue growth and 50 % weighting based on VF's gross margin performance over the three-year period compared to financial targets. Furthermore, the actual number of shares earned may be adjusted upward or downward by 25 % of the target award, based on how VF's total shareholder return ("TSR") over the three-year period compares to the TSR for companies included in the Standard & Poor's 500 Consumer Discretionary Index, resulting in a maximum payout of 225 % of the target award. The grant date fair value of the TSR-based adjustment related to the performance-based RSU grants was determined using a Monte Carlo simulation technique that incorporates option-pricing model inputs, and was $ 0.35 per share. During the six months ended September 2023, VF granted 48,671 nonperformance-based RSUs to nonemployee members of the Board of Directors. These units vest upon grant and will be settled in shares of VF Common Stock one year from the date of grant. The weighted average fair market value of VF Common Stock at the dates the units were granted was $ 18.06 per share. In addition, VF granted 2,660,333 nonperformance-based RSUs to employees during the six months ended September 2023. These units generally vest over periods up to four years from the date of grant and each unit entitles the holder to one share of VF Common Stock. The weighted average fair market value of VF Common Stock at the dates the units were granted was $ 18.00 per share. Equity awards granted to Bracken Darrell in connection with his appointment as VF's President and Chief Executive Officer, are included within the grants of stock options, performance-based RSUs and nonperformance-based RSUs during the six months ended September 2023, as discussed above. These include awards granted as part of Mr. Darrell's annual long-term incentive opportunity that follow VF's normal vesting provisions, and additional make-whole equity awards that vest 50 % after one year and 50 % after two years following appointment, subject to his continued employment through the applicable vesting dates. NOTE 13 — INCOME TAXES The effective income tax rate for the six months ended September 2023 was 310.4 % compared to 11.3 % in the 2022 period. The six months ended September 2023 included a net discrete tax expense of $ 703.3 million, primarily related to the tax effects of decisions in the Timberland tax case and Belgium excess profits ruling, which are discussed further below. Excluding the $ 703.3 million net discrete tax expense in the 2023 period, the effective income tax rate would have been 19.2 %. The six months ended September 2022 included a net discrete tax expense of $ 5.1 million, which primarily related to unrecognized tax benefits and interest. Excluding the $ 5.1 million net discrete tax expense in the 2022 period, the effective income tax rate would have been 13.9 %. Without discrete items, the effective income tax rate for the six months ended September 2023 increased by 5.3 % compared with the 2022 period primarily due to disproportionate year-to-date losses in jurisdictions with no tax benefit, as well as the jurisdictional mix of earnings. As previously reported, VF petitioned the U.S. Tax Court (the “Tax 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 argued that all such income should have been immediately included in 2011, VF reported periodic income inclusions in subsequent tax years. In Fiscal 2023, the Tax Court issued its final decision in favor of the IRS, which was appealed by VF. 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 and began to accrue interest income. These amounts were included in the other assets line item in VF's Consolidated Balance Sheet, based on our assessment of the position under the more-likely-than-not standard of the accounting literature. On September 8, 2023, the U.S. Court of Appeals for the First Circuit (“Appeals Court”) upheld the Tax Court’s decision in favor of the IRS. As a result of the Appeals Court decision, VF determined that its position no longer met the more-likely-than-not threshold, and thus wrote off the related income tax receivable and associated interest and recorded $ 690.0 million of income tax expense in the three months ended September 2023. This amount includes the reversal of $ 19.6 million of interest income, of which $ 7.5 million was recorded in the first quarter of Fiscal 2024. This amount reflects the total estimated net impact to VF’s tax expense, which includes the expected reduction in taxes paid on the periodic inclusions that VF has reported, release of related deferred tax liabilities, and consideration of indirect tax effects resulting from 17 VF Corporation Q2 FY24 Form 10-Q Table of Contents the decision. The estimated impact is subject to future adjustments based on finalization with tax authorities. 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. During 2017 and 2018, VF Europe BVBA was assessed and paid € 35.0 million in tax and interest, which was recorded as an income tax receivable and was included in the other current assets line item in VF's Consolidated Balance Sheets, based on the expected success of the requests for annulment. After subsequent annulments and appeals, the General Court confirmed the decision of the EU on September 20, 2023. As a result, VF wrote off the related income tax receivable and recorded a benefit for the associated foreign tax credit, resulting in $ 26.1 million of net income tax expense in the three months ended September 2023. VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. In the U.S., the IRS examinations for tax years through 2015 have been effectively settled. In addition, VF is currently subject to examination by various state and international tax authorities. Management regularly assesses the potential outcomes of both ongoing and future examinations for the current and prior years and has concluded that VF’s provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on VF’s consolidated financial statements. Management believes that some of these audits and negotiations will conclude during the next 12 months. During the six months ended September 2023, the amount of net unrecognized tax benefits and associated interest increased by $ 5.8 million to $ 303.4 million, which includes a net reduction of $ 183.0 million due to settlement with the tax authorities related to intellectual property transfers completed in a prior period and a net increase of $ 192.5 million due to uncertainty in the application of court decisions upheld upon appeal. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits and interest may decrease during the next 12 months by approximately $ 28.9 million due to settlement of audits and expiration of statutes of limitations. The overall decrease of unrecognized tax benefits would reduce income tax expense by $ 25.2 million. NOTE 14 — REPORTABLE SEGMENT INFORMATION The chief operating decision maker allocates resources and assesses performance based on a global brand view which represents VF's operating segments. The operating segments have been evaluated and combined into reportable segments because they meet the similar economic characteristics and qualitative aggregation criteria set forth in the relevant accounting guidance. The Company's reportable segments have been identified as: Outdoor, Active and Work. We have included an Other category in the table below for purposes of reconciliation of revenues and profit, but it is not considered a reportable segment. Other primarily includes sourcing activities related to transition services. Financial information for VF's reportable segments is as follows: Three Months Ended September Six Months Ended September (In thousands) 2023 2022 2023 2022 Segment revenues: Outdoor $ 1,713,679 $ 1,555,328 $ 2,543,376 $ 2,323,952 Active 1,082,287 1,260,110 2,148,296 2,514,055 Work 238,273 265,162 428,903 504,040 Other — — — 148 Total segment revenues $ 3,034,239 $ 3,080,600 $ 5,120,575 $ 5,342,195 Segment profit (loss): Outdoor $ 296,750 $ 260,439 $ 253,089 $ 213,588 Active 133,970 180,255 257,752 394,286 Work 8,515 39,500 15,346 74,502 Other — ( 157 ) — ( 382 ) Total segment profit 439,235 480,037 526,187 681,994 Impairment of goodwill and intangible assets — ( 421,922 ) — ( 421,922 ) Corporate and other expenses ( 79,818 ) ( 158,214 ) ( 179,329 ) ( 391,523 ) Interest expense, net ( 55,644 ) ( 33,903 ) ( 105,363 ) ( 65,165 ) Income (loss) before income taxes $ 303,773 $ ( 134,002 ) $ 241,495 $ ( 196,616 ) VF Corporation Q2 FY24 Form 10-Q 18 Table of Contents NOTE 15 — NET LOSS PER SHARE Three Months Ended September Six Months Ended September (In thousands, except per share amounts) 2023 2022 2023 2022 Net loss per common share – basic: Net loss $ ( 450,697 ) $ ( 118,432 ) $ ( 508,122 ) $ ( 174,392 ) Weighted average common shares outstanding 388,338 387,688 388,249 387,625 Net loss per common share $ ( 1.16 ) $ ( 0.31 ) $ ( 1.31 ) $ ( 0.45 ) Net loss per common share – diluted: Net loss $ ( 450,697 ) $ ( 118,432 ) $ ( 508,122 ) $ ( 174,392 ) Weighted average common shares outstanding 388,338 387,688 388,249 387,625 Incremental shares from stock options and other dilutive securities — — — — Adjusted weighted average common shares outstanding 388,338 387,688 388,249 387,625 Net loss per common share $ ( 1.16 ) $ ( 0.31 ) $ ( 1.31 ) $ ( 0.45 ) In the three and six-month periods ended September 2023 and September 2022, the dilutive impacts of outstanding stock options and other dilutive securities were excluded from dilutive shares as a result of the Company's net loss for the periods and, as such, their inclusion would have been anti-dilutive. As a result, a total of 19.3 million and 19.0 million potentially dilutive shares related to stock options and other dilutive securities were excluded from the diluted earnings per share calculations for the three and six-month periods ended September 2023, respectively, and 13.0 million and 13.2 million potentially dilutive shares were excluded for the three and six-month periods ended September 2022, respectively. NOTE 16 — FAIR VALUE MEASUREMENTS Financial assets and financial liabilities measured and reported at fair value are classified in a three-level hierarchy that prioritizes the inputs used in the valuation process. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs, as follows: • Level 1 — Quoted prices in active markets for identical assets or liabilities. • Level 2 — Significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities, or (iii) information derived from or corroborated by observable market data. • Level 3 — Prices or valuation techniques that require significant unobservable data inputs. These inputs would normally be VF’s own data and judgments about assumptions that market participants would use in pricing the asset or liability. 19 VF Corporation Q2 FY24 Form 10-Q Table of Contents Recurring Fair Value Measurements The following table summarizes financial assets and financial liabilities that are measured and recorded in the consolidated financial statements at fair value on a recurring basis: Total Fair Value Fair Value Measurement Using (a) (In thousands) Level 1 Level 2 Level 3 September 2023 Financial assets: Cash equivalents: Money market funds $ 82,146 $ 82,146 $ — $ — Time deposits 37,935 37,935 — — Derivative financial instruments 57,371 — 57,371 — Deferred compensation 86,186 86,186 — — Financial liabilities: Derivative financial instruments 38,569 — 38,569 — Deferred compensation 83,312 — 83,312 — Total Fair Value Fair Value Measurement Using (a) (In thousands) Level 1 Level 2 Level 3 March 2023 Financial assets: Cash equivalents: Money market funds $ 418,304 $ 418,304 $ — $ — Time deposits 21,233 21,233 — — Derivative financial instruments 49,688 — 49,688 — Deferred compensation 99,200 99,200 — — Financial liabilities: Derivative financial instruments 72,653 — 72,653 — Deferred compensation 96,364 — 96,364 — (a) There were no transfers among the levels within the fair value hierarchy during the six months ended September 2023 or the year ended March 2023. VF’s cash equivalents include money market funds and time deposits with maturities within three months of their purchase dates that approximate fair value based on Level 1 measurements. The fair value of derivative financial instruments, which consist of foreign exchange forward contracts and interest rate swap contracts, is determined based on observable market inputs (Level 2), including spot and forward exchange rates for foreign currencies and interest rate forward curves, and considers the credit risk of the Company and its counterparties. VF’s deferred compensation assets primarily represent investments held within plan trusts as an economic hedge of the related deferred compensation liabilities. These investments primarily include mutual funds (Level 1) that are valued based on quoted prices in active markets. Liabilities related to VF’s deferred compensation plans are recorded at amounts due to participants, based on the fair value of the participants’ selection of hypothetical investments. All other significant financial assets and financial liabilities are recorded in the consolidated financial statements at cost, except life insurance contracts which are recorded at cash surrender value. These other financial assets and financial liabilities include cash held as demand deposits, accounts receivable, short-term borrowings, accounts payable and accrued liabilities. At September 2023 and March 2023, their carrying values approximated fair value. Additionally, at September 2023 and March 2023, the carrying values of VF’s long-term debt, including the current portion, were $ 5,657.7 million and $ 6,635.3 million, respectively, compared with fair values of $ 5,111.0 million and $ 6,244.4 million at those respective dates. Fair value for long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings. Nonrecurring Fair Value Measurements During the three months ended September 2023, management determined that the recent downturn in the Dickies historical financial results, combined with a downward revision to the latest Fiscal 2024 forecast, was a triggering event that required management to perform a quantitative impairment analysis of both the Dickies reporting unit goodwill and the Dickies indefinite-lived trademark intangible asset. Based on the analysis, management concluded both the goodwill and indefinite-lived intangible asset were not impaired. For goodwill, the estimated fair value of the reporting unit exceeded the carrying value by 8 %. The estimated fair value of the indefinite-lived trademark intangible asset exceeded its carrying value by a significant amount. The carrying values of the goodwill and indefinite-lived trademark intangible asset at the September 30, 2023 testing date were $ 61.2 million and $ 290.0 million, VF Corporation Q2 FY24 Form 10-Q 20 Table of Contents respectively. The Dickies reporting unit is included in the Work reportable segment. The fair values of the Dickies reporting unit and indefinite-lived trademark intangible asset were estimated using valuation techniques consistent with those discussed in the Critical Accounting Policies and Estimates section included in Management's Discussion and Analysis in the Fiscal 2023 Form 10-K. Management's revenue and profitability forecasts used in the Dickies reporting unit and indefinite-lived trademark intangible asset valuations considered recent and historical performance, strategic initiatives, industry trends and macroeconomic factors. 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 Dickies reporting unit and indefinite-lived trademark intangible asset include: • Financial projections and future cash flows, including a base year that considered recent actual results lower than previous internal forecasts, with revenue growth and profitability improvement throughout the forecast period that reflects the long-term strategy for the business, 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; • Royalty rates based on market data as well as active license agreements for the brand and similar VF brands; and, • Market-based discount rates. The valuation model used by management in the impairment testing assumes recovery from the recent downturn in the brand's operating results and the return to revenue growth and improved profitability. If the brand is unable to achieve the financial projections, an impairment of the reporting unit goodwill or indefinite-lived trademark intangible asset could occur in the future. Management performed a sensitivity analysis on the impairment model used to test the Dickies reporting unit goodwill. In doing so, management determined that individual changes of a 30 % reduction in the annual growth for earnings before interest, tax, depreciation and amortization ("EBITDA"), or a 100 basis point increase in the discount rate used in the discounted cash flow model did not cause the estimated fair value of the reporting unit to decline below its carrying value. Management made its estimates based on information available as of the date of our assessment, using assumptions we believe market participants would use in performing an independent valuation of the business. Although management believes the estimates and assumptions used in the impairment testing are reasonable and appropriate, it is possible that VF's assumptions and conclusions regarding impairment or recoverability of the Dickies reporting unit goodwill or indefinite-lived trademark intangible asset could change in future periods. There can be no assurance the estimates and assumptions, particularly our long-term financial projections, 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 business does not perform as projected, (ii) overall economic conditions in the remainder of Fiscal 2024 or future years vary from current assumptions (including changes in discount rates and foreign currency exchange rates), (iii) business conditions or strategies change from current assumptions, including loss of major customers or channels, (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 of the Dickies reporting unit goodwill or indefinite-lived trademark intangible asset could have a material effect on VF's consolidated financial position and results of operations. The Company owns a broad, diverse portfolio of other brands and businesses for which material amounts of goodwill and intangible assets have been recorded in the Consolidated Balance Sheets. Management continuously evaluates the current and future performance of VF's brands and businesses, as well as other relevant factors, in assessing the recoverability of these assets. There can be no assurances that the estimates and assumptions used in our long-term financial projections, among other factors, will prove to be accurate predictions of the future. As such, a future impairment charge of goodwill or intangible assets could occur, and if so, could have a material effect on VF's consolidated financial position and results of operations. NOTE 17 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES Summary of Derivative Financial Instruments VF’s outstanding derivative financial instruments include foreign currency exchange forward contracts and interest rate swap contracts. Although derivatives meet the criteria for hedge accounting at the inception of the hedging relationship, a limited number of derivative contracts intended to hedge assets and liabilities are not designated as hedges for accounting purposes. The notional amounts of all outstanding foreign currency exchange forward contracts were $ 3.3 billion at September 2023, $ 3.4 billion at March 2023 and $ 3.0 billion at September 2022, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Swiss franc, Chinese renminbi, Mexican peso, South Korean won, Swedish krona, Polish zloty and Japanese yen. These derivative contracts have maturities up to 20 months. The notional amounts of VF's outstanding interest rate swap contracts were $ 500.0 million at September 2023 and March 2023. There were no notional amounts outstanding on interest rate swap contracts at September 2022. 21 VF Corporation Q2 FY24 Form 10-Q Table of Contents The following table presents outstanding derivatives on an individual contract basis: Fair Value of Derivatives with Unrealized Gains Fair Value of Derivatives with Unrealized Losses (In thousands) September 2023 March 2023 September 2022 September 2023 March 2023 September 2022 Derivatives Designated as Hedging Instruments: Foreign exchange contracts $ 51,216 $ 46,752 $ 209,837 $ ( 37,664 ) $ ( 71,052 ) $ ( 31,844 ) Interest rate contracts 4,897 — — — ( 1,140 ) — Total derivatives designated as hedging instruments 56,113 46,752 209,837 ( 37,664 ) ( 72,192 ) ( 31,844 ) Derivatives Not Designated as Hedging Instruments: Foreign exchange contracts 1,258 2,936 5,427 ( 905 ) ( 461 ) ( 1,077 ) Total derivatives $ 57,371 $ 49,688 $ 215,264 $ ( 38,569 ) $ ( 72,653 ) $ ( 32,921 ) VF records and presents the fair values of all of its derivative assets and liabilities in the Consolidated Balance Sheets on a gross basis, even though they are subject to master netting agreements. If VF were to offset and record the asset and liability balances on a net basis in accordance with the terms of its master netting agreements, the amounts presented in the Consolidated Balance Sheets would be adjusted from the current gross presentation to the net amounts as detailed in the following table: September 2023 March 2023 September 2022 (In thousands) Derivative Asset Derivative Liability Derivative Asset Derivative Liability Derivative Asset Derivative Liability Gross amounts presented in the Consolidated Balance Sheets $ 57,371 $ ( 38,569 ) $ 49,688 $ ( 72,653 ) $ 215,264 $ ( 32,921 ) Gross amounts not offset in the Consolidated Balance Sheets ( 25,460 ) 25,460 ( 26,470 ) 26,470 ( 32,358 ) 32,358 Net amounts $ 31,911 $ ( 13,109 ) $ 23,218 $ ( 46,183 ) $ 182,906 $ ( 563 ) Derivatives are classified as current or noncurrent based on maturity dates, as follows: (In thousands) September 2023 March 2023 September 2022 Derivative Instruments Balance Sheet Location Foreign exchange contracts Other current assets $ 40,567 $ 48,132 $ 186,926 Foreign exchange contracts Accrued liabilities ( 35,347 ) ( 59,995 ) ( 28,484 ) Foreign exchange contracts Other assets 11,907 1,556 28,338 Foreign exchange contracts Other liabilities ( 3,222 ) ( 11,518 ) ( 4,437 ) Interest rate contracts Other assets 4,897 — — Interest rate contracts Other liabilities — ( 1,140 ) — Cash Flow Hedges VF primarily uses foreign currency exchange forward contracts to hedge a portion of the exchange risk for its forecasted sales, inventory purchases, operating costs and certain intercompany transactions, including sourcing and management fees and royalties. The company also uses interest swap contracts to hedge against a portion of the exposure related to its interest payments on its variable-rate debt. The effects of cash flow hedging included in VF’s Consolidated Statements of Operations and Consolidated Statements of Comprehensive Loss are summarized as follows: (In thousands) Gain on Derivatives Recognized in Accumulated OCL Three Months Ended September Gain on Derivatives Recognized in Accumulated OCL Six Months Ended September Cash Flow Hedging Relationships 2023 2022 2023 2022 Foreign exchange contracts $ 58,509 $ 102,685 $ 29,349 $ 202,115 Interest rate contracts 1,386 — 7,806 — Total $ 59,895 $ 102,685 $ 37,155 $ 202,115 VF Corporation Q2 FY24 Form 10-Q 22 Table of Contents (In thousands) Gain (Loss) Reclassified from Accumulated OCL into Net Loss Three Months Ended September Gain (Loss) Reclassified from Accumulated OCL into Net Loss Six Months Ended September Cash Flow Hedging Relationships Location of Gain (Loss) 2023 2022 2023 2022 Foreign exchange contracts Net revenues $ ( 516 ) $ ( 6,421 ) $ 574 $ ( 9,955 ) Foreign exchange contracts Cost of goods sold 9,399 23,658 17,474 35,014 Foreign exchange contracts Selling, general and administrative expenses 1,007 1,955 2,308 3,564 Foreign exchange contracts Other income (expense), net ( 750 ) ( 4,313 ) ( 1,261 ) ( 5,529 ) Interest rate contracts Interest expense 1,098 27 1,823 54 Total $ 10,238 $ 14,906 $ 20,918 $ 23,148 Derivative Contracts Not Designated as Hedges VF uses foreign currency exchange contracts to manage foreign currency exchange risk on third-party and intercompany accounts receivable and payable, as well as intercompany borrowings. These contracts are not designated as hedges, and are recorded at fair value in the Consolidated Balance Sheets. Changes in the fair values of these instruments are recognized directly in earnings. Gains or losses on these contracts largely offset the net transaction losses or gains on the related assets and liabilities. In the case of derivative contracts executed on foreign currency exposures that are no longer probable of occurring, VF de-designates these hedges and the fair value changes of these instruments are also recognized directly in earnings. During the six months ended September 2023, certain derivative contracts were de-designated as hedged forecasted transactions were no longer deemed probable of occurring. Accordingly, the Company reclassified amounts from accumulated OCL and recognized an $ 8.1 million loss in cost of goods sold during the six months ended September 2023. The changes in fair value of derivative contracts not designated as hedges and recognized as gains or losses in VF's Consolidated Statements of Operations were not material fo r the three and six months ended September 2023 and September 2022. Other Derivative Information At September 2023, accumulated OCL included $ 4.9 million of pre-tax net deferred losses for foreign currency exchange contracts that are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on exchange rates in effect when outstanding derivative contracts are settled. Net Investment Hedge The Company has designated its euro-denominated fixed-rate notes and euro commercial paper borrowings, which represented € 2.218 billion in aggregate principal as of September 2023, as a net investment hedge of VF’s investment in certain foreign operations. Because this debt qualified as a nonderivative hedging instrument, foreign currency transaction gains or losses of the debt are deferred in the foreign currency translation and other component of accumulated OCL as an offset to the foreign currency translation adjustments on the hedged investments. During the three and six-month periods ended September 2023, the Company recognized an after-tax gain of $ 65.9 million and $ 55.5 million, respectively, in other comprehensive income (loss) related to the net investment hedge transaction and an after-tax gain of $ 84.0 million and $ 171.7 million for the three and six-month periods ended September 2022, respectively. Any amounts deferred in accumulated OCL will remain until the hedged investment is sold or substantially liquidated. NOTE 18 — RESTRUCTURING The Company incurs restructuring charges related to strategic initiatives and cost optimization of business activities, primarily related to severance and employee-related benefits. During the three and six months ended September 2023, VF recognized $ 0.4 million and $ 1.1 million, respectively, of restructuring charges, related to approved initiatives. All restructuring charges recognized in the three and six months ended September 2023 were reflected in selling, general and administrative expenses. The Company has not recognized any significant incremental costs related to accruals for the year ended March 2023 or prior periods. Of the $ 21.5 million total restructuring accrual at September 2023, $ 20.7 million is expected to be paid out within the next 12 months and is classified within accrued liabilities. The remaining $ 0.8 million will be paid out beyond the next 12 months and thus is classified within other liabilities. 23 VF Corporation Q2 FY24 Form 10-Q Table of Contents The components of the restructuring charges are as follows: Three Months Ended September Six Months Ended September (In thousands) 2023 2022 2023 2022 Severance and employee-related benefits $ — $ 37,464 $ 676 $ 39,558 Accelerated depreciation — 3,583 — 7,251 Contract termination and other 435 4,759 454 5,103 Total restructuring charges $ 435 $ 45,806 $ 1,130 $ 51,912 Restructuring costs by business segment are as follows: Three Months Ended September Six Months Ended September (In thousands) 2023 2022 2023 2022 Outdoor $ — $ 496 $ 242 $ 496 Active — 1,478 434 1,478 Work — 9 — 9 Corporate and other 435 43,823 454 49,929 Total $ 435 $ 45,806 $ 1,130 $ 51,912 The activity in the restructuring accrual for the six-month period ended September 2023 was as follows: (In thousands) Severance Other Total Accrual at March 2023 $ 38,721 $ 6,545 $ 45,266 Charges 676 — 676 Cash payments and settlements ( 16,440 ) ( 4,380 ) ( 20,820 ) Adjustments to accruals ( 3,015 ) ( 582 ) ( 3,597 ) Impact of foreign currency ( 52 ) — ( 52 ) Accrual at September 2023 $ 19,890 $ 1,583 $ 21,473 NOTE 19 — SUBSEQUENT EVENT On October 24, 2023, VF’s Board of Directors declared a quarterly cash dividend of $ 0.09 per share, payable on December 20, 2023 to stockholders of record on December 11, 2023. VF Corporation Q2 FY24 Form 10-Q 24 Table of Contents