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 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. 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 and six months ended September 2023 foreign currency amounts and impacts below reflect the changes in foreign exchange rates from the three and six months ended September 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 Reinvent On October 30, 2023, VF introduced Reinvent, a transformation program to enhance focus on brand-building and to improve operating performance and allow VF to achieve its full potential. The first announced steps in this transformation, which cover the following priorities: improve North America results, deliver the Vans ® turnaround, reduce costs and strengthen the balance sheet, are as follows: • Establish global commercial organization, inclusive of an Americas region: Change the operating model with the establishment of a global commercial structure. This includes the creation of an Americas regional platform, modeled on the Company's successful operations in the Europe and Asia-Pacific regions. With this change, VF has created the role of Chief Commercial Officer, with responsibility for go-to-market execution globally. • Sharpen brand presidents' focus on sustainable growth: A direct consequence and intent of the operating model change, which is particularly critical at this stage for the Vans ® brand, enables brand presidents to direct greater focus and attention to long-term brand-building, product innovation and growth strategies. • Appoint new Vans ® president : The current Global Brand President of Vans ® will be stepping down from the position and will transition to lead Reinvent and the project teams driving the work. A search for a new brand president is underway. • Optimize cost structure to improve operating efficiency and profitability: Implement a large-scale cost reduction program, which is expected to deliver $300 million in fixed cost savings, by removing spend in non-strategic areas of the business, and simplifying and right-sizing VF's structure. • Reduce debt and leverage: In addition to improving operating performance, VF is committed to deleveraging the balance sheet. Reinvent will likely result in charges, including cash and non-cash items. Dividend Update On October 24, 2023, the Board of Directors declared a quarterly dividend of $0.09 per share that is payable during the third quarter of Fiscal 2024, which represents a 70% reduction when compared to the dividend of $0.30 per share paid in the second quarter of Fiscal 2024. The decrease in the dividend is an action taken to strengthen the Company's financial position by reducing debt. Subject to approval by its Board of Directors, VF intends to continue to pay quarterly dividends. 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. Macroeconomic Environment and Uncertainties The macroeconomic environment continues to dynamically evolve. Global trends, including inflationary pressures, have weakened 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 a volatile 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 half 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 and the recent conflict in the Middle East continue to cause disruption in the regions 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. 25 VF Corporation Q2 FY24 Form 10-Q Table of Contents SUMMARY OF THE SECOND QUARTER OF FISCAL 2024 • Revenues were down 2% to $3.0 billion compared to the three months ended September 2022, including a 2% favorable impact from foreign currency. • Outdoor segment revenues increased 10% to $1.7 billion compared to the three months ended September 2022, including a 2% favorable impact from foreign currency. • Active segment revenues decreased 14% to $1.1 billion compared to the three months ended September 2022, including a 2% favorable impact from foreign currency. • Work segment revenues decreased 10% to $238.3 million compared to the three months ended September 2022, including a 1% favorable impact from foreign currency. • Wholesale revenues were down 1% compared to the three months ended September 2022, including a 2% favorable impact from foreign currency. • Direct-to-consumer revenues were down 3% over the 2022 period, including a 2% favorable impact from foreign currency. E-commerce revenues also decreased 3% in the current period, including a 2% favorable impact from foreign currency. Direct-to-consumer revenues accounted for 37% of VF's net revenues for the three months ended September 2023. • International revenues increased 10% compared to the three months ended September 2022, including a 5% favorable impact from foreign currency. Revenues in Europe increased 14%, including an 8% favorable impact from foreign currency. Greater China (which includes Mainland China, Hong Kong and Taiwan) revenues increased 8%, including a 6% unfavorable impact from foreign currency. International revenues represented 55% of VF's net revenues for the three months ended September 2023. • Revenues in the Americas region decreased 11% compared to the three months ended September 2022. • Gross margin decreased 10 basis points to 51.3% compared to the three months ended September 2022, primarily driven by unfavorable rate impacts, largely offset by favorable mix. • Net loss per share was $(1.16) compared to $(0.31) in the 2022 period. The loss per share was primarily driven by increased tax expense due to the unfavorable decision in the Timberland tax case during the three months ended September 2023 , compared to being primarily driven by the goodwill and intangible asset impairment charges related to the Supreme reporting unit in the three months ended September 2022. The loss per share for the periods compared was also impacted by lower profitability in the Active and Work segments, partially offset by growth in the Outdoor segment, during the three months ended September 2023. ANALYSIS OF RESULTS OF OPERATIONS Consolidated Statements of Operations The following table presents a summary of the changes in net revenues for the three and six months ended September 2023 from the comparable periods in 2022: (In millions) Three Months Ended September Six Months Ended September Net revenues — 2022 $ 3,080.6 $ 5,342.2 Organic (110.9) (282.6) Impact of foreign currency 64.5 61.0 Net revenues — 2023 $ 3,034.2 $ 5,120.6 VF reported a 2% and 4% decrease in revenues for the three and six months ended September 2023, respectively, compared to the 2022 periods, including a 2% and 1% favorable impact from foreign currency in the respective periods. The revenue decrease was primarily driven by declines in the Active segment in both the three and six months ended September 2023. Revenues in the Active segment during the three and six months ended September 2023 were significantly impacted by weakness in the Vans ® brand, with declines across all regions, most notably in the Americas. The revenue decrease in both the three and six months ended September 2023 was also due to declines in the Work segment, driven by declines in the Dickies ® brand. The decrease in both periods was partially offset by global growth in the Outdoor segment driven by increases in The North Face ® brand across all regions. The revenue decrease in both periods was also partially offset by overall growth in the Europe and Asia-Pacific regions in both the three and six months ended September 2023. The Asia-Pacific region was negatively impacted by COVID-19 resurgence in Mainland China in the prior year periods. Additional details on revenues are provided in the section titled “Information by Reportable Segment.” VF Corporation Q2 FY24 Form 10-Q 26 Table of Contents The following table presents the percentage relationships to net revenues for components of the Consolidated Statements of Operations: Three Months Ended September Six Months Ended September 2023 2022 2023 2022 Gross margin (net revenues less cost of goods sold) 51.3 % 51.4 % 51.9 % 52.4 % Selling, general and administrative expenses 39.3 40.6 45.0 45.0 Impairment of goodwill and intangible assets — 13.7 — 7.9 Operating margin 12.0 % (2.9) % 6.9 % (0.5) % Gross margin decreased 10 and 50 basis points in the three and six months ended September 2023, respectively, compared to the 2022 periods. The decrease in both the three and six months ended September 2023 was driven by higher product costs, partially offset by favorable mix and price increases. Selling, general and administrative expenses as a percentage of total revenues decreased 130 basis points and remained flat during the three and six months ended September 2023, respectively, compared to the 2022 periods. Selling, general and administrative expenses decreased $59.0 million and $104.2 million in the three and six months ended September 2023, respectively, compared to the 2022 periods. The decrease was due to lower compensation and administrative costs, corporate restructuring charges and direct-to-consumer expenses in both the three and six months ended September 2023, which was partially offset by higher information technology costs in both periods. Net interest expense increased $21.7 million and $40.2 million during the three and six months ended September 2023, respectively, compared to the 2022 periods. The increase in net interest expense in both the three and six months ended September 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 $6.9 billion in the six months ended September 2023 and $5.3 billion in the same period in 2022, with weighted average interest rates of 3.2% and 2.3% in the six months ended September 2023 and 2022, respectively. Other income (expense), net decreased $5.8 million and $96.9 million during the three and six months ended September 2023, respectively, compared to the 2022 periods. The decrease in the three months ended September 2023 was primarily due to lower foreign currency losses compared to the 2022 period. The decrease in the six months ended September 2023 was primarily due to a $91.8 million pension settlement charge recorded in the 2022 period, 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. VF recorded goodwill and intangible asset impairment charges of $229.0 million and $192.9 million, respectively, in the three and six months ended September 2022 related to the Supreme reporting unit. During the three months ended September 2022, due to continued increases in the federal funds rate and strengthening of the U.S. dollar relative to other currencies, the Company determined that a triggering event had occurred requiring impairment testing of the Supreme reporting unit goodwill and indefinite-lived trademark intangible asset. The impairment related to an increase in the market-based discount rates used in the valuation and the negative impact of foreign currency exchange rate changes on financial projections. 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. 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 a result of the above, net loss in the three months ended September 2023 was $(450.7) million ($(1.16) per diluted share) compared to $(118.4) million ($(0.31) per diluted share) in the 2022 period, and net loss in the six months ended September 2023 was $(508.1) million ($(1.31) per diluted share) compared to $(174.4) million ($(0.45) per diluted share) in the 2022 period. Refer to additional discussion in the “Information by Reportable Segment” section below. Information by Reportable Segment VF's reportable segments are: Outdoor, Active and Work. We have included an Other category in the tables below for purposes of reconciliation of revenues and profit (loss), but it is not considered a reportable segment. Other primarily includes sourcing activities related to transition services. Refer to Note 14 to the consolidated financial statements for a summary of results of operations by segment, along with a reconciliation of segment profit to income (loss) before income taxes. 27 VF Corporation Q2 FY24 Form 10-Q Table of Contents The following tables present a summary of the changes in segment revenues and profit (loss) in the three and six months ended September 2023 from the comparable periods in 2022 and revenues by region for our top 4 brands for the three and six months ended September 2023 and 2022: Segment Revenues: Three Months Ended September (In millions) Outdoor Active Work Other Total Segment revenues — 2022 $ 1,555.3 $ 1,260.1 $ 265.2 $ — $ 3,080.6 Organic 122.7 (205.1) (28.4) — (110.9) Impact of foreign currency 35.7 27.3 1.5 — 64.5 Segment revenues — 2023 $ 1,713.7 $ 1,082.3 $ 238.3 $ — $ 3,034.2 Six Months Ended September (In millions) Outdoor Active Work Other Total Segment revenues — 2022 $ 2,324.0 $ 2,514.1 $ 504.0 $ 0.1 $ 5,342.2 Organic 186.0 (393.1) (75.4) (0.1) (282.6) Impact of foreign currency 33.4 27.3 0.3 — 61.0 Segment revenues — 2023 $ 2,543.4 $ 2,148.3 $ 428.9 $ — $ 5,120.6 Segment Profit (Loss): Three Months Ended September (In millions) Outdoor Active Work Other Total Segment profit (loss) — 2022 $ 260.4 $ 180.3 $ 39.5 $ (0.2) $ 480.0 Organic 29.0 (52.9) (31.6) 0.2 (55.3) Impact of foreign currency 7.4 6.6 0.6 — 14.5 Segment profit — 2023 $ 296.8 $ 134.0 $ 8.5 $ — $ 439.2 Six Months Ended September (In millions) Outdoor Active Work Other Total Segment profit (loss) — 2022 $ 213.6 $ 394.3 $ 74.5 $ (0.4) $ 682.0 Organic 33.3 (142.6) (59.8) 0.4 (168.7) Impact of foreign currency 6.2 6.1 0.6 — 12.9 Segment profit — 2023 $ 253.1 $ 257.8 $ 15.3 $ — $ 526.2 Note: Amounts may not sum due to rounding. VF Corporation Q2 FY24 Form 10-Q 28 Table of Contents Top Brand Revenues: Three Months Ended September 2023 (In millions) Vans ® The North Face ® Timberland ® (a) Dickies ® Total Americas $ 449.9 $ 539.5 $ 207.0 $ 120.0 $ 1,316.4 Europe 217.8 401.7 216.2 33.9 869.6 Asia-Pacific 81.1 187.7 65.4 17.5 351.7 Global $ 748.8 $ 1,128.8 $ 488.6 $ 171.4 $ 2,537.6 Three Months Ended September 2022 (In millions) Vans ® The North Face ® Timberland ® (a) Dickies ® Total Americas $ 600.6 $ 522.7 $ 266.8 $ 129.7 $ 1,519.8 Europe 230.9 291.1 195.9 25.2 743.1 Asia-Pacific 120.6 137.0 61.5 31.5 350.6 Global $ 952.1 $ 950.8 $ 524.2 $ 186.4 $ 2,613.5 Six Months Ended September 2023 (In millions) Vans ® The North Face ® Timberland ® (a) Dickies ® Total Americas $ 916.2 $ 819.4 $ 318.3 $ 219.6 $ 2,273.5 Europe 377.0 572.8 316.9 52.9 1,319.6 Asia-Pacific 193.2 274.8 107.3 35.5 610.8 Global $ 1,486.3 $ 1,667.0 $ 742.5 $ 308.1 $ 4,203.9 Six Months Ended September 2022 (In millions) Vans ® The North Face ® Timberland ® (a) Dickies ® Total Americas $ 1,234.3 $ 780.1 $ 407.0 $ 260.9 $ 2,682.3 Europe 423.2 456.3 290.8 41.5 1,211.8 Asia-Pacific 241.5 195.5 95.8 54.4 587.2 Global $ 1,899.0 $ 1,431.9 $ 793.6 $ 356.8 $ 4,481.3 (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. 29 VF Corporation Q2 FY24 Form 10-Q 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 September Six Months Ended September (Dollars in millions) 2023 2022 Percent Change 2023 2022 Percent Change Segment revenues $ 1,713.7 $ 1,555.3 10.2 % $ 2,543.4 $ 2,324.0 9.4 % Segment profit 296.8 260.4 13.9 % 253.1 213.6 18.5 % Operating margin 17.3 % 16.7 % 10.0 % 9.2 % The Outdoor segment includes the following brands: The North Face ® , Timberland ® , Smartwool ® , Altra ® and Icebreaker ® . Global revenues for Outdoor increased 10% in the three months ended September 2023 compared to 2022, including a 2% favorable impact from foreign currency. Revenues in the Europe region increased 24%, including an 8% favorable impact from foreign currency. Revenues in the Asia-Pacific region increased 27%, including a 5% unfavorable impact from foreign currency and a 30% increase in Greater China (including a 7% unfavorable impact from foreign currency). Revenues in the Americas region decreased 3%. Global revenues for Outdoor increased 9% in the six months ended September 2023 compared to 2022, including a 1% favorable impact from foreign currency. Revenues in the Europe region increased 18%, including a 6% favorable impact from foreign currency. Revenues in the Asia-Pacific region increased 30%, including a 6% unfavorable impact from foreign currency and a 35% increase in Greater China (including an 8% unfavorable impact from foreign currency). Revenues in the Americas region decreased 1%. Global revenues for The North Face ® brand increased 19% and 16% in the three and six months ended September 2023, respectively, compared to the 2022 periods. This includes a 2% and 1% favorable impact from foreign currency in the three and six months ended September 2023, respectively. The increase reflects growth in all regions and channels compared to the three and six months ended September 2022. Revenues in the Europe region increased 38% and 26% in the three and six months ended September 2023, respectively, including a 9% and 7% favorable impact from foreign currency in the respective periods. Revenues in the Asia-Pacific region increased 37% and 41% in the three and six months ended September 2023, respectively, including a 6% unfavorable impact from foreign currency in both periods. Revenues in the Americas region increased 3% and 5% in the three and six months ended September 2023, respectively. Global revenues for the Timberland ® brand decreased 5% and 4% in the three and six months ended September 2023, respectively, compared to the 2022 periods. This includes a 4% and 2% favorable impact from foreign currency in the three and six months ended September 2023, respectively. Revenues in the Americas region decreased 25% and 24% in the three and six months ended September 2023, respectively, including a 1% favorable impact from foreign currency in both periods, driven by declines in the wholesale channel in both periods. Revenues in the Europe region increased 10% and 9% in the three and six months ended September 2023, respectively, including an 8% and 6% favorable impact from foreign currency in the respective periods. Revenues in the Asia-Pacific region increased 6% and 12% in the three and six months ended September 2023, respectively, compared to the 2022 periods, including a 5% and 4% unfavorable impact from foreign currency in the respective periods. Global direct-to-consumer revenues for Outdoor increased 10% and 12% in the three and six months ended September 2023, respectively, compared to the 2022 periods, including a 2% and 1% favorable impact from foreign currency in the respective periods. The increases were primarily due to strength in The North Face ® brand and growth in both our VF-operated retail stores and e-commerce. Global wholesale revenues increased 10% and 8% in the three and six months ended September 2023, respectively, compared to the 2022 periods. The increase includes a 2% and 1% favorable impact from foreign currency in the three and six months ended September 2023, respectively. Operating margin improved in both the three and six months ended September 2023 compared to the 2022 periods primarily due to higher gross margin and leverage of operating expenses due to increased revenues. VF Corporation Q2 FY24 Form 10-Q 30 Table of Contents Active Three Months Ended September Six Months Ended September (Dollars in millions) 2023 2022 Percent Change 2023 2022 Percent Change Segment revenues $ 1,082.3 $ 1,260.1 (14.1) % $ 2,148.3 $ 2,514.1 (14.5) % Segment profit 134.0 180.3 (25.7) % 257.8 394.3 (34.6) % Operating margin 12.4 % 14.3 % 12.0 % 15.7 % The Active segment includes the following brands: Vans ® , Supreme ® , Kipling ® , Napapijri ® , Eastpak ® and JanSport ® . Global revenues for Active decreased 14% in the three months ended September 2023 compared to the 2022 period, including a 2% favorable impact from foreign currency. Revenues in the Americas region decreased 19%, including a 1% favorable impact from foreign currency. Revenues in the Asia-Pacific region decreased 20%, including a 2% unfavorable impact from foreign currency, and a 27% decrease in Greater China (including a 4% unfavorable impact from foreign currency). Revenues in the Europe region decreased 2%, including a 7% favorable impact from foreign currency. Global revenues for Active decreased 15% in the six months ended September 2023 compared to the 2022 period, including a 1% favorable impact from foreign currency. Revenues in the Americas region decreased 20%, including a 1% favorable impact from foreign currency. Revenues in the Asia-Pacific region decreased 9%, including a 4% unfavorable impact from foreign currency, and a 10% decrease in Greater China (including a 5% unfavorable impact from foreign currency). Revenues in the Europe region decreased 5%, including a 4% favorable impact from foreign currency. Vans ® brand global revenues decreased 21% and 22% in the three and six months ended September 2023, respectively, compared to the 2022 periods. This includes a 2% and 1% favorable impact from foreign currency in the three and six months ended September 2023, respectively. The overall declines were most significantly impacted by a 25% and 26% decrease in the Americas region for the three and six months ended September 2023, respectively, including a 1% favorable impact from foreign currency in the three months ended September 2023. Revenues in the Asia-Pacific region decreased 33% and 20% in the three and six months ended September 2023, respectively, including a 2% and 3% unfavorable impact from foreign currency in the respective periods. Revenues in the Europe region decreased 6% and 11% in the three and six months ended September 2023, respectively, including a 6% and 4% favorable impact from foreign currency in the respective periods. Global direct-to-consumer revenues for Active decreased 10% in both the three and six months ended September 2023, compared to the 2022 periods, including a 1% favorable impact from foreign currency in both periods. The decreases were primarily due to declines in the Americas region, which decreased 17% in both the three and six months ended September 2023. Global wholesale revenues decreased 19% and 20% in the three and six months ended September 2023, respectively, including a 4% and 2% favorable impact from foreign currency in the respective periods. The decreases were primarily due to a 25% and 26% decrease in the Americas region in the three and six months ended September 2023, respectively, including a 2% and 1% favorable impact from foreign currency in the respective periods. Wholesale revenues in the Europe region decreased 7% and 11% in the three and six months ended September 2023, respectively, including a 6% and 4% favorable impact from foreign currency in the respective periods. Wholesale revenues in the Asia-Pacific region decreased 43% and 25% in the three and six months ended September 2023, respectively, and included a 2% unfavorable impact from foreign currency in both periods. Operating margin decreased in the three and six months ended September 2023 compared to the 2022 periods, reflecting lower leverage of operating expenses due to decreased revenues. The decrease in the three months ended September 2023 was partially offset by higher gross margin, primarily driven by lower freight cost. The decrease in the six months ended September 2023 was also impacted by increased discounts and other promotional activity. 31 VF Corporation Q2 FY24 Form 10-Q Table of Contents Work Three Months Ended September Six Months Ended September (Dollars in millions) 2023 2022 Percent Change 2023 2022 Percent Change Segment revenues $ 238.3 $ 265.2 (10.1) % $ 428.9 $ 504.0 (14.9) % Segment profit 8.5 39.5 (78.4) % 15.3 74.5 (79.4) % Operating margin 3.6 % 14.9 % 3.6 % 14.8 % The Work segment includes the following brands: Dickies ® and Timberland PRO ® . Global Work revenues decreased 10% in the three months ended September 2023 compared to the 2022 period, including a 1% favorable impact from foreign currency. Revenues in the Americas region decreased 10%. Revenues in the Asia-Pacific region decreased 44%, including a 1% unfavorable impact from foreign currency. Revenues in the Europe region increased 35%, including a 10% favorable impact from foreign currency. Global Work revenues decreased 15% in the six months ended September 2023 compared to the 2022 period. Revenues in the Americas region decreased 17%, including a 1% unfavorable impact from foreign currency. Revenues in the Asia-Pacific region decreased 35%, including a 3% unfavorable impact from foreign currency. Revenues in the Europe region increased 28%, including a 7% favorable impact from foreign currency. Dickies ® brand global revenues decreased 8% and 14% in the three and six months ended September 2023, respectively, compared to the 2022 periods, including a 1% favorable impact from foreign currency in the three months ended September 2023. The decline in the three months ended September 2023 was primarily driven by a decrease in the Asia-Pacific region of 44%, including a 1% unfavorable impact from foreign currency, primarily due to weakness in the wholesale channel. The decline in the three months ended September 2023 was also attributed to a decrease in the Americas region of 7%. The decline in the six months ended September 2023 was primarily driven by a decrease of 16% in the Americas region, reflecting lower inventory replenishment and weakness in certain key U.S. wholesale customer accounts. The decline in the six months ended September 2023 was also attributed to decreases in the Asia-Pacific region of 35%, including a 3% unfavorable impact from foreign currency. Revenues in the Europe region increased 35% and 28% in the three and six months ended September 2023, respectively, including a 10% and 7% favorable impact from foreign currency in the respective periods. Operating margin decreased in the three and six months ended September 2023 compared to the 2022 periods, reflecting lower gross margin resulting from higher material costs and increased inventory reserves, and lower leverage of operating expenses due to decreased revenues. The decreases were partially offset by price increases and channel mix. Reconciliation of Segment Profit to Income (Loss) Before Income Taxes There are three types of costs necessary to reconcile total segment profit to consolidated income (loss) before income taxes. These costs are (i) impairment of goodwill and intangible assets, which is excluded from segment profit because these costs are not part of the ongoing operations of the businesses, (ii) corporate and other expenses, discussed below, and (iii) interest expense, net, which was discussed in the “Consolidated Statements of Operations” section. Three Months Ended September Six Months Ended September (Dollars in millions) 2023 2022 Percent Change 2023 2022 Percent Change Impairment of goodwill and intangible assets $ — $ 421.9 (100.0) % $ — $ 421.9 (100.0) % Corporate and other expenses 79.8 158.2 (49.6) % 179.3 391.5 (54.2) % Interest expense, net 55.6 33.9 64.1 % 105.4 65.2 61.7 % Corporate and other expenses are those that have not been allocated to the segments for internal management reporting, including (i) certain information systems and shared service costs, (ii) corporate headquarters costs, and (iii) certain other income and expenses. The decrease in corporate and other expenses for both the three and six months ended September 2023 was due to lower compensation and administrative costs and lower corporate restructuring charges. The decrease in the six months ended September 2023 was also due to a $91.8 million pension settlement charge recorded in the six months ended September 2022. VF Corporation Q2 FY24 Form 10-Q 32 Table of Contents International Operations International revenues increased 10% and 7% in the three and six months ended September 2023, respectively, compared to the 2022 periods. Foreign currency had a favorable impact of 5% and 2% on international revenues in the three and six months ended September 2023, respectively. In the Asia-Pacific region, revenues increased 2% and 7% in the three and six months ended September 2023, respectively. Foreign currency had an unfavorable impact of 4% on Asia-Pacific revenues in both the three and six months ended September 2023. Revenues in Greater China increased 8% and 14% in the three and six months ended September 2023, respectively, including a 6% unfavorable impact from foreign currency in both periods. The prior year periods were negatively impacted by COVID-19 resurgence in Mainland China. Revenues in the Europe region increased 14% and 8% in the three and six months ended September 2023, respectively, including an 8% and 5% favorable impact from foreign currency in the respective periods. International revenues were 55% and 49% of total revenues in the three-month periods ended September 2023 and 2022, respectively, and 52% and 47% of total revenues in the six-month periods ended September 2023 and 2022, respectively. Direct-to-Consumer Operations Direct-to-consumer revenues decreased 3% in both the three and six months ended September 2023, compared to the 2022 periods, including a 2% favorable impact from foreign currency in the three months ended September 2023. VF's e-commerce business decreased 3% and 4% during the three and six months ended September 2023, respectively, including a 2% favorable impact from foreign currency in the three months ended September 2023. These results were primarily driven by declines in the Active segment e-commerce business, partially offset by growth in the Outdoor segment. Revenues from VF-operated retail stores decreased 4% during both the three and six months ended September 2023, including a 2% and 1% favorable impact from foreign currency in the respective periods. There were 1,251 VF-operated retail stores at September 2023 compared to 1,283 at September 2022. Direct-to-consumer revenues were 37% of total revenues in both the three-month periods ended September 2023 and 2022, and 41% and 40% of total revenues in the six-month periods ended September 2023 and 2022, respectively. Wholesale Operations Wholesale revenues decreased 1% and 5% in the three and six months ended September 2023, respectively, compared to the 2022 periods, including a 2% favorable impact from foreign currency in both periods. These results were due to declines in the Active and Work segments' wholesale business, partially offset by growth in the Outdoor segment. Wholesale revenues were 63% of total revenues in both the three-month periods ended September 2023 and 2022, and 59% and 60% of total revenues in the six-month periods ended September 2023 and 2022, respectively. 33 VF Corporation Q2 FY24 Form 10-Q Table of Contents ANALYSIS OF FINANCIAL CONDITION Consolidated Balance Sheets The following discussion refers to significant changes in balances at September 2023 compared to March 2023: • Increase 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. • Decrease in other assets — primarily due to the write-off of the $875.7 million income tax receivable related to the 2011 taxes and interest disputed in the Timberland tax case due to the unfavorable decision in the case. • Increase in short-term borrowings — primarily due to an increase in commercial paper borrowings. • Decrease in the current portion of long-term debt — due to the repayment of €850.0 million ( $907.1 million) of long-term notes due in September 2023. • Decrease in accrued liabilities — primarily due to the expected net reduction in taxes previously paid on the periodic income inclusions related to the Timberland acquisition. The following discussion refers to significant changes in balances at September 2023 compared to September 2022: • Decrease in inventories — driven by VF reducing elevated inventory levels, primarily in core and replenishment products, resulting from supply chain challenges and softening consumer demand. • Decrease in other current assets — primarily due to a decrease in derivative assets resulting from lower unrealized gains on foreign currency exchange contracts. • Decrease in intangible assets — primarily due to a $148.0 million impairment charge related to the Supreme ® indefinite-lived trademark intangible asset recorded in the fourth quarter of Fiscal 2023. • Decrease in goodwill — primarily due to a $165.1 million impairment charge related to the Supreme reporting unit recorded in the fourth quarter of Fiscal 2023. • Decrease in short-term borrowings — primarily due to a decrease in commercial paper borrowings. • Decrease in the current portion of long-term debt — due to the repayment of €850.0 million ( $907.1 million) of long-term notes due in September 2023. • Decrease in accrued liabilities — primarily due to the expected net reduction in taxes previously paid on the periodic income inclusions related to the Timberland acquisition, and lower accrued compensation and restructuring costs. • 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. • Decrease in other liabilities — primarily due to a decrease in deferred income tax liabilities, including the impacts from the Timberland tax case decision. Liquidity and Capital Resources We consider the following to be measures of our liquidity and capital resources: September March September (Dollars in millions) 2023 2023 2022 Working capital $1,698.7 $1,606.9 $342.3 Current ratio 1.5 to 1 1.5 to 1 1.1 to 1 Net debt to total capital 77.5% 71.6% 68.9% The increase in working capital and the current ratio at September 2023 compared to March 2023 was primarily due to a net increase in current assets driven by higher accounts receivable and inventories as discussed in the "Consolidated Balance Sheets" section above, partially offset by lower cash balances. The increase in working capital and the current ratio at September 2023 compared to September 2022 was primarily due to a net decrease in current liabilities driven by decreased current portion of long-term debt, short-term borrowings and accrued liabilities, partially offset by lower inventories, 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 September 2023 compared to March 2023 was driven by an increase in net debt and a decrease in stockholders' equity for the periods compared. The increase in net debt was driven by an increase in short-term borrowings, partially offset by a decrease in the current portion of long-term debt, as discussed in the "Consolidated Balance Sheet" section above, and lower cash and cash equivalents at September 2023. The decrease in stockholders' equity at September 2023 compared to March 2023 was primarily driven by the net loss for the period and payments of dividends. The increase in the net debt to total capital ratio at September 2023 compared to September 2022 was primarily driven by an increase in net debt 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, partially offset by VF Corporation Q2 FY24 Form 10-Q 34 Table of Contents lower current portion of long-term debt and short-term borrowings as discussed in the "Consolidated Balance Sheet" section above. The decrease in stockholders' equity at September 2023 compared to September 2022 was primarily driven by payments of dividends and the net loss in the period. 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: Six Months Ended September (In thousands) 2023 2022 Cash used by operating activities $ (19,261) $ (913,957) Cash used by investing activities (149,731) (131,704) Cash provided (used) by financing activities (125,901) 408,764 Cash 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 decrease in cash used by operating activities in the six months ended September 2023 compared to September 2022 was primarily due to a decrease in net cash used by working capital driven by lower inventory levels. Cash Used by Investing Activities The increase in cash used by investing activities in the six months ended September 2023 was primarily due to increased capital expenditures of $6.4 million compared to the 2022 period, and proceeds from the sale of assets of $8.9 million included in the six months ended September 2022. Software purchases decreased $5.3 million in the six months ended September 2023 compared to the 2022 period. Cash Provided (Used) by Financing Activities The increase in cash used by financing activities during the six months ended September 2023 was primarily due to a $907.1 million payment of long-term debt in the six months ended September 2023 compared to a $500.0 million payment of long-term debt in the six months ended September 2022. The increase was also due to a $339.4 million net decrease in short-term borrowings for the periods compared. The increase was partially offset by a $57.0 million payment of Supreme contingent consideration in the prior year period and a $155.1 million decrease in dividends paid for the periods compared. Share Repurchases VF did not purchase shares of its Common Stock in the open market during the six months ended September 2023 or the six months ended September 2022 under the share repurchase program authorized by VF's Board of Directors. As of the end of September 2023, VF had $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 and reducing leverage. 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 to the U.S. commercial paper program, VF commenced a euro commercial paper borrowing program during the three months ended September 2023. The Global Credit Facility supports VF’s global commercial paper program for short-term, seasonal working capital requirements and general corporate purposes. Outstanding short-term balances may vary from period to period depending on the level of corporate requirements. 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 and material impacts resulting from adverse legal rulings, as defined in the amended agreement. The covenant calculation also excludes consolidated operating lease liabilities. As of September 2023, VF was in compliance with all covenants. VF has a global 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 $1.0 billion in global commercial paper borrowings as of September 2023 . Standby letters of credit issued under the Global Credit Facility as of September 2023 were $1.0 million, leaving approximately $1.2 billion available for borrowing against the Global Credit Facility at September 2023. Additionally, VF had $498.9 million of cash and equivalents at September 2023. 35 VF Corporation Q2 FY24 Form 10-Q Table of Contents VF has $79.9 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 $14.6 million at September 2023. 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. 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. 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 September 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 U.S. commercial paper ratings by those rating agencies were ‘A-2’ and ‘P-2’, respectively. The Moody's rating for VF's euro commercial paper was also 'P-2' at the end of September 2023. VF's credit rating outlook by S&P and Moody's at the end of September 2023 was 'stable' and 'negative', respectively. On November 2, 2023, S&P updated VF's credit rating outlook to 'negative', while maintaining VF's long-term debt rating of 'BBB' and commercial paper rating of 'A-2'. 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 and $0.60 per share during the three and six months ended September 2023, respectively, and the Company has declared a cash dividend of $0.09 per share that is payable in the third 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 “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 based on the technical merits of our position with regards to the case and began to accrue interest income. 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 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 the decision. The estimated impact is subject to future adjustments based on finalization with tax authorities. 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 September 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 $948.0 million at the end of September 2023 primarily due to timing of inventory shipments, overall inventory levels that remain elevated 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. VF Corporation Q2 FY24 Form 10-Q 36 Table of Contents 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. Except as disclosed in Note 2 to VF's consolidated financial statements, there have been no material changes in VF's accounting policies 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. Refer to Note 16 to VF's consolidated financial statements for additional information regarding VF's critical accounting policies and estimates during Fiscal 2024. 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 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 execute its transformation and other business strategies, including cost reduction and productivity initiatives and the update and maintenance of 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; actions of activist and other shareholders; 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, 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 conflicts in Ukraine and the Middle East; 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 37 VF Corporation Q2 FY24 Form 10-Q Table of Contents 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.