V F CORP 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW VF Corporation (together with its subsidiaries, collectively known as “VF” or the "Company”) is a global leader in the design, procurement, marketing and distribution of branded lifestyle apparel, footwear and accessories. VF’s diverse portfolio meets consumer needs across a broad spectrum of activities and lifestyles. VF is diversified across brands, product categories, channels of distribution, geographies and consumer demographics. We own a broad portfolio of brands in the outerwear, footwear, apparel, backpack, luggage and accessories categories. Our products are marketed to consumers through our wholesale channel, primarily in specialty stores, national chains, mass merchants, department stores, independently-operated partnership stores and with strategic digital partners. Our products are also marketed to consumers through our own direct-to-consumer operations, which include VF-operated stores, concession retail stores, brand e-commerce sites and other digital platforms. VF is organized by groupings of brands and businesses represented by its reportable segments for financial reporting purposes. The three reportable segments are Outdoor, Active and Work. BASIS OF PRESENTATION VF operates and reports using a 52/53 week fiscal year ending on the Saturday closest to March 31 of each year. All references to the years ended March 2024 ("Fiscal 2024"), March 2023 ("Fiscal 2023") and March 2022 ("Fiscal 2022") relate to the 52-week fiscal years ended March 30, 2024, April 1, 2023, and April 2, 2022, respectively. The following discussion and analysis focuses on our financial results for the years ended March 2024 and 2023 and year-to-year comparisons between these years. A discussion of our results of operations for the year ended March 2023 compared to the year ended March 2022 is included in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended April 1, 2023 , filed with the SEC on May 25, 2023, and is incorporated by reference into this Form 10-K. All per share amounts are presented on a diluted basis. All percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers. References to the year ended March 2024 foreign currency amounts and impacts below reflect the changes in foreign exchange rates from the year ended March 2023 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. 26 VF Corporation Fiscal 2024 Form 10-K Table of Contents RECENT DEVELOPMENTS Cybersecurity Incident On December 13, 2023, VF detected unauthorized occurrences on a portion of its information technology ("IT") systems. Upon detecting the unauthorized occurrences, VF began taking steps to contain, assess and remediate the incident, including beginning an investigation with leading external cybersecurity experts, activating its incident response plan, and shutting down some systems. As a result of these and other measures, VF believes the threat actor was ejected from VF’s IT systems on December 15, 2023. The threat actor disrupted VF’s business operations by encrypting some IT systems, and stole data from VF, including personal data. After VF shut down some of its systems, VF experienced disruption to certain of its operations, including interrupted replenishment of retail store inventory and delayed order fulfillment which had impacts such as the cancellation by customers and consumers of some product orders, reduced demand on certain of its brands’ e-commerce sites, and delay of some wholesale shipments. As of April 25, 2024, VF's investigation of the cybersecurity incident has concluded. VF believes the impacts of the cybersecurity incident were not material to its financial condition or results of operations. VF is seeking reimbursement of costs, expenses and losses stemming from the cybersecurity incident by submitting claims to VF’s cybersecurity insurers. The timing and amount of any such reimbursements are not known at this time. 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 Global Brand President of Vans ® has stepped down from the position. VF's CEO is serving as the brand president on an interim basis until a permanent brand president is appointed. • 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 charges and project-related costs in Fiscal 2024 were $105.4 million, which primarily included costs associated with severance and employee-related benefits and the net impact of asset disposals and write-downs. Dividend Update On October 24, 2023, the Board of Directors declared a quarterly dividend of $0.09 per share that was paid during the third quarter of Fiscal 2024, which represented 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 was 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. On May 14, 2024, the Board of Directors declared a quarterly dividend of $0.09 p er share to be paid during the first quarter of Fiscal 2025. Impact of Global Events and Uncertainties Although it did not have a significant impact in the current year, the coronavirus ("COVID-19") pandemic resulted in temporary closures of VF-operated retail stores in Fiscal 2023, most notably in the Asia-Pacific region, which impacted revenues in the region for the year ended March 2023. The ongoing conflict between Russia and Ukraine and the 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 regarding recent developments, see "Item 1A. Risk Factors." VF Corporation Fiscal 2024 Form 10-K 27 Table of Contents SUMMARY OF THE YEAR ENDED MARCH 2024 • Revenues decreased 10% to $10.5 billion compared to the year ended March 2023, including a 1% favorable impact from foreign currency. • Outdoor segment revenues decreased 3% to $5.5 billion compared to the year ended March 2023, including a 1% favorable impact from foreign currency. • Active segment revenues decreased 17% to $4.1 billion compared to the year ended March 2023, including a 1% favorable impact from foreign currency. • Work segment revenues decreased 16% to $891.5 million compared to the year ended March 2023. • Wholesale revenues were down 14% compared to the year ended March 2023, including a 1% favorable impact from foreign currency. • Direct-to-consumer revenues were down 5% compared to the year ended March 2023, including a 1% favorable impact from foreign currency. E-commerce revenues decreased 8% in the year ended March 2024. Direct-to-consumer revenues accounted for 47% of VF’s total revenues in the year ended March 2024. • International revenues increased 1% compared to the year ended March 2023, including a 2% favorable impact from foreign currency. Revenues in Europe were flat, including a 4% favorable impact from foreign currency. Revenues in the Asia-Pacific region increased 3%, including a 4% unfavorable impact from foreign currency. International revenues represented 54% of VF’s total revenues in the year ended March 2024. • Revenues in the Americas region decreased 18% compared to the year ended March 2023, including a 1% favorable impact from foreign currency. • Gross margin decreased 50 basis points to 52.0% in the year ended March 2024 compared to the year ended March 2023, primarily driven by unfavorable foreign currency impacts, partially offset by favorable mix. • Earnings (loss) per share decreased to $(2.49) in the year ended March 2024 from $0.31 in the year ended March 2023. The decrease was primarily driven by increased tax expense due to the unfavorable decision in the Timberland tax case and lower profitability across all segments in the year ended March 2024. ANALYSIS OF RESULTS OF OPERATIONS Consolidated Statements of Operations The following table presents a summary of the changes in net revenues for the year ended March 2024 compared to the year ended March 2023: (In millions) Year Ended March Net revenues — 2023 $ 11,612.5 Organic (1,265.3) Impact of foreign currency 107.5 Net revenues — 2024 $ 10,454.7 Year Ended March 2024 Compared to Year Ended March 2023 VF reported a 10% decrease in revenues in Fiscal 2024 compared to Fiscal 2023, including a 1% favorable impact from foreign currency . The revenue decrease was attributed to declines across all segments, most notably in the Active and Work segments. The revenue decrease was primarily driven by weakness in the Americas region wholesale channel, partially offset by overall growth in the Asia-Pacific region. The Asia-Pacific region was negatively impacted by COVID-19 resurgence in Mainland China in Fiscal 2023 . Additional details on revenues are provided in the section titled “Information by Reportable Segment”. The following table presents the percentage relationship to net revenues for components of the Consolidated Statements of Operations: Year Ended March 2024 2023 Gross margin (net revenues less cost of goods sold) 52.0 % 52.5 % Selling, general and administrative expenses 47.4 43.4 Impairment of goodwill and intangible assets 4.9 6.3 Operating margin (0.3) % 2.8 % 28 VF Corporation Fiscal 2024 Form 10-K Table of Contents Year Ended March 2024 Compared to Year Ended March 2023 Gross margin decreased 50 basis points to 52.0% in Fiscal 2024 compared to 52.5% in Fiscal 2023. The decrease in gross margin in Fiscal 2024 was driven by unfavorable foreign currency impacts, partially offset by favorable mix. Selling, general and administrative expenses as a percentage of total revenues increased 400 basis points in Fiscal 2024 compared to Fiscal 2023. Selling, general and administrative expenses decreased $70.3 million in Fiscal 2024 compared to Fiscal 2023 . The decrease was due to lower distribution costs, compensation and administrative costs and direct-to-consumer expenses, partially offset by higher information technology costs and Reinvent charges. During the year ended March 2024 , VF recorded goodwill impairment charges of $507.6 million related to the Timberland, Dickies and Icebreaker reporting units. During the third quarter of Fiscal 2024, VF determined that a triggering event had occurred requiring a quantitative analysis of the Timberland and Dickies reporting units, and as a result of the impairment testing performed, VF recorded goodwill impairment charges of $195.3 million and $61.8 million, respectively . As a result of VF's annual impairment testing as of the beginning of the fourth quarter of Fiscal 2024, VF recorded a goodwill impairment charge of $38.8 million related to the Icebreaker reporting unit. During the fourth quarter of Fiscal 2024, VF also performed an impairment analysis of the Timberland reporting unit as a result of a triggering event, and recorded an additional goodwill impairment charge of $211.7 million. VF recorded goodwill and intangible asset impairment charges of $394.1 million and $340.9 million, respectively, in the year ended March 2023 related to the Supreme reporting unit. During the second quarter of Fiscal 2023, VF determined that a triggering event had occurred requiring a quantitative analysis of the Supreme reporting unit goodwill and indefinite-lived trademark intangible asset. As a result of the impairment testing performed, VF recorded impairment charges of $229.0 million and $192.9 million to the Supreme reporting unit goodwill and indefinite-lived trademark intangible asset, respectively. During the fourth quarter of Fiscal 2023 , in connection with its ann ual impairment testing, VF performed a quantitative analysis of the Supreme reporting unit goodwill and indefinite-lived trademark intangible asset. As a result of the impairment testing performed, VF recorded additional impairment charges of $165.1 million and $148.0 million to the Supreme reporting unit goodwill and indefinite-lived trademark intangible asset, respectively. In Fiscal 2024, operating margin decreased to (0.3)% from 2.8% in Fiscal 2023, primarily due to the items described above. Net interest expense increased $58.8 million to $223.4 million in Fiscal 2024. The increase in net interest expense 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. T otal outstanding interest-bearing debt averaged $6.7 billion and $6.2 billion for Fiscal 2024 and Fiscal 2023, respectively, with short-term borrowings representing 5.8% and 16.8% of average debt outstanding for the respective years. The weighted average interest rate on outstanding debt was 3.5% in Fiscal 2024 and 2.6% in Fiscal 2023. Other income (expense), net primarily consists of components of net periodic pension cost (excluding the service cost component), certain foreign currency and hedging gains and losses and other non-operating gains and losses. Other income (expense) netted to $23.8 million and $(119.8) million in Fiscal 2024 and Fiscal 2023, re spectively. Other income (expense), net in Fiscal 2024 primarily included legal settlement gains of $29.1 million, $3.2 million of net periodic pension cost and $2.9 million of foreign currency and hedging losses . Other income (expense), net in Fiscal 2023 primarily included a $91.8 million pension settlement charge, 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, and $23.0 million of foreign currency and hedging losses . The effective income tax rate was (314.6)% in Fiscal 2024 compared to (174.0)% in Fiscal 2023. The Fiscal 2024 effective income tax rate included a net discrete tax expense of $704.6 million, primarily related to the tax effects of decisions in the Timberland tax case and Belgium excess profits ruling. Refer to Note 20 to VF's consolidated financial statements for additional information. The $704.6 million net discrete tax expense in Fiscal 2024 decreased the effective income tax rate by 301.5% compared to a favorable 223.5% impact of discrete items for Fiscal 2023. Excluding discrete items, the effective tax rate during Fiscal 2024 decreased by approximately 62.6% primarily due to the jurisdictional mix of earnings and losses and the impact of nondeductible goodwill impairment in Fiscal 2024, resulting in a consolidated pre-tax loss. As a result of the above, net income (loss) in Fiscal 2024 was $(968.9) million ($(2.49) per diluted share), compared to $118.6 million ($0.31 per diluted share) in Fiscal 2023. Refer to additional discussion in the “Information by Reportable Segment” section below. Information by Reportable Segment VF's reportable segments are: Outdoor, Active and Work. We have included an Other category in the tables below for purposes of reconciliation of revenues and profit, but it is not considered a reportable segment. Other primarily includes sourcing activities related to transition services. The primary financial measures used by management to evaluate the financial results of VF's reportable segments are segment revenues and segment profit. Segment profit comprises the operating income and other income (expense), net line items of each segment. Refer to Note 21 to the consolidated financial statements for a summary of results of operations by segment, along with a reconciliation of segment profit to income before income taxes. VF Corporation Fiscal 2024 Form 10-K 29 Table of Contents Year Ended March 2024 Compared to Year Ended March 2023 The following tables present a summary of the changes in segment revenues and profit in the year ended March 2024 compared to the year ended March 2023 and revenues by region for our Top 4 brands for the years ended March 2024 and 2023: Segment Revenues: Year Ended March (In millions) Outdoor Active Work Other Total Segment revenues — 2023 $ 5,647.5 $ 4,904.6 $ 1,060.2 $ 0.1 $ 11,612.5 Organic (208.7) (886.6) (169.9) (0.1) (1,265.3) Impact of foreign currency 62.6 43.7 1.2 — 107.5 Segment revenues — 2024 $ 5,501.4 $ 4,061.7 $ 891.5 $ — $ 10,454.7 Segment Profit (Loss): Year Ended March (In millions) Outdoor Active Work Other Total Segment profit (loss) — 2023 $ 785.4 $ 654.7 $ 121.2 $ (0.5) $ 1,560.7 Organic (195.6) (311.2) (105.1) 0.5 (611.2) Impact of foreign currency 12.9 8.7 1.5 — 23.1 Segment profit — 2024 $ 602.7 $ 352.2 $ 17.6 $ — $ 972.6 Note: Amounts may not sum due to rounding. Top Brand Revenues: Year Ended March 2024 (In millions) The North Face ® Vans ® Timberland ® (a) Dickies ® Total Americas $ 1,704.4 $ 1,708.2 $ 682.7 $ 437.2 $ 4,532.5 Europe 1,312.5 726.3 641.3 113.4 2,793.5 Asia-Pacific 656.4 351.2 233.0 67.8 1,308.4 Global $ 3,673.3 $ 2,785.7 $ 1,556.9 $ 618.4 $ 8,634.4 Year Ended March 2023 (In millions) The North Face ® Vans ® Timberland ® (a) Dickies ® Total Americas $ 1,896.4 $ 2,380.5 $ 933.6 $ 513.6 $ 5,724.1 Europe 1,198.7 838.3 632.4 107.4 2,776.8 Asia-Pacific 517.6 464.1 218.7 104.2 1,304.6 Global $ 3,612.7 $ 3,682.9 $ 1,784.7 $ 725.2 $ 9,805.5 (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. 30 VF Corporation Fiscal 2024 Form 10-K Table of Contents The following sections discuss the changes in revenues and profitability by segment. For purposes of this analysis, royalty revenues have been included in the wholesale channel for all periods. Outdoor Year Ended March (Dollars in millions) 2024 2023 Percent Change Segment revenues $ 5,501.4 $ 5,647.5 (2.6) % Segment profit 602.7 785.4 (23.3) % Operating margin 11.0 % 13.9 % The Outdoor segment includes the following brands: The North Face ® , Timberland ® , Smartwool ® , Altra ® and Icebreaker ® . Year Ended March 2024 Compared to Year Ended March 2023 Global revenues for Outdoor decreased 3% in Fiscal 2024 compared to Fiscal 2023, including a 1% favorable impact due to foreign currency. Revenues in the Americas region decreased 14% in Fiscal 2024, including a 1% favorable impact from foreign currency. Revenues in the Asia-Pacific region increased 20% in Fiscal 2024, including a 5% unfavorable impact from foreign currency and a 27% increase in Greater China (which includes Mainland China, Hong Kong and Taiwan), including a 5% unfavorable impact from foreign currency. Revenues in the Europe region increased 6%, including a 4% favorable impact from foreign currency. Global revenues for The North Face ® brand increased 2% in Fiscal 2024, including a 1% favorable impact from foreign currency. The increase in the year ended March 2024 was driven by growth in the Asia-Pacific and Europe regions. Revenues in the Asia-Pacific region increased 27% in Fiscal 2024, including a 4% unfavorable impact from foreign currency. Revenues in the Europe region increased 9% in Fiscal 2024, including a 4% favorable impact from foreign currency. Revenues in the Americas region decreased 10% in the year ended March 2024. Global revenues for the Timberland ® brand decreased 11% in Fiscal 2024, including a 2% favorable impact from foreign currency. The overall decline was most significantly driven by a 32% decrease in the Americas region in the year ended March 2024, including a 1% favorable impact from foreign currency. Revenues in the Asia-Pacific region increased 7% in Fiscal 2024, including a 3% unfavorable impact from foreign currency. Revenues in the Europe region increased 1% in the year ended March 2024, including a 4% favorable impact from foreign currency. Global direct-to-consumer revenues for Outdoor increased 3% in Fiscal 2024. Th e increase was primarily due to The North Face ® brand in the Asia-Pacific and Europe regions. Global wholesale revenues decreased 7% in Fiscal 2024, including a 1% favorable impact from foreign currency. The decrease was primarily driven by declines in the Americas regions. Operating margin decreased in Fiscal 2024 compared to Fiscal 2023, reflecting increased direct-to-consumer expenses and higher information technology costs. The decrease was partially offset by higher gross margin, primarily driven by favorable pricing and mix, partially offset by unfavorable foreign currency impacts. Active Year Ended March (Dollars in millions) 2024 2023 Percent Change Segment revenues $ 4,061.7 $ 4,904.6 (17.2) % Segment profit 352.2 654.7 (46.2) % Operating margin 8.7 % 13.3 % The Active segment includes the following brands: Vans ® , Supreme ® , Kipling ® , Napapijri ® , Eastpak ® and JanSport ® . Year Ended March 2024 Compared to Year Ended March 2023 Global revenues for Active decreased 17% in Fiscal 2024 compared to Fiscal 2023, including a 1% favorable impact from foreign currency. Revenues in the Americas region decreased 23% in Fiscal 2024. Revenues in the Europe region decreased 8% in the year ended March 2024, including a 4% favorable impact from foreign currency. Revenues in the Asia-Pacific region decreased 12% in Fiscal 2024, including a 3% unfavorable impact from foreign currency, and an 18% decrease in Greater China, including a 3% unfavorable impact from foreign currency. Vans ® brand global revenues decreased 24% in Fiscal 2024, including a 1% favorable impact from foreign currency. The overall decline in Fiscal 2024 was most significantly driven by a 28% decrease in the Americas region, including a 1% favorable impact from foreign currency. Revenues in the Asia-Pacific region decreased 24% in the year ended March 2024, including a 2% unfavorable impact from foreign currency. The declines in the Americas and Asia-Pacific regions include the impact of strategic wholesale channel reset actions taken during Fiscal 2024. Revenues in the Europe region decreased 13% in Fiscal 2024, including a 3% favorable impact from foreign currency. Global direct-to-consumer revenues for Active decreased 12% in Fiscal 2024. The decrease was primarily due to declines in the Americas region, which decreased 17% in Fiscal 2024, including a 1% favorable impact from foreign currency . Global wholesale VF Corporation Fiscal 2024 Form 10-K 31 Table of Contents revenues for Active decreased 24% in Fiscal 2024, and included a 2% favorable impact from foreign currency. The decrease in Fiscal 2024 was primarily due to a 32% decrease in the Americas region, including a 1% favorable impact from foreign currency. Wholesale revenues in the Europe region decreased 14% in the year ended March 2024 , including a 3% favorable impact from foreign currency. Wholesale revenues in the Asia-Pacific region decreased 25%, including a 1% unfavorable impact from foreign currency. Operating margin decreased in Fiscal 2024 compared to Fiscal 2023, reflecting lower leverage of operating expenses due to decreased revenues. The decrease was also due to lower gross margin, primarily driven by unfavorable foreign currency impacts, partially offset by favorable mix . The decrease was partially offset by legal settlement gains of $29.1 million. Work Year Ended March (Dollars in millions) 2024 2023 Percent Change Segment revenues $ 891.5 $ 1,060.2 (15.9) % Segment profit 17.6 121.2 (85.4) % Operating margin 2.0 % 11.4 % The Work segment includes the following brands: Dickies ® and Timberland PRO ® . Year Ended March 2024 Compared to Year Ended March 2023 Global Work revenues decreased 16% in Fiscal 2024 compared to Fiscal 2023. Revenues in the Americas region decreased 16% in Fiscal 2024. Revenues in the Asia-Pacific region decreased 35%, including a 3% unfavorable impact from foreign currency. Revenues in the Europe region increased 6%, including a 5% favorable impact from foreign currency. Dickies ® brand global revenues decreased 15% in Fiscal 2024. The decline was primarily driven by a decrease in the Americas region of 15%, reflecting lower inventory replenishment and weakness with certain key U.S. wholesale customer accounts . The decline in the year ended March 2024 was also attributed to a decrease in the Asia-Pacific region of 35%, including a 3% unfavorable impact from foreign currency, primarily due to broad-based weakness in Greater China. Revenues in the Europe region increased 6% in the year ended March 2024, including a 5% favorable impact from foreign currency. Operating margin decreased in Fiscal 2024 compared to Fiscal 2023, reflecting lower gross margin resulting from higher distressed inventory reserves and higher material costs, and lower leverage of operating expenses due to decreased revenues. The decrease was partially offset by price increases and favorable mix. Reconciliation of Segment Profit to Consolidated Income (Loss) Before Income Taxes There are three types of costs necessary to reconcile total segment profit to consolidated income (loss) from continuing operations before income taxes. These costs are (i) impairment of goodwill and indefinite-lived intangible assets, which is excluded from segment profit because these costs are not part of the ongoing operations of the respective businesses, (ii) corporate and other expenses, which are excluded from segment profit to the extent they are not allocated to the segments, and (iii) interest expense, net, which is excluded from segment profit because substantially all financing costs are managed at the corporate office and are not under the control of segment management. Impairment of goodwill and indefinite-lived intangible assets and net interest expense are discussed in the “Consolidated Statements of Operations” section, and corporate and other expenses are discussed below. Year Ended March (In millions) 2024 2023 Percent Change Impairment of goodwill and intangible assets $ 507.6 $ 735.0 (30.9) % Corporate and other expenses 475.3 617.8 (23.1) % Interest expense, net 223.4 164.6 35.7 % Corporate and other expenses are those that have not been allocated to the segments for internal management reporting, including (i) information systems and shared service costs, (ii) corporate headquarters costs, and (iii) certain other income and expenses. Information Systems and Shared Services These costs include management information systems and the centralized finance, supply chain and human resources functions that support worldwide operations. The costs also include software system implementations and upgrades and other strategic projects. Operating costs of information systems and shared services are charged to the segments based on utilization of those services. Costs to develop new software and related applications are generally not allocated to the segments. Corporate Headquarters’ Costs Headquarters’ costs include compensation and benefits of corporate management and staff, legal and professional fees, 32 VF Corporation Fiscal 2024 Form 10-K Table of Contents and general and administrative expenses that have not been allocated to the segments. Other This category includes (i) costs of corporate programs or corporate-managed decisions that are not allocated to the segments, (ii) costs of registering, maintaining and enforcing certain of VF’s trademarks, and (iii) miscellaneous consolidated activities, the most significant of which is related to VF’s centrally-managed U.S. defined benefit pension plans. Corporate and other expenses decreased $142.5 million in Fiscal 2024 when compared to Fiscal 2023. The decrease was primarily due to a $91.8 million pension settlement charge recorded in the first quarter of Fiscal 2023. The decrease was also attributed to lower compensation and administrative costs and lower foreign currency and hedging losses, partially offset by Reinvent charges in Fiscal 2024. International International revenues increased 1% in Fiscal 2024 compared to Fiscal 2023. Foreign currency had a favorable impact of 2% on international revenues in Fiscal 2024 . Revenues in the Europe region were flat in Fiscal 2024, including a 4% favorable impact from foreign currency. In the Asia-Pacific region, revenues increased 3% in Fiscal 2024, including a 4% unfavorable impact from foreign currency. Revenues in Greater China increased 9% in Fiscal 2024, including a 4% unfavorable impact from foreign currency. The year ended March 2023 was negatively impacted by COVID-19 resurgence in Mainland China. Revenues in the Americas (non-U.S.) region decreased 3% in Fiscal 2024, including a 3% favorable impact from foreign currency. International revenues were 54% of total VF revenues in Fiscal 2024 compared to 48% in Fiscal 2023. Direct-to-Consumer Direct-to-consumer revenues decreased 5% in Fiscal 2024 compared to Fiscal 2023, including a 1% favorable impact from foreign currency. VF's e-commerce business declined 8% in Fiscal 2024. The decrease was primarily driven by declines in the e-commerce business in the Americas region. Revenues from VF-operated retail stores decreased 5% in Fiscal 2024, including a 1% favorable impact from foreign currency. VF opened 81 stores in Fiscal 2024, bringing the total number of VF-owned retail stores to 1,185 at March 2024, which also reflects 161 store closures during the period. There were 1,265 VF-owned retail stores at March 2023. Direct-to-consumer revenues were 47% of total VF revenues in Fiscal 2024 compared to 45% in Fiscal 2023. Wholesale Wholesale revenues decreased 14% in Fiscal 2024 compared to Fiscal 2023, including a 1% favorable impact from foreign currency. The results were primarily driven by declines in the wholesale business in the Americas region. Wholesale revenues were 53% of total revenues in Fiscal 2024 compared to 55% in Fiscal 2023. ANALYSIS OF FINANCIAL CONDITION Balance Sheets The following discussion refers to significant changes in balances at March 2024 compared to March 2023: • Decrease in accounts receivable — primarily due to lower wholesale shipments. • Decrease in inventories — driven by VF reducing elevated inventory levels, primarily in core and replenishment products. • Decrease in property, plant and equipment — primarily due to asset disposals, write-downs and reclassifications to current assets held-for-sale. • Decrease in goodwill — primarily due to $507.6 million in impairment charges related to the Timberland, Dickies and Icebreaker reporting units recorded in Fiscal 2024. • Decrease in other assets — primarily due to the write-off of the $875.7 million income tax receivable in the second quarter of Fiscal 2024 due to the unfavorable decision in the Timberland tax case related to 2011 taxes and interest disputed with the Internal Revenue Service ("IRS"). • Increase in short-term borrowings — primarily due to an increase in commercial paper borrowings. • Decrease in accounts payable — primarily driven by lower inventory purchases and the timing of payments to vendors. • Decrease in accrued liabilities — primarily due to lower accrued income taxes. • Decrease in long-term debt — due to the reclassification of $1.0 billion of long-term debt due in December 2024 related to our delayed draw Term Loan Agreement (the "DDTL Agreement"). VF Corporation Fiscal 2024 Form 10-K 33 Table of Contents Liquidity and Cash Flows We consider the following to be measures of our liquidity and capital resources: (Dollars in millions) March 2024 March 2023 Working capital $770.0 $1,606.9 Current ratio 1.2 to 1 1.5 to 1 Net debt to total capital 80.3% 71.6% The decrease in working capital and the current ratio at March 2024 compared to March 2023 was primarily due to a net decrease in current assets driven by lower accounts receivable and inventories for the periods compared, as discussed in the "Balance Sheets" section above. For the ratio of net debt to total capital above, 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 March 2024 compared to March 2023 was driven by a decrease in stockholders' equity, partially offset by a decrease in net debt for the periods compared. The decrease in stockholders' equity was primarily driven by the net loss in the period and payments of dividends. The decrease in net debt was driven by the repayment of €850.0 million in aggregate principal amount of Senior Notes due in September 2023, partially offset by higher short-term borrowings, as discussed in the "Balance Sheets" section above. 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 were as follows: Year Ended March (In millions) 2024 2023 Cash provided (used) by operating activities $ 1,014.6 $ (655.8) Cash used by investing activities (172.3) (188.1) Cash provided (used) by financing activities (959.6) 463.9 Cash Provided (Used) by Operating Activities Cash flows related to operating activities are dependent on net income (loss), adjustments to net income (loss) and changes in working capital. The increase in cash provided by operating activities in Fiscal 2024 compared to Fiscal 2023 was primarily due to a decrease in net cash used by working capital driven by lower accounts receivable and inventory balances in Fiscal 2024, and the $875.7 million payment related to the Timberland tax case in the prior year. The increase in cash provided by operating activities was partially offset by lower earnings for the periods compared. Cash Used by Investing Activities The decrease in cash used by investing activities in Fiscal 2024 compared to Fiscal 2023 was primarily due to the liquidation of a life insurance contract investment of $39.7 million, decreased software purchases of $30.2 million and decreased capital expenditures of $20.1 million, partially offset by lower proceeds from the sale of assets of $72.9 million compared to the Fiscal 2023 period. Cash Provided (Used) by Financing Activities The increase in cash used by financing activities in Fiscal 2024 compared to Fiscal 2023 was primarily due to a $907.1 million payment of long-term debt in Fiscal 2024, compared to the issuance of €1.0 billion euro-denominated fixed rate notes, borrowings of $1.0 billion under the DDTL Agreement and a $500.0 million payment of long-term debt in Fiscal 2023. The increase was partially offset by a $579.1 million net increase in short-term borrowings for the periods compared, a $57.0 million payment of Supreme contingent consideration in Fiscal 2023 and a $399.7 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 Fiscal 2024 or Fiscal 2023 under the share repurchase program authorized by VF's Board of Directors. As of the end of Fiscal 2024, 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 34 VF Corporation Fiscal 2024 Form 10-K Table of Contents Credit Facility to exceed five years, subject to stated terms and conditions; however, granting of any extension is at the discretion of the lenders. 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. 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 April 2024, 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. Additionally, the amended agreement restricts the total amount of cash dividends and share repurchases to $500.0 million annually, on a calendar-year basis. As of March 2024, 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 $250.0 million in U.S. commercial paper borrowings as of March 2024. In addition to the U.S. commercial paper program, VF commenced a euro commercial paper borrowing program during the second quarter of Fiscal 2024. As of March 2024, there were no outstanding euro commercial paper borrowings under this program. Standby letters of credit issued under the Global Credit Facility as of March 2024 were $0.6 million, leaving approximately $2.0 billion available for borrowing against the Global Credit Facility at March 2024, subject to applicable financial covenants. VF has $81.2 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 $13.9 million at March 2024. Borrowings under these arrangements had a weighted average interest rate of 51.6% at March 2024. Additionally, VF had $674.6 million of unrestricted cash and equivalents at March 2024. 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 inventory suppliers 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 March 2024 and 2023 , the accounts payable line item in VF's Consolidated Balance Sheets included total outstanding obligations of $485.0 million and $510.9 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. The change is not expected to have a material impact on VF's long-term overall liquidity or capital resources. Rating Agencies At the end of March 2024 , VF’s long-term debt ratings were ‘BBB-’ by Standard & Poor’s ("S&P") Global Ratings and ‘Baa3’ by Moody’s Investors Service ("Moody's"), and U.S. commercial paper ratings by those rating agencies were ‘A-3’ and ‘P-3’, respectively. The Moody's rating for VF's euro commercial paper was also 'P-3' at the end of March 2024 . There is no active market for euro commercial paper based on VF's current rating. VF's credit rating outlook by both S&P and Moody's at the end of March 2024 was 'negative'. VF’s credit agency ratings allow for access to additional liquidity at competitive rates. Further downgrades to VF's ratings would negatively impact borrowing costs. 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 Cash dividends totaled $0.78 per share in Fiscal 2024 compared to $1.81 in Fiscal 2023. The dividend payout ratio was (31.3)% of diluted earnings (loss) per share in Fiscal 2024 compared to 592.8% in Fiscal 2023. The Company declared a dividend of $0.09 per share that is payable in the first quarter of Fiscal 2025. 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 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 VF Corporation Fiscal 2024 Form 10-K 35 Table of Contents 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 second quarter of Fiscal 2024. This amount included 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 Following is a summary of VF’s material contractual obligations and commercial commitments at the end of March 2024 that will require the use of funds: Payment Due or Forecasted by Fiscal Year (In millions) Total 2025 2026 2027 2028 2029 Thereafter Recorded liabilities: Long-term debt (1) $ 5,741 $ 1,001 $ 1,291 $ 2 $ 1,041 $ 541 $ 1,865 Operating leases (2) 1,626 355 312 267 190 126 376 Unrecorded commitments: Interest payment obligations (3) 928 183 128 104 91 89 332 Inventory obligations (4) 2,421 2,344 73 3 — — — $ 10,715 $ 3,884 $ 1,805 $ 376 $ 1,322 $ 756 $ 2,572 Note: Amounts may not sum due to rounding. (1) Long-term debt consists of required undiscounted principal payments on long-term debt and finance lease obligations. (2) Operating leases represent required undiscounted lease payments during the noncancelable lease term. Variable payments for occupancy-related costs, real estate taxes, insurance and contingent rent are not included above. In addition, $82.3 million of leases (on an undiscounted basis) that have not yet commenced with terms of 1 to 15 years beginning primarily in Fiscal 2025 are not included above. (3) Interest payment obligations represent required interest payments on long-term debt. Amounts exclude amortization of debt issuance costs, debt discounts and acquisition costs that would be included in interest expense in the consolidated financial statements. (4) Inventory obligations represent binding commitments to purchase finished goods and raw materials that are payable upon VF taking ownership of the inventory. This obligation excludes the amount included in accounts payable at March 2024 related to inventory purchases. VF had other financial commitments at the end of Fiscal 2024 that are not included in the above table but may require the use of funds under certain circumstances: • $106.3 million of surety bonds, custom bonds, standby letters of credit and international bank guarantees are not included in the table above because they represent contingent guarantees of performance under self-insurance and other programs and would only be drawn upon if VF were to fail to meet its other obligations. • Purchase orders for goods or services in the ordinary course of business are not included in the above table because they represent authorizations to purchase rather than binding commitments. Management believes that VF has sufficient liquidity and flexibility to operate its business and meet its current and long-term obligations as they become due. VF does not participate in transactions with unconsolidated entities or financial partnerships that are reasonably likely to have a material impact on the Company. Risk Management VF is exposed to risks in the ordinary course of business. Management regularly assesses and manages exposures to these risks through operating and financing activities and, when appropriate, by (i) taking advantage of natural hedges within VF, (ii) purchasing insurance from commercial carriers, or (iii) using derivative financial instruments. Some potential risks are discussed below: Insured risks VF is self-insured for a significant portion of its employee medical, workers’ compensation, vehicle and general liability exposures. VF purchases insurance from highly-rated commercial carriers to cover other risks, including directors and officers, cyber, property, stock throughput, employment practices, wage and hour and umbrella, and to establish stop-loss limits on self-insurance arrangements. 36 VF Corporation Fiscal 2024 Form 10-K Table of Contents Cash and equivalents risks VF had $674.6 million of cash and equivalents at the end of Fiscal 2024. Management continually monitors the credit ratings of the financial institutions with whom VF conducts business and geopolitical risks that may impact countries where VF has cash balances. Management also monitors the credit quality of cash equivalents. Defined benefit pension plan risks At the end of Fiscal 2024, VF’s defined benefit pension plans were overfunded by a net total of $89.9 million. The overfunded status includes a $54.0 million liability related to our U.S. unfunded supplemental defined benefit plan, $30.4 million of net liabilities related to our non-U.S. defined benefit plans, and a $174.3 million net asset related to our U.S. qualified defined benefit plan. VF will continue to evaluate the funded status and future funding requirements of these plans, which depends in part on the future performance of the plans’ investment portfolios. Management believes that VF has sufficient liquidity to make any required contributions to the pension plans in future years. VF’s reported earnings are subject to risks due to the volatility of its pension cost (income), which has ranged in recent years from cost of $101.9 million in the year ended March 2023 to income of $7.3 million in the year ended March 2022. These fluctuations are primarily due to differences in the amount of settlement charges recorded in the respective periods. The changes are also impacted by varying amounts of actuarial gains and losses that are deferred and amortized to future years’ pension cost (income). The assumptions that impact actuarial gains and losses include the rate of return on investments held by the pension plans, the discount rate used to value participant liabilities and demographic characteristics of the participants. VF has taken a series of steps to manage the risk and volatility in the pension plans and their impact on the financial statements, including the following: • The U.S. qualified and supplemental defined benefit plans were closed to new entrants at the end of 2004 and all future benefit accruals were frozen as of December 31, 2018. • During the year ended March 2020, VF offered former employees in the U.S. qualified plan a lump-sum option to receive a distribution of their deferred vested benefits. The U.S. qualified plan participants were reduced by 10% as a result of this offer. No additional funding of the pension plan was required as all distributions were paid out of existing plan assets, and the plan's funded status remained materially unchanged. • During the year ended March 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 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 investment strategy of the U.S. qualified plan continues to define dynamic asset allocation targets that are dependent upon changes in the plan’s funded status, capital market expectations, and risk tolerance. Management will continue to evaluate actions that may help to reduce VF’s risks related to its defined benefit plans. Interest rate risks VF limits the risk of interest rate fluctuations by managing the mix of fixed and variable interest rate debt. In addition, VF may use derivative financial instruments to manage risk. Since most of VF’s long-term debt has fixed interest rates, the exposure primarily relates to changes in interest rates on variable rate short-term borrowings (which averaged approximately $386.0 million at an 8.1% rate during Fiscal 2024). Additionally, VF entered into a DDTL Agreement during Fiscal 2023, which has a variable interest rate. VF entered into floating-to-fixed interest rate swap contracts to hedge a portion of the cash flow risk associated with the DDTL Agreement. Any change in interest rates would also affect interest income earned on VF’s cash equivalents. Based on the average amount of variable rate borrowings and cash equivalents during Fiscal 2024, the effect of a hypothetical 1% increase in interest rates would be a decrease in reported net income of approximately $6.9 million and a hypothetical 1% decrease in interest rates would be an increase in reported net income of approximately $6.9 million. Foreign currency exchange rate risks VF is a global enterprise subject to the risk of foreign currency fluctuations. Approximately 54% of VF’s revenues in the year ended March 2024 were generated in international markets. Most of VF’s foreign businesses operate in functional currencies other than the U.S. dollar. In periods where the U.S. dollar strengthens relative to the euro or other foreign currencies where VF has operations, there is a negative impact on VF’s operating results upon translation of those foreign operating results into the U.S. dollar. As discussed later in this section, management hedges VF’s investments in certain foreign operations and foreign currency transactions. The reported values of assets and liabilities in these foreign businesses are subject to fluctuations in foreign currency exchange rates. For net advances to and investments in VF’s foreign businesses that are considered to be long-term, the impact of changes in foreign currency exchange rates on those long-term advances is deferred as a component of accumulated other comprehensive loss ("OCL") in stockholders’ equity. The U.S. dollar value of net investments in foreign subsidiaries fluctuates with changes in the underlying functional currencies. In March 2023 and February 2020, VF issued €1.0 billion of euro-denominated fixed-rate notes. These notes, along with VF's euro commercial paper borrowings, have been designated as net investment hedges of VF’s investment in certain foreign operations. Because this debt qualified as a nonderivative hedging instrument, foreign currency transaction gains or losses on 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. Any amounts deferred in accumulated OCL will remain until the hedged investment is sold or substantially liquidated. VF monitors net foreign currency market exposures and enters into derivative foreign currency contracts to hedge the effects of exchange rate fluctuations for a significant portion of forecasted foreign currency cash flows or specific foreign currency transactions (relating to cross-currency inventory purchases, VF Corporation Fiscal 2024 Form 10-K 37 Table of Contents product sales, operating costs and intercompany royalty payments). VF’s practice is to buy or sell foreign currency exchange contracts that cover up to 80% of foreign currency exposures for periods of up to 24 months. Currently, VF uses only foreign exchange forward contracts but may use options or collars in the future. This use of financial instruments allows management to reduce the overall exposure to risks from exchange rate fluctuations on VF’s cash flows and earnings, since gains and losses on these contracts will offset a portion of losses and gains on the transactions being hedged. For cash flow hedging contracts outstanding at the end of Fiscal 2024, a hypothetical 10% decrease and 10% increase in foreign currency exchange rates compared to rates at the end of Fiscal 2024, would result in a decrease in the unrealized net loss of approximately $61.8 million and an increase in the unrealized net loss of approximately $50.3 million, respectively. However, any change in the fair value of the hedging contracts would be substantially offset by a change in the fair value of the underlying hedged exposure impacted by the currency rate changes. Counterparty risks VF is exposed to credit-related losses in the event of nonperformance by counterparties to derivative hedging instruments. To manage this risk, we have established counterparty credit guidelines and only enter into derivative transactions with financial institutions that have ‘A minus/A3’ investment grade credit ratings or better. VF continually monitors the credit rating of, and limits the amount hedged with, each counterparty. Additionally, management utilizes a portfolio of financial institutions to minimize exposure to potential counterparty defaults and adjusts positions as necessary. VF also monitors counterparty risk for derivative contracts within the defined benefit pension plans. Commodity price risks VF is exposed to market risks for the pricing of cotton, leather, rubber, wool and other materials, primarily due to the impact on the cost of sourced finished goods from independent contractors. To manage risks of commodity price changes, management negotiates prices of finished goods in advance when possible. VF has not historically managed commodity price exposures by using derivative instruments. Deferred compensation and related investment security risks VF has nonqualified deferred compensation plans in which liabilities to the plans’ participants are based on the market values of the participants’ selection of a hypothetical portfolio of investment funds. VF invests in a portfolio of securities and variable life insurance contracts that substantially mirror the participants’ investment selections. The increases and decreases in deferred compensation liabilities are substantially offset by corresponding increases and decreases in the market value of VF’s investments, resulting in an insignificant net exposure to operating results and financial position. CRITICAL ACCOUNTING POLICIES AND ESTIMATES VF has chosen accounting policies that management believes are appropriate to accurately and fairly report VF’s operating results and financial position in conformity with accounting principles generally accepted in the U.S. VF applies these accounting policies in a consistent manner. Significant accounting policies are summarized in Note 1 to the consolidated financial statements. The application of these accounting policies requires that VF make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, contingent assets and liabilities, and related disclosures. These estimates, assumptions and judgments are based on historical experience, current trends and other factors believed to be reasonable under the circumstances. Management evaluates these estimates and assumptions on an ongoing basis. In addition, VF may retain outside specialists to assist in valuations of business acquisitions and impairment testing of goodwill and intangible assets. Because VF’s business cycle is relatively short (i.e., from the date inventory is purchased until that inventory is sold and payment is collected), actual results related to most estimates are known within a few months after any balance sheet date. If actual results ultimately differ from previous estimates, the revisions are included in results of operations when the actual amounts become known. VF believes the following accounting policies involve the most significant management estimates, assumptions and judgments used in preparation of the consolidated financial statements or are the most sensitive to change from outside factors. The application of these critical accounting policies and estimates is discussed with the Audit Committee of the Board of Directors. Business Combinations VF accounts for business combinations using the acquisition method of accounting. Under the acquisition method, the consolidated financial statements reflect the operations of an acquired business starting from the closing date of the acquisition. All assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. VF allocates the purchase price of an acquired business to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, with any excess purchase price recorded as goodwill. Contingent consideration, if any, is included within the purchase price and is recognized at its fair value on the acquisition date. The application of the acquisition method of accounting for business combinations and determination of fair value requires management to make judgments and may involve the use of significant estimates, including assumptions related to estimated future revenues, growth rates, cash flows, discount rates and royalty rates, among other items. VF generally evaluates fair value at acquisition using three valuation techniques - the replacement cost, market and income methods - and weights the valuation methods based on what is most appropriate in the circumstances. The process of assigning fair values, particularly to acquired intangible assets, is highly subjective. VF also utilizes third-party valuation specialists to assist management in the determination of the fair value of 38 VF Corporation Fiscal 2024 Form 10-K Table of Contents assets acquired and liabilities assumed. Management estimates of fair value are based on assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. If the actual results differ from the estimates and judgments used, the amounts recorded in the consolidated financial statements may be exposed to potential impairment of the intangible assets and goodwill, as discussed in the "Long-Lived Assets, Including Intangible Assets and Goodwill" section below. During the measurement period, which is up to one year from the acquisition date, adjustments to the assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Long-Lived Assets, Including Intangible Assets and Goodwill Definite-Lived Assets VF’s depreciation policies for property, plant and equipment reflect judgments on the estimated economic lives and residual values, if any. VF’s amortization policies for definite-lived intangible assets reflect judgments on the estimated amounts and duration of future cash flows expected to be generated by those assets. In evaluating the amortizable life for customer relationship intangible assets, management considers historical attrition patterns for various groups of customers. In determining the lease term used to amortize operating lease right-of-use assets, VF considers initial terms and any renewal or termination options that may exist. When deemed reasonably certain, the renewal and termination options are included in the determination of lease term. VF’s policy is to review property, plant and equipment, definite-lived intangible assets and operating lease right-of-use assets for potential impairment whenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable. VF tests for potential impairment at the asset or asset group level, which is the lowest level for which there are identifiable cash flows that are largely independent. VF measures recoverability of the carrying value of an asset or asset group by comparison to the estimated pre-tax undiscounted cash flows expected to be generated by the asset. If the forecasted pre-tax undiscounted cash flows to be generated by the asset are not expected to be adequate to recover the asset’s carrying value, a fair value analysis is performed, and an impairment charge is recorded if there is an excess of the asset’s carrying value over its estimated fair value. When testing property, plant and equipment for potential impairment, VF uses the income-based discounted cash flow method using the estimated cash flows of the respective asset or asset group. The estimated pre-tax undiscounted cash flows of the asset or asset group through the end of its useful life are compared to its carrying value. If the pre-tax undiscounted cash flows of the asset or asset group exceed its carrying value, there is no impairment charge. If the pre-tax undiscounted cash flows of the asset or asset group are less than its carrying value, the estimated fair value of the asset or asset group is calculated based on the after-tax discounted cash flows using an appropriate weighted average cost of capital ("WACC"), and an impairment charge is recognized for the difference between the estimated fair value of the asset or asset group and its carrying value. When testing customer relationship intangible assets for potential impairment, management considers historical customer attrition rates and projected revenues and profitability related to customers that existed at acquisition. Management uses the multi-period excess earnings method, which is a specific application of the discounted cash flow method, to value customer relationship assets. The estimated pre-tax undiscounted cash flows of the asset through the end of its useful life are compared to its carrying value. If the pre-tax undiscounted cash flows of the asset exceed its carrying value, there is no impairment charge. If the pre-tax undiscounted cash flows of the asset are less than its carrying value, the estimated fair value of the asset is calculated based on the present value of the after-tax cash flows expected to be generated by the customer relationship asset after deducting contributory asset charges, and an impairment charge is recognized for the difference between the estimated fair value of the asset and its carrying value. When testing operating lease right-of-use assets for potential impairment, VF uses the income-based discounted cash flow method using the estimated cash flows of the respective asset or asset group. The estimated pre-tax undiscounted cash flows of the asset or asset group through the end of its useful life are compared to its carrying value. If the pre-tax undiscounted cash flows of the asset exceed its carrying value, there is no impairment charge. If the pre-tax undiscounted cash flows of the asset or asset group are less than its carrying value, the estimated fair value of the asset or asset group is calculated considering what a market participant would pay to lease the asset for its highest and best use, and an impairment charge is recognized for the difference between the estimated fair value of the asset or asset group and its carrying value. The impairment loss is allocated to the long-lived assets of the group on a pro-rata basis using the relative carrying amounts of those assets. Indefinite-Lived Intangible Assets and Goodwill Fair value for acquired intangible assets is generally based on the present value of expected cash flows. Indefinite-lived trademark or trade name intangible assets (collectively referred to herein as “trademarks”) represent individually acquired trademarks, some of which are registered in multiple countries. Goodwill represents the excess of cost of an acquired business over the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed, and is assigned at the reporting unit level. VF’s policy is to evaluate indefinite-lived intangible assets and goodwill for possible impairment as of the beginning of the fourth quarter of each fiscal year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount. As part of its annual impairment testing, VF may elect to assess qualitative factors as a basis for determining whether it is necessary to perform quantitative impairment testing. If management’s assessment of these qualitative factors indicates that it is more likely than not that the fair value of the intangible asset or reporting unit is more than its carrying value, then no further testing is required. Otherwise, the intangible asset or reporting unit is quantitatively tested for impairment. An indefinite-lived intangible asset is quantitatively tested for possible impairment by comparing the estimated fair value of VF Corporation Fiscal 2024 Form 10-K 39 Table of Contents the asset to its carrying value. Fair value of an indefinite-lived trademark is based on an income approach using the relief-from-royalty method. Under this method, forecasted revenues for products sold with the trademark are assigned a royalty rate that would be charged to license the trademark (in lieu of ownership), and the estimated fair value is calculated as the present value of those forecasted royalties avoided by owning the trademark. The discount rate is based on the reporting unit’s WACC that considers market participant assumptions and is adjusted, as appropriate, to factor in the risk of the intangible asset. The royalty rate is selected based on consideration of (i) royalty rates included in active license agreements, if applicable, (ii) royalty rates received by market participants in the apparel and footwear industry, and (iii) the current performance of the reporting unit. If the estimated fair value of the trademark intangible asset exceeds its carrying value, there is no impairment charge. If the estimated fair value of the trademark is less than its carrying value, an impairment charge is recognized for the difference. Goodwill is quantitatively evaluated for possible impairment by comparing the estimated fair value of a reporting unit to its carrying value. Reporting units are businesses with discrete financial information that is available and reviewed by management. For goodwill impairment testing, VF estimates the fair value of a reporting unit using both income-based and market-based valuation methods. The income-based approach is based on the reporting unit’s forecasted future cash flows that are discounted to present value using the reporting unit’s WACC, as discussed above. For the market-based approach, management uses both the guideline company and similar transaction methods. The guideline company method analyzes market multiples of revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for a group of comparable public companies. The market multiples used in the valuation are based on the relative strengths and weaknesses of the reporting unit compared to the selected guideline companies. Under the similar transactions method, valuation multiples are calculated utilizing actual transaction prices and revenue/EBITDA data from target companies deemed similar to the reporting unit. Management typically assigns more weight to the income-based valuation method. Management also evaluates the fair value estimates of reporting units in the context of VF's total enterprise market value. Based on the range of estimated fair values developed from the income and market-based methods, VF determines the estimated fair value for the reporting unit. If the estimated fair value of the reporting unit exceeds its carrying value, the goodwill is not impaired and no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, VF calculates the impairment loss as the difference between the carrying value of the reporting unit and the estimated fair value, limited to the amount of reporting unit goodwill. The income-based fair value methodology requires management’s assumptions and judgments regarding economic conditions in the markets in which VF operates and conditions in the capital markets, many of which are outside of management’s control. At the reporting unit level, fair value estimation requires management’s assumptions and judgments regarding the effects of overall economic conditions on the specific reporting unit, along with assessment of the reporting unit’s strategies and forecasts of future cash flows. Forecasts of individual reporting unit cash flows involve management’s estimates and assumptions regarding: • Annual cash flows, on a debt-free basis, arising from future revenues and profitability, changes in working capital, capital spending and income taxes for a forecast period. • A terminal growth rate for years beyond the forecast period. The terminal growth rate is selected based on consideration of growth rates used in the forecast period, historical performance of the reporting unit and economic conditions. • A discount rate that reflects the risks inherent in realizing the forecasted cash flows. A discount rate considers the risk-free rate of return on long-term treasury securities, the risk premium associated with investing in equity securities of comparable companies, the beta obtained from comparable companies and the cost of debt for investment grade issuers. In addition, the discount rate may consider any company-specific risk (at the reporting unit level) in achieving the prospective financial information. Under the market-based fair value methodology, judgment is required in evaluating market multiples and recent transactions. Management believes that the assumptions used for its impairment tests are representative of those that would be used by market participants performing similar valuations of VF’s reporting units. Fiscal 2024 Impairment Testing Interim Impairment Testing During the third quarter of Fiscal 2024, management determined that the recent downturn in the Timberland historical financial results, combined with a downward revision to the latest Fiscal 2024 forecast and forward-looking financial projections, was a triggering event that required management to perform a quantitative impairment analysis of both the Timberland reporting unit goodwill, which includes the Timberland ® brand, and the Timberland indefinite-lived trademark intangible asset, which includes both the Timberland ® and Timberland PRO ® brands. The carrying values of the goodwill and indefinite-lived trademark intangible asset at the December 30, 2023 testing date were $407.9 million and $999.5 million, respectively. As a result of the impairment testing performed, VF recorded a goodwill impairment charge of $195.3 million in the Consolidated Statement of Operations in the third quarter of Fiscal 2024 to write down the Timberland reporting unit carrying value to its estimated fair value. No impairment charge was recorded on the indefinite-lived trademark intangible asset. The estimated fair value of the indefinite-lived trademark intangible asset exceeded its carrying value by a significant amount. During the third quarter of Fiscal 2024, management determined that the continued downturn in the Dickies financial results, weakness in certain key U.S. wholesale customer accounts, including lost product placement, and weakness in certain international markets, combined with expectations of a slower recovery, which have resulted in further reductions to the financial projections, 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. The carrying values 40 VF Corporation Fiscal 2024 Form 10-K Table of Contents of the goodwill and indefinite-lived trademark intangible asset at the December 30, 2023 testing date were $61.8 million and $290.0 million , respectively. Based on the analysis, management concluded that the Dickies reporting unit goodwill was fully impaired and thus recorded an impairment charge of $61.8 million in the Consolidated Statement of Operations in the third quarter of Fiscal 2024. Based on the analysis, management concluded that the indefinite-lived trademark intangible asset was not impaired and the estimated fair value exceeded its carrying value by a significant amount. Annual and Fourth Quarter Impairment Testing Management performed its annual goodwill and indefinite-lived intangible asset impairment testing as of the beginning of the fourth quarter of Fiscal 2024. VF elected to bypass the qualitative analysis for the Icebreaker, Supreme, Timberland PRO, Altra and Smartwool reporting unit goodwill and indefinite-lived trademark intangible assets. As a result of the annual impairment testing, VF recorded a goodwill impairment charge of $38.8 million in the Consolidated Statement of Operations for the year ended March 2024 related to Icebreaker. Based on the analysis, management concluded that Icebreaker's indefinite-lived trademark intangible asset was not impaired and the estimated fair value exceeded its carrying value by a significant amount. No other impairment charges were taken as a result of the annual impairment testing. Based on the analyses, the estimated fair values of the Supreme, Altra and Timberland PRO reporting units exceeded the respective carrying values by 8%, 15% and 17%, respectively, and the estimated fair value of the Smartwool reporting unit exceeded its carrying value by a significant amount. Based on the analyses, the estimated fair value of the Supreme indefinite-lived trademark intangible asset exceeded its carrying value by 3%, and the estimated fair values of the Altra and Smartwool indefinite-lived trademark intangible assets exceeded the respective carrying values by a significant amount. During the fourth quarter of Fiscal 2024, management determined that the recent downward revision to the forward-looking financial projections was a triggering event that required management to perform a quantitative impairment analysis of both the Timberland reporting unit goodwill and indefinite-lived trademark intangible asset. The carrying values of the goodwill and indefinite-lived trademark intangible asset at the testing date were $211.7 million and $999.5 million, respectively. As a result of the impairment testing performed, management concluded that the Timberland reporting unit goodwill was fully impaired and thus recorded an additional impairment charge of $211.7 million in the Consolidated Statement of Operations for the year ended March 2024. Based on the analysis, management concluded that the indefinite-lived trademark intangible asset was not impaired and the estimated fair value exceeded its carrying value by 14%. During the fourth quarter of Fiscal 2024, management determined that the overall weakness in the Dickies business and financial results, was a triggering event that required management to perform a quantitative impairment analysis of the Dickies indefinite-lived trademark intangible asset. The carrying value of the indefinite-lived trademark intangible asset at the March 30, 2024 testing date was $290.0 million . Based on the analysis, management concluded that the indefinite-lived trademark intangible asset was not impaired and the estimated fair value exceeded its carrying value by 16% . For the remaining reporting units and indefinite-lived trademark intangible assets, VF elected to perform a qualitative analysis during the annual goodwill and indefinite-lived intangible asset impairment testing, as of the beginning of the fourth quarter of Fiscal 2024, to determine whether it was more likely than not that the goodwill and indefinite-lived trademark intangible assets in those reporting units were impaired. Based on the results of the qualitative assessment, VF concluded it was more likely than not the carrying values of the goodwill and indefinite-lived trademark intangible assets were less than their fair values, and that further quantitative testing was not necessary. Refer to Notes 9 and 24 to the consolidated financial statements for additional discussion on Fiscal 2024 impairment testing. Management’s Use of Estimates and Assumptions Management made its estimates based on information available as of the date of our assessments, using assumptions we believe market participants would use in performing an independent valuation of the business. 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 goodwill or indefinite-lived trademark intangible assets in any reporting unit 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 businesses do not perform as projected, (ii) overall economic conditions in Fiscal 2025 or future years vary from current assumptions (including changes in discount rates, royalty 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 goodwill or indefinite-lived intangible assets could have a material effect on VF’s consolidated financial position and results of operations. Income Taxes As a global company, VF is subject to income taxes and files income tax returns in over 100 U.S. and foreign jurisdictions each year. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or changes in interpretation of existing tax laws and regulations or rulings by courts or government authorities leading to exposure to additional tax liabilities. In particular, tax authorities and the courts have increased their focus on income earned in no- or low-tax jurisdictions or income that is not taxed in any jurisdiction. Tax authorities have also become skeptical of VF Corporation Fiscal 2024 Form 10-K 41 Table of Contents special tax rulings provided to companies offering lower taxes than may be applicable in other countries. VF makes an ongoing assessment to identify any significant exposure related to increases in tax rates in the jurisdictions in which VF operates. Furthermore, VF was granted a ruling which lowered the effective income tax rate on taxable earnings for years 2010 through 2014 under Belgium's excess profit tax regime. During 2015, the European Union Commission (“EU”) investigated and announced its decision that these rulings were illegal and ordered the tax benefits to be collected from affected companies, including VF. During 2017 and 2018, VF Europe BVBA was assessed and paid €35.0 million tax and interest, which was recorded as an income tax receivable 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 expense in the second quarter of Fiscal 2024. As previously reported, VF petitioned the U.S. Tax Court (the “Tax Court”) to resolve an 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 second quarter of Fiscal 2024. This amount included 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. The calculation of income tax liabilities involves uncertainties in the application of complex tax laws and regulations, which are subject to legal interpretation and significant management judgment. VF’s income tax returns are regularly examined by federal, state and foreign tax authorities, and those audits may result in proposed adjustments. VF has reviewed all issues raised upon examination, as well as any exposure for issues that may be raised in future examinations. VF has evaluated these potential issues under the “more-likely-than-not” standard of the accounting literature. A tax position is recognized if it meets this standard and is measured at the largest amount of benefit that has a greater than 50% likelihood of being realized. Such judgments and estimates may change based on audit settlements, court cases and interpretation of tax laws and regulations. Income tax expense could be materially affected to the extent VF prevails in a tax position or when the statute of limitations expires for a tax position for which a liability for unrecognized tax benefits or valuation allowances has been established, or to the extent VF is required to pay amounts greater than the established liability for unrecognized tax benefits. Under the more-likely-than-not standard, VF does not currently anticipate any material impact on earnings from the ultimate resolution of income tax uncertainties. There are no accruals for general or unknown tax expenses. As of March 2024, VF had $711.1 million of gross deferred income tax assets related to operating loss, credit and capital loss carryforwards, and $435.3 million of valuation allowances against those assets. Realization of deferred tax assets related to operating loss, credit and capital loss carryforwards is dependent on future taxable income in specific jurisdictions, the amount and timing of which are uncertain, and on possible changes in tax laws. If management believes that VF will not be able to generate sufficient taxable income or capital gains to offset losses or credits during the carryforward periods, VF records valuation allowances to reduce those deferred tax assets to amounts expected to be ultimately realized. If in a future period management determines that the amount of deferred tax assets to be realized differs from the net recorded amount, VF would record an adjustment to income tax expense in that future period. Recently Issued and Adopted Accounting Standards Refer to Note 1 to the consolidated financial statements for discussion of recently issued and adopted accounting standards. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. A discussion of VF’s market risks is incorporated by reference to “Risk Management” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.