Item 1A. Risk Factors
ITEM 1A — RISK FACTORS.
You should carefully consider the risk factors set forth under Part I, “Item 1A. Risk Factors” in the Fiscal 2024 Form 10-K, which could materially affect our business, financial condition and future results. The risks described in the Fiscal 2024 Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.
Other than the risk factors identified below, there have been no material changes to the risk factors identified in Part I, “Item 1A. Risk Factors” in the Fiscal 2024 Form 10-K.
BUSINESS AND OPERATIONAL RISKS
There are risks associated with VF’s acquisitions, divestitures and portfolio management, including our pending sale of the Supreme ® brand business to EssilorLuxottica.
Any acquisitions, divestitures or mergers by VF, including our pending sale of the Supreme ® brand business to EssilorLuxottica, will be accompanied by the risks commonly encountered in acquisitions or divestitures of companies, businesses or brands. These risks include, among other things, higher than anticipated acquisition or divestiture costs and expenses, the difficulty and expense of integrating or separating the operations, systems and personnel of the companies, businesses or brands, the loss of key employees and consumers as a result of changes in management or ownership, and slower progress toward environmental, social and governance goals given challenges with data acquisition and integration, the difficulty of accessing and disclosing sufficient environmental, social and governance data to comply with current and emerging environmental, social and governance regulations, and integration of environmental, social and governance initiatives overall. In addition, geographic distances may make integration of acquired businesses more difficult. We may not be successful in overcoming these risks or any other problems encountered in connection with any acquisitions or divestitures. Moreover, failure to effectively manage VF’s portfolio of brands in line with growth targets and shareholder expectations, including acquisition choices, integration approach, transaction pricing
and divestiture timing could result in unfavorable impacts to growth and value creation.
Our acquisitions and divestitures may cause large one-time expenses or create goodwill or other intangible assets that could result in significant impairment charges. We also make certain estimates and assumptions in order to determine purchase price allocation and estimate the fair value of assets acquired and liabilities assumed. If our estimates or assumptions used to value these assets and liabilities are not accurate, we may be exposed to losses that may be material.
On July 17, 2024, we announced that we entered into a definitive agreement for EssilorLuxottica to acquire the Supreme ® brand business from VF for $1.5 billion in cash. The sale, which is expected to close by the end of calendar year 2024, is subject to customary closing conditions, including obtaining necessary regulatory approvals. We and EssilorLuxottica may be unable to satisfy such closing conditions in a timely manner or at all and, accordingly, the sale of the Supreme ® brand business may be delayed or may not be completed. Failure to complete the sale of the Supreme ® brand business could have a material and adverse effect on us, including by delaying our strategic and other objectives relating to the separation of the Supreme ® brand business and adversely affecting our plans to use the proceeds from the sale. Even if the sale is completed, we may not realize some or all the expected benefits. In addition, executing the sale
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of the Supreme ® brand business will require significant time and attention from management, which could divert attention from
the management of our operations and the pursuit of our business strategies.
FINANCIAL RISKS
VF's balance sheet includes a significant amount of intangible assets and goodwill. A decline in the fair value of an intangible asset or of a business unit could result in an asset impairment charge, such as the recent impairment charges related to the Supreme reporting unit goodwill and indefinite-lived intangible asset.
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 year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount. In addition, intangible assets that are being amortized are tested for impairment whenever events or circumstances indicate that their carrying value may not be recoverable. For these impairment tests, we use various valuation methods to estimate the fair value of our business units and intangible assets. If the fair value of an asset is less than its carrying value, we would recognize an impairment charge for the difference.
During the first quarter of Fiscal 2025, VF determined that a triggering event had occurred requiring impairment testing of the Supreme reporting unit goodwill and indefinite-lived trademark intangible asset. Our assessment gave consideration to the ongoing negotiations to sell the Supreme reporting unit. As a result of the impairment testing performed, VF recorded impairment charges of $94.0 million and $51.0 million to the Supreme reporting unit goodwill and indefinite-lived trademark
intangible asset, respectively. The goodwill impairment charge related to the estimates of fair value subsequently confirmed by the transaction price in the definitive agreement for EssilorLuxottica to acquire the Supreme ® brand business signed on July 16, 2024, and the indefinite-lived trademark intangible asset impairment charge related to an increase in the market-based discount rate applied.
It is possible that we could have another impairment charge for goodwill or trademark and trade name intangible assets in future periods if (i) the businesses do not perform as projected, (ii) overall economic conditions in Fiscal 2025 or future years vary from our current assumptions (including changes in discount rates and foreign currency exchange rates), (iii) business conditions or our strategies for a specific business unit change from our current assumptions, (iv) investors require higher rates of return on equity investments in the marketplace, or (v) enterprise values of comparable publicly traded companies, or of actual sales transactions of comparable companies, were to decline, resulting in lower comparable multiples of revenues and earnings before interest, taxes, depreciation and amortization and, accordingly, lower implied values of goodwill and intangible assets. Any future impairment charge for goodwill or intangible assets could have a material effect on our consolidated financial position or results of operations.