VF Corporation
10/30/2024 | Press release | Distributed by Public on 10/30/2024 11:08
Quarterly Report for Quarter Ending September 28, 2024 (Form 10-Q)
vfc-20240928
Note: Amounts may not sum due to rounding.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 1-5256
V. F. CORPORATION
(Exact name of registrant as specified in its charter)
| Pennsylvania | 23-1180120 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification number) |
1551 Wewatta Street
Denver, Colorado80202
(Address of principal executive offices)
(720) 778-4000
(Registrant's telephone number, including area code)
| Securities registered pursuant to Section 12(b) of the Act: | ||
| (Title of each class) | (Trading Symbol(s)) | (Name of each exchange on which registered) |
| Common Stock, without par value, stated capital, $0.25 per share | VFC | New York Stock Exchange |
| 4.125% Senior Notes due 2026 | VFC26 | New York Stock Exchange |
| 0.250% Senior Notes due 2028 | VFC28 | New York Stock Exchange |
| 4.250% Senior Notes due 2029 | VFC29 | New York Stock Exchange |
| 0.625% Senior Notes due 2032 | VFC32 | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☑ | Accelerated filer |
☐
|
| Non-accelerated filer |
☐
|
Smaller reporting company | ☐ |
| Emerging growth company | ☐ | ||
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
On October 26, 2024, there were 389,318,655 shares of the registrant's common stock outstanding.
VF CORPORATION
Table of Contents
| PAGE NUMBER | |
|
Part I - Financial Information
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3
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Item 1 - Financial Statements (Unaudited)
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3
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Consolidated Balance Sheets: September 2024, March 2024 and September 2023
|
3
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Consolidated Statements of Operations: Three and six months ended September 2024 and September 2023
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4
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Consolidated Statements of Comprehensive Income (Loss): Three and six months ended September 2024 and September 2023
|
5
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Consolidated Statements of Cash Flows: Six months ended September 2024 and September 2023
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6
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Consolidated Statements of Stockholders' Equity: Three and six months ended September 2024 and September 2023
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8
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Notes to Consolidated Financial Statements
|
10
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
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28
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Item 3 - Quantitative and Qualitative Disclosures about Market Risk
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39
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Item 4 - Controls and Procedures
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39
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Part II - Other Information
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39
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Item 1 - Legal Proceedings
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39
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Item 1A - Risk Factors
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39
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Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
|
40
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Item 5 - Other Information
|
40
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Item 6 - Exhibits
|
41
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Signatures
|
42
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Table of Contents
PART I - FINANCIAL INFORMATION
| ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED). |
VF CORPORATION
Consolidated Balance Sheets
(Unaudited)
| (In thousands, except share amounts) | September 2024 | March 2024 | September 2023 | |||
| ASSETS | ||||||
| Current assets | ||||||
|
Cash and equivalents
|
$ | 492,164 | $ | 656,376 | $ | 484,825 |
|
Accounts receivable, less allowance for doubtful accounts of: September 2024 - $35,674; March 2024 - $26,369; September 2023 - $28,040
|
1,820,197 | 1,263,329 | 1,881,531 | |||
|
Inventories
|
2,082,918 | 1,697,823 | 2,405,291 | |||
|
Other current assets
|
472,595 | 493,194 | 358,124 | |||
|
Current assets of discontinued operations
|
1,590,984 | 116,225 | 113,791 | |||
| Total current assets | 6,458,858 | 4,226,947 | 5,243,562 | |||
|
Property, plant and equipment, net
|
755,802 | 788,992 | 885,882 | |||
|
Intangible assets, net
|
1,774,694 | 1,776,482 | 1,778,795 | |||
|
Goodwill
|
651,934 | 645,356 | 1,145,869 | |||
|
Operating lease right-of-use assets
|
1,313,030 | 1,255,074 | 1,248,524 | |||
|
Other assets
|
1,265,320 | 1,210,470 | 1,143,728 | |||
|
Other assets of discontinued operations
|
- | 1,709,642 | 1,695,992 | |||
| TOTAL ASSETS | $ | 12,219,638 | $ | 11,612,963 | $ | 13,142,352 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
| Current liabilities | ||||||
|
Short-term borrowings
|
$ | 463,200 | $ | 263,938 | $ | 1,023,276 |
|
Current portion of long-term debt
|
1,750,097 | 1,000,721 | 966 | |||
|
Accounts payable
|
1,134,637 | 788,477 | 961,667 | |||
|
Accrued liabilities
|
1,486,706 | 1,323,982 | 1,486,757 | |||
|
Current liabilities of discontinued operations
|
147,791 | 79,861 | 72,167 | |||
| Total current liabilities | 4,982,431 | 3,456,979 | 3,544,833 | |||
|
Long-term debt
|
4,028,549 | 4,702,284 | 5,656,725 | |||
|
Operating lease liabilities
|
1,136,605 | 1,087,304 | 1,066,933 | |||
|
Other liabilities
|
665,686 | 636,090 | 598,409 | |||
|
Other liabilities of discontinued operations
|
- | 71,941 | 65,407 | |||
| Total liabilities | 10,813,271 | 9,954,598 | 10,932,307 | |||
|
Commitments and contingencies
|
||||||
| Stockholders' equity | ||||||
|
Preferred Stock, par value $1; shares authorized, 25,000,000; no shares outstanding at September 2024, March 2024 or September 2023
|
- | - | - | |||
|
Common Stock, stated value $0.25; shares authorized, 1,200,000,000; shares outstanding at September 2024 - 389,283,419; March 2024 - 388,836,219; September 2023 - 388,883,825
|
97,321 | 97,209 | 97,221 | |||
|
Additional paid-in capital
|
3,565,198 | 3,600,071 | 3,638,029 | |||
|
Accumulated other comprehensive loss
|
(1,070,580) | (1,064,331) | (1,011,705) | |||
|
Accumulated deficit
|
(1,185,572) | (974,584) | (513,500) | |||
| Total stockholders' equity | 1,406,367 | 1,658,365 | 2,210,045 | |||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 12,219,638 | $ | 11,612,963 | $ | 13,142,352 |
See notes to consolidated financial statements.
3VF Corporation Q2 FY25 Form 10-Q
Table of Contents
VF CORPORATION
Consolidated Statements of Operations
(Unaudited)
| Three Months Ended September | Six Months Ended September | |||||||
| (In thousands, except per share amounts) | 2024 | 2023 | 2024 | 2023 | ||||
|
Net revenues
|
$ | 2,757,948 | $ | 2,920,123 | $ | 4,527,008 | $ | 4,888,186 |
|
Costs and operating expenses
|
||||||||
|
Cost of goods sold
|
1,317,391 | 1,430,194 | 2,180,773 | 2,369,828 | ||||
|
Selling, general and administrative expenses
|
1,166,654 | 1,139,390 | 2,195,352 | 2,197,668 | ||||
|
Total costs and operating expenses
|
2,484,045 | 2,569,584 | 4,376,125 | 4,567,496 | ||||
|
Operating income
|
273,903 | 350,539 | 150,883 | 320,690 | ||||
|
Interest income
|
3,678 | 4,548 | 7,073 | 9,665 | ||||
|
Interest expense
|
(46,366) | (45,659) | (90,708) | (86,352) | ||||
|
Other income (expense), net
|
(660) | (2,183) | (2,146) | (5,826) | ||||
|
Income from continuing operations before income taxes
|
230,555 | 307,245 | 65,102 | 238,177 | ||||
|
Income tax expense
|
28,046 | 758,887 | 14,620 | 752,794 | ||||
|
Income (loss) from continuing operations
|
202,509 | (451,642) | 50,482 | (514,617) | ||||
|
Income (loss) from discontinued operations, net of tax
|
(150,331) | 945 | (257,190) | 6,495 | ||||
| Net income (loss) | $ | 52,178 | $ | (450,697) | $ | (206,708) | $ | (508,122) |
|
Earnings (loss) per common share - basic
|
||||||||
|
Continuing operations
|
$ | 0.52 | $ | (1.16) | $ | 0.13 | $ | (1.33) |
|
Discontinued operations
|
(0.39) | - | (0.66) | 0.02 | ||||
| Total earnings (loss) per common share - basic | $ | 0.13 | $ | (1.16) | $ | (0.53) | $ | (1.31) |
| Earnings (loss) per common share - diluted | ||||||||
|
Continuing operations
|
$ | 0.52 | $ | (1.16) | $ | 0.13 | $ | (1.33) |
|
Discontinued operations
|
(0.38) | - | (0.66) | 0.02 | ||||
|
Total earnings (loss) per common share - diluted
|
$ | 0.13 | $ | (1.16) | $ | (0.53) | $ | (1.31) |
|
Weighted average shares outstanding
|
||||||||
|
Basic
|
389,044 | 388,338 | 388,892 | 388,249 | ||||
|
Diluted
|
390,945 | 388,338 | 390,198 | 388,249 |
See notes to consolidated financial statements.
VF Corporation Q2 FY25 Form 10-Q 4
Table of Contents
VF CORPORATION
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended September | Six Months Ended September | |||||||
| (In thousands) | 2024 | 2023 | 2024 | 2023 | ||||
|
Net income (loss)
|
$ | 52,178 | $ | (450,697) | $ | (206,708) | $ | (508,122) |
|
Other comprehensive income (loss)
|
||||||||
|
Foreign currency translation and other
|
||||||||
|
Gains (losses) arising during the period
|
(4,519) | 17,094 | (20,292) | 564 | ||||
|
Income tax effect
|
22,417 | (22,383) | 18,737 | (19,002) | ||||
|
Defined benefit pension plans
|
||||||||
| Current period actuarial gains | - | 3,742 | - | 4,743 | ||||
|
Amortization of net deferred actuarial losses
|
5,051 | 4,170 | 10,097 | 8,402 | ||||
|
Amortization of deferred prior service credits
|
(150) | (137) | (294) | (272) | ||||
|
Reclassification of net actuarial loss from settlement charges
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- | 7 | - | 3,299 | ||||
|
Income tax effect
|
(1,287) | (2,209) | (2,557) | (4,118) | ||||
|
Derivative financial instruments
|
||||||||
|
Gains (losses) arising during the period
|
(54,435) | 59,895 | (34,414) | 37,155 | ||||
|
Income tax effect
|
6,597 | (9,852) | 2,361 | (5,714) | ||||
|
Reclassification of net (gains) losses realized
|
10,685 | (10,238) | 24,414 | (20,918) | ||||
|
Income tax effect
|
(1,312) | 1,735 | (4,301) | 3,674 | ||||
|
Other comprehensive income (loss)
|
(16,953) | 41,824 | (6,249) | 7,813 | ||||
|
Comprehensive income (loss)
|
$ | 35,225 | $ | (408,873) | $ | (212,957) | $ | (500,309) |
See notes to consolidated financial statements.
5VF Corporation Q2 FY25 Form 10-Q
Table of Contents
VF CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended September | ||||
| (In thousands) | 2024 | 2023 | ||
| OPERATING ACTIVITIES | ||||
|
Net loss
|
$ | (206,708) | $ | (508,122) |
|
Income (loss) from discontinued operations, net of tax
|
(257,190) | 6,495 | ||
|
Income (loss) from continuing operations, net of tax
|
50,482 | (514,617) | ||
|
Adjustments to reconcile net loss to cash used by operating activities:
|
||||
|
Depreciation and amortization
|
126,396 | 136,936 | ||
|
Reduction in the carrying amount of right-of-use assets
|
179,206 | 183,335 | ||
|
Stock-based compensation
|
30,648 | 29,818 | ||
|
Provision for doubtful accounts
|
11,366 | 5,585 | ||
|
Pension expense in excess of (less than) contributions
|
4,028 | (10,151) | ||
|
Deferred income taxes
|
(7,237) | (256,048) | ||
|
Write-off of income tax receivables and interest
|
- | 921,409 | ||
|
Other, net
|
(24,132) | 3,024 | ||
|
Changes in operating assets and liabilities:
|
||||
|
Accounts receivable
|
(553,730) | (317,214) | ||
|
Inventories
|
(362,748) | (201,998) | ||
|
Accounts payable
|
328,418 | 63,721 | ||
|
Income taxes
|
(72,070) | 41,018 | ||
|
Accrued liabilities
|
136,881 | 83,125 | ||
|
Operating lease right-of-use assets and liabilities
|
(176,754) | (185,140) | ||
|
Other assets and liabilities
|
27,423 | (43,523) | ||
|
Cash used by operating activities - continuing operations
|
(301,823) | (60,720) | ||
|
Cash provided by operating activities - discontinued operations
|
20,052 | 41,459 | ||
|
Cash used by operating activities
|
(281,771) | (19,261) | ||
| INVESTING ACTIVITIES | ||||
|
Proceeds from sale of assets
|
76,683 | 281 | ||
|
Capital expenditures
|
(45,953) | (93,833) | ||
|
Software purchases
|
(25,727) | (41,150) | ||
|
Other, net
|
(21,424) | (11,026) | ||
|
Cash used by investing activities - continuing operations
|
(16,421) | (145,728) | ||
|
Cash used by investing activities - discontinued operations
|
(4,413) | (4,003) | ||
|
Cash used by investing activities
|
(20,834) | (149,731) | ||
| FINANCING ACTIVITIES | ||||
|
Net increase in short-term borrowings
|
199,262 | 1,017,895 | ||
|
Payments on long-term debt
|
(551) | (907,656) | ||
|
Payment of debt issuance costs
|
- | (576) | ||
|
Cash dividends paid
|
(70,048) | (233,172) | ||
|
Proceeds from issuance of Common Stock, net of payments for tax withholdings
|
(2,689) | (2,392) | ||
|
Cash provided (used) by financing activities
|
125,974 | (125,901) | ||
|
Effect of foreign currency rate changes on cash, cash equivalents and restricted cash
|
14,304 | (21,190) | ||
|
Net change in cash, cash equivalents and restricted cash
|
(162,327) | (316,083) | ||
|
Cash, cash equivalents and restricted cash - beginning of year
|
676,957 | 816,319 | ||
|
Cash, cash equivalents and restricted cash - end of period
|
$ | 514,630 | $ | 500,236 |
Continued on next page.
See notes to consolidated financial statements.
VF Corporation Q2 FY25 Form 10-Q 6
Table of Contents
VF CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended September | ||||
| (In thousands) | 2024 | 2023 | ||
| Balances per Consolidated Balance Sheets: | ||||
| Cash and cash equivalents | $ | 492,164 | $ | 484,825 |
| Other current assets | 2,154 | 1,197 | ||
| Current and other assets of discontinued operations | 20,312 | 14,206 | ||
| Other assets | - | 8 | ||
| Total cash, cash equivalents and restricted cash | $ | 514,630 | $ | 500,236 |
See notes to consolidated financial statements.
7VF Corporation Q2 FY25 Form 10-Q
Table of Contents
VF CORPORATION
Consolidated Statements of Stockholders' Equity
(Unaudited)
| Three Months Ended September 2024 | |||||||||||
| Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | |||||||||
| Common Stock | |||||||||||
| (In thousands, except share amounts) | Shares | Amounts | Total | ||||||||
| Balance, June 2024 | 389,181,642 | $ | 97,295 | $ | 3,580,175 | $ | (1,053,627) | $ | (1,235,938) | $ | 1,387,905 |
|
Net income (loss)
|
- | - | - | - | 52,178 | 52,178 | |||||
|
Dividends on Common Stock ($0.09 per share)
|
- | - | (35,033) | - | - | (35,033) | |||||
|
Stock-based compensation, net
|
101,777 | 26 | 20,056 | - | (1,812) | 18,270 | |||||
|
Foreign currency translation and other
|
- | - | - | 17,898 | - | 17,898 | |||||
|
Defined benefit pension plans
|
- | - | - | 3,614 | - | 3,614 | |||||
|
Derivative financial instruments
|
- | - | - | (38,465) | - | (38,465) | |||||
| Balance, September 2024 | 389,283,419 | $ | 97,321 | $ | 3,565,198 | $ | (1,070,580) | $ | (1,185,572) | $ | 1,406,367 |
| Three Months Ended September 2023 | |||||||||||
| Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | |||||||||
| Common Stock | |||||||||||
| (In thousands, except share amounts) | Shares | Amounts | Total | ||||||||
| Balance, June 2023 | 388,836,545 | $ | 97,209 | $ | 3,733,777 | $ | (1,053,529) | $ | (60,694) | $ | 2,716,763 |
|
Net income (loss)
|
- | - | - | - | (450,697) | (450,697) | |||||
|
Dividends on Common Stock ($0.30 per share)
|
- | - | (116,597) | - | - | (116,597) | |||||
|
Stock-based compensation, net
|
47,280 | 12 | 20,849 | - | (2,109) | 18,752 | |||||
|
Foreign currency translation and other
|
- | - | - | (5,289) | - | (5,289) | |||||
|
Defined benefit pension plans
|
- | - | - | 5,573 | - | 5,573 | |||||
|
Derivative financial instruments
|
- | - | - | 41,540 | - | 41,540 | |||||
| Balance, September 2023 | 388,883,825 | $ | 97,221 | $ | 3,638,029 | $ | (1,011,705) | $ | (513,500) | $ | 2,210,045 |
Continued on next page.
See notes to consolidated financial statements.
VF Corporation Q2 FY25 Form 10-Q 8
Table of Contents
VF CORPORATION
Consolidated Statements of Stockholders' Equity
(Unaudited)
| Six Months Ended September 2024 | |||||||||||
| Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | |||||||||
| Common Stock | |||||||||||
| (In thousands, except share amounts) | Shares | Amounts | Total | ||||||||
| Balance, March 2024 | 388,836,219 | $ | 97,209 | $ | 3,600,071 | $ | (1,064,331) | $ | (974,584) | $ | 1,658,365 |
|
Net income (loss)
|
- | - | - | - | (206,708) | (206,708) | |||||
|
Dividends on Common Stock ($0.18 per share)
|
- | - | (70,048) | - | - | (70,048) | |||||
|
Stock-based compensation, net
|
447,200 | 112 | 35,175 | - | (4,280) | 31,007 | |||||
|
Foreign currency translation and other
|
- | - | - | (1,555) | - | (1,555) | |||||
|
Defined benefit pension plans
|
- | - | - | 7,246 | - | 7,246 | |||||
|
Derivative financial instruments
|
- | - | - | (11,940) | - | (11,940) | |||||
| Balance, September 2024 | 389,283,419 | $ | 97,321 | $ | 3,565,198 | $ | (1,070,580) | $ | (1,185,572) | $ | 1,406,367 |
| Six Months Ended September 2023 | |||||||||||
| Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | |||||||||
| Common Stock | |||||||||||
| (In thousands, except share amounts) | Shares | Amounts | Total | ||||||||
| Balance, March 2023 | 388,665,531 | $ | 97,166 | $ | 3,775,979 | $ | (1,019,518) | $ | 57,086 | $ | 2,910,713 |
|
Net income (loss)
|
- | - | - | - | (508,122) | (508,122) | |||||
|
Dividends on Common Stock ($0.60 per share)
|
- | - | (176,086) | - | (57,086) | (233,172) | |||||
|
Stock-based compensation, net
|
218,294 | 55 | 38,136 | - | (5,378) | 32,813 | |||||
|
Foreign currency translation and other
|
- | - | - | (18,438) | - | (18,438) | |||||
|
Defined benefit pension plans
|
- | - | - | 12,054 | - | 12,054 | |||||
|
Derivative financial instruments
|
- | - | - | 14,197 | - | 14,197 | |||||
| Balance, September 2023 | 388,883,825 | $ | 97,221 | $ | 3,638,029 | $ | (1,011,705) | $ | (513,500) | $ | 2,210,045 |
See notes to consolidated financial statements.
9VF Corporation Q2 FY25 Form 10-Q
Table of Contents
VF CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | PAGE NUMBER | |
| NOTE 1 |
Basis of Presentation
|
11
|
| NOTE 2 |
Recently Adopted and Issued Accounting Standards
|
11
|
| NOTE 3 |
Revenues
|
12
|
| NOTE 4 |
Discontinued Operations
|
14
|
| NOTE 5 |
Inventories
|
15
|
| NOTE 6 |
Intangible Assets
|
15
|
| NOTE 7 |
Goodwill
|
16
|
| NOTE 8 |
Leases
|
16
|
| NOTE 9 |
Supply Chain Financing Program
|
16
|
| NOTE 10 |
Pension Plans
|
17
|
| NOTE 11 |
Capital and Accumulated Other Comprehensive Loss
|
17
|
| NOTE 12 |
Stock-based Compensation
|
20
|
| NOTE 13 |
Income Taxes
|
20
|
| NOTE 14 |
Reportable Segment Information
|
21
|
| NOTE 15 |
Earnings (Loss) Per Share
|
22
|
| NOTE 16 |
Fair Value Measurements
|
22
|
| NOTE 17 |
Derivative Financial Instruments and Hedging Activities
|
24
|
| NOTE 18 |
Restructuring
|
26
|
| NOTE 19 |
Subsequent Events
|
27
|
VF Corporation Q2 FY25 Form 10-Q 10
Table of Contents
NOTE 1 - BASIS OF PRESENTATION
Fiscal Year
VF Corporation (together with its subsidiaries, collectively known as "VF" or the "Company") uses a 52/53 week fiscal year ending on the Saturday closest to March 31 of each year. The Company's current fiscal year runs from March 31, 2024 through March 29, 2025 ("Fiscal 2025"). Accordingly, this Form 10-Q presents our second quarter of Fiscal 2025. For presentation purposes herein, all references to periods ended September 2024 and September 2023 relate to the fiscal periods ended on September 28, 2024 and September 30, 2023, respectively. References to March 2024 relate to information as of March 30, 2024.
Basis of Presentation
On July 16, 2024, VF entered into a definitive Stock and Asset Purchase Agreement (the "Purchase Agreement") with EssilorLuxottica S.A. to sell the Supreme®brand business ("Supreme"). On October 1, 2024, VF completed the sale of Supreme. During the three months ended September 2024, the Company determined that Supreme met the held-for-sale and discontinued operations accounting criteria. Accordingly, beginning in the second quarter of Fiscal 2025, VF has reported the results of Supreme and the related cash flows as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively. The related held-for-sale assets and liabilities have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets. These changes have been applied to all periods presented.
Unless otherwise noted, discussion within these notes to the interim consolidated financial statements relates to continuing operations. Refer to Note 4 for additional information on discontinued operations.
Certain prior year amounts have been reclassified to conform to
the Fiscal 2025presentation.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and notes required by generally accepted accounting principles in the United States of America ("GAAP") for complete financial statements. Similarly, the March 2024 consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations and cash flows of VF for the interim periods presented. Operating results for the three and six months ended September 2024 are not necessarily indicative of results that may be expected for any other interim period or for Fiscal 2025. For further information, refer to the consolidated financial statements and notes included in VF's Annual Report on Form 10-K for the year ended March 30, 2024 ("Fiscal 2024 Form 10-K").
Use of Estimates
In preparing the interim consolidated financial statements, management makes estimates and assumptions that affect amounts reported in the interim consolidated financial statements and accompanying notes. Actual results may differ from those estimates.
NOTE 2 - RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS
Recently Adopted Accounting Standards
In September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update("ASU") No. 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations". This guidance requires companies with supplier finance programs to disclose sufficient qualitative and quantitative information aboutthe program to allow a user of the financial statements to understand the nature of, activity in, and potential magnitude of the program. The guidance became effective for VF in the first quarter of Fiscal 2024, except for the rollforward information that will be effective for annual periods beginning in Fiscal 2025 on a prospective basis. The Company adopted the required guidance in the first quarter of Fiscal 2024 and will disclose the rollforward information in our Annual Report on Form 10-K for the year ended March 29, 2025. Refer to Note 9 for disclosures related to the Company's supply chain financing program.
Recently Issued Accounting Standards
In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses that are regularly provided to the individual or group identified as the chief operating decision maker ("CODM"). The guidance also requires disclosure of the
title and position of the CODM and how reported measures of segment profit or loss are used to assess performance and allocate resources. The guidance will be effective for annual disclosures beginning in Fiscal 2025, and has expanded requirements to include all disclosures about a reportable segment's profit or loss and assets in subsequent interim periods. Early adoption is permitted. The guidance requires retrospective application to all prior periods presented in the financial statements. The Company is evaluating the impact that adopting this guidance will have on VF's disclosures.
In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which is intended to enhance the transparency and decision usefulness of income tax disclosures by requiring that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The rate reconciliation disclosures will require specific categories and additional information for reconciling items that meet a quantitative threshold. The income taxes paid disclosures will require disaggregation by individual jurisdictions that are greater than 5% of total income taxes paid. The guidance will be effective for annual disclosures beginning in Fiscal 2026. Early adoption is permitted. The amendments are required to be applied on a prospective basis; however, retrospective application is permitted. The Company is evaluating the impact that adopting this guidance will have on VF's disclosures.
11VF Corporation Q2 FY25 Form 10-Q
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NOTE 3 - REVENUES
Contract Balances
The following table provides information about contract assets and contract liabilities:
| (In thousands) | September 2024 | March 2024 | September 2023 | |||
|
Contract assets(a)
|
$ | 4,392 | $ | 2,393 | $ | 3,267 |
|
Contract liabilities (b)
|
66,693 | 66,130 | 60,664 |
(a)Included in the other current assets line item in the Consolidated Balance Sheets.
(b)Included in the accrued liabilities line item in the Consolidated Balance Sheets.
For the three and six months ended September 2024, the Company recognized $52.4 million and $97.4 million, respectively, of revenue that was included in the contract liability balance during the periods, including amounts recorded as a contract liability and subsequently recognized as revenue as performance obligations were satisfied within the same period, such as order deposits from customers. The change in the contract asset and contract liability balances primarily results from the timing differences between the Company's satisfaction of performance obligations and the customer's payment.
Performance Obligations
As of September 2024, the Company expects to recognize $69.7 million of fixed consideration related to the future minimum guarantees in effect under its licensing agreements and expects
such amounts to be recognized over time based on the contractual terms through March 2031. The variable consideration related to licensing arrangements is not disclosed as a remaining performance obligation as it qualifies for the sales-based royalty exemption. VF has also elected the practical expedient to not disclose the transaction price allocated to remaining performance obligations for contracts with an original expected duration of one year or less.
As of September 2024, there were no arrangements with transaction price allocated to remaining performance obligations other than contracts for which the Company has applied the practical expedients and the fixed consideration related to future minimum guarantees discussed above.
Disaggregation of Revenues
The following tables disaggregate our revenues by channel and geography, which provides a meaningful depiction of how the nature, timing and uncertainty of revenues are affected by economic factors.
| Three Months Ended September 2024 | ||||||||
| (In thousands) | Outdoor | Active | Work | Total | ||||
| Channel revenues | ||||||||
| Wholesale | $ | 1,204,940 | $ | 442,863 | $ | 179,993 | $ | 1,827,796 |
| Direct-to-consumer | 450,858 | 430,261 | 33,818 | 914,937 | ||||
| Royalty | 2,874 | 6,643 | 5,698 | 15,215 | ||||
| Total | $ | 1,658,672 | $ | 879,767 | $ | 219,509 | $ | 2,757,948 |
| Geographic revenues | ||||||||
| Americas | $ | 703,094 | $ | 482,634 | $ | 170,130 | $ | 1,355,858 |
| Europe | 651,870 | 323,038 | 34,647 | 1,009,555 | ||||
| Asia-Pacific | 303,708 | 74,095 | 14,732 | 392,535 | ||||
| Total | $ | 1,658,672 | $ | 879,767 | $ | 219,509 | $ | 2,757,948 |
VF Corporation Q2 FY25 Form 10-Q 12
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| Three Months Ended September 2023 | ||||||||
| (In thousands) | Outdoor | Active | Work | Total | ||||
| Channel revenues | ||||||||
| Wholesale | $ | 1,275,543 | $ | 437,003 | $ | 192,620 | $ | 1,905,166 |
| Direct-to-consumer | 433,071 | 524,429 | 39,957 | 997,457 | ||||
| Royalty | 5,065 | 6,739 | 5,696 | 17,500 | ||||
| Total | $ | 1,713,679 | $ | 968,171 | $ | 238,273 | $ | 2,920,123 |
| Geographic revenues | ||||||||
| Americas | $ | 795,748 | $ | 523,464 | $ | 186,868 | $ | 1,506,080 |
| Europe | 657,206 | 351,606 | 33,946 | 1,042,758 | ||||
| Asia-Pacific | 260,725 | 93,101 | 17,459 | 371,285 | ||||
| Total | $ | 1,713,679 | $ | 968,171 | $ | 238,273 | $ | 2,920,123 |
| Six Months Ended September 2024 | ||||||||
| (In thousands) | Outdoor | Active | Work | Total | ||||
| Channel revenues | ||||||||
| Wholesale | $ | 1,646,821 | $ | 878,111 | $ | 316,637 | $ | 2,841,569 |
| Direct-to-consumer | 796,148 | 791,993 | 67,751 | 1,655,892 | ||||
| Royalty | 5,902 | 13,561 | 10,084 | 29,547 | ||||
| Total | $ | 2,448,871 | $ | 1,683,665 | $ | 394,472 | $ | 4,527,008 |
| Geographic revenues | ||||||||
| Americas | $ | 1,076,494 | $ | 940,290 | $ | 314,773 | $ | 2,331,557 |
| Europe | 916,051 | 572,671 | 53,169 | 1,541,891 | ||||
| Asia-Pacific | 456,326 | 170,704 | 26,530 | 653,560 | ||||
| Total | $ | 2,448,871 | $ | 1,683,665 | $ | 394,472 | $ | 4,527,008 |
| Six Months Ended September 2023 | ||||||||
| (In thousands) | Outdoor | Active | Work | Total | ||||
| Channel revenues | ||||||||
| Wholesale | $ | 1,765,474 | $ | 899,266 | $ | 338,789 | $ | 3,003,529 |
| Direct-to-consumer | 769,404 | 1,003,779 | 79,611 | 1,852,794 | ||||
| Royalty | 8,498 | 12,862 | 10,503 | 31,863 | ||||
| Total | $ | 2,543,376 | $ | 1,915,907 | $ | 428,903 | $ | 4,888,186 |
| Geographic revenues | ||||||||
| Americas | $ | 1,200,154 | $ | 1,084,277 | $ | 340,439 | $ | 2,624,870 |
| Europe | 945,427 | 608,679 | 52,947 | 1,607,053 | ||||
| Asia-Pacific | 397,795 | 222,951 | 35,517 | 656,263 | ||||
| Total | $ | 2,543,376 | $ | 1,915,907 | $ | 428,903 | $ | 4,888,186 |
13VF Corporation Q2 FY25 Form 10-Q
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NOTE 4 - DISCONTINUED OPERATIONS
The Company continuously assesses the composition of its portfolio to ensure it is aligned with its strategic objectives and positioned to maximize growth and return to shareholders.
Supreme
On July 16, 2024, VF entered into a Purchase Agreement with EssilorLuxottica S.A. to sell Supreme for an aggregate base purchase price of $1.5 billion, subject to customary adjustments for cash, indebtedness, working capital and transaction expenses as more fully set forth in the Purchase Agreement. On October 1, 2024, VF completed the sale of Supreme. VF received proceeds of $1.5 billion, subject to post closing adjustments, and recognized an after-tax estimated loss on sale of Supreme of $124.8 million, which is included in the income (loss) from discontinued operations, net of tax line item in the Consolidated Statements of Operations for the three and six months ended September 2024. VF used a portion of the net cash proceeds to prepay $1.0 billion of its delayed draw Term Loan ("DDTL") pursuant to the terms of the DDTL Agreement, as amended, which required repayment within tenbusiness days of VF's receipt of the net cash proceeds from the sale of Supreme.
During the three months ended September 2024, the Company determined that Supreme met the held-for-sale and discontinued operations accounting criteria. Accordingly, beginning in the second quarter of Fiscal 2025, VF has reported the results of Supreme and the related cash flows as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively. The related held-for-sale assets and liabilities have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets. These changes have been applied to all periods presented.
The results of Supreme were previously reported in the Active segment. The results of Supreme recorded in the income (loss) from discontinued operations, net of tax line item in the
Consolidated Statements of Operations were losses of $150.3 million (including an after-tax estimated loss on sale of $124.8 million) and $257.2 million (including an after-tax estimated loss on sale of $124.8 million and goodwill and intangible asset impairment charges of $145.0 million) for the three and six months ended September 2024, respectively, and income of $0.9 million and $6.5 million for the three and six months ended September 2023, respectively.
During the three months ended June 2024, VF determined that a triggering event had occurred requiring impairment testing 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 $94.0 million and $51.0 million to the Supreme reporting unit goodwill and indefinite-lived trademark intangible asset, respectively.
Under the terms of a transition services agreement, the Company will provide certain post-closing accounting, tax, treasury, digital technology, supply chain and human resource services on a transitional basis for periods generally up to 12 months from the closing date of the transaction. Under the terms of a secondment agreement, certain employees associated with the Supreme business will remain employees of VF and work exclusively in support of Supreme, and at Supreme's expense, through the end of Fiscal 2025.
Certain corporate overhead costs and segment costs previously allocated to the Supreme brand for segment reporting purposes did not qualify for classification within discontinued operations and have been allocated to continuing operations. In addition, interest expense and the related interest rate swap impact for the DDTL were reallocated to discontinued operations due to the requirement within the DDTL Agreement, as amended, that the DDTL be prepaid upon the receipt of the net cash proceeds from the sale of Supreme.
Summarized Discontinued Operations Financial Information
The following table summarizes the major line items for Supreme that are included in the income (loss) from discontinued operations, net of tax line item in the Consolidated Statements of Operations:
| Three Months Ended September | Six Months Ended September | |||||||
| (In thousands) | 2024 | 2023 | 2024 | 2023 | ||||
| Net revenues | $ | 101,253 | $ | 114,116 | $ | 239,494 | $ | 232,389 |
| Cost of goods sold | 41,688 | 48,834 | 93,949 | 94,469 | ||||
| Selling, general and administrative expenses | 50,700 | 52,894 | 108,553 | 104,675 | ||||
| Impairment of goodwill and intangible assets | - | - | 145,000 | - | ||||
|
Interest expense, net (a)
|
(16,037) | (14,533) | (30,767) | (28,676) | ||||
| Other income (expense), net | 447 | (1,327) | (17) | (1,251) | ||||
| Income (loss) from discontinued operations before income taxes | (6,725) | (3,472) | (138,792) | 3,318 | ||||
| Estimated loss on the sale of discontinued operations before income taxes | (132,538) | - | (132,538) | - | ||||
| Total income (loss) from discontinued operations before income taxes | (139,263) | (3,472) | (271,330) | 3,318 | ||||
| Income tax expense (benefit) | 11,068 | (4,417) | (14,140) | (3,177) | ||||
| Income (loss) from discontinued operations, net of tax | $ | (150,331) | $ | 945 | $ | (257,190) | $ | 6,495 |
(a)As noted above, interest expense and the related interest rate swap impact for the DDTL were reallocated to discontinued operations.
VF Corporation Q2 FY25 Form 10-Q 14
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The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of the periods presented:
| (In thousands) | September 2024 | March 2024 | September 2023 | |||
| Cash and equivalents | $ | 20,188 | $ | 18,229 | $ | 14,087 |
| Accounts receivable, net | 13,066 | 10,636 | 8,273 | |||
| Inventories | 89,779 | 68,543 | 75,760 | |||
| Other current assets | 18,910 | 18,817 | 15,671 | |||
| Property, plant and equipment, net | 36,166 | 34,894 | 30,689 | |||
| Intangible assets, net | 801,000 | 852,000 | 852,000 | |||
| Goodwill | 724,800 | 815,058 | 815,351 | |||
| Operating lease right-of-use assets | 86,465 | 75,287 | 59,119 | |||
| Other assets | 19,157 | 19,882 | 28,348 | |||
|
Deferred income tax assets(a)
|
(86,009) | (87,479) | (89,515) | |||
| Allowance to reduce assets to estimated fair value, less costs to sell | (132,538) | - | - | |||
| Total assets of discontinued operations | $ | 1,590,984 | $ | 1,825,867 | $ | 1,809,783 |
| Accounts payable | $ | 27,665 | $ | 28,651 | $ | 31,244 |
| Accrued liabilities | 38,872 | 51,210 | 40,923 | |||
| Operating lease liabilities | 78,723 | 69,554 | 54,725 | |||
| Other liabilities | 2,531 | 2,387 | 10,682 | |||
| Total liabilities of discontinued operations | $ | 147,791 | $ | 151,802 | $ | 137,574 |
(a) Deferred income tax balances reflect VF's consolidated netting by jurisdiction.
NOTE 5 - INVENTORIES
| (In thousands) | September 2024 | March 2024 | September 2023 | |||
| Finished products | $ | 2,046,494 | $ | 1,658,168 | $ | 2,362,262 |
| Work-in-process | 36,324 | 39,539 | 42,482 | |||
| Raw materials | 100 | 116 | 547 | |||
| Total inventories | $ | 2,082,918 | $ | 1,697,823 | $ | 2,405,291 |
NOTE 6 - INTANGIBLE ASSETS
| September 2024 | March 2024 | |||||||||
| (In thousands) |
Weighted Average Amortization Period |
Amortization Method |
Cost |
Accumulated Amortization |
Net Carrying Amount |
Net Carrying Amount |
||||
| Amortizable intangible assets: | ||||||||||
| Customer relationships and other | 19 years | Accelerated | $ | 265,950 | $ | 196,927 | $ | 69,023 | $ | 74,963 |
| Indefinite-lived intangible assets: | ||||||||||
| Trademarks and trade names | 1,705,671 | 1,701,519 | ||||||||
| Intangible assets, net | $ | 1,774,694 | $ | 1,776,482 |
Amortization expense for the three and six months ended September 2024 was $3.4 million and $6.7 million, respectively. Based on the carrying amounts of amortizable intangible assets noted above, estimated amortization expense for the next five years beginning in Fiscal 2025 is $13.3 million, $12.3 million, $11.9 million, $10.9 million and $9.9 million, respectively.
15VF Corporation Q2 FY25 Form 10-Q
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NOTE 7 - GOODWILL
Changes in goodwill are summarized by reportable segment as follows:
| (In thousands) | Outdoor | Active | Work | Total | ||||
| Balance, March 2024 | $ | 205,868 | $ | 387,988 | $ | 51,500 | $ | 645,356 |
| Foreign currency translation | 2,013 | 4,565 | - | 6,578 | ||||
| Balance, September 2024 | $ | 207,881 | $ | 392,553 | $ | 51,500 | $ | 651,934 |
Accumulated impairment charges for the Outdoor and Work segmentswere $769.0 million and $61.8 million, respectively, as of September 2024 and March 2024. No impairment charges were recorded during the sixmonths ended September 2024.
NOTE 8 - LEASES
The Company leases certain retail locations, office space, distribution facilities, machinery and equipment, and vehicles. The substantial majority of these leases are operating leases. Total lease cost includes operating lease cost, variable lease cost, finance lease cost, short-term lease cost and gains recognized from sale leaseback transactions. The components of lease cost were as follows:
| Three Months Ended September | Six Months Ended September | |||||||
| (In thousands) | 2024 | 2023 | 2024 | 2023 | ||||
| Operating lease cost | $ | 103,942 | $ | 102,157 | $ | 204,553 | $ | 204,446 |
| Other lease cost | 30,863 | 36,962 | 53,110 | 72,274 | ||||
| Total lease cost | $ | 134,805 | $ | 139,119 | $ | 257,663 | $ | 276,720 |
During the six months ended September 2024, the Company entered into a sale leaseback transaction for certain warehouse real estate and related assets. The transaction qualified as a sale, and thus the Company recognized a gain of $15.5 millionin the selling, general and administrative expenses line item in VF's Consolidated Statement of Operations for the six months ended September 2024.
During the six months ended September 2024 and 2023, the Company paid $211.8 million and $209.3 million for operating leases, respectively. During the six months ended September 2024 and 2023, the Company obtained $227.9 million and $139.1 million of right-of-use assets in exchange for lease liabilities, respectively.
NOTE 9 - 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 September 2024, March 2024 and September 2023, the accounts payable line item in VF's Consolidated Balance Sheets included total outstanding obligations of $804.9 million, $485.0 million and $688.0 million, respectively, due to suppliers that are eligible to participate in the SCF program.
VF Corporation Q2 FY25 Form 10-Q 16
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NOTE 10 - PENSION PLANS
The components of pension cost for VF's defined benefit plans were as follows:
| Three Months Ended September | Six Months Ended September | |||||||
| (In thousands) | 2024 | 2023 | 2024 | 2023 | ||||
| Service cost - benefits earned during the period | $ | 2,498 | $ | 2,237 | $ | 4,906 | $ | 4,429 |
| Interest cost on projected benefit obligations | 11,715 | 11,775 | 23,395 | 23,587 | ||||
| Expected return on plan assets | (15,334) | (15,902) | (30,630) | (31,779) | ||||
| Settlement charges | - | 7 | - | 3,299 | ||||
| Amortization of deferred amounts: | ||||||||
| Net deferred actuarial losses | 5,051 | 4,170 | 10,097 | 8,402 | ||||
| Deferred prior service credits | (150) | (137) | (294) | (272) | ||||
| Net periodic pension cost | $ | 3,780 | $ | 2,150 | $ | 7,474 | $ | 7,666 |
VF has reported the service cost component of net periodic pension cost in operating income and the other components, which include interest cost, expected return on plan assets, settlement charges and amortization of deferred actuarial losses and prior service credits, in the other income (expense), net line item in the Consolidated Statements of Operations.
VF contributed $3.4 million to its defined benefit plans during the six months ended September 2024, and intends to make approximately $12.7 million ofcontributions during the remainder of Fiscal 2025.
VF recorded $3.3 million in settlement charges in the other income (expense), net line item in the Consolidated Statement of Operations for the six months ended September 2023. The settlement charges related to the recognition of deferred actuarial losses resulting from lump-sum payments of retirement benefits in the supplemental defined benefit pension plan. Actuarial assumptions used in the interim valuations were reviewed and revised as appropriate.
NOTE 11 - CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Common Stock
During the six months ended September 2024, the Company did notpurchase shares of Common Stock in open market transactions under its share repurchase program authorized by VF's Board of Directors. These are treated as treasury stock transactions when shares are repurchased.
Common Stock outstanding is net of shares held in treasury which are, in substance, retired. There were no shares held in treasury at the end of September 2024, March 2024 or September 2023. The excess of the cost of treasury shares acquired over the $0.25 per share stated value of Common Stock is deducted from retained earnings (accumulated deficit).
Accumulated Other Comprehensive Loss
Comprehensive income (loss) consists of net income (loss) and specified components of other comprehensive income (loss), which relate to changes in assets and liabilities that are not included in net income (loss) under GAAP but are instead deferred and accumulated within a separate component of stockholders' equity in the balance sheet. VF's comprehensive income (loss) is presented in the Consolidated Statements of Comprehensive Income (Loss). The deferred components of other comprehensive income (loss) arereported, net of related income taxes, in accumulated other comprehensive loss ("OCL") in stockholders' equity, as follows:
| (In thousands) | September 2024 | March 2024 | September 2023 | |||
| Foreign currency translation and other | $ | (869,994) | $ | (868,439) | $ | (878,089) |
| Defined benefit pension plans | (175,087) | (182,333) | (155,638) | |||
| Derivative financial instruments | (25,499) | (13,559) | 22,022 | |||
| Accumulated other comprehensive loss | $ | (1,070,580) | $ | (1,064,331) | $ | (1,011,705) |
17VF Corporation Q2 FY25 Form 10-Q
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The changes inaccumulated OCL, net of related taxes, were as follows:
| Three Months Ended September 2024 | ||||||||
| (In thousands) | Foreign Currency Translation and Other | Defined Benefit Pension Plans | Derivative Financial Instruments | Total | ||||
| Balance, June 2024 | $ | (887,892) | $ | (178,701) | $ | 12,966 | $ | (1,053,627) |
|
Other comprehensive income (loss) before reclassifications
|
17,898 | (26) | (47,838) | (29,966) | ||||
|
Amounts reclassified from accumulated other comprehensive loss
|
- | 3,640 | 9,373 | 13,013 | ||||
|
Net other comprehensive income (loss)
|
17,898 | 3,614 | (38,465) | (16,953) | ||||
| Balance, September 2024 | $ | (869,994) | $ | (175,087) | $ | (25,499) | $ | (1,070,580) |
| Three Months Ended September 2023 | ||||||||
| (In thousands) | Foreign Currency Translation and Other | Defined Benefit Pension Plans | Derivative Financial Instruments | Total | ||||
| Balance, June 2023 | $ | (872,800) | $ | (161,211) | $ | (19,518) | $ | (1,053,529) |
|
Other comprehensive income (loss) before reclassifications
|
(5,289) | 2,676 | 50,043 | 47,430 | ||||
|
Amounts reclassified from accumulated other comprehensive loss
|
- | 2,897 | (8,503) | (5,606) | ||||
|
Net other comprehensive income (loss)
|
(5,289) | 5,573 | 41,540 | 41,824 | ||||
| Balance, September 2023 | $ | (878,089) | $ | (155,638) | $ | 22,022 | $ | (1,011,705) |
| Six Months Ended September 2024 | ||||||||
| (In thousands) | Foreign Currency Translation and Other | Defined Benefit Pension Plans | Derivative Financial Instruments | Total | ||||
| Balance, March 2024 | $ | (868,439) | $ | (182,333) | $ | (13,559) | $ | (1,064,331) |
| Other comprehensive loss before reclassifications | (1,555) | (36) | (32,053) | (33,644) | ||||
|
Amounts reclassified from accumulated other comprehensive loss
|
- | 7,282 | 20,113 | 27,395 | ||||
|
Net other comprehensive income (loss)
|
(1,555) | 7,246 | (11,940) | (6,249) | ||||
| Balance, September 2024 | $ | (869,994) | $ | (175,087) | $ | (25,499) | $ | (1,070,580) |
| Six Months Ended September 2023 | ||||||||
| (In thousands) | Foreign Currency Translation and Other | Defined Benefit Pension Plans | Derivative Financial Instruments | Total | ||||
| Balance, March 2023 | $ | (859,651) | $ | (167,692) | $ | 7,825 | $ | (1,019,518) |
|
Other comprehensive income (loss) before reclassifications
|
(18,438) | 3,764 | 31,441 | 16,767 | ||||
|
Amounts reclassified from accumulated other comprehensive loss
|
- | 8,290 | (17,244) | (8,954) | ||||
|
Net other comprehensive income (loss)
|
(18,438) | 12,054 | 14,197 | 7,813 | ||||
| Balance, September 2023 | $ | (878,089) | $ | (155,638) | $ | 22,022 | $ | (1,011,705) |
VF Corporation Q2 FY25 Form 10-Q 18
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Reclassifications out of accumulated OCL were as follows:
| (In thousands) | Three Months Ended September | Six Months Ended September | |||||||
| Details About Accumulated Other Comprehensive Loss Components | Affected Line Item in the Consolidated Statements of Operations | ||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||
| Amortization of defined benefit pension plans: | |||||||||
|
Net deferred actuarial losses
|
Other income (expense), net | $ | (5,051) | $ | (4,170) | $ | (10,097) | $ | (8,402) |
|
Deferred prior service credits
|
Other income (expense), net | 150 | 137 | 294 | 272 | ||||
|
Pension settlement charges
|
Other income (expense), net | - | (7) | - | (3,299) | ||||
|
Total before tax
|
(4,901) | (4,040) | (9,803) | (11,429) | |||||
|
Tax benefit
|
1,261 | 1,143 | 2,521 | 3,139 | |||||
|
Net of tax
|
(3,640) | (2,897) | (7,282) | (8,290) | |||||
| Gains (losses) on derivative financial instruments: | |||||||||
|
Foreign exchange contracts
|
Net revenues | (7,851) | (516) | (12,182) | 574 | ||||
|
Foreign exchange contracts
|
Cost of goods sold | (4,001) | 9,399 | (14,127) | 17,474 | ||||
|
Foreign exchange contracts
|
Selling, general and administrative expenses | (47) | 1,007 | (455) | 2,308 | ||||
|
Foreign exchange contracts
|
Other income (expense), net | 53 | (750) | (3) | (1,261) | ||||
|
Interest rate contracts
|
Interest expense | 27 | 27 | 54 | 54 | ||||
|
Interest rate contracts
|
Income (loss) from discontinued operations, net of tax | 1,134 | 1,071 | 2,299 | 1,769 | ||||
|
Total before tax
|
(10,685) | 10,238 | (24,414) | 20,918 | |||||
|
Tax benefit (expense)
|
1,312 | (1,735) | 4,301 | (3,674) | |||||
|
Net of tax
|
(9,373) | 8,503 | (20,113) | 17,244 | |||||
| Total reclassifications for the period, net of tax | $ | (13,013) | $ | 5,606 | $ | (27,395) | $ | 8,954 |
19VF Corporation Q2 FY25 Form 10-Q
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NOTE 12 - STOCK-BASED COMPENSATION
Incentive Equity Awards Granted
During the six months ended September 2024, VF granted stock options to employees and nonemployee members of VF's Board of Directors to purchase6,415,325 shares of its Common Stock at a weighted average exercise price of $13.08 per share. The exercise price of each option granted was equal to the fair market value of VF Common Stock on the date of grant.Employee stock options vest and become exercisable in equal annual installments over three years. Stock options granted to nonemployee members of VF's Board of Directors vest upon grant and become exercisable one year from the date of grant. All options have ten-year terms.
The grant date fair value of each option award was calculated using a lattice option-pricing valuation model, which incorporated a range of assumptions for inputs as follows:
| Six Months Ended September 2024 | |
| Expected volatility |
37% to 53%
|
| Weighted average expected volatility | 47% |
| Expected term (in years) |
5.5 to 7.3
|
| Weighted average dividend yield | 2.2% |
| Risk-free interest rate |
3.80% to 5.43%
|
| Weighted average fair value at date of grant | $5.22 |
During the six months ended September 2024, VF granted 1,510,938 performance-based restricted stock units ("RSUs") to executives that enable them to receive shares of VF Common Stock at the end of a three-year performance cycle. The weighted average fair market value of VF Common Stock at the dates the units were granted was $16.51 per share. Each performance-based RSU has a potential final payout ranging from zero to two and one-quarter shares of VF Common Stock. The number of shares earned by participants, if any, is based on the achievement of financial targets and relative total shareholder return ("TSR") targets set by the Talent and Compensation Committee of the Board of Directors. Shares will be issued to participants in the year following the conclusion of the three-year performance period. The financial targets are based on the average, for the three years of the performance cycle, of the annual levels of achievement of VF's total revenue, weighted 50%, and the average, for the three years of the performance cycle, of the annual levels of achievement of VF's gross margin, weighted 50%. Furthermore, the actual number of shares earned may be adjusted upward or downward by 25% of the target award, based on how VF's TSR over the three-year period compares to the TSR for companies included in the
Standard & Poor's 600 Consumer Discretionary Sector Index, resulting in a maximum payout of 225% of the target award. The grant date fair value of the TSR-based adjustment related to the performance-based RSU grants was determined using a Monte Carlo simulation technique that incorporates option-pricing model inputs, and was $2.05 per share.
During the six months ended September 2024, VF granted 92,384 nonperformance-based stock units to nonemployee members of the Board of Directors. These units vest upon grant and will be settled in shares of VF Common Stock oneyear from the date of grant. The weighted average fair market value of VF Common Stock at the dates the units were granted was $16.42 per share.
In addition, VF granted 3,249,172 nonperformance-based RSUs to employees during the six months ended September 2024. These units generally vest over periods up to four years from the date of grant and each unit entitles the holder to one share of VF Common Stock. The weighted average fair market value of VF Common Stock at the dates the units were granted was $16.58 per share.
NOTE 13 - INCOME TAXES
The effective income tax rate for the six months ended September 2024 was 22.5% compared to 316.1% in the 2023 period. The six months ended September 2024 included a net discrete tax benefit of $5.8 million, which was comprised primarily of a $9.5 million net tax benefit related to unrecognized tax benefits and interest, and a $5.3 million tax expense related to stock compensation. Excluding the $5.8 million net discrete tax benefit in the 2024 period, the effective income tax rate would have been 31.4%. The six months ended September 2023 included a net discrete tax expense of $703.3 million, primarily related to the tax effects of decisions in the Timberland tax case and Belgium excess profits ruling, which are discussed further below. Excluding the $703.3 million net discrete tax expense in the 2023 period, the effective income tax rate would have been 20.8%. Without discrete items, the effective income tax rate for the six months ended September 2024 increased by 10.6% compared with the 2023 period primarily due to disproportionate
year-to-date losses in jurisdictions with no tax benefit, as well as the jurisdictional mix of earnings.
As previously reported, VF petitioned the U.S. Tax Court (the "Tax Court") to resolve an Internal Revenue Service ("IRS") dispute regarding the timing of income inclusion associated with VF's acquisition of The Timberland Company in September 2011. While the IRS argued that all such income should have been immediately included in 2011, VF reported periodic income inclusions in subsequent tax years. In Fiscal 2023, the Tax Court issued its final decision in favor of the IRS, which was appealed by VF. On October 19, 2022, VF paid $875.7 million related to the 2011 taxes and interest being disputed, which was recorded as an income tax receivable and began to accrue interest income. These amounts were included in the other assets line item in VF's Consolidated Balance Sheet, based on our assessment of the position under the more-likely-than-not standard of the accounting literature. On September 8, 2023, the U.S. Court of
VF Corporation Q2 FY25 Form 10-Q 20
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Appeals for the First Circuit ("Appeals Court") upheld the Tax Court's decision in favor of the IRS. As a result of the Appeals Court decision, VF determined that its position no longer met the more-likely-than-not threshold, and thus wrote off the related income tax receivable and associated interest and recorded $690.0 million of income tax expense in the three months ended September 2023. This amount 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.
VF was granted a ruling which lowered the effective income tax rate on taxable earnings for years 2010 through 2014 under Belgium's excess profit tax regime. During 2015, the European Union Commission ("EU") investigated and announced its decision that these rulings were illegal and ordered the tax benefits to be collected from affected companies, including VF. During 2017 and 2018, VF Europe BVBA was assessed and paid €35.0 million in tax and interest, which was recorded as an income tax receivable and was included in the other current assets line item in VF's Consolidated Balance Sheets, based on the expected success of the requests for annulment. After subsequent annulments and appeals, the General Court
confirmed the decision of the EU on September 20, 2023. As a result, VF wrote off the related income tax receivable and recorded a benefit for the associated foreign tax credit, resulting in $26.1 million of net income tax expense in the three months ended September 2023.
VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. In the U.S., the IRS examinations for tax years through 2015 have been effectively settled. In addition, VF is currently subject to examination by various state and international tax authorities. Management regularly assesses the potential outcomes of both ongoing and future examinations for the current and prior years and has concluded that VF's provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on VF's consolidated financial statements. Management believes that some of these audits and negotiations will conclude during the next 12 months.
During the six months ended September 2024, the amount of net unrecognized tax benefits and associated interest decreased by $6.3 million to $296.5 million. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits and interest may decrease during the next 12 months by approximately $5.0 million due to settlement of audits and expiration of statutes of limitations, of which $1.8 million would reduce income tax expense.
NOTE 14 - REPORTABLE SEGMENT INFORMATION
VF's President and Chief Executive Officer, who is considered the Company's CODM, allocates resources and assesses performance based on a global brand view that represents VF's operating segments. The operating segments have been evaluated and combined into reportable segments because they meet the similar economic characteristics and qualitative aggregation criteria set forth in the relevant accounting guidance.
The Company's reportable segments have been identified as: Outdoor, Active and Work.
Financial information for VF's reportable segments is as follows:
| Three Months Ended September | Six Months Ended September | |||||||
| (In thousands) | 2024 | 2023 | 2024 | 2023 | ||||
| Segment revenues: | ||||||||
| Outdoor | $ | 1,658,672 | $ | 1,713,679 | $ | 2,448,871 | $ | 2,543,376 |
| Active | 879,767 | 968,171 | 1,683,665 | 1,915,907 | ||||
| Work | 219,509 | 238,273 | 394,472 | 428,903 | ||||
| Total segment revenues | $ | 2,757,948 | $ | 2,920,123 | $ | 4,527,008 | $ | 4,888,186 |
| Segment profit: | ||||||||
| Outdoor | $ | 287,414 | $ | 296,750 | $ | 203,999 | $ | 253,089 |
| Active | 103,659 | 121,189 | 172,759 | 222,324 | ||||
| Work | 20,408 | 8,515 | 25,736 | 15,346 | ||||
| Total segment profit | 411,481 | 426,454 | 402,494 | 490,759 | ||||
| Corporate and other expenses | (138,238) | (78,098) | (253,757) | (175,895) | ||||
|
Interest expense, net (a)
|
(42,688) | (41,111) | (83,635) | (76,687) | ||||
|
Income from continuing operations before income taxes
|
$ | 230,555 | $ | 307,245 | $ | 65,102 | $ | 238,177 |
(a)Interest expense and the related interest rate swap impact for the DDTL, which totaled $16.2 million and $31.1 million for the three and six months ended September 2024, respectively, and $14.8 million and $29.3 million for the three and six months ended September 2023, respectively, were reallocated to discontinued operations due to the requirement within the DDTL's amended agreement that the DDTL be prepaid upon the receipt of the net cash proceeds from the sale of Supreme.
21VF Corporation Q2 FY25 Form 10-Q
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NOTE 15 - EARNINGS (LOSS) PER SHARE
| Three Months Ended September | Six Months Ended September | |||||||
| (In thousands, except per share amounts) | 2024 | 2023 | 2024 | 2023 | ||||
|
Earnings (loss) per share - basic:
|
||||||||
|
Income (loss) from continuing operations
|
$ | 202,509 | $ | (451,642) | $ | 50,482 | $ | (514,617) |
|
Weighted average common shares outstanding
|
389,044 | 388,338 | 388,892 | 388,249 | ||||
|
Earnings (loss) per share from continuing operations
|
$ | 0.52 | $ | (1.16) | $ | 0.13 | $ | (1.33) |
|
Earnings (loss) per share - diluted:
|
||||||||
|
Income (loss) from continuing operations
|
$ | 202,509 | $ | (451,642) | $ | 50,482 | $ | (514,617) |
|
Weighted average common shares outstanding
|
389,044 | 388,338 | 388,892 | 388,249 | ||||
|
Incremental shares from stock options and other dilutive securities
|
1,901 | - | 1,306 | - | ||||
|
Adjusted weighted average common shares outstanding
|
390,945 | 388,338 | 390,198 | 388,249 | ||||
|
Earning (loss) per share from continuing operations
|
$ | 0.52 | $ | (1.16) | $ | 0.13 | $ | (1.33) |
Outstanding stock options and other potentially dilutive securities of approximately 13.1 million and 15.9 million shares were excluded from the calculations of diluted earnings per share for the three and six-month periods ended September 2024, respectively, because the effect of their inclusion would have been anti-dilutive to those periods. In addition, 2.4 million and 1.6 million shares of performance-based RSUs were excluded from the calculations of diluted earnings per share for the three and six-months periods ended September 2024, respectively, because these units were not considered to be contingent outstanding shares in those periods.
In the three and six-month periods ended September 2023, the dilutive impacts of all outstanding stock options and other dilutive securities were excluded from dilutive shares as a result of the Company's loss from continuing operations for the periods and, as such, their inclusion would have been anti-dilutive. As a result, a total of 19.3 million and 19.0 million potentially dilutive shares related to stock options and other dilutive securities were excluded from the diluted loss per share calculations for the three and six-month periods ended September 2023, respectively.
NOTE 16 - FAIR VALUE MEASUREMENTS
Financial assets and financial liabilities measured and reported at fair value are classified in a three-level hierarchy that prioritizes the inputs used in the valuation process. A financial instrument's categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs, as follows:
•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable
data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities, or (iii) information derived from or corroborated by observable market data.
•Level 3 - Prices or valuation techniques that require significant unobservable data inputs. These inputs would normally be VF's own data and judgments about assumptions that market participants would use in pricing the asset or liability.
VF Corporation Q2 FY25 Form 10-Q 22
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Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities that are measured and recorded in the consolidated financial statements at fair value on a recurring basis:
| Total Fair Value |
Fair Value Measurement Using (a)
|
|||||||
| (In thousands) | Level 1 | Level 2 | Level 3 | |||||
| September 2024 | ||||||||
| Financial assets: | ||||||||
| Cash equivalents: | ||||||||
| Money market funds | $ | 108,232 | $ | 108,232 | $ | - | $ | - |
| Time deposits | 22,929 | 22,929 | - | - | ||||
| Derivative financial instruments | 16,445 | - | 16,445 | - | ||||
| Deferred compensation and other | 95,747 | 95,747 | - | - | ||||
| Financial liabilities: | ||||||||
| Derivative financial instruments | 54,569 | - | 54,569 | - | ||||
| Deferred compensation | 92,024 | - | 92,024 | - | ||||
| Contingent consulting fees | 13,563 | - | - | 13,563 | ||||
| Total Fair Value |
Fair Value Measurement Using (a)
|
|||||||
| (In thousands) | Level 1 | Level 2 | Level 3 | |||||
| March 2024 | ||||||||
| Financial assets: | ||||||||
| Cash equivalents: | ||||||||
| Money market funds | $ | 171,931 | $ | 171,931 | $ | - | $ | - |
| Time deposits | 54,853 | 54,853 | - | - | ||||
| Derivative financial instruments | 32,548 | - | 32,548 | - | ||||
| Deferred compensation and other | 95,236 | 95,236 | - | - | ||||
| Financial liabilities: | ||||||||
| Derivative financial instruments | 40,234 | - | 40,234 | - | ||||
| Deferred compensation | 90,804 | - | 90,804 | - |
(a)There were no transfers among the levels within the fair value hierarchy during the six months ended September 2024 or the year ended March 2024.
VF's cash equivalents include money market funds and time deposits with maturities within three months of their purchase dates, that approximate fair value based on Level 1 measurements. The fair value of derivative financial instruments, which consist of foreign exchange forward contracts and interest rate swap contracts, is determined based on observable market inputs (Level 2), including spot and forward exchange rates for foreign currencies and interest rate forward curves, and considers the credit risk of the Company and its counterparties. VF's deferred compensation assets primarily represent investments held within plan trusts as an economic hedge of the related deferred compensation liabilities. These investments primarily include mutual funds (Level 1) that are valued based on quoted prices in active markets. Liabilities related to VF's deferred compensation plans are recorded at amounts due to participants, based on the fair value of the participants' selection of hypothetical investments.
During the three months ended September 2024, VF entered into a contract with a consulting firm to support Reinvent, VF's transformation program. The contract includes contingent fees tied to increases in VF's stock price. These fees are accounted for under Accounting Standards Codification Topic 718 - Stock Compensation("ASC 718") as a liability award to a non-employee. Accordingly, VF has utilized the Monte Carlo valuation model
(Level 3) to estimate the fair value of the award at its inception, and will adjust such fair value on a quarterly basis over the measurement period, which concludes on June 30, 2027. The valuation includes the effects of market conditions that are based upon VF's stock price performance relative to stock price targets and a minimum payout dependent on the Standard & Poor's 500 Index return and VF's TSR versus that of peer companies over the measurement period. As of September 2024, the total fair value of the contingent fees was $30.7 million, of which $13.6 million was recognized as of September 2024.
All other significant financial assets and financial liabilities are recorded in the consolidated financial statements at cost, except life insurance contracts which are recorded at cash surrender value. These other financial assets and financial liabilities include cash held as demand deposits, accounts receivable, short-term borrowings, accounts payable and accrued liabilities. At September 2024 and March 2024, their carrying values approximated theirfair values. Additionally, at September 2024 and March 2024, the carrying values of VF's long-term debt, including the current portion, were $5,778.6 million and $5,703.0 million, respectively, compared with fair values of $5,437.7 million and $5,263.3 million at those respective dates. Fair value for long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings.
23VF Corporation Q2 FY25 Form 10-Q
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NOTE 17 - DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Summary of Derivative Financial Instruments
VF's outstanding derivative financial instruments include foreign currency exchange forward contracts and interest rate swap contracts. Although derivatives meet the criteria for hedge accounting at the inception of the hedging relationship, a limited number of derivative contracts intended to hedge assets and liabilities are not designated as hedges for accounting purposes.
The notional amounts of all outstanding foreign currency exchange forward contracts were $3.1 billion at September 2024, $3.1 billion at March 2024 and $3.3 billion at September
2023, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Swiss franc, Mexican peso, Chinese renminbi, Polish zloty, Swedish krona, South Korean won, and Japanese yen. These derivative contracts have maturities up to 20 months.
The notional amount of VF's outstanding interest rate swap contracts was $500.0 million at September 2024, March 2024 and September 2023. These contracts hedge the cash flow risk of interest payments on the variable-rate DDTL Agreement.
The following table presents outstanding derivatives on an individual contract basis:
|
Fair Value of Derivatives with Unrealized Gains |
Fair Value of Derivatives with Unrealized Losses |
|||||||||||
| (In thousands) | September 2024 | March 2024 | September 2023 | September 2024 | March 2024 | September 2023 | ||||||
| Derivatives Designated as Hedging Instruments: | ||||||||||||
| Foreign exchange contracts | $ | 15,846 | $ | 29,657 | $ | 51,216 | $ | (53,621) | $ | (39,639) | $ | (37,664) |
| Interest rate contracts | 324 | 2,335 | 4,897 | - | - | - | ||||||
| Total derivatives designated as hedging instruments | 16,170 | 31,992 | 56,113 | (53,621) | (39,639) | (37,664) | ||||||
| Derivatives Not Designated as Hedging Instruments: | ||||||||||||
| Foreign exchange contracts | 275 | 556 | 1,258 | (948) | (595) | (905) | ||||||
|
Total derivatives
|
$ | 16,445 | $ | 32,548 | $ | 57,371 | $ | (54,569) | $ | (40,234) | $ | (38,569) |
VF records and presents the fair values of all of its derivative assets and liabilities in the Consolidated Balance Sheets on a gross basis, even though they are subject to master netting agreements. If VF were to offset and record the asset and liability balances on a net basis in accordance with the terms of its master netting agreements, the amounts presented in the Consolidated Balance Sheets would be adjusted from the current gross presentation to the net amounts as detailed in the following table:
| September 2024 | March 2024 | September 2023 | ||||||||||
| (In thousands) |
Derivative Asset |
Derivative Liability |
Derivative Asset |
Derivative Liability |
Derivative Asset |
Derivative Liability |
||||||
|
Gross amounts presented in the Consolidated Balance Sheets
|
$ | 16,445 | $ | (54,569) | $ | 32,548 | $ | (40,234) | $ | 57,371 | $ | (38,569) |
|
Gross amounts not offset in the Consolidated Balance Sheets
|
(8,282) | 8,282 | (11,322) | 11,322 | (25,460) | 25,460 | ||||||
|
Net amounts
|
$ | 8,163 | $ | (46,287) | $ | 21,226 | $ | (28,912) | $ | 31,911 | $ | (13,109) |
Derivatives are classified as current or noncurrent based on maturity dates, as follows:
| (In thousands) | September 2024 | March 2024 | September 2023 | ||||
| Derivative Instruments | Balance Sheet Location | ||||||
| Foreign exchange contracts | Other current assets | $ | 12,988 | $ | 26,366 | $ | 40,567 |
| Foreign exchange contracts | Accrued liabilities | (44,300) | (35,578) | (35,347) | |||
| Foreign exchange contracts | Other assets | 3,133 | 3,847 | 11,907 | |||
| Foreign exchange contracts | Other liabilities | (10,269) | (4,656) | (3,222) | |||
| Interest rate contracts | Other current assets | 324 | 2,335 | - | |||
| Interest rate contracts | Other assets | - | - | 4,897 |
VF Corporation Q2 FY25 Form 10-Q 24
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Cash Flow Hedges
VF primarily uses foreign currency exchange forward contracts to hedge a portion of the exchange risk for its forecasted sales, inventory purchases, operating costs and certain intercompany transactions, including sourcing and management fees and royalties. The Company also uses interest rate swap contracts to hedge against a portion of the exposure related to its interest payments on its variable-rate debt. The effects of cash flow hedging included in VF's Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Operations are summarized as follows:
| (In thousands) |
Gain (Loss) on Derivatives Recognized in Accumulated OCL Three Months Ended September |
Gain (Loss) on Derivatives
Recognized in Accumulated OCL
Six Months Ended September
|
||||||
| Cash Flow Hedging Relationships | 2024 | 2023 | 2024 | 2023 | ||||
| Foreign exchange contracts | $ | (54,203) | $ | 58,509 | $ | (34,702) | $ | 29,349 |
| Interest rate contracts | (232) | 1,386 | 288 | 7,806 | ||||
| Total | $ | (54,435) | $ | 59,895 | $ | (34,414) | $ | 37,155 |
| (In thousands) |
Gain (Loss) Reclassified from Accumulated OCL into Net Income (Loss) Three Months Ended September |
Gain (Loss) Reclassified from Accumulated OCL into Net Income (Loss)
Six Months Ended September
|
|||||||
| Cash Flow Hedging Relationships | Location of Gain (Loss) | 2024 | 2023 | 2024 | 2023 | ||||
| Foreign exchange contracts | Net revenues | $ | (7,851) | $ | (516) | $ | (12,182) | $ | 574 |
| Foreign exchange contracts | Cost of goods sold | (4,001) | 9,399 | (14,127) | 17,474 | ||||
| Foreign exchange contracts | Selling, general and administrative expenses | (47) | 1,007 | (455) | 2,308 | ||||
| Foreign exchange contracts | Other income (expense), net | 53 | (750) | (3) | (1,261) | ||||
| Interest rate contracts | Interest expense | 27 | 27 | 54 | 54 | ||||
| Interest rate contracts | Income (loss) from discontinued operations, net of tax | 1,134 | 1,071 | 2,299 | 1,769 | ||||
| Total | $ | (10,685) | $ | 10,238 | $ | (24,414) | $ | 20,918 |
Derivative Contracts Not Designated as Hedges
VF uses foreign currency exchange contracts to manage foreign currency exchange risk on third-party and intercompany accounts receivable and payable, as well as third-party and intercompany borrowings and interest payments. These contracts are not designated as hedges, and are recorded at fair value in the Consolidated Balance Sheets. Changes in the fair values of these instruments are recognized directly in earnings. Gains or losses on these contracts largely offset the net transaction losses or gains on the related assets and liabilities. In the case of derivative contracts executed on foreign currency exposures that are no longer probable of occurring, VF de-designates these hedges and the fair value changes of these instruments are also recognized directly in earnings. During the six months ended September 2023, certain derivative contracts were de-designated as the related hedged forecasted transactions were no longer deemed probable of occurring. Accordingly, the Company reclassified amounts from accumulated OCL and recognized an $8.1 million loss in cost of goods sold during the six months ended September 2023. There were no material reclassifications in the other periods presented.
Other Derivative Information
At September 2024, accumulated OCL included $21.4 million of pre-tax net deferred losses for foreign currency exchange
contractsand a $0.3 million pre-tax deferred gain for interest rate swapcontracts, which are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on exchange rates and interest rates in effect when outstanding derivative contracts are settled.
Net Investment Hedge
The Company has designated its euro-denominated fixed-rate notes, which represented €2.0 billion in aggregate principal as of September 2024, as a net investment hedge of VF's investment in certain foreign operations. Because this debt qualified as a nonderivative hedging instrument, foreign currency transaction gains or losses of the debt are deferred in the foreign currency translation and other component of accumulated OCL as an offset to the foreign currency translation adjustments on the hedged investments. During the three and six-month periods ended September 2024, the Company recognized an after-tax loss of $64.8 million and an after-tax loss of $54.0 million, respectively, in other comprehensive income (loss) related to the net investment hedge transaction and an after-tax gain of $65.9 million and $55.5 million for the three and six-month periods ended September 2023, respectively. Any amounts deferred in accumulated OCL will remain until the hedged investment is sold or substantially liquidated.
25VF Corporation Q2 FY25 Form 10-Q
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NOTE 18 - RESTRUCTURING
The Company incurs restructuring charges related to strategic initiatives and cost optimization of business activities. A description of significant restructuring programs and other restructuring charges is provided below.
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 Company currently estimates it will incur approximately $190.0 million to $210.0 million in restructuring charges in connection with Reinvent, and that substantially all actions will be completed by the end of Fiscal 2025. Of the total estimated
charges, the Company anticipates that approximately 70% will relate to severance and employee-related benefits and the remainder will primarily relate to asset impairments and write-downs. Cash payments are generally expected to be paid within one year of charges incurred. During the six months ended September 2024, $21.3 million of cash payments related to the Reinvent charges were made.
The type of cost and respective location of restructuring charges related to Reinvent for the three and six months ended September 2024,and the cumulative charges recorded since the inception of Reinvent were as follows:
| (In thousands) | Three Months Ended September 2024 | Six Months Ended September 2024 |
Cumulative Charges
|
||||
| Type of Cost | Statement of Operations Location | ||||||
| Severance and employee-related benefits | Selling, general and administrative expenses | $ | 8,158 | $ | 19,299 | $ | 84,121 |
| Severance and employee-related benefits | Cost of goods sold | - | 181 | 4,691 | |||
| Contract termination and other | Selling, general and administrative expenses | - | 737 | 737 | |||
| Contract termination and other | Cost of goods sold | - | 157 | 157 | |||
| Asset impairments and write-downs | Selling, general and administrative expenses | - | 500 | 39,886 | |||
| Pension withdrawal | Selling, general and administrative expenses | 3,619 | 3,619 | 3,619 | |||
| Accelerated depreciation | Selling, general and administrative expenses | 18 | 879 | 879 | |||
| Accelerated depreciation | Cost of goods sold | - | 17 | 17 | |||
| Total Reinvent Restructuring Charges | $ | 11,795 | $ | 25,389 | $ | 134,107 |
All restructuring charges related to Reinvent recognized in the three and six months ended September 2024were reported within 'Corporate and other' expenses in Note 14, Reportable Segment Information.
Other Restructuring Charges
Other Restructuring Charges are related to various approved initiatives. The type of cost and respective location of Other Restructuring Charges for the three and six months ended September 2024and 2023were as follows:
| Three Months Ended September | Six Months Ended September | ||||||||
| (In thousands) | 2024 | 2023 | 2024 | 2023 | |||||
| Type of Cost | Statement of Operations Location | ||||||||
| Severance and employee-related benefits | Selling, general and administrative expenses | $ | - | $ | - | $ | - | $ | 676 |
| Contract termination and other | Selling, general and administrative expenses | 154 | 435 | 591 | 454 | ||||
| Total Other Restructuring Charges | $ | 154 | $ | 435 | $ | 591 | $ | 1,130 |
VF Corporation Q2 FY25 Form 10-Q 26
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Other Restructuring Charges by business segment were as follows:
| Three Months Ended September | Six Months Ended September | |||||||
| (In thousands) | 2024 | 2023 | 2024 | 2023 | ||||
| Outdoor | $ | - | $ | - | $ | - | $ | 242 |
| Active | - | - | - | 434 | ||||
| Work | - | - | - | - | ||||
| Corporate and other | 154 | 435 | 591 | 454 | ||||
| Total | $ | 154 | $ | 435 | $ | 591 | $ | 1,130 |
Consolidated Restructuring Charges
The activity in the restructuring accrual related to Reinvent and Other Restructuring Charges for the six-month period ended September 2024 was as follows:
| (In thousands) | Severance | Other | Total | |||
| Accrual at March 2024 | $ | 60,160 | $ | 345 | $ | 60,505 |
| Charges | 19,480 | 894 | 20,374 | |||
| Cash payments and settlements | (23,041) | (902) | (23,943) | |||
| Adjustments to accruals | (292) | - | (292) | |||
| Impact of foreign currency | 56 | - | 56 | |||
| Accrual at September 2024 | $ | 56,363 | $ | 337 | $ | 56,700 |
Of the $56.7 million total restructuring accrual at September 2024, $54.8 million is expected to be paid out within the next 12 months and is classified within accrued liabilities. The remaining $1.9 million will be paid out beyond the next 12 months and thus is classified within other liabilities. The Company has not recognized any significant incremental costs related to the accruals for the year ended March 2024 or prior periods.
NOTE 19 - SUBSEQUENT EVENTS
On October 1, 2024, VF completed the sale of Supreme to EssilorLuxottica S.A. for $1.5 billion, subject to customary adjustments for cash, indebtedness, working capital and transaction expenses as set forth in the Purchase Agreement. Refer to Note 4 for additional information.
On October 4, 2024, VF made an aggregate $1.0 billion prepayment of the DDTL using the net cash proceeds from the sale of Supreme, pursuant to the terms of the DDTL Agreement, as amended.
On October 22, 2024, VF's Board of Directors declared a quarterly cash dividend of $0.09 per share, payable on December 18, 2024 to stockholders of record on December 10, 2024.
27VF Corporation Q2 FY25 Form 10-Q
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| ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
VF Corporation (together with its subsidiaries, collectively known as "VF" or the "Company") uses a 52/53 week fiscal year ending on the Saturday closest to March 31 of each year. The Company's current fiscal year runs from March 31, 2024 through March 29, 2025 ("Fiscal 2025"). Accordingly, this Form 10-Q presents our second quarter of Fiscal 2025. For presentation purposes herein, all references to periods ended September 2024 and September 2023 relate to the fiscal periods ended on September 28, 2024 and September 30, 2023, respectively. References to March 2024 relate to information as of March 30, 2024.
All per share amounts are presented on a diluted basis and all percentages shown in the tables below and the following discussion have been calculated using unrounded numbers. References to the three and six months ended September 2024 foreign currency amounts and impacts below reflect the changes in foreign exchange rates from the three and six months ended September 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.
On July 16, 2024, VF entered into a definitive Stock and Asset Purchase Agreement (the "Purchase Agreement") with
EssilorLuxottica S.A. to sell the Supreme®brand business ("Supreme"). On October 1, 2024, VF completed the sale of Supreme. During the three months ended September 2024, the Company determined that Supreme met the held-for-sale and discontinued operations accounting criteria. Accordingly, beginning in the second quarter of Fiscal 2025, VF has reported the results of Supreme and the related cash flows as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively.In addition, interest expense and the related interest rate swap impact for the delayed draw Term Loan ("DDTL") were reallocated to discontinued operations due to the requirement within the DDTL Agreement, as amended, that the DDTL be prepaid upon the receipt of the net cash proceeds from the sale of Supreme. The related held-for-sale assets and liabilities have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets. These changes have been applied to all periods presented.
Refer to Note 4 to VF's consolidated financial statements for additional information on discontinued operations.
Unless otherwise noted, amounts, percentages and discussion for all periods included below reflect the results of operations and financial condition from VF's continuing operations.
| RECENT DEVELOPMENTS |
Supreme Divestiture
As noted above, VF completed the sale of Supreme on October 1, 2024. VF received proceeds of $1.5 billion, subject to post closing adjustments,and recognized an after-tax estimated loss on sale of Supreme of $124.8 million, which is included in the income (loss) from discontinued operations, net of tax line item in the Consolidated Statements of Operations for the three and six months ended September 2024. VF used a portion of the net cash proceeds to prepay $1.0 billion of the DDTL on October 4, 2024, pursuant to the terms of the DDTL Agreement, as amended, which required repayment within ten business days of VF's receipt of the net cash proceeds from the sale of Supreme.
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:VF changed the operating model with the establishment of a global commercial structure. This included 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 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: Sun Choe was appointed the new Global Brand President of Vans®effective late July 2024.
•Optimize cost structure to improve operating efficiency and profitability:Actions have been implemented in a large-scale cost reduction program, which is expected to deliver $300 million in annual 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. VF used a portion of the proceeds from the sale of Supreme to prepay the DDTL and the remaining proceeds will be applied to upcoming debt maturities.
During the second quarter of Fiscal 2025, the Company initiated the next phase of Reinvent, which is focused on a return to growth and improvements to profitability. In doing so, the Company initiated a set of transformational workstreams focused on revenue growth, margin expansion and selling, general and administrative expense contraction.
Reinvent restructuring charges in the three and six months ended September 2024 were $11.8 million and $25.4 million, respectively, and cumulative charges were $134.1 million since the inception of the program, which primarily included costs associated with severance and employee-related benefits and the impact of asset impairments and write-downs.
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|
SUMMARY OF THE SECOND QUARTER OF FISCAL 2025
|
•Revenues were down 6% to $2.8 billion compared to the three months ended September 2023.
•Outdoor segment revenues decreased 3% to $1.7 billion compared to the three months ended September 2023, including a 1% favorable impact from foreign currency.
•Active segment revenues decreased 9% to $879.8 million compared to the three months ended September 2023.
•Work segment revenues decreased 8% to $219.5 million compared to the three months ended September 2023.
•Wholesale revenues were down 4% compared to the three months ended September 2023, including a 1% favorable impact from foreign currency.
•Direct-to-consumer revenues were down 8% compared to the three months ended September 2023.
•International revenues decreased 2% compared to the three months ended September 2023, including a 1% favorable impact from foreign currency.
•Revenues in the Americas region decreased 10% compared to the three months ended September 2023, including a 1% unfavorable impact from foreign currency.
•Gross margin increased 120 basis points to 52.2% compared to the three months ended September 2023, primarily driven by lower product costs.
•Earnings (loss) per share was $0.52compared to $(1.16)in the 2023 period. The three months ended September 2023 included increased tax expense due to the unfavorable decision in the Timberland tax case, which negatively impacted earnings per share by $1.72. The three months ended September 2024included Reinvent charges and lower profitability in the Outdoor and Active segments.
|
ANALYSIS OF RESULTS OF OPERATIONS
|
|
Consolidated Statements of Operations
|
The following table presents a summary of the changes in net revenues for the three and six months ended September 2024 from the comparable periods in 2023:
| (In millions) | Three Months Ended September | Six Months Ended September | ||
| Net revenues - 2023 | $ | 2,920.1 | $ | 4,888.2 |
| Organic | (173.7) | (361.6) | ||
| Impact of foreign currency | 11.5 | 0.4 | ||
| Net revenues - 2024 | $ | 2,757.9 | $ | 4,527.0 |
VF reporteda 6% and 7% decrease in revenues for the three and six months ended September 2024, respectively, compared to the 2023 periods. The revenue decrease in boththe three and six monthsended September 2024 was driven by declines across all segments. The revenue decrease in both the three and six monthsended September 2024 was also due to declines across
the Americas and Europe regions, with the most significant declines in the Americas region.
Additional details on revenues areprovided 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:
| Three Months Ended September | Six Months Ended September | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Gross margin (net revenues less cost of goods sold) | 52.2 | % | 51.0 | % | 51.8 | % | 51.5 | % |
| Selling, general and administrative expenses | 42.3 | 39.0 | 48.5 | 44.9 | ||||
| Operating margin | 9.9 | % | 12.0 | % | 3.3 | % | 6.6 | % |
Gross margin increased 120 and 30 basis points in the three and six months ended September 2024, respectively, compared to the 2023 periods. The increase in both periods was primarily driven by lower product costs.
Selling, general and administrative expenses as a percentage of total revenues increased 330 and 360 basis points during the three and six months ended September 2024, respectively, compared to the 2023 periods. Selling, general and administrative expenses increased $27.3 million and decreased $2.3 million in the three and six months ended September 2024,
respectively, compared to the 2023 periods. The increase in the three months ended September 2024 was primarily due to Reinvent charges and higher compensation costs, including performance-based compensation, partially offset by cost savings from Reinvent and lower information technology costs and distribution expenses. The decrease in the six months ended September 2024 was primarily due to cost savings from Reinvent, lower distribution expenses and information technology costs and a gain recognized from a sale leaseback transaction, partially offset by Reinvent charges and higher
29VF Corporation Q2 FY25 Form 10-Q
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compensation costs, including performance-based compensation.
Net interest expense increased $1.6 million and $6.9 million during the three and six months ended September 2024, respectively, compared to the 2023 periods. The increase in net interest expense in both the three and six months ended September 2024 was primarily due to changes in international rates andincreased levels of short-term commercial paper borrowings at higher rates, partially offset by lower interest on long-term debt due to the repayment of €850.0 million ($907.1 million) of long-term notes in September 2023. Total outstanding debt averaged $6.2 billion in the six months ended September 2024 and $6.9 billion in the same period in 2023, with weighted average interest rates of 2.7% and 2.3% in the six months ended September 2024 and 2023, respectively.
The effective income tax rate for the six months ended September 2024 was 22.5% compared to 316.1% in the 2023 period. Thesix months ended September 2024 included a net discrete tax benefit of $5.8 million, which was comprised primarily of a $9.5 millionnet tax benefit related to unrecognized tax benefits and interest and a $5.3 milliontax expense related to stock compensation. Excluding the $5.8 million net discrete
tax benefit in the 2024 period, the effective income tax rate would have been 31.4%.The six months ended September 2023 included a net discrete tax expense of $703.3 million, primarily related to the tax effects of decisions in the Timberland tax case and Belgium excess profits ruling. Excluding the $703.3 million net discrete tax expense in the 2023 period, the effective income tax rate would have been 20.8%. Without discrete items, the effective income tax rate for the six months ended September 2024 increased by 10.6% compared with the 2023 period primarily due to disproportionate year-to-date losses in jurisdictions with no tax benefit, as well as the jurisdictional mix of earnings.
As a result of the above, income (loss) from continuing operations in the three months ended September 2024 was $202.5 million ($0.52 per diluted share) compared to $(451.6) million ($(1.16) per diluted share) in the 2023 period, and income (loss) from continuing operations in the six months ended September 2024 was $50.5 million ($0.13 per diluted share) compared to $(514.6) million ($(1.33) per diluted share) in the 2023 period. Refer to additional discussion in the "Information by Reportable Segment" section below.
|
Information by Reportable Segment
|
VF's reportable segments are: Outdoor, Active and Work. 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 comprisesthe operating income and other income (expense), net line items of each segment.
Refer to Note 14 to the consolidated financial statements for a summary of results of operations by segment, along with a reconciliation of segment profit to income from continuing operations before income taxes.
The following tables present a summary of the changes in segment revenues and profit in thethree and six months ended September 2024 from the comparable periods in 2023 and revenues by region for our Top 4 brands for the three and six months ended September 2024 and 2023:
Segment Revenues:
| Three Months Ended September | ||||||||
| (In millions) | Outdoor | Active | Work | Total | ||||
| Segment revenues - 2023 | $ | 1,713.7 | $ | 968.2 | $ | 238.3 | $ | 2,920.1 |
| Organic | (65.9) | (89.0) | (18.8) | (173.7) | ||||
| Impact of foreign currency | 10.9 | 0.6 | - | 11.5 | ||||
| Segment revenues - 2024 | $ | 1,658.7 | $ | 879.8 | $ | 219.5 | $ | 2,757.9 |
| Six Months Ended September | ||||||||
| (In millions) | Outdoor | Active | Work | Total | ||||
| Segment revenues - 2023 | $ | 2,543.4 | $ | 1,915.9 | $ | 428.9 | $ | 4,888.2 |
| Organic | (98.7) | (229.2) | (33.6) | (361.6) | ||||
| Impact of foreign currency | 4.2 | (3.0) | (0.8) | 0.4 | ||||
| Segment revenues - 2024 | $ | 2,448.9 | $ | 1,683.7 | $ | 394.5 | $ | 4,527.0 |
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Segment Profit:
| Three Months Ended September | ||||||||
| (In millions) | Outdoor | Active | Work | Total | ||||
| Segment profit - 2023 | $ | 296.8 | $ | 121.2 | $ | 8.5 | $ | 426.5 |
| Organic | (13.7) | (18.2) | 11.8 | (20.1) | ||||
| Impact of foreign currency | 4.3 | 0.7 | 0.1 | 5.1 | ||||
| Segment profit - 2024 | $ | 287.4 | $ | 103.7 | $ | 20.4 | $ | 411.5 |
| Six Months Ended September | ||||||||
| (In millions) | Outdoor | Active | Work | Total | ||||
| Segment profit - 2023 | $ | 253.1 | $ | 222.3 | $ | 15.3 | $ | 490.8 |
| Organic | (52.6) | (50.0) | 10.3 | (92.4) | ||||
| Impact of foreign currency | 3.5 | 0.5 | 0.1 | 4.1 | ||||
| Segment profit - 2024 | $ | 204.0 | $ | 172.8 | $ | 25.7 | $ | 402.5 |
| Top Brand Revenues: | ||||||||||
| Three Months Ended September 2024 | ||||||||||
| (In millions) |
The North Face®
|
Vans®
|
Timberland®(a)
|
Dickies®
|
Total | |||||
| Americas | $ | 465.5 | $ | 405.2 | $ | 199.0 | $ | 103.0 | $ | 1,172.7 |
| Europe | 400.6 | 202.7 | 208.9 | 34.6 | 846.8 | |||||
| Asia-Pacific | 225.3 | 59.5 | 67.5 | 14.7 | 367.0 | |||||
| Global | $ | 1,091.4 | $ | 667.4 | $ | 475.3 | $ | 152.4 | $ | 2,386.5 |
| Three Months Ended September 2023 | ||||||||||
| (In millions) |
The North Face®
|
Vans®
|
Timberland®(a)
|
Dickies®
|
Total | |||||
| Americas | $ | 539.5 | $ | 449.9 | $ | 207.0 | $ | 120.0 | $ | 1,316.4 |
| Europe | 401.7 | 217.8 | 216.2 | 33.9 | 869.6 | |||||
| Asia-Pacific | 187.7 | 81.1 | 65.4 | 17.5 | 351.7 | |||||
| Global | $ | 1,128.8 | $ | 748.8 | $ | 488.6 | $ | 171.4 | $ | 2,537.6 |
| Six Months Ended September 2024 | ||||||||||
| (In millions) |
The North Face®
|
Vans®
|
Timberland®(a)
|
Dickies®
|
Total | |||||
| Americas | $ | 716.0 | $ | 753.5 | $ | 312.1 | $ | 189.5 | $ | 1,971.1 |
| Europe | 560.7 | 357.0 | 293.8 | 53.2 | 1,264.7 | |||||
| Asia-Pacific | 338.9 | 138.8 | 98.9 | 26.5 | 603.1 | |||||
| Global | $ | 1,615.6 | $ | 1,249.3 | $ | 704.8 | $ | 269.2 | $ | 3,838.9 |
| Six Months Ended September 2023 | ||||||||||
| (In millions) |
The North Face®
|
Vans®
|
Timberland®(a)
|
Dickies®
|
Total | |||||
| Americas | $ | 819.4 | $ | 916.2 | $ | 318.3 | $ | 219.6 | $ | 2,273.5 |
| Europe | 572.8 | 377.0 | 316.9 | 52.9 | 1,319.6 | |||||
| Asia-Pacific | 274.8 | 193.2 | 107.3 | 35.5 | 610.8 | |||||
| Global | $ | 1,667.0 | $ | 1,486.3 | $ | 742.5 | $ | 308.1 | $ | 4,203.9 |
(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.
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The following sections discuss the changes in revenues and profitability by segment. For purposes of this analysis, royalty revenues have been included in the wholesale channel for all periods.
Outdoor
| Three Months Ended September | Six Months Ended September | |||||||||||
| (Dollars in millions) | 2024 | 2023 |
Percent Change |
2024 | 2023 |
Percent Change |
||||||
| Segment revenues | $ | 1,658.7 | $ | 1,713.7 | (3.2) | % | $ | 2,448.9 | $ | 2,543.4 | (3.7) | % |
| Segment profit | 287.4 | 296.8 | (3.1) | % | 204.0 | 253.1 | (19.4) | % | ||||
| Operating margin | 17.3 | % | 17.3 | % | 8.3 | % | 10.0 | % |
The Outdoor segment includes the following brands: The North Face®, Timberland®, Smartwool®, Altra® andIcebreaker®.
Global revenues for Outdoor decreased 3% in the three months ended September 2024 compared to the 2023 period, including a 1% favorable impact from foreign currency. Revenues in the Americas region decreased 12%, including a 1% unfavorable impact from foreign currency. Revenues in the Europe region decreased 1%, including a 2% favorable impact from foreign currency. Revenues in the Asia-Pacific region increased 16%, including a 1% favorable impact from foreign currency and a 22% increase in Greater China (which includes Mainland China, Hong Kong and Taiwan), including a 1% favorable impact from foreign currency.
Global revenues for Outdoor decreased 4% in the six months ended September 2024 compared to the 2023 period. Revenues in the Americas region decreased 10%. Revenues in the Europe region decreased 3%, including a 1% favorable impact from foreign currency. Revenues in the Asia-Pacific region increased 15%, including a 22% increase in Greater China with a 1% unfavorable impact from foreign currency.
Global revenues for The North Face®brand decreased 3% in both the three and six months ended September 2024 compared to the 2023 periods, including a 1% favorable impact from foreign currency in the three months ended September 2024. The decrease in both the three and six months ended September 2024 was driven by a decline in the Americas region, which decreased 14% and 13% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% unfavorable impact from foreign currency in both periods. Revenues in the Europe region remained flat and decreased 2% in the three and six months ended September 2024, respectively, including a 2% favorable impact from foreign currency in both periods. Revenues in the Asia-Pacific region increased 20% and 23% in the three and six months ended September 2024, respectively, including a 1% favorable and a 1% unfavorable impact from foreign currency in the respective periods.
Global revenues for the Timberland® brand decreased 3% and 7% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% favorable impact from foreign currency in the three months ended September 2024. Revenues in the Europe region decreased 3% and 7% in the three and six months ended September 2024, respectively, including a 2% and 1% favorable impact from foreign currency in the respective periods. Revenue in the Americas region decreased 6% and 5%, respectively, in the three and six months ended September 2024, including a 1% unfavorable impact from foreign currency in the three months ended September 2024. Revenues in the Asia-Pacific region increased 3% and decreased 8% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% unfavorable impact from foreign currency in the six months ended September 2024
Global direct-to-consumer revenues for Outdoor increased 4% and 3% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% favorable and a 1% unfavorable impact from foreign currency in the respective periods.The increases were primarily due to The North Face®brand in the Europe and Asia-Pacific regions. Global wholesale revenues decreased 6% and 7% in the three and six months ended September 2024, respectively, compared to the 2023 periods. The decreases were primarily driven by declines in The North Face® brand in the Americas and Europe regions.
Operating margin remained flat and decreased in the three and six months ended September 2024, respectively, compared to the 2023 periods. The decrease in the six months ended September 2024 reflected increased direct-to-consumer expenses, partially offset by higher gross margin, primarily driven by lower product costs.
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Active
| Three Months Ended September | Six Months Ended September | |||||||||||
| (Dollars in millions) | 2024 | 2023 |
Percent Change |
2024 | 2023 |
Percent Change |
||||||
| Segment revenues | $ | 879.8 | $ | 968.2 | (9.1) | % | $ | 1,683.7 | $ | 1,915.9 | (12.1) | % |
| Segment profit | 103.7 | 121.2 | (14.5) | % | 172.8 | 222.3 | (22.3) | % | ||||
| Operating margin | 11.8 | % | 12.5 | % | 10.3 | % | 11.6 | % |
The Active segment includes the following brands: Vans®, Kipling®, Napapijri®, Eastpak® and JanSport®.
Global revenues for Active decreased 9% in the three months ended September 2024 compared to the 2023 period. Revenues in the Americas region decreased 8%, including a 1% unfavorable impact from foreign currency. Revenues in the Europe region decreased 8% including a 1% favorable impact from foreign currency. Revenues in the Asia-Pacific region decreased 20%, including a 30% decrease in Greater China with a 1% favorable impact from foreign currency.
Global revenues for Active decreased 12% in the six months ended September 2024 compared to the 2023 period. Revenues in the Americas region decreased 13%. Revenues in the Asia-Pacific region decreased 23%, including a 1% unfavorable impact from foreign currency, and a 32% decrease in Greater China, including a 1% unfavorable impact from foreign currency. Revenues in the Europe region decreased 6% in the six months ended September 2024 compared to the 2023 period.
Vans®brand global revenues decreased 11% and 16% in the three and six months ended September 2024, respectively, compared to the 2023 periods. The overall declines were most significantly impacted by a 10% and 18% decrease in the Americas region for the three and six months ended September 2024, respectively, including a 1% unfavorable impact from foreign currency in both periods. Revenues in the Asia-Pacific region decreased 27% and 28% in the three and sixmonths ended September 2024, respectively, including a 1% unfavorable impact from foreign currency in both periods. Revenues in the Europe region decreased 7% and 5% in the three and six months ended September 2024, respectively, including a 1% favorable impact from foreign currency in both periods.
Global direct-to-consumer revenues for Active decreased 18% and 21% in the three and six months ended September 2024, respectively, compared to the 2023 periods. The decreases were primarily driven by declines in the Americas region, which decreased 19% and 23% in the three and six months ended September 2024, respectively, including a 1% unfavorable impact from foreign currency in the three months ended September 2024. Global wholesale revenues increased 1% in the three months ended September 2024.The increase was primarily due to a 16% increase inthe Americas region in the three months ended September 2024, including a 1% unfavorable impact from foreign currency. The current year increase is in part the result of the deliberate actions taken to right-size inventories in the Americas wholesale channel in the second half of Fiscal 2024. Wholesale revenues in the Asia-Pacific region decreased 5% in the three months ended September 2024. Wholesale revenues in the Europe region decreased 8% in the three months ended September 2024, including a 2% favorable impactfrom foreign currency. Global wholesale revenues decreased 2% in the six months ended September 2024. The decrease was due to declines in the Europe and Asia-Pacific regions. Wholesale revenues in the Europe region decreased 4% in the six months ended September 2024, including a 1% favorable impact from foreign currency. Wholesale revenues in the Asia-Pacific region decreased 12% in the six months ended September 2024, including a 1% unfavorable impact from foreign currency. Wholesale revenues in the Americas region increased 2% in the six months ended September 2024, including a 1% unfavorable impact from foreign currency.
Operating margin decreased in both the three and six months ended September 2024 compared to the 2023 periods, primarily reflecting lower leverage of operating expenses due to decreased revenues.
Work
| Three Months Ended September | Six Months Ended September | |||||||||||
| (Dollars in millions) | 2024 | 2023 |
Percent Change |
2024 | 2023 |
Percent Change |
||||||
| Segment revenues | $ | 219.5 | $ | 238.3 | (7.9) | % | $ | 394.5 | $ | 428.9 | (8.0) | % |
| Segment profit | 20.4 | 8.5 | 139.7 | % | 25.7 | 15.3 | 67.7 | % | ||||
| Operating margin | 9.3 | % | 3.6 | % | 6.5 | % | 3.6 | % |
The Work segment includes the following brands: Dickies® and Timberland PRO®.
Global Work revenues decreased 8% in the three months ended September 2024 compared to the 2023 period. Revenues in the Americas region decreased 9%. Revenues in the Asia-Pacific region decreased 16%, includinga 1% unfavorable impact from foreign currency. Revenues in the Europe region increased 2%, including a 1% favorable impact from foreign currency.
Global Work revenues decreased 8% in the six monthsended September 2024 compared to the 2023 period. Revenues in the Americas region decreased 8%, including a 1% unfavorable impact from foreign currency. Revenues in the Asia-Pacific region decreased 25%, includinga2% unfavorable impact from foreign currency. Revenues in the Europe region remained flat.
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Dickies®brand global revenues decreased 11% and 13% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% unfavorable impact from foreign currency in the six months ended September 2024. The declines in the three and six months ended September 2024 were primarily driven by a decrease in the Americas region of 14% in both periods, reflectinglower inventory replenishment and weakness with certain key U.S. wholesale customer accounts. The declines were also attributed to a decrease in the Asia-Pacific region of 16% and 25% in the three and six months ended September 2024, respectively, including a 1% and 2% unfavorableimpact from foreign currency
in the respective periods, primarily due to broad-based weakness in Greater China.Revenues in the Europe region increased 2% and remained flat in the three and six months ended September 2024, respectively, including a 1% favorable impact from foreign currency in the three months ended September 2024.
Operating margin increased in both the three and six months ended September 2024 compared to the 2023 periods, reflecting higher gross margin, primarily driven by lower inventory reserves.
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Reconciliation of Segment Profit to Income From Continuing Operations Before Income Taxes
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There are two types of costs necessary to reconcile total segment profit to consolidated income from continuing operations before income taxes. These costs are (i) corporate and other expenses, discussed below, and (ii) interest expense, net, which was discussed in the "Consolidated Statements of Operations" section.
| Three Months Ended September | Six Months Ended September | |||||||||||
| (Dollars in millions) | 2024 | 2023 |
Percent Change |
2024 | 2023 |
Percent Change |
||||||
| Corporate and other expenses | $ | 138.2 | $ | 78.1 | 77.0 | % | $ | 253.8 | $ | 175.9 | 44.3 | % |
| Interest expense, net | 42.7 | 41.1 | 3.8 | % | 83.6 | 76.7 | 9.1 | % |
Corporate and other expenses are those that have not been allocated to the segments for internal management reporting, including (i) information systems and shared service costs, (ii) corporate headquarters costs, and (iii) certain other income and expenses.
The increase in corporate and other expenses for both the three and six months ended September 2024 was primarily due to Reinvent charges and compensation costs, including performance-based compensation, partially offset by cost savings from Reinvent.
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International
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International revenues decreased 2% and 4% in the three and six months ended September 2024, respectively, compared to the 2023 periods. Foreign currency had a favorable impact of 1% on international revenues in the three months ended September 2024.
Revenues in the Europe region decreased 3% and 4% in the three and six months ended September 2024, respectively, including a 2% and 1% favorable impact from foreign currency in the respective periods. Revenues in the Americas (non-U.S.) region decreased 11% and 9% in the three and six months ended September 2024, respectively, including a 5% and 3% unfavorable impact from foreign currency in the respective periods. In the Asia-Pacific region, revenues increased 6% and
remained flat in the three and six months ended September 2024, respectively. Foreign currency had a favorable impact of 1% and an unfavorable impact of 1% on Asia-Pacific revenues in the three and six months ended September 2024, respectively. Revenues in Greater China increased 10% and 5% in the three and six months ended September 2024, respectively, including a 1% favorable and 1% unfavorable impact from foreign currency in the respective periods.
International revenues were 57% and 55% of total revenues in the three-month periods ended September 2024 and 2023, respectively, and 55% and 53% of total revenues in the six-month periods ended September 2024 and 2023, respectively.
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Direct-to-Consumer
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Direct-to-consumer revenues decreased 8% and 11% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% unfavorable impact from foreign currency in the in the six monthsended September 2024.
VF's e-commerce business decreased 5% and 7% during the three and six months ended September 2024, respectively. The decreases were primarily driven by declines in the e-commerce business in the Americas and Asia-Pacific regions.
Revenues from VF-operated retail stores decreased 12% and 15% during the three and six months ended September 2024, respectively,including a1% unfavorable impact from foreign currency in the six monthsended September 2024. There were 1,160 VF-operated retail stores at September 2024 comparedto 1,235 at September 2023.
Direct-to-consumer revenues were 33% and 34% oftotal revenues in the three-month periods ended September 2024 and 2023, respectively, and 37% and 38%of total revenues in the six-month periods ended September 2024 and 2023, respectively.
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Wholesale
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Wholesale revenues decreased 4% and 5% in the three and six months ended September 2024, respectively, compared to the 2023 periods, including a 1% favorable impact from foreign currency in both periods. The decreases were primarily driven by declines in the wholesale business in the Americas and Europe regions.
Wholesale revenues were 67% and 66% of total revenues in the three-month periods ended September 2024 and 2023, respectively, and 63% and 62% of total revenues in the six-month periods ended September 2024 and 2023, respectively.
| ANALYSIS OF FINANCIAL CONDITION |
|
Consolidated Balance Sheets
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The following discussion refers to significant changes in balances at September 2024 compared to March 2024:
•Increase in accounts receivable- primarily due to the seasonality of the business and the timing of collections.
•Increase in inventories- primarily due to the seasonality of the business.
•Increase in short-term borrowings- primarily due to an increase in commercial paper borrowings.
•Increase in the current portion of long-term debt- due to the reclassification of $750.0 million of long-term notes due in April 2025.
•Increase in accounts payable - primarily due to the timing of payments to vendors and seasonality of inventory purchases.
•Increase in accrued liabilities - primarily due to higher accrued compensation and the timing of payments for other accruals.
•Decrease in long-term debt - due to the reclassification of $750.0 million of long-term notes due in April 2025.
The following discussion refers to significant changes in balances at September 2024 compared to September 2023:
•Decrease in inventories- driven by VF reducing elevated inventory levels.
•Decrease in property, plant and equipment, net - primarily due to asset disposals and write-downs.
•Decrease in goodwill - primarily due to $507.6 million in impairment charges related to the Timberland, Dickies and Icebreaker reporting units recorded in the third and fourth quarters of Fiscal 2024.
•Decrease in short-term borrowings- primarily due to a decrease in commercial paper borrowings.
•Increase in the current portion of long-term debt - due to the reclassification of $750.0 million of long-term notes due in April 2025 and the reclassification of $1.0 billion of long-term debt due in December 2024 related to the DDTL.
•Increase in accounts payable - primarily due to the timing of inventory shipments from and payments to vendors.
•Decrease in long-term debt- due to the reclassification of $750.0 million of long-term notes due in April 2025 and the reclassification of $1.0 billion of long-term debt due in December 2024 related to the DDTL.
|
Liquidity and Capital Resources
|
We consider the following to be measures of our liquidity and capital resources:
| September | March | September | |
| (Dollars in millions) | 2024 | 2024 | 2023 |
| Working capital | $33.2 | $733.6 | $1,657.1 |
| Current ratio | 1.0 to 1 | 1.2 to 1 | 1.5 to 1 |
| Net debt to total capital | 83.6% | 80.1% | 77.4% |
The decrease in working capital and the current ratio at September 2024 compared to both March 2024 and September 2023 was primarily due to a net increase in current liabilities driven by a higher current portion of long-term debt and higher accounts payable, as discussed in the "Consolidated Balance Sheets" section above. The decrease in working capital and the current ratio at September 2024 compared to March 2024 was partially offset by a net increase in current assets driven by higher accounts receivable and inventories for the periods compared, as discussed in the "Consolidated Balance Sheets" section above.
For the ratio of net debt to total capital, net debt is defined as short-term and long-term borrowings, in addition to operating lease liabilities, net of unrestricted cash. Total capital is defined as net debt plus stockholders' equity. The increase in the net debt to total capital ratio at September 2024 compared to March 2024 was driven by an increase in net debt and a decrease in stockholders' equity for the periods compared. The increase in net debt was primarily driven by an increase in short-term borowings, as discussed in the "Consolidated Balance Sheet" section above,and lower cash and cash equivalents at September 2024. The decrease in stockholders' equity at September 2024 compared to March 2024 was primarily driven by the net loss for the period and payments of dividends. The increase in the net debt to total capital ratio at September 2024
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compared to September 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 for the period and payments of dividends. The decrease in net debt at September 2024 compared to September 2023 wasdriven by lower short-term borrowings, as discussed in the "Consolidated Balance Sheet" 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 from continuing operations were as follows:
| Six Months Ended September | ||||
| (In thousands) | 2024 | 2023 | ||
| Cash used by operating activities | $ | (301,823) | $ | (60,720) |
| Cash used by investing activities | (16,421) | (145,728) | ||
| Cash provided (used) by financing activities | 125,974 | (125,901) |
Cash Used by Operating Activities
Cash flows related to operating activities are dependent on income (loss) from continuing operations, adjustments to income (loss) from continuing operations and changes in working capital. The increase in cash used by operating activities in the six months ended September 2024 compared to September 2023 was primarily due to a decrease in income from continuing operations, excluding the write-off of income tax receivables and interest related to the Timberland tax case in the prior year, and an increase in net cash used by working capital.
Cash Used by Investing Activities
The decrease in cash used by investing activities in the six months ended September 2024 was primarily due to proceeds from the sale of assets of $76.7 million in the period, primarily related to a sale leaseback transaction of a distribution center, sale of a corporate-owned aircraft and sale of an aircraft hangar. The decrease was also due to a decrease in capital expenditures of $47.9 million and a decrease in software purchases of $15.4 million in the six months ended September 2024 compared to the 2023 period.
Cash Provided (Used) by Financing Activities
The increase in cash provided by financing activities during the six months ended September 2024 was primarily due to a $907.1 million payment of long-term debt in the six months ended September 2023 and a $163.1 million decrease in dividends paid for the periods compared. The increase was partially offset by a $818.6 million net decrease in short-term borrowings for the periods compared.
Share Repurchases
VF did not purchase shares of its Common Stock in the open market during the six months ended September 2024 or the six months ended September 2023 under the share repurchase program authorized by VF's Board of Directors.
As of the end of September 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 reducing leverage and reinvesting a portion of cost savings to drive profitable and sustainable growth.
Revolving Credit Facility, DDTL Agreement and Short-term Borrowings
VF relies on its ability to generate cash flows to finance its ongoing operations. In addition, VF has significant liquidity from its available cash balances and credit facilities. VF maintains a $2.25 billion senior unsecured revolving line of credit (the "Global Credit Facility") that expires in November 2026. VF may request an unlimited number of one-year extensions so long as each extension does not cause the remaining life of the Global Credit Facility to exceed five years, subject to stated terms and conditions; 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 and DDTL Agreement, including a consolidated net indebtedness to consolidated net capitalization financial ratio covenant, as defined in the agreements as amended in August 2024 (effective for the first quarter of Fiscal 2025), 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 agreements. The covenant calculation also excludes consolidated operating lease liabilities. Additionally, the amended agreements restrict the total amount of cash dividends and share repurchases to $500.0 million annually, on a calendar-year basis and require the repayment of the DDTL upon the completion of the Supreme sale. As of September 2024, VF was in compliance with all covenants. On October 4, 2024, VF made an aggregate $1.0 billion prepayment of the DDTL using the net cash proceeds
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from the sale of Supreme, pursuant to the terms of the DDTL Agreement, as amended.
VF has a global commercial paper program that allows for borrowings of up to $2.25 billionto the extent that it has borrowing capacity under the Global Credit Facility. There were $450.0 million in U.S. commercial paper borrowings as of September 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 September 2024, there were no outstanding euro commercial paper borrowings under this program. Standby letters of credit issued under the Global Credit Facility as of September 2024 were $0.6 million, leaving approximately $1.8 billion available for borrowing against the Global Credit Facility at September 2024, subject to applicable financial covenants.
VF has $96.6 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 $13.2 million at September 2024.
Additionally, VF had $492.2 million of unrestricted cash and equivalents at September 2024.
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 September 2024, March 2024 and September 2023, the accounts payable line item in VF's Consolidated Balance Sheets included total outstanding obligations of $804.9 million, $485.0 million and $688.0 million, respectively, due to suppliers that are eligible to participate in the SCF program.
Rating Agencies
At the end of September 2024, VF's long-term debt ratings were 'BBB-' by Standard & Poor's ("S&P") Global Ratings and 'Ba1' by Moody's Investors Service ("Moody's"), and U.S. commercial
paper ratings by those rating agencies were 'A-3' and 'NP', respectively. The Moody's rating for VF's euro commercial paper was also 'NP'. Based on VF's current ratings, the market for U.S. commercial paper is limited and there is no active market for euro commercial paper. VF's credit rating outlook by S&P was 'negative' and Moody's was 'stable' at the end of September 2024. 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
The Company paid cash dividends of $0.09 and $0.18 per share during the three and six months ended September 2024, respectively, and the Company declared a cash dividend of $0.09 per share that is payable in the third quarter of Fiscal 2025. Subject to approval by its Board of Directors, VF intends to continue to pay quarterly dividends.
Contractual Obligations
Management's Discussion and Analysis in the Fiscal 2024 Form 10-K provided a table summarizing VF's material contractual obligations and commercial commitments at the end of Fiscal 2024 that would require the use of funds. As of September 2024, there have been no material changes in the amounts of unrecorded commitments disclosed in the Fiscal 2024 Form 10-K, except as noted below:
•Contractual obligations and commercial commitments at the end of Fiscal 2024 included approximately $93.7 million of inventory obligations related to Supreme, which is now classified as discontinued operations.
•Inventory purchase obligations decreased by approximately $944.0 million at the end of September 2024primarily due to timing of inventory shipments and increased inventory levels.
•VF entered into a contract with a consulting firm during the three months ended September 2024. Fees related to this contract could be up to $135.0 million, which includes $60.0 million of fixed fees and $75.0 million of contingent fees tied to increases in VF's stock price through June 2027. The total fair value of the contingent fees was $30.7 million as of September 2024.
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.
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Recent Accounting Pronouncements
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Refer to Note 2 to VF's consolidated financial statements for information on recently issued and adopted accounting standards.
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Critical Accounting Policies and Estimates
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Management has chosen accounting policies it considers to be appropriate to accurately and fairly report VF's operating results and financial position in conformity with generally accepted accounting principles in the United States of America. Our critical accounting policies are applied in a consistent manner. Significant accounting policies are summarized in Note 1 to the consolidated financial statements included in the Fiscal 2024 Form 10-K. There have been no material changes in VF's accounting policies from those disclosed in our Fiscal 2024 Form 10-K.
The application of these accounting policies requires management to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, contingent assets and liabilities, and related disclosures. These estimates,
assumptions and judgments are based on historical experience, current trends and other factors believed to be reasonable under the circumstances. Management evaluates these estimates and assumptions, and may retain outside consultants to assist in the evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known.
The accounting policies that involve the most significant estimates, assumptions and management judgments used in preparation of the consolidated financial statements, or are the most sensitive to change from outside factors, are discussed in Management's Discussion and Analysis in the Fiscal 2024 Form 10-K.
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Cautionary Statement on Forward-looking Statements
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From time to time, VF may make oral or written statements, including statements in this quarterly report, that constitute "forward-looking statements" within the meaning of the federal securities laws. You can identify these statements by the fact that they use words such as "will," "anticipate," "believe," "estimate," "expect," "should," and "may," and other words and terms of similar meaning or use of future dates. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. Forward-looking statements include statements concerning plans, objectives, projections and expectations relating to VF's operations or economic performance and assumptions related thereto. Forward-looking statements are made based on management's expectations and beliefs concerning future events impacting VF and therefore involve a number of risks and uncertainties. Forward-looking statements are not guarantees, and actual results could differ materially from those expressed or implied in the forward-looking statements. VF undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Potential risks and uncertainties that could cause the actual results of operations or financial condition of VF to differ materially from those expressed or implied by forward-looking statements include, but are not limited to: the level of consumer demand for apparel and footwear; disruption to VF's distribution system; changes in global economic conditions and the financial strength of VF's consumers and customers, including as a result of current inflationary pressures; fluctuations in the price, availability and quality of raw materials and finished products; disruption and volatility in the global capital and credit markets; VF's response to changing fashion trends, evolving consumer preferences and changing patterns of consumer behavior; VF's ability to maintain the image, health and equity of its brands, including through investment in brand building and product innovation; intense competition from online retailers and other direct-to-consumer business risks; increasing pressure on margins; retail industry changes and challenges; VF's ability to execute its Reinvent transformation program and other business priorities, including measures to streamline and right-size its cost base and strengthen the balance sheet while reducing leverage; VF's ability to successfully establish a global commercial organization, and identify and capture efficiencies in
its business model; any inability of VF or third parties on which it relies, to maintain the strength and security of information technology systems; the fact that VF's facilities and systems, and those of third parties on which it relies, are frequent targets of cyber-attacks of varying levels of severity, and may in the future be vulnerable to such attacks, and any inability or failure by VF or such third parties to anticipate or detect data or information security breaches or other cyber-attacks, including the cyber incident that was reported by VF in December 2023, could result in data or financial loss, reputational harm, business disruption, damage to its relationships with customers, consumers, employees and third parties on which it relies, litigation, regulatory investigations, enforcement actions or other negative impacts; any inability by VF or third parties on which it relies to properly collect, use, manage and secure business, consumer and employee data and comply with privacy and security regulations; VF's ability to adopt new technologies, including artificial intelligence, in a competitive and responsible manner; foreign currency fluctuations; stability of VF's vendors' manufacturing facilities and VF's ability to establish and maintain effective supply chain capabilities; continued use by VF's suppliers of ethical business practices; VF's ability to accurately forecast demand for products; actions of activist and other shareholders; VF's ability to recruit, develop or retain key executive or employee talent or successfully transition executives; continuity of members of VF's management; changes in the availability and cost of labor; VF's ability to protect trademarks and other intellectual property rights; possible goodwill and other asset impairment; maintenance by VF's licensees and distributors of the value of VF's brands; VF's ability to execute acquisitions and dispositions, integrate acquisitions and manage its brand portfolio; VF's ability to realize benefits from the completed sale of the Supreme®brand business; business resiliency in response to natural or man-made economic, public health, cyber, political or environmental disruptions; changes in tax laws and additional tax liabilities; legal, regulatory, political, economic, and geopolitical risks, including those related to the current conflicts in Ukraine and the Middle East and tensions between the U.S. and China; changes to laws and regulations; adverse or unexpected weather conditions, including any potential effects from climate change; VF's indebtedness and its ability to obtain financing on favorable terms, if needed, could prevent VF from fulfilling its financial obligations; VF's ability to pay and declare dividends or
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repurchase its stock in the future; climate change and increased focus on environmental, social and governance issues; VF's ability to execute on its sustainability strategy and achieve its sustainability-related goals and targets; risks arising from the widespread outbreak of an illness or any other communicable disease, or any other public health crisis; and tax risks
associated with the spin-off of the Jeanswear business completed in 2019. More information on potential factors that could affect VF's financial results is included from time to time in VF's public reports filed with the Securities and Exchange Commission, including VF's Annual Report on Form 10-K.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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There have been no significant changes in VF's market risk exposures from what was disclosed in Item 7A in the Fiscal 2024 Form 10-K.
| ITEM 4 - CONTROLS AND PROCEDURES. |
Disclosure controls and procedures:
Under the supervision of the Chief Executive Officer and Chief Financial Officer, a Disclosure Committee comprising various members of management has evaluated the effectiveness of the disclosure controls and procedures at VF and its subsidiaries as of the end of the period covered by this quarterly report (the "Evaluation Date"). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded as of the Evaluation Date that such controls and procedures were effective.
Changes in internal control over financial reporting:
There have been no changes during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, VF's internal control over financial reporting.
PART II - OTHER INFORMATION
| ITEM 1 - LEGAL PROCEEDINGS. |
Information on VF's legal proceedings is set forth under Part I, "Item 3. Legal Proceedings" in the Fiscal 2024 Form 10-K. There have been no material changes to the legal proceedings from those described in the Fiscal 2024 Form 10-K.
SEC regulations require us to disclose certain information about proceedings arising under federal, state or local environmental regulations if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold. Pursuant to SEC regulations, VF uses a threshold of $1 million for purposes of determining whether disclosure of any such proceedings is required. VF believes that this threshold is reasonably designed to result in disclosure of any such proceedings that are material to VF's business or financial condition. Applying this threshold, there are no such proceedings to disclose for this period.
| ITEM 1A - RISK FACTORS. |
You should carefully consider the risk factors set forth under Part I, "Item 1A. Risk Factors" in the Fiscal 2024Form 10-K, which could materially affect our business, financial condition and future results. The risks described in the Fiscal 2024Form 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 factor identified below, there have been no material changes to the risk factors identified in Part I, "Item 1A. Risk Factors" in the Fiscal 2024Form 10-K.
| BUSINESS AND OPERATIONAL RISKS |
There are risks associated with VF's acquisitions, divestitures and portfolio management, including our recently completed sale of the Supreme®brand business to EssilorLuxottica.
Any acquisitions, divestitures or mergers by VF, including our completed 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
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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, subject to customary adjustments for cash, indebtedness, working capital and transaction expenses. On October 1, 2024, we completed the Supreme sale. We may not realize some or all of the expected benefits from the sale of Supreme.
| ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
(c)Issuer purchases of equity securities:
The following table sets forth VF's repurchases of our Common Stock during the fiscal quarter ended September 28, 2024 under the share repurchase program authorized by VF's Board of Directors in 2017.
| Second Quarter Fiscal 2025 |
Total Number of Shares Purchased |
Weighted Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Programs |
Dollar Value of Shares that May Yet be Purchased Under the Program |
||
| June 30 - July 27, 2024 | - | $ | - | - | $ | 2,486,971,057 |
| July 28 - August 24, 2024 | - | - | - | 2,486,971,057 | ||
| August 25 - September 28, 2024 | - | - | - | 2,486,971,057 | ||
| Total | - | - |
VF will continue to evaluate future share repurchases available under its authorization, considering funding required for reducing leverage and reinvesting a portion of cost savings to drive profitable and sustainable growth.
| ITEM 5 - OTHER INFORMATION. |
| RULE 10B5-1 TRADING PLANS |
During the three months ended September 28, 2024, no director or officer of VF adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.
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| ITEM 6 - EXHIBITS. |
| 1996 Stock Compensation Plan, as amended and restated as of May 14, 2024 (Incorporated by reference to Exhibit 10.1 to Form 8-K filed July 24, 2024) | |
| Form of Award Certificate for Performance-Based Restricted Stock Units (Incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter ended June 29, 2024) | |
| Form of Award Certificate for Stock Units for Non-Employee Directors (Incorporated by reference to Exhibit 10.5 to Form 10-Q for the quarter ended June 29, 2024) | |
| Form of Award Certificate for Restricted Stock Units (Incorporated by reference to Exhibit 10.6 to Form 10-Q for the quarter ended June 29, 2024) | |
| Form of Award Certificate for Restricted Stock Units Special Award (Cliff Vesting) (Incorporated by reference to Exhibit 10.7 to Form 10-Q for the quarter ended June 29, 2024) | |
| Form of Award Certificate for Restricted Stock Units Special Award (Split Vesting) (Incorporated by reference to Exhibit 10.8 to Form 10-Q for the quarter ended June 29, 2024) | |
| Amendment No. 4 to Revolving Credit Agreement, dated as of August 2, 2024, by and among V.F. Corporation, JPMorgan Chase Bank, N.A., as the Administrative Agent, the Lenders party thereto and the other parties thereto (Incorporated by reference to Exhibit 10.1 to Form 8-K filed August 6, 2024) | |
| Amendment No. 2 to Term Loan Agreement, dated as of August 2, 2024, by and among V.F. Corporation, JPMorgan Chase Bank, N.A., as the Administrative Agent, the Lenders party thereto and the other parties thereto (Incorporated by reference to Exhibit 10.2 to Form 8-K filed August 6, 2024) | |
|
31.1
|
Certification of Chief Executive Officer, pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.2
|
Certification of Chief Financial Officer, pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1
|
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.2
|
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| * | Management compensation plans |
41VF Corporation Q2 FY25 Form 10-Q
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| V.F. CORPORATION | |||
| (Registrant) | |||
| By: | /s/ Paul Vogel | ||
| Paul Vogel | |||
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|||
| Date: October 30, 2024 | By: | /s/ Bryan H. McNeill | |
| Bryan H. McNeill | |||
|
Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) |
VF Corporation Q2 FY25 Form 10-Q 42