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V F CORP - Quarter Report: 2013 September (Form 10-Q)

Form 10-Q
Table of Contents

 

 

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, 2013

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)

105 Corporate Center Boulevard

Greensboro, North Carolina 27408

(Address of principal executive offices)

(336) 424-6000

(Registrant’s telephone number, including area code)

 

 

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 and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

On October 26, 2013, there were 110,076,207 shares of the registrant’s common stock outstanding.

 

 

 


Table of Contents

VF CORPORATION

Table of Contents

 

     Page
No.
 

Part I — Financial Information

  

Item 1 — Financial Statements (Unaudited)

  

Consolidated Balance Sheets: September 2013, December 2012 and September 2012

     3   

Consolidated Statements of Income: Three and nine months ended September 2013 and September 2012

     4   

Consolidated Statements of Comprehensive Income: Three and nine months ended September 2013 and September 2012

     5   

Consolidated Statements of Cash Flows: Nine months ended September 2013 and September 2012

     6   

Consolidated Statements of Stockholders’ Equity: Year ended December 2012 and nine months ended September 2013

     7   

Notes to Consolidated Financial Statements

     8   

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

     18   

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

     25   

Item 4 — Controls and Procedures

     26   

Part II — Other Information

  

Item 1 — Legal Proceedings

     27   

Item 1A — Risk Factors

     27   

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

     27   

Item 6 — Exhibits

     27   

Signatures

     28   

 

2


Table of Contents

Part I — Financial Information

Item 1 — Financial Statements (Unaudited)

VF CORPORATION

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share amounts)

 

     September
2013
    December
2012
    September
2012
 

ASSETS

      

Current assets

      

Cash and equivalents

   $ 315,661      $ 597,461      $ 304,603   

Accounts receivable, less allowance for doubtful accounts of: September 2013 – $56,733; December 2012 – $48,998; September 2012 – $55,606

     1,663,118        1,222,345        1,612,579   

Inventories

     1,752,284        1,354,158        1,758,686   

Other current assets

     362,841        275,619        322,932   
  

 

 

   

 

 

   

 

 

 

Total current assets

     4,093,904        3,449,583        3,998,800   

Property, plant and equipment

     904,809        828,218        775,476   

Intangible assets

     2,939,371        2,917,058        2,922,233   

Goodwill

     2,014,717        2,009,757        2,003,855   

Other assets

     499,260        428,405        431,368   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 10,452,061      $ 9,633,021      $ 10,131,732   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

Current liabilities

      

Short-term borrowings

   $ 468,310      $ 12,559      $ 741,008   

Current portion of long-term debt

     2,987        402,873        402,838   

Accounts payable

     659,135        562,638        535,367   

Accrued liabilities

     924,228        754,142        756,629   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     2,054,660        1,732,212        2,435,842   

Long-term debt

     1,427,138        1,429,166        1,429,824   

Other liabilities

     1,341,386        1,346,018        1,339,282   

Commitments and contingencies

      

Stockholders’ equity

      

Preferred Stock, par value $1; shares authorized, 25,000,000; no shares outstanding at September 2013, December 2012 or September 2012

     —          —          —     

Common Stock, stated value $1; shares authorized, 300,000,000; shares outstanding; September 2013 – 109,805,011; December 2012 – 110,204,734; September 2012 – 109,937,451

     109,805        110,205        109,937   

Additional paid-in capital

     2,702,110        2,527,868        2,497,795   

Accumulated other comprehensive income (loss)

     (365,970     (453,895     (386,853

Retained earnings

     3,182,932        2,941,447        2,705,905   
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     5,628,877        5,125,625        4,926,784   
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 10,452,061      $ 9,633,021      $ 10,131,732   
  

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

3


Table of Contents

VF CORPORATION

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share amounts)

 

     Three Months Ended September     Nine Months Ended September  
     2013     2012     2013     2012  

Net sales

   $ 3,266,681      $ 3,119,614      $ 8,043,638      $ 7,762,660   

Royalty income

     30,588        28,740        85,911        83,935   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     3,297,269        3,148,354        8,129,549        7,846,595   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and operating expenses

        

Cost of goods sold

     1,728,144        1,678,090        4,226,779        4,222,368   

Selling, general and administrative expenses

     989,422        933,372        2,764,005        2,609,248   
  

 

 

   

 

 

   

 

 

   

 

 

 
     2,717,566        2,611,462        6,990,784        6,831,616   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     579,703        536,892        1,138,765        1,014,979   

Interest income

     1,259        632        2,564        2,858   

Interest expense

     (21,246     (23,841     (63,788     (70,779

Other income (expense), net

     (1,250     1,569        (1,723     44,872   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     558,466        515,252        1,075,818        991,930   

Income taxes

     124,705        133,934        233,366        239,960   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     433,761        381,318        842,452        751,970   

Net (income) loss attributable to noncontrolling interests

     —          —          —          (139
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to VF Corporation common stockholders

   $ 433,761      $ 381,318      $ 842,452      $ 751,831   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share attributable to VF Corporation common stockholders

        

Basic

   $ 3.96      $ 3.48      $ 7.68      $ 6.85   

Diluted

     3.89        3.42        7.55        6.72   

Cash dividends per common share

   $ 0.87      $ 0.72      $ 2.61      $ 2.16   

See notes to consolidated financial statements.

 

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Table of Contents

VF CORPORATION

Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands)

 

     Three Months Ended September     Nine Months Ended September  
     2013     2012     2013     2012  

Net income

   $ 433,761      $ 381,318      $ 842,452      $ 751,970   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

        

Foreign currency translation

        

Gains (losses) arising during the period

     99,395        40,466        60,374        10,238   

Less income tax effect

     (933     (7,348     (560     (7,214

Defined benefit pension plans

        

Amortization of net deferred actuarial losses

     21,333        17,617        64,021        52,856   

Amortization of prior service cost

     317        837        974        2,514   

Less income tax effect

     (8,473     (6,966     (26,065     (21,273

Derivative financial instruments

        

Gains (losses) arising during the period

     (54,432     (15,829     (2,032     2,846   

Less income tax effect

     21,391        6,118        797        (1,095

Reclassification to net income for (gains) losses realized

     (6,571     (8,500     (15,707     (5,365

Less income tax effect

     2,583        3,273        6,173        2,066   

Marketable securities

        

Gains (losses) arising during the period

     479        (135     9        (949

Less income tax effect

     (188     —          (59     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     74,901        29,533        87,925        34,624   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     508,662        410,851        930,377        786,594   

Comprehensive (income) attributable to noncontrolling interests

     —          —          —          (139
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to VF Corporation

   $ 508,662      $ 410,851      $ 930,377      $ 786,455   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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Table of Contents

VF CORPORATION

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

     Nine Months Ended September  
     2013     2012  

Operating activities

    

Net income

   $ 842,452      $ 751,970   

Adjustments to reconcile net income to cash provided by operating activities:

    

Depreciation

     112,989        104,628   

Amortization of intangible assets

     34,450        36,130   

Other amortization

     33,670        26,025   

Stock-based compensation

     70,258        73,149   

Provision for doubtful accounts

     14,747        15,521   

Pension expense in excess of (less than) contributions

     (45,669     57,674   

Gain on sale of business

     —          (42,000

Other, net

     65,740        188   

Changes in operating assets and liabilities, net of sale of business:

    

Accounts receivable

     (455,712     (502,501

Inventories

     (399,396     (317,761

Other current assets

     (44,488     (23,854

Accounts payable

     96,246        (100,101

Accrued compensation

     9,816        (20,153

Accrued income taxes

     (61,003     (17,095

Accrued liabilities

     133,646        42,078   

Other assets and liabilities

     10,330        18,707   
  

 

 

   

 

 

 

Cash provided by operating activities

     418,076        102,605   

Investing activities

    

Capital expenditures

     (203,469     (190,277

Business acquisition, net of cash acquired

     —          (1,750

Proceeds from sale of business

     —          68,519   

Software purchases

     (41,923     (12,509

Other, net

     (9,896     (3,429
  

 

 

   

 

 

 

Cash used by investing activities

     (255,288     (139,446

Financing activities

    

Net increase in short-term borrowings

     457,856        459,173   

Payments on long-term debt

     (402,141     (2,079

Purchases of Common Stock

     (283,433     (306,422

Cash dividends paid

     (286,790     (237,520

Proceeds from issuance of Common Stock, net

     30,902        45,668   

Tax benefits of stock option exercises

     41,946        39,455   
  

 

 

   

 

 

 

Cash used by financing activities

     (441,660     (1,725

Effect of foreign currency rate changes on cash and equivalents

     (2,928     1,941   
  

 

 

   

 

 

 

Net change in cash and equivalents

     (281,800     (36,625

Cash and equivalents — beginning of year

     597,461        341,228   
  

 

 

   

 

 

 

Cash and equivalents — end of period

   $ 315,661      $ 304,603   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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Table of Contents

VF CORPORATION

Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands)

 

     VF Corporation Stockholders        
     Common
Stock
    Additional
Paid-in
Capital
     Accumulated
Other
Comprehensive
Income (Loss)
    Retained
Earnings
    Non-
controlling
Interests
 

Balance, December 2011

   $ 110,557      $ 2,316,107       $ (421,477   $ 2,520,804      $ (816

Net income

     —         —          —         1,085,999        139   

Dividends on Common Stock

     —         —          —         (333,229     —    

Purchase of treasury stock

     (2,000     —          —         (295,074     —    

Stock compensation plans, net

     1,666        211,761         —         (34,435     —    

Common Stock held in trust for deferred compensation plans

     (18     —          —         (2,618     —    

Disposition of noncontrolling interests

     —         —          —         —         677   

Foreign currency translation

     —         —          47,091        —         —    

Defined benefit pension plans

     —         —          (63,845     —         —    

Derivative financial instruments

     —         —          (15,263     —         —    

Marketable securities

     —         —          (401     —         —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance, December 2012

     110,205        2,527,868         (453,895     2,941,447        —    

Net income

     —         —          —         842,452        —    

Dividends on Common Stock

     —         —          —         (286,790     —    

Purchase of treasury stock

     (1,700     —           —         (278,176     —    

Stock compensation plans, net

     1,309        174,242         —         (33,087     —    

Common Stock held in trust for deferred compensation plans

     (9     —          —         (2,914     —    

Foreign currency translation

     —         —          59,814        —         —    

Defined benefit pension plans

     —         —          38,930        —         —    

Derivative financial instruments

     —         —          (10,769     —         —    

Marketable securities

     —         —           (50     —         —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance, September 2013

   $ 109,805      $ 2,702,110       $ (365,970   $ 3,182,932      $ —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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Table of Contents

VF CORPORATION

Notes to Consolidated Financial Statements

(Unaudited)

Note A — Basis of Presentation

VF Corporation and its subsidiaries (collectively known as “VF”) uses a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year. For presentation purposes herein, all references to periods ended September 2013, December 2012 and September 2012 relate to the fiscal periods ended on September 28, 2013, December 29, 2012 and September 29, 2012, respectively.

The accompanying unaudited 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 (“GAAP”) in the United States of America for complete financial statements. Similarly, the December 2012 consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal and recurring adjustments necessary to fairly present the consolidated financial position, results of operations and cash flows of VF for the interim periods presented. Operating results for the three and nine months ended September 2013 are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 28, 2013. 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 December 2012 (“2012 Form 10-K”).

Note B — Disposition

On April 30, 2012, VF sold its 80% ownership in John Varvatos Enterprises, Inc. (“John Varvatos”). VF recorded a $42.0 million gain on the sale which was included in other income (expense), net, during the second quarter of 2012.

Note C — Sale of Accounts Receivable

VF has an agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis. Under the agreement, up to $237.5 million of accounts receivable may be sold to the financial institution and remain outstanding at any point in time. After the sale, VF does not retain any interests in the accounts receivable and removes them from the Consolidated Balance Sheets, but continues to service and collect outstanding accounts receivable on behalf of the financial institution. At September 2013, December 2012 and September 2012, accounts receivable had been reduced by $155.0 million, $127.4 million and $154.7 million, respectively, related to this program. During the first nine months of 2013, VF sold $935.1 million of accounts receivable at their stated amounts, less a funding fee charged by the financial institution. The funding fee is recorded in other income (expense), net, and totaled $1.3 million for the first nine months of 2013. Net proceeds of this program are classified in operating activities in the Consolidated Statements of Cash Flows.

Note D — Inventories

 

In thousands    September
2013
     December
2012
     September
2012
 

Finished products

   $ 1,496,419       $ 1,099,229       $ 1,500,595   

Work in process

     99,367         98,191         99,035   

Materials and supplies

     156,498         156,738         159,056   
  

 

 

    

 

 

    

 

 

 

Total inventories

   $ 1,752,284       $ 1,354,158       $ 1,758,686   
  

 

 

    

 

 

    

 

 

 

Note E — Property, Plant and Equipment

 

In thousands    September
2013
     December
2012
     September
2012
 

Land

   $ 52,879       $ 54,264       $ 52,425   

Buildings and improvements

     948,628         862,288         804,900   

Machinery and equipment

     1,130,388         1,066,865         1,068,276   
  

 

 

    

 

 

    

 

 

 

Property, plant and equipment, at cost

     2,131,895         1,983,417         1,925,601   

Less accumulated depreciation and amortization

     1,227,086         1,155,199         1,150,125   
  

 

 

    

 

 

    

 

 

 

Property, plant and equipment, net

   $ 904,809       $ 828,218       $ 775,476   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Note F — Intangible Assets

 

Dollars in thousands    Weighted
Average
Amortization
Period
  

Amortization methods

   September 2013      December 2012  
         Cost      Accumulated
Amortization
     Net
Carrying
Amount
     Net
Carrying
Amount
 

Amortizable intangible assets:

                 

Customer relationships

   19 years    Accelerated    $ 623,267       $ 200,748       $ 422,519       $ 442,446   

License agreements

   24 years    Accelerated and straight-line      184,027         74,295         109,732         115,742   

Other

   8 years    Straight-line      16,071         9,043         7,028         8,748   
              

 

 

    

 

 

 

Amortizable intangible assets, net

                 539,279         566,936   
              

 

 

    

 

 

 

Indefinite-lived intangible assets:

                 

Trademarks and trade names

                 2,400,092         2,350,122   
              

 

 

    

 

 

 

Intangible assets, net

               $ 2,939,371       $ 2,917,058   
              

 

 

    

 

 

 

Amortization expense for the third quarter and first nine months of 2013 was $11.5 million and $34.5 million, respectively. Estimated amortization expense for the next five years is:

 

Year

   Estimated
Amortization Expense
 

2013

   $ 45.8   

2014

   $ 44.1   

2015

   $ 42.1   

2016

   $ 40.8   

2017

   $ 39.5   

Note G — Goodwill

Changes in goodwill are summarized by business segments as follows:

 

In thousands    Outdoor &
Action Sports
     Jeanswear     Imagewear      Sportswear      Contemporary
Brands
     Total  

Balance, December 2012

   $ 1,422,492       $ 228,843      $ 58,747       $ 157,314       $ 142,361       $ 2,009,757   

Currency translation

     6,899         (1,939     —           —           —           4,960   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Balance, September 2013

   $ 1,429,391       $ 226,904      $ 58,747       $ 157,314       $ 142,361       $ 2,014,717   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated impairment charges as of December 2012 and September 2013 were $43.4 million, $58.5 million and $195.2 million related to Outdoor & Action Sports, Sportswear and Contemporary Brands, respectively.

Note H — Pension Plans

The components of pension cost for VF’s defined benefit plans were as follows:

 

     Three Months Ended September     Nine Months Ended September  
In thousands    2013     2012     2013     2012  

Service cost – benefits earned during the period

   $ 6,346      $ 5,755      $ 19,566      $ 17,360   

Interest cost on projected benefit obligations

     17,988        19,236        54,017        57,734   

Expected return on plan assets

     (23,635     (20,148     (70,945     (60,462

Amortization of deferred amounts:

        

Net deferred actuarial losses

     21,333        17,617        64,021        52,856   

Deferred prior service cost

     317        837        974        2,514   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension cost

   $ 22,349      $ 23,297      $ 67,633      $ 70,002   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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During the first nine months of 2013, VF contributed $113.3 million to its defined benefit plans, which included a $100.0 million discretionary contribution to its domestic defined benefit plan. VF intends to make approximately $6.5 million of additional contributions during the remainder of 2013.

Note I — Business Segment Information

VF’s businesses are grouped into product categories, and by brands within those product categories, for internal financial reporting used by management. These groupings of businesses within VF are referred to as “coalitions” and are the basis for VF’s reportable business segments. Financial information for VF’s reportable segments is as follows:

 

     Three Months Ended September     Nine Months Ended September  
In thousands    2013     2012     2013     2012  

Coalition revenues:

        

Outdoor & Action Sports

   $ 1,971,963      $ 1,852,267      $ 4,459,845      $ 4,156,208   

Jeanswear

     747,241        718,812        2,076,919        2,054,529   

Imagewear

     284,480        284,526        779,064        813,540   

Sportswear

     155,208        154,190        416,919        394,593   

Contemporary Brands

     104,998        104,165        307,339        339,016   

Other

     33,379        34,394        89,463        88,709   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total coalition revenues

   $ 3,297,269      $ 3,148,354      $ 8,129,549      $ 7,846,595   
  

 

 

   

 

 

   

 

 

   

 

 

 

Coalition profit:

        

Outdoor & Action Sports

   $ 421,177      $ 413,012      $ 748,137      $ 697,181   

Jeanswear

     158,334        131,447        410,551        335,566   

Imagewear

     40,698        37,463        107,343        110,753   

Sportswear

     23,987        18,499        52,481        40,711   

Contemporary Brands

     9,456        13,436        29,910        40,286   

Other

     (47     1,377        (2,195     133   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total coalition profit

     653,605        615,234        1,346,227        1,224,630   

Corporate and other expenses

     (75,152     (76,773     (209,185     (164,779

Interest expense, net

     (19,987     (23,209     (61,224     (67,921
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   $ 558,466      $ 515,252      $ 1,075,818      $ 991,930   
  

 

 

   

 

 

   

 

 

   

 

 

 

Note J — Capital and Accumulated Other Comprehensive Income (Loss)

Common Stock outstanding is net of shares held in treasury which are, in substance, retired. There were 4,250,851 treasury shares at September 2013, 2,530,401 at December 2012 and 2,524,771 at September 2012. The excess of the cost of treasury shares acquired over the $1 per share stated value of Common Stock is deducted from retained earnings. In addition, 176,416 shares of Common Stock at September 2013, 187,456 shares at December 2012 and 187,226 shares at September 2012 were held in connection with deferred compensation plans. These shares, having a cost of $8.2 million, $8.8 million and $8.6 million at the respective dates, are treated as treasury shares for financial reporting purposes.

The deferred components of other comprehensive income (loss) are reported in accumulated other comprehensive income (loss) in stockholders’ equity, net of related income taxes, as follows:

 

In thousands    September
2013
    December
2012
    September
2012
 

Foreign currency translation

   $ 55,746      $ (4,068   $ (48,135

Defined benefit pension plans

     (381,608     (420,538     (322,596

Derivative financial instruments

     (40,199     (29,430     (15,715

Marketable securities

     91        141        (407
  

 

 

   

 

 

   

 

 

 

Accumulated other comprehensive income (loss)

   $ (365,970   $ (453,895   $ (386,853
  

 

 

   

 

 

   

 

 

 

 

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Table of Contents

The changes in accumulated other comprehensive income (loss) are as follows:

 

     Three Months Ended September 2013  
In thousands    Foreign
Currency
Translation
    Defined
Benefit
Pension Plans
    Derivative
Financial
Instruments
    Marketable
Securities
    Total  

Balance, June 2013

   $ (42,716   $ (394,785   $ (3,170   $ (200   $ (440,871
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before reclassifications

     98,462        —          (33,041     291        65,712   

Amounts reclassified from accumulated other comprehensive income (loss)

     —          13,177        (3,988     —          9,189   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other comprehensive income (loss)

     98,462        13,177        (37,029     291        74,901   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 2013

   $ 55,746      $ (381,608   $ (40,199   $ 91      $ (365,970
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Nine Months Ended September 2013  
In thousands    Foreign
Currency
Translation
    Defined
Benefit
Pension Plans
    Derivative
Financial
Instruments
    Marketable
Securities
    Total  

Balance, December 2012

   $ (4,068   $ (420,538   $ (29,430   $ 141      $ (453,895
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before reclassifications

     59,814        —          (1,235     (50     58,529   

Amounts reclassified from accumulated other comprehensive income (loss)

     —          38,930        (9,534     —          29,396   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net other comprehensive income (loss)

     59,814        38,930        (10,769     (50     87,925   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, September 2013

   $ 55,746      $ (381,608   $ (40,199   $ 91      $ (365,970
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reclassifications out of accumulated other comprehensive income (loss) are as follows:

 

In thousands    Affected Line Item in the
Consolidated Statements
of Income (Loss)
  Amount Reclassified From Accumulated
Other Comprehensive Income (Loss)
 

Details About Accumulated Other
Comprehensive Income (Loss) Components

    
     Three Months
Ended September 2013
    Nine Months
Ended September 2013
 

Amortization of defined benefit pension plans:

      

Net deferred actuarial losses

   (a)   $ (21,333   $ (64,021

Deferred prior service cost

   (a)     (317     (974
    

 

 

   

 

 

 
   Total before tax     (21,650     (64,995
   Tax benefit (expense)     8,473        26,065   
    

 

 

   

 

 

 
   Net of tax   $ (13,177   $ (38,930
    

 

 

   

 

 

 

Gains and losses on derivative financial instruments:

      

Foreign exchange contracts

   Net sales   $ 6,195      $ 7,418   

Foreign exchange contracts

   Cost of goods sold     3,574        11,115   

Foreign exchange contracts

   Other income (expense), net     (2,218     83   

Interest rate contracts

   Interest expense     (980     (2,909
    

 

 

   

 

 

 
   Total before tax     6,571        15,707   
   Tax benefit (expense)     (2,583     (6,173
    

 

 

   

 

 

 
   Net of tax     3,988        9,534   
    

 

 

   

 

 

 

Total reclassifications for the period

   Net of tax   $ (9,189   $ (29,396
    

 

 

   

 

 

 

 

(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost (see Note H for additional details).

 

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Table of Contents

Note K — Stock-based Compensation

During the first nine months of 2013, VF granted options to employees and the Board of Directors to purchase 900,118 shares of common stock at a weighted average exercise price of $162.55 per share. The exercise price of each option granted was equal to the fair market value of VF Common Stock on the option grant date. Employee stock options vest in equal annual installments over three years. Options granted to VF’s Board of Directors become exercisable one year from the date of grant. The grant date fair value of each option award is calculated using a lattice option–pricing valuation model, which incorporates a range of assumptions for inputs as follows:

 

     2013   2012

Expected volatility

   24% to 29%   27% to 31%

Weighted average expected volatility

   26.6%   30%

Expected term (in years)

   5.6 to 7.4   5.6 to 7.5

Dividend yield

   2.3%   2.5%

Risk-free interest rate

   0.1% to 2.0%   0.1% to 2.1%

Weighted average grant date fair value

   $33.37   $33.44

Also during the first nine months of 2013, VF granted 184,267 performance-based restricted stock units to employees that enable them to receive shares of VF Common Stock at the end of a three year period. Each RSU has a potential final value ranging from zero to two shares of VF Common Stock. The number of shares earned by participants, if any, is based on achievement of a three year baseline profitability goal and annually established performance goals set by the Compensation Committee of the Board of Directors. The actual number of shares earned may also be adjusted upward or downward by 25% of the target award, based on how VF’s total stockholder return (“TSR”) over the three year period compares to the TSR for companies included in the Standard & Poor’s 500 Index. Shares are issued to participants in the year following the conclusion of each three year performance period. The weighted average fair market value of VF Common Stock on the date the units were granted was $162.56 per share.

VF granted 4,081 nonperformance-based restricted stock units to members of the Board of Directors during the first nine months of 2013. These units vest upon grant and will be settled in shares of VF Common Stock one year from the date of grant. The fair market value of VF Common Stock at the date the units were granted was $161.95 per share.

VF granted 42,500 nonperformance-based restricted stock units to employees during the first nine months of 2013. These units vest in four years and each RSU entitles the holder to one share of VF Common Stock. The weighted average fair market value of VF Common Stock at the date the units were granted was $156.35 per share.

VF granted 80,000 restricted shares of VF Common Stock to employees during the first nine months of 2013. The weighted average fair market value of VF Common Stock at the date the units were granted was $155.15 per share. These shares will vest in four years, assuming the grantees remain employed through the vesting date.

Note L — Income Taxes

The effective income tax rate for the first nine months of 2013 was 21.7% compared with 24.2% in the first nine months of 2012. The first nine months of 2013 included net discrete tax benefits of $19.0 million, which included $8.3 million of tax benefits related to the extension of certain tax credits and other provisions of the Internal Revenue Code enacted in 2013 which are retroactive to 2012, and $6.9 million of tax benefits related to the realization of previously unrecognized tax benefits and interest. The net discrete tax benefits reduced the effective income tax rate for the first nine months of 2013 by 1.8% compared with a reduction of 2.0% in the first nine months of 2012. The remaining reduction in the effective income tax rate for the first nine months of 2013 compared with the 2012 period related primarily to a higher percentage of income in lower tax rate jurisdictions.

VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous states and foreign jurisdictions. In the United States, the Internal Revenue Service (“IRS”) examination for tax years 2007, 2008 and 2009 was completed in 2012. VF has appealed the results of the 2007 to 2009 examination to the IRS Appeals office. Tax years examined prior to 2007 have been effectively settled with the IRS. The IRS is scheduled to begin its examination of VF’s 2010 and 2011 tax returns during the fourth quarter of 2013. The IRS commenced an examination of Timberland’s 2010 and 2011 tax years during 2012. The IRS examination of Timberland’s 2008 and 2009 tax years was settled during 2012. In addition, VF is currently subject to examinations 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 to ensure VF’s provision for income taxes is sufficient. 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 examinations and negotiations will conclude during the next 12 months.

During the first nine months of 2013, the amount of net unrecognized tax benefits and associated interest increased by $3.2 million to $120.3 million. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits may decrease during the next 12 months by approximately $49.1 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $38.8 million would reduce income tax expense.

 

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Table of Contents

Note M — Earnings Per Share

 

In thousands, except per share amounts    Three Months Ended September      Nine Months Ended September  
     2013      2012      2013      2012  

Earnings per share – basic:

           

Net income

   $ 433,761       $ 381,318       $ 842,452       $ 751,970   

Net (income) loss attributable to noncontrolling interests

     —           —           —           (139
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to VF Corporation

   $ 433,761       $ 381,318       $ 842,452       $ 751,831   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding

     109,545         109,557         109,629         109,800   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share attributable to VF Corporation common stockholders

   $ 3.96       $ 3.48       $ 7.68       $ 6.85   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share – diluted:

           

Net income attributable to VF Corporation

   $ 433,761       $ 381,318       $ 842,452       $ 751,831   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding

     109,545         109,557         109,629         109,800   

Incremental shares from stock options and other dilutive securities

     1,860         1,931         1,991         2,049   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted weighted average common shares outstanding

     111,405         111,488         111,620         111,849   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share attributable to VF Corporation common stockholders

   $ 3.89       $ 3.42       $ 7.55       $ 6.72   
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding options to purchase 0.1 million and 0.8 million shares of Common Stock for the three month periods ended September 2013 and 2012, respectively, were excluded from the calculations of diluted earnings per share because the effect of their inclusion would have been antidilutive. Outstanding options to purchase 0.3 million and 0.9 million shares of Common Stock for the nine month periods ended September 2013 and 2012, respectively, were excluded from the calculations of diluted earnings per share because the effect of their inclusion would have been antidilutive. In addition, 0.4 million performance-based restricted stock units were excluded from the computation of diluted earnings per share for the three and nine month periods ended September 2013 and September 2012 because these units have not yet been earned in accordance with the vesting requirements of the plan.

Note N — 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. Inputs would normally be VF’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

 

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Table of Contents

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:

 

In thousands    Total
Fair Value
     Fair Value Measurement Using (a)  
      Level 1      Level 2      Level 3  

September 2013

           

Financial assets:

           

Cash equivalents:

           

Money market funds

   $ 109,867       $ 109,867       $ —         $ —     

Time deposits

     20,264         20,264         —           —     

Derivative instruments

     12,732         —           12,732         —     

Investment securities

     214,267         189,037         25,230         —     

Other marketable securities

     4,579         4,579         —           —     

Financial liabilities:

           

Derivative instruments

     37,691         —           37,691         —     

Deferred compensation

     263,912         —           263,912         —     

December 2012

           

Financial assets:

           

Cash equivalents:

           

Money market funds

   $ 181,635       $ 181,635       $ —         $ —     

Time deposits

     17,042         17,042         —           —     

Derivative instruments

     16,153         —           16,153         —     

Investment securities

     188,307         157,230         31,077         —     

Other marketable securities

     4,513         4,513         —           —     

Financial liabilities:

           

Derivative instruments

     29,468         —           29,468         —     

Deferred compensation

     230,733         —           230,733         —     

 

(a)  There were no transfers among the levels within the fair value hierarchy during the first nine months of 2013 or the year ended December 2012.

The fair value of derivative instruments, which consist of forward foreign exchange contracts, is determined based on observable market inputs, including spot and forward exchange rates for foreign currencies, and considers the credit risk of the Company and its counterparties. Investment securities are held in the Company’s deferred compensation plans and primarily include mutual funds (Level 1) that are valued based on quoted prices in active markets. Investment securities also include collective trust funds (Level 2) that are valued based on the net asset values of the underlying assets.

All other 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 2013 and December 2012, their carrying values approximated their fair values. Additionally, at September 2013 and December 2012, the carrying value of VF’s long-term debt, including the current portion, was $1,430.1 million and $1,832.0 million, respectively, compared with a fair value of $1,556.0 million and $2,111.4 million at those dates. Fair value for long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings.

Note O — Derivative Financial Instruments and Hedging Activities

Summary of Derivative Instruments

All of VF’s outstanding derivative instruments are forward foreign currency exchange contracts. Most derivatives meet the criteria for hedge accounting at the inception of the hedging relationship, but a limited number of derivative contracts intended to hedge assets and liabilities are not designated as hedges for accounting purposes. The notional amounts of outstanding derivative contracts at September 2013, December 2012 and September 2012 totaled $2.1 billion, $1.9 billion and $1.4 billion, respectively, primarily consisting of contracts hedging exposures to the euro, British pound, Canadian dollar, Mexican peso, Japanese yen and Polish zloty. Derivative contracts have maturities up to 24 months.

 

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Table of Contents

The following table presents outstanding derivatives on an individual contract basis:

 

     Fair Value of Derivatives with
Unrealized Gains
     Fair Value of Derivatives with
Unrealized Losses
 
In thousands    September
2013
     December
2012
     September
2012
     September
2013
    December
2012
    September
2012
 

Foreign exchange contracts designated as hedging instruments

   $ 12,685       $ 15,847       $ 26,664       $ (37,376   $ (27,267   $ (22,910

Foreign exchange contracts dedesignated as hedging instruments

     —           15         64         —          (2,160     (4,976

Foreign exchange contracts not designated as hedging instruments

     47         291         115         (315     (41     (569
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total derivatives

   $ 12,732       $ 16,153       $ 26,843       $ (37,691   $ (29,468   $ (28,455
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

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. However, if VF were to offset and record the asset and liability balances of all of its forward foreign currency exchange contracts on a net basis in accordance with the terms of its master netting agreements, the amounts presented in the Consolidated Balance Sheets as of September 2013, December 2012 and September 2012 would be adjusted from the current gross presentation as detailed in the following table:

 

     September 2013     December 2012     September 2012  
In thousands    Derivative
Asset
    Derivative
Liability
    Derivative
Asset
    Derivative
Liability
    Derivative
Asset
    Derivative
Liability
 

Gross amounts presented in the Consolidated Balance Sheets

   $ 12,732      $ (37,691   $ 16,153      $ (29,468   $ 26,843      $ (28,455

Gross amounts not offset in the Consolidated Balance Sheets

     (10,497     10,497        (5,225     5,225        (4,760     4,760   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net amount

   $ 2,235      $ (27,194   $ 10,928      $ (24,243   $ 22,083      $ (23,695
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Derivatives are classified as current or noncurrent based on their maturity dates, as follows:

 

In thousands    September
2013
    December
2012
    September
2012
 

Other current assets

   $ 12,257      $ 13,629      $ 23,648   

Accrued liabilities (current)

     (28,743     (22,013     (22,766

Other assets (noncurrent)

     475        2,524        3,195   

Other liabilities (noncurrent)

     (8,948     (7,455     (5,689

Cash Flow Hedge Strategies and Accounting Policies

VF uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, purchases, production costs and intercompany royalties. The effects of cash flow hedging included in VF’s Consolidated Statements of Income and Consolidated Statements of Comprehensive Income are summarized as follows:

 

In thousands    Gain (Loss) on Derivatives
Recognized in OCI
Three Months Ended September
    Gain (Loss) on Derivatives
Recognized in OCI
Nine Months Ended September
 

Cash Flow Hedging Relationships

   2013     2012     2013     2012  

Foreign exchange

   $ (54,432   $ (15,829   $ (2,032   $ 2,846   

 

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Table of Contents
In thousands    Gain (Loss) Reclassified from
Accumulated OCI into Income
Three Months Ended September
    Gain (Loss) Reclassified from
Accumulated OCI into Income
Nine Months Ended September
 

Location of Gain (Loss)

   2013     2012     2013     2012  

Net sales

   $ 6,195      $ (2,150   $ 7,418      $ (3,931

Cost of goods sold

     3,574        9,694        11,115        10,291   

Other income (expense), net

     (2,218     1,890        83        1,777   

Interest expense

     (980     (934     (2,909     (2,772
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 6,571      $ 8,500      $ 15,707      $ 5,365   
  

 

 

   

 

 

   

 

 

   

 

 

 

Derivative Contracts Dedesignated as Hedges

Cash flow hedges of some forecasted sales to third parties have historically been dedesignated as hedges when the sales were recognized. At that time, hedge accounting was discontinued and the amount of unrealized hedging gain or loss was recognized in net sales. These derivatives remained outstanding as an economic hedge of foreign currency exposures associated with the ultimate collection of the related accounts receivable, during which time changes in the fair value of the derivative contracts were recognized directly in earnings. As discussed below in Derivative Contracts Not Designated as Hedges, VF now utilizes separate derivative contracts to manage foreign currency risk related to balance sheet exposures. Accordingly, the third quarter of 2013 is the last period during which dedesignations were recognized related to these cash flow hedges.

For the three and nine month periods ended September 2013, VF recorded net gains of $0.2 million and $1.5 million, respectively, in other income (expense), net, for derivatives dedesignated as hedging instruments. For the three and nine month periods ended September 2012, VF recorded net losses of $0.6 million and $2.4 million, respectively, in other income (expense), net, for dedesignated derivatives.

Derivative Contracts Not Designated as Hedges

VF uses derivative contracts to manage foreign currency exchange risk on intercompany loans, as well as intercompany and third party accounts receivable and payable. 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 remeasurement gains or losses on the related assets and liabilities. Following is a summary of these hedges included in VF’s Consolidated Statements of Income:

 

In thousands    Location of Gain (Loss)
on Derivatives

Recognized in Income
     Gain (Loss) on Derivatives
Recognized in Income
Three Months Ended September
    Gain (Loss) on Derivatives
Recognized in Income
Nine Months Ended September
 

Derivatives Not Designated as Hedges

      2013     2012     2013     2012  

Foreign exchange

     Other income (expense), net       $ (6,402   $ (2,253   $ (2,404   $ (877

Other Derivative Information

There were no significant amounts recognized in earnings for the ineffective portion of any hedging relationships during the three and nine month periods ended September 2013 and September 2012.

At September 2013, accumulated other comprehensive income (“OCI”) included $11.4 million of net pretax deferred losses for foreign exchange contracts that are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on exchange rates in effect when outstanding derivative contracts are settled.

VF entered into interest rate swap derivative contracts in 2011 and 2003 to hedge the interest rate risk for issuance of long-term debt due in 2021 and 2033, respectively. In each case, the contracts were terminated concurrent with the issuance of the debt, and the realized gain or loss was deferred in accumulated OCI. The remaining pretax net deferred loss in accumulated OCI was $36.6 million at September 2013, which will be reclassified into interest expense in the Consolidated Statements of Income over the remaining terms of the associated debt instruments.

Note P — Recently Issued Accounting Standards

In July 2013, the FASB issued an update to their accounting guidance which requires unrecognized tax benefits to be netted with net operating loss or tax credit carryforwards in the Consolidated Balance Sheets if specific criteria are met. The guidance is effective January 2014 for interim and annual periods. The adoption of this accounting guidance is not expected to have an impact on VF’s Consolidated Financial Statements.

 

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Note Q — Subsequent Events

On October 16, 2013, VF’s Board of Directors declared a quarterly cash dividend of $1.05 per share, payable on December 20, 2013 to stockholders of record on December 10, 2013.

On October 16, 2013, VF’s Board of Directors approved a 4-for-1 stock split of VF’s Common Stock to be payable in the form of a stock dividend. The stock dividend will be distributed on December 20, 2013 to stockholders of record on December 10, 2013. Upon completion of the split, the number of issued and outstanding shares of VF Common Stock will increase from approximately 110 million to approximately 440 million. Additionally, the Board of Directors amended VF’s Articles of Incorporation to increase the number of authorized shares of Common Stock from 300 million to 1.2 billion and reduce the stated value applicable to the Common Stock from $1.00 per share to $0.25 per share.

Share and per share data presented in the accompanying interim consolidated financial statements have not been adjusted for the stock split. Pro forma share and per share data, giving retroactive effect to the stock split, are as follows (rounded to the nearest cent):

 

     Three Months Ended September      Nine Months Ended September  
     2013      2012      2013      2012  

Earnings per common share attributable to VF Corporation common stockholders:

           

Basic - as reported (pre-stock split)

   $ 3.96       $ 3.48       $ 7.68       $ 6.85   

Basic - pro forma (post-stock split)

     0.99         0.87         1.92         1.71   

Diluted - as reported (pre-stock split)

     3.89         3.42         7.55         6.72   

Diluted - pro forma (post-stock split)

     0.97         0.86         1.89         1.68   

Weighted average shares outstanding:

           

Basic - as reported (pre-stock split)

     109,545         109,557         109,629         109,800   

Basic - pro forma (post-stock split)

     438,180         438,228         438,516         439,200   

Diluted - as reported (pre-stock split)

     111,405         111,488         111,620         111,849   

Diluted - pro forma (post-stock split)

     445,620         445,952         446,480         447,396   

Cash dividends per common share:

           

As reported (pre-stock-split)

   $ 0.87       $ 0.72       $ 2.61       $ 2.16   

Pro forma (post-stock-split)

     0.22         0.18         0.65         0.54   

 

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Highlights of the Third Quarter of 2013

All per share amounts are presented on a diluted basis.

 

  Revenues grew to $3.3 billion, an increase of 5% from the 2012 quarter.

 

  Outdoor & Action Sports revenues rose 6% and increased to 60% of VF’s total revenues in the quarter.

 

  International revenues rose 7% over the 2012 quarter and represented 40% of total revenues in the quarter.

 

  Direct-to-consumer revenues increased 14% and accounted for 19% of VF’s total revenues in the quarter.

 

  Gross margin improved by 90 basis points to 47.6% in the quarter.

 

  Earnings per share increased 14% from $3.42 in the 2012 quarter to $3.89 in the 2013 quarter.

 

  In October 2013, VF’s Board of Directors approved a quarterly cash dividend increase of 21% to $1.05 per share and announced a four-for-one stock split to be payable in the form of a stock dividend. The cash and stock dividends will be paid in December 2013.

Analysis of Results of Operations

Consolidated Statements of Income

The following table presents a summary of the changes in total revenues from the comparable periods in 2012:

 

In millions    Third Quarter      Nine Months  

Total revenues – 2012

   $ 3,148.4       $ 7,846.6   

Operations

     116.9         273.1   

Disposition in prior year

     —           (23.7

Impact of foreign currency translation

     32.0         33.5   
  

 

 

    

 

 

 

Total revenues – 2013

   $ 3,297.3       $ 8,129.5   
  

 

 

    

 

 

 

Third quarter and year to date revenue growth was driven by strength in the Outdoor & Action Sports, international and direct-to-consumer businesses. The sale of John Varvatos Enterprises, Inc. (“John Varvatos”) in April 2012 had a slight negative impact on the nine month revenue growth comparison. Additional details on revenues are provided in the section titled “Information by Business Segment.”

VF’s foreign currency exposure primarily relates to business conducted in euro-based countries. The weighted average translation rate for the euro was $1.33 for the third quarter of 2013 and $1.32 for the first nine months of 2013, compared with $1.25 for the third quarter of 2012 and $1.28 for the first nine months of 2012. Changes in foreign currency translation rates positively impacted total revenue by 1% for the third quarter of 2013 and less than 1% for the first nine months of 2013.

The following table presents the percentage relationships to total revenues for components of the Consolidated Statements of Income:

 

     Third Quarter     Nine Months  
     2013     2012     2013     2012  

Gross margin (total revenues less cost of goods sold)

     47.6     46.7     48.0     46.2

Selling, general and administrative expenses

     30.0     29.6     34.0     33.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     17.6     17.1     14.0     12.9
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin increased 90 basis points in the third quarter and 180 basis points in the first nine months of 2013 with improvements in nearly every coalition. The higher gross margins in both periods reflect lower product costs and the continued shift in our revenue mix towards higher margin businesses, including Outdoor & Action Sports, international and direct-to-consumer.

Selling, general and administrative expenses as a percentage of total revenues increased 40 basis points during the third quarter and 70 basis points in the first nine months of 2013, primarily resulting from increased investments in marketing and direct-to-consumer, partially offset by the leverage of operating expenses on higher revenues.

 

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Net interest expense decreased by $3.2 million in the third quarter of 2013 and $6.7 million in the first nine months of 2013 from the comparable periods in 2012, due to lower average levels of short-term borrowings, the repayment of $400 million of floating rate notes during the third quarter of 2013 and increased amounts of interest capitalized for significant projects. Total outstanding debt averaged $1.9 billion for the first nine months of 2013 and $2.5 billion for the same period in 2012. The weighted average interest rates on total outstanding debt were 4.4% and 3.7% for the first nine months of 2013 and 2012, respectively.

Other income (expense) in the third quarter of 2013 netted to expense of $1.3 million compared with income of $1.6 million in 2012, and netted to expense of $1.7 million in the first nine months of 2013 compared with income of $44.9 million in 2012. The income in the nine month 2012 period was primarily due to the $42.0 million gain on the sale of John Varvatos.

The effective income tax rate for the first nine months of 2013 was 21.7% compared with 24.2% in the first nine months of 2012. The first nine months of 2013 included net discrete tax benefits of $19.0 million, which included $8.3 million of tax benefits related to the extension of certain tax credits and other provisions of the Internal Revenue Code enacted in 2013 which were retroactive to 2012, and $6.9 million of tax benefits related to the realization of previously unrecognized tax benefits and interest. The net discrete tax benefits reduced the effective income tax rate for the first nine months of 2013 by 1.8% compared with a reduction of 2.0% in the first nine months of 2012. The remaining reduction in the effective income tax rate for the first nine months of 2013 compared with the 2012 period related primarily to a higher percentage of income in lower tax rate jurisdictions.

Net income attributable to VF Corporation for the third quarter of 2013 increased to $433.8 million ($3.89 per share), compared with $381.3 million ($3.42 per share) in the 2012 quarter. The third quarter of 2013 was negatively impacted by $0.02 per share in expenses related to the acquisition of The Timberland Company (“Timberland”) compared with $0.10 per share in the 2012 period. The third quarter of 2013 was positively impacted by $0.10 per share from foreign currency rate fluctuations.

Net income attributable to VF Corporation for the first nine months of 2013 increased to $842.5 million ($7.55 per share), compared with $751.8 million ($6.72 per share) in 2012. The first nine months of 2013 was positively impacted by $0.17 per share from discrete tax benefits and $0.12 per share from foreign currency rate fluctuations, partially offset by a negative impact of $0.07 per share in Timberland acquisition-related expenses. The first nine months of 2012 was positively impacted by $0.18 per share from discrete tax benefits and a $0.32 per share gain on the sale of John Varvatos, partially offset by the negative impact of $0.16 per share in Timberland acquisition-related expenses.

The remainder of the changes in earnings per share during the third quarter and first nine months of 2013 resulted from operating performance, as discussed in the “Information by Business Segment” section below.

Information by Business Segment

VF’s businesses are grouped into product categories, and by brands within those product categories, for management and internal financial reporting purposes. These groupings of businesses within VF are referred to as “coalitions.” These coalitions are the basis for VF’s reportable business segments.

See Note I to the Consolidated Financial Statements for a summary of results of operations by coalition, along with a reconciliation of coalition profit to income before income taxes.

The following tables present a summary of the changes in coalition revenues for the third quarter and first nine months of 2013 from the comparable periods in 2012:

 

     Third Quarter  
In millions    Outdoor &
Action Sports
     Jeanswear     Imagewear     Sportswear      Contemporary
Brands
    Other     Total  

Coalition revenues – 2012

   $ 1,852.3       $ 718.8      $ 284.5      $ 154.2       $ 104.2      $ 34.4      $ 3,148.4   

Operations

     87.7         29.1        0.6        1.0         (0.5     (1.0     116.9   

Impact of foreign currency translation

     32.0         (0.7     (0.6     —           1.3        —          32.0   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Coalition revenues – 2013

   $ 1,972.0       $ 747.2      $ 284.5      $ 155.2       $ 105.0      $ 33.4      $ 3,297.3   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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     Nine Months  
In millions    Outdoor &
Action Sports
     Jeanswear     Imagewear     Sportswear      Contemporary
Brands
    Other      Total  

Coalition revenues – 2012

   $ 4,156.2       $ 2,054.5      $ 813.5      $ 394.6       $ 339.0      $ 88.8       $ 7,846.6   

Operations

     267.2         25.9        (33.1     22.3         (9.9     0.7         273.1   

Disposition in prior year

     —           —          —          —           (23.7     —           (23.7

Impact of foreign currency translation

     36.4         (3.5     (1.3     —           1.9        —           33.5   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Coalition revenues – 2013

   $ 4,459.8       $ 2,076.9      $ 779.1      $ 416.9       $ 307.3      $ 89.5       $ 8,129.5   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The following tables present a summary of the changes in coalition profit for the third quarter and first nine months of 2013 from the comparable periods in 2012:

 

     Third Quarter  
In millions    Outdoor &
Action Sports
    Jeanswear      Imagewear      Sportswear      Contemporary
Brands
    Other     Total  

Coalition profit – 2012

   $ 413.0      $ 131.4       $ 37.5       $ 18.5       $ 13.4      $ 1.4      $ 615.2   

Operations

     (1.7     25.5         3.2         5.5         (4.1     (1.5     26.9   

Impact of foreign currency translation

     9.9        1.4         —          —           0.2        —         11.5   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Coalition profit – 2013

   $ 421.2      $ 158.3       $ 40.7       $ 24.0       $ 9.5      $ (0.1   $   653.6   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

     Nine Months  
In millions    Outdoor &
Action Sports
     Jeanswear      Imagewear     Sportswear      Contemporary
Brands
    Other     Total  

Coalition profit – 2012

   $ 697.2       $ 335.6       $ 110.7      $ 40.7       $ 40.3      $ 0.1      $ 1,224.6   

Operations

     38.4         73.1         (3.5     11.8         (11.2     (2.3     106.3   

Disposition in prior year

     —           —           —          —           0.5        —          0.5   

Impact of foreign currency translation

     12.5         1.9         0.1        —           0.3        —          14.8   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Coalition profit – 2013

   $ 748.1       $ 410.6       $ 107.3      $ 52.5       $ 29.9      $ (2.2   $ 1,346.2   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The following section discusses the changes in revenues and profitability by coalition:

Outdoor & Action Sports:

 

Dollars in millions    Third Quarter     Percent     Nine Months     Percent  
     2013     2012     Change     2013     2012     Change  

Coalition revenues

   $ 1,972.0      $ 1,852.3        6.5   $ 4,459.8      $ 4,156.2        7.3

Coalition profit

     421.2        413.0        2.0     748.1        697.2        7.3

Operating margin

     21.4     22.3       16.8     16.8  

Coalition revenues for Outdoor & Action Sports increased 6% in the third quarter of 2013 compared with the 2012 period. The North Face®, Vans® and Timberland® brands achieved global revenue growth of 3%, 16% and 2%, respectively. U.S. revenues for the third quarter increased 5% and were negatively impacted by retailer caution and a calendar shift for key retailers, which pushed approximately $40 million of shipments from the third quarter into the fourth quarter of 2013. International revenues rose 8%, reflecting growth in Europe, Asia Pacific and the Americas (non-U.S.).

Coalition revenues for Outdoor & Action Sports increased 7% in the first nine months of 2013 compared with the 2012 period. The North Face®, Vans® and Timberland® brands achieved global revenue growth of 4%, 18% and 1%, respectively. U.S. revenues for the first nine months increased 6% and were negatively impacted by the aforementioned retailer calendar shift. International revenues rose 9%, reflecting growth in Europe, Asia Pacific and the Americas (non-U.S.).

Direct-to-consumer revenues increased 16% and 14% in the third quarter and first nine months of 2013, respectively, with growth in nearly all brands. New store openings and comparable store growth, including the e-commerce business, contributed to the direct-to-consumer revenue growth.

The decrease in operating margin for the third quarter of 2013 is primarily due to a deleverage of expenses related to the aforementioned retailer calendar shift, as well as incremental marketing investments for the Coalition’s three largest brands - The North Face®, Vans® and Timberland®. Operating margin for the first nine months of 2013 was flat compared to 2012.

 

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Jeanswear:

 

Dollars in millions    Third Quarter     Percent     Nine Months     Percent  
     2013     2012     Change     2013     2012     Change  

Coalition revenues

   $ 747.2      $ 718.8        4.0   $ 2,076.9      $ 2,054.5        1.1

Coalition profit

     158.3        131.4        20.5     410.6        335.6        22.3

Operating margin

     21.2     18.3       19.8     16.3  

Global Jeanswear revenues increased 4% in the third quarter of 2013 compared with the 2012 period, driven by a 5% increase in the Americas region, which included a 7% increase in the Mass business. Jeanswear revenues for the European business increased 11%, primarily due to a 15% increase in the Wrangler® brand revenues. Jeanswear revenues in Asia Pacific decreased 9%, as the Lee® brand continues to be impacted by an industry-wide inventory build-up in China that began during the latter part of 2012.

Global Jeanswear revenues increased 1% during the first nine months of 2013 compared with the 2012 period. This increase was primarily due to a 2% increase in revenues for both the Americas and European regions, offset by a 9% decrease in the Asia Pacific region.

Operating margin increased 290 basis points during the third quarter of 2013 and 350 basis points for the first nine months of 2013. The increase in operating margin for the third quarter and first nine months of 2013 was driven by lower product costs across all regions and improvement in international performance. The Wrangler® and Lee® brands posted improved profitability in nearly every global region for the three and nine month periods.

Imagewear:

 

Dollars in millions    Third Quarter     Percent     Nine Months     Percent  
     2013     2012     Change     2013     2012     Change  

Coalition revenues

   $ 284.5      $ 284.5        0.0   $ 779.1      $ 813.5        (4.2 %) 

Coalition profit

     40.7        37.5        8.5     107.3        110.7        (3.1 %) 

Operating margin

     14.3     13.2       13.8     13.6  

Imagewear revenues were flat in the third quarter and decreased 4% during the first nine months of 2013 compared with the 2012 periods. The reduction in revenues for the nine month period is due to an arrangement with a customer that shipped throughout the first nine months of 2012, but did not have significant shipments in 2013 until late in the third quarter, along with general softness in the business.

Operating margin increased 110 basis points during the third quarter of 2013, primarily driven by improved gross margin due to lower product costs. The 20 basis point increase in operating margin for the first nine months of 2013 was due to lower product costs, partially offset by lower shipment and production volumes.

Sportswear:

 

Dollars in millions    Third Quarter     Percent     Nine Months     Percent  
     2013     2012     Change     2013     2012     Change  

Coalition revenues

   $ 155.2      $ 154.2        0.6   $ 416.9      $ 394.6        5.7

Coalition profit

     24.0        18.5        29.7     52.5        40.7        29.0

Operating margin

     15.5     12.0       12.6     10.3  

Sportswear revenues increased 1% and 6% in the third quarter and first nine months of 2013, respectively, compared with the 2012 periods. Third quarter revenues were driven by a 39% increase in sales of the Kipling® brand. Partially offsetting this increase was a 5% decline in Nautica® brand revenues due to a retailer calendar shift in wholesale revenues, which pushed what normally would be third quarter shipments into the fourth quarter of 2013. Revenues for the first nine months of 2013 reflected growth in both the Nautica® and Kipling® brands, primarily driven by the direct-to-consumer businesses of both brands.

The increases in operating margin during the third quarter and first nine months of 2013 are due to a shift in the business mix toward higher margin direct-to-consumer businesses, improvements in the profitability of the wholesale and direct-to-consumer businesses, as well as the leverage of operating expenses on higher revenues.

 

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Contemporary Brands:

 

Dollars in millions    Third Quarter     Percent     Nine Months     Percent  
     2013     2012     Change     2013     2012     Change  

Coalition revenues

   $ 105.0      $ 104.2        0.8   $ 307.3      $ 339.0        (9.4 %) 

Coalition profit

     9.5        13.4        (29.1 %)      29.9        40.3        (25.8 %) 

Operating margin

     9.0     12.9       9.7     11.9  

Revenues for Contemporary Brands increased 1% in the third quarter and declined 9% during the first nine months of 2013 compared with the 2012 periods. The absence of John Varvatos accounted for nearly 7% of the decrease in the first nine months of 2013. The remaining decline for the nine month period is primarily attributable to weakness in premium denim in the high-end department store channel, partially offset by higher direct-to-consumer revenues.

Operating margin declines for both the third quarter and first nine months of 2013 are primarily due to lower cost absorption resulting from a decline in sales volume, as well as an increase in investments in marketing and the direct-to-consumer businesses.

Other:

 

Dollars in millions    Third Quarter     Percent     Nine Months     Percent  
     2013     2012     Change     2013     2012     Change  

Coalition revenues

   $ 33.4      $ 34.4        (2.9 %)    $ 89.5      $ 88.8        0.8

Coalition profit

     (0.1     1.4          (2.2     0.1     

Operating margin

     (0.3 %)      4.1       (2.5 %)      0.1  

VF Outlet® stores in the United States sell VF and other branded products. Revenues and profits of VF products sold in these stores are reported as part of the operating results of the applicable coalition, while revenues and profits of non-VF products are reported in this Other category.

Reconciliation of Coalition Profit to Income Before Income Taxes:

There are two types of costs necessary to reconcile total coalition profit, as discussed in the preceding paragraphs, to consolidated income before income taxes. These costs are (i) corporate and other expenses, discussed below, and (ii) interest expense, net, which was discussed in the previous “Consolidated Statements of Income” section.

 

Dollars in millions    Third Quarter      Percent     Nine Months      Percent  
     2013      2012      Change     2013      2012      Change  

Corporate and other expenses

   $ 75.2       $ 76.8         (2.1 %)    $ 209.2       $ 164.8         26.9

Interest expense, net

     20.0         23.2         (13.8 %)      61.2         67.9         (9.9 %) 

Corporate and other expenses are those that have not been allocated to the coalitions for internal management reporting, including (i) information systems and shared services, (ii) corporate headquarters’ costs and (iii) other income and expenses. Other income and expenses includes costs of corporate programs and initiatives; costs of registering, maintaining and enforcing certain VF trademarks; and miscellaneous costs, the most significant of which is related to the expense of VF’s centrally-managed U.S. defined benefit pension plans. The current year service cost component of pension cost is allocated to the coalitions, while the remaining cost components, totaling $15.2 million and $45.7 million for the third quarter and first nine months of 2013, respectively, and $16.8 million and $50.4 million for the third quarter and first nine months of 2012, respectively, are reported in corporate and other expenses. The increase in corporate and other expenses for the first nine months of 2013 is primarily due to the $42.0 million gain on the sale of John Varvatos, which was recorded as an offset to corporate and other expenses in the first nine months of 2012.

Analysis of Financial Condition

Balance Sheets

The following discussion refers to significant changes in balances at September 2013 compared with December 2012:

 

    Increase in accounts receivable—resulting from the seasonality of the business.

 

    Increase in inventory—due to the seasonality of the business partially offset by the impact of disciplined inventory management.

 

    Increase in other current assets—primarily due to higher prepaid income taxes.

 

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    Increase in property, plant and equipment—related to capital projects that support VF’s continued expectations for high revenue growth, including a European headquarters, additional distribution facilities, new retail stores and technology upgrades.

 

    Increase in other assets—driven by an increase in deferred software costs and assets held for deferred compensation plans.

 

    Increase in short-term borrowings—due to an increase in commercial paper borrowings to support seasonal working capital needs and to fund the repayment of the $400 million two-year notes issued to finance the acquisition of Timberland. VF expects to pay off all commercial paper by the end of 2013.

 

    Decrease in current portion of long-term debt—related to the repayment of the $400 million two-year notes issued to finance the acquisition of Timberland.

 

    Increase in accounts payable—driven by the timing of inventory purchases.

 

    Increase in accrued liabilities—primarily due to timing of accruals for marketing, compensation and taxes.

The following discussion refers to significant changes in balances at September 2013 compared with September 2012:

 

    Increase in property, plant and equipment—related to capital projects that support VF’s continued expectations for high revenue growth, including a European headquarters, a headquarters for the Outdoor & Action Sports businesses in the United States, additional distribution facilities, new retail stores and technology upgrades.

 

    Increase in other assets—driven by an increase in deferred software costs primarily related to systems implementation.

 

    Decrease in short-term borrowings—due to higher levels of cash available to fund working capital needs during the first nine months of 2013 as compared to 2012.

 

    Decrease in current portion of long-term debt—related to the repayment of the $400 million two-year notes issued to finance the acquisition of Timberland.

 

    Increase in accounts payable—driven by the timing of inventory purchases and payments.

 

    Increase in accrued liabilities—primarily due to timing of accruals for marketing, compensation and taxes.

Liquidity and Cash Flows

The financial condition of VF is reflected in the following:

 

Dollars in millions    September
2013
    December
2012
    September
2012
 

Working capital

   $  2,039.2      $  1,717.4      $  1,563.0   

Current ratio

     2.0 to 1        2.0 to 1        1.6 to 1   

Debt to total capital ratio

     25.2     26.5     34.3

For the ratio of debt to total capital, debt is defined as short-term and long-term borrowings, and total capital is defined as debt plus stockholders’ equity. The ratio of net debt to total net capital (with net debt defined as debt less cash and equivalents and total net capital defined as total capital less cash and equivalents) was 21.9% at September 2013, 19.6% at December 2012 and 31.5% at September 2012.

In summary, our cash flows were as follows (in millions):

 

     Nine Months  
In millions    2013     2012  

Net cash provided by operating activities

   $ 418.1      $ 102.6   

Net cash used by investing activities

     (255.3     (139.4

Net cash used by financing activities

     (441.7     (1.7

 

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Cash Provided by Operating Activities

VF’s primary source of liquidity is the strong cash flow provided by operating activities, which is dependent on the level of net income and changes in working capital. Cash provided by operating activities for the first nine months of 2013 increased to $418.1 million from $102.6 million for the 2012 period. The improvement is due to an increase in net income and a reduction in net cash usage from working capital changes, partially offset by the payment of a $100.0 million discretionary contribution to the defined benefit pension plan in the first quarter of 2013.

Cash Used by Investing Activities

Cash used by investing activities for the first nine months of 2013 increased to $255.3 million from $139.4 million in 2012. VF’s investing activities relate primarily to capital expenditures and software purchases which increased $42.6 million over the 2012 period. The higher level of capital expenditures and software purchases are related to a number of infrastructure projects that support VF’s continued expectations for high revenue growth, as discussed in the “Balance Sheets” section above. The spending is funded by cash flow from operations.

In addition, cash used by investing activities during the first nine months of 2012 was reduced by $68.5 million in proceeds from the sale of John Varvatos.

Cash Used by Financing Activities

Cash used by financing activities in the first nine months of 2013 was $441.7 million, compared with $1.7 million in the first nine months of 2012. This increase was primarily due to the repayment of the $400 million two-year notes issued to finance the acquisition of Timberland and a $49.3 million increase in cash dividends paid.

During the first nine months of 2013 and 2012, VF repurchased 1.7 million and 2.0 million shares, respectively, of its Common Stock in open market transactions. The cost was $281.5 million and $296.8 million with an average price per share of $164.67 and $147.49 for the September 2013 and September 2012 periods, respectively. Under its current authorization from the Board of Directors, VF may repurchase an additional 2.8 million shares. VF will continue to evaluate future share repurchases considering funding required for business acquisitions, VF’s Common Stock price and levels of stock option exercises.

VF relies on continued strong cash generation to finance its ongoing operations. In addition, VF has significant liquidity from its available cash balances and credit facilities. VF maintains a $1.25 billion senior unsecured revolving line of credit (the “Global Credit Facility”), which supports our $1.25 billion U.S. commercial paper program for short-term seasonal working capital requirements. The Global Credit Facility expires in December 2016. Commercial paper borrowings and standby letters of credit issued as of September 2013 were $451.0 million and $17.4 million, respectively, leaving $781.6 million available for borrowing against this facility at September 2013.

VF’s favorable credit agency ratings allow for access to additional liquidity at competitive rates. At the end of September 2013, VF’s long-term debt ratings were ‘A minus’ by Standard & Poor’s Ratings Services and ‘A3’ by Moody’s Investors Service, and commercial paper ratings by those rating agencies were ‘A-2’ and ‘Prime-2’, respectively. 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 2017, 2021 and 2037 notes were rated below investment grade by recognized rating agencies, VF would be obligated to repurchase the notes at 101% of the aggregate principal amount, plus any accrued and unpaid interest.

In October 2013, VF’s Board of Directors approved a four-for-one split of VF’s shares of Common Stock to be payable in the form of a stock dividend. Shareholders of record as of the close of business on December 10, 2013 will receive three additional shares of Common Stock for each share of Common Stock they own, payable on December 20, 2013. The New York Stock Exchange is expected to begin reporting the adjusted number of shares outstanding and adjusted per-share stock price on December 23, 2013.

Management’s Discussion and Analysis in the 2012 Form 10-K provided a table summarizing VF’s contractual obligations and commercial commitments at the end of 2012 that would require the use of funds. Since the filing of the 2012 Form 10-K, there have been no material changes in the disclosed amounts, except as noted below:

 

  Inventory purchase obligations increased by approximately $172.3 million at the end of September 2013 due to the seasonality of VF’s businesses.

 

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Management believes that VF’s cash balances and funds provided by operating activities, as well as its Global Credit Facility, additional borrowing capacity and access to capital markets, taken as a whole, provide (i) adequate liquidity to meet all of its current and long-term obligations when due, (ii) adequate liquidity to fund capital expenditures and to maintain the dividend to stockholders at current and expected rates and (iii) flexibility to meet investment opportunities that may arise.

Recently Issued Accounting Standards

In July 2013, the FASB issued an update to their accounting guidance which requires unrecognized tax benefits to be netted with net operating loss or tax credit carryforwards in the Consolidated Balance Sheets if specific criteria are met. The guidance is effective January 2014 for the interim and annual periods. The adoption of this accounting guidance is not expected to have an impact on VF’s Consolidated Financial Statements.

Critical Accounting Policies and Estimates

Management has chosen accounting policies that 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. Accounting policies are applied in a consistent manner. Significant accounting policies are summarized in Note A to the Consolidated Financial Statements included in the 2012 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 2012 Form 10-K. There have been no material changes in these policies.

Cautionary Statement on Forward-Looking Statements

From time to time, VF may make oral or written statements, including statements in this quarterly report that constitute “forward-looking statements” within the meaning of the federal securities laws. These 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.

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 in this quarterly report on Form 10-Q include, but are not limited to, the level of consumer confidence and overall level of consumer demand for apparel; fluctuations in the price, availability and quality of raw materials and contracted products; disruption to VF’s distribution system; disruption and volatility in the global capital and credit markets; VF’s reliance on a small number of large customers; the financial strength of VF’s customers; VF’s response to changing fashion trends; increasing pressure on margins; VF’s ability to implement its growth strategy; VF’s ability to grow its international and direct-to-consumer businesses; VF’s ability to complete, successfully integrate and grow acquisitions, including the Timberland acquisition; VF’s ability to maintain the strength and security of its information technology systems; adverse unseasonable weather conditions; stability of VF’s manufacturing facilities and foreign suppliers; continued use by VF’s suppliers of ethical business practices; VF’s ability to accurately forecast demand for products; continuity of members of VF’s management; VF’s ability to protect trademarks and other intellectual property rights; maintenance by VF’s licensees and distributors of the value of VF’s brands; foreign currency fluctuations; changes in tax liabilities; and legal, regulatory, political and economic risks in international markets. More information on potential factors that could affect VF’s financial results is included from time to time in VF’s public reports filed with the Securities and Exchange Commission, including VF’s Annual Report on Form 10-K.

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

There have been no significant changes in VF’s market risk exposures from what was disclosed in Item 7A in the 2012 Form 10-K.

 

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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.

 

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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 2012 Form 10-K. There have been no material changes to the legal proceedings from those described in the 2012 Form 10-K.

Item 1A — Risk Factors

You should carefully consider the risk factors set forth under Part I, Item 1A, “Risk Factors,” in the 2012 Form 10-K. There have been no material changes to the risk factors from those disclosed in the 2012 Form 10-K.

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer purchases of equity securities:

 

Third Quarter 2013

   Total
Number
of Shares
Purchased
     Weighted
Average
Price Paid
per Share
     Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs
     Maximum Number
of Shares that May
Yet be Purchased
Under the
Program (1)
 

June 30 – July 27, 2013

     2,500      $ 195.89        2,500        2,764,956   

July 28 – August 24, 2013

     —          —          —          2,764,956   

August 25 – September 28, 2013

     —          —          —          2,764,956   
  

 

 

       

 

 

    

Total

     2,500            2,500      
  

 

 

       

 

 

    

 

(1) During the quarter, 2,500 shares of Common Stock were purchased in connection with VF’s deferred compensation plans. VF will continue to evaluate future share repurchases—considering funding required for business acquisitions, VF’s Common Stock price and levels of stock option exercises.

Item 6 — Exhibits

 

  31.1    Certification of the principal executive officer, Eric C. Wiseman, 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 the principal financial officer, Robert K. Shearer, 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 the principal executive officer, Eric C. Wiseman, 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 the principal financial officer, Robert K. Shearer, 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
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

 

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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/ Robert K. Shearer

    Robert K. Shearer
    Senior Vice President and Chief Financial Officer (Chief Financial Officer)
Date: November 6, 2013   By:  

/s/ Scott A. Roe

    Scott A. Roe
    Vice President — Controller (Chief Accounting Officer)

 

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