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 July 4, 2015
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
(Registrants 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 August 1, 2015, there were 425,641,979 shares of the registrants common stock outstanding.
Table of Contents
Part I Financial Information
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)
June 2015 |
December 2014 |
June 2014 |
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ASSETS |
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Current assets |
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Cash and equivalents |
$ | 659,770 | $ | 971,895 | $ | 475,891 | ||||||
Accounts receivable, less allowance for doubtful accounts of: |
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June 2015 $22,587; December 2014 $26,694; |
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June 2014 $44,747 |
1,200,241 | 1,276,224 | 1,178,874 | |||||||||
Inventories |
1,746,418 | 1,482,804 | 1,615,245 | |||||||||
Other current assets |
600,061 | 454,931 | 509,902 | |||||||||
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Total current assets |
4,206,490 | 4,185,854 | 3,779,912 | |||||||||
Property, plant and equipment |
964,373 | 942,181 | 921,970 | |||||||||
Intangible assets |
2,296,200 | 2,433,552 | 2,921,335 | |||||||||
Goodwill |
1,796,769 | 1,824,956 | 2,018,997 | |||||||||
Other assets |
641,672 | 593,597 | 573,113 | |||||||||
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Total assets |
$ | 9,905,504 | $ | 9,980,140 | $ | 10,215,327 | ||||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities |
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Short-term borrowings |
$ | 1,158,516 | $ | 21,822 | $ | 581,120 | ||||||
Current portion of long-term debt |
13,275 | 3,975 | 4,334 | |||||||||
Accounts payable |
503,753 | 690,842 | 537,192 | |||||||||
Accrued liabilities |
780,286 | 903,602 | 747,678 | |||||||||
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Total current liabilities |
2,455,830 | 1,620,241 | 1,870,324 | |||||||||
Long-term debt |
1,412,244 | 1,423,581 | 1,425,123 | |||||||||
Other liabilities |
1,073,635 | 1,305,436 | 1,266,512 | |||||||||
Commitments and contingencies |
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Stockholders equity |
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Preferred Stock, par value $1; shares authorized, 25,000,000; no shares outstanding at June 2015, December 2014 or June 2014 |
| | | |||||||||
Common Stock, stated value $0.25; shares authorized, 1,200,000,000; shares outstanding at June 2015 425,240,838; December 2014 432,859,891; June 2014 430,890,659 |
106,310 | 108,215 | 107,723 | |||||||||
Additional paid-in capital |
3,114,045 | 2,993,186 | 2,875,240 | |||||||||
Accumulated other comprehensive income (loss) |
(913,626 | ) | (702,272 | ) | (232,212 | ) | ||||||
Retained earnings |
2,657,066 | 3,231,753 | 2,902,617 | |||||||||
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Total stockholders equity |
4,963,795 | 5,630,882 | 5,653,368 | |||||||||
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Total liabilities and stockholders equity |
$ | 9,905,504 | $ | 9,980,140 | $ | 10,215,327 | ||||||
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See notes to consolidated financial statements.
3
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended June | Six Months Ended June | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net sales |
$ | 2,484,189 | $ | 2,373,408 | $ | 5,287,491 | $ | 5,123,523 | ||||||||
Royalty income |
29,671 | 28,668 | 63,670 | 59,331 | ||||||||||||
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Total revenues |
2,513,860 | 2,402,076 | 5,351,161 | 5,182,854 | ||||||||||||
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Costs and operating expenses |
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Cost of goods sold |
1,300,346 | 1,239,344 | 2,746,893 | 2,645,910 | ||||||||||||
Selling, general and administrative expenses |
990,487 | 942,924 | 1,983,406 | 1,913,946 | ||||||||||||
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2,290,833 | 2,182,268 | 4,730,299 | 4,559,856 | |||||||||||||
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Operating income |
223,027 | 219,808 | 620,862 | 622,998 | ||||||||||||
Interest income |
1,895 | 1,519 | 3,993 | 2,850 | ||||||||||||
Interest expense |
(23,023 | ) | (21,338 | ) | (44,872 | ) | (41,975 | ) | ||||||||
Other income (expense), net |
670 | (508 | ) | 1,498 | (2,600 | ) | ||||||||||
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Income before income taxes |
202,569 | 199,481 | 581,481 | 581,273 | ||||||||||||
Income taxes |
31,758 | 41,799 | 121,961 | 126,398 | ||||||||||||
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Net income |
$ | 170,811 | $ | 157,682 | $ | 459,520 | $ | 454,875 | ||||||||
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Earnings per common share |
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Basic |
$ | 0.40 | $ | 0.37 | $ | 1.08 | $ | 1.05 | ||||||||
Diluted |
0.40 | 0.36 | 1.06 | 1.03 | ||||||||||||
Cash dividends per common share |
$ | 0.3200 | $ | 0.2625 | $ | 0.6400 | $ | 0.5250 |
See notes to consolidated financial statements.
4
Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
Three Months Ended June | Six Months Ended June | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net income |
$ | 170,811 | $ | 157,682 | $ | 459,520 | $ | 454,875 | ||||||||
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Other comprehensive income (loss) |
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Foreign currency translation |
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Gains (losses) arising during the period |
2,444 | (25,832 | ) | (245,111 | ) | (36,734 | ) | |||||||||
Less income tax effect |
1,281 | (703 | ) | 2,755 | 612 | |||||||||||
Defined benefit pension plans |
||||||||||||||||
Amortization of net deferred actuarial losses |
15,495 | 9,389 | 30,992 | 18,773 | ||||||||||||
Amortization of deferred prior service costs |
759 | 1,362 | 1,521 | 2,724 | ||||||||||||
Settlement charge |
1,592 | | 1,592 | | ||||||||||||
Less income tax effect |
(10,130 | ) | (4,108 | ) | (17,096 | ) | (8,233 | ) | ||||||||
Derivative financial instruments |
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Gains (losses) arising during the period |
(21,576 | ) | (11,461 | ) | 46,434 | (7,765 | ) | |||||||||
Less income tax effect |
8,763 | 4,504 | (17,965 | ) | 3,051 | |||||||||||
Reclassification to net income for (gains) losses realized |
(15,403 | ) | 7,407 | (23,498 | ) | 12,823 | ||||||||||
Less income tax effect |
6,255 | (2,911 | ) | 9,436 | (5,039 | ) | ||||||||||
Marketable securities |
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Gains (losses) arising during the period |
| (611 | ) | 495 | (1,160 | ) | ||||||||||
Less income tax effect |
| 241 | (195 | ) | 456 | |||||||||||
Reclassification to net income for (gains) losses realized |
(1,177 | ) | | (1,177 | ) | | ||||||||||
Less income tax effect |
463 | | 463 | | ||||||||||||
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Other comprehensive income (loss) |
(11,234 | ) | (22,723 | ) | (211,354 | ) | (20,492 | ) | ||||||||
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Comprehensive income |
$ | 159,577 | $ | 134,959 | $ | 248,166 | $ | 434,383 | ||||||||
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See notes to consolidated financial statements.
5
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended June | ||||||||
2015 | 2014 | |||||||
Operating activities |
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Net income |
$ | 459,520 | $ | 454,875 | ||||
Adjustments to reconcile net income to cash (used) provided by operating activities: |
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Depreciation and amortization |
129,265 | 131,201 | ||||||
Stock-based compensation |
50,313 | 53,580 | ||||||
Provision for doubtful accounts |
4,372 | 4,089 | ||||||
Pension expense (less than) in excess of contributions |
(229,352 | ) | 17,673 | |||||
Other, net |
(22,287 | ) | 4,810 | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
34,778 | 174,448 | ||||||
Inventories |
(288,842 | ) | (220,187 | ) | ||||
Accounts payable |
(179,515 | ) | (100,841 | ) | ||||
Income taxes |
(121,240 | ) | (174,251 | ) | ||||
Accrued liabilities |
(64,699 | ) | (92,045 | ) | ||||
Other assets and liabilities |
(58,759 | ) | (33,765 | ) | ||||
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Cash (used) provided by operating activities |
(286,446 | ) | 219,587 | |||||
Investing activities |
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Capital expenditures |
(125,504 | ) | (95,844 | ) | ||||
Software purchases |
(43,450 | ) | (56,042 | ) | ||||
Other, net |
10,631 | (11,701 | ) | |||||
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Cash used by investing activities |
(158,323 | ) | (163,587 | ) | ||||
Financing activities |
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Net increase in short-term borrowings |
1,139,103 | 562,315 | ||||||
Payments on long-term debt |
(2,203 | ) | (2,697 | ) | ||||
Payment of debt issuance costs |
(1,475 | ) | | |||||
Purchases of treasury stock |
(731,527 | ) | (727,536 | ) | ||||
Cash dividends paid |
(271,519 | ) | (227,625 | ) | ||||
Proceeds from issuance of Common Stock, net of shares withheld for taxes |
3,752 | 4,333 | ||||||
Tax benefits of stock-based compensation |
33,728 | 39,195 | ||||||
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Cash provided (used) by financing activities |
169,859 | (352,015 | ) | |||||
Effect of foreign currency rate changes on cash and equivalents |
(37,215 | ) | (4,497 | ) | ||||
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Net change in cash and equivalents |
(312,125 | ) | (300,512 | ) | ||||
Cash and equivalents beginning of year |
971,895 | 776,403 | ||||||
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Cash and equivalents end of period |
$ | 659,770 | $ | 475,891 | ||||
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See notes to consolidated financial statements.
6
Consolidated Statements of Stockholders Equity
(Unaudited)
(In thousands, except share amounts)
Common Stock | Additional Paid-in |
Accumulated Other Comprehensive |
Retained | |||||||||||||||||
Shares | Amounts | Capital | Income (Loss) | Earnings | ||||||||||||||||
Balance, December 2013 |
440,310,370 | $ | 110,078 | $ | 2,746,590 | $ | (211,720 | ) | $ | 3,432,090 | ||||||||||
Net income |
| | | | 1,047,505 | |||||||||||||||
Dividends on Common Stock |
| | | | (478,933 | ) | ||||||||||||||
Purchase of treasury stock |
(12,037,000 | ) | (3,009 | ) | | | (724,786 | ) | ||||||||||||
Stock-based compensation, net |
4,586,521 | 1,146 | 246,596 | | (44,123 | ) | ||||||||||||||
Foreign currency translation |
| | | (463,588 | ) | | ||||||||||||||
Defined benefit pension plans |
| | | (99,683 | ) | | ||||||||||||||
Derivative financial instruments |
| | | 73,143 | | |||||||||||||||
Marketable securities |
| | | (424 | ) | | ||||||||||||||
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Balance, December 2014 |
432,859,891 | 108,215 | 2,993,186 | (702,272 | ) | 3,231,753 | ||||||||||||||
Net income |
| | | | 459,520 | |||||||||||||||
Dividends on Common Stock |
| | | | (271,519 | ) | ||||||||||||||
Purchase of treasury stock |
(10,020,000 | ) | (2,505 | ) | | | (729,022 | ) | ||||||||||||
Stock-based compensation, net |
2,400,947 | 600 | 120,859 | | (33,666 | ) | ||||||||||||||
Foreign currency translation |
| | | (242,356 | ) | | ||||||||||||||
Defined benefit pension plans |
| | | 17,009 | | |||||||||||||||
Derivative financial instruments |
| | | 14,407 | | |||||||||||||||
Marketable securities |
| | | (414 | ) | | ||||||||||||||
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Balance, June 2015 |
425,240,838 | $ | 106,310 | $ | 3,114,045 | $ | (913,626 | ) | $ | 2,657,066 | ||||||||||
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See notes to consolidated financial statements.
7
Notes to Consolidated Financial Statements
(Unaudited)
Note A Basis of Presentation
VF Corporation (together with 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 June 2015, December 2014 and June 2014 relate to the fiscal periods ended on July 4, 2015, January 3, 2015 and June 28, 2014, 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 in the United States of America (GAAP) for complete financial statements. Similarly, the December 2014 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 six months ended June 2015 are not necessarily indicative of results that may be expected for any other interim period or for the year ending January 2, 2016. For further information, refer to the consolidated financial statements and notes included in VFs Annual Report on Form 10-K for the year ended December 2014 (2014 Form 10-K).
Note B 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 VFs accounts receivable may be sold to the financial institution and remain outstanding at any point in time. VF removes the accounts receivable from the Consolidated Balance Sheets at the time of sale. VF does not retain any interests in the sold accounts receivable but continues to service and collect outstanding accounts receivable on behalf of the financial institution. During the first six months of 2015, VF sold total accounts receivable of $633.1 million. As of June 2015, December 2014 and June 2014, $164.3 million, $130.3 million and $138.4 million, respectively, of sold accounts receivable had been removed from the Consolidated Balance Sheets but remained outstanding with the financial institution. The funding fee charged by the financial institution is included in other income (expense), net, and was $0.5 million and $0.9 million for the second quarter and first six months of 2015, respectively, and $0.4 million and $0.8 million for the second quarter and first six months of 2014, respectively. Net proceeds of this program are classified in operating activities in the Consolidated Statements of Cash Flows.
Note C Inventories
In thousands | June 2015 |
December 2014 |
June 2014 |
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Finished products |
$ | 1,480,274 | $ | 1,232,623 | $ | 1,362,069 | ||||||
Work in process |
108,961 | 104,517 | 104,039 | |||||||||
Raw materials |
157,183 | 145,664 | 149,137 | |||||||||
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Total inventories |
$ | 1,746,418 | $ | 1,482,804 | $ | 1,615,245 | ||||||
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Note D Property, Plant and Equipment
In thousands | June 2015 |
December 2014 |
June 2014 |
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Land and improvements |
$ | 96,182 | $ | 57,151 | $ | 56,962 | ||||||
Buildings and improvements |
1,011,621 | 986,679 | 988,980 | |||||||||
Machinery and equipment |
1,235,774 | 1,225,293 | 1,191,219 | |||||||||
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Property, plant and equipment, at cost |
2,343,577 | 2,269,123 | 2,237,161 | |||||||||
Less accumulated depreciation and amortization |
1,379,204 | 1,326,942 | 1,315,191 | |||||||||
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Property, plant and equipment, net |
$ | 964,373 | $ | 942,181 | $ | 921,970 | ||||||
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8
Note E Intangible Assets
Weighted | June 2015 | December 2014 | ||||||||||||||||||
Dollars in thousands | Average Amortization Period |
Amortization Methods |
Cost | Accumulated Amortization |
Net Carrying Amount |
Net Carrying Amount |
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Amortizable intangible assets: |
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Customer relationships |
20 years | Accelerated | $ | 571,090 | $ | 351,553 | $ | 219,537 | $ | 241,811 | ||||||||||
License agreements |
24 years | Accelerated and straight-line | 179,785 | 88,818 | 90,967 | 96,736 | ||||||||||||||
Other |
11 years | Straight-line | 5,728 | 1,951 | 3,777 | 4,363 | ||||||||||||||
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Amortizable intangible assets, net |
314,281 | 342,910 | ||||||||||||||||||
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Indefinite-lived intangible assets: |
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Trademarks and trade names |
1,981,919 | 2,090,642 | ||||||||||||||||||
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Intangible assets, net |
$ | 2,296,200 | $ | 2,433,552 | ||||||||||||||||
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Amortization expense for the second quarter and first six months of 2015 was $7.5 million and $15.2 million, respectively. Based on the carrying amounts of amortizable intangible assets noted above, estimated amortization expense for the next five years is:
Year |
Estimated Amortization Expense |
|||
In millions | ||||
2015 |
$ | 29.9 | ||
2016 |
28.3 | |||
2017 |
27.2 | |||
2018 |
26.6 | |||
2019 |
26.0 |
Note F Goodwill
Changes in goodwill are summarized by business segment as follows:
In thousands | Outdoor & Action Sports |
Jeanswear | Imagewear | Sportswear | Total | |||||||||||||||
Balance, December 2014 |
$ | 1,389,453 | $ | 219,442 | $ | 58,747 | $ | 157,314 | $ | 1,824,956 | ||||||||||
Currency translation |
(23,577 | ) | (4,610 | ) | | | (28,187 | ) | ||||||||||||
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Balance, June 2015 |
$ | 1,365,876 | $ | 214,832 | $ | 58,747 | $ | 157,314 | $ | 1,796,769 | ||||||||||
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Accumulated impairment charges for the Outdoor & Action Sports and Sportswear coalitions were $43.4 million and $58.5 million, respectively, for the periods presented above. No impairment charges were recorded in the first six months of 2015.
9
Note G Pension Plans
The components of pension cost for VFs defined benefit plans were as follows:
Three Months Ended June | Six Months Ended June | |||||||||||||||
In thousands | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Service cost benefits earned during the period |
$ | 7,344 | $ | 6,097 | $ | 14,679 | $ | 12,182 | ||||||||
Interest cost on projected benefit obligations |
19,411 | 20,404 | 38,814 | 40,793 | ||||||||||||
Expected return on plan assets |
(27,779 | ) | (22,697 | ) | (55,550 | ) | (45,378 | ) | ||||||||
Amortization of deferred amounts: |
||||||||||||||||
Net deferred actuarial losses |
15,495 | 9,389 | 30,992 | 18,773 | ||||||||||||
Deferred prior service costs |
759 | 1,362 | 1,521 | 2,724 | ||||||||||||
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Net periodic pension cost |
$ | 15,230 | $ | 14,555 | $ | 30,456 | $ | 29,094 | ||||||||
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During the first six months of 2015, VF contributed $261.4 million to its defined benefit plans, which included a $250.0 million discretionary contribution to its domestic qualified plan in the first quarter. VF intends to make approximately $11.9 million of additional contributions during the remainder of 2015.
In addition, VF incurred a $1.6 million settlement charge in the second quarter of 2015 related to the recognition of deferred actuarial losses resulting from lump sum payments of retirement benefits to participants in VFs supplemental defined benefit pension plan.
Note H Capital and Accumulated Other Comprehensive Income (Loss)
During the first six months of 2015, the Company purchased 10.0 million shares of Common Stock in open market transactions for $730.1 million under its share repurchase program authorized by VFs Board of Directors. These transactions were treated as treasury stock transactions.
Common Stock outstanding is net of shares held in treasury which are, in substance, retired. During the first six months of 2015, VF restored 10.1 million treasury shares to an unissued status, after which they were no longer recognized as shares held in treasury. There were 23,400 shares held in treasury at the end of June 2015, and no shares held in treasury at the end of December 2014 or June 2014. The excess of the cost of treasury shares acquired over the $0.25 per share stated value of Common Stock is deducted from retained earnings.
VF Common Stock is also held by the Companys deferred compensation plans and is treated as treasury shares for financial reporting purposes. During the first half of 2015, the Company purchased 20,000 shares of Common Stock in open market transactions for $1.4 million. Balances related to shares held for deferred compensation plans are as follows:
In millions, except share amounts | June 2015 |
December 2014 |
June 2014 |
|||||||||
Shares held for deferred compensation plans |
565,549 | 637,504 | 695,204 | |||||||||
Cost of shares held for deferred compensation plans |
$ | 6.7 | $ | 7.7 | $ | 8.2 |
Accumulated Other Comprehensive Income (Loss)
Comprehensive income consists of net income and specified components of other comprehensive income (OCI). OCI consists of changes in assets and liabilities that are not included in net income under GAAP but are instead deferred and accumulated within a separate component of stockholders equity in the balance sheet. VFs comprehensive income is presented in the Consolidated Statements of Comprehensive Income. The deferred components of OCI are reported, net of related income taxes, in accumulated other comprehensive income (loss) in stockholders equity, as follows:
In thousands | June 2015 |
December 2014 |
June 2014 |
|||||||||
Foreign currency translation |
$ | (599,297 | ) | $ | (356,941 | ) | $ | 70,525 | ||||
Defined benefit pension plans |
(360,125 | ) | (377,134 | ) | (264,187 | ) | ||||||
Derivative financial instruments |
45,796 | 31,389 | (38,684 | ) | ||||||||
Marketable securities |
| 414 | 134 | |||||||||
|
|
|
|
|
|
|||||||
Accumulated other comprehensive income (loss) |
$ | (913,626 | ) | $ | (702,272 | ) | $ | (232,212 | ) | |||
|
|
|
|
|
|
10
The changes in accumulated other comprehensive income (loss), net of related taxes, are as follows:
Three Months Ended June 2015 | ||||||||||||||||||||
In thousands | Foreign Currency Translation |
Defined Benefit Pension Plans |
Derivative Financial Instruments |
Marketable Securities |
Total | |||||||||||||||
Balance, March 2015 |
$ | (603,022 | ) | $ | (367,841 | ) | $ | 67,757 | $ | 714 | $ | (902,392 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive income (loss) before reclassification |
3,725 | | (12,813 | ) | | (9,088 | ) | |||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) |
| 7,716 | (9,148 | ) | (714 | ) | (2,146 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net other comprehensive income (loss) |
3,725 | 7,716 | (21,961 | ) | (714 | ) | (11,234 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, June 2015 |
$ | (599,297 | ) | $ | (360,125 | ) | $ | 45,796 | $ | | $ | (913,626 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Three Months Ended June 2014 | ||||||||||||||||||||
In thousands | Foreign Currency Translation |
Defined Benefit Pension Plans |
Derivative Financial Instruments |
Marketable Securities |
Total | |||||||||||||||
Balance, March 2014 |
$ | 97,060 | $ | (270,830 | ) | $ | (36,223 | ) | $ | 504 | $ | (209,489 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive income (loss) before reclassification |
(26,535 | ) | | (6,957 | ) | (370 | ) | (33,862 | ) | |||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) |
| 6,643 | 4,496 | | 11,139 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net other comprehensive income (loss) |
(26,535 | ) | 6,643 | (2,461 | ) | (370 | ) | (22,723 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, June 2014 |
$ | 70,525 | $ | (264,187 | ) | $ | (38,684 | ) | $ | 134 | $ | (232,212 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Six Months Ended June 2015 | ||||||||||||||||||||
In thousands | Foreign Currency Translation |
Defined Benefit Pension Plans |
Derivative Financial Instruments |
Marketable Securities |
Total | |||||||||||||||
Balance, December 2014 |
$ | (356,941 | ) | $ | (377,134 | ) | $ | 31,389 | $ | 414 | $ | (702,272 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive income (loss) before reclassification |
(242,356 | ) | | 28,469 | 300 | (213,587 | ) | |||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) |
| 17,009 | (14,062 | ) | (714 | ) | 2,233 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net other comprehensive income (loss) |
(242,356 | ) | 17,009 | 14,407 | (414 | ) | (211,354 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, June 2015 |
$ | (599,297 | ) | $ | (360,125 | ) | $ | 45,796 | $ | | $ | (913,626 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Six Months Ended June 2014 | ||||||||||||||||||||
In thousands | Foreign Currency Translation |
Defined Benefit Pension Plans |
Derivative Financial Instruments |
Marketable Securities |
Total | |||||||||||||||
Balance, December 2013 |
$ | 106,647 | $ | (277,451 | ) | $ | (41,754 | ) | $ | 838 | $ | (211,720 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive income (loss) before reclassifications |
(36,122 | ) | | (4,714 | ) | (704 | ) | (41,540 | ) | |||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) |
| 13,264 | 7,784 | | 21,048 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net other comprehensive income (loss) |
(36,122 | ) | 13,264 | 3,070 | (704 | ) | (20,492 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, June 2014 |
$ | 70,525 | $ | (264,187 | ) | $ | (38,684 | ) | $ | 134 | $ | (232,212 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
11
Reclassifications out of accumulated other comprehensive income (loss) are as follows:
In thousands | Affected Line Item in the | |||||||||||||||||
Details About Accumulated Other | Consolidated Statements | Three Months Ended June | Six Months Ended June | |||||||||||||||
Comprehensive Income (Loss) Components |
of Income |
2015 | 2014 | 2015 | 2014 | |||||||||||||
Amortization of defined benefit pension plans: |
||||||||||||||||||
Net deferred actuarial losses |
(a) | $ | (15,495) | $ | (9,389) | $ | (30,992) | $ | (18,773) | |||||||||
Deferred prior service costs |
(a) | (759) | (1,362) | (1,521) | (2,724) | |||||||||||||
Pension settlement charge |
Selling, general and administrative expenses | (1,592) | | (1,592) | | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total before tax |
(17,846) | (10,751) | (34,105) | (21,497) | ||||||||||||||
Tax benefit |
10,130 | 4,108 | 17,096 | 8,233 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net of tax |
(7,716) | (6,643) | (17,009) | (13,264) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Gains (losses) on derivative financial instruments: |
||||||||||||||||||
Foreign exchange contracts |
Net sales | (11,790) | (1,542) | (28,845) | 118 | |||||||||||||
Foreign exchange contracts |
Cost of goods sold | 22,123 | (4,339) | 41,491 | (9,703) | |||||||||||||
Foreign exchange contracts |
Other income (expense), net | 6,139 | (507) | 12,974 | (1,215) | |||||||||||||
Interest rate contracts |
Interest expense | (1,069) | (1,019) | (2,122) | (2,023) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total before tax |
15,403 | (7,407) | 23,498 | (12,823) | ||||||||||||||
Tax benefit (expense) |
(6,255) | 2,911 | (9,436) | 5,039 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net of tax |
9,148 | (4,496) | 14,062 | (7,784) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Gains (losses) on sale of marketable securities |
Other income (expense), net | 1,177 | | 1,177 | | |||||||||||||
Tax expense |
(463) | | (463) | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net of tax |
714 | | 714 | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total reclassifications for the period |
Net of tax | $ | 2,146 | $ | (11,139) | $ | (2,233) | $ | (21,048) | |||||||||
|
|
|
|
|
|
|
|
(a) | These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost (see Note G for additional details). |
Note I Stock-based Compensation
During the second quarter of 2015, VF did not grant any stock-based compensation awards.
During the first quarter of 2015, VF granted options to employees and nonemployee members of VFs Board of Directors to purchase 2,399,883 shares of Common Stock at an exercise price of $75.35 per share. The exercise price of each option granted was equal to the fair market value of VF Common Stock on the date of grant. Employee stock options vest in equal annual installments over three years. Options granted to nonemployee members of VFs 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 optionpricing valuation model, which incorporates a range of assumptions for inputs as follows:
2015 | ||
Expected volatility |
20% to 29% | |
Weighted average expected volatility |
22% | |
Expected term (in years) |
5.9 to 7.5 | |
Dividend yield |
2.0% | |
Risk-free interest rate |
0.1% to 2.1% | |
Fair value at date of grant |
$13.71 |
Also during the first quarter of 2015, VF granted 442,338 performance-based restricted stock units (RSU) 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 payout 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. Shares are issued to participants in the year following the conclusion of each three-year performance period. The fair market value of VF Common Stock at the date the units were granted was $75.35 per share.
12
The actual number of performance-based RSUs earned may also be adjusted upward or downward by 25% of the target award, based on how VFs total shareholder return (TSR) over the three-year period compares to the TSR for companies included in the Standard & Poors 500 Index. The grant date fair value of the TSR-based adjustment related to the 2015 RSU grants was determined using a Monte Carlo simulation technique that incorporates option-pricing model inputs, and was $3.78 per share.
VF granted 11,556 nonperformance-based RSUs to nonemployee members of the Board of Directors during the first quarter of 2015. 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 $75.35 per share.
VF granted 37,300 nonperformance-based RSUs to employees during the first quarter of 2015. These units vest four years from the date of grant and each unit entitles the holder to one share of VF Common Stock. The fair market value of VF Common Stock at the date the units were granted was $68.47 per share.
VF granted 104,500 restricted shares of VF Common Stock to employees during the first quarter of 2015. These shares generally vest four years from the date of grant. The weighted average fair market value of VF Common Stock at the date the units were granted was $70.98 per share.
Note J Income Taxes
The effective income tax rate for the first half of 2015 was 21.0% compared with 21.7% in the first half of 2014. The first six months of 2015 included a net discrete tax benefit of $29.5 million, which included $33.0 million of tax benefits related to the settlement of tax audits and $5.0 million of discrete tax expense related to the effects of tax rate changes. The $29.5 million tax benefit reduced the effective income tax rate by 5.1%. The first six months of 2014 included a net discrete tax benefit of $15.5 million, which included $4.1 million of prior year refund claims and $8.5 million of net tax benefits related to the realization of previously unrecognized tax benefits and interest, reducing the effective income tax rate by 2.7%. Without discrete items, the effective income tax rate for the first half of 2015 increased by 1.7% compared with the 2014 period primarily due to a lower percentage of projected foreign earnings for 2015, reflecting the impact of changes in foreign currency exchange rates.
VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and foreign jurisdictions. In the U.S., the Internal Revenue Service (IRS) examinations for tax years 2007 through 2011 were effectively settled during the first half of 2015. Additionally, tax years prior to 2007 were effectively settled with the IRS in prior years. During the second quarter of 2014, the IRS completed its examination of Timberlands 2010 tax return. The examination of Timberlands 2011 tax return is still ongoing. The IRS has proposed adjustments to Timberlands 2011 tax return that would significantly impact the timing of cash tax payments and assessment of interest charges. The Company has formally disagreed with the findings. In addition, VF is currently subject to examination by various state and international tax authorities. Management regularly assesses the potential outcomes of both ongoing and future examinations for the current and prior years, and has concluded that VFs provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on VFs consolidated financial statements. Management believes that some of these audits and negotiations will conclude during the next 12 months.
During the first half of 2015, the amount of net unrecognized tax benefits and associated interest decreased by $25.6 million to $81.9 million. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits and interest may decrease during the next 12 months by approximately $29.9 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $19.8 million would reduce income tax expense.
13
Note K Business Segment Information
VFs 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 VFs reportable segments. Financial information for VFs reportable segments is as follows:
Three Months Ended June | Six Months Ended June | |||||||||||||||
In thousands | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Coalition revenues: |
||||||||||||||||
Outdoor & Action Sports |
$ | 1,396,344 | $ | 1,279,144 | $ | 3,003,233 | $ | 2,853,791 | ||||||||
Jeanswear |
608,201 | 605,838 | 1,307,856 | 1,296,168 | ||||||||||||
Imagewear |
248,788 | 249,963 | 531,684 | 513,202 | ||||||||||||
Sportswear |
142,191 | 140,102 | 277,848 | 271,607 | ||||||||||||
Contemporary Brands |
86,874 | 96,186 | 174,411 | 194,355 | ||||||||||||
Other |
31,462 | 30,843 | 56,129 | 53,731 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total coalition revenues |
$ | 2,513,860 | $ | 2,402,076 | $ | 5,351,161 | $ | 5,182,854 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Coalition profit: |
||||||||||||||||
Outdoor & Action Sports |
$ | 134,925 | $ | 130,684 | $ | 395,745 | $ | 405,174 | ||||||||
Jeanswear |
104,568 | 100,137 | 236,500 | 229,403 | ||||||||||||
Imagewear |
35,450 | 35,317 | 76,797 | 73,089 | ||||||||||||
Sportswear |
14,433 | 10,267 | 27,274 | 22,822 | ||||||||||||
Contemporary Brands |
1,140 | 8,840 | 4,680 | 16,742 | ||||||||||||
Other |
597 | (74 | ) | 15,124 | (3,190 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total coalition profit |
291,113 | 285,171 | 756,120 | 744,040 | ||||||||||||
Corporate and other expenses |
(67,416 | ) | (65,871 | ) | (133,760 | ) | (123,642 | ) | ||||||||
Interest expense, net |
(21,128 | ) | (19,819 | ) | (40,879 | ) | (39,125 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
$ | 202,569 | $ | 199,481 | $ | 581,481 | $ | 581,273 | ||||||||
|
|
|
|
|
|
|
|
Note L Earnings Per Share
Three Months Ended June | Six Months Ended June | |||||||||||||||
In thousands, except per share amounts | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Earnings per share basic: |
||||||||||||||||
Net income |
$ | 170,811 | $ | 157,682 | $ | 459,520 | $ | 454,875 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstanding |
424,349 | 429,940 | 425,305 | 434,115 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings per common share |
$ | 0.40 | $ | 0.37 | $ | 1.08 | $ | 1.05 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings per share diluted: |
||||||||||||||||
Net income |
$ | 170,811 | $ | 157,682 | $ | 459,520 | $ | 454,875 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstanding |
424,349 | 429,940 | 425,305 | 434,115 | ||||||||||||
Incremental shares from stock options and other dilutive securities |
6,354 | 7,191 | 7,102 | 7,584 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted weighted average common shares outstanding |
430,703 | 437,131 | 432,407 | 441,699 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings per common share |
$ | 0.40 | $ | 0.36 | $ | 1.06 | $ | 1.03 | ||||||||
|
|
|
|
|
|
|
|
Outstanding options to purchase 2.4 million shares were excluded from the calculations of diluted earnings per share for both the three and six-month periods ended June 2015, and options to purchase 2.7 million shares were excluded from the calculations of diluted earnings per share for both the three and six-month periods ended June 2014, because the effect of their inclusion would have been
14
antidilutive to those periods. In addition, 1.0 million shares of performance-based restricted stock units were excluded from the calculations of diluted earnings per share for both the three and six-month periods ended June 2015, and 1.3 million shares of performance-based restricted stock units were excluded from the calculations of diluted earnings per share for the three and six-month periods ended June 2014, because these units are not considered to be contingent outstanding shares in those periods.
Note M 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 instruments 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 VFs own data and judgments about assumptions that market participants would use in pricing the asset or liability. |
The following table summarizes financial assets and financial liabilities that are measured and recorded in the consolidated financial statements at fair value on a recurring basis:
Total | Fair Value Measurement Using (a) | |||||||||||||||
In thousands | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
June 2015 |
||||||||||||||||
Financial assets: |
||||||||||||||||
Cash equivalents: |
||||||||||||||||
Money market funds |
$ | 364,033 | $ | 364,033 | $ | | $ | | ||||||||
Time deposits |
48,531 | 48,531 | | | ||||||||||||
Derivative financial instruments |
136,665 | | 136,665 | | ||||||||||||
Investment securities |
219,483 | 205,049 | 14,434 | | ||||||||||||
Financial liabilities: |
||||||||||||||||
Derivative financial instruments |
56,829 | | 56,829 | | ||||||||||||
Deferred compensation |
273,770 | | 273,770 | | ||||||||||||
December 2014 |
||||||||||||||||
Financial assets: |
||||||||||||||||
Cash equivalents: |
||||||||||||||||
Money market funds |
$ | 388,635 | $ | 388,635 | $ | | $ | | ||||||||
Time deposits |
197,303 | 197,303 | | | ||||||||||||
Derivative financial instruments |
105,264 | | 105,264 | | ||||||||||||
Investment securities |
228,406 | 208,874 | 19,532 | | ||||||||||||
Other marketable securities |
5,111 | 5,111 | | | ||||||||||||
Financial liabilities: |
||||||||||||||||
Derivative financial instruments |
31,769 | | 31,769 | | ||||||||||||
Deferred compensation |
295,226 | | 295,226 | |
(a) | There were no transfers among the levels within the fair value hierarchy during the first half of 2015 or the year ended December 2014. |
VFs cash equivalents include money market funds and short-term time deposits that approximate fair value based on Level 1 measurements. The fair value of derivative financial instruments, which consist of forward foreign currency exchange contracts, is determined based on observable market inputs (Level 2), 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 VFs deferred compensation plans as
15
an economic hedge of the related deferred compensation liabilities. These investments are classified as trading securities and primarily include mutual funds (Level 1) that are valued based on quoted prices in active markets and a separately managed fixed income fund (Level 2) that is valued based on the net asset values of the underlying assets. Liabilities related to VFs deferred compensation plans are recorded at amounts due to participants, based on the fair value of the participants selection of hypothetical investments. Prior to the second quarter of 2015, other marketable securities consisted of common stock investments classified as available-for-sale, the fair value of which was based on quoted prices in active markets. During the second quarter, VF sold all of its available-for-sale securities for $5.9 million in cash proceeds and recognized a gain of $1.5 million, which is included in other income (expense), net in the Consolidated Statements of Income for the second quarter and six months ended June 2015.
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 June 2015 and December 2014, their carrying values approximated their fair values. Additionally, at June 2015 and December 2014, the carrying value of VFs long-term debt, including the current portion, was $1,425.5 million and $1,427.6 million, respectively, compared with a fair value of $1,646.3 million and $1,684.1 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 N Derivative Financial Instruments and Hedging Activities
Summary of Derivative Financial Instruments
All of VFs outstanding derivative financial instruments are forward foreign currency exchange contracts. Although derivatives meet the criteria for hedge accounting at the inception of the hedging relationship, a limited number of derivative contracts intended to hedge assets and liabilities are not designated as hedges for accounting purposes. The notional amounts of outstanding derivative contracts were $2.5 billion at June 2015 and $1.9 billion at both December 2014 and June 2014, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Mexican peso, Swiss franc, Japanese yen and Polish zloty. Derivative contracts have maturities up to 24 months.
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 | June 2015 |
December 2014 |
June 2014 |
June 2015 |
December 2014 |
June 2014 |
||||||||||||||||||
Foreign currency exchange contracts designated as hedging instruments |
$ | 136,265 | $ | 104,860 | $ | 11,635 | $ | (56,786 | ) | $ | (31,711 | ) | $ | (40,191 | ) | |||||||||
Foreign currency exchange contracts not designated as hedging instruments |
400 | 404 | | (43 | ) | (58 | ) | (607 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total derivatives |
$ | 136,665 | $ | 105,264 | $ | 11,635 | $ | (56,829 | ) | $ | (31,769 | ) | $ | (40,798 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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 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 would be adjusted from the current gross presentation to the net amounts as detailed in the following table:
June 2015 | December 2014 | June 2014 | ||||||||||||||||||||||
In thousands | Derivative Asset |
Derivative Liability |
Derivative Asset |
Derivative Liability |
Derivative Asset |
Derivative Liability |
||||||||||||||||||
Gross amounts presented in the Consolidated Balance Sheets |
$ | 136,665 | $ | (56,829 | ) | $ | 105,264 | $ | (31,769 | ) | $ | 11,635 | $ | (40,798 | ) | |||||||||
Gross amounts not offset in the Consolidated Balance Sheets |
(52,154 | ) | 52,154 | (30,724 | ) | 30,724 | (10,380 | ) | 10,380 | |||||||||||||||
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Net amounts |
$ | 84,511 | $ | (4,675 | ) | $ | 74,540 | $ | (1,045 | ) | $ | 1,255 | $ | (30,418 | ) | |||||||||
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16
Derivatives are classified in the Consolidated Balance Sheets as current or noncurrent based on their maturity dates, as follows:
In thousands | June 2015 |
December 2014 |
June 2014 |
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Other current assets |
$ | 122,749 | $ | 84,995 | $ | 7,866 | ||||||
Accrued liabilities |
(49,522 | ) | (26,968 | ) | (34,289 | ) | ||||||
Other assets |
13,916 | 20,269 | 3,769 | |||||||||
Other liabilities |
(7,307 | ) | (4,801 | ) | (6,509 | ) |
Cash Flow Hedges
VF uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, purchases, production costs, operating costs and intercompany royalties. The effects of cash flow hedging included in VFs 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 June |
Gain (Loss) on Derivatives Recognized in OCI Six Months Ended June |
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Cash Flow Hedging Relationships |
2015 | 2014 | 2015 | 2014 | ||||||||||||
Foreign currency exchange |
$ | (21,576 | ) | $ | (11,461 | ) | $ | 46,434 | $ | (7,765 | ) |
In thousands | Gain (Loss) Reclassified from Accumulated OCI into Income Three Months Ended June |
Gain (Loss) Reclassified from Accumulated OCI into Income Six Months Ended June |
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Location of Gain (Loss) |
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net sales |
$ | (11,790 | ) | $ | (1,542 | ) | $ | (28,845 | ) | $ | 118 | |||||
Cost of goods sold |
22,123 | (4,339 | ) | 41,491 | (9,703 | ) | ||||||||||
Other income (expense), net |
6,139 | (507 | ) | 12,974 | (1,215 | ) | ||||||||||
Interest expense |
(1,069 | ) | (1,019 | ) | (2,122 | ) | (2,023 | ) | ||||||||
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Total |
$ | 15,403 | $ | (7,407 | ) | $ | 23,498 | $ | (12,823 | ) | ||||||
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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 gains or losses on the related assets and liabilities. Following is a summary of these derivatives included in VFs Consolidated Statements of Income:
In thousands | Location of Gain (Loss) |
Gain (Loss) on Derivatives Recognized in Income Three Months Ended June |
Gain (Loss) on Derivatives Recognized in Income Six Months Ended June |
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Derivatives Not Designated as Hedges |
2015 | 2014 | 2015 | 2014 | ||||||||||||||
Foreign currency exchange |
Other income (expense), net | $ | (1,430 | ) | $ | (4,014 | ) | $ | (2,461 | ) | $ | (4,870 | ) |
Other Derivative Information
There were no significant amounts recognized in earnings for the ineffective portion of any hedging relationships during the three and six-month periods ended June 2015 and June 2014.
At June 2015, accumulated OCI included $84.8 million of pretax net deferred gains 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.
17
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 $29.4 million at June 2015, which will be reclassified into interest expense in the Consolidated Statements of Income over the remaining terms of the associated debt instruments. VF reclassified $1.0 million and $2.1 million of net deferred losses from accumulated OCI into interest expense during the three and six-month periods ended June 2015, respectively, and $1.0 million and $2.0 million for the three and six-month periods ended June 2014, respectively. VF expects to reclassify $4.4 million to interest expense during the next 12 months.
Note O Recently Issued and Adopted Accounting Standards
In April 2014, the FASB changed the definition and disclosure requirements for discontinued operations. This guidance became effective in the first quarter of 2015, but did not have an impact on VFs consolidated financial statements.
In May 2014, the FASB issued a new accounting standard on revenue recognition which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The new model provides a 5-step analysis in determining the measurement of revenue and the timing of when it is recognized. New disclosures about revenues and cash flows arising from contracts with customers are also required. In July 2015, the FASB approved a one-year delay to the adoption date of the standard that makes it effective in the first quarter of 2018 with early adoption permitted. The Company is currently evaluating the impact that adopting this guidance will have on VFs consolidated financial statements.
In June 2014, the FASB issued an update to their accounting guidance related to stock-based compensation. The guidance requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. This guidance will be effective in the first quarter of 2016, but is not expected to have an impact on VFs consolidated financial statements.
In February 2015, the FASB issued an update to their existing consolidation model, which changes the analysis a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance will be effective in the first quarter of 2016. The Company is currently evaluating the impact that adopting this guidance will have on VFs consolidated financial statements.
In April 2015, the FASB issued an update to their accounting guidance related to debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance will be effective in the first quarter of 2016, and the Company will reclassify the debt issuance costs in VFs consolidated financial statements in accordance with this guidance.
In April 2015, the FASB issued an update to their accounting guidance related to retirement benefits that provides a practical expedient permitting companies to measure defined benefit plan assets and obligations using the month-end that is closest to an entitys fiscal year-end. This guidance will be effective in the first quarter of 2016 with early adoption permitted. The Company is currently evaluating whether it will adopt this guidance.
In April 2015, the FASB issued new guidance related to a customers accounting for fees paid in a cloud computing arrangement. This guidance provides clarification on whether a cloud computing arrangement includes a software license. If a software license is included, the customer should account for the license consistent with its accounting for other software licenses. If a software license is not included, the arrangement should be accounted for as a service contract. This guidance will be effective in the first quarter of 2016, but is not expected to have an impact on VFs consolidated financial statements.
In May 2015, the FASB issued an update to their accounting guidance related to fair value measurements. The guidance removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient, and requires separate disclosure instead. This guidance will be effective in the first quarter of 2016 with early adoption permitted. The Company is currently evaluating the impact that adopting this guidance will have on VFs consolidated financial statements.
Note P Subsequent Events
On July 21, 2015, VFs Board of Directors declared a quarterly cash dividend of $0.32 per share, payable on September 18, 2015 to stockholders of record on September 8, 2015.
18
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
All per share amounts are presented on a diluted basis. All percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers. All references to foreign currency amounts below reflect the changes in foreign exchange rates from the 2014 comparable periods and their impact on both translating foreign currencies into U.S. dollars and on transactions denominated in a foreign currency.
Highlights of the Second Quarter of 2015
| Revenues grew to $2.5 billion, a 5% increase from the second quarter of 2014, despite a negative 5% impact from foreign currency. |
| Outdoor & Action Sports revenues rose 9% over the 2014 quarter. Foreign currency negatively impacted this growth rate by 7%. |
| Direct-to-consumer revenues were up 7% over the 2014 quarter, including a negative 6% impact from foreign currency, and accounted for 26% of total revenues in the quarter. |
| International revenues decreased 1% compared with the 2014 quarter, including a negative 14% impact from foreign currency, and represented 34% of total revenues in the quarter. |
| Earnings per share was up 11% to $0.40 from $0.36 in the 2014 quarter, reflecting improved operating performance and a lower effective tax rate, partially offset by a negative 11% impact from foreign currency. |
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 2014:
In millions | Second Quarter | Six Months | ||||||
Total revenues 2014 |
$ | 2,402.1 | $ | 5,182.9 | ||||
Operations |
230.9 | 455.1 | ||||||
Impact of foreign currency |
(119.1 | ) | (286.8 | ) | ||||
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Total revenues 2015 |
$ | 2,513.9 | $ | 5,351.2 | ||||
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VF reported revenue growth of 5% and 3% in the second quarter and first six months of 2015, respectively, compared with the 2014 periods. The revenue increases in the second quarter and first half of 2015 were driven by operational growth of 10% and 9%, respectively, partially offset by unfavorable foreign currency exchange rates in both periods. Excluding the negative impact from foreign currency, sales grew in every region around the world in both the second quarter and first six months of 2015. Additional details on revenues by coalition are provided in the section titled Information by Business Segment.
VFs most significant foreign currency exposure relates to business conducted in euro-based countries. However, VF also conducts business in other developed and emerging markets around the world with exposure to foreign currencies other than the euro. The strengthening of the U.S. dollar relative to foreign currencies negatively impacted comparisons with 2014 revenues by 5% ($119.1 million) and 6% ($286.8 million) in the second quarter and first six months of 2015, respectively.
The following table presents the percentage relationships to total revenues for components of the Consolidated Statements of Income:
Second Quarter | Six Months | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Gross margin (total revenues less cost of goods sold) |
48.3 | % | 48.4 | % | 48.7 | % | 48.9 | % | ||||||||
Selling, general and administrative expenses |
39.4 | % | 39.3 | % | 37.1 | % | 36.9 | % | ||||||||
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Operating income |
8.9 | % | 9.2 | % | 11.6 | % | 12.0 | % | ||||||||
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Gross margin declined 10 and 20 basis points during the second quarter and first half of 2015, respectively, compared with the 2014 periods. Foreign currency negatively impacted gross margin by 40 and 50 basis points in the second quarter and first half of 2015, respectively, compared with the 2014 periods. Excluding this impact, gross margin improved 30 basis points in both the second quarter and first six months of 2015 due to the continued shift in our revenue mix to higher margin businesses, including Outdoor & Action Sports and direct-to-consumer, partially offset by higher costs.
19
Selling, general and administrative expenses as a percentage of total revenues increased 10 and 20 basis points during the second quarter and first six months of 2015, respectively, compared with the 2014 periods. The increases for both periods were due to increased investments in direct-to-consumer businesses and slightly higher operating costs primarily due to the stronger Swiss franc, partially offset by the leverage of operating expenses on higher revenues. In addition, selling, general and administrative expenses as a percentage of total revenues in the first half of 2015 benefitted from a $16.6 million gain recognized on the sale of a VF Outlet® location in the first quarter of 2015.
Net interest expense increased by $1.3 million and $1.8 million in the second quarter and first six months of 2015, respectively, compared with the 2014 periods. The increases for both periods were primarily due to higher average levels of short-term borrowings, higher interest rates on short-term borrowings and lower amounts of interest capitalized for significant projects, partially offset by increased interest income on cash equivalents. Total outstanding debt averaged $2.3 billion for the first half of 2015 and $1.7 billion for the same period in 2014. The weighted average interest rates on total outstanding debt were 3.7% and 4.9% for the first six months of 2015 and 2014, respectively.
The effective income tax rate for the first half of 2015 was 21.0% compared with 21.7% in the first half of 2014. The first six months of 2015 included a net discrete tax benefit of $29.5 million, which included $33.0 million of tax benefits related to the settlement of tax audits and $5.0 million of discrete tax expense related to the effects of tax rate changes. The $29.5 million tax benefit reduced the effective income tax rate by 5.1%. The first six months of 2014 included a net discrete tax benefit of $15.5 million, which included $4.1 million of prior year refund claims and $8.5 million of net tax benefits related to the realization of previously unrecognized tax benefits and interest, reducing the effective income tax rate by 2.7%. Without discrete items, the effective tax rate for the first half of 2015 increased by 1.7% compared with the 2014 period primarily due to a lower percentage of projected foreign earnings for 2015, reflecting the impact of changes in foreign currency exchange rates.
As a result of the above, net income for the second quarter of 2015 was $170.8 million ($0.40 per share) compared with $157.7 million ($0.36 per share) in 2014, and net income for the first half of 2015 was $459.5 million ($1.06 per share) compared with $454.9 million ($1.03 per share) in the first half of 2014. Refer to additional discussion in the Information by Business Segment section below.
Information by Business Segment
VFs 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 VFs reportable business segments.
See Note K 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.
20
The following tables present a summary of the changes in coalition revenues and profit for the second quarter and first six months of 2015 from the comparable periods in 2014:
Coalition revenues
Second Quarter | ||||||||||||||||||||||||||||
In millions | Outdoor & Action Sports |
Jeanswear | Imagewear | Sportswear | Contemporary Brands |
Other | Total | |||||||||||||||||||||
Revenues 2014 |
$ | 1,279.1 | $ | 605.8 | $ | 250.0 | $ | 140.1 | $ | 96.2 | $ | 30.9 | $ | 2,402.1 | ||||||||||||||
Operations |
207.6 | 24.8 | 0.8 | 2.1 | (5.0 | ) | 0.6 | 230.9 | ||||||||||||||||||||
Impact of foreign currency |
(90.4 | ) | (22.4 | ) | (2.0 | ) | | (4.3 | ) | | (119.1 | ) | ||||||||||||||||
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Revenues 2015 |
$ | 1,396.3 | $ | 608.2 | $ | 248.8 | $ | 142.2 | $ | 86.9 | $ | 31.5 | $ | 2,513.9 | ||||||||||||||
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Six Months | ||||||||||||||||||||||||||||
In millions | Outdoor & Action Sports |
Jeanswear | Imagewear | Sportswear | Contemporary Brands |
Other | Total | |||||||||||||||||||||
Revenues 2014 |
$ | 2,853.8 | $ | 1,296.2 | $ | 513.2 | $ | 271.6 | $ | 194.4 | $ | 53.7 | $ | 5,182.9 | ||||||||||||||
Operations |
371.2 | 64.7 | 22.5 | 6.2 | (12.0 | ) | 2.5 | 455.1 | ||||||||||||||||||||
Impact of foreign currency |
(221.8 | ) | (53.0 | ) | (4.0 | ) | | (8.0 | ) | | (286.8 | ) | ||||||||||||||||
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Revenues 2015 |
$ | 3,003.2 | $ | 1,307.9 | $ | 531.7 | $ | 277.8 | $ | 174.4 | $ | 56.2 | $ | 5,351.2 | ||||||||||||||
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Coalition profit
Second Quarter | ||||||||||||||||||||||||||||
In millions | Outdoor & Action Sports |
Jeanswear | Imagewear | Sportswear | Contemporary Brands |
Other | Total | |||||||||||||||||||||
Profit 2014 |
$ | 130.7 | $ | 100.1 | $ | 35.3 | $ | 10.3 | $ | 8.8 | $ | | $ | 285.2 | ||||||||||||||
Operations |
21.8 | 5.2 | 0.8 | 4.1 | (7.4 | ) | 0.6 | 25.1 | ||||||||||||||||||||
Impact of foreign currency |
(17.6 | ) | (0.7 | ) | (0.6 | ) | | (0.3 | ) | | (19.2 | ) | ||||||||||||||||
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Profit 2015 |
$ | 134.9 | $ | 104.6 | $ | 35.5 | $ | 14.4 | $ | 1.1 | $ | 0.6 | $ | 291.1 | ||||||||||||||
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Six Months | ||||||||||||||||||||||||||||
In millions | Outdoor & Action Sports |
Jeanswear | Imagewear | Sportswear | Contemporary Brands |
Other | Total | |||||||||||||||||||||
Profit 2014 |
$ | 405.2 | $ | 229.4 | $ | 73.1 | $ | 22.8 | $ | 16.7 | $ | (3.2 | ) | $ | 744.0 | |||||||||||||
Operations |
43.8 | 14.2 | 6.0 | 4.5 | (11.1 | ) | 18.3 | 75.7 | ||||||||||||||||||||
Impact of foreign currency |
(53.3 | ) | (7.1 | ) | (2.3 | ) | | (0.9 | ) | | (63.6 | ) | ||||||||||||||||
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Profit 2015 |
$ | 395.7 | $ | 236.5 | $ | 76.8 | $ | 27.3 | $ | 4.7 | $ | 15.1 | $ | 756.1 | ||||||||||||||
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The following section discusses the changes in revenues and profitability by coalition:
Outdoor & Action Sports
Second Quarter | Six Months | |||||||||||||||||||||||
Percent Change |
Percent Change |
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Dollars in millions | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||
Revenues |
$ | 1,396.3 | $ | 1,279.1 | 9.2 | % | $ | 3,003.2 | $ | 2,853.8 | 5.2 | % | ||||||||||||
Profit |
134.9 | 130.7 | 3.2 | % | 395.7 | 405.2 | (2.3 | %) | ||||||||||||||||
Operating margin |
9.7 | % | 10.2 | % | 13.2 | % | 14.2 | % |
Global revenues for Outdoor & Action Sports increased 9% in the second quarter of 2015 compared with 2014, reflecting 16% operational growth partially offset by a negative 7% ($90.4 million) impact from foreign currency. Revenues in the Americas and Asia Pacific regions increased 15% and 16%, respectively, in the second quarter of 2015. European revenues declined 5% due to foreign currency, which unfavorably impacted revenue growth in the region by 19%.
21
Global revenues for Outdoor & Action Sports increased 5% in the first six months of 2015 compared with 2014, reflecting 13% operational growth partially offset by a negative 8% ($221.8 million) impact from foreign currency. Revenues in the Americas and Asia Pacific regions increased 12% and 15%, respectively, in the first six months of 2015. European revenues declined 10% due to foreign currency, which unfavorably impacted revenue growth in the region by 19%.
Global revenues for The North Face® brand increased 6% and 3% in the second quarter and first six months of 2015, respectively, as operational growth in the direct-to-consumer and wholesale channels was partially offset by foreign currency. Vans® brand global revenues were up 17% and 12% in the second quarter and first six months of 2015, respectively, reflecting balanced wholesale and direct-to-consumer growth partially offset by foreign currency. Global revenues for the Timberland® brand were up 2% and 1% in the second quarter and first six months of 2015, respectively, as strong wholesale sales were partially offset by foreign currency.
Global direct-to-consumer revenues for Outdoor & Action Sports grew 11% and 9% in the second quarter and first six months of 2015, respectively, compared with the 2014 periods. New store openings, comparable store growth and an expanding e-commerce business all contributed to the direct-to-consumer revenue growth in both periods. Foreign currency negatively impacted direct-to-consumer revenues by 7% and 6% in the second quarter and first half of 2015, respectively. Wholesale revenues were up 8% and 4% in the second quarter and first six months of 2015, respectively, compared with the 2014 periods. Foreign currency negatively impacted wholesale revenues by 7% and 8% in the second quarter and first six months of 2015, respectively.
Operating margin declined 50 and 100 basis points in the second quarter and first six months of 2015, respectively, compared with the 2014 periods. The decrease in the second quarter was due to the negative impact from foreign currency. The decrease in the first half of 2015 was primarily driven by the negative impact from foreign currency and the impact of the 53-week calendar of 2014, which shifted a more profitable week into fiscal 2014. In addition, operating margin for both periods reflected increased investments in direct-to-consumer businesses and the leverage of operating expenses on higher revenues.
Jeanswear
Second Quarter | Six Months | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
Dollars in millions | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||
Revenues |
$ | 608.2 | $ | 605.8 | 0.4 | % | $ | 1,307.9 | $ | 1,296.2 | 0.9 | % | ||||||||||||
Profit |
104.6 | 100.1 | 4.4 | % | 236.5 | 229.4 | 3.1 | % | ||||||||||||||||
Operating margin |
17.2 | % | 16.5 | % | 18.1 | % | 17.7 | % |
Global Jeanswear revenues were flat in the second quarter of 2015 compared with 2014, reflecting 4% operational growth offset by a negative 4% ($22.4 million) impact from foreign currency. Revenues in the Americas and Asia Pacific regions increased 2% and 10%, respectively, in the second quarter of 2015, which included a negative 2% impact from foreign currency in both regions. European revenues decreased 19% due to foreign currency.
Global Jeanswear revenues were up 1% in the first six months of 2015 compared with 2014, reflecting 5% operational growth offset by a negative 4% ($53.0 million) impact from foreign currency. Revenues in the Americas and Asia Pacific regions increased 3% and 8%, respectively, in the first six months of 2015, which included a negative 2% impact from foreign currency in both regions. European revenues decreased 17% due to foreign currency, which negatively impacted revenue growth in the region by 19%.
Global revenues for the Wrangler® brand increased 4% in both the second quarter and first six months of 2015 compared with the 2014 periods, driven by continued strength in the mass business, partially offset by the negative impact from foreign currency. Global revenues for the Lee® brand decreased 4% and 2% in the second quarter and first six months of 2015, respectively, compared with the 2014 periods, as operational growth due to strong wholesale sales in China and India, continued strength in Europe, and recent product launches and strong seasonal programs in the U.S. was more than offset by unfavorable foreign currency.
Operating margin increased 70 and 40 basis points in the second quarter and first six months of 2015, respectively, compared with the 2014 periods. The increases for both periods were primarily due to mix, increased volume and the resulting leverage of operating expenses, partially offset by the negative impact from foreign currency.
22
Imagewear
Second Quarter | Six Months | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
Dollars in millions | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||
Revenues |
$ | 248.8 | $ | 250.0 | (0.5 | %) | $ | 531.7 | $ | 513.2 | 3.6 | % | ||||||||||||
Profit |
35.5 | 35.3 | 0.4 | % | 76.8 | 73.1 | 5.1 | % | ||||||||||||||||
Operating margin |
14.2 | % | 14.1 | % | 14.4 | % | 14.2 | % |
Imagewear revenues were flat in the second quarter and increased 4% in the first six months of 2015 compared with the 2014 periods. The Image business (occupational apparel and uniforms) revenues decreased 4% in the second quarter and increased 5% in the first six months of 2015. The second quarter decrease in the Image business was driven by slower production demand in the oil and gas industry which negatively impacted the Bulwark® brand. Partially offsetting the second quarter sales decrease and driving the increase in the first half of 2015 was continued growth in the government sector and the Red Kap® brand.
Revenues for the Licensed Sports Group (LSG) business (athletic apparel) were up 5% and 2% in the second quarter and first six months of 2015, respectively, compared with the 2014 periods. The second quarter increase in the LSG business was driven by strong National Football League and National Basketball Association sales. The increase in the first half of 2015 was driven by strong Major League Baseball sales during the first quarter.
Operating margin increased 10 and 20 basis points during the second quarter and first six months of 2015, respectively, compared with the 2014 periods. The increases for both periods were due to the LSG business, which reflected improved gross margin due to product mix and leverage of operating expenses on higher revenues, partially offset by the negative impact from foreign currency. These LSG improvements were partially offset by the Image business, which experienced lower gross margin and a negative impact from foreign currency.
Sportswear
Second Quarter | Six Months | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
Dollars in millions | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||
Revenues |
$ | 142.2 | $ | 140.1 | 1.5 | % | $ | 277.8 | $ | 271.6 | 2.3 | % | ||||||||||||
Profit |
14.4 | 10.3 | 40.6 | % | 27.3 | 22.8 | 19.5 | % | ||||||||||||||||
Operating margin |
10.2 | % | 7.3 | % | 9.8 | % | 8.4 | % |
Sportswear revenues increased 1% and 2% in the second quarter and first six months of 2015, respectively, compared with the 2014 periods. Nautica® brand revenues decreased 3% during the second quarter and were flat in the first six months of 2015 compared with the 2014 periods, reflecting a reduction in special program sales and the exit of less profitable stores. Kipling® brand revenues in the U.S. increased 20% and 15% during the second quarter and first six months of 2015, respectively, driven by strong growth in both the wholesale and direct-to-consumer channels.
Operating margin increased 290 and 140 basis points in the second quarter and first six months of 2015, respectively, compared with the 2014 periods. The increases for both periods were due to a shift in business mix to the higher margin Kipling® brand business, lower levels of promotional activity in the wholesale channel and the leverage of operating expenses on higher revenues, partially offset by increased investments in direct-to-consumer businesses and marketing.
Contemporary Brands
Second Quarter | Six Months | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
Dollars in millions | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||
Revenues |
$ | 86.9 | $ | 96.2 | (9.7 | %) | $ | 174.4 | $ | 194.4 | (10.3 | %) | ||||||||||||
Profit |
1.1 | 8.8 | (87.1 | %) | 4.7 | 16.7 | (72.0 | %) | ||||||||||||||||
Operating margin |
1.3 | % | 9.2 | % | 2.7 | % | 8.6 | % |
Global revenues for Contemporary Brands decreased 10% in both the second quarter and first six months of 2015 compared with the 2014 periods, reflecting ongoing challenges in demand for contemporary apparel and premium denim. In addition, foreign currency negatively impacted revenues by 5% ($4.3 million) and 4% ($8.0 million) during the second quarter and first six months of 2015, respectively, compared with the 2014 periods.
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Operating margin decreased 790 and 590 basis points in the second quarter and first six months of 2015, respectively, compared with the 2014 periods. The decreases for both periods were primarily due to discounting and reduced expense leverage on a lower revenue base.
Other
Second Quarter | Six Months | |||||||||||||||||||||||
Dollars in millions | 2015 | 2014 | Percent Change |
2015 | 2014 | Percent Change |
||||||||||||||||||
Revenues |
$ | 31.5 | $ | 30.9 | 2.0 | % | $ | 56.2 | $ | 53.7 | 4.5 | % | ||||||||||||
Profit (loss) |
0.6 | | 15.1 | (3.2 | ) | |||||||||||||||||||
Operating margin |
1.9 | % | | 26.9 | % | (5.9 | %) |
VF Outlet® stores in the U.S. sell VF products at prices that are generally higher than what could be realized through external wholesale channels, as well as other non-VF 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. The increase in profit in the first six months of 2015 is primarily due to a $16.6 million gain recognized on the sale of a VF Outlet® location during the first quarter of 2015.
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 Consolidated Statements of Income section.
Second Quarter | Six Months | |||||||||||||||||||||||
Dollars in millions | 2015 | 2014 | Percent Change |
2015 | 2014 | Percent Change |
||||||||||||||||||
Corporate and other expenses |
$ | 67.4 | $ | 65.9 | 2.3 | % | $ | 133.8 | $ | 123.6 | 8.2 | % | ||||||||||||
Interest expense, net |
21.1 | 19.8 | 6.6 | % | 40.9 | 39.1 | 4.5 | % |
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 headquarter costs and (iii) certain other income and expenses. The increases in corporate and other expenses in both the second quarter and first six months of 2015, compared with the 2014 periods, were primarily due to increased information technology costs due to recent system implementations, additional investments in our global innovation centers, and higher compensation expense.
International Operations
International revenues declined 1% and 3% in the second quarter and first six months of 2015, respectively, due to foreign currency, which negatively impacted international revenue growth by 14% ($119.1 million) in the second quarter and 14% ($286.8 million) in the first six months of 2015. Revenues in Europe declined 8% and 12% in the second quarter and first six months of 2015, respectively, as foreign currency negatively impacted growth by 19% in both periods. In the Asia Pacific region, revenues increased 14% and 13% in the second quarter and first six months of 2015, respectively, driven by strong growth in China and India. Foreign currency negatively impacted growth in the Asia Pacific region by 3% and 4% in the second quarter and first six months of 2015, respectively. Revenues in the Americas (non-U.S.) region decreased 1% in the second quarter and increased 2% during the first six months of 2015. Sales in both periods were tempered by weakening currencies in the region relative to the U.S. dollar, which negatively impacted growth by 12% and 11% in the second quarter and first six months of 2015, respectively. International revenues were 34% and 36% of total revenues in the second quarter of 2015 and 2014, respectively, and 37% and 40% of total revenues in the first six months of 2015 and 2014, respectively.
Direct-to-Consumer Operations
Direct-to-consumer revenues grew 7% and 6% in the second quarter and first six months of 2015, respectively, driven by operational growth in all regions, partially offset by the negative impact from foreign currency (primarily in Europe), which reduced growth by
24
6% and 5% in the second quarter and first six months of 2015, respectively, compared with the 2014 periods. New store openings, comparable sales growth and an expanding e-commerce business all contributed to the direct-to-consumer revenue growth in both periods. VF opened 49 stores in the second quarter and 72 stores in the first six months of 2015, bringing the total number of VF-owned retail stores to 1,438 at June 2015. Direct-to-consumer revenues were 26% of total revenues in both the second quarter of 2015 and 2014. Direct-to-consumer revenues were 25% of total revenues in the first six months of 2015 compared with 24% in the 2014 period.
Analysis of Financial Condition
Consolidated Balance Sheets
The following discussion refers to significant changes in balances at June 2015 compared with December 2014:
| Decrease in accounts receivabledue to the seasonality of the business. |
| Increase in inventoriesdue to the seasonality of the business and anticipated sales growth in the third quarter of 2015. |
| Increase in other current assetsprimarily due to unrealized hedging gains and higher levels of prepaid expenses, including prepaid income taxes. |
| Decrease in intangible assetsdue to foreign currency exchange rate fluctuations and amortization expense. |
| Increase in short-term borrowingsdue to commercial paper borrowings used to support seasonal working capital requirements, share repurchases and a $250.0 million discretionary pension contribution in the first quarter of 2015. |
| Decrease in accounts payabledriven by timing of inventory purchases and payments to vendors. |
| Decrease in accrued liabilitiesprimarily due to timing of accruals and payments related to compensation and income taxes. |
| Decrease in other liabilitiesprimarily due to an improvement in the funded status of the defined benefit pension plans, resulting from a $250.0 million discretionary pension contribution in the first quarter of 2015. |
The following discussion refers to significant changes in balances at June 2015 compared with June 2014:
| Increase in inventoriesdue to anticipated sales growth in the third quarter of 2015. |
| Increase in other current assetsprimarily due to unrealized hedging gains. |
| Decrease in intangible assetsdriven by (i) impairment charges for customer relationship assets and indefinite-lived trademarks during the fourth quarter of 2014, (ii) the impact of foreign currency exchange rate fluctuations and (iii) amortization expense. |
| Decrease in goodwillresulting from an impairment charge during the fourth quarter of 2014 and the impact of foreign currency exchange rate fluctuations. |
| Increase in other assetsresulting from (i) an improvement in the funded status of the domestic qualified pension plan, (ii) deferred software costs primarily related to system implementations and (iii) unrealized hedging gains. |
| Increase in short-term borrowingsdue to commercial paper borrowings used to support working capital requirements and a $250.0 million discretionary pension contribution in the first quarter of 2015. |
| Decrease in other liabilitiesprimarily due to lower deferred and accrued income taxes, and an improvement in the funded status of the defined benefit pension plans. |
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Liquidity and Capital Resources
The financial condition of VF is reflected in the following:
Dollars in millions | June 2015 |
December 2014 |
June 2014 |
|||||||||
Working capital |
$ | 1,750.7 | $ | 2,565.6 | $ | 1,909.6 | ||||||
Current ratio |
1.7 to 1 | 2.6 to 1 | 2.0 to 1 | |||||||||
Debt to total capital ratio |
34.2 | % | 20.5 | % | 26.2 | % |
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 increase in the debt to total capital ratio at June 2015 compared to both December 2014 and June 2014 was primarily due to the increase in short-term borrowings as explained above and a reduction in stockholders equity due to the increase in accumulated other comprehensive loss, reflecting the impact of changes in foreign currency exchange rates. In addition, the June 2015 over June 2014 comparison was impacted by a $396.4 million noncash impairment charge of goodwill and intangible assets recorded in the fourth quarter of 2014.
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 27.9% at June 2015, 7.8% at December 2014 and 21.4% at June 2014.
VFs primary source of liquidity is the strong annual cash flow provided by operating activities. Cash from operations is typically lower in the first half of the year as inventory builds to support peak sales periods in the second half of the year. Cash provided by operating activities in the second half of the year is substantially higher as wholesale inventories are sold and accounts receivable are collected. Additionally, direct-to-consumer sales are highest in the fourth quarter of the year.
In summary, our cash flows were as follows:
Six Months | ||||||||
In thousands | 2015 | 2014 | ||||||
Net cash (used) provided by operating activities |
$ | (286,446 | ) | $ | 219,587 | |||
Net cash used by investing activities |
(158,323 | ) | (163,587 | ) | ||||
Net cash provided (used) by financing activities |
169,859 | (352,015 | ) |
Cash (Used) Provided by Operating Activities
Cash used by operating activities in the first six months of 2015 was $286.4 million compared with cash provided by operating activities of $219.6 million in the 2014 period. The decline in cash flows was primarily due to a $250.0 million discretionary contribution to the domestic qualified pension plan in the first quarter of 2015, an increase in net cash usage from working capital changes, and lower cash collections during the first half of 2015 due to the 53-week calendar of 2014, which shifted a relatively higher cash collection week into fiscal 2014.
Cash Used by Investing Activities
Cash used by investing activities in the first six months of 2015 decreased to $158.3 million from $163.6 million in the 2014 period. VFs investing activities in the first six months of 2015 related primarily to capital expenditures of $125.5 million and software purchases of $43.5 million, partially offset by $16.6 million of proceeds from the sale of a VF Outlet® location during the first quarter of 2015. Capital expenditures increased $29.7 million compared with the 2014 period primarily due to the purchase of a headquarters building in the Outdoor & Action Sports coalition, partially offset by the completion of a number of significant projects during 2014. Software purchases decreased $12.6 million in the first half of 2015 compared with the 2014 period primarily due to the completion of a number of system implementations during 2014.
Cash Provided (Used) by Financing Activities
Cash provided by financing activities in the first six months of 2015 was $169.9 million compared with a cash usage of $352.0 million in the first six months of 2014. The increased cash flow from financing activities in the first six months of 2015 compared with the 2014 period was primarily due to higher levels of short-term borrowings, partially offset by incremental cash dividends paid during 2015.
26
During the first six months of 2015, VF purchased 10.0 million shares of its Common Stock in open market transactions at a total cost of $731.5 million (average price per share of $73.01). During the first six months of 2014, VF purchased 12.0 million shares of its Common Stock in open market transactions at a total cost of $727.5 million (average price per share of $60.46).
As of the end of the second quarter of 2015, the Company had 30.7 million shares remaining under its current share repurchase program authorized by VFs Board of Directors. VF will continue to evaluate its use of capital, giving first priority to business acquisitions and then to direct shareholder return in the form of dividends and share repurchases.
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. In April 2015, VF entered into a $1.75 billion senior unsecured revolving line of credit (the Global Credit Facility) that expires in April 2020. The Global Credit Facility replaced VFs $1.25 billion revolving credit facility which was scheduled to expire in December 2016. The Global Credit Facility may be used to borrow readily available non-US dollar currencies, and has a $50.0 million letter of credit sublimit. VF may request two extensions of one year each, subject to stated terms and conditions. In addition, the Global Credit Facility supports VFs U.S. commercial paper program for short-term, seasonal working capital requirements, which was also increased to $1.75 billion. Commercial paper borrowings and standby letters of credit issued as of June 2015 were $1.13 billion and $17.3 million, respectively, leaving $602.7 million available for borrowing against this facility at June 2015.
VFs favorable credit agency ratings allow for access to additional liquidity at competitive rates. At the end of June 2015, VFs long-term debt ratings were A by Standard & Poors Ratings Services and A3 by Moodys Investors Service, and commercial paper ratings by those rating agencies were A-1 and Prime-2, respectively.
None of VFs 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.
Managements Discussion and Analysis in the 2014 Form 10-K provided a table summarizing VFs contractual obligations and commercial commitments at the end of 2014 that would require the use of funds. Since the filing of the 2014 Form 10-K, there have been no material changes in the disclosed amounts, except as noted below:
| Inventory purchase obligations increased by approximately $415.8 million at the end of June 2015 due to the seasonality of VFs businesses. |
Management believes that VFs 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 levels and (iii) flexibility to meet investment opportunities that may arise.
Recently Issued and Adopted Accounting Standards
In April 2014, the FASB changed the definition and disclosure requirements for discontinued operations. This guidance became effective in the first quarter of 2015, but did not have an impact on VFs consolidated financial statements.
In May 2014, the FASB issued a new accounting standard on revenue recognition which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The new model provides a 5-step analysis in determining the measurement of revenue and the timing of when it is recognized. New disclosures about revenues and cash flows arising from contracts with customers are also required. In July 2015, the FASB approved a one-year delay to the adoption date of the standard that makes it effective in the first quarter of 2018 with early adoption permitted. The Company is currently evaluating the impact that adopting this guidance will have on VFs consolidated financial statements.
In June 2014, the FASB issued an update to their accounting guidance related to stock-based compensation. The guidance requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. This guidance will be effective in the first quarter of 2016, but is not expected to have an impact on VFs consolidated financial statements.
In February 2015, the FASB issued an update to their existing consolidation model, which changes the analysis a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance will be effective in the first quarter of 2016. The Company is currently evaluating the impact that adopting this guidance will have on VFs consolidated financial statements.
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In April 2015, the FASB issued an update to their accounting guidance related to debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance will be effective in the first quarter of 2016, and the Company will reclassify the debt issuance costs in VFs consolidated financial statements in accordance with this guidance.
In April 2015, the FASB issued an update to their accounting guidance related to retirement benefits that provides a practical expedient permitting companies to measure defined benefit plan assets and obligations using the month-end that is closest to an entitys fiscal year-end. This guidance will be effective in the first quarter of 2016 with early adoption permitted. The Company is currently evaluating whether it will adopt this guidance.
In April 2015, the FASB issued new guidance related to a customers accounting for fees paid in a cloud computing arrangement. This guidance provides clarification on whether a cloud computing arrangement includes a software license. If a software license is included, the customer should account for the license consistent with its accounting for other software licenses. If a software license is not included, the arrangement should be accounted for as a service contract. This guidance will be effective in the first quarter of 2016, but is not expected to have an impact on VFs consolidated financial statements.
In May 2015, the FASB issued an update to their accounting guidance related to fair value measurements. The guidance removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient, and requires separate disclosure instead. This guidance will be effective in the first quarter of 2016 with early adoption permitted. The Company is currently evaluating the impact that adopting this guidance will have on VFs consolidated financial statements.
Critical Accounting Policies and Estimates
Management has chosen accounting policies that it considers to be appropriate to accurately and fairly report VFs operating results and financial position in conformity with GAAP. Our critical accounting policies are applied in a consistent manner. Significant accounting policies are summarized in Note A to the Consolidated Financial Statements included in the 2014 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 Managements Discussion and Analysis in the 2014 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 VFs operations or economic performance, and assumptions related thereto. Forward-looking statements are made based on managements 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 overall level of consumer demand for apparel, footwear and accessories; fluctuations in the price, availability and quality of raw materials and contracted products; disruption to VFs distribution system; foreign currency fluctuations; disruption and volatility in the global capital and credit markets; VFs reliance on a small number of large customers; the financial strength of VFs customers; VFs response to changing fashion trends; increasing pressure on margins; VFs ability to implement its growth strategy; VFs ability to grow its international and direct-to-consumer businesses; VF and its customers ability to maintain the strength and security of information technology systems; adverse unseasonable weather conditions; stability of VFs manufacturing facilities and foreign suppliers; continued use by VFs suppliers of ethical business practices; VFs ability to accurately forecast demand for products;
28
continuity of members of VFs management; VFs ability to protect trademarks and other intellectual property rights; possible goodwill and other asset impairment; maintenance by VFs licensees and distributors of the value of VFs brands; changes in tax liabilities; and legal, regulatory, political and economic risks in international markets. More information on potential factors that could affect VFs financial results is included from time to time in VFs public reports filed with the Securities and Exchange Commission, including VFs Annual Report on Form 10-K.
Item 3 Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes in VFs market risk exposures from what was disclosed in Item 7A in the 2014 Form 10-K.
Item 4 Controls and Procedures
Disclosure controls and procedures:
Under the supervision of the Chief Executive Officer and Chief Financial Officer, a Disclosure Committee comprising various members of management has evaluated the effectiveness of the disclosure controls and procedures at VF and its subsidiaries as of the end of the period covered by this quarterly report (the Evaluation Date). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded as of the Evaluation Date that such controls and procedures were effective.
Changes in internal control over financial reporting:
There have been no changes during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, VFs internal control over financial reporting.
Information on VFs legal proceedings is set forth under Part I, Item 3, Legal Proceedings, in the 2014 Form 10-K. There have been no material changes to the legal proceedings from those described in the 2014 Form 10-K.
You should carefully consider the risk factors set forth under Part I, Item 1A, Risk Factors, in the 2014 Form 10-K. There have been no material changes to the risk factors from those disclosed in the 2014 Form 10-K.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer purchases of equity securities:
Second Quarter 2015 | Total Number of Shares Purchased (1) |
Weighted Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Programs (1) |
Maximum Number of Shares that May Yet be Purchased Under the Program |
||||||||||||
April 5 May 2, 2015 |
| $ | | | 30,715,276 | |||||||||||
May 3 May 30, 2015 |
4,500 | 71.20 | 4,500 | 30,710,776 | ||||||||||||
May 31 July 4, 2015 |
5,700 | 69.39 | 5,700 | 30,705,076 | ||||||||||||
|
|
|
|
|||||||||||||
Total |
10,200 | 10,200 | ||||||||||||||
|
|
|
|
(1) | All 10,200 shares of Common Stock were purchased during the quarter in connection with VFs deferred compensation plans. |
29
31.1 | Certification of Eric C. Wiseman, Chairman and Chief Executive Officer, pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Scott A. Roe, Vice President and Chief Financial Officer, pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Eric C. Wiseman, Chairman and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Scott A. Roe, Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document | |
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 |
30
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/ Scott A. Roe | |||||
Scott A. Roe | ||||||
Vice President and Chief Financial Officer (Chief Financial Officer) | ||||||
Date: August 7, 2015 | By: | /s/ Bryan H. McNeill | ||||
Bryan H. McNeill | ||||||
Vice PresidentController (Chief Accounting Officer) |
31
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 15 U.S.C. SECTION 10A, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Eric C. Wiseman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of V.F. Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors:
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
August 7, 2015 | /s/ Eric C. Wiseman | |||
Eric C. Wiseman | ||||
Chairman and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 15 U.S.C. SECTION 10A, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Scott A. Roe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of V.F. Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors:
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
August 7, 2015 | /s/ Scott A. Roe | |||
Scott A. Roe | ||||
Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of V.F. Corporation (the Company) on Form 10-Q for the period ending July 4, 2015 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Eric C. Wiseman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
August 7, 2015 | /s/ Eric C. Wiseman | |||
Eric C. Wiseman | ||||
Chairman and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of V.F. Corporation (the Company) on Form 10-Q for the period ending July 4, 2015 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Scott A. Roe, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
August 7, 2015 | /s/ Scott A. Roe | |||
Scott A. Roe | ||||
Vice President and Chief Financial Officer |
Intangible Assets - Additional Information (Detail) - Jul. 04, 2015 - USD ($) $ in Millions |
Total |
Total |
---|---|---|
Finite-Lived Intangible Assets [Line Items] | ||
Amortization of intangible assets | $ 7.5 | $ 15.2 |
Earnings Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 04, 2015 |
Jun. 28, 2014 |
Jul. 04, 2015 |
Jun. 28, 2014 |
|
Earnings per share - basic: | ||||
Net income | $ 170,811 | $ 157,682 | $ 459,520 | $ 454,875 |
Weighted average common shares outstanding | 424,349 | 429,940 | 425,305 | 434,115 |
Earnings per common share | $ 0.40 | $ 0.37 | $ 1.08 | $ 1.05 |
Earnings per share - diluted: | ||||
Net income | $ 170,811 | $ 157,682 | $ 459,520 | $ 454,875 |
Weighted average common shares outstanding | 424,349 | 429,940 | 425,305 | 434,115 |
Incremental shares from stock options and other dilutive securities | 6,354 | 7,191 | 7,102 | 7,584 |
Adjusted weighted average common shares outstanding | 430,703 | 437,131 | 432,407 | 441,699 |
Earnings per common share | $ 0.40 | $ 0.36 | $ 1.06 | $ 1.03 |
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