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Document and Entity Information (USD $)
12 Months Ended
Dec. 29, 2012
Jan. 26, 2013
Jun. 30, 2012
Document Information [Line Items]
Document Type 10-K
Amendment Flag false
Document Period End Date Dec 29, 2012
Document Fiscal Year Focus 2012
Document Fiscal Period Focus FY
Trading Symbol VFC
Entity Registrant Name V F CORP
Entity Central Index Key 0000103379
Current Fiscal Year End Date --12-29
Entity Well-known Seasoned Issuer Yes
Entity Current Reporting Status Yes
Entity Voluntary Filers No
Entity Filer Category Large Accelerated Filer
Entity Common Stock, Shares Outstanding 110,232,930
Entity Public Float $ 11,651,000
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Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 29, 2012
Dec. 31, 2011
Current assets
Cash and equivalents $ 597,461 $ 341,228
Accounts receivable, less allowance for doubtful accounts of $48,998 in 2012 and $54,010 in 2011 1,222,345 1,120,246
Inventories 1,354,158 1,453,645
Deferred income taxes 140,515 106,717
Other current assets 135,104 166,108
Total current assets 3,449,583 3,187,944
Property, plant and equipment 828,218 737,451
Intangible assets 2,917,058 2,958,463
Goodwill 2,009,757 2,023,460
Other assets 428,405 405,808
Total assets 9,633,021 9,313,126
Current liabilities
Short-term borrowings 12,559 281,686
Current portion of long-term debt 402,873 2,744
Accounts payable 562,638 637,116
Accrued liabilities 754,142 744,486
Total current liabilities 1,732,212 1,666,032
Long-term debt 1,429,166 1,831,781
Other liabilities 1,346,018 1,290,138
Commitments and contingencies      
Stockholders' equity
Preferred Stock, par value $1; shares authorized, 25,000,000; no shares outstanding in 2012 and 2011      
Common Stock, stated value $1; shares authorized, 300,000,000; 110,204,734 shares outstanding in 2012 and 110,556,981 shares outstanding in 2011 110,205 110,557
Additional paid-in capital 2,527,868 2,316,107
Accumulated other comprehensive income (loss) (453,895) (421,477)
Retained earnings 2,941,447 2,520,804
Total equity attributable to VF Corporation 5,125,625 4,525,991
Noncontrolling interests (816)
Total stockholders' equity 5,125,625 4,525,175
Total liabilities and stockholders' equity $ 9,633,021 $ 9,313,126
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Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 29, 2012
Dec. 31, 2011
Accounts receivable, allowance for doubtful accounts $ 48,998 $ 54,010
Preferred Stock, par value $ 1 $ 1
Preferred Stock, shares authorized 25,000,000 25,000,000
Preferred Stock, shares outstanding      
Common Stock, stated value $ 1 $ 1
Common Stock, shares authorized 300,000,000 300,000,000
Common Stock, shares outstanding 110,204,734 110,556,981
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Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 29, 2012
Dec. 31, 2011
Jan. 01, 2011
Net sales $ 10,766,020 $ 9,365,477 $ 7,624,599
Royalty income 113,835 93,755 77,990
Total revenues 10,879,855 [1] 9,459,232 [2] 7,702,589 [3]
Costs and operating expenses
Cost of goods sold 5,817,880 5,128,602 4,105,201
Marketing, administrative and general expenses 3,596,708 3,085,839 2,574,790
Impairment of goodwill and intangible assets 201,738 [4]
Costs and Expenses, Total 9,414,588 8,214,441 6,881,729
Operating income 1,465,267 [1] 1,244,791 [2] 820,860 [3]
Interest income 3,353 4,778 2,336
Interest expense (93,605) (77,578) (77,738)
Other income (expense), net 46,860 (7,248) 4,754
Income before income taxes 1,421,875 1,164,743 750,212
Income taxes 335,737 274,350 176,700
Net income 1,086,138 890,393 573,512
Net (income) loss attributable to noncontrolling interests (139) (2,304) (2,150)
Net income attributable to VF Corporation $ 1,085,999 [1] $ 888,089 [2] $ 571,362 [3]
Earnings per common share attributable to VF Corporation common stockholders - Basic $ 9.89 [1] $ 8.13 [2] $ 5.25 [3]
Earnings per common share attributable to VF Corporation common stockholders - Diluted $ 9.7 [1] $ 7.98 [2] $ 5.18 [3]
Cash dividends per common share $ 3.03 [1] $ 2.61 [2] $ 2.43 [3]
[1] Transaction and restructuring costs related to the acquisition of Timberland reduced operating results in 2012 as follows: First Quarter Second Quarter Third Quarter Fourth Quarter Full Year In millions, except per share amounts Operating income $ 4.6 $ 5.0 $ 14.4 $ 6.8 $ 30.8 Net income 3.3 3.1 11.3 10.2 27.9 Earnings per share: Basic $ 0.03 $ 0.03 $ 0.10 $ 0.09 $ 0.26 Diluted 0.03 0.03 0.10 0.09 0.25
[2] Transaction and restructuring costs related to the acquisition of Timberland reduced operating results in 2011 as follows: Third Fourth Full Quarter Quarter Year In millions, except per share amounts Operating income $ 26.8 $ 6.7 $ 33.5 Net income 20.0 4.6 24.6 Earnings per share: Basic $ 0.19 $ 0.04 $ 0.23 Diluted 0.18 0.04 0.22
[3] Goodwill and trademark impairment charges in the fourth quarter of 2010 reduced operating results as follows: operating income - $201.7 million; net income - $141.8 million; basic earnings per share - $1.31 ($1.30 for year); and diluted earnings per share - $1.29. See Notes G and T.
[4] Goodwill and trademark impairment charges totaling $201.7 million in 2010 related to Contemporary Brands. See Notes G and T.
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Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 29, 2012
Dec. 31, 2011
Jan. 01, 2011
Net income $ 1,086,138 $ 890,393 $ 573,512
Foreign currency translation
Gains (losses) arising during year 37,648 (47,791) (81,984)
Less income tax effect 9,443 10,220 16,586
Reclassification to net income for (gains) losses realized (11,995)
Less income tax effect 4,134
Defined benefit pension plans
Current year actuarial losses (173,959) (195,799) (51,925)
Amortization of net deferred actuarial losses 69,744 43,088 45,731
Amortization of deferred prior service cost 3,357 3,453 3,948
Less income tax effect 37,013 58,690 2,091
Derivative financial instruments
Gains (losses) arising during year (9,555) (41,559) 13,910
Less income tax effect 3,976 16,012 (5,388)
Reclassification to net income for (gains) losses realized (15,883) 21,298 (6,649)
Less income tax effect 6,199 (8,202) 2,591
Marketable securities
Gains (losses) arising during year (401) (5,027) 2,000
Less income tax effect 237
Reclassification to net income for (gains) losses realized 832
Less income tax effect (237)
Other comprehensive income (loss) (32,418) (152,883) (58,852)
Foreign currency translation gains (losses) attributable to noncontrolling interests (229) 56
Other comprehensive income (loss) including noncontrolling interests (32,418) (153,112) (58,796)
Comprehensive income 1,053,720 737,281 514,716
Comprehensive (income) loss attributable to noncontrolling interests (139) (2,075) (2,206)
Comprehensive income attributable to VF Corporation $ 1,053,581 $ 735,206 $ 512,510
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Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 29, 2012
Dec. 31, 2011
Jan. 01, 2011
Operating activities
Net income $ 1,086,138 $ 890,393 $ 573,512
Adjustments to reconcile net income to cash provided by operating activities:
Impairment of goodwill and intangible assets 201,738 [1]
Depreciation 148,969 127,203 116,837
Amortization of intangible assets 47,929 41,708 39,373
Other amortization 41,058 29,824 17,186
Stock-based compensation 92,814 76,739 63,538
Provision for doubtful accounts 19,264 12,490 7,441
Pension expense in excess of (less than) contributions (20,198) 46,346 (45,850)
Deferred income taxes (20,797) (10,867) (92,068)
Gain on sale of businesses (44,485)
Other, net (40,931) 32,665 29,179
Changes in operating assets and liabilities, net of purchases and sales of businesses:
Accounts receivable (111,571) (154,487) (12,954)
Inventories 87,620 (7,509) (114,334)
Other current assets 32,382 (18,449) (7,689)
Accounts payable (74,294) (32,898) 140,470
Accrued compensation (18,907) 2,448 27,817
Accrued income taxes 26,213 16,009 (14,649)
Accrued liabilities (17,005) (10,834) 50,889
Other assets and liabilities 40,801 40,590 20,846
Cash provided by operating activities 1,275,000 1,081,371 1,001,282
Investing activities
Capital expenditures (251,940) (170,894) (111,640)
Business acquisitions, net of cash acquired (1,750) (2,207,065) (38,290)
Proceeds from sale of businesses 72,519
Trademarks acquisition (58,132)
Software purchases (30,890) (20,102) (13,610)
Other, net (8,230) (3,840) (16,940)
Cash used by investing activities (220,291) (2,460,033) (180,480)
Financing activities
Net increase (decrease) in short-term borrowings (269,010) 250,824 (9,741)
Payments on long-term debt (2,776) (2,738) (203,063)
Proceeds from long-term debt 898,450
Payments of debt issuance costs and hedging settlement costs (55,536)
Purchases of Common Stock (307,282) (7,420) (411,838)
Cash dividends paid (333,229) (285,722) (264,281)
Proceeds from issuance of Common Stock, net 62,770 134,012 137,732
Tax benefits of stock option exercises 47,213 33,153 8,599
Acquisitions of noncontrolling interests (52,440)
Other, net (201) (338) (240)
Cash provided (used) by financing activities (802,515) 912,245 (742,832)
Effect of foreign currency rate changes on cash and equivalents 4,039 15,406 (17,280)
Net change in cash and equivalents 256,233 (451,011) 60,690
Cash and equivalents - beginning of year 341,228 792,239 731,549
Cash and equivalents - end of year $ 597,461 $ 341,228 $ 792,239
[1] Goodwill and trademark impairment charges totaling $201.7 million in 2010 related to Contemporary Brands. See Notes G and T.
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Consolidated Statements of Stockholders' Equity (USD $)
In Thousands
Total
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss) In thousands
Retained Earnings
Non- controlling Interests
Beginning balance at Jan. 02, 2010 $ 110,285 $ 1,864,499 $ (209,742) $ 2,050,109 $ (1,866)
Net income 573,512 571,362 2,150
Dividends on Common Stock (264,281)
Purchase of treasury stock (5,023) (401,925)
Stock compensation plans, net 2,815 216,868 (4,072)
Common Stock held in trust for deferred compensation plans (139) (10,685)
Distributions to noncontrolling interests (240)
Foreign currency translation (65,398) 56
Defined benefit pension plans (155)
Derivative financial instruments 4,464
Marketable securities 2,237
Ending balance at Jan. 01, 2011 107,938 2,081,367 (268,594) 1,940,508 100
Net income 890,393 888,089 2,304
Dividends on Common Stock (285,722)
Stock compensation plans, net 2,685 284,966 (15,645)
Common Stock held in trust for deferred compensation plans (66) (6,426)
Distributions to noncontrolling interests (338)
Acquisitions of noncontrolling interests (50,226) (50,226) (2,653)
Foreign currency translation (45,432) (229)
Defined benefit pension plans (90,568)
Derivative financial instruments (12,451)
Marketable securities (4,432)
Ending balance at Dec. 31, 2011 4,525,175 110,557 2,316,107 (421,477) 2,520,804 (816)
Net income 1,086,138 1,085,999 139
Dividends on Common Stock (333,229)
Purchase of treasury stock (2,000) (295,074)
Stock compensation plans, net 1,666 211,761 (34,435)
Common Stock held in trust for deferred compensation plans (18) (2,618)
Disposition of noncontrolling interests 677
Foreign currency translation 47,091
Defined benefit pension plans (63,845)
Derivative financial instruments (15,263)
Marketable securities (401)
Ending balance at Dec. 29, 2012 $ 5,125,625 $ 110,205 $ 2,527,868 $ (453,895) $ 2,941,447
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Summary of Significant Accounting Policies
12 Months Ended
Dec. 29, 2012
Summary of Significant Accounting Policies

Note A — Summary of Significant Accounting Policies

Description of Business

VF Corporation (and its subsidiaries, collectively known as “VF”) is a global apparel and footwear company based in the United States. VF designs and manufactures or sources from independent contractors a variety of products for consumers of all ages, including jeanswear, outerwear, footwear, packs, luggage, sportswear, and occupational and performance apparel. Products are marketed primarily under VF-owned brand names.

Basis of Consolidation

The consolidated financial statements and related disclosures are presented in accordance with generally accepted accounting principles (“GAAP”) in the U.S. The consolidated financial statements include the accounts of VF and its majority-owned subsidiaries, after elimination of intercompany transactions and balances. For consolidated subsidiaries that are not wholly owned, the noncontrolling interests in net income, comprehensive income and stockholders’ equity are separately presented in the consolidated financial statements.

Investments in entities that VF does not control but has the ability to exercise significant influence (generally 20-50% owned companies) are accounted for using the equity method of accounting. Equity method investments are recorded initially at cost in other assets in the Consolidated Balance Sheets. Those amounts are adjusted to recognize VF’s proportional share of the investee’s earnings and dividends after the date of investment. VF’s share of net income of these investments, totaling $0.6 million in 2010, is included in marketing, administrative and general expenses in the Consolidated Statements of Income. The remaining equity was acquired by VF in 2010 (Note B).

Fiscal Year

VF operates and reports using a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year. All references to “2012”, “2011” and “2010” relate to the 52 week fiscal years ended December 29, 2012, December 31, 2011 and January 1, 2011, respectively. Certain foreign subsidiaries report using a December 31 year-end due to local statutory requirements.

Use of Estimates

In preparing the consolidated financial statements in accordance with GAAP, management makes estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Foreign Currency Translation

The financial statements of most foreign subsidiaries are measured using the foreign currency as the functional currency. Assets and liabilities denominated in a foreign currency are translated into U.S. dollars using exchange rates in effect at the balance sheet date, and revenues and expenses are translated at average exchange rates during the period. Resulting translation gains and losses, and transaction gains and losses on long-term advances to foreign subsidiaries, are reported in other comprehensive income (loss) (“OCI”). For a foreign subsidiary that uses the U.S. dollar as its functional currency, the effects of remeasuring assets and liabilities from the foreign currency into U.S. dollars are included in the Consolidated Statements of Income. The Consolidated Statements of Income include net transaction gains (losses) of $18.6 million, $27.3 million and ($22.1 million) in 2012, 2011 and 2010, respectively, arising from transactions denominated in a currency other than the functional currency of a particular entity.

 

 

Cash and Equivalents

Cash and equivalents are demand deposits, receivables from third party credit card processors, and highly liquid investments that have maturities within three months of their purchase dates. Cash equivalents totaling $198.7 million and $89.6 million at December 2012 and 2011, respectively, consist of institutional money market funds that invest in obligations issued or guaranteed by the U.S. or foreign governments and short-term time deposits of foreign commercial banks.

Accounts Receivable

Trade accounts receivable are recorded at invoiced amounts, less estimated allowances for trade terms, sales incentive programs, markdowns, chargebacks, and returns as discussed below in Revenue Recognition. Royalty receivables are recorded at amounts earned based on the licensees’ sales of licensed products, subject in some cases to contractual minimum annual amounts from individual licensees. VF maintains an allowance for doubtful accounts for estimated losses that will result from the inability of customers and licensees to make required payments. All accounts are subject to ongoing review of ultimate collectibility. The allowance is determined based on review of specific customer accounts where collection is doubtful, as well as assessment of the collectability of total receivables considering the aging of balances, anticipated trends and economic conditions. Receivables are written off against the allowance when it is probable the amounts will not be recovered.

Inventories

Inventories are stated at the lower of cost or market. Cost is net of discounts or rebates received from vendors. VF has historically valued inventories using both the first-in, first-out (“FIFO”) and last-in, first-out (“LIFO”) methods. On January 2, 2011, VF changed its method of accounting so that all inventories are valued on the FIFO method. This change was preferable because FIFO inventory valuation (i) better reflects the current value of inventories on the Consolidated Balance Sheets, (ii) provides for a single inventory valuation method for all business units globally and (iii) enhances comparability with the reporting of VF’s peers.

The effect of retrospectively applying this change in accounting principle on previously reported financial statements was not material, and therefore those periods were not restated. Had VF not made this change in accounting principle, the impact of continuing to account for certain inventories on a LIFO basis would not have been material to the financial position, results of operations, cash flows and earnings per common share attributable to VF common stockholders for the year ended December 2011.

Long-lived Assets

Property, plant and equipment, intangible assets and goodwill are initially recorded at cost. Improvements to property, plant and equipment that substantially extend the useful life of the asset, and interest cost incurred during construction of major assets, are capitalized. Assets under capital lease are recorded at the present value of minimum lease payments. Repair and maintenance costs are expensed as incurred.

Cost for acquired intangible assets is fair value based generally on the present value of expected cash flows. These expected cash flows consider the stated terms of the rights or contracts acquired and expected renewal periods if applicable. The number of renewal periods considered is based on management’s experience in renewing or extending similar arrangements, regardless of whether the acquired rights have explicit renewal or extension provisions. Trademark intangible assets represent individual acquired trademarks, some of which are registered in over 100 countries. Because of the significant number of trademarks, renewal of those rights is an ongoing process, with individual trademark renewals averaging 10 years. License intangible assets relate to numerous licensing contracts, with VF as either the licensor or licensee. Individual license renewals average four years.

 

 

Goodwill represents the excess of cost of an acquired business over the fair value of net tangible assets and identifiable intangible assets acquired. Goodwill is assigned at the business unit level, which at VF is typically one level below a reportable segment.

Depreciation of owned assets is computed using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 10 years for machinery and equipment and up to 40 years for buildings. Leasehold improvements and assets under capital leases are amortized over the shorter of their estimated useful lives or the lease terms.

Intangible assets determined to have indefinite lives, consisting of major trademarks and trade names, are not amortized. Other intangible assets, primarily customer relationships, contracts to license trademarks to third parties and contracts to license trademarks from third parties, are amortized over their estimated useful lives ranging from less than one year to 30 years. Amortization of intangible assets is computed using straight-line or accelerated methods consistent with the expected realization of benefits to be received.

Depreciation and amortization expense related to producing or otherwise obtaining finished goods inventories is included in cost of goods sold, and other depreciation and amortization expense is included in marketing, administrative and general expenses.

VF’s policy is to review property and intangible assets with identified useful lives for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If forecasted undiscounted cash flows to be generated by the asset are not expected to be adequate to recover the asset’s carrying value, an impairment charge is recorded for the excess of the asset’s carrying value over its estimated fair value.

VF’s policy is to evaluate indefinite-lived intangible assets and goodwill for possible impairment at the beginning of the fourth quarter of each year, or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Financial Accounting Standards Board (“FASB”) recently issued updates to their authoritative guidance regarding goodwill and intangible asset impairment testing, which VF adopted for its fourth quarter 2012 testing. The updated guidance permits an entity to first assess qualitative factors as a basis for determining whether it is necessary to perform quantitative impairment testing. If an entity determines that it is not more likely than not that the fair value of an asset or reporting unit is less than its carrying value, then no further testing is required. Otherwise, impairment testing must be performed in accordance with the original accounting standards.

An indefinite-lived intangible asset is evaluated for possible impairment by comparing the estimated fair value of the asset with its carrying value. An impairment charge is recorded if the carrying value of the asset exceeds its estimated fair value. Goodwill is evaluated for possible impairment by comparing the estimated fair value of a business unit with its carrying value, including the goodwill assigned to that business unit. An impairment charge is recorded if the carrying value of the goodwill exceeds its implied fair value. There were no impairment charges recorded in 2012 or 2011. See Notes G and T for information related to impairment charges recorded in 2010 for indefinite-lived intangible assets and goodwill.

Derivative Financial Instruments

Derivative financial instruments are measured at fair value in the Consolidated Balance Sheets. Unrealized gains and losses are recognized as assets or liabilities, respectively, and classified as current or noncurrent based on the derivatives’ maturity dates. The accounting for changes in the fair value (i.e., gains and losses) of derivative instruments depends on whether a derivative has been designated and qualifies as part of a hedging relationship and on the nature of the hedging relationship. The criteria used to determine if a derivative instrument qualifies for hedge accounting treatment are (i) whether an appropriate hedging instrument has been identified and designated to reduce a specific exposure and (ii) whether there is a high correlation between changes in the fair value of the hedging instrument and the identified exposure based on the nature of the hedging relationship. A qualifying derivative is designated for accounting purposes as a fair value or a cash flow hedge depending on the hedging relationship. VF’s hedging practices and related accounting policies for each type of hedging relationship are described in Note U. VF does not use derivative instruments for trading or speculative purposes. Hedging cash flows are classified in the Consolidated Statements of Cash Flows in the same category as the items being hedged.

VF formally documents hedging instruments and hedging relationships at the inception of each contract. Further, VF assesses, both at the inception of a contract and on an ongoing basis, whether the hedging instruments are effective in offsetting the risk of the hedged transactions. Occasionally, a portion of a derivative instrument will be considered ineffective in hedging the originally identified exposure due to a decline in amount or a change in timing of the hedged exposure. In that case, hedge accounting treatment is discontinued for the ineffective portion of that hedging instrument, and any change in fair value for the ineffective portion is recognized in net income. Also, some cash flow hedges of forecasted cash receipts are dedesignated as hedges when the forecasted sale is recognized. At that time, hedge accounting is discontinued, and the fair value of the hedging instrument is recognized in net income.

The counterparties to the derivative contracts are financial institutions having at least A-rated investment grade credit ratings. To manage its credit risk, VF continually monitors the credit risks of its counterparties, limits its exposure in the aggregate and to any single counterparty, and adjusts its hedging positions as appropriate. The impact of VF’s credit risk and the credit risk of its counterparties, as well as the ability of each party to fulfill its obligations under the contracts, is considered in determining the fair value of the derivative contracts. Credit risk has not had a significant effect on the fair value of VF’s derivative contracts. VF does not have any credit risk-related contingent features or collateral requirements with its derivative contracts.

Revenue Recognition

Revenue is recognized when (i) there is a contract or other arrangement of sale, (ii) the sales price is fixed or determinable, (iii) title and the risks of ownership have been transferred to the customer and (iv) collection of the receivable is reasonably assured. Net sales to wholesale customers and sales through the internet are generally recognized when the product has been received by the customer. Net sales at VF-operated retail stores are recognized at the time products are purchased by consumers. Shipping and handling costs billed to customers are included in net sales. Net sales are reduced by estimated allowances for trade terms, sales incentive programs, markdowns, chargebacks, and returns. These allowances are estimated based on evaluations of specific product and customer circumstances, retail sales performance, historical and anticipated trends, and current economic conditions; historically, they have not differed significantly from actual results. Sales taxes and value added taxes collected from customers and remitted directly to governmental authorities are excluded from net sales.

Royalty income is recognized as earned based on the greater of the licensees’ sales of licensed products at rates specified in the licensing contracts or contractual minimum royalty levels.

Cost of Goods Sold

Cost of goods sold for VF-manufactured goods includes all materials, labor and overhead costs incurred in the production process. Cost of goods sold for purchased finished goods includes the purchase costs and related overhead. In both cases, overhead includes all costs related to manufacturing or purchasing finished goods, including costs of planning, purchasing, quality control, depreciation, freight, duties, royalties paid to third parties and shrinkage. For product lines having a warranty, a provision for estimated future repair or replacement costs, based on historical and anticipated trends, is recorded when these products are sold.

Marketing, Administrative and General Expenses

Marketing, administrative and general expenses includes costs of product development, selling, marketing and advertising, VF-operated retail stores, warehousing, shipping and handling, licensing and administration. Advertising costs are expensed as incurred and totaled $585.2 million in 2012, $539.9 million in 2011 and $426.8 million in 2010. Advertising costs include cooperative advertising payments made to VF’s customers as reimbursement for their costs of advertising VF’s products. Cooperative advertising costs, totaling $51.7 million in 2012, $48.5 million in 2011 and $40.4 million in 2010, are independently verified to support the fair value of advertising reimbursed by VF. Shipping and handling costs for delivery of products to customers totaled $269.1 million in 2012, $242.5 million in 2011 and $206.2 million in 2010. Expenses related to royalty income, including amortization of licensed intangible assets, were $12.6 million in 2012 and $9.1 million in both 2011 and 2010.

Rent Expense

VF enters into noncancelable operating leases for retail stores, office space, distribution facilities and equipment. Leases for real estate have initial terms ranging from 3 to 15 years, generally with renewal options. Leases for equipment typically have initial terms ranging from 2 to 5 years. Most leases have fixed rentals, with many of the real estate leases requiring additional payments for real estate taxes and occupancy-related costs. Contingent rent expense, owed when sales at individual retail store locations exceed a stated base amount, is recognized when the liability is probable. Rent expense for leases having rent holidays or scheduled rent increases is recorded on a straight-line basis over the lease term beginning when VF has possession or control of the leased premises. Lease incentives received from landlords, plus any fair value adjustments recorded for leases of acquired businesses and differences between straight-line rent expense and scheduled rent payments, are recorded in other assets or other liabilities and amortized as an adjustment to rent expense over the lease term.

Self-insurance

VF is self-insured for a substantial portion of its employee medical, workers’ compensation, vehicle, property and general liability exposures. Liabilities for self-insured exposures are accrued at the present value of amounts expected to be paid based on historical claims experience and actuarial data for forecasted settlements of claims filed and for incurred but not yet reported claims. Accruals for self-insured exposures are included in current and noncurrent liabilities based on the expected periods of payment. Excess liability insurance has been purchased to cover claims in excess of self-insured amounts.

Income Taxes

Income taxes are provided on pretax income for financial reporting purposes. Income taxes are based on amounts of taxes payable or refundable in the current year and on expected future tax consequences of events that are recognized in the consolidated financial statements in different periods than they are recognized in tax returns. As a result of timing of recognition and measurement differences between financial accounting standards and income tax laws, temporary differences arise between amounts of pretax financial statement income and taxable income, and between reported amounts of assets and liabilities in the Consolidated Balance Sheets and their respective tax bases. Deferred income tax assets and liabilities reported in the Consolidated Balance Sheets reflect the estimated future tax impact of these temporary differences and net operating loss and net capital loss carryforwards, based on tax rates currently enacted for the years in which the differences are expected to be settled or realized. Realization of deferred tax assets is dependent on future taxable income in specific jurisdictions. Valuation allowances are used to reduce deferred tax assets to amounts considered likely to be realized. U.S. deferred income taxes are not provided on undistributed income of foreign subsidiaries where such earnings are considered to be permanently reinvested. Accrued income taxes in the Consolidated Balance Sheets include unrecognized income tax benefits, along with related interest and penalties, appropriately classified as current or noncurrent. The provision for income taxes also includes estimated interest and penalties related to uncertain tax positions.

Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to VF Corporation by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share assumes conversion of potentially dilutive securities such as stock options, restricted stock and restricted stock units.

Concentration of Risks

VF markets products to a broad customer base throughout the world. Products are sold at a range of price points through multiple channels of distribution, including specialty stores, department stores, national chains, mass merchants, VF-operated stores, and e-commerce sites. VF’s ten largest customers, all U.S.-based retailers, accounted for 21% of 2012 total revenues, and sales to VF’s largest customer accounted for 8% of 2012 total revenues. Sales are generally made on an unsecured basis under customary terms that may vary by product, channel of distribution or geographic region. VF continuously monitors the creditworthiness of its customers and has established internal policies regarding customer credit limits. The breadth of product offerings, combined with the large number and geographic diversity of its customers, limits VF’s concentration of risks.

Legal and Other Contingencies

Management periodically assesses liabilities and contingencies in connection with legal proceedings and other claims that may arise from time to time. When it is probable that a loss has been or will be incurred, the loss, or a reasonable estimate of the loss, is recorded in the consolidated financial statements. Estimates of losses are adjusted in the period in which additional information becomes available or circumstances change. A contingent liability is disclosed when there is at least a reasonable possibility that a material loss may have been incurred. Management believes that the outcome of any outstanding or pending matters, individually and in the aggregate, will not have a material adverse effect on the consolidated financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform with the 2012 presentation.

Recently Adopted Accounting Standards

In May 2011, the FASB issued an update to their authoritative guidance regarding fair value measurements and related disclosures. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for the use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. This guidance became effective during the first quarter of 2012 and has been applied on a prospective basis.

 

 

In June 2011, the FASB issued an update to their accounting guidance regarding other comprehensive income which requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements of income and comprehensive income. This guidance became effective during the first quarter of 2012 but did not have any effect on the consolidated financial statements since VF’s Statement of Comprehensive Income already complied with this guidance.

In September 2011, the FASB issued an update to their authoritative guidance regarding goodwill impairment testing. The amendment is intended to reduce the complexity of testing by allowing companies to assess qualitative factors to determine the likelihood of goodwill impairment and whether it is necessary to perform the two-step impairment test currently required. This guidance became effective during the first quarter of 2012 and was considered during the 2012 goodwill impairment testing. It did not have an impact on the consolidated financial statements.

In July 2012, the FASB issued an update to their accounting guidance regarding indefinite-lived intangible asset impairment testing and whether it is necessary to perform the quantitative impairment test currently required. VF elected an early adoption of this guidance for the 2012 indefinite-lived intangible asset impairment testing. It did not have an impact on the consolidated financial statements.

Recently Issued Accounting Standards

In December 2011 and January 2013, the FASB issued updates to their accounting guidance regarding disclosures about an entity’s right of offset associated with its financial instruments and derivative instruments. The new guidance is effective January 2013 with retrospective application required. The guidance concerns disclosure only and will not have a material impact on the consolidated financial statements.

In February 2013, the FASB issued guidance requiring an entity to provide information about the amounts reclassified out of accumulated other comprehensive income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. The new guidance is effective January 2013, and since it concerns disclosure only, it will not have a material impact on the consolidated financial statements.

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Acquisitions and Dispositions
12 Months Ended
Dec. 29, 2012
Acquisitions and Dispositions

Note B — Acquisitions and Dispositions

Dispositions in current year

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

Acquisitions in prior years

On September 13, 2011, VF acquired 100% of the outstanding shares of The Timberland Company (“Timberland”) for $2.3 billion in cash. The purchase price was funded by the issuance of $900.0 million of term debt, together with available cash on hand and short-term borrowings.

Timberland is a global footwear and apparel company based in New Hampshire whose primary brands are Timberland® and SmartWool®. The results of Timberland have been included in VF’s consolidated financial statements since the date of acquisition and are reported as part of the Outdoor & Action Sports Coalition. Timberland contributed $712.9 million of revenues and $49.2 million of pretax income in 2011.

This acquisition strengthens VF’s position within the outdoor apparel and footwear industry by adding two strong, global and authentic brands with significant growth opportunities. Factors that contributed to recognition of goodwill for the acquisition included (i) expected growth rates and profitability of Timberland, (ii) the opportunity to leverage VF’s skills to achieve higher growth in sales, income and cash flows of the business and (iii) expected synergies with existing VF business units. Goodwill resulting from this transaction is not tax deductible and has been assigned to the Outdoor & Action Sports Coalition.

The Timberland® and SmartWool® trademarks and trade names, which management believes have indefinite lives, have been valued at $1,274.1 million. Amortizable intangible assets have been assigned values of $174.4 million for customer relationships, $5.8 million for distributor agreements and $4.5 million for license agreements. Customer relationships are being amortized using an accelerated method over 20 years. Distributor agreements and license agreements are being amortized on a straight-line basis over ten and five years, respectively.

The Timberland purchase price allocation was finalized in 2012. Since December 2011, goodwill decreased by $20.0 million as a result of adjustments to the acquired income tax balances. The following table summarizes the final fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

     In thousands  

Cash and equivalents

   $ 92,442   

Inventories

     390,180   

Other current assets

     318,755   

Property, plant and equipment

     89,581   

Intangible assets

     1,458,800   

Other assets

     42,635   
  

 

 

 

Total assets acquired

     2,392,393   
  

 

 

 

Current liabilities

     364,608   

Other liabilities, primarily deferred income taxes

     580,182   
  

 

 

 

Total liabilities assumed

     944,790   
  

 

 

 

Net assets acquired

     1,447,603   

Goodwill

     851,904   
  

 

 

 

Purchase price

   $ 2,299,507   
  

 

 

 

Unaudited pro forma results of operations for VF are presented assuming that the 2011 acquisition of Timberland had occurred at the beginning of 2010. This pro forma financial information is not necessarily indicative of VF’s operating results if the acquisition had been completed at the date indicated, nor is it necessarily an indication of future operating results. Amounts do not include any marketing leverage, operating efficiencies or cost savings that VF believes are achievable.

 

 

 

     2011 (a)      2010  
    

In thousands, except

per share amounts

 

Total revenues

   $ 10,411,978       $ 9,132,073   

Net income attributable to VF Corporation

     808,867         623,538   

Earnings per common share:

     

Basic

   $ 7.40       $ 5.73   

Diluted

     7.27         5.65   

 

(a) Pro forma operating results for 2011 include expenses totaling $96.2 million for acceleration of vesting for all unvested stock-based compensation awards, including tax gross-up payments required under employment agreements with certain Timberland executives, and $17.3 million in Timberland acquisition-related expenses.

On March 30, 2011, VF acquired the trademarks and related intellectual property of Rock & Republic Enterprises, Inc. for $58.1 million, including expenses. VF has accounted for this transaction as an asset acquisition and recorded the purchase price as an indefinite-lived intangible asset. Rock & Republic® branded jeanswear and related products are offered in the United States through an exclusive wholesale distribution and licensing arrangement with Kohl’s Corporation. Operating results are reported as part of the Jeanswear Coalition.

On September 30, 2011, VF acquired the remaining noncontrolling interest in Napapijri Japan Ltd. for $0.1 million. Additionally, on November 2, 2011, VF acquired the remaining noncontrolling interest in VF Arvind Brands Private Ltd. (a joint venture in India) for $52.4 million. These acquisitions were accounted for as equity transactions since VF maintained control of these subsidiaries prior to the acquisitions. Therefore, VF recorded a decrease to additional paid-in capital of $50.2 million in 2011 related to these transactions. The changes in VF’s ownership interests in these subsidiaries impacted consolidated equity during 2011 as follows:

 

     2011  
     In thousands  

Net income attributable to VF Corporation

   $ 888,089   

Net transfers to noncontrolling interests — decrease in equity for purchase of noncontrolling interests

     (50,226
  

 

 

 

Changes from net income attributable to VF Corporation and transfers to the noncontrolling interests

   $ 837,863   
  

 

 

 

On March 10, 2010, VF acquired 100% ownership of its former 50%-owned joint venture that marketed Vans® branded products in the wholesale channel in Mexico. As part of this transaction, VF also acquired the Vans® retail stores that had been operated by the joint venture partner (together with the wholesale business, “Vans Mexico”). The purchase price was $31.0 million. The carrying value of VF’s initial 50% investment, which had been accounted for using the equity method, was $7.9 million at the acquisition date. VF recognized a $5.7 million gain in other income (expense), net in 2010 from remeasuring its original 50% investment in the joint venture to fair value, measured using the income and market approaches. Revenues and pretax earnings recognized in VF’s 2010 operating results since the acquisition date were $28.2 million and $6.4 million (excluding the $5.7 million gain), respectively. Acquisition expenses were not significant. Vans Mexico is reported as part of the Outdoor & Action Sports Coalition.

The acquisition of Vans Mexico gave VF control of this leading brand in additional international markets. Management allocated the purchase price of the acquisition to acquired tangible and intangible assets, and assumed liabilities, based on their respective fair values, with the excess purchase price recorded as goodwill. Factors that contributed to recognition of goodwill included (i) expected growth rates and profitability of the acquired operations, (ii) the ability to expand the brands within their markets or to new markets, (iii) their experienced workforces, (iv) VF’s strategies for growth in revenues, income and cash flows and (v) expected synergies with existing VF business units. None of the goodwill recognized for this acquisition is deductible for income tax purposes.

Management believes the Vans® trademarks and trade names have indefinite lives. Amounts assigned to amortizable intangible assets relate primarily to customer relationships, which are being amortized using accelerated methods over their estimated useful lives of 10 years.

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Accounts Receivable
12 Months Ended
Dec. 29, 2012
Accounts Receivable

Note C — Accounts Receivable

 

     2012      2011  
     In thousands  

Trade

   $ 1,179,832       $ 1,079,770   

Royalty and other

     91,511         94,486   
  

 

 

    

 

 

 

Total accounts receivable

     1,271,343         1,174,256   

Less allowance for doubtful accounts

     48,998         54,010   
  

 

 

    

 

 

 

Accounts receivable, net

   $ 1,222,345       $ 1,120,246   
  

 

 

    

 

 

 

VF has an agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis. Under the agreement, up to $237.5 million of accounts receivable may be sold to the financial institution and remain outstanding at any point in time. After the sale, VF does not retain any interests in the accounts receivable and removes them from the Consolidated Balance Sheets, but continues to service and collect outstanding accounts receivable on behalf of the financial institution. Accounts receivable at December 2012 and 2011  have been reduced by  $127.4 million and $115.4 million, respectively, related to balances which have been sold under this program. During the years 2012 and 2011, VF sold a total of $1,278.0 million and $1,187.7 million, respectively, of accounts receivable at their stated amounts, less a funding fee charged by the financial institution. The funding fee is recorded in other income (expense), net and totaled $2.0 million in 2012, $2.0 million in 2011 and $1.8 million in 2010. Net proceeds of this program are classified in operating activities in the Consolidated Statement of Cash Flows.

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Inventories
12 Months Ended
Dec. 29, 2012
Inventories

Note D — Inventories

 

     2012      2011  
     In thousands  

Finished products

   $ 1,099,229       $ 1,197,928   

Work in process

     98,191         86,902   

Materials and supplies

     156,738         168,815   
  

 

 

    

 

 

 

Total inventories

   $ 1,354,158       $ 1,453,645   
  

 

 

    

 

 

 
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Property, Plant and Equipment
12 Months Ended
Dec. 29, 2012
Property, Plant and Equipment

Note E — Property, Plant and Equipment

 

     2012      2011  
     In thousands  

Land

   $ 54,264       $ 53,138   

Buildings and improvements

     862,288         754,391   

Machinery and equipment

     1,066,865         1,022,510   
  

 

 

    

 

 

 

Property, plant and equipment, at cost

     1,983,417         1,830,039   

Less accumulated depreciation and amortization

     1,155,199         1,092,588   
  

 

 

    

 

 

 

Property, plant and equipment, net

   $ 828,218       $ 737,451   
  

 

 

    

 

 

 

Assets under capital leases, primarily buildings and improvements, are included in property, plant and equipment at a cost of $42.7 million, less accumulated amortization of $18.9 million, at the end of 2012 and $43.6 million, less accumulated amortization of $16.2 million, at the end of 2011. Amortization expense for assets under capital leases is included in depreciation expense.

Property, plant and equipment at December 2011 included $22.6 million of land and buildings owned by an independent contractor during the construction of a VF facility. The purchase obligation representing the in-process  portion of the construction was recorded in accrued liabilities at December 2011 (Note J). VF purchased these assets when the contractor completed construction in 2012.

Assets subject to a mortgage have a cost of $21.2 million, less accumulated depreciation of $2.4 million and $2.0 million at the end of 2012 and 2011, respectively. All other property, plant and equipment is unencumbered.

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Intangible Assets
12 Months Ended
Dec. 29, 2012
Intangible Assets

Note F — Intangible Assets

 

     Weighted                       
     Average                    Net  
     Amortization             Accumulated      Carrying  
     Period      Cost      Amortization      Amount  
     Dollars in thousands  

December 2012

           

Amortizable intangible assets:

           

Customer relationships

     19 years       $ 615,782       $ 173,336       $ 442,446   

License agreements

     24 years         183,854         68,112         115,742   

Trademarks and other

     8 years         15,944         7,196         8,748   
           

 

 

 

Amortizable intangible assets, net

              566,936   

Indefinite-lived intangible assets:

           

Trademarks and trade names

              2,350,122   
           

 

 

 

Intangible assets, net

            $ 2,917,058   
           

 

 

 

 

 

 

     Weighted                       
     Average                    Net  
     Amortization             Accumulated      Carrying  
     Period      Cost      Amortization      Amount  
     Dollars in thousands  

December 2011

           

Amortizable intangible assets:

           

Customer relationships

     19 years       $ 615,900       $ 138,083       $ 477,817   

License agreements

     24 years         183,704         59,465         124,239   

Trademarks and other

     8 years         19,364         7,430         11,934   
           

 

 

 

Amortizable intangible assets, net

              613,990   

Indefinite-lived intangible assets:

           

Trademarks and trade names

              2,344,473   
           

 

 

 

Intangible assets, net

            $ 2,958,463   
           

 

 

 

Intangible assets are amortized using the following methods: customer relationships — accelerated methods; license agreements — accelerated and straight-line methods; trademarks and other — straight-line method. Amortization expense was $47.9 million in 2012, $41.7 million in 2011 and $39.4 million in 2010. Estimated amortization expense for the years 2013 through 2017 is $45.7 million, $44.1 million, $42.1 million, $40.8 million and $39.5 million, respectively.

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Goodwill
12 Months Ended
Dec. 29, 2012
Goodwill

Note G — Goodwill

Changes in goodwill are summarized by business segment as follows:

 

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

Balance, December 2009

   $ 574,879      $ 238,930      $ 56,703       $ 157,314       $ 339,854      $ 1,367,680   

2010 acquisition

     16,938                                      16,938   

Impairment charges

                                   (195,169     (195,169

Contingent consideration

     (78                                   (78

Currency translation

     (16,992     (3,417                     (2,324     (22,733
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Balance, December 2010

     574,747        235,513        56,703         157,314         142,361        1,166,638   

2011 acquisition

     871,884                                      871,884   

Contingent consideration

                   1,065                        1,065   

Currency translation

     (9,035     (7,092                            (16,127
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Balance, December 2011

     1,437,596        228,421        57,768         157,314         142,361        2,023,460   

Adjustments to purchase price allocation

     (19,991                                   (19,991

Contingent consideration

                   979                        979   

Currency translation

     4,887        422                               5,309   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Balance, December 2012

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

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

 

In 2010, in connection with its annual impairment testing, VF recorded an impairment charge of $195.2 million to reduce the carrying value of goodwill in its 7 For All Mankind® business unit, which is part of the Contemporary Brands Coalition. Accumulated impairment charges as of December 2012 were $43.4 million, $58.5 million and $195.2 million related to the Outdoor & Action Sports, Sportswear and Contemporary Brands Coalitions, respectively. See Note T for additional information.

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Other Assets
12 Months Ended
Dec. 29, 2012
Other Assets

Note H — Other Assets

 

     2012      2011  
     In thousands  

Investments held for deferred compensation plans (Note M)

   $ 191,177       $ 181,416   

Other investments

     15,067         15,177   

Deferred income taxes (Note P)

     27,170         29,304   

Computer software, net of accumulated amortization of $57,362 in 2012 and $ 39,723 in 2011

     70,886         50,189   

Shop-in-shop costs, net of accumulated amortization of $49,319 in 2012 and $31,735 in 2011

     33,944         33,157   

Deferred debt issuance costs

     13,240         15,326   

Unrealized gains on hedging contracts (Note U)

     2,524         7,252   

Deposits

     30,291         31,963   

Other

     44,106         42,024   
  

 

 

    

 

 

 

Other assets

   $ 428,405       $ 405,808   
  

 

 

    

 

 

 

Investments held for deferred compensation plans consist of mutual funds and life insurance contracts. Mutual funds are classified as trading securities and carried at fair value. Life insurance contracts are carried at cash surrender value.

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Short-term Borrowings
12 Months Ended
Dec. 29, 2012
Short-term Borrowings

Note I — Short-term Borrowings

International lending arrangements, primarily short-term notes and accepted letters of credit, totaled $12.6 and $34.6 million at December 2012 and 2011, respectively. These arrangements are unsecured and had a weighted average interest rate of 7.3% and 11.3% at the end of December 2012 and 2011, respectively.

VF maintains a $1.25 billion senior unsecured revolving line of credit (the “Global Credit Facility”) which supports the $1.25 billion U.S. commercial paper programs described below. The Global Credit Facility has a $750.0 million sublimit to borrow readily available non-U.S. dollar currencies and a $100.0 million letter of credit sublimit. The Global Credit Facility expires in December 2016 and VF may request two extensions of one year each, subject to stated terms and conditions. Borrowings under the Global Credit Facility are priced at a credit spread of 90 basis points over the appropriate LIBOR benchmark for each currency. VF is also required to pay a facility fee to the lenders, currently equal to 10 basis points of the committed amount of the facility. The credit spread and facility fee are subject to adjustment based on VF’s credit ratings.

The Global Credit Facility contains certain restrictive covenants, which include maintenance of a consolidated indebtedness to consolidated capitalization ratio, as defined therein, equal to or below 60%. If VF fails in the performance of any covenants, the lenders may terminate their obligation to make advances and declare any outstanding obligations to be immediately due and payable. At the end of 2012, VF was in compliance with all covenants, and the entire amount of the Global Credit Facility was available for borrowing, except for $19.7 million of standby letters of credit issued on behalf of VF.

VF has commercial paper programs that allow for borrowings up to $1.25 billion to the extent that it has borrowing capacity under the Global Credit Facility. There were no commercial paper borrowings outstanding as of December 2012 and $247.1 million outstanding as of December 2011.

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Accrued Liabilities
12 Months Ended
Dec. 29, 2012
Accrued Liabilities

Note J — Accrued Liabilities

 

     2012      2011  
     In thousands  

Compensation

   $ 184,434       $ 187,053   

Deferred compensation (Note M)

     28,224         25,613   

Income taxes (Note P)

     44,592         17,284   

Deferred income taxes (Note P)

     6,601         9,740   

Other taxes

     110,281         94,893   

Advertising

     41,725         38,880   

Customer discounts and allowances

     37,274         35,725   

Interest

     16,860         17,360   

Unrealized losses on hedging contracts (Note U)

     22,013         19,326   

Insurance

     20,377         21,118   

Product warranty claims (Note L)

     13,805         13,791   

Pension liabilities (Note M)

     8,742         7,965   

Freight, duties, and postage

     42,382         40,220   

Construction obligation (Note E)

             22,648   

Other

     176,832         192,870   
  

 

 

    

 

 

 

Accrued liabilities

   $ 754,142       $ 744,486   
  

 

 

    

 

 

 
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Long-term Debt
12 Months Ended
Dec. 29, 2012
Long-term Debt

Note K — Long-term Debt

 

     2012      2011  
     In thousands  

Floating rate notes, due 2013

   $ 400,000       $ 400,000   

5.95% notes, due 2017

     250,000         250,000   

3.50% notes, due 2021

     498,629         498,496   

6.00% notes, due 2033

     293,253         293,096   

6.45% notes, due 2037

     350,000         350,000   

Other long-term debt

     10,528         10,702   

Capital leases

     29,629         32,231   
  

 

 

    

 

 

 

Total long-term debt

     1,832,039         1,834,525   

Less current portion

     402,873         2,744   
  

 

 

    

 

 

 

Long-term debt, due beyond one year

   $ 1,429,166       $ 1,831,781   
  

 

 

    

 

 

 

 

 

Interest payments are due quarterly on the floating rate notes and semi-annually on all fixed rate notes. The floating rate notes bear interest at the three-month LIBOR rate plus .75%. This interest rate resets quarterly and was 1.06% at the end of 2012.

All notes, along with any amounts outstanding under the Global Credit Facility (Note I), rank equally as senior unsecured obligations of VF. All notes contain customary covenants and events of default, including limitations on liens and sale-leaseback transactions and a cross-acceleration event of default. The cross-acceleration provision of the 2033 notes is triggered if more than $50.0 million of other debt is in default and has been accelerated by the lenders. For the other notes, the cross-acceleration trigger is $100.0 million. If VF fails in the performance of any covenant under the indentures that govern the respective notes, the trustee or lenders may declare the principal due and payable immediately. At the end of 2012, VF was in compliance with all covenants. None of the 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 2013, 2017, 2021 and 2037 notes were rated below investment grade by recognized rating agencies, then VF would be obligated to repurchase those notes at 101% of the aggregate principal amount plus any accrued interest.

The 2013 notes are not redeemable. VF may redeem its other notes, in whole or in part, at a price equal to the greater of (i) 100% of the principal amount, plus accrued interest to the redemption date, or (ii) the sum of the present value of the remaining scheduled payments of principal and interest discounted to the redemption date at an adjusted treasury rate, as defined, plus 20 basis points for the 2017 and 2021 notes and 25 basis points for the 2037 notes, plus accrued interest to the redemption date. In addition, the 2021 notes can be redeemed at 100% of the principal amount plus accrued interest to the redemption date within the three months prior to maturity.

The 2021 notes have a principal balance of $500.0 million and are recorded net of unamortized original issue discount. Interest expense on these notes is recorded at an effective annual interest rate of 4.69%, including amortization of a deferred loss on an interest rate hedging contract (Note U), original issue discount and debt issuance costs.

The 2033 notes have a principal balance of $300.0 million and are recorded net of unamortized original issue discount. Interest expense on these notes is recorded at an effective annual interest rate of 6.19%, including amortization of a deferred gain on an interest rate hedging contract (Note U), original issue discount and debt issuance costs.

Capital leases relate primarily to buildings and improvements (Note E), expire at dates through 2021 and have an effective interest rate of 5.06%.

 

The scheduled payments of long-term debt and future minimum lease payments for capital leases at the end of 2012 are summarized as follows:

 

     Notes and
Other
     Capital
Leases
     Total  
     In thousands  

2013

   $ 400,187       $ 4,123       $ 404,310   

2014

     200         4,123         4,323   

2015

     213         4,123         4,336   

2016

     9,928         4,345         14,273   

2017

     250,000         4,504         254,504   

Thereafter

     1,150,000         15,390         1,165,390   
  

 

 

    

 

 

    

 

 

 
     1,810,528         36,608         1,847,136   

Less unamortized debt discount

     8,118                 8,118   

Less amounts representing interest

             6,979         6,979   
  

 

 

    

 

 

    

 

 

 

Total long-term debt

     1,802,410         29,629         1,832,039   

Less current portion

     400,187         2,686         402,873   
  

 

 

    

 

 

    

 

 

 

Long-term debt, due beyond one year

   $ 1,402,223       $ 26,943       $ 1,429,166   
  

 

 

    

 

 

    

 

 

 
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Other Liabilities
12 Months Ended
Dec. 29, 2012
Other Liabilities

Note L — Other Liabilities

 

      2012      2011  
     In thousands  

Deferred compensation (Note M)

   $ 204,132       $ 196,443   

Pension liabilities (Note M)

     474,175         394,753   

Income taxes (Note P)

     121,516         118,091   

Deferred income taxes (Note P)

     366,804         415,852   

Deferred rent liabilities

     68,560         79,445   

Product warranty claims

     36,590         30,936   

Unrealized losses on hedging contracts (Note U)

     7,455         4,187   

Other

     66,786         50,431   
  

 

 

    

 

 

 

Other liabilities

   $ 1,346,018       $ 1,290,138   
  

 

 

    

 

 

 

Activity relating to accrued product warranty claims is summarized as follows:

 

     2012     2011     2010  
     In thousands  

Balance, beginning of year

   $ 44,727      $ 42,335      $ 41,473   

Accrual for products sold during the year

     17,769        15,749        11,436   

Repair or replacement costs incurred

     (12,427     (12,911     (9,397

Currency translation

     326        (446     (1,177
  

 

 

   

 

 

   

 

 

 

Balance, end of year

     50,395        44,727        42,335   

Less current portion (Note J)

     13,805        13,791        12,334   
  

 

 

   

 

 

   

 

 

 

Long-term portion

   $ 36,590      $ 30,936      $ 30,001   
  

 

 

   

 

 

   

 

 

 
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Retirement and Savings Benefit Plans
12 Months Ended
Dec. 29, 2012
Retirement and Savings Benefit Plans

Note M — Retirement and Savings Benefit Plans

VF has several retirement and savings benefit plans covering eligible employees. VF retains the right to amend any aspect of the plans, or to curtail or discontinue any of the plans, subject to local regulations.

Defined Benefit Pension Plans

Defined benefit plans provide pension benefits based on compensation and years of service. VF sponsors a noncontributory qualified defined benefit pension plan covering most full-time domestic employees employed before 2005 (the “domestic qualified plan”) and an unfunded supplemental defined benefit pension plan that provides benefits in excess of limitations imposed by income tax regulations (together, the “domestic plans”). The domestic plans comprise 93% of VF’s total defined benefit plan assets and projected benefit obligations at December 2012, and the remainder relates to defined benefit plans covering selected international employees.

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

 

      2012     2011     2010  
     In thousands  

Service cost — benefits earned during the year

   $ 23,198      $ 20,867      $ 18,085   

Interest cost on projected benefit obligations

     77,013        78,859        76,691   

Expected return on plan assets

     (80,619     (89,689     (76,846

Amortization of deferred amounts:

      

Net deferred actuarial losses

     69,744        43,088        45,731   

Deferred prior service cost

     3,357        3,453        3,948   
  

 

 

   

 

 

   

 

 

 

Total pension expense

   $ 92,693      $ 56,578      $ 67,609   
  

 

 

   

 

 

   

 

 

 

The following actuarial assumptions were used to determine pension expense for the domestic plans:

      

Discount rate

     5.10     5.65     6.05

Expected long-term return on plan assets

     7.50     7.75     7.75

Rate of compensation increase

     4.00     4.00     4.00

 

The following provides a reconciliation of the changes in fair value of all of VF’s defined benefit plan assets and projected benefit obligations for each year, and the funded status at the end of each year:

 

      2012     2011  
     In thousands  

Fair value of plan assets, beginning of year

   $ 1,144,178      $ 1,211,588   

Actual return on plan assets

     146,079        4,029   

VF contributions

     112,892        10,232   

Participant contributions

     2,677        2,455   

Benefits paid

     (76,813     (82,787

Currency translation

     3,198        (1,339
  

 

 

   

 

 

 

Fair value of plan assets, end of year

     1,332,211        1,144,178   
  

 

 

   

 

 

 

Projected benefit obligations, beginning of year

     1,546,896        1,418,960   

Service cost

     23,198        20,867   

Interest cost

     77,013        78,859   

Participant contributions

     2,677        2,455   

Actuarial loss

     243,766        110,254   

Benefits paid

     (76,813     (82,787

Plan amendments

     (5,518       

Currency translation

     3,909        (1,712
  

 

 

   

 

 

 

Projected benefit obligations, end of year

     1,815,128        1,546,896   
  

 

 

   

 

 

 

Funded status, end of year

   $ (482,917   $ (402,718
  

 

 

   

 

 

 

 

      2012     2011  
     Dollars in thousands  

Amounts included in Consolidated Balance Sheets:

    

Current liabilities (Note J)

   $ (8,742   $ (7,965

Noncurrent liabilities (Note L)

     (474,175     (394,753
  

 

 

   

 

 

 

Funded status

   $ (482,917   $ (402,718
  

 

 

   

 

 

 

Accumulated other comprehensive loss:

    

Net deferred actuarial losses

   $ 676,373      $ 567,864   

Deferred prior service cost

     7,525        15,176   
  

 

 

   

 

 

 
   $ 683,898      $ 583,040   
  

 

 

   

 

 

 

Accumulated benefit obligations

   $ 1,751,741      $ 1,498,583   
  

 

 

   

 

 

 

Assumptions used to determine obligations for domestic plans:

    

Discount rate

     4.05     5.10

Rate of compensation increase

     4.00     4.00

Accumulated benefit obligations at any measurement date are the present value of vested and unvested pension benefits earned, without projection to future periods. Projected benefit obligations are the present value of vested and unvested pension benefits earned, considering projected future compensation increases.

 

Deferred actuarial losses result from differences between expected amounts for a year using actuarial assumptions and the actual results for that year. These amounts are deferred as a component of accumulated OCI and amortized to pension expense in future years as follows: amounts in excess of 20% of projected benefit obligations at the beginning of the year are amortized over five years; amounts between (i) 10% of the greater of projected benefit obligations or plan assets and (ii) 20% of projected benefit obligations are amortized over the expected average remaining years of service of active participants; and amounts less than the greater of 10% of projected benefit obligations or plan assets are not amortized. Deferred prior service costs are also recorded in accumulated OCI and amortized to pension expense in future years. The estimated amounts of accumulated OCI to be amortized to pension expense in 2013 are $85.3 million of deferred actuarial losses and $1.1 million of deferred prior service costs.

Management’s investment objective for the domestic qualified plan is to invest the plan assets in a diversified portfolio of securities to provide long-term growth, minimize the volatility of the value of plan assets relative to plan liabilities, and to ensure plan assets are sufficient to pay the benefit payment obligations. Investment strategies focus on diversification among multiple asset classes, a balance of long-term investment return at an acceptable level of risk, and liquidity to meet benefit payments. In March 2012, the investment strategy of the domestic qualified plan was modified to more closely align the plan assets with the plan liabilities, and to implement dynamic asset allocation targets dependent upon changes in the plan’s funded ratio, capital market expectations, and risk tolerance. At the end of 2012, the target asset allocation of the domestic qualified plan was 45% fixed income and 55% return-seeking investments (including equities and alternative investments such as commodities, hedge funds, and real estate).

Plan assets for the domestic qualified plan are primarily composed of common collective trust funds which invest in liquid securities diversified across equity, fixed income, real estate and other asset classes. Fund assets are allocated among independent investment managers who have full discretion to manage their portion of the fund’s assets, subject to strategy and risk guidelines established with each manager. The overall strategy, the resulting allocations of plan assets and the performance of funds and individual investment managers are continually monitored. Derivative instruments may be used by investment managers for hedging purposes to gain exposure to alternative asset classes through the futures markets. There are no investments in VF debt or equity securities and no significant concentrations of security risk.

The expected long-term rate of return on plan assets for the domestic qualified plan was based on an evaluation of the weighted average of the expected returns for the major asset classes in which the plans invest. Expected returns by asset class were developed through analysis of historical market returns, current market conditions, inflation expectations, and equity and credit risks. Inputs from various investment advisors on long-term capital market returns and other variables were also considered where appropriate.

The fair value of investments held by all of VF’s defined benefit plans at December 2012 and 2011, by asset class, is summarized below. See Note T for a description of the three levels of the fair value measurement hierarchy. Level 2 securities generally represent institutional funds measured at their daily net asset value derived from quoted prices of the underlying investments.

 

     Total Plan
Assets
    Quoted
Prices in
Active
Markets for
Identical
Assets

(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs

(Level 3)
 
     In thousands  

December 2012

        

Cash equivalents(a)

   $ 119,962      $ 1,837      $ 118,125      $   

Equity securities:

        

Domestic

     314,052               314,052          

International

     344,840               344,840          

Fixed income securities:

        

U.S. Treasury and government agencies

     39,361        39,331        30          

Corporate and international bonds

     432,410               432,410          

Real estate

     45,922               45,922          

Insurance contracts

     34,843               34,843          

Commodities(b)

     821        821                 
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,332,211      $ 41,989      $ 1,290,222      $   
  

 

 

   

 

 

   

 

 

   

 

 

 

December 2011

        

Cash equivalents(a)

   $ 38,200      $ 6,086      $ 32,114      $   

Equity securities:

        

Domestic

     330,663        329,455        1,208          

International

     229,580        101,452        128,128          

Fixed income securities:

        

U.S. Treasury and government agencies

     132,696        114,026        18,670          

Corporate and international bonds

     393,884               393,884          

Real estate

     38,512        38,512                 

Insurance contracts

     28,779               28,779          

Commodities(b)

     (236     (236              

Payable for securities(c)

     (47,900            (47,900       
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,144,178      $ 589,295      $ 554,883      $   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) 

Includes cash held by individual investment managers of other asset classes for liquidity purposes. Level 2 includes an institutional fund that invests primarily in short-term U.S. government securities.

(b) 

Consists of derivative commodity futures.

(c) 

Represents payable for purchased securities not yet settled.

VF makes contributions to its defined benefit plans sufficient to meet minimum funding requirements under applicable laws, plus discretionary amounts as considered prudent. VF made a $100.0 million discretionary contribution to the domestic qualified plan during 2012 and an additional $100.0 million discretionary contribution in January 2013. VF does not currently plan to make any additional contributions to the domestic qualified plan during 2013, but will continue to evaluate whether discretionary contributions would be appropriate. VF intends to make contributions totaling approximately $19.9 million to its other defined benefit plans during 2013. The estimated future benefit payments for all of VF’s defined benefit plans are approximately $75.8 million in 2013, $80.4 million in 2014, $83.3 million in 2015, $86.3 million in 2016, $89.4 million in 2017 and $501.1 million for the years 2018 through 2022.

Deferred Compensation Plans

VF sponsors a nonqualified retirement savings plan for employees whose contributions to a 401(k) plan would be limited by provisions of the Internal Revenue Code. This plan allows participants to defer a portion of their compensation and to receive matching contributions for a portion of the deferred amounts. Expense under this plan was $4.7 million in 2012, $4.3 million in 2011 and $3.9 million in 2010. Participants earn a return on their deferred compensation based on their selection of a hypothetical portfolio of publicly traded mutual funds, a fixed income fund and VF Common Stock. Changes in the fair value of the participants’ hypothetical investments are recorded as an adjustment to deferred compensation liabilities and compensation expense. Deferred compensation, including accumulated earnings, is distributable in cash at participant-specified dates or upon retirement, death, disability or termination of employment. Similarly, under a separate nonqualified plan, nonemployee members of the Board of Directors may defer their Board compensation and invest it in hypothetical shares of VF Common Stock. VF also has remaining obligations under deferred compensation plans of acquired companies. At December 2012, VF’s liability to participants under all deferred compensation plans was $232.3 million, of which $28.2 million was recorded in accrued liabilities (Note J) and $204.1 million was recorded in other liabilities (Note L).

VF has purchased (i) publicly traded mutual funds, a fixed income fund and VF Common Stock in the same amounts as most of the participant-directed hypothetical investments underlying the deferred compensation liabilities and (ii) variable life insurance contracts that invest in institutional funds that are substantially the same as the participant-directed hypothetical investments. These investment securities (other than VF Common Stock) and earnings thereon, are intended to provide a source of funds to meet the deferred compensation obligations, and serve as an economic hedge of the financial impact of changes in deferred compensation liabilities. They are held in an irrevocable trust but are subject to claims of creditors in the event of VF’s insolvency. VF also has assets related to deferred compensation plans of acquired companies, which are primarily invested in life insurance contracts. At December 2012, the fair value of investments held for all deferred compensation plans was $217.2 million, of which $26.0 million was recorded in other current assets and $191.2 million was recorded in other assets (Note H). The VF Common Stock purchased to match participant-directed hypothetical investments is treated for financial reporting purposes as treasury stock (Note N), which is the primary reason for the difference in carrying value of the investment securities and the recorded deferred compensation liabilities. Realized and unrealized gains and losses on these investments (other than VF Common Stock) are recorded in compensation expense in the Consolidated Statements of Income and substantially offset losses and gains resulting from changes in deferred compensation liabilities to participants.

Other Retirement and Savings Plans

VF sponsors 401(k) plans as well as other domestic and foreign retirement and savings plans. Expense for these plans totaled $18.7 million in 2012, $16.9 million in 2011 and $14.6 million in 2010.

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Capital and Accumulated Other Comprehensive Income (Loss)
12 Months Ended
Dec. 29, 2012
Capital and Accumulated Other Comprehensive Income (Loss)

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

Common Stock

Common Stock outstanding is net of shares held in treasury which are, in substance, retired. During 2012, VF restored 19,000,000 shares of treasury stock to an unissued status. There were 2,530,401 treasury shares at the end of 2012, 19,289,690 at the end of 2011 and 19,099,644 at the end of 2010. The excess of the cost of treasury shares acquired over the $1 per share stated value of Common Stock is deducted from retained earnings. In addition, 187,456 shares of Common Stock at the end of 2012, 238,275 shares at the end of 2011 and 246,860 shares at the end of 2010 were held in connection with deferred compensation plans (Note M). These shares, having a cost of $8.8 million, $11.0 million and $10.7 million at the respective dates, are treated as treasury shares for financial reporting purposes.

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. VF’s comprehensive income is presented in the Consolidated Statements of Comprehensive Income. The deferred components of other comprehensive income (loss) are reported, net of related income taxes, in accumulated other comprehensive income (loss) in stockholders’ equity, as follows:

 

      2012     2011  
     In thousands  

Foreign currency translation

   $ (4,068   $ (51,159

Defined benefit pension plans

     (420,538     (356,693

Derivative financial instruments

     (29,430     (14,167

Marketable securities

     141        542   
  

 

 

   

 

 

 

Accumulated other comprehensive income (loss)

   $ (453,895   $ (421,477
  

 

 

   

 

 

 
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Stock-based Compensation
12 Months Ended
Dec. 29, 2012
Stock-based Compensation

Note O — Stock-based Compensation

VF is authorized to grant nonqualified stock options, restricted stock units (“RSUs”) and restricted stock to officers, key employees and nonemployee members of VF’s Board of Directors under the amended and restated 1996 Stock Compensation Plan approved by stockholders. All stock-based compensation awards are classified as equity awards, which are accounted for in stockholders’ equity in the Consolidated Balance Sheets. Compensation cost for all awards expected to vest is recognized over the shorter of the requisite service period or the vesting period. Awards that do not vest are forfeited. VF has elected to compute income tax benefits associated with stock option awards under the short cut method as allowed by the applicable accounting literature. Total stock-based compensation cost and the related income tax benefits recognized in the Consolidated Statements of Income were $92.8 million and $34.2 million in 2012, $76.7 million and $28.2 million in 2011 and $63.5 million and $23.4 million in 2010, respectively. Stock-based compensation cost capitalized as part of inventory was $0.2 million in December 2012 and $0.3 million at December 2011. At the end of 2012, there was $46.5 million of total unrecognized compensation cost related to all stock-based compensation arrangements that will be recognized over a weighted average period of one year.

At the end of 2012, there were 9,388,241 shares available for future grants of stock options and stock awards under the 1996 Stock Compensation Plan. Shares for option exercises are issued from VF’s authorized but unissued Common Stock. VF has a practice of repurchasing shares of Common Stock in the open market to offset, on a long-term basis, dilution caused by awards under equity compensation plans.

 

Stock Options

Stock options are granted with an exercise price 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, and compensation cost is recognized ratably over the vesting period. Stock options granted to members of the Board of Directors become exercisable one year from the date of grant. All options have ten year terms. The grant date fair value of each option award is calculated using a lattice option-pricing valuation model, which incorporates a range of assumptions for inputs as follows:

 

    

2012

  

2011

  

2010

Expected volatility

   27% to 31%    27% to 38%    24% to 39%

Weighted average expected volatility

   30%    34%    35%

Expected term (in years)

   5.6 to 7.5    5.6 to 7.5    5.5 to 7.6

Dividend yield

   2.5%    3.1%    3.7%

Risk-free interest rate

   0.1% to 2.1%    0.2% to 3.5%    0.2% to 3.7%

Weighted average grant date fair value

   $33.44    $25.12    $18.46

Expected volatility over the contractual term of an option was based on a combination of the implied volatility from publicly traded options on VF Common Stock and the historical volatility of VF Common Stock.

The expected term represents the period of time over which options that vest are expected to be outstanding before exercise. VF used historical data to estimate option exercise behaviors and to estimate the number of options that would vest. Groups of employees that have historically exhibited similar option exercise behaviors were considered separately in estimating the expected term for each employee group. Dividend yield represents expected dividends on VF Common Stock for the contractual life of the options. Risk-free interest rates for the periods during the contractual life of the option were the implied yields at the date of grant from the U.S. Treasury zero coupon yield curve.

Stock option activity for 2012 is summarized as follows:

 

      Number
of Shares
    Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual
Term (Years)
     Aggregate
Intrinsic
Value

(In  thousands)
 

Outstanding, December 2011

     4,801,101      $ 72.62         

Granted

     870,195        145.59         

Exercised

     (1,280,531     63.22         

Forfeited/cancelled

     (80,206     108.75         
  

 

 

         

Outstanding, December 2012

     4,310,559        89.48         6.7       $ 253,525   
  

 

 

      

 

 

    

 

 

 

Exercisable, December 2012

     2,541,943      $ 71.52         5.6       $ 195,141   
  

 

 

      

 

 

    

 

 

 

The total fair value of stock options vested during 2012, 2011 and 2010 was $20.4 million, $20.6 million and $22.7 million, respectively. The total intrinsic value of stock options exercised during 2012, 2011 and 2010 was $112.9 million, $113.5 million and $61.6 million, respectively.

 

 

Restricted Stock Units

VF has granted performance-based RSUs to key employees as a long-term incentive. These RSUs enable the recipients to receive shares of VF Common Stock at the end of a three year period. Each RSU has a potential final value ranging from zero to two shares of VF Common Stock. The number of shares earned by participants, if any, is based on achievement of a three year baseline profitability goal and annually established performance goals set by the Compensation Committee of the Board of Directors. Beginning with grants made in 2012, the actual number of shares earned may also be adjusted upward or downward by 25% of the target award, based on how VF’s total shareholder return (“TSR”) over the three year period compares to the TSR for companies included in the Standard & Poor’s 500 index. Shares are issued to participants in the year following the conclusion of each three year performance period.

VF has also granted nonperformance-based RSUs to a smaller group of key employees and members of the Board of Directors. Each RSU entitles the holder to one share of VF Common Stock. The employee RSUs generally vest four years after the date of grant. The RSUs granted to members of the Board of Directors vest upon grant and will be settled in shares of VF common stock one year from the date of grant.

Dividend equivalents, payable in additional shares of VF Common Stock, accrue without compounding on the RSUs and are subject to the same risks of forfeiture as the RSUs.

RSU activity for 2012 is summarized as follows:

 

     Performance-based      Nonperformance-based  
     Number
Outstanding
    Weighted
Average
Grant Date
Fair Value
     Number
Outstanding
    Weighted
Average
Grant Date
Fair Value
 

Outstanding, December 2011

     821,211      $ 73.11         152,760      $ 99.57   

Granted

     195,290        145.47         10,345        142.09   

Issued as Common Stock

     (312,791     57.51         (25,760     83.54   

Forfeited/cancelled

     (16,451     114.81         (3,000     130.37   
  

 

 

      

 

 

   

Outstanding, December 2012

     687,259        99.77         134,345        105.23   
  

 

 

      

 

 

   

Vested, December 2012

     414,305        86.73         4,345        145.58   
  

 

 

      

 

 

   

The weighted average fair value of performance-based RSUs granted during 2012, 2011 and 2010 was $145.47, $95.76 and $72.11, respectively, which was equal to the market value of the underlying VF Common Stock on the grant date. The total market value of awards outstanding at the end of 2012 was $101.9 million. Awards earned and vested for the three year performance period ended in 2012 and distributable in early 2013 totaled 540,217 shares of VF Common Stock having a value of $82.1 million, as approved by the Compensation Committee of the Board of Directors. Similarly, 526,164 shares of VF Common Stock with a value of $74.6 million were earned for the performance period ended in 2011, and 314,705 shares of VF Common Stock with a value of $27.2 million were earned for the performance period ended in 2010.

The weighted average grant date fair value of each nonperformance-based RSU granted during 2012, 2011 and 2010 was $142.09, $114.31 and $84.01, respectively, which was equal to the market value of the underlying VF Common Stock. The total market value of awards outstanding at the end of 2012 was $20.7 million.

 

 

Restricted Stock

VF has granted restricted shares of VF Common Stock to certain members of management. The fair value of the restricted shares, equal to the market value of VF Common Stock at the grant date, is recognized ratably over the vesting period. Restricted shares are issued in the name of the employee but generally do not vest until four years after the date of grant. Dividends are payable in additional restricted shares when the restricted stock vests and are subject to the same risk of forfeiture as the restricted stock.

Restricted stock activity for 2012 is summarized below:

 

     Nonvested
Shares
Outstanding
    Weighted
Average
Grant Date
Fair Value
 

Nonvested shares, December 2011

     180,337      $ 93.41   

Granted

     12,500        140.54   

Dividend equivalents

     3,443        149.12   

Vested

     (16,802     76.98   

Forfeited

     (9,368     97.27   
  

 

 

   

Nonvested shares, December 2012

     170,110        99.41   
  

 

 

   

Nonvested shares of restricted stock had a market value of $25.2 million at the end of 2012. The market value of the shares vested during 2012 was $2.5 million.

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Income Taxes
12 Months Ended
Dec. 29, 2012
Income Taxes

Note P — Income Taxes

The provision for income taxes was computed based on the following amounts of income before income taxes:

 

      2012     2011     2010  
     In thousands  

Domestic

   $ 663,380      $ 582,198      $ 417,906   

Foreign

     758,495        582,545        332,306   
  

 

 

   

 

 

   

 

 

 

Income before income taxes

   $ 1,421,875      $ 1,164,743      $ 750,212   
  

 

 

   

 

 

   

 

 

 

The provision for income taxes consisted of:

  

      2012     2011     2010  
     In thousands  

Current:

      

Federal

   $ 231,282      $ 193,433      $ 188,072   

Foreign

     100,635        57,738        53,260   

State

     24,617        34,046        27,436   
  

 

 

   

 

 

   

 

 

 
     356,534        285,217        268,768   

Deferred:

      

Federal and State

     (13,999     (7,955     (90,951

Foreign

     (6,798     (2,912     (1,117
  

 

 

   

 

 

   

 

 

 

Income taxes

   $ 335,737      $ 274,350      $ 176,700   
  

 

 

   

 

 

   

 

 

 

 

 

The differences between income taxes computed by applying the statutory federal income tax rate and income tax expense in the consolidated financial statements are as follows:

 

      2012     2011     2010  
     In thousands  

Tax at federal statutory rate

   $ 497,656      $ 407,660      $ 262,574   

State income taxes, net of federal tax benefit

     24,304        23,147        15,968   

Foreign rate differences

     (165,318     (144,327     (100,712

Change in valuation allowance

     (33,060     (12,126     6,531   

Tax credits

            (8,454     (11,336

Other

     12,155        8,450        3,675   
  

 

 

   

 

 

   

 

 

 

Income taxes

   $ 335,737      $ 274,350      $ 176,700   
  

 

 

   

 

 

   

 

 

 

Foreign rate differences include $14.8 million in tax benefits in 2012, $1.6 million in 2011 and $5.6 million in 2010 from the favorable audit outcomes on certain tax matters and from expiration of statutes of limitations. 2010 foreign rate differences also include $13.0 million of tax benefits for refund claims related to prior years’ tax filings in a foreign jurisdiction.

VF has been granted a lower effective income tax rate on taxable earnings for years 2010 through 2014 in a foreign jurisdiction based on investment and employment level requirements. This lower rate, when compared with the country’s statutory rate, resulted in an income tax reduction of $6.3 million ($0.06 per diluted share) in 2012, $6.2 million ($0.06 per diluted share) in 2011 and $6.0 million ($0.05 per diluted share) in 2010. In addition, VF has been granted a lower effective income tax rate on taxable earnings in another foreign jurisdiction for the period 2010 through 2019. This lower rate, when compared with the country’s statutory rate, resulted in an income tax reduction of $8.1 million ($0.07 per diluted share) in 2012, $5.5 million ($0.05 per diluted share) in 2011 and $4.5 million ($0.04 per diluted share) in 2010.

Additionally, income tax expense in 2011 and 2010 included $8.5 million and $7.5 million, respectively, of tax credits related to prior years.

 

 

Deferred income tax assets and liabilities consisted of the following:

 

      2012     2011  
     In thousands  

Deferred income tax assets:

  

Inventories

   $ 13,237      $ 21,489   

Employee compensation and benefits

     365,412        321,353   

Other accrued expenses

     167,230        160,885   

Operating loss carryforwards

     125,436        156,380   

Capital loss carryforwards

     2,649        18,558   
  

 

 

   

 

 

 
     673,964        678,665   

Valuation allowance

     (99,703     (151,556
  

 

 

   

 

 

 

Deferred income tax assets

     574,261        527,109   
  

 

 

   

 

 

 

Deferred income tax liabilities:

    

Intangible assets

     775,049        776,816   

Other deferred liabilities

     2,939        25,347   

Foreign currency translation

     1,993        14,517   
  

 

 

   

 

 

 

Deferred income tax liabilities

     779,981        816,680   
  

 

 

   

 

 

 

Net deferred income tax assets (liabilities)

   $ (205,720   $ (289,571
  

 

 

   

 

 

 

Amounts included in Consolidated Balance Sheets:

    

Current assets

   $ 140,515      $ 106,717   

Current liabilities

     (6,601     (9,740

Noncurrent assets

     27,170        29,304   

Noncurrent liabilities

     (366,804     (415,852
  

 

 

   

 

 

 
   $ (205,720   $ (289,571
  

 

 

   

 

 

 

As of the end of 2012, VF has not provided deferred taxes on $1,938.9 million of undistributed earnings from international subsidiaries where the earnings are considered to be permanently reinvested. VF’s intent is to continue to reinvest these earnings to support the strategic priority for growth in international markets. If management decides at a later date to repatriate these funds to the U.S., VF would be required to provide taxes on these amounts based on applicable U.S. tax rates net of foreign taxes already paid. VF has not determined the deferred tax liability associated with these undistributed earnings, as such determination is not practicable.

VF has potential tax benefits totaling $106.2 million for foreign operating loss carryforwards, of which $92.9 million have an unlimited carryforward life. In addition, there are $7.0 million of potential tax benefits for federal operating loss carryforwards that expire between 2017 and 2027, $12.3 million of benefits for state operating loss carryforwards that expire between 2013 and 2029 and $2.6 million of benefits for federal capital loss carryforwards that expire between 2013 and 2014. Some of the foreign and substantially all of the federal and state operating loss carryforward amounts relate to acquired companies for periods prior to their acquisition by VF. A valuation allowance has been provided where it is more likely than not that the deferred tax assets related to those operating loss carryforwards will not be realized.

 

 

Valuation allowances totaled $85.9 million for available foreign operating loss carryforwards, $5.2 million for available state operating loss carryforwards, $2.6 million for federal capital loss carryforwards and $6.0 million for other foreign deferred income tax assets. During 2012, VF had a net decrease in valuation allowances of $17.3 million related to foreign operating loss carryforwards and other deferred tax assets, a decrease of $13.3 million related to federal operating loss carryforwards, a decrease of $2.8 million related to state operating loss carryforwards, a decrease of $15.6 million related to federal capital loss caryforwards, and a decrease of $2.9 million related to foreign currency translation effects. Of the $51.9 million decrease in valuation allowances, $18.0 million relates to the release of valuation allowance in jurisdictions where management believes it is more likely than not that the underlying deferred tax assets are realizable, $15.0 million relates to the utilization of capital loss carryforwards primarily due to the sale of a business (see Note B), $2.9 million relates to foreign currency effects, and $16.0 relates primarily to the write off of deferred taxes in jurisdictions where laws limit the future utilization of certain operating loss carryforwards.

A reconciliation of the change in the accrual for unrecognized income tax benefits is as follows:

 

     Unrecognized
Income Tax
Benefits
    Accrued
Interest
    Unrecognized
Income Tax
Benefits,
Including Interest
 
     In thousands  

Balance, December 2009

   $ 41,878      $ 8,579      $ 50,457   

Additions for current year tax positions

     8,460        377        8,837   

Additions for prior year tax positions

     15,053        2,229        17,282   

Reductions for prior year tax positions

     (214     (200     (414

Reductions due to statute expirations

     (5,315     (409     (5,724

Payments in settlement

     (1,573     (746     (2,319

Currency translation

     (721            (721
  

 

 

   

 

 

   

 

 

 

Balance, December 2010

     57,568        9,830        67,398   

Additions for current year tax positions

     14,862        4        14,866   

Additions for prior year tax positions

     12,038        6,661        18,699   

Additions for prior year — Timberland acquisition

     48,077        1,792        49,869   

Reductions for prior year tax positions

     (13,975     (570     (14,545

Reductions due to statute expirations

     (6,748     (4,006     (10,754

Payments in settlement

     (6,951     (579     (7,530

Currency translation

     88               88   
  

 

 

   

 

 

   

 

 

 

Balance, December 2011

     104,959        13,132        118,091   

Additions for current year tax positions

     18,930               18,930   

Additions for prior year tax positions

     39,616        6,199        45,815   

Reductions for prior year — Timberland acquisition

     (5,707     151        (5,556

Reductions for prior year tax positions

     (19,678     (2,314     (21,992

Reductions due to statute expirations

     (2,765     (207     (2,972

Payments in settlement

     (313     (140     (453

Currency translation

     252               252   
  

 

 

   

 

 

   

 

 

 

Balance, December 2012

   $ 135,294      $ 16,821      $ 152,115   
  

 

 

   

 

 

   

 

 

 

 

 

 

      2012      2011  
     In thousands  

Amounts included in Consolidated Balance Sheets:

     

Unrecognized income tax benefits, including interest

   $ 152,115       $ 118,091   

Less deferred tax benefit

     34,990         15,368   
  

 

 

    

 

 

 

Total unrecognized tax benefits

   $ 117,125       $ 102,723   
  

 

 

    

 

 

 

The net unrecognized tax benefits and interest of $117.1 million at the end of 2012, if recognized, would reduce the annual effective tax rate.

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 United States, the Internal Revenue Service (“IRS”) examination for tax years 2007, 2008 and 2009 was completed in 2012. VF has appealed the results of the 2007 to 2009 examination to the IRS Appeals office. Tax years prior to 2007 have been effectively settled with the IRS, with the exception of outstanding refund claims. 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 to ensure VF’s provision for income taxes is sufficient. The outcome of any one examination is not expected to have a material impact on VF’s consolidated financial statements. Management believes that some of these audits and negotiations will conclude during the next 12 months. Management also believes that it is reasonably possible that the amount of unrecognized income tax benefits may decrease by $45.2 million within the next 12 months due to settlement of audits and expiration of statutes of limitations, $16.5 million of which would reduce income tax expense.

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Business Segment Information
12 Months Ended
Dec. 29, 2012
Business Segment Information

Note Q — Business Segment Information

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

 

• Outdoor & Action Sports

   Activity based apparel and footwear, backpacks, bags, and technical equipment

• Jeanswear

   Jeanswear and related products

• Imagewear

   Occupational apparel and licensed athletic apparel

• Sportswear

   Fashion sportswear

• Contemporary Brands

   Premium lifestyle apparel

• Other

   Primarily sales of non-VF products at VF Outlet® stores

Management at each of the coalitions has direct control over and responsibility for its revenues, operating income and assets, hereinafter termed “coalition revenues,” “coalition profit” and “coalition assets,” respectively. VF management evaluates operating performance and makes investment and other decisions based on coalition revenues and coalition profit. Accounting policies used for internal management reporting at the individual coalitions are consistent with those in Note A, except as stated below. Common costs such as information systems processing, retirement benefits and insurance are allocated to the coalitions based on appropriate metrics such as usage or employment.

Corporate costs (other than allocated costs directly related to the coalitions), impairment charges and net interest expense are not controlled by coalition management and therefore are excluded from the measurement of coalition profit. Corporate and other expenses consists of corporate headquarters expenses that are not allocated to the coalitions (including compensation and benefits of corporate management and staff, certain legal and professional fees, and administrative and general) and other expenses related to but not allocated to the coalitions for internal management reporting (including a portion of defined benefit pension costs, development costs for management information systems, costs of registering, maintaining and enforcing certain of VF’s trademarks, adjustments for the LIFO method of inventory valuation (prior to 2011) and miscellaneous consolidated costs). Defined benefit pension plans in the United States are centrally managed. The current year service cost component of pension cost is allocated to the coalitions, while other cost components are reported in corporate and other expenses.

Coalition assets, for internal management purposes, are those used directly in or resulting from the operations of each business unit, such as accounts receivable, inventories and property, plant and equipment. Corporate assets primarily include corporate facilities, investments held in trust for deferred compensation plans and information systems.

Financial information for VF’s reportable segments is as follows:

 

     2012     2011     2010  
     In thousands  

Coalition revenues:

      

Outdoor & Action Sports

   $ 5,866,071      $ 4,561,998      $ 3,204,657   

Jeanswear

     2,789,293        2,731,770        2,537,591   

Imagewear

     1,075,677        1,025,214        909,402   

Sportswear

     577,317        543,515        497,773   

Contemporary Brands

     445,960        485,142        438,741   

Other

     125,537        111,593        114,425   
  

 

 

   

 

 

   

 

 

 

Total revenues

   $ 10,879,855      $ 9,459,232      $ 7,702,589   
  

 

 

   

 

 

   

 

 

 

Coalition profit:

      

Outdoor & Action Sports(a)

   $ 1,019,425      $ 828,228      $ 636,720   

Jeanswear

     466,960        413,187        431,942   

Imagewear

     145,053        145,655        111,174   

Sportswear

     72,978        56,312        52,354   

Contemporary Brands

     49,182        35,860        14,046   

Other

     (232     (1,024     (61
  

 

 

   

 

 

   

 

 

 

Total coalition profit

     1,753,366        1,478,218        1,246,175   

Impairment of goodwill and trademarks(b)

                   (201,738

Corporate and other expenses(a)

     (241,239     (240,675     (218,823

Interest, net

     (90,252     (72,800     (75,402
  

 

 

   

 

 

   

 

 

 

Income before income taxes

   $ 1,421,875      $ 1,164,743      $ 750,212   
  

 

 

   

 

 

   

 

 

 

 

(a) 

2012 amounts included $30.8 million of expenses related to the acquisition of Timberland, reported in: Outdoor & Action Sports — $22.1 million and Corporate — $8.7 million. 2011 related amounts included $33.5 million of expenses reported in: Outdoor & Action Sports — $23.7 million and Corporate — $9.8 million.

 

(b) 

Goodwill and trademark impairment charges totaling $201.7 million in 2010 related to Contemporary Brands. See Notes G and T.

 

     2012      2011      2010  
     In thousands  

Coalition assets:

        

Outdoor & Action Sports

   $ 1,944,822       $ 1,762,774       $ 954,441   

Jeanswear

     870,302         898,733         841,865   

Imagewear

     341,588         356,782         319,179   

Sportswear

     131,393         128,823         127,567   

Contemporary Brands

     172,564         195,528         181,399   

Other

     66,774         63,262         61,065   
  

 

 

    

 

 

    

 

 

 

Total coalition assets

     3,527,443         3,405,902         2,485,516   

Cash and equivalents

     597,461         341,228         792,239   

Intangible assets and goodwill

     4,926,815         4,981,923         2,657,563   

Deferred income taxes

     167,685         136,021         106,743   

Corporate assets

     413,617         448,052         415,495   
  

 

 

    

 

 

    

 

 

 

Consolidated assets

   $ 9,633,021       $ 9,313,126       $ 6,457,556   
  

 

 

    

 

 

    

 

 

 

Capital expenditures:

        

Outdoor & Action Sports

   $ 155,522       $ 90,381       $ 49,658   

Jeanswear

     67,239         21,076         19,906   

Imagewear

     4,967         5,318         2,843   

Sportswear

     5,279         5,902         3,770   

Contemporary Brands

     6,766         16,534         10,975   

Other

     5,418         5,370         5,627   

Corporate

     6,749         26,313         18,861   
  

 

 

    

 

 

    

 

 

 
   $ 251,940       $ 170,894       $ 111,640   
  

 

 

    

 

 

    

 

 

 

Depreciation and amortization expense:

        

Outdoor & Action Sports

   $ 114,483       $ 83,559       $ 62,563   

Jeanswear

     39,520         41,207         34,304   

Imagewear

     11,733         11,513         12,055   

Sportswear

     11,639         12,072         12,155   

Contemporary Brands

     24,915         26,590         32,864   

Other

     5,517         4,122         3,638   

Corporate

     30,149         19,672         15,817   
  

 

 

    

 

 

    

 

 

 
   $ 237,956       $ 198,735       $ 173,396   
  

 

 

    

 

 

    

 

 

 

 

Supplemental information (with revenues by geographic area based on the location of the customer) is as follows:

 

     2012      2011      2010  
     In thousands  

Total revenues:

        

United States

   $ 6,903,269       $ 6,220,933       $ 5,411,533   

Foreign, primarily Europe

     3,976,586         3,238,299         2,291,056   
  

 

 

    

 

 

    

 

 

 
   $ 10,879,855       $ 9,459,232       $ 7,702,589   
  

 

 

    

 

 

    

 

 

 

Property, plant and equipment:

        

United States

   $ 513,282       $ 521,838       $ 446,718   

Foreign, primarily Europe

     314,936         215,613         156,190   
  

 

 

    

 

 

    

 

 

 
   $ 828,218       $ 737,451       $ 602,908   
  

 

 

    

 

 

    

 

 

 

Sales to Wal-Mart Stores, Inc., primarily by the Jeanswear Coalition, comprised 8% of total revenues in 2012, 9% in 2011 and 10% in 2010.

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Commitments
12 Months Ended
Dec. 29, 2012
Commitments

Note R — Commitments

VF is obligated under noncancelable operating leases related primarily to retail stores, office space, distribution facilities and equipment. Rent expense included in the Consolidated Statements of Income was as follows:

 

     2012      2011      2010  
     In thousands  

Minimum rent expense

   $ 292,632       $ 233,845       $ 181,190   

Contingent rent expense

     35,622         14,625         6,828   
  

 

 

    

 

 

    

 

 

 

Rent expense

   $ 328,254       $ 248,470       $ 188,018   
  

 

 

    

 

 

    

 

 

 

Future minimum lease payments are $298.0 million, $256.2 million, $213.5 million, $164.4 million and $136.4 million for the years 2013 through 2017, respectively, and $277.9 million thereafter. In addition, VF will receive total payments of $5.0 million over the period of a noncancelable sublease through 2016.

VF has entered into licensing agreements that provide VF rights to market products under trademarks owned by other parties. Royalties under these agreements are recognized in cost of goods sold in the Consolidated Statements of Income. Certain of these agreements contain minimum royalty and minimum advertising requirements. Future minimum royalty payments, including any required advertising payments, are $62.4 million, $91.9 million, $31.0 million, $32.7 million and $31.2 million for the years 2013 through 2017, respectively, and none thereafter.

In the ordinary course of business, VF has entered into purchase commitments for raw materials, contract production and finished products. These agreements, typically ranging from 2 to 6 months in duration, require total payments of $1.1 billion in 2013. In addition, VF has a remaining commitment to purchase $37.5 million of finished product, with a minimum of $15 million per year, in connection with the sale of a business in a prior year.

 

 

VF has entered into commitments for (i) service and maintenance agreements related to its management information systems, (ii) capital spending and (iii) advertising. Future payments under these agreements are $144.7 million, $30.2 million, $13.5 million, and $6.7 million for the years 2013 through 2016, respectively, and none thereafter.

Surety bonds, standby letters of credit and international bank guarantees representing contingent guarantees of performance under self-insurance and other programs totaled $91.1 million as of December 2012. These commitments would only be drawn upon if VF were to fail to meet its claims or other obligations.

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Earnings Per Share
12 Months Ended
Dec. 29, 2012
Earnings Per Share

Note S — Earnings Per Share

 

     2012     2011     2010  
     In thousands, except per share amounts  

Earnings per share — basic:

      

Net income

   $ 1,086,138      $ 890,393      $ 573,512   

Net income attributable to noncontrolling interests

     (139     (2,304     (2,150
  

 

 

   

 

 

   

 

 

 

Net income attributable to VF Corporation

   $ 1,085,999      $ 888,089      $ 571,362   
  

 

 

   

 

 

   

 

 

 

Weighted average Common Stock outstanding

     109,823        109,287        108,764   
  

 

 

   

 

 

   

 

 

 

Earnings per share attributable to VF Corporation common stockholders

   $ 9.89      $ 8.13      $ 5.25   
  

 

 

   

 

 

   

 

 

 

Earnings per share — diluted:

      

Net income attributable to VF Corporation

   $ 1,085,999      $ 888,089      $ 571,362   
  

 

 

   

 

 

   

 

 

 

Weighted average Common Stock outstanding

     109,823        109,287        108,764   

Incremental shares from stock options and other dilutive securities

     2,081        2,001        1,564   
  

 

 

   

 

 

   

 

 

 

Adjusted weighted average Common Stock outstanding

     111,904        111,288        110,328   
  

 

 

   

 

 

   

 

 

 

Earnings per share attributable to VF Corporation common stockholders

   $ 9.70      $ 7.98      $ 5.18   
  

 

 

   

 

 

   

 

 

 

Outstanding options to purchase 0.6 million shares, 0.5 million shares, and 1.9 million shares of Common Stock were excluded from the computations of diluted earnings per share in 2012, 2011 and 2010, respectively, because the effect of their inclusion would have been antidilutive. In addition, 0.4 million restricted stock units in 2012 and 0.5 million restricted stock units in 2011 and 2010 were excluded from the computations of diluted earnings per share because these units have not been earned yet in accordance with the vesting conditions of the plan.

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Fair Value Measurements
12 Months Ended
Dec. 29, 2012
Fair Value Measurements

Note T — Fair Value Measurements

Financial assets and financial liabilities measured and reported at fair value are classified in a three level hierarchy that prioritizes the inputs used in the valuation process. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs, as follows:

 

   

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

   

Level 2 — Significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.

 

   

Level 3 — Prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be VF’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

Recurring Fair Value Measurements

The following table summarizes financial assets and financial liabilities that are measured and recorded in the consolidated financial statements at fair value on a recurring basis:

 

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

December 2012

           

Financial assets:

           

Cash equivalents:

           

Money market funds

   $ 181,635       $ 181,635       $       $   

Time deposits

     17,042         17,042                   

Derivative instruments

     16,153                 16,153           

Investment securities

     188,307         157,230         31,077           

Other marketable securities

     4,513         4,513                   

Financial liabilities:

                

Derivative instruments

     29,468                 29,468           

Deferred compensation

     230,733                 230,733           

December 2011

           

Financial assets:

           

Cash equivalents:

           

Money market funds

   $ 117       $ 117       $       $   

Time deposits

     89,585         89,585                   

Derivative instruments

     46,328                 46,328           

Investment securities

     175,225         144,391         30,834           

Other marketable securities

     4,913         4,913                   

Financial liabilities:

           

Derivative instruments

     23,513                 23,513           

Deferred compensation

     220,056                 220,056           

 

(a) 

There were no transfers among the levels within the fair value hierarchy during 2012 or 2011.

 

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 December 2012 and 2011, their carrying values approximated their fair values. Additionally, at December 2012 and 2011, the carrying value of VF’s long-term debt, including the current portion, was $1,832.0 million and $1,834.5 million, respectively, compared with fair value of $2,111.4 million and $2,079.5 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.

Nonrecurring Fair Value Measurements

Goodwill and indefinite-lived intangible assets are tested for possible impairment at least annually. No impairment charges were required as a result of the 2012 or 2011 impairment tests. During the 2010 impairment test, management concluded that the carrying value of goodwill in the 7 For All Mankind® business unit exceeded its fair value and, accordingly, recorded an impairment charge of $195.2 million to write down the goodwill to its implied fair value (Note G). Management also concluded that the carrying value of the 7 For All Mankind® trademark intangible asset exceeded its fair value and, accordingly, recorded an impairment charge of $6.6 million to write down the asset to its fair value. At the end of 2012, the 7 For All Mankind® business unit had no remaining amounts of goodwill and $302.2 million of trademark intangible assets.

These nonrecurring fair value measurements were developed using significant unobservable inputs (Level 3). For goodwill, the primary valuation technique used was an income methodology based on management’s estimates of forecasted future cash flows for each business unit, discounted to present value using rates commensurate with the risks of those cash flows. In addition, management used a market-based valuation method involving analysis of market multiples of revenues and of earnings before interest, taxes, depreciation and amortization (“EBITDA”) for (i) a group of comparable public companies and (ii) recent transactions, if any, involving comparable companies. For trademark intangible assets, management used the income-based relief-from-royalty valuation method in which fair value is the discounted value of forecasted royalty revenues arising from a trademark using a royalty rate that an independent party would pay for use of that trademark.

Management’s assumptions at each valuation date were based on analysis of current and expected economic conditions and updated strategic plans for each business unit. Assumptions used were similar to those that would be used by market participants performing valuations of these business units.

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Derivative Financial Instruments and Hedging Activities
12 Months Ended
Dec. 29, 2012
Derivative Financial Instruments and Hedging Activities

Note U — Derivative Financial Instruments and Hedging Activities

Summary of Derivative Instruments

All of VF’s outstanding derivative instruments are forward foreign exchange contracts. Most derivatives meet the criteria for hedge accounting at the inception of the hedging relationship, but a limited number of derivative contracts intended to hedge assets and liabilities are not designated as hedges for accounting purposes. Additionally, some derivative instruments that are cash flow hedges of forecasted third party sales are dedesignated as hedges near the end of their term and do not qualify for hedge accounting after the date of dedesignation. The notional amounts of outstanding derivative contracts at December 2012 and December 2011 were $1.9 billion and $1.5 billion, respectively, consisting of contracts hedging primarily exposures to the euro, British pound, Canadian dollar, Mexican peso, Polish zloty, and Japanese yen. 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
 
     December
2012
     December
2011
     December
2012
     December
2011
 
     In thousands  

Foreign exchange contracts designated as hedging instruments

   $ 15,847       $ 45,071       $ 27,267       $ 22,406   

Foreign exchange contracts dedesignated as hedging instruments

     15         1,245         2,160         930   

Foreign exchange contracts not designated as hedging instruments

     291         12         41         177   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivatives

   $ 16,153       $ 46,328       $ 29,468       $ 23,513   
  

 

 

    

 

 

    

 

 

    

 

 

 

Outstanding derivatives have been included in the Consolidated Balance Sheets and classified as current or noncurrent based on maturity dates, as follows:

 

     December 2012     December 2011  
     In thousands  

Other current assets

   $ 13,629      $ 39,076   

Accrued liabilities (current)

     (22,013     (19,326

Other assets (noncurrent)

     2,524        7,252   

Other liabilities (noncurrent)

     (7,455     (4,187

Cash Flow Hedge Strategies and Accounting Policies

VF uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, purchases, production costs and intercompany royalties. As discussed below in Derivative Contracts Dedesignated as Hedges, some cash flow hedges of forecasted sales to third parties are dedesignated as hedges when the sale is recorded, and hedge accounting is not applied after that date. The effects of cash flow hedging included in VF’s Consolidated Statements of Income and Consolidated Statements of Comprehensive Income are summarized as follows:

 

Cash Flow

Hedging

Relationships

   Gain (Loss) on
Derivatives
Recognized in OCI
 
   2012     2011     2010  
     In thousands  

Foreign exchange

   $ (9,555   $ 6,707      $ 14,042   

Interest rate

            (48,266       
  

 

 

   

 

 

   

 

 

 

Total

   $ (9,555   $ (41,559   $ 14,042   
  

 

 

   

 

 

   

 

 

 
      

 

Location of

Gain (Loss)

Reclassified From

Accumulated

OCI into Income

   Gain (Loss) Reclassified
from Accumulated
OCI into Income
 
   2012     2011     2010  
     In thousands  

Net sales

   $ (6,569   $ 6,525      $ (5,907

Cost of goods sold

     22,470        (16,958     10,328   

Other income (expense), net

     3,704        (8,441     2,186   

Interest expense

     (3,722     (2,424     116   
  

 

 

   

 

 

   

 

 

 

Total

   $ 15,883      $ (21,298   $ 6,723   
  

 

 

   

 

 

   

 

 

 

Fair Value Hedges

VF enters into derivative contracts to hedge intercompany balances between related parties having different functional currencies. Effective January 1, 2012, VF discontinued its historical practice of designating these types of derivative contracts as hedge relationships. Accordingly, gains (losses) related to these derivatives are included in the disclosure of Derivative Contracts Not Designated as Hedges during 2012. VF’s Consolidated Statements of Income included the following effects related to designated fair value hedging:

 

Fair Value

Hedging

Relationships

        Gain (Loss) on Derivatives and
Related Hedged Items
Recognized in Income
 
  

Location of Gain (Loss)

   2012      2011     2010  
          In thousands  

Foreign exchange

   Other income (expense), net    $       $ 2,413      $ 17,914   

Advances—intercompany

   Other income (expense), net              (3,329     (18,041

Derivative Contracts Dedesignated as Hedges

As previously noted, cash flow hedges of some forecasted sales to third parties are dedesignated as hedges when the sales are recognized. At that time, hedge accounting is discontinued and the amount of unrealized hedging gain or loss is recognized in net sales. These derivatives remain outstanding as an economic hedge of foreign currency exposures related to the ultimate collection of the trade receivables, during which time changes in the fair value of the derivative contracts are recognized directly in earnings. During 2012, 2011, and 2010, VF recorded net losses of $1.6 million, $1.7 million and $3.3 million, respectively, in other income (expense), net for derivatives dedesignated as hedging instruments.

Derivative Contracts Not Designated as Hedges

VF uses derivative contracts to manage foreign currency exchange risk on intercompany loans, accounts receivable and payable, and third-party accounts receivable and payable. These contracts, which are not designated as hedges, are recorded at fair value in the Consolidated Balance Sheets, with changes in the fair values of these instruments recognized directly in earnings. Gains or losses on these contracts largely offset the net remeasurement gains or losses on the related assets and liabilities. Following is a summary of these hedges included in VF’s Consolidated Statements of Income:

 

Derivatives Not

Designated

as Hedges

  

Location of

Gain (Loss)

on Derivatives

Recognized in Income

   Gain (Loss)
on Derivatives
Recognized in Income
 
      2012      2011      2010  
          In thousands  

Foreign exchange

   Other income (expense), net    $ 1,443       $ 3,995       $   

 

 

Other Derivative Information

There were no significant amounts recognized in earnings for the ineffective portion of any hedging relationships during the years ended December 2012, 2011 and 2010.

At December 2012, accumulated OCI included $5.3 million of pretax net deferred losses for foreign exchange contracts that are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on exchange rates in effect when outstanding derivative contracts are settled.

VF entered into interest rate swap derivative contracts in 2011 and 2003 to hedge the interest rate risk for issuance of long-term debt due in 2021 and 2033, respectively. In each case, the contracts were terminated concurrent with the issuance of the debt, and the realized gain or loss was deferred in accumulated OCI. The remaining pretax net deferred loss in accumulated OCI related to the contracts was $39.5 million at December 2012, which will be reclassified into interest expense in the Consolidated Statements of Income over the remaining terms of the associated debt instruments.

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Supplemental Cash Flow Information
12 Months Ended
Dec. 29, 2012
Supplemental Cash Flow Information

Note V — Supplemental Cash Flow Information

 

     2012      2011      2010  
     In thousands  

Income taxes paid, net of refunds

   $ 282,006       $ 205,333       $ 262,802   

Interest paid

     88,001         66,775         81,083   

Noncash transactions:

        

Property, plant and equipment expenditures included in accounts payable or accrued liabilities

     33,582         22,648           
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Subsequent Events
12 Months Ended
Dec. 29, 2012
Subsequent Events

Note W — Subsequent Events

VF’s Board of Directors declared a regular quarterly cash dividend of $0.87 per share, payable on March 18, 2013 to shareholders of record on March 8, 2013. The Board of Directors also granted approximately 885,000 stock options, 185,000 performance-based RSUs, 39,000 nonperformance-based RSUs and 75,000 shares of restricted VF Common Stock at market value.

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Quarterly Results of Operations (Unaudited)
12 Months Ended
Dec. 29, 2012
Quarterly Results of Operations (Unaudited)

Note X — Quarterly Results of Operations (Unaudited)

 

     First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
     Full Year  
     In thousands, except per share amounts  

2012(a)

              

Total revenues

   $ 2,556,455       $ 2,141,786       $ 3,148,354       $ 3,033,260       $ 10,879,855   

Operating income

     314,102         163,985         536,892         450,288         1,465,267   

Net income attributable to VF Corporation

     215,216         155,297         381,318         334,168         1,085,999   

Earnings per share attributable to VF Corporation common stockholders:

              

Basic

   $ 1.95       $ 1.42       $ 3.48       $ 3.04       $ 9.89   

Diluted

     1.91         1.40         3.42         2.98         9.70   

Dividends per common share

   $ 0.72       $ 0.72       $ 0.72       $ 0.87       $ 3.03   

2011(b)

              

Total revenues

   $ 1,958,799       $ 1,840,123       $ 2,750,071       $ 2,910,239       $ 9,459,232   

Operating income

     274,643         188,671         430,118         351,359         1,244,791   

Net income attributable to VF Corporation

     200,703         129,368         300,700         257,318         888,089   

Earnings per share attributable to VF Corporation common stockholders:

              

Basic

   $ 1.85       $ 1.19       $ 2.74       $ 2.33       $ 8.13   

Diluted

     1.82         1.17         2.69         2.28         7.98   

Dividends per common share

   $ 0.63       $ 0.63       $ 0.63       $ 0.72       $ 2.61   

2010(c)

              

Total revenues

   $ 1,749,879       $ 1,594,104       $ 2,232,367       $ 2,126,239       $ 7,702,589   

Operating income

     223,260         169,524         354,545         73,531         820,860   

Net income attributable to VF Corporation

     163,516         110,835         242,787         54,224         571,362   

Earnings per share attributable to VF Corporation common stockholders:

              

Basic

   $ 1.48       $ 1.02       $ 2.25       $ 0.50       $ 5.25   

Diluted

     1.46         1.00         2.22         0.49         5.18   

Dividends per common share

   $ 0.60       $ 0.60       $ 0.60       $ 0.63       $ 2.43   

 

(a) 

Transaction and restructuring costs related to the acquisition of Timberland reduced operating results in 2012 as follows:

 

     First
Quarter
     Second
Quarter
     Third
Quarter
     Fourth
Quarter
     Full
Year
 
     In millions, except per share amounts  

Operating income

   $ 4.6       $ 5.0       $ 14.4       $ 6.8       $ 30.8   

Net income

     3.3         3.1         11.3         10.2         27.9   

Earnings per share:

              

Basic

   $ 0.03       $ 0.03       $ 0.10       $ 0.09       $ 0.26   

Diluted

     0.03         0.03         0.10         0.09         0.25   

 

(b)

Transaction and restructuring costs related to the acquisition of Timberland reduced operating results in 2011 as follows:

 

     Third      Fourth      Full  
     Quarter      Quarter      Year  
     In millions, except per share amounts  

Operating income

   $ 26.8       $ 6.7       $ 33.5   

Net income

     20.0         4.6         24.6   

Earnings per share:

        

Basic

   $ 0.19       $ 0.04       $ 0.23   

Diluted

     0.18         0.04         0.22   

 

(c)

Goodwill and trademark impairment charges in the fourth quarter of 2010 reduced operating results as follows: operating income — $201.7 million; net income — $141.8 million; basic earnings per share — $1.31 ($1.30 for year); and diluted earnings per share — $1.29. See Notes G and T.

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Valuation and Qualifying Accounts
12 Months Ended
Dec. 29, 2012
Valuation and Qualifying Accounts

Schedule II — Valuation and Qualifying Accounts

 

COL. A    COL. B      COL. C     COL. D     COL. E  
            ADDITIONS              
            (1)      (2)              

Description

  

Balance at
Beginning
of Period

    

Charged to
Costs and
Expenses

    

Charged to
Other
Accounts

   

Deductions

   

Balance at
End of
Period

 
     In thousands  

Fiscal year ended December 2012

            

Allowance for doubtful accounts

   $ 54,010         19,274                24,286 (B)    $ 48,998   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Other accounts receivable allowances

   $ 150,406         1,461,768                1,458,240 (C)    $ 153,934   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Valuation allowance for deferred income tax assets

   $ 151,556         (33,060      (18,793 )(D)           $ 99,703   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Fiscal year ended December 2011

            

Allowance for doubtful accounts

   $ 44,599         12,490         9,577 (A)      12,656 (B)    $ 54,010   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Other accounts receivable allowances

   $ 97,339         1,140,282         38,284 (A)      1,125,499 (C)    $ 150,406   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Valuation allowance for deferred income tax assets

   $ 149,896         (12,126      13,786 (D)           $ 151,556   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Fiscal year ended December 2010

            

Allowance for doubtful accounts

   $ 60,380         7,441                23,222 (B)    $ 44,599   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Other accounts receivable allowances

   $ 108,983         440,991                452,635 (C)    $ 97,339   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Valuation allowance for deferred income tax assets

   $ 110,371         6,583         32,942 (D)           $ 149,896   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(A) Additions due to acquisitions. These amounts reflect the amount of allowance for doubtful accounts and other receivable allowances at their respective acquisition dates to record accounts receivable at net realizable value.
(B) Deductions include accounts written off, net of recoveries, and the effects of foreign currency translation.
(C) Deductions include discounts, markdowns and returns, and the effects of foreign currency translation.
(D) Additions relate to circumstances where it is more likely than not that deferred income tax assets will not be realized, purchase accounting adjustments, and the effects of foreign currency translation.
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Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 29, 2012
Description of Business

Description of Business

VF Corporation (and its subsidiaries, collectively known as “VF”) is a global apparel and footwear company based in the United States. VF designs and manufactures or sources from independent contractors a variety of products for consumers of all ages, including jeanswear, outerwear, footwear, packs, luggage, sportswear, and occupational and performance apparel. Products are marketed primarily under VF-owned brand names.

Basis of Consolidation

Basis of Consolidation

The consolidated financial statements and related disclosures are presented in accordance with generally accepted accounting principles (“GAAP”) in the U.S. The consolidated financial statements include the accounts of VF and its majority-owned subsidiaries, after elimination of intercompany transactions and balances. For consolidated subsidiaries that are not wholly owned, the noncontrolling interests in net income, comprehensive income and stockholders’ equity are separately presented in the consolidated financial statements.

Investments in entities that VF does not control but has the ability to exercise significant influence (generally 20-50% owned companies) are accounted for using the equity method of accounting. Equity method investments are recorded initially at cost in other assets in the Consolidated Balance Sheets. Those amounts are adjusted to recognize VF’s proportional share of the investee’s earnings and dividends after the date of investment. VF’s share of net income of these investments, totaling $0.6 million in 2010, is included in marketing, administrative and general expenses in the Consolidated Statements of Income. The remaining equity was acquired by VF in 2010 (Note B).

Fiscal Year

Fiscal Year

VF operates and reports using a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year. All references to “2012”, “2011” and “2010” relate to the 52 week fiscal years ended December 29, 2012, December 31, 2011 and January 1, 2011, respectively. Certain foreign subsidiaries report using a December 31 year-end due to local statutory requirements.

Use of Estimates

Use of Estimates

In preparing the consolidated financial statements in accordance with GAAP, management makes estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Foreign Currency Translation

Foreign Currency Translation

The financial statements of most foreign subsidiaries are measured using the foreign currency as the functional currency. Assets and liabilities denominated in a foreign currency are translated into U.S. dollars using exchange rates in effect at the balance sheet date, and revenues and expenses are translated at average exchange rates during the period. Resulting translation gains and losses, and transaction gains and losses on long-term advances to foreign subsidiaries, are reported in other comprehensive income (loss) (“OCI”). For a foreign subsidiary that uses the U.S. dollar as its functional currency, the effects of remeasuring assets and liabilities from the foreign currency into U.S. dollars are included in the Consolidated Statements of Income. The Consolidated Statements of Income include net transaction gains (losses) of $18.6 million, $27.3 million and ($22.1 million) in 2012, 2011 and 2010, respectively, arising from transactions denominated in a currency other than the functional currency of a particular entity.

Cash and Equivalents

Cash and Equivalents

Cash and equivalents are demand deposits, receivables from third party credit card processors, and highly liquid investments that have maturities within three months of their purchase dates. Cash equivalents totaling $198.7 million and $89.6 million at December 2012 and 2011, respectively, consist of institutional money market funds that invest in obligations issued or guaranteed by the U.S. or foreign governments and short-term time deposits of foreign commercial banks.

Accounts Receivable

Accounts Receivable

Trade accounts receivable are recorded at invoiced amounts, less estimated allowances for trade terms, sales incentive programs, markdowns, chargebacks, and returns as discussed below in Revenue Recognition. Royalty receivables are recorded at amounts earned based on the licensees’ sales of licensed products, subject in some cases to contractual minimum annual amounts from individual licensees. VF maintains an allowance for doubtful accounts for estimated losses that will result from the inability of customers and licensees to make required payments. All accounts are subject to ongoing review of ultimate collectibility. The allowance is determined based on review of specific customer accounts where collection is doubtful, as well as assessment of the collectability of total receivables considering the aging of balances, anticipated trends and economic conditions. Receivables are written off against the allowance when it is probable the amounts will not be recovered.

Inventories

Inventories

Inventories are stated at the lower of cost or market. Cost is net of discounts or rebates received from vendors. VF has historically valued inventories using both the first-in, first-out (“FIFO”) and last-in, first-out (“LIFO”) methods. On January 2, 2011, VF changed its method of accounting so that all inventories are valued on the FIFO method. This change was preferable because FIFO inventory valuation (i) better reflects the current value of inventories on the Consolidated Balance Sheets, (ii) provides for a single inventory valuation method for all business units globally and (iii) enhances comparability with the reporting of VF’s peers.

The effect of retrospectively applying this change in accounting principle on previously reported financial statements was not material, and therefore those periods were not restated. Had VF not made this change in accounting principle, the impact of continuing to account for certain inventories on a LIFO basis would not have been material to the financial position, results of operations, cash flows and earnings per common share attributable to VF common stockholders for the year ended December 2011.

Long-lived Assets

Long-lived Assets

Property, plant and equipment, intangible assets and goodwill are initially recorded at cost. Improvements to property, plant and equipment that substantially extend the useful life of the asset, and interest cost incurred during construction of major assets, are capitalized. Assets under capital lease are recorded at the present value of minimum lease payments. Repair and maintenance costs are expensed as incurred.

Cost for acquired intangible assets is fair value based generally on the present value of expected cash flows. These expected cash flows consider the stated terms of the rights or contracts acquired and expected renewal periods if applicable. The number of renewal periods considered is based on management’s experience in renewing or extending similar arrangements, regardless of whether the acquired rights have explicit renewal or extension provisions. Trademark intangible assets represent individual acquired trademarks, some of which are registered in over 100 countries. Because of the significant number of trademarks, renewal of those rights is an ongoing process, with individual trademark renewals averaging 10 years. License intangible assets relate to numerous licensing contracts, with VF as either the licensor or licensee. Individual license renewals average four years.

 

Goodwill represents the excess of cost of an acquired business over the fair value of net tangible assets and identifiable intangible assets acquired. Goodwill is assigned at the business unit level, which at VF is typically one level below a reportable segment.

Depreciation of owned assets is computed using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 10 years for machinery and equipment and up to 40 years for buildings. Leasehold improvements and assets under capital leases are amortized over the shorter of their estimated useful lives or the lease terms.

Intangible assets determined to have indefinite lives, consisting of major trademarks and trade names, are not amortized. Other intangible assets, primarily customer relationships, contracts to license trademarks to third parties and contracts to license trademarks from third parties, are amortized over their estimated useful lives ranging from less than one year to 30 years. Amortization of intangible assets is computed using straight-line or accelerated methods consistent with the expected realization of benefits to be received.

Depreciation and amortization expense related to producing or otherwise obtaining finished goods inventories is included in cost of goods sold, and other depreciation and amortization expense is included in marketing, administrative and general expenses.

VF’s policy is to review property and intangible assets with identified useful lives for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If forecasted undiscounted cash flows to be generated by the asset are not expected to be adequate to recover the asset’s carrying value, an impairment charge is recorded for the excess of the asset’s carrying value over its estimated fair value.

VF’s policy is to evaluate indefinite-lived intangible assets and goodwill for possible impairment at the beginning of the fourth quarter of each year, or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Financial Accounting Standards Board (“FASB”) recently issued updates to their authoritative guidance regarding goodwill and intangible asset impairment testing, which VF adopted for its fourth quarter 2012 testing. The updated guidance permits an entity to first assess qualitative factors as a basis for determining whether it is necessary to perform quantitative impairment testing. If an entity determines that it is not more likely than not that the fair value of an asset or reporting unit is less than its carrying value, then no further testing is required. Otherwise, impairment testing must be performed in accordance with the original accounting standards.

An indefinite-lived intangible asset is evaluated for possible impairment by comparing the estimated fair value of the asset with its carrying value. An impairment charge is recorded if the carrying value of the asset exceeds its estimated fair value. Goodwill is evaluated for possible impairment by comparing the estimated fair value of a business unit with its carrying value, including the goodwill assigned to that business unit. An impairment charge is recorded if the carrying value of the goodwill exceeds its implied fair value. There were no impairment charges recorded in 2012 or 2011. See Notes G and T for information related to impairment charges recorded in 2010 for indefinite-lived intangible assets and goodwill.

Derivative Financial Instruments

Derivative Financial Instruments

Derivative financial instruments are measured at fair value in the Consolidated Balance Sheets. Unrealized gains and losses are recognized as assets or liabilities, respectively, and classified as current or noncurrent based on the derivatives’ maturity dates. The accounting for changes in the fair value (i.e., gains and losses) of derivative instruments depends on whether a derivative has been designated and qualifies as part of a hedging relationship and on the nature of the hedging relationship. The criteria used to determine if a derivative instrument qualifies for hedge accounting treatment are (i) whether an appropriate hedging instrument has been identified and designated to reduce a specific exposure and (ii) whether there is a high correlation between changes in the fair value of the hedging instrument and the identified exposure based on the nature of the hedging relationship. A qualifying derivative is designated for accounting purposes as a fair value or a cash flow hedge depending on the hedging relationship. VF’s hedging practices and related accounting policies for each type of hedging relationship are described in Note U. VF does not use derivative instruments for trading or speculative purposes. Hedging cash flows are classified in the Consolidated Statements of Cash Flows in the same category as the items being hedged.

VF formally documents hedging instruments and hedging relationships at the inception of each contract. Further, VF assesses, both at the inception of a contract and on an ongoing basis, whether the hedging instruments are effective in offsetting the risk of the hedged transactions. Occasionally, a portion of a derivative instrument will be considered ineffective in hedging the originally identified exposure due to a decline in amount or a change in timing of the hedged exposure. In that case, hedge accounting treatment is discontinued for the ineffective portion of that hedging instrument, and any change in fair value for the ineffective portion is recognized in net income. Also, some cash flow hedges of forecasted cash receipts are dedesignated as hedges when the forecasted sale is recognized. At that time, hedge accounting is discontinued, and the fair value of the hedging instrument is recognized in net income.

The counterparties to the derivative contracts are financial institutions having at least A-rated investment grade credit ratings. To manage its credit risk, VF continually monitors the credit risks of its counterparties, limits its exposure in the aggregate and to any single counterparty, and adjusts its hedging positions as appropriate. The impact of VF’s credit risk and the credit risk of its counterparties, as well as the ability of each party to fulfill its obligations under the contracts, is considered in determining the fair value of the derivative contracts. Credit risk has not had a significant effect on the fair value of VF’s derivative contracts. VF does not have any credit risk-related contingent features or collateral requirements with its derivative contracts.

Revenue Recognition

Revenue Recognition

Revenue is recognized when (i) there is a contract or other arrangement of sale, (ii) the sales price is fixed or determinable, (iii) title and the risks of ownership have been transferred to the customer and (iv) collection of the receivable is reasonably assured. Net sales to wholesale customers and sales through the internet are generally recognized when the product has been received by the customer. Net sales at VF-operated retail stores are recognized at the time products are purchased by consumers. Shipping and handling costs billed to customers are included in net sales. Net sales are reduced by estimated allowances for trade terms, sales incentive programs, markdowns, chargebacks, and returns. These allowances are estimated based on evaluations of specific product and customer circumstances, retail sales performance, historical and anticipated trends, and current economic conditions; historically, they have not differed significantly from actual results. Sales taxes and value added taxes collected from customers and remitted directly to governmental authorities are excluded from net sales.

Royalty income is recognized as earned based on the greater of the licensees’ sales of licensed products at rates specified in the licensing contracts or contractual minimum royalty levels.

Cost of Goods Sold

Cost of Goods Sold

Cost of goods sold for VF-manufactured goods includes all materials, labor and overhead costs incurred in the production process. Cost of goods sold for purchased finished goods includes the purchase costs and related overhead. In both cases, overhead includes all costs related to manufacturing or purchasing finished goods, including costs of planning, purchasing, quality control, depreciation, freight, duties, royalties paid to third parties and shrinkage. For product lines having a warranty, a provision for estimated future repair or replacement costs, based on historical and anticipated trends, is recorded when these products are sold.

Marketing, Administrative and General Expenses

Marketing, Administrative and General Expenses

Marketing, administrative and general expenses includes costs of product development, selling, marketing and advertising, VF-operated retail stores, warehousing, shipping and handling, licensing and administration. Advertising costs are expensed as incurred and totaled $585.2 million in 2012, $539.9 million in 2011 and $426.8 million in 2010. Advertising costs include cooperative advertising payments made to VF’s customers as reimbursement for their costs of advertising VF’s products. Cooperative advertising costs, totaling $51.7 million in 2012, $48.5 million in 2011 and $40.4 million in 2010, are independently verified to support the fair value of advertising reimbursed by VF. Shipping and handling costs for delivery of products to customers totaled $269.1 million in 2012, $242.5 million in 2011 and $206.2 million in 2010. Expenses related to royalty income, including amortization of licensed intangible assets, were $12.6 million in 2012 and $9.1 million in both 2011 and 2010.

Rent Expense

Rent Expense

VF enters into noncancelable operating leases for retail stores, office space, distribution facilities and equipment. Leases for real estate have initial terms ranging from 3 to 15 years, generally with renewal options. Leases for equipment typically have initial terms ranging from 2 to 5 years. Most leases have fixed rentals, with many of the real estate leases requiring additional payments for real estate taxes and occupancy-related costs. Contingent rent expense, owed when sales at individual retail store locations exceed a stated base amount, is recognized when the liability is probable. Rent expense for leases having rent holidays or scheduled rent increases is recorded on a straight-line basis over the lease term beginning when VF has possession or control of the leased premises. Lease incentives received from landlords, plus any fair value adjustments recorded for leases of acquired businesses and differences between straight-line rent expense and scheduled rent payments, are recorded in other assets or other liabilities and amortized as an adjustment to rent expense over the lease term.

Self-insurance

Self-insurance

VF is self-insured for a substantial portion of its employee medical, workers’ compensation, vehicle, property and general liability exposures. Liabilities for self-insured exposures are accrued at the present value of amounts expected to be paid based on historical claims experience and actuarial data for forecasted settlements of claims filed and for incurred but not yet reported claims. Accruals for self-insured exposures are included in current and noncurrent liabilities based on the expected periods of payment. Excess liability insurance has been purchased to cover claims in excess of self-insured amounts.

Income Taxes

Income Taxes

Income taxes are provided on pretax income for financial reporting purposes. Income taxes are based on amounts of taxes payable or refundable in the current year and on expected future tax consequences of events that are recognized in the consolidated financial statements in different periods than they are recognized in tax returns. As a result of timing of recognition and measurement differences between financial accounting standards and income tax laws, temporary differences arise between amounts of pretax financial statement income and taxable income, and between reported amounts of assets and liabilities in the Consolidated Balance Sheets and their respective tax bases. Deferred income tax assets and liabilities reported in the Consolidated Balance Sheets reflect the estimated future tax impact of these temporary differences and net operating loss and net capital loss carryforwards, based on tax rates currently enacted for the years in which the differences are expected to be settled or realized. Realization of deferred tax assets is dependent on future taxable income in specific jurisdictions. Valuation allowances are used to reduce deferred tax assets to amounts considered likely to be realized. U.S. deferred income taxes are not provided on undistributed income of foreign subsidiaries where such earnings are considered to be permanently reinvested. Accrued income taxes in the Consolidated Balance Sheets include unrecognized income tax benefits, along with related interest and penalties, appropriately classified as current or noncurrent. The provision for income taxes also includes estimated interest and penalties related to uncertain tax positions.

Earnings Per Share

Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to VF Corporation by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share assumes conversion of potentially dilutive securities such as stock options, restricted stock and restricted stock units.

Concentration of Risks

Concentration of Risks

VF markets products to a broad customer base throughout the world. Products are sold at a range of price points through multiple channels of distribution, including specialty stores, department stores, national chains, mass merchants, VF-operated stores, and e-commerce sites. VF’s ten largest customers, all U.S.-based retailers, accounted for 21% of 2012 total revenues, and sales to VF’s largest customer accounted for 8% of 2012 total revenues. Sales are generally made on an unsecured basis under customary terms that may vary by product, channel of distribution or geographic region. VF continuously monitors the creditworthiness of its customers and has established internal policies regarding customer credit limits. The breadth of product offerings, combined with the large number and geographic diversity of its customers, limits VF’s concentration of risks.

Legal and Other Contingencies

Legal and Other Contingencies

Management periodically assesses liabilities and contingencies in connection with legal proceedings and other claims that may arise from time to time. When it is probable that a loss has been or will be incurred, the loss, or a reasonable estimate of the loss, is recorded in the consolidated financial statements. Estimates of losses are adjusted in the period in which additional information becomes available or circumstances change. A contingent liability is disclosed when there is at least a reasonable possibility that a material loss may have been incurred. Management believes that the outcome of any outstanding or pending matters, individually and in the aggregate, will not have a material adverse effect on the consolidated financial statements.

Reclassifications

Reclassifications

Certain prior year amounts have been reclassified to conform with the 2012 presentation.

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

In May 2011, the FASB issued an update to their authoritative guidance regarding fair value measurements and related disclosures. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for the use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. This guidance became effective during the first quarter of 2012 and has been applied on a prospective basis.

 

In June 2011, the FASB issued an update to their accounting guidance regarding other comprehensive income which requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements of income and comprehensive income. This guidance became effective during the first quarter of 2012 but did not have any effect on the consolidated financial statements since VF’s Statement of Comprehensive Income already complied with this guidance.

In September 2011, the FASB issued an update to their authoritative guidance regarding goodwill impairment testing. The amendment is intended to reduce the complexity of testing by allowing companies to assess qualitative factors to determine the likelihood of goodwill impairment and whether it is necessary to perform the two-step impairment test currently required. This guidance became effective during the first quarter of 2012 and was considered during the 2012 goodwill impairment testing. It did not have an impact on the consolidated financial statements.

In July 2012, the FASB issued an update to their accounting guidance regarding indefinite-lived intangible asset impairment testing and whether it is necessary to perform the quantitative impairment test currently required. VF elected an early adoption of this guidance for the 2012 indefinite-lived intangible asset impairment testing. It did not have an impact on the consolidated financial statements.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In December 2011 and January 2013, the FASB issued updates to their accounting guidance regarding disclosures about an entity’s right of offset associated with its financial instruments and derivative instruments. The new guidance is effective January 2013 with retrospective application required. The guidance concerns disclosure only and will not have a material impact on the consolidated financial statements.

In February 2013, the FASB issued guidance requiring an entity to provide information about the amounts reclassified out of accumulated other comprehensive income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. The new guidance is effective January 2013, and since it concerns disclosure only, it will not have a material impact on the consolidated financial statements.

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Acquisitions and Dispositions (Tables)
12 Months Ended
Dec. 29, 2012
Fair Values of Assets Acquired and Liabilities Assumed at Date of Acquisition

The following table summarizes the final fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

     In thousands  

Cash and equivalents

   $ 92,442   

Inventories

     390,180   

Other current assets

     318,755   

Property, plant and equipment

     89,581   

Intangible assets

     1,458,800   

Other assets

     42,635   
  

 

 

 

Total assets acquired

     2,392,393   
  

 

 

 

Current liabilities

     364,608   

Other liabilities, primarily deferred income taxes

     580,182   
  

 

 

 

Total liabilities assumed

     944,790   
  

 

 

 

Net assets acquired

     1,447,603   

Goodwill

     851,904   
  

 

 

 

Purchase price

   $ 2,299,507   
  

 

 

 
Pro Forma Results of Operations Assuming that Twenty Twelve Acquisition of Timberland had Occured at Beginning of Twenty Ten

Unaudited pro forma results of operations for VF are presented assuming that the 2011 acquisition of Timberland had occurred at the beginning of 2010. This pro forma financial information is not necessarily indicative of VF’s operating results if the acquisition had been completed at the date indicated, nor is it necessarily an indication of future operating results. Amounts do not include any marketing leverage, operating efficiencies or cost savings that VF believes are achievable.

 

 

     2011 (a)      2010  
    

In thousands, except

per share amounts

 

Total revenues

   $ 10,411,978       $ 9,132,073   

Net income attributable to VF Corporation

     808,867         623,538   

Earnings per common share: