SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-5256

 

V. F. CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania		23-1180120
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

105 Corporate Center Boulevard
Greensboro, North Carolina 27408
(Address of principal executive offices)

(336) 424-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

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

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting Company o

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

On May 1, 2010, there were 110,105,590 shares of the registrant’s Common Stock outstanding.

 

 

VF CORPORATION

Table of Contents

		Page No.
Part I — Financial Information
Item 1 – Financial Statements (Unaudited)
Consolidated Statements of Income: Three months ended March 2010 and March 2009			3
Consolidated Balance Sheets: March 2010, December 2009 and March 2009			4
Consolidated Statements of Cash Flows: Three months ended March 2010 and March 2009			5
Consolidated Statements of Stockholders’ Equity Year ended December 2009 and three months ended March 2010			6
Notes to Consolidated Financial Statements			7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3 – Quantitative and Qualitative Disclosures about Market Risk			28
Item 4 – Controls and Procedures			28
Part II — Other Information
Item 1A – Risk Factors			28
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			28
Item 6 – Exhibits			29
Signatures			30
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Part I — Financial Information

Item 1 — Financial Statements (Unaudited)

Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)

		Three Months Ended March
		2010				2009
Net Sales		$	1,730,086			$	1,707,301
Royalty Income			19,793				18,173
Total Revenues			1,749,879				1,725,474
Costs and Operating Expenses
Cost of goods sold			932,203				996,640
Marketing, administrative and general expenses			594,416				567,386
			1,526,619				1,564,026
Operating Income			223,260				161,448
Other Income (Expense)
Interest income			494				765
Interest expense			(20,499	)			(22,015	)
Miscellaneous, net			6,423				1,249
			(13,582	)			(20,001	)
Income Before Income Taxes			209,678				141,447
Income Taxes			46,219				41,013
Net Income			163,459				100,434
Net Loss Attributable to Noncontrolling Interests in Subsidiaries			57				505
Net Income Attributable to VF Corporation		$	163,516			$	100,939
Earnings Per Common Share Attributable to VF Corporation Common Stockholders
Basic		$	1.48			$	0.92
Diluted			1.46				0.91
Weighted Average Shares Outstanding
Basic			110,259				109,992
Diluted			111,629				111,028
Cash Dividends Per Common Share		$	0.60			$	0.59

See notes to consolidated financial statements.

Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)

		March				December				March
		2010				2009				2009
ASSETS
Current Assets
Cash and equivalents		$	718,634			$	731,549			$	276,428
Accounts receivable, less allowance for doubtful accounts of:			787,682				776,140				996,507
March 2010 - $59,351; Dec. 2009 - $60,380;
March 2009 - $49,177
Inventories:
Finished products			764,167				772,458				910,139
Work in process			69,515				70,507				75,832
Materials and supplies			118,500				115,674				132,102
			952,182				958,639				1,118,073
Other current assets			189,088				163,028				230,251
Total current assets			2,647,586				2,629,356				2,621,259
Property, Plant and Equipment			1,602,996				1,601,608				1,558,857
Less accumulated depreciation			1,001,137				987,430				926,444
			601,859				614,178				632,413
Intangible Assets			1,529,538				1,535,121				1,563,268
Goodwill			1,363,059				1,367,680				1,437,682
Other Assets			326,409				324,322				297,942
		$	6,468,451			$	6,470,657			$	6,552,564
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Short-term borrowings		$	48,525			$	45,453			$	287,873
Current portion of long-term debt			202,690				203,179				3,272
Accounts payable			296,437				373,186				323,536
Accrued liabilities			509,228				470,765				483,523
Total current liabilities			1,056,880				1,092,583				1,098,204
Long-term Debt			937,826				938,494				1,140,414
Other Liabilities			648,879				626,295				739,777
Commitments and Contingencies
Stockholders’ Equity
Common stock, stated value $1; shares authorized, 300,000,000; shares outstanding:			109,981				110,285				110,276
March 2010 - 109,980,912; Dec. 2009 - 110,285,132;
March 2009 - 110,276,129
Additional paid-in capital			1,938,184				1,864,499				1,763,818
Accumulated other comprehensive income (loss)			(246,241	)			(209,742	)			(297,760	)
Retained earnings			2,024,856				2,050,109				1,996,972
Noncontrolling interests in subsidiaries			(1,914	)			(1,866	)			863
Total stockholders’ equity			3,824,866				3,813,285				3,574,169
		$	6,468,451			$	6,470,657			$	6,552,564

See notes to consolidated financial statements.

Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

		Three Months Ended March
		2010				2009
Operating Activities
Net income		$	163,459			$	100,434
Adjustments to reconcile net income to cash provided (used) by operating activities:
Depreciation			27,396				22,035
Amortization of intangible assets			9,978				9,102
Other amortization			3,695				3,311
Stock-based compensation			14,774				11,668
Pension funding under expense			10,324				18,338
Other, net			27,410				22,125
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			(25,230	)			(152,542	)
Inventories			3,867				27,282
Other current assets			(4,373	)			40,211
Accounts payable			(74,409	)			(109,748	)
Accrued compensation			(31,548	)			(8,982	)
Accrued income taxes			26,213				(3,858	)
Accrued liabilities			58,312				(2,594	)
Other assets and liabilities			(25,714	)			(12,145	)
Cash provided (used) by operating activities			184,154				(35,363	)
Investing Activities
Capital expenditures			(17,339	)			(16,983	)
Business acquisitions, net of cash acquired			(29,111	)			(207,219	)
Software purchases			(701	)			(1,840	)
Other, net			(2,486	)			593
Cash used by investing activities			(49,637	)			(225,449	)
Financing Activities
Increase in short-term borrowings			2,837				235,912
Payments on long-term debt			(1,061	)			(1,110	)
Purchase of Common Stock			(118,001	)			—
Cash dividends paid			(66,224	)			(64,966	)
(Cost) proceeds from issuance of Common Stock, net			52,394				(6,740	)
Tax benefits of stock option exercises			1,669				(2,438	)
Cash provided (used) by financing activities			(128,386	)			160,658
Effect of Foreign Currency Rate Changes on Cash			(19,046	)			(5,262	)
Net Change in Cash and Equivalents			(12,915	)			(105,416	)
Cash and Equivalents — Beginning of Year			731,549				381,844
Cash and Equivalents — End of Period		$	718,634			$	276,428
See notes to consolidated financial statements.

Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands)

						VF Corporation Stockholders
										Accumulated
						Additional				Other								Non-
		Common				Paid-in				Comprehensive				Retained				controlling
		Stock				Capital				Income (Loss)				Earnings				Interests
Balance, December 2008		$	109,848			$	1,749,464			$	(276,294	)		$	1,972,874			$	1,353
Net income (loss)			—				—				—				461,271				(2,813	)
Common Stock dividends			—				—				—				(261,682	)			—
Purchase of treasury stock			(1,560	)			—				—				(110,415	)			—
Stock compensation plans, net			1,977				115,035				—				(12,732	)			—
Common Stock held in trust for deferred compensation plans			20				—				—				793				—
Distributions to noncontrolling interests			—				—				—				—				(480	)
Foreign currency translation			—				—				37,468				—				74
Defined benefit pension plans			—				—				25,021				—				—
Derivative financial instruments			—				—				510				—				—
Marketable securities			—				—				3,553				—				—
Balance, December 2009			110,285				1,864,499				(209,742	)			2,050,109				(1,866	)
Net income (loss)			—				—				—				163,516				(57	)
Common Stock dividends			—				—				—				(66,224	)			—
Purchase of treasury stock			(1,500	)			—				—				(116,501	)			—
Stock compensation plans, net			1,199				73,685				—				(5,780	)			—
Common Stock held in trust for deferred compensation plans			(3	)			—				—				(264	)			—
Foreign currency translation			—				—				(63,526	)			—				9
Defined benefit pension plans			—				—				7,589				—				—
Derivative financial instruments			—				—				18,496				—				—
Marketable securities			—				—				942				—				—
Balance, March 2010		$	109,981			$	1,938,184			$	(246,241	)		$	2,024,856			$	(1,914	)

See notes to consolidated financial statements.

VF CORPORATION

Note A – Basis of Presentation

VF Corporation (and its subsidiaries, collectively known as “VF”) uses a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year. For presentation purposes herein, all references to periods ended March 2010, December 2009 and March 2009 relate to the fiscal periods ended on April 3, 2010, January 2, 2010 and April 4, 2009, respectively.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and notes required by generally accepted accounting principles (“GAAP”) in the United States of America for complete financial statements. Similarly, the December 2009 consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal and recurring adjustments necessary to fairly present the consolidated financial position, results of operations and cash flows of VF for the interim periods presented. Operating results for the three months ended March 2010 are not necessarily indicative of results that may be expected for any other interim period or for the year ending January 1, 2011. For further information, refer to the consolidated financial statements and notes included in VF’s Annual Report on Form 10-K for the year ended December 2009 (“2009 Form 10-K”).

Certain prior year amounts, none of which are material, have been reclassified to conform with the 2010 presentation.

Note B – Changes in Accounting Policies

During the first quarter of 2010, VF adopted new accounting guidance issued by the Financial Accounting Standards Board (“FASB”) related to transfers of financial assets. This guidance modifies the requirements for derecognizing financial assets from a transferor’s balance sheet and requires additional disclosures about transfers of financial assets and any continuing involvement by the transferor. The new guidance did not have a significant impact on our operating results, financial condition or disclosures.

Also during the first quarter of 2010, VF adopted new accounting guidance for disclosures of fair value measurements. This guidance requires disclosures about transfers into and out of Levels 1 and 2 of the fair value hierarchy and separate disclosures about activity within Level 3 of the fair value hierarchy. The guidance also clarifies disclosures related to disaggregation of assets and liabilities and valuation techniques used to measure fair value.

Note C – Acquisition

On March 10, 2010, VF completed the acquisition of its former 50%-owned joint venture that markets Vans^Ò branded products in the wholesale channel in Mexico. As part of this transaction, VF also acquired the Vans^Ò retail stores that had been operated by our joint venture partner (together with the wholesale business, “Vans Mexico”). The purchase price of these businesses was $31.0 million. The carrying value of our initial 50% investment, recorded in Other Assets, was $7.9 million at the acquisition date, which included the equity in net income of the investment to the date of acquisition. VF recognized a gain in Miscellaneous Income in the first quarter of $5.7 million from remeasuring its original 50% investment in the joint venture

to fair value. Revenues and pretax earnings since the date of acquisition recognized in VF’s first quarter operating results were $2.6 million and $0.8 million (excluding the $5.7 million gain), respectively. Acquisition expenses included in VF’s results of operations were not significant. Vans Mexico is reported as part of the Outdoor & Action Sports Coalition.

Management has allocated the purchase price to acquired tangible and intangible assets and assumed liabilities based on their respective fair values at the acquisition date. Of the total value, $23.4 million was assigned to indefinite-lived intangible assets (trademarks) and amortizable intangible assets (customer relationships), and $16.8 million was assigned to goodwill, subject to possible refinement for income taxes during the second quarter. Goodwill arising from the acquisition related to growth prospects in Mexico, an experienced workforce and synergies with the Vans^Ò business in the United States. Pro forma operating results for periods prior to the acquisition date are not provided because the acquisition was not material to VF’s results of operations.

Note D – Sale of Accounts Receivable

In September 2009, VF entered into an agreement to sell selected trade accounts receivable, on a revolving basis, to a financial institution. The agreement covers the sale of up to $192.5 million of accounts receivable, at any point in time, on a nonrecourse basis. After the sale, VF continues to service and collect these accounts receivable on behalf of the financial institution but does not retain any other interests in the receivables. At the beginning of 2010, accounts receivable in the Consolidated Balance Sheet had been reduced by $74.2 million related to balances sold under this program. At the end of March 2010, accounts receivable had been reduced by $116.0 million related to balances sold under this program. During the first quarter, VF sold $202.9 million of accounts receivable at their stated amounts, less a funding fee of $0.3 million, which was recorded in Miscellaneous Expense. Net proceeds of this program are recognized in the Consolidated Statement of Cash Flows as part of the change in accounts receivable in cash provided by operating activities.

Note E – Intangible Assets

						March 2010												December 2009
		Weighted				Gross								Net				Net
		Average				Carrying				Accumulated				Carrying				Carrying
Dollars in thousands		Life *				Amount				Amortization				Amount				Amount
Amortizable intangible assets:
Customer relationships		19 years				$	445,865			$	86,939			$	358,926			$	361,039
License agreements		24 years					179,628				44,989				134,639				137,447
Trademarks and other		7 years					14,910				8,990				5,920				6,615
Amortizable intangible assets, net															499,485				505,101
Indefinite-lived intangible assets:
Trademarks															1,030,053				1,030,020
Intangible assets, net														$	1,529,538			$	1,535,121

Amortization of intangible assets for the first quarter of 2010 was $10.0 million. Estimated amortization expense for the remainder of 2010 is $29.8 million and for the years 2011 through 2014 is $37.4 million, $34.7 million, $33.1 million and $32.1 million, respectively.

Note F – Goodwill

		Outdoor &																Contemporary
In thousands		Action Sports				Jeanswear				Imagewear				Sportswear				Brands				Total
Balance, December 2009		$	574,879			$	238,930			$	56,703			$	157,314			$	339,854			$	1,367,680
2010 acquisition			16,779				—				—				—				—				16,779
Adjustment to contingent consideration			(78	)			—				—				—				—				(78	)
Currency translation			(14,934	)			(3,066	)			—				—				(3,322	)			(21,322	)
Balance, March 2010		$	576,646			$	235,864			$	56,703			$	157,314			$	336,532			$	1,363,059

Balances at December 2009 are net of impairment charges recorded during 2009, as follows: Outdoor & Action Sports – $43.4 million and Sportswear – $58.5 million.

Note G – Pension Plans

VF’s net periodic pension cost contained the following components:

		Three Months
		Ended March
In thousands		2010				2009
Service cost – benefits earned during the year		$	4,083			$	3,726
Interest cost on projected benefit obligations			19,108				17,950
Expected return on plan assets			(19,172	)			(13,379	)
Amortization of:
Actuarial losses			11,372				15,131
Prior service costs			987				1,067
Net periodic pension cost		$	16,378			$	24,495

During the first quarter, VF made contributions totaling $6.1 million to its defined benefit pension plans. VF currently anticipates making an additional $2.6 million of contributions during the remainder of 2010.

Note H – Business Segment Information

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

		Three Months
		Ended March
In thousands		2010				2009
Coalition revenues:
Outdoor & Action Sports		$	678,562			$	618,272
Jeanswear			622,065				667,383
Imagewear			221,298				226,651
Sportswear			102,177				103,570
Contemporary Brands			104,089				89,589
Other			21,688				20,009
Total coalition revenues		$	1,749,879			$	1,725,474
Coalition profit:
Outdoor & Action Sports		$	132,705			$	88,595
Jeanswear			106,808				89,648
Imagewear			22,812				22,867
Sportswear			7,168				4,508
Contemporary Brands			8,452				15,414
Other			(1,225	)			(2,016	)
Total coalition profit			276,720				219,016
Corporate and other expenses			(47,037	)			(56,319	)
Interest, net			(20,005	)			(21,250	)
Income before income taxes		$	209,678			$	141,447

Operating results of the lucy business unit for 2009 have been reclassified from the Contemporary Brands Coalition to the Outdoor & Action Sports Coalition consistent with a change in internal management reporting beginning in 2010.

Note I — Capital and Comprehensive Income (Loss)

Common stock outstanding is net of shares held in treasury, and in substance retired. There were 15,518,019 treasury shares at March 2010, 13,943,457 at December 2009 and 12,383,868 at March 2009. 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, 244,069 shares of VF Common Stock at March 2010, 241,446 shares at December 2009, and 276,002 shares at March 2009 were held in connection with deferred compensation plans. These shares held for deferred compensation plans are treated for financial reporting purposes as treasury shares at a cost of $10.2 million, $11.0 million and $12.6 million at each of the respective dates.

There are 25,000,000 authorized shares of Preferred Stock, $1 par value, of which none are outstanding.

Other comprehensive income (“OCI”) consists of changes in assets and liabilities that are not included in Net Income under GAAP but are instead reported within a separate component of Stockholders’ Equity. VF’s comprehensive income was as follows:

		Three Months
		Ended March
In thousands		2010				2009
Net income		$	163,459			$	100,434
Other comprehensive income (loss):
Foreign currency translation
Losses arising during the period			(74,763	)			(40,338	)
Less income tax effect			11,237				3,777
Defined benefit pension plans
Amortization of deferred actuarial losses			11,372				15,131
Amortization of prior service cost			987				1,067
Less income tax effect			(4,770	)			(6,241	)
Derivative financial instruments
Gains arising during the period			20,841				12,381
Less income tax effect			(8,030	)			(4,770	)
Reclassification to net income for (gains) losses realized			9,247				(3,688	)
Less income tax effect			(3,562	)			1,420
Marketable securities
Gains (losses) arising during the period			942				(205	)
Other comprehensive income (loss)			(36,499	)			(21,466	)
Comprehensive income			126,960				78,968
Comprehensive loss attributable to noncontrolling interests			48				490
Comprehensive income attributable to VF Corporation		$	127,008			$	79,458

Accumulated OCI for 2010 is summarized as follows:

		Foreign				Defined				Derivative
		Currency				Benefit				Financial				Marketable
In thousands		Translation				Pension Plans				Instruments				Securities				Total
Balance, December 2009		$	59,671			$	(265,970	)		$	(6,180	)		$	2,737			$	(209,742	)
Other comprehensive income (loss)			(63,526	)			7,589				18,496				942				(36,499	)
Balance, March 2010		$	(3,855	)		$	(258,381	)		$	12,316			$	3,679			$	(246,241	)

Note J – Stock-based Compensation

During the first three months of 2010, VF granted options for 1,283,874 shares of Common Stock at an exercise price of $74.85, equal to the fair market value of VF Common Stock on the date of grant. The options vest in equal annual installments over a three year period. The fair value of these options was estimated using a lattice valuation model for employee groups having similar exercise behaviors, with the

following assumptions: expected volatility ranging from 24% to 39%, with a weighted average of 35%; expected term of 5.5 to 7.6 years; expected dividend yield of 3.7%; and risk-free interest rate ranging from 0.2% at six months to 3.7% at 10 years. The resulting weighted average fair value of these options at the date of grant was $18.42 per option.

Also during the first three months of 2010, VF granted 317,305 performance-based restricted stock units. Participants are eligible to receive shares of VF Common Stock at the end of a three year performance period. The actual number of shares that will be earned, if any, will be based on VF’s performance over that period. The grant date fair value of the restricted stock units was $71.91 per unit. In addition, VF granted 15,000 shares of restricted VF Common Stock with a fair value of $71.91 per share. These shares will vest in 2014, assuming continuation of employment by the grantee to that date.

Note K – Income Taxes

The effective income tax rate was 22.1% for the first quarter of 2010, compared with 29.0% in the comparable period of 2009. The lower rate in 2010 was due to a higher percentage of income in lower tax jurisdictions outside the United States and a $13.0 million tax benefit related to refund claims in a foreign jurisdiction. The effective tax rate for the full year 2009 was 29.9%, which included a 3.7% unfavorable impact from a goodwill impairment charge.

VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous states and foreign jurisdictions. In the United States, the Internal Revenue Service (“IRS”) completed its examination of tax years 2004, 2005 and 2006, and VF has appealed the results of those examinations to the IRS Appeals office. Tax years 2003 to 2008 are under examination by the State of Alabama, and tax years 2006 and 2007 are under examination by the State of California. VF is also currently subject to examination by various other taxing authorities. Management believes that some of these audits and negotiations will conclude during the next 12 months.

During the first quarter of 2010, the amount of unrecognized tax benefits increased by $8.3 million due primarily to tax positions taken in prior years. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits may decrease during the next 12 months by approximately $32.0 million due to settlements of audits, other settlements with tax authorities and expiration of statutes of limitations, of which $29.8 million would reduce income tax expense. In addition, VF intends to file refund claims in various tax jurisdictions during 2010, which could reduce income tax expense in 2010.

Note L — Earnings Per Share

		Three Months
		Ended March
In thousands, except per share amounts		2010				2009
Earnings per share — basic:
Net income attributable to VF Corporation common stockholders		$	163,516			$	100,939
Weighted average Common Stock outstanding			110,259				109,992
Earnings per share attributable to VF Corporation common stockholders		$	1.48			$	0.92
Earnings per share — diluted:
Net income attributable to VF Corporation common stockholders		$	163,516			$	100,939
Weighted average Common Stock outstanding			110,259				109,992
Stock options and other dilutive securities			1,370				1,036
Weighted average Common Stock and dilutive securities outstanding			111,629				111,028
Earnings per share attributable to VF Corporation common stockholders		$	1.46			$	0.91

Outstanding options to purchase 3.8 million shares and 5.8 million shares of Common Stock were excluded from the computations of diluted earnings per share for the three months ended March 2010 and March 2009, respectively, because the effect of their inclusion would have been antidilutive. In addition, performance-based restricted stock units for the three month periods ended March 2010 and 2009 were excluded from the computation of diluted earnings per share because their performance factor is not known until the annual financial results are available.

Note M — Fair Value Measurements

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market in an orderly transaction between market participants. In determining fair value, the accounting standards establish a three-level hierarchy that distinguishes between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting entity’s own data and assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs). Financial assets and financial liabilities measured and reported at fair value are classified in one of the following categories, in order of priority of observability and objectivity of pricing inputs:

•		Level 1 — Fair value based on quoted prices in active markets for identical assets or liabilities.
•		Level 2 — Fair value based on 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 — Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

The fair value measurement level for an asset or liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table summarizes the classes of financial assets and financial liabilities measured and recorded at fair value on a recurring basis at the dates indicated:

						Fair Value Using:
						Quoted Prices				Significant
						in Active				Other				Significant
		Total				Markets for				Observable				Unobservable
		Fair				Identical Assets				Inputs				Inputs
In thousands		Value				(Level 1)				(Level 2)				(Level 3)
March 2010
Financial assets:
Cash equivalents — money market funds		$	429,659			$	429,659			$	—			$	—
Cash equivalents — time deposits			85,036				85,036				—				—
Derivative instruments			31,130				—				31,130				—
Investment securities			190,485				150,265				40,220				—
Financial liabilities:
Derivative instruments			4,947				—				4,947				—
Deferred compensation			209,303				—				209,303				—
December 2009
Financial assets:
Cash equivalents — money market funds		$	372,516			$	372,516			$	—			$	—
Cash equivalents — time deposits			81,554				81,554				—				—
Derivative instruments			8,536				—				8,536				—
Investment securities			182,306				140,872				41,434				—
Financial liabilities:
Derivative instruments			13,587				—				13,587				—
Deferred compensation			199,831				—				199,831				—

Derivative instruments represent unrealized gains or losses on foreign currency forward exchange contracts, which are the differences between (i) the functional currency value of the foreign currency to be received or paid at the contracts’ settlement date and (ii) the functional currency value to be sold or purchased at the current forward exchange rate. Investment securities, consisting of mutual funds (classified as Level 1) and a separately managed fixed income fund (classified as Level 2), are purchased to offset a substantial portion of liabilities to participants in VF’s deferred compensation plans. Fair value of the separately managed fixed income fund included in investment securities is its daily net asset value. Fair value of liabilities under

deferred compensation plans is the amount payable to participants, based on the fair value of participant-directed investment selections.

The carrying value of other financial assets and financial liabilities is their cost, which may differ from fair value. At March 2010 and December 2009, the carrying value of VF’s cash held as demand deposits, accounts receivable, life insurance contracts, short-term borrowings, accounts payable and accrued liabilities approximated their fair value. At March 2010 and December 2009, the carrying value of VF’s long-term debt, including the current portion, was $1,140.5 million and $1,141.7 million, respectively, compared with fair value of $1,178.7 million and $1,202.6 million at those dates. Fair value for long-term debt was estimated based on quoted market prices or values of comparable borrowings.

Note N — Derivative Financial Instruments and Hedging Activities

VF is exposed to risks in its ongoing business operations. Some of these risks are managed by using derivative financial instruments. Derivative financial instruments are contracts whose value is based on, or “derived” from, changes in the value of an underlying currency exchange rate, interest rate or other financial asset or index.

VF conducts business in many foreign countries and therefore is subject to movements in foreign currency exchange rates. Exchange rate fluctuations can have a significant effect on the translated U.S. dollar value of operating results and net assets denominated in foreign currencies. VF does not attempt to manage translation risk but does use derivative contracts to manage the exchange rate risk of specified cash flows or transactions denominated in foreign currencies. VF manages exchange rate risk on a consolidated basis, which allows exposures to be netted. Use of derivative financial instruments allows VF to reduce the overall exposure to risks in its cash flows and earnings, since gains and losses in the value of the derivative contracts offset losses and gains in the value of the underlying hedged exposures. In addition, in prior years VF had used derivatives in limited instances to hedge interest rate risk.

     Summary of derivative instruments — All of VF’s derivative instruments meet the criteria for hedge accounting at the inception of the hedging relationship. However, derivative instruments that are cash flow hedges of forecasted cash receipts are dedesignated as hedges near the end of their term and, accordingly, do not qualify for hedge accounting after the date of dedesignation. Fair value for derivative contracts outstanding at March 2010 and December 2009 totaled $922 million and $857 million, respectively, and consisted primarily of contracts hedging exposures to the euro, British pound, Mexican peso and Canadian dollar. Derivative contracts, consisting of forward exchange contracts, have maturities ranging from one month to 20 months. Amounts of outstanding derivatives in the following table are presented on an individual contract basis:

		Fair Value of Derivatives								Fair Value of Derivatives
		with Unrealized Gains								with Unrealized Losses
		March				December				March				December
In thousands		2010				2009				2010				2009
Foreign exchange contracts designated as hedging instruments		$	34,887			$	11,183			$	8,031			$	16,769
Foreign exchange contracts not designated as hedging instruments			43				560				716				25
Total derivatives		$	34,930			$	11,743			$	8,747			$	16,794

The amounts above have been aggregated by counterparty for presentation in the Consolidated Balance Sheets and classified as current or noncurrent based on the derivatives’ maturity dates, as follows:

In thousands		March 2010				December 2009
Other current assets		$	28,881			$	6,843
Accrued current liabilities			(4,107	)			(13,476	)
Other assets (noncurrent)			2,249				1,693
Other liabilities (noncurrent)			(840	)			(111	)

     VF’s fair value hedge strategies and accounting policies — VF has a hedging program to reduce the risk that the future cash flows for firm commitments will be impacted by changes in foreign currency exchange rates. VF enters into derivative contracts to hedge intercompany loans between the United States and a foreign subsidiary or between two foreign subsidiaries having different functional currencies.

For a derivative instrument that is designated and qualifies as a fair value hedge (i.e., hedging the exposure to changes in the fair value of an asset or liability attributable to a particular risk), changes in the fair value of the derivative are recognized in earnings as an offset, on the same line, to the earnings impact of the underlying hedged item.

Following is a summary of the effects of fair value hedging relationships included in VF’s Consolidated Statements of Income:

In thousands

Location

of Gain

Location of

Gain (Loss)

(Loss) on

Gain (Loss) on

Hedged Items

Gain (Loss)

on Related

Fair Value

Derivatives

Derivatives

in Fair Value

Recognized

Hedged Items

Hedging

Recognized

Recognized in

Hedge

on Related

Recognized in

Relationships

in Income

Income

Relationships

Hedged Items

Income

Quarter ended March 2010

Foreign exchange

Miscellaneous Income (expense)

$

7,033

Advances — intercompany

Miscellaneous Income (expense)

$

(7,042

)

Quarter ended March 2009

Foreign exchange

Miscellaneous income (expense)

$

10,868

Advances — intercompany

Miscellaneous income (expense)

$

(11,327

)

     VF’s cash flow hedge strategies and accounting policies — VF has a hedging program to reduce the variability of forecasted cash flows denominated in foreign currencies. VF uses derivative contracts to hedge a portion of the exchange risk for its forecasted inventory purchases and production costs and for its forecasted cash receipts arising from sales of inventory. In addition, VF hedges the receipt in the United States of forecasted intercompany royalties from its foreign subsidiaries.

For a derivative instrument that is designated and qualifies as a cash flow hedge (i.e., hedging the exposure to variability in expected cash flows attributable to a particular risk), periodic changes in the fair value of the effective portion of the derivative are reported as a component of OCI and deferred in Accumulated OCI in the balance sheet. The deferred derivative gain or loss is reclassified into earnings as an offset, on the same line, to the earnings impact of the underlying hedged transaction (e.g., in cost of goods sold when the hedged inventories are sold, or in net sales when the hedged item relates to cash receipts from forecasted sales). As

discussed in the following section, cash flow hedges of forecasted cash receipts are dedesignated as hedges when the sale is recorded, and hedge accounting is not applied after that date.

Following is a summary of the effects of cash flow hedging relationships included in VF’s Consolidated Statements of Income:

In thousands
		Gain (Loss) on								Location of				Gain (Loss) Reclassified
		Derivatives								Gain (Loss)				from Accumulated
Cash Flow		Recognized in OCI-								Reclassified from				OCI into Income-
Hedging		Quarter Ended March								Accumulated				Quarter Ended March
Relationships		2010				2009				OCI into Income				2010				2009
Foreign exchange		$	20,841			$	12,381			Net sales				$	969			$	—
										Cost of goods sold					6,954				1,197
										Miscellaneous income (expense)					1,295				2,462
Interest rate			—				—			Interest expense					29				29
Total		$	20,841			$	12,381							$	9,247			$	3,688

Amounts recognized in earnings in the three months ended March 2010 and March 2009 for the ineffective portion of cash flow hedging relationships were not significant.

At March 2010, Accumulated OCI included $12.4 million of net deferred pretax gains for foreign exchange contracts that are expected to be reclassified to earnings during the next 12 months. Actual amounts to be reclassified to earnings will depend on exchange rates when currently outstanding derivative contracts are settled.

In addition, in 2003 VF entered into an interest rate swap derivative contract to hedge the interest rate risk for issuance of long-term debt due in 2033. The contract was terminated concurrent with the issuance of the debt, with the realized gain deferred in Accumulated OCI. The remaining pretax deferred gain of $2.7 million in Accumulated OCI at March 2010 will be reclassified into earnings over the remaining term of the debt.

     Derivative contracts not designated as hedges — As noted in the preceding section, cash flow hedges of forecasted cash receipts are dedesignated as hedges when the forecasted sale is recognized, and accordingly, hedge accounting is not applied after that date. These derivatives remain outstanding and serve as an economic hedge of foreign currency exposures related to the ultimate collection of the trade receivables. During the period hedge accounting is not applied, changes in the fair value of the derivative contracts are recognized in earnings. For the three months ended March 2010, VF recorded net losses of $0.8 million in Miscellaneous Income (Expense) for derivatives dedesignated as hedging instruments, effectively offsetting the net remeasurement gains on the related accounts receivable. There were no derivative contracts not designated as hedges in the first quarter of 2009.

Note O — Recently Issued Accounting Standards

New accounting guidance issued by the FASB but not effective until after March 2010 is not expected to have a significant effect on VF’s consolidated financial position, results of operations or disclosures.

Note P — Subsequent Event

VF’s Board of Directors declared a quarterly cash dividend of $0.60 per share, payable on June 18, 2010 to shareholders of record on June 8, 2010.

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

Overview

     Highlights of the First Quarter of 2010

•		Revenues grew to $1,749.9 million, an increase of 1% from the prior year quarter, with strengthening trends across our businesses.
•		Our business in Asia continues to grow rapidly, with revenues up 31% in the quarter.
•		Our direct-to-consumer business grew 23% in the quarter, driven by both new store openings and comp store revenue growth. The direct-to-consumer businesses of The North Faceâ, Vansâ, 7 for All Mankindâ, Kiplingâ, Nauticaâ, lucyâ and Napapijriâ brands each achieved strong revenue growth in the quarter.
•		Gross margin reached a record 46.7%.
•		Earnings per share increased by 60% to a record $1.46 from $0.91 in the prior year quarter. As anticipated, earnings per share benefitted from lower pension expense and foreign currency translation rates by $.05 and $.06, respectively, compared with the 2009 quarter. Also included in the current quarter was an $.11 per share tax credit as well as $.09 in restructuring expenses related primarily to actions to reduce product costs. (All per share amounts are presented on a diluted basis.)
•		Our balance sheet remains strong with cash of $718.6 million, a debt to total capital ratio of 23.7% and a net debt to total capital ratio of 11.0%. VF has over $1.3 billion of available liquidity under committed bank credit lines. Long-term debt payments of $200.0 million are due in October 2010 with no other payments required until 2017.
•		Inventories at March 2010 declined 15% from the prior year quarter, reflecting our continued focus on inventory reduction.
•		Operating cash flow reached a first quarter record of $184.2 million.
•		We purchased the remaining 50% equity interest of a joint venture that markets the Vans® brand in Mexico (“Vans Mexico”). See Note C to the Consolidated Financial Statements for more information.
•		We repurchased 1.5 million shares of our Common Stock in the first quarter, utilizing our operating cash flow, and are on track to complete the repurchase of 3.0 million shares in the first half of 2010. We will continue to evaluate future share repurchases considering funding required for business acquisitions, our Common Stock price and levels of stock option exercises.

Analysis of Results of Operations

     Consolidated Statements of Income

The following table presents a summary of the changes in our Total Revenues from 2009:

		First Quarter
		2010
		Compared
In millions		with 2009
Total revenues — 2009		$	1,725
Impact of foreign currency translation			38
Organic growth			(29	)
Acquisition in prior year (to anniversary date)			13
Acquisition in current year			3
Total revenues — 2010		$	1,750

See the “Information by Business Segment” section below for a discussion of Total Revenue changes from the prior year period.

During the first quarter of 2010, approximately 34% of Total Revenues were in international markets. Foreign currency translation effects result from translating a foreign entity’s financial statements from its functional currency into the U.S. dollar, VF’s reporting currency. In translating foreign currencies into the U.S. dollar, a weaker U.S. dollar in relation to the functional currencies where VF conducts its international business (primarily the European euro countries) positively impacted revenue comparisons by $38 million in the first quarter of 2010, compared with the 2009 period. The weighted average translation rate for the euro was $1.38 per euro for the first three months of 2010, compared with $1.30 during the first three months of 2009.

The decline in organic revenues resulted from lower wholesale unit sales, especially in our jeanswear businesses. This decline was partially offset by higher volume at our owned retail stores from both new store openings and comp store increases.

The following table presents the percentage relationship to Total Revenues for components of our Consolidated Statements of Income:

		First Quarter
		2010				2009
Gross margin (total revenues less cost of goods sold)			46.7	%			42.2	%
Marketing, administrative and general expenses			34.0				32.9
Operating income			12.8	%			9.4	%

The gross margin percentage in the first quarter of 2010 increased by 4.5% over the 2009 quarter. The components of this change were (i) 1.8% due to lower product costs, (ii) 0.9% from negative foreign currency transaction impacts in the first quarter of 2009 that did not recur in the 2010 quarter, (iii) 0.9% due to the changing mix of our business, including the growth of our direct-to-consumer business where gross margins

exceed those in our wholesale business, and (iv) 0.4% from improved profitability on distressed inventory sales.

The ratio of Marketing, Administrative and General Expenses as a percentage of Total Revenues in the first quarter of 2010 increased 1.1% over the 2009 quarter. The primary components of this change were (i) 0.5% from additional marketing investments and (ii) 0.3% due to the changing mix of business.

Interest expense decreased $1.5 million in the first quarter of 2010 from the comparable period in 2009 due to lower short-term borrowings, partially offset by higher short-term interest rates. Average interest-bearing debt outstanding totaled $1,187 million for the first three months of 2010 and $1,326 million for the comparable period of 2009. The weighted average interest rate on total outstanding debt was 6.7% for the first three months of 2010 and 6.4% for the comparable period of 2009.

In connection with the acquisition of Vans Mexico, VF recognized a gain of $5.7 million from remeasuring its previous 50% investment in the joint venture to fair value. This gain is included in Miscellaneous, Net in the Consolidated Statements of Income.

The effective income tax rate for the first quarter of 2010 was 22.0%, compared with 29.0% in the first quarter of 2009. The lower rate in the first quarter of 2010, compared with the prior year quarter, resulted primarily from a tax benefit related to refund claims in a foreign jurisdiction. We expect the 2010 annual effective tax rate, excluding the first quarter tax benefit, to be approximately 26%. The effective tax rate for the full year 2009 was 29.9%, which included a 3.7% unfavorable impact from a goodwill impairment charge.

Net Income Attributable to VF Corporation for the first quarter of 2010 increased to $163.5 million, compared with $100.9 million in the 2009 quarter. Earnings Per Share Attributable to VF Corporation increased to $1.46 per share from $0.91 per share. The increase resulted primarily from improved operating performance, as discussed in the “Information by Business Segment” section below. The first quarter of 2010 also benefited by (i) $0.11 per share due to the tax refund claims mentioned above, (ii) $0.06 from the impact of translating foreign currencies into a weaker U.S. dollar and (iii) $0.05 due to lower pension expense in our defined benefit pension plans. These benefits were partially offset by $0.09 in restructuring expenses related primarily to actions to reduce product costs.

     Information by Business Segment

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

See Note H to the Consolidated Financial Statements for a summary of our results of operations by coalition, along with a reconciliation of Coalition Profit to Income Before Income Taxes. Operating results of the lucy business unit for 2009 have been reclassified from the Contemporary Brands Coalition to the Outdoor & Action Sports Coalition consistent with the change in internal management reporting beginning in 2010.

The following table presents a summary of the changes in our Total Revenues by coalition for the first quarter of 2010:

		First Quarter
		Outdoor &																Contemporary
In millions		Action Sports				Jeanswear				Imagewear				Sportswear				Brands				Other
Total revenues — 2009		$	618			$	667			$	227			$	104			$	90			$	20
Impact of foreign currency translation			21				15				1				—				1				—
Organic growth			37				(60	)			(7	)			(2	)			—				2
Acquisition in prior year (to anniversary date)			—				—				—				—				13				—
Acquisition in current year			3				—				—				—				—				—
Total revenues — 2010		$	679			$	622			$	221			$	102			$	104			$	22

The following table presents a summary of the changes in our Coalition Profit by coalition for the first quarter of 2010:

		First Quarter
		Outdoor &																Contemporary
In millions		Action Sports				Jeanswear				Imagewear				Sportswear				Brands				Other
Coalition profit — 2009		$	89			$	90			$	23			$	5			$	15			$	(2	)
Impact of foreign currency translation			5				3				—				—				—				—
Operations			39				14				—				2				(7	)			1
Coalition profit — 2010		$	133			$	107			$	23			$	7			$	8			$	(1	)

     Outdoor and Action Sports:

		First Quarter
Dollars in millions		2010				2009				Percent Change
Coalition revenues		$	679			$	618				9.8	%
Coalition profit			133				89				49.8	%
Operating margin			19.6	%			14.3	%

The increase in Coalition Revenues in the first quarter of 2010 was driven by global unit volume gains from the two largest brands in this Coalition, The North Face^â and Vans^â, whose revenues increased by 9% and 20%, respectively. In addition, Coalition Revenues in our Americas businesses rose 11%, while international revenues were up 8%. Total direct-to-consumer revenues for our Outdoor & Action Sports businesses rose 28% in the quarter, with double-digit growth in our The North Face^â, Vans^â, Kipling^â, Napapijri^â and lucy^â brand retail businesses. We continued to open new retail stores and expand our e-commerce business within this Coalition in the first quarter of 2010.

Operating margin increased to a record first quarter level in 2010, despite a more than 20% increase in marketing and other brand-building investments. The increase in operating margin was driven by improved gross margin due to lower product costs, stronger retail performance and lower excess inventories coming into 2010.

     Jeanswear:

		First Quarter
Dollars in millions		2010				2009				Percent Change
Coalition revenues		$	622			$	667				(6.8	)%
Coalition profit			107				90				19.2	%
Operating margin			17.2	%			13.4	%