Annual report pursuant to Section 13 and 15(d)

Stock-based Compensation

v3.6.0.2
Stock-based Compensation
 12 Months Ended
Dec. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-based Compensation
Stock-based Compensation
Pursuant to the amended and restated 1996 Stock Compensation Plan approved by stockholders, 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. Substantially all stock-based compensation awards are classified as equity awards, which are accounted for in stockholders’ equity in the Consolidated Balance Sheets. On a limited basis, cash-settled stock appreciation rights are granted to employees in certain international jurisdictions. These awards are accounted for as liabilities in the Consolidated Balance Sheets and remeasured to fair value each reporting period until the award is settled. 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.
Total stock-based compensation cost and the associated income tax benefits recognized in the Consolidated Statements of Income, and stock-based compensation costs included in inventory in the Consolidated Balance Sheets, are as follows:
 
 
2016
 
2015
 
2014
 
In thousands
Stock-based compensation cost
$
67,762

 
$
73,420

 
$
104,313

Income tax benefits
22,870

 
28,090

 
41,725

Stock-based compensation costs included in inventory
1,332

 
1,345

 
797


At the end of 2016, there was $37.5 million of total unrecognized compensation cost related to all stock-based compensation arrangements that will be recognized over a weighted average period of 1 year.
At the end of 2016, there were 38,898,271 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 shorter of the requisite service period or the vesting period. Stock options granted to nonemployee members of VF’s 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:
 
 
2016
 
2015
 
2014
Expected volatility
21% to 29%
 
19% to 29%
 
23% to 29%
Weighted average expected volatility
24%
 
22%
 
26%
Expected term (in years)
6.3 to 7.6
 
5.9 to 7.5
 
5.5 to 7.3
Weighted average dividend yield
2.2%
 
2.0%
 
2.1%
Risk-free interest rate
0.4% to 1.7%
 
0.1% to 2.3%
 
0.1% to 2.7%
Weighted average fair value at date of grant
$12.08
 
$13.72
 
$12.01

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 vested options 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 2016 is summarized as follows:
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (Years)
 
Aggregate
Intrinsic
Value
(In thousands)
Outstanding, December 2015
14,715,410

 
$
41.73

 
 
 
 
Granted
3,132,609

 
61.31

 
 
 
 
Exercised
(2,515,180
)
 
28.47

 
 
 
 
Forfeited/cancelled
(552,656
)
 
62.04

 
 
 
 
Outstanding, December 2016
14,780,183

 
47.38

 
6.4
 
$
180,400

Exercisable, December 2016
9,694,433

 
38.37

 
5.3
 
$
180,394


The total fair value of stock options that vested during 2016, 2015 and 2014 was $26.7 million, $25.9 million and $22.6 million, respectively. The total intrinsic value of stock options exercised during 2016, 2015 and 2014 was $86.6 million, $132.8 million and $143.7 million, respectively.
Restricted Stock Units
VF grants performance-based RSUs that enable employees to receive shares of VF Common Stock at the end of a three-year period. Each RSU has a potential final payout ranging from zero to two shares of VF Common Stock. The number of shares earned by participants, if any, is based on achievement of a three-year baseline profitability goal and annually established performance goals set by the Compensation Committee of the Board of Directors. Shares are issued to participants in the year following the conclusion of each three-year performance period.
The 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. The grant date fair value of the TSR-based adjustment was determined using a Monte Carlo simulation technique that incorporates option-pricing model inputs, and was $4.48, $3.78 and $1.41 per share for the 2016, 2015 and 2014 RSU grants, respectively.
VF also grants nonperformance-based RSUs to certain key employees in international jurisdictions and to nonemployee 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 from the date of grant. The RSUs granted to nonemployee 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 on the RSUs accrue without compounding and are payable in additional shares of VF Common Stock when the RSUs vest. Dividend equivalents are subject to the same risk of forfeiture as the RSUs.
RSU activity for 2016 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 2015
1,649,630

 
$
55.18

 
274,856

 
$
49.64

Granted
605,658

 
61.31

 
82,113

 
61.83

Issued as Common Stock
(672,883
)
 
40.64

 
(25,556
)
 
53.19

Forfeited/cancelled
(87,780
)
 
64.15

 
(32,500
)
 
48.95

Outstanding, December 2016
1,494,625

 
63.68

 
298,913

 
52.76

Vested, December 2016
924,326

 
61.50

 
13,013

 
61.29


The weighted average fair value of performance-based RSUs granted during 2016, 2015 and 2014 was $61.31, $75.33 and $56.86 per share, respectively, which was equal to the fair market value of the underlying VF Common Stock on each grant date. The total fair market value of awards outstanding at the end of 2016 was $79.7 million. Awards earned and vested for the three-year performance period ended in 2016 and distributable in early 2017 totaled 480,855 shares of VF Common Stock having a value of $24.3 million, as approved by the Compensation Committee of the Board of Directors. Similarly, 1,067,426 shares of VF Common Stock having a value of $61.9 million were earned for the performance period ended in 2015, and 1,290,354 shares of VF Common Stock having a value of $88.4 million were earned for the performance period ended in 2014.
The weighted average fair value of nonperformance-based RSUs granted during 2016, 2015 and 2014 was $61.83, $71.17 and $58.00 per share, respectively, which was equal to the fair market value of the underlying VF Common Stock on each grant date. The total market value of awards outstanding at the end of 2016 was $15.9 million.
Restricted Stock
VF grants restricted shares of VF Common Stock to certain members of management. The fair value of the restricted shares, equal to the fair market value of VF Common Stock at the grant date, is recognized ratably over the vesting period. Restricted shares vest over periods of up to five years from the date of grant. Dividends accumulate in the form of additional restricted shares and are subject to the same risk of forfeiture as the restricted stock.
Restricted stock activity for 2016 is summarized below:
 
Nonvested
Shares
Outstanding
 
Weighted
Average
Grant Date
Fair Value
Nonvested shares, December 2015
594,637

 
$
50.73

Granted
128,737

 
61.66

Dividend equivalents
15,931

 
59.85

Vested
(72,862
)
 
43.87

Forfeited
(43,751
)
 
58.83

Nonvested shares, December 2016
622,692

 
53.45


Nonvested shares of restricted stock had a market value of $33.2 million at the end of 2016. The market value of the shares that vested during 2016, 2015 and 2014 was $3.9 million, $14.1 million and $20.1 million, respectively.