VF Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

12 Months Ended

Dec. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

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 awards are 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.

The amounts reported in these disclosures have not been segregated between continuing and discontinued operations.

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:



(In thousands)	2017		2016		2015
Stock-based compensation cost	$	81,641	$	67,762	$	73,420
Income tax benefits	26,697		22,870		28,090
Stock-based compensation costs included in inventory	1,938		1,332		1,345

At the end of 2017, there was $62.1 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 2017, there were 32,735,057 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:



	2017	2016	2015
Expected volatility	23% to 30%	21% to 29%	19% to 29%
Weighted average expected volatility	24%	24%	22%
Expected term (in years)	6.3 to 7.7	6.3 to 7.6	5.9 to 7.5
Weighted average dividend yield	2.8%	2.2%	2.0%
Risk-free interest rate	0.7% to 2.4%	0.4% to 1.7%	0.1% to 2.3%
Weighted average fair value at date of grant	$9.90	$12.08	$13.72

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 2017 is summarized as follows:



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

Outstanding, December 2016	14,780,183		$	47.38
Granted	3,508,940		53.68
Exercised	(3,342,247	)	31.35
Forfeited/cancelled	(696,792	)	60.90
Outstanding, December 2017	14,250,084		52.03		6.7	$	315,861
Exercisable, December 2017	8,705,990		47.84		5.4	$	229,595

The total fair value of stock options that vested during 2017, 2016 and 2015 was $28.0 million, $26.7 million and $25.9 million, respectively. The total intrinsic value of stock options exercised during 2017, 2016 and 2015 was $106.7 million, $86.6 million and $132.8 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 $2.67, $4.48 and $3.78 per share for the 2017, 2016 and 2015 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 2017 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 2016	1,494,625		$	63.68	298,913		$	52.76
Granted	615,937		53.69		209,056		57.49
Issued as Common Stock	(524,488	)	56.86		(155,013	)	41.15
Forfeited/cancelled	(81,523	)	59.04		(17,863	)	59.50
Outstanding, December 2017	1,504,551		62.22		335,093		60.72
Vested, December 2017	853,740		66.14		17,964		53.47

The weighted average fair value of performance-based RSUs granted during 2017, 2016 and 2015 was $53.69, $61.31 and $75.33 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 2017 was $111.3 million. Awards earned and vested for the three-year performance period ended in 2017 and distributable in early 2018 totaled 450,175 shares of VF Common Stock having a value of $36.4 million, as approved by the Compensation Committee of the Board of Directors. Similarly, 480,855 shares of VF Common Stock having a value of $24.3 million were earned for the performance period ended in 2016, and 1,067,426 shares of VF Common Stock having a value of $61.9 million were earned for the performance period ended in 2015.

The weighted average fair value of nonperformance-based RSUs granted during 2017, 2016 and 2015 was $57.49, $61.83 and $71.17 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 2017 was $24.8 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 2017 is summarized below:



	Nonvested Shares Outstanding		Weighted Average Grant Date Fair Value

Nonvested shares, December 2016	622,692		$	53.45
Granted	423,076		56.52
Dividend equivalents	17,848		61.56
Vested	(262,201	)	47.13
Forfeited	(116,452	)	59.13
Nonvested shares, December 2017	684,963		57.01

Nonvested shares of restricted stock had a market value of $50.7 million at the end of 2017. The market value of the shares that vested during 2017, 2016 and 2015 was $19.4 million, $3.9 million and $14.1 million, respectively.