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

Mar. 30, 2019

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:



	Year Ended March		Three Months Ended March (Transition Period)		Year Ended December
(In thousands)	2019		2018		2017		2016
Stock-based compensation cost	$	105,157	$	25,440	$	81,641	$	67,762
Income tax benefits	23,650		5,771		26,697		22,870
Stock-based compensation costs included in inventory at period end	3,165		2,236		1,938		1,332

At the end of March 2019, there was $56.0 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 March 2019, there were 27,710,266 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:



	Year Ended March	Three Months Ended March (Transition Period)	Year Ended December
	2019	2018	2017	2016
Expected volatility	22% to 29%	24% to 29%	23% to 30%	21% to 29%
Weighted average expected volatility	25%	25%	24%	24%
Expected term (in years)	6.1 to 7.5	6.1 to 7.6	6.3 to 7.7	6.3 to 7.6
Weighted average dividend yield	2.6%	2.9%	2.8%	2.2%
Risk-free interest rate	2.1% to 3.2%	1.9% to 2.9%	0.7% to 2.4%	0.4% to 1.7%
Weighted average fair value at date of grant	$16.82	$15.34	$9.90	$12.08

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 the three-month period ended March 2018 and the year ended March 2019 is summarized as follows:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (In thousands)
Outstanding, December 2017	14,250,084		$	52.03
Granted	1,843,749		74.80
Exercised	(1,484,537	)	38.94
Forfeited/cancelled	(117,782	)	66.36
Outstanding, March 2018	14,491,514		56.15
Granted	101,197		81.01
Exercised	(4,316,539	)	46.86
Forfeited/cancelled	(365,962	)	65.27
Outstanding, March 2019	9,910,210		$	60.11	6.7	$	265,734
Exercisable, March 2019	7,781,198		$	58.60	6.2	$	220,251

The total fair value of stock options that vested during the year ended March 2019, the three months ended March 2018 and the years ended December 2017 and 2016 was $26.8 million, $28.3 million, $28.0 million and $26.7 million, respectively. The total intrinsic value of stock options exercised during the year ended March 2019, the three months ended March 2018 and the years ended December 2017 and 2016 was $171.6 million, $57.3 million, $106.7 million and $86.6 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 performance-based RSU has a potential final payout ranging from zero to two shares of VF Common Stock. For performance-based RSUs granted prior to February 2018, 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 Talent and Compensation Committee of the Board of Directors. For performance-based RSUs granted in the three months ended March 2018 and Fiscal 2019, the number of shares earned by participants, if any, is based on achievement of three-year financial targets set by the Talent and Compensation Committee of the Board of Directors. For all performance-based RSUs, 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 Consumer Discretionary Index for grants issued in the three months ended March 2018 and Fiscal 2019, and the Standard & Poor's 500 Index for grants issued in the years ended December 2017 and 2016. 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 $4.61, $4.61, $2.67 and $4.48 per share for the year ended March 2019, three-month period ended March 2018 and years ended December 2017 and 2016 performance-based 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 nonperformance-based RSU entitles the holder to one share of VF Common Stock. The employee nonperformance-based RSUs generally vest over periods of up to four years from the date of grant. The nonperformance-based 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.

In addition, VF began making nonperformance-based RSU grants to employees as part of its annual stock compensation program beginning in the three months ended March 2018. Each nonperformance-based RSU entitles the holder to one share of VF Common Stock. These awards generally vest 50% over a two-year period and 50% over a four-year period 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 the three-month period ended March 2018 and the year ended March 2019 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 2017	1,504,551		$	62.22	335,093		$	60.72
Granted	351,490		74.80		407,074		74.80
Issued as Common Stock	(405,871	)	75.33		(34,964	)	56.11
Forfeited/cancelled	(12,154	)	63.64		(10,780	)	72.45
Outstanding, March 2018	1,438,016		61.58		696,423		69.00
Granted	19,099		80.39		82,799		79.21
Issued as Common Stock	—		—		(58,165	)	69.08
Forfeited/cancelled	(60,439	)	65.20		(56,224	)	73.54
Outstanding, March 2019	1,396,676		$	61.68	664,833		$	69.88
Vested, March 2019	859,332		$	61.37	69,139		$	74.80

The weighted average fair value of performance-based RSUs granted during the year ended March 2019, the three months ended March 2018 and the years ended December 2017 and 2016 was $80.39, $74.80, $53.69 and $61.31 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 March 2019 was $121.4 million. Awards earned and vested for the three-year performance period ended in December 2017 and distributed in early 2018 totaled 450,175 shares of VF Common Stock having a value of $36.4 million. Similarly, 480,555 shares of VF Common Stock having a value of $24.3 million were earned for the performance period ended in December 2016.

The weighted average fair value of nonperformance-based RSUs granted during the year ended March 2019, the three months ended March 2018 and the years ended December 2017 and 2016 was $79.21, $74.80, $57.49 and $61.83 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 March 2019 was $57.8 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 the three-month period ended March 2018 and the year ended March 2019 is summarized below:



	Nonvested Shares Outstanding		Weighted Average Grant Date Fair Value
Nonvested shares, December 2017	684,963		$	57.01
Granted	56,331		74.70
Dividend equivalents	4,188		74.40
Vested	(53,203	)	57.90
Forfeited	(11,068	)	68.25
Nonvested shares, March 2018	681,211		58.33
Granted	79,188		79.99
Dividend equivalents	15,468		82.02
Vested	(99,682	)	67.41
Forfeited	(49,460	)	62.76
Nonvested shares, March 2019	626,725		$	59.86

Nonvested shares of restricted stock had a market value of $54.5 million at the end of March 2019. The market value of the shares that vested during the year ended March 2019, the three months ended March 2018 and the years ended December 2017 and 2016 was $8.7 million, $3.9 million, $19.4 million and $3.9 million, respectively.