Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

v3.20.2
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
 6 Months Ended
Sep. 26, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Summary of Derivative Financial Instruments

All of VF’s outstanding derivative financial instruments are foreign exchange forward contracts. Although derivatives meet the criteria for hedge accounting at the inception of the hedging relationship, a limited number of derivative contracts intended to hedge assets and liabilities are not designated as hedges for accounting purposes. The notional amounts of all outstanding derivative contracts were $2.5 billion at September 2020,
$2.6 billion at March 2020 and $2.8 billion at September 2019, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Swiss franc, Mexican peso, South Korean won, Swedish krona, Japanese yen, Polish zloty and New Zealand dollar. Derivative contracts have maturities up to 20 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
(In thousands) September 2020 March 2020 September 2019 September 2020 March 2020 September 2019
Foreign currency exchange contracts designated as hedging instruments
 $ 28,676  $ 78,298  $ 82,756  $ (31,157) $ (12,682) $ (10,944)
Foreign currency exchange contracts not designated as hedging instruments
 4,500  13,536  7,706  (1,161) (1,849) (1,408)
Total derivatives
 $ 33,176  $ 91,834  $ 90,462  $ (32,318) $ (14,531) $ (12,352)
VF records and presents the fair values of all of its derivative assets and liabilities in the Consolidated Balance Sheets on a gross basis, even though they are subject to master netting agreements. If VF were to offset and record the asset and liability balances of its foreign exchange forward contracts on a net basis in accordance with the terms of its master netting agreements, the amounts presented in the Consolidated Balance Sheets would be adjusted from the current gross presentation to the net amounts as detailed in the following table:
  September 2020 March 2020 September 2019
(In thousands) Derivative
Asset		 Derivative
Liability		 Derivative
Asset		 Derivative
Liability		 Derivative
Asset		 Derivative
Liability
Gross amounts presented in the Consolidated Balance Sheets
 $ 33,176  $ (32,318) $ 91,834  $ (14,531) $ 90,462  $ (12,352)
Gross amounts not offset in the Consolidated Balance Sheets
 (23,491) 23,491  (14,393) 14,393  (12,283) 12,283 
Net amounts
 $ 9,685  $ (8,827) $ 77,441  $ (138) $ 78,179  $ (69)
Derivatives are classified as current or noncurrent based on maturity dates, as follows:
(In thousands) September 2020 March 2020 September 2019
Other current assets $ 27,615  $ 71,784  $ 81,279 
Accrued liabilities (22,946) (11,378) (10,106)
Other assets 5,561  20,050  9,183 
Other liabilities (9,372) (3,153) (2,246)
Cash Flow Hedges
VF uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, purchases, production costs, operating costs and intercompany royalties. The effects of cash flow hedging included in VF’s Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss) are summarized as follows:
(In thousands)
Gain (Loss) on Derivatives Recognized in OCI
Three Months Ended September
Gain (Loss) on Derivatives Recognized in OCI
Six Months Ended September
Cash Flow Hedging Relationships 2020 2019 2020 2019
Foreign currency exchange $ (39,731) $ 51,396  $ (47,326) $ 66,170 
(In thousands)
Gain (Loss) Reclassified from Accumulated OCI into Income
Three Months Ended September
Gain (Loss) Reclassified from Accumulated OCI into Income (Loss)
Six Months Ended September
Location of Gain (Loss) 2020 2019 2020 2019
Net revenues
 $ 2,135  $ (2,814) $ 2,306  $ (5,719)
Cost of goods sold
 8,443  22,727  25,148  33,832 
Selling, general and administrative expenses
 741  1,382  2,348  2,098 
Other income (expense), net
 33  3,696  1,803  6,568 
Interest expense
 27  (1,303) 54  (2,596)
Total $ 11,379  $ 23,688  $ 31,659  $ 34,183 
Derivative Contracts Not Designated as Hedges
VF uses derivative contracts to manage foreign currency exchange risk on third-party accounts receivable and payable, as well as intercompany borrowings. These contracts are not designated as hedges, and are recorded at fair value in the Consolidated Balance Sheets. Changes in the fair values of these instruments are recognized directly in earnings. Gains or losses on these contracts largely offset the net transaction losses or gains on the related assets and liabilities. In the case of derivative contracts executed on foreign currency exposures that are no longer probable of occurring, VF de-designates these hedges and the fair value changes of these instruments are also recognized directly in earnings. Certain derivative contracts were de-designated as the hedged forecasted transactions were no longer deemed probable of occurring primarily as a result of the COVID-19 pandemic and actions expected to be taken by the Company. Accordingly, the Company reclassified amounts from accumulated OCI and recognized a $1.3 million net loss and a $3.7 million net gain during the three and six months ended September 2020, respectively, which were primarily recorded in cost of goods sold.
The changes in fair value of derivative contracts not designated as hedges that have been recognized as gains or losses in VF's Consolidated Statements of Operations were not material for the three and six months ended September 2020 and September 2019.
Other Derivative Information
At September 2020, accumulated OCI included $8.0 million of pre-tax net deferred gains for foreign currency 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.
Net Investment Hedge
The Company has designated its €1.850 billion of euro-denominated fixed-rate notes as a net investment hedge of VF’s investment in certain foreign operations. Because this debt qualified as a nonderivative hedging instrument, foreign currency transaction gains or losses of the debt are deferred in the foreign currency translation and other component of accumulated OCI as an offset to the foreign currency translation adjustments on the hedged investments. During the three and six-month periods ended September 2020, the Company recognized an after-tax loss of $53.5 million and $71.6 million, respectively, in OCI related to the net investment hedge transaction, and an after-tax gain of $26.3 million and $17.6 million for the three and six-month periods ended September 2019, respectively. Any amounts deferred in accumulated OCI will remain until the hedged investment is sold or substantially liquidated.