Annual report pursuant to Section 13 and 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
 12 Months Ended
Apr. 03, 2021
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS
Financial assets and financial liabilities measured and reported at fair value are classified in a three-level hierarchy that prioritizes the inputs used in the valuation process. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs, as follows:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — 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 — Prices or valuation techniques that require significant unobservable data inputs. These inputs would normally be VF’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.
Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities that are measured and recorded in the consolidated financial statements at fair value on a recurring basis:
  Total Fair
Value
Fair Value Measurement Using (a)
(In thousands) Level 1 Level 2 Level 3
March 2021
Financial assets:
Cash equivalents:
Money market funds $ 216,591  $ 216,591  $ —  $ — 
Time deposits 102,914  102,914  —  — 
Short-term investments 598,806  598,806  —  — 
Derivative financial instruments 13,257  —  13,257  — 
Deferred compensation 141,072  141,072  —  — 
Financial liabilities:
Derivative financial instruments 74,255  —  74,255  — 
Deferred compensation 150,713  —  150,713  — 
Contingent consideration 207,000  —  —  207,000 
Total Fair
Value
Fair Value Measurement Using (a)
(In thousands) Level 1 Level 2 Level 3
March 2020
Financial assets:
Cash equivalents:
Money market funds $ 1,211,887  $ 1,211,887  $ —  $ — 
Time deposits 1,932  1,932  —  — 
Derivative financial instruments 91,834  —  91,834  — 
Deferred compensation 105,706  105,706  —  — 
Financial liabilities:
Derivative financial instruments 14,531  —  14,531  — 
Deferred compensation 113,289  —  113,289  — 
(a)There were no transfers among the levels within the fair value hierarchy during the years ended March 2021 or 2020.
The following table presents the changes in fair value of the contingent consideration liability designated as Level 3:
(In thousands) Fair Value
Balance, March 2020 $ — 
Acquisition 207,000 
Adjustment — 
Balance, March 2021 $ 207,000 

VF’s cash equivalents include money market funds and time deposits with maturities within three months of their purchase dates, that approximate fair value based on Level 1 measurements. The fair value of derivative financial instruments, which consist of foreign exchange forward contracts, is determined based on observable market inputs (Level 2), including spot and forward exchange rates for foreign currencies, and considers the credit risk of the Company and its counterparties. VF's short-term investments include excess cash invested in a managed income fund that approximates fair value based on Level 1 measurements. VF’s deferred compensation assets primarily represent investments held within plan trusts as an economic hedge of the related deferred
compensation liabilities (Note 16). These investments primarily include mutual funds (Level 1) that are valued based on quoted prices in active markets. Liabilities related to VF’s deferred compensation plans are recorded at amounts due to participants, based on the fair value of the participants’ selection of hypothetical investments.
The contingent consideration represents a potential liability associated with additional cash consideration related to the acquisition of Supreme ranging from zero to $300.0 million, which is subject to the achievement of certain financial targets over the one-year earn out period ending January 31, 2022. The estimated fair value of the contingent consideration of
$207.0 million was determined based on the probability-weighted present value of various future cash payment outcomes. As of April 3, 2021, there were no changes in the recognized amounts or range of outcomes for the contingent consideration recognized as a result of the acquisition. In subsequent reporting periods, the contingent consideration liability will be remeasured at fair value with changes recognized in the selling, general and administrative expenses line item in the Consolidated Statements of Operations. Refer to Note 3 for additional information on the acquisition of Supreme.
All other financial assets and financial liabilities are recorded in the consolidated financial statements at cost, except life insurance contracts which are recorded at cash surrender value. These other financial assets and financial liabilities include cash held as demand deposits, accounts receivable, short-term borrowings, accounts payable and accrued liabilities. At March 2021 and 2020, their carrying values approximated their fair values. Additionally, at March 2021 and 2020, the carrying values of VF’s long-term debt, including the current portion, were $5,710.2 million and $2,609.3 million, respectively, compared with fair values of $6,017.3 million and $2,672.9 million at those respective dates. Fair value for long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings.
Nonrecurring Fair Value Measurements
Certain non-financial assets, primarily property, plant and equipment, lease right-of-use assets, goodwill and intangible assets, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, these assets are required to be assessed for impairment whenever events or circumstances indicate that their carrying value may not be fully recoverable, and at least annually for goodwill and indefinite-lived intangible assets. In the event an impairment is required, the asset is adjusted to fair value, using market-based assumptions.
The Company recorded $14.8 million, $14.6 million and $6.0 million of impairments in the years ended March 2021, 2020 and 2019, respectively, related to retail store assets, associated lease right-of-use assets and other fixed assets. These impairments are recorded in the selling, general and administrative expenses line item in the Consolidated Statements of Operations.
VF recorded intangible asset impairment charges of $20.4 million in the year ended March 2021 primarily due to the write-off of certain trademark and customer relationship balances, which resulted from strategic actions taken by the Company.
Management performed its annual impairment testing of goodwill and indefinite-lived intangible assets as of the beginning of the fourth quarter of Fiscal 2021. Management performed a quantitative analysis of the Kipling reporting unit goodwill and indefinite-lived trademark intangible asset. A qualitative analysis was performed for all other reporting units and indefinite-lived trademark intangible assets. No impairment
charges of goodwill or indefinite-lived trademark intangible assets were recorded as a result of the annual impairment testing completed as of the beginning of the fourth quarter of Fiscal 2021.
See Critical Accounting Policies and Estimates within Management's Discussion and Analysis for additional discussion regarding non-recurring fair value measurements during the year ended March 2021.
A goodwill impairment charge of $323.2 million was recorded in the year ended March 2020 related to the Timberland reporting unit. No impairment charges of goodwill or intangible assets were recorded in the year ended March 2019.
Our impairment testing of goodwill, trademarks and customer relationship intangible assets utilizes significant unobservable inputs (Level 3) to determine fair value.
The fair value of reporting units for goodwill impairment testing is determined using a combination of two valuation methods: an income approach and a market approach. The income approach is based on projected future (debt-free) cash flows that are discounted to present value. The appropriate discount rate is based on the reporting unit’s weighted average cost of capital (“WACC”) that takes market participant assumptions into consideration. For the market approach, management uses both the guideline company and similar transaction methods. The guideline company method analyzes market multiples of revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for a group of comparable public companies. The market multiples used in the valuation are based on the relative strengths and weaknesses of the reporting unit compared to the selected guideline companies. Under the similar transactions method, valuation multiples are calculated utilizing actual transaction prices and revenue/EBITDA data from target companies deemed similar to the reporting unit.
Management uses the income-based relief-from-royalty method to value trademark intangible assets. Under this method, revenues expected to be generated by the trademark are multiplied by a selected royalty rate. The royalty rate is selected based on consideration of (i) royalty rates included in active license agreements, if applicable, (ii) royalty rates received by market participants in the apparel industry, and (iii) the current performance of the reporting unit. The estimated after-tax royalty revenue stream is then discounted to present value using the reporting unit’s WACC plus a spread that factors in the risk of the intangible asset.
Management’s revenue and profitability forecasts used in the reporting unit and intangible asset valuations were developed in conjunction with management’s strategic plan review, and our resulting revised outlook for business performance, and considered recent performance and trends, including the impact of the COVID-19 pandemic, strategic initiatives and industry trends. Assumptions used in the valuations are similar to those that would be used by market participants performing independent valuations of these businesses.