VF Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

6 Months Ended

Oct. 02, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 2021, March 2021 and September 2020, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Swiss franc, Mexican peso, Swedish krona, South Korean won, Polish zloty, Japanese yen 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 2021		March 2021		September 2020		September 2021		March 2021		September 2020
Foreign currency exchange contracts designated as hedging instruments	$	35,674	$	12,301	$	28,676	$	(32,853)	$	(73,087)	$	(31,157)
Foreign currency exchange contracts not designated as hedging instruments	154		956		4,500		(870)		(1,168)		(1,161)
Total derivatives	$	35,828	$	13,257	$	33,176	$	(33,723)	$	(74,255)	$	(32,318)

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 2021				March 2021				September 2020

(In thousands)	Derivative Asset		Derivative Liability		Derivative Asset		Derivative Liability		Derivative Asset		Derivative Liability
Gross amounts presented in the Consolidated Balance Sheets	$	35,828	$	(33,723)	$	13,257	$	(74,255)	$	33,176	$	(32,318)
Gross amounts not offset in the Consolidated Balance Sheets	(17,201)		17,201		(13,246)		13,246		(23,491)		23,491
Net amounts	$	18,627	$	(16,522)	$	11	$	(61,009)	$	9,685	$	(8,827)

Derivatives are classified as current or noncurrent based on maturity dates, as follows:


(In thousands)	September 2021		March 2021		September 2020
Other current assets	$	27,903	$	7,440	$	27,615
Accrued liabilities	(31,609)		(66,351)		(22,946)
Other assets	7,925		5,817		5,561
Other liabilities	(2,114)		(7,904)		(9,372)

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	2021		2020		2021		2020
Foreign currency exchange	$	34,361	$	(39,731)	$	29,798	$	(47,326)


(In thousands)	Gain (Loss) Reclassified from Accumulated OCI into Income (Loss) Three Months Ended September				Gain (Loss) Reclassified from Accumulated OCI into Income (Loss) Six Months Ended September

Location of Gain (Loss)	2021		2020			2021		2020
Net revenues	$	(4,963)	$	2,135		$	(6,761)	$	2,306
Cost of goods sold	(16,501)		8,443			(22,670)		25,148
Selling, general and administrative expenses	(189)		741			(1,106)		2,348
Other income (expense), net	(1,360)		33			(3,062)		1,803
Interest expense	27		27			54		54
Total	$	(22,986)	$	11,379		$	(33,545)	$	31,659

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.

The impact of de-designated derivative contracts and changes in the fair value of derivative contracts not designated as hedges, recognized as gains or losses in VF's Consolidated Statements of Operations were not material for the three and six months ended September 2021 and September 2020.

Other Derivative Information

At September 2021, accumulated OCI included $20.9 million of pre-tax net deferred losses 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 euro-denominated fixed-rate notes, which represent €1.850 billion in aggregate principal, 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 2021, the Company recognized an after-tax gain of $34.1 million and $22.6 million, respectively, in OCI related to the net investment hedge transaction, and an after-tax loss of $53.5 million and $71.6 million for the three and six-month periods ended September 2020, respectively. Any amounts deferred in accumulated OCI will remain until the hedged investment is sold or substantially liquidated.