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

Apr. 02, 2022

Share-based Payment Arrangement [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 and RSUs 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, including accelerated recognition for retirement-eligible employees. Awards that do not vest are forfeited.

Total stock-based compensation cost and the associated income tax benefits recognized in the Consolidated Statements of Operations are as follows:


	Year Ended March

(In thousands)	2022		2021		2020
Stock-based compensation cost	$	91,358	$	70,823	$	68,205
Income tax benefits	21,917		17,373		15,460

At the end of March 2022, there was $86.9 million of total unrecognized compensation cost related to all stock-based compensation arrangements that will be recognized over a weighted average period of 2 years.

At the end of March 2022, there were 19,332,994 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 vest upon grant and become exercisable one year from the date of grant. All options have ten-year terms.

The grant date fair value of each option award was calculated using a lattice option-pricing valuation model, which incorporated a range of assumptions for inputs as follows:


	Year Ended March

	2022	2021	2020
Expected volatility	28% to 41%	28% to 48%	24% to 27%
Weighted average expected volatility	36%	37%	25%
Expected term (in years)	6.1 to 7.9	6.2 to 8.0	6.1 to 7.6
Weighted average dividend yield	2.6%	2.4%	2.5%
Risk-free interest rate	0.04% to 1.81%	0.07% to 1.11%	1.41% to 2.39%
Weighted average fair value at date of grant	$20.17	$15.81	$17.19

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 year ended March 2022 is summarized as follows:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (In thousands)
Outstanding, March 2021	7,812,717	$	62.56
Granted	1,515,963	77.67
Exercised	(899,710)	52.76
Forfeited/cancelled	(381,313)	72.28
Outstanding, March 2022	8,047,657	$	66.04	6.3	$	12,446
Exercisable, March 2022	5,266,586	$	63.37	5.2	$	11,685

The total fair value of stock options that vested during the years ended March 2022, 2021 and 2020 was $16.6 million, $15.5 million and $16.6 million, respectively. The total intrinsic value of stock options exercised during the years ended March 2022, 2021 and 2020, was $22.9 million, $44.9 million and $120.6 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. 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. Shares are issued to participants in the year following the conclusion of each three-year performance period.

For performance-based RSUs granted in Fiscal 2022 and 2021, the financial targets include 50% weighting based on VF's revenue growth over the three-year period compared to a group of industry peers and 50% weighting based on VF's total shareholder return ("TSR") over the three-year period compared to the TSR for companies included in the Standard & Poor's 500 Consumer Discretionary Index. The grant date fair value of the TSR portion of the performance-based RSU grants was determined using a Monte Carlo simulation technique that incorporates option-pricing model inputs, and was $101.56 and $81.60 per share for the performance-based RSU grants in the years ended March 2022 and 2021, respectively. Additionally, the actual number of performance-based RSUs earned may be adjusted upward or downward by 25% of the target award, based on VF's gross margin performance over the three-year period.

For performance-based RSUs granted in Fiscal 2020, the financial targets are based on VF's revenue, gross margin and

earnings per share performance over the respective three-year periods. Additionally, the actual number of shares earned may be adjusted upward or downward by 25% of the target award, based on how VF’s TSR over the three-year period compares to the TSR for companies included in the Standard & Poor’s 500 Consumer Discretionary 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 $7.11 per share for the performance-based RSU grants in the year ended March 2020.

VF also grants nonperformance-based RSUs to employees as part of its stock compensation program 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.

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 year ended March 2022 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, March 2021	970,469	$	74.16	768,419	$	68.86
Granted	325,058	89.65		490,351	75.29
Issued as Common Stock	(317,021)	69.77		(248,258)	71.31
Forfeited/cancelled/modifications	(65,543)	80.37		(108,556)	71.07
Outstanding, March 2022	912,963	$	80.75	901,956	$	71.42
Vested, March 2022	588,247	$	80.88	112,534	$	67.76

The weighted average fair value of performance-based RSUs granted during the years ended March 2022 and March 2021 was $89.65 and $70.88 per share, respectively, based on the weighting of the TSR and the fair market value of the underlying VF Common Stock on each grant date. The weighted average fair value of performance-based RSUs granted during the year ended March 2020 was $84.28 per share, based on 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 2022 was $51.6 million. Awards earned and vested for the three-year performance period ended in March 2021 and distributed in early Fiscal 2022 totaled 135,562 shares of VF

Common Stock having a value of $11.6 million. Similarly, 1,029,304 shares of VF Common Stock having a value of $58.7 million were earned for the performance period ended in March 2020 and distributed in early Fiscal 2021.

The weighted average fair value of nonperformance-based RSUs granted during the years ended March 2022, 2021 and 2020 was $75.29, $63.99 and $84.22 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 2022 was $51.0 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 four 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 during Fiscal 2021 included shares of VF Common Stock deposited in escrow in connection with the Supreme acquisition and related forfeitures, which for accounting purposes, are considered stock-based compensation. Dividends earned on the restricted shares related to the Supreme acquisition are settled in cash.

Restricted stock activity for the year ended March 2022 is summarized below:


	Nonvested Shares Outstanding	Weighted Average Grant Date Fair Value
Nonvested shares, March 2021	920,472	$	79.23
Granted	31,214	77.78
Dividend equivalents	8,407	63.76
Vested	(67,151)	74.14
Forfeited	(38,532)	79.11
Nonvested shares, March 2022	854,410	$	79.43

Nonvested shares of restricted stock had a market value of $48.3 million at the end of March 2022. The market value of the shares that vested during the years ended March 2022, 2021 and 2020 was $5.0 million, $27.9 million and $3.6 million, respectively.