VF Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

12 Months Ended

Apr. 02, 2022

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 $2.9 billion and $2.5 billion at March 2022 and 2021, respectively, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Swiss franc, Mexican peso, South Korean won, Swedish krona, Polish zloty and Japanese yen. 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)	March 2022		March 2021		March 2022		March 2021
Foreign currency exchange contracts designated as hedging instruments	$	79,046	$	12,301	$	(27,678)	$	(73,087)
Foreign currency exchange contracts not designated as hedging instruments	—		956		(45)		(1,168)
Total derivatives	$	79,046	$	13,257	$	(27,723)	$	(74,255)

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 as of March 2022 and 2021 would be adjusted from the current gross presentation to the net amounts as detailed in the following table:


	March 2022				March 2021
(In thousands)	Derivative Asset		Derivative Liability		Derivative Asset		Derivative Liability
Gross amounts presented in the Consolidated Balance Sheets	$	79,046	$	(27,723)	$	13,257	$	(74,255)
Gross amounts not offset in the Consolidated Balance Sheets	(18,721)		18,721		(13,246)		13,246
Net amounts	$	60,325	$	(9,002)	$	11	$	(61,009)

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


(In thousands)	March 2022		March 2021
Other current assets	$	71,910	$	7,440
Accrued liabilities (Note 13)	(24,267)		(66,351)
Other assets (Note 11)	7,136		5,817
Other liabilities (Note 15)	(3,456)		(7,904)

Cash Flow Hedges

VF uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, inventory purchases, 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 are summarized as follows:


(In thousands) Cash Flow Hedging Relationships	Gain (Loss) on Derivatives Recognized in OCI
	Year Ended March

	2022		2021		2020
Foreign currency exchange	$	71,494	$	(122,244)	$	100,336


	Gain (Loss) Reclassified from Accumulated OCI into Income
(In thousands)	Year Ended March

Location of Gain (Loss)	2022		2021		2020
Net revenues	$	(27,382)	$	2,596	$	(18,076)
Cost of goods sold	(26,346)		19,485		94,376
Selling, general and administrative expenses	(487)		2,797		5,084
Other income (expense), net	(219)		(137)		10,304
Interest expense	108		107		(13,177)
Total	$	(54,326)	$	24,848	$	78,511

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.

During the year ended March 2020, primarily as a result of the COVID-19 pandemic and actions expected to be taken by the Company, certain derivative contracts were de-designated as the hedged forecasted transactions were no longer deemed probable of occurring. Accordingly, the Company reclassified

amounts from accumulated OCI and recognized a $9.8 million net gain in the year ended March 2020, which was primarily recorded in cost of goods sold. The impact of de-designated derivative contracts was not significant in the years ended March 2022 or 2021.

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 years ended March 2022, 2021 and 2020.

Other Derivative Information

At March 2022, accumulated OCI included $47.7 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.

VF entered into interest rate swap derivative contracts in 2011 and 2003 to hedge the interest rate risk for issuance of long-term debt due in 2021 and 2033, respectively. In each case, the contracts were terminated concurrent with the issuance of the debt, and the realized gain or loss was deferred in accumulated OCI. In connection with the full redemption of the aggregate principal amount of the outstanding 2021 notes in March 2020, the remaining pre-tax net deferred loss was recorded in interest expense in the year ended March 2020. The pre-tax net deferred gain, associated with the 2033 notes, and amounts to be reclassified from accumulated OCI into interest expense, are not significant. During the year ended March 2020, VF reclassified $13.2 million of net deferred losses from accumulated OCI into interest expense.

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 years ended March 2022, 2021 and 2020, the Company recognized an after-tax gain of $99.5 million, an after-tax loss of $91.5 million and an after-tax loss of $8.8 million, respectively, in OCI related to the net investment hedge transaction. Any amounts deferred in accumulated OCI will remain until the hedged investment is sold or substantially liquidated.