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

3 Months Ended

Jun. 29, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Summary of Derivative Financial Instruments

VF’s outstanding derivative financial instruments include foreign currency exchange forward contracts and interest rate swap 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 foreign currency exchange forward contracts were $3.1 billion at June 2024, $3.1 billion at March 2024 and $3.5 billion at June 2023, consisting primarily of contracts hedging exposures to the euro, British

pound, Canadian dollar, Swiss franc, Mexican peso, Polish zloty, Swedish krona, South Korean won, Chinese renminbi and Japanese yen. These derivative contracts have maturities up to 20 months.

The notional amount of VF's outstanding interest rate swap contracts was $500.0 million at June 2024, March 2024 and June 2023. These contracts hedge the cash flow risk of interest payments on VF's variable-rate delayed draw Term Loan ("DDTL") Agreement.

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)	June 2024		March 2024		June 2023		June 2024		March 2024		June 2023
Derivatives Designated as Hedging Instruments:
Foreign exchange contracts	$	38,160	$	29,657	$	27,902	$	(27,436)	$	(39,639)	$	(74,050)
Interest rate contracts	1,690		2,335		4,582		—		—		—
Total derivatives designated as hedging instruments	39,850		31,992		32,484		(27,436)		(39,639)		(74,050)
Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts	1,507		556		404		(142)		(595)		(7,978)
Total derivatives	$	41,357	$	32,548	$	32,888	$	(27,578)	$	(40,234)	$	(82,028)

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 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:


	June 2024				March 2024				June 2023

(In thousands)	Derivative Asset		Derivative Liability		Derivative Asset		Derivative Liability		Derivative Asset		Derivative Liability
Gross amounts presented in the Consolidated Balance Sheets	$	41,357	$	(27,578)	$	32,548	$	(40,234)	$	32,888	$	(82,028)
Gross amounts not offset in the Consolidated Balance Sheets	(6,699)		6,699		(11,322)		11,322		(27,128)		27,128
Net amounts	$	34,658	$	(20,879)	$	21,226	$	(28,912)	$	5,760	$	(54,900)

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


(In thousands)		June 2024		March 2024		June 2023
Derivative Instruments	Balance Sheet Location
Foreign exchange contracts	Other current assets	$	33,562	$	26,366	$	26,145
Foreign exchange contracts	Accrued liabilities	(24,802)		(35,578)		(73,049)
Foreign exchange contracts	Other assets	6,105		3,847		2,161
Foreign exchange contracts	Other liabilities	(2,776)		(4,656)		(8,979)
Interest rate contracts	Other current assets	1,690		2,335		—
Interest rate contracts	Other assets	—		—		4,582

Cash Flow Hedges

VF primarily uses foreign currency exchange forward contracts to hedge a portion of the exchange risk for its forecasted sales, inventory purchases, operating costs and certain intercompany transactions, including sourcing and management fees and royalties. The Company also uses interest rate swap contracts to hedge against a portion of the exposure related to its interest payments on its variable-rate debt. The effects of cash flow hedging included in VF’s Consolidated Statements of Comprehensive Loss and Consolidated Statements of Operations are summarized as follows:


(In thousands)	Gain (Loss) on Derivatives Recognized in Accumulated OCL Three Months Ended June

Cash Flow Hedging Relationships	2024		2023
Foreign exchange contracts	$	19,501	$	(29,160)
Interest rate contracts	520		6,420
Total	$	20,021	$	(22,740)


(In thousands)		Gain (Loss) Reclassified from Accumulated OCL into Net Loss Three Months Ended June

Cash Flow Hedging Relationships	Location of Gain (Loss)	2024		2023
Foreign exchange contracts	Net revenues	$	(4,331)	$	1,090
Foreign exchange contracts	Cost of goods sold	(10,126)		8,075
Foreign exchange contracts	Selling, general and administrative expenses	(408)		1,301
Foreign exchange contracts	Other income (expense), net	(56)		(511)
Interest rate contracts	Interest expense	1,192		725

Total		$	(13,729)	$	10,680

Derivative Contracts Not Designated as Hedges

VF uses foreign currency exchange contracts to manage foreign currency exchange risk on third-party and intercompany accounts receivable and payable, as well as third-party and intercompany borrowings and interest payments. 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 three months ended June 2023, certain derivative contracts were de-designated as the related hedged forecasted transactions were no longer deemed probable of occurring. Accordingly, the Company reclassified amounts from accumulated OCL and recognized an $8.4 million loss in cost of goods sold during the three months ended June 2023.

Other Derivative Information

At June 2024, accumulated OCL included $4.0 million of pre-tax net deferred losses for foreign currency exchange contracts and

a $1.7 million pre-tax deferred gain for interest rate swap contracts, which are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on exchange rates and interest rates in effect when outstanding derivative contracts are settled.

Net Investment Hedge

The Company has designated its euro-denominated fixed-rate notes, which represented €2.0 billion in aggregate principal as of June 2024, 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 OCL as an offset to the foreign currency translation adjustments on the hedged investments. During the three-month periods ended June 2024 and June 2023, the Company recognized an after-tax gain of $10.8 million and an after-tax loss of $10.4 million, respectively, in OCL related to the net investment hedge transaction. Any amounts deferred in accumulated OCL will remain until the hedged investment is sold or substantially liquidated.