Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
Fair Value Measurements [Abstract]  
Fair Value Measurements

Note T — Fair Value Measurements

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market in an orderly transaction between market participants. In determining fair value, the accounting standards distinguish between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting entity's own data and assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs). 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. 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. Inputs would normally be VF's own data and judgments about assumptions that market participants would use in pricing the asset or liability.

The fair value measurement level for an asset or liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.

Recurring Fair Value Measurements:    The following table summarizes financial assets and financial liabilities measured and recorded at fair value on a recurring basis:

 

            Fair Value Measurement Using  
     Total
Fair
Value 		     Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) 		     Significant
Other
Observable
Inputs
(Level 2)		      Significant
Unobservable
Inputs
(Level 3) 		 
     In thousands  

December 2011

            

Financial assets:

            

Cash equivalents:

            

Money market funds

    $ 117       $ 117       $ —       $ —   

Time deposits

      89,585         89,585         —         —   

Derivative instruments

      46,328         —         46,328         —   

Investment securities

      175,225         144,391         30,834         —   

Other marketable securities

      4,913         4,913         —         —   

Financial liabilities:

            

Derivative instruments

      23,513         —         23,513         —   

Deferred compensation

      220,056         —         220,056         —   

December 2010

            

Financial assets:

            

Cash equivalents:

            

Money market funds

    $ 437,229       $ 437,229       $ —       $ —   

Time deposits

      93,254         93,254         —         —   

Derivative instruments

      18,568         —         18,568         —   

Investment securities

      182,673         147,380         35,293         —   

Other marketable securities

      12,388         12,388         —         —   

Financial liabilities:

            

Derivative instruments

      28,815         —         28,815         —   

Deferred compensation

      212,011         —         212,011         —   

Life insurance contracts are carried at cash surrender value which approximates fair value. All other financial assets and financial liabilities are carried at cost, which may differ from fair value. At December 2011 and 2010, the carrying values of VF's cash held as demand deposits, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximated their fair values. At December 2011 and 2010, the carrying value of VF's long-term debt, including the current portion, was $1,834.5 million and $938.6 million, respectively, compared with fair value of $2,079.5 million and $1,025.1 million at those dates. Fair value for long-term debt was estimated based on quoted market prices or values of comparable borrowings.

Nonrecurring Fair Value Measurements:    Goodwill and indefinite-lived intangible assets are tested for possible impairment at least annually. During the 2010 impairment test, management concluded that the carrying value of goodwill in the 7 For All Mankind® business unit exceeded its fair value and, accordingly, recorded an impairment charge of $195.2 million to write down the goodwill to its implied fair value (Note G). Management also concluded that the carrying value of the 7 For All Mankind® trademark intangible asset exceeded its fair value and, accordingly, recorded an impairment charge of $6.6 million to write down the asset to its fair value (Note F). Similarly in 2009, management recorded goodwill impairment charges totaling $101.9 million to write down the goodwill of its Reef®, lucy® and Nautica® business units. Also in 2009, management recorded impairment charges totaling $20.1 million to write down the carrying value of the Reef® and lucy® trademark intangible assets to their fair values. Impairment charges included in the 2010 and 2009 Consolidated Statements of Income, along with the respective business units' remaining amounts of goodwill and trademark intangible assets at the end of 2011, are summarized as follows:

 

     2010      2009  
     7 For All Mankind  ®      Reef ®      lucy ®      Nautica ®      Total  
     In thousands  

Impairment charge

               

Goodwill

    $ 195,169       $ 31,142       $ 12,256       $ 58,453       $ 101,851   

Trademarks

      6,569         5,600         14,502         —         20,102   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 201,738       $ 36,742       $ 26,758       $ 58,453       $ 121,953   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Balances, December 2011

               

Goodwill

    $ —       $ 48,329       $ 39,344       $ 153,656       $ 241,329   

Trademarks

      300,664         74,400         40,300         217,400         332,100   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 300,664       $ 122,729       $ 79,644       $ 371,056       $ 573,429   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

These nonrecurring fair value measurements were developed using significant unobservable inputs (Level 3). For goodwill, the primary valuation technique used was an income methodology based on management's estimates of forecasted cash flows for each business unit, discounted to present value using rates commensurate with the risks of those cash flows. In addition, management used a market-based valuation method involving analysis of market multiples of revenues and of earnings before interest, taxes, depreciation and amortization ("EBITDA") for (i) a group of comparable public companies and (ii) recent transactions, if any, involving comparable companies. For trademark intangible assets, management used the income-based relief-from-royalty valuation method in which fair value is the discounted value of forecasted royalty revenues arising from a trademark using a royalty rate that an independent party would pay for use of that trademark.

Management's assumptions at each valuation date were based on analysis of current and expected economic conditions and updated strategic plans for each business unit. Assumptions used were similar to those that would be used by market participants performing valuations of these business units.

Subsequent operating performance for each of these business units has met or exceeded the operating results and cash flows assumed in the 2010 and 2009 impairment tests. Accordingly, no additional impairment charges were required in the 2011 impairment test.