Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

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Fair Value Measurements
 12 Months Ended
Dec. 29, 2012
Fair Value Measurements

Note T — Fair Value Measurements

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. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. 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.

Recurring Fair Value Measurements

The following table summarizes financial assets and financial liabilities that are measured and recorded in the consolidated financial statements at fair value on a recurring basis:

 

            Fair Value Measurement Using (a)  
     Total Fair
Value		      Level 1      Level 2      Level 3  
     In thousands  

December 2012

            

Financial assets:

            

Cash equivalents:

            

Money market funds

    $ 181,635       $ 181,635       $ —       $ —   

Time deposits

      17,042         17,042         —         —   

Derivative instruments

      16,153         —         16,153         —   

Investment securities

      188,307         157,230         31,077         —   

Other marketable securities

      4,513         4,513         —         —   

Financial liabilities:

      —            

Derivative instruments

      29,468         —         29,468         —   

Deferred compensation

      230,733         —         230,733         —   

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         —   

 

(a) 

There were no transfers among the levels within the fair value hierarchy during 2012 or 2011.

 

All other financial assets and financial liabilities are recorded in the consolidated financial statements at cost, except life insurance contracts which are recorded at cash surrender value. These other financial assets and financial liabilities include cash held as demand deposits, accounts receivable, short-term borrowings, accounts payable and accrued liabilities. At December 2012 and 2011, their carrying values approximated their fair values. Additionally, at December 2012 and 2011, the carrying value of VF’s long-term debt, including the current portion, was $1,832.0 million and $1,834.5 million, respectively, compared with fair value of $2,111.4 million and $2,079.5 million at those dates. Fair value for long-term debt is a Level 2 estimate 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. No impairment charges were required as a result of the 2012 or 2011 impairment tests. 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. At the end of 2012, the 7 For All Mankind® business unit had no remaining amounts of goodwill and $302.2 million of trademark intangible assets.

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 future 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.