Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

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Fair Value Measurements
 9 Months Ended
Oct. 03, 2015
Fair Value Measurements

Note M – 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.

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:

 

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

September 2015

            

Financial assets:

            

Cash equivalents:

            

Money market funds

    $ 262,374       $ 262,374       $ —         $ —     

Time deposits

      54,152         54,152         —           —     

Derivative financial instruments

      94,225         —           94,225         —     

Investment securities

      201,081         189,261         11,820         —     

Financial liabilities:

            

Derivative financial instruments

      47,181         —           47,181         —     

Deferred compensation

      253,521         —           253,521         —     

December 2014

            

Financial assets:

            

Cash equivalents:

            

Money market funds

    $ 388,635       $ 388,635       $ —         $ —     

Time deposits

      197,303         197,303         —           —     

Derivative financial instruments

      105,264         —           105,264         —     

Investment securities

      228,406         208,874         19,532         —     

Other marketable securities

      5,111         5,111         —           —     

Financial liabilities:

            

Derivative financial instruments

      31,769         —           31,769         —     

Deferred compensation

      295,226         —           295,226         —     

 

(a)  There were no transfers among the levels within the fair value hierarchy during the first nine months of 2015 or the year ended December 2014.

 

VF’s cash equivalents include money market funds and short-term time deposits that approximate fair value based on Level 1 measurements. The fair value of derivative financial instruments, which consist of forward foreign currency exchange contracts, is determined based on observable market inputs (Level 2), including spot and forward exchange rates for foreign currencies, and considers the credit risk of the Company and its counterparties. Investment securities are held in VF’s deferred compensation plans as an economic hedge of the related deferred compensation liabilities. These investments are classified as trading securities and primarily include mutual funds (Level 1) that are valued based on quoted prices in active markets and a separately managed fixed income fund (Level 2) that is valued based on the net asset values of the underlying assets. Liabilities related to VF’s deferred compensation plans are recorded at amounts due to participants, based on the fair value of the participants’ selection of hypothetical investments. Prior to the second quarter of 2015, other marketable securities consisted of common stock investments classified as available-for-sale, the fair value of which was based on quoted prices in active markets. During the second quarter of 2015, VF sold all of its available-for-sale securities for $5.9 million in cash proceeds and recognized a gain of $1.5 million, which is included in other income (expense), net, in the Consolidated Statements of Income for the nine months ended September 2015.

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 September 2015 and December 2014, their carrying values approximated their fair values. Additionally, at September 2015 and December 2014, the carrying values of VF’s long-term debt, including the current portion, were $1,424.6 million and $1,427.6 million, respectively, compared with fair values of $1,656.7 million and $1,684.1 million at those respective dates. Fair value for long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings.