Quarterly report pursuant to Section 13 or 15(d)

LEASES

v3.19.2
LEASES
3 Months Ended
Jun. 29, 2019
Leases [Abstract]  
LEASES LEASES

VF determines if an arrangement is or contains a lease at contract inception and determines its classification as an operating or finance lease at lease commencement. The Company leases certain retail locations, office space, distribution facilities, machinery and equipment, and vehicles. While the substantial majority of these leases are operating leases, certain distribution centers and office spaces are finance leases.
Leases for real estate typically have initial terms ranging from 3 to 15 years, generally with renewal options. Leases for equipment typically have initial terms ranging from 2 to 5 years and vehicle leases typically have initial terms ranging from 1 to 8 years. In determining the lease term used in the lease right-of-use asset and lease liability calculations, the Company considers various factors such as market conditions and the terms of any renewal or termination options that may exist. When deemed reasonably certain, the renewal and termination options are included in the determination of the lease term and calculation of the lease right-of-use asset and lease liability.
Most leases have fixed rental payments. Many of the real estate leases also require additional variable payments for occupancy-related costs, real estate taxes and insurance, as well as other payments (e.g., contingent rent) owed when sales at individual retail store locations exceed a stated base amount. Variable lease payments are excluded from the measurement of the lease liability and are recognized in profit and loss in the period in which the event or conditions that triggers those payments occur.
VF estimates the amount it expects to pay to the lessor under a residual value guarantee and includes it in lease payments used to measure the lease liability only for amounts probable of being owed by VF at the commencement date.
VF calculates lease right-of-use assets and lease liabilities as the present value of lease payments over the lease term at
commencement date. When readily determinable, the Company uses the implicit rate to determine the present value of lease payments, which generally does not happen in practice. As the rate implicit in the majority of the Company's leases is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, including the lease term, currency, country specific risk premium and adjustments for collateralized debt.
Operating lease expense is recorded as a single lease cost on a straight-line basis over the lease term. For finance leases, right-of-use asset amortization and interest on lease liabilities are presented separately in the Consolidated Statement of Income.
The Company assesses whether a sale leaseback transaction qualifies as a sale when the transaction occurs. For transactions qualifying as a sale, VF derecognizes the underlying asset and recognizes the entire gain or loss at the time of the sale. The corresponding lease entered into with the buyer-lessor is accounted for as an operating lease. During the three months ended June 2019, the Company entered into a sale leaseback transaction for certain office real estate and related assets. The transaction qualified as a sale, and thus the Company recognized a gain of $11.3 million resulting from the transaction during the three months ended June 2019.
As of June 2019, the Company has signed certain distribution center leases that have not yet commenced but will create significant rights and obligations. The leases will commence in Fiscal 2020 and Fiscal 2021 and have lease terms of 15 years. Other leases signed that have not yet commenced are not individually significant. The Company does not have material subleases.
The assets and liabilities related to operating and finance leases were as follows:
(In thousands)
Location in Consolidated Balance Sheet
 
 
June 2019
 
Assets:
 
 
 
 
 
Operating lease assets
Operating lease right-of-use assets
 
 
$
1,281,106

 
Finance lease assets
Property, plant and equipment
 
 
24,437

 
Total lease assets
 
 
 
$
1,305,543

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Current
 
 
 
 
 
Operating lease liabilities
Accrued liabilities
 
 
$
326,874

 
Finance lease liabilities
Current portion of long-term debt
 
 
5,068

 
Noncurrent
 
 
 
 
 
Operating lease liabilities
Operating lease liabilities
 
 
1,043,664

 
Finance lease liabilities
Long-term debt
 
 
27,586

 
Total lease liabilities
 
 
 
$
1,403,192

 

The components of lease costs were as follows:
(In thousands)
 
Three Months Ended June 2019
 
Operating lease cost (a)
 
$
101,459

 
Finance lease cost – amortization of right-of-use asset
 
969

 
Finance lease cost – interest on lease liability
 
284

 
Short-term lease cost
 
569

 
Variable lease cost
 
1,690

 
Gain recognized from sale-leaseback transactions
 
(11,329
)
 
Total lease cost
 
$
93,642

 
(a) 
Includes sublease income, which is not material.
Supplemental cash flow information related to leases was as follows:
(In thousands)
 
Three Months Ended June 2019
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows – operating leases
 
$
104,539

 
Operating cash flows – finance leases
 
284

 
Financing cash flows – finance leases
 
1,223

 
Right-of-use assets obtained in exchange for new lease liabilities:
 


 
Operating leases (a)
 
1,374,872

 
Finance leases
 

 
(a) 
Includes amounts recorded upon adoption of ASC 842.
Lease terms and discount rates were as follows:
 
 
June 2019
 
Weighted average remaining lease term:
 
 
 
Operating leases
 
5.58 years

 
Finance leases
 
13.41 years

 
 
 
 
 
Weighted average discount rate:
 
 
 
Operating leases
 
2.50
%
 
Finance leases
 
3.22
%
 

Maturities of operating and finance lease liabilities for the next five fiscal years (including the remainder of Fiscal 2020) and thereafter as of June 2019 were as follows:
(In thousands)
 
Operating Leases
 
Finance Leases
 
Total
 
Remainder of 2020
 
$
269,262

 
$
4,522

 
$
273,784

 
2021
 
366,243

 
6,532

 
372,775

 
2022
 
254,351

 
1,911

 
256,262

 
2023
 
186,670

 
1,626

 
188,296

 
2024
 
118,016

 
1,550

 
119,566

 
Thereafter
 
281,021

 
23,495

 
304,516

 
Total lease payments
 
1,475,563

 
39,636

 
1,515,199

 
Less: present value adjustment
 
105,025

 
6,982

 
112,007

 
Present value of lease liabilities
 
$
1,370,538

 
$
32,654

 
$
1,403,192

 

The Company excluded approximately $286.5 million of leases (undiscounted basis) that have not yet commenced. These leases will commence in Fiscal 2020 with lease terms of 2 to 15 years.
Future minimum lease payments under operating leases with noncancelable lease terms in excess of one year from continuing operations as of March 2019, prior to the adoption of ASC 842, were as follows:
(In thousands)
 
Operating Leases
2020
 
$
320,224

2021
 
287,829

2022
 
212,918

2023
 
154,920

2024
 
100,789

Thereafter
 
251,228

Total lease payments
 
$
1,327,908


LEASES LEASES

VF determines if an arrangement is or contains a lease at contract inception and determines its classification as an operating or finance lease at lease commencement. The Company leases certain retail locations, office space, distribution facilities, machinery and equipment, and vehicles. While the substantial majority of these leases are operating leases, certain distribution centers and office spaces are finance leases.
Leases for real estate typically have initial terms ranging from 3 to 15 years, generally with renewal options. Leases for equipment typically have initial terms ranging from 2 to 5 years and vehicle leases typically have initial terms ranging from 1 to 8 years. In determining the lease term used in the lease right-of-use asset and lease liability calculations, the Company considers various factors such as market conditions and the terms of any renewal or termination options that may exist. When deemed reasonably certain, the renewal and termination options are included in the determination of the lease term and calculation of the lease right-of-use asset and lease liability.
Most leases have fixed rental payments. Many of the real estate leases also require additional variable payments for occupancy-related costs, real estate taxes and insurance, as well as other payments (e.g., contingent rent) owed when sales at individual retail store locations exceed a stated base amount. Variable lease payments are excluded from the measurement of the lease liability and are recognized in profit and loss in the period in which the event or conditions that triggers those payments occur.
VF estimates the amount it expects to pay to the lessor under a residual value guarantee and includes it in lease payments used to measure the lease liability only for amounts probable of being owed by VF at the commencement date.
VF calculates lease right-of-use assets and lease liabilities as the present value of lease payments over the lease term at
commencement date. When readily determinable, the Company uses the implicit rate to determine the present value of lease payments, which generally does not happen in practice. As the rate implicit in the majority of the Company's leases is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, including the lease term, currency, country specific risk premium and adjustments for collateralized debt.
Operating lease expense is recorded as a single lease cost on a straight-line basis over the lease term. For finance leases, right-of-use asset amortization and interest on lease liabilities are presented separately in the Consolidated Statement of Income.
The Company assesses whether a sale leaseback transaction qualifies as a sale when the transaction occurs. For transactions qualifying as a sale, VF derecognizes the underlying asset and recognizes the entire gain or loss at the time of the sale. The corresponding lease entered into with the buyer-lessor is accounted for as an operating lease. During the three months ended June 2019, the Company entered into a sale leaseback transaction for certain office real estate and related assets. The transaction qualified as a sale, and thus the Company recognized a gain of $11.3 million resulting from the transaction during the three months ended June 2019.
As of June 2019, the Company has signed certain distribution center leases that have not yet commenced but will create significant rights and obligations. The leases will commence in Fiscal 2020 and Fiscal 2021 and have lease terms of 15 years. Other leases signed that have not yet commenced are not individually significant. The Company does not have material subleases.
The assets and liabilities related to operating and finance leases were as follows:
(In thousands)
Location in Consolidated Balance Sheet
 
 
June 2019
 
Assets:
 
 
 
 
 
Operating lease assets
Operating lease right-of-use assets
 
 
$
1,281,106

 
Finance lease assets
Property, plant and equipment
 
 
24,437

 
Total lease assets
 
 
 
$
1,305,543

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Current
 
 
 
 
 
Operating lease liabilities
Accrued liabilities
 
 
$
326,874

 
Finance lease liabilities
Current portion of long-term debt
 
 
5,068

 
Noncurrent
 
 
 
 
 
Operating lease liabilities
Operating lease liabilities
 
 
1,043,664

 
Finance lease liabilities
Long-term debt
 
 
27,586

 
Total lease liabilities
 
 
 
$
1,403,192

 

The components of lease costs were as follows:
(In thousands)
 
Three Months Ended June 2019
 
Operating lease cost (a)
 
$
101,459

 
Finance lease cost – amortization of right-of-use asset
 
969

 
Finance lease cost – interest on lease liability
 
284

 
Short-term lease cost
 
569

 
Variable lease cost
 
1,690

 
Gain recognized from sale-leaseback transactions
 
(11,329
)
 
Total lease cost
 
$
93,642

 
(a) 
Includes sublease income, which is not material.
Supplemental cash flow information related to leases was as follows:
(In thousands)
 
Three Months Ended June 2019
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows – operating leases
 
$
104,539

 
Operating cash flows – finance leases
 
284

 
Financing cash flows – finance leases
 
1,223

 
Right-of-use assets obtained in exchange for new lease liabilities:
 


 
Operating leases (a)
 
1,374,872

 
Finance leases
 

 
(a) 
Includes amounts recorded upon adoption of ASC 842.
Lease terms and discount rates were as follows:
 
 
June 2019
 
Weighted average remaining lease term:
 
 
 
Operating leases
 
5.58 years

 
Finance leases
 
13.41 years

 
 
 
 
 
Weighted average discount rate:
 
 
 
Operating leases
 
2.50
%
 
Finance leases
 
3.22
%
 

Maturities of operating and finance lease liabilities for the next five fiscal years (including the remainder of Fiscal 2020) and thereafter as of June 2019 were as follows:
(In thousands)
 
Operating Leases
 
Finance Leases
 
Total
 
Remainder of 2020
 
$
269,262

 
$
4,522

 
$
273,784

 
2021
 
366,243

 
6,532

 
372,775

 
2022
 
254,351

 
1,911

 
256,262

 
2023
 
186,670

 
1,626

 
188,296

 
2024
 
118,016

 
1,550

 
119,566

 
Thereafter
 
281,021

 
23,495

 
304,516

 
Total lease payments
 
1,475,563

 
39,636

 
1,515,199

 
Less: present value adjustment
 
105,025

 
6,982

 
112,007

 
Present value of lease liabilities
 
$
1,370,538

 
$
32,654

 
$
1,403,192

 

The Company excluded approximately $286.5 million of leases (undiscounted basis) that have not yet commenced. These leases will commence in Fiscal 2020 with lease terms of 2 to 15 years.
Future minimum lease payments under operating leases with noncancelable lease terms in excess of one year from continuing operations as of March 2019, prior to the adoption of ASC 842, were as follows:
(In thousands)
 
Operating Leases
2020
 
$
320,224

2021
 
287,829

2022
 
212,918

2023
 
154,920

2024
 
100,789

Thereafter
 
251,228

Total lease payments
 
$
1,327,908