Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

v3.22.2.2
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
6 Months Ended
Oct. 01, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Summary of Derivative Financial Instruments

All of VF’s outstanding derivative financial instruments are foreign exchange forward 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 derivative contracts were $3.0 billion at September 2022, $2.9
billion at March 2022 and $2.5 billion at September 2021, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Swiss franc, Mexican peso, South Korean won, Swedish krona, Polish zloty, Japanese yen and New Zealand dollar. Derivative contracts have maturities up to 20 months.
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) September 2022 March 2022 September 2021 September 2022 March 2022 September 2021
Foreign currency exchange contracts designated as hedging instruments
$ 209,837  $ 79,046  $ 35,674  $ (31,844) $ (27,678) $ (32,853)
Foreign currency exchange contracts not designated as hedging instruments
5,427  —  154  (1,077) (45) (870)
Total derivatives
$ 215,264  $ 79,046  $ 35,828  $ (32,921) $ (27,723) $ (33,723)
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 of its foreign exchange forward contracts 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:
  September 2022 March 2022 September 2021
(In thousands) Derivative
Asset
Derivative
Liability
Derivative
Asset
Derivative
Liability
Derivative
Asset
Derivative
Liability
Gross amounts presented in the Consolidated Balance Sheets
$ 215,264  $ (32,921) $ 79,046  $ (27,723) $ 35,828  $ (33,723)
Gross amounts not offset in the Consolidated Balance Sheets
(32,358) 32,358  (18,721) 18,721  (17,201) 17,201 
Net amounts
$ 182,906  $ (563) $ 60,325  $ (9,002) $ 18,627  $ (16,522)
Derivatives are classified as current or noncurrent based on maturity dates, as follows:
(In thousands) September 2022 March 2022 September 2021
Other current assets $ 186,926  $ 71,910  $ 27,903 
Accrued liabilities (28,484) (24,267) (31,609)
Other assets 28,338  7,136  7,925 
Other liabilities (4,437) (3,456) (2,114)
Cash Flow Hedges
VF uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, inventory purchases, operating costs and intercompany royalties. The effects of cash flow hedging included in VF’s Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss) are summarized as follows:
(In thousands)
Gain on Derivatives Recognized in OCI
Three Months Ended September
Gain on Derivatives Recognized in OCI
Six Months Ended September
Cash Flow Hedging Relationships 2022 2021 2022 2021
Foreign currency exchange $ 102,685  $ 34,361  $ 202,115  $ 29,798 
(In thousands)
Gain (Loss) Reclassified from Accumulated OCI into Income (Loss)
Three Months Ended September
Gain (Loss) Reclassified from Accumulated OCI into Income (Loss)
Six Months Ended September
Location of Gain (Loss) 2022 2021 2022 2021
Net revenues
$ (10,734) $ (4,963) $ (15,484) $ (6,761)
Cost of goods sold
11,837  (16,501) 17,761  (22,670)
Selling, general and administrative expenses
1,955  (189) 3,564  (1,106)
Other income (expense), net
11,821  (1,360) 17,253  (3,062)
Interest expense
27  27  54  54 
Total $ 14,906  $ (22,986) $ 23,148  $ (33,545)
Derivative Contracts Not Designated as Hedges
VF uses derivative contracts to manage foreign currency exchange risk on third-party accounts receivable and payable, as well as intercompany borrowings. 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.
The impact of de-designated derivative contracts and changes in the fair value of derivative contracts not designated as hedges, recognized as gains or losses in VF's Consolidated Statements of Operations were not material for the three and six months ended September 2022 and September 2021.
Other Derivative Information
At September 2022, accumulated OCI included $168.5 million of pre-tax net deferred gains for foreign currency exchange contracts that are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on exchange rates in effect when outstanding derivative contracts are settled.
Net Investment Hedge
The Company has designated its euro-denominated fixed-rate notes, which represent €1.850 billion in aggregate principal, 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 OCI as an offset to the foreign currency translation adjustments on the hedged investments. During the three and six-month periods ended September 2022, the Company recognized an after-tax gain of $84.0 million and $171.7 million, respectively, in OCI related to the net investment hedge transaction, and an after-tax gain of $34.1 million and $22.6 million for the three and six-month periods ended September 2021, respectively. Any amounts deferred in accumulated OCI will remain until the hedged investment is sold or substantially liquidated.