Overview

VF Corporation ("VF") is a worldwide leader in branded lifestyle apparel, footwear and related products. Management's vision is to grow VF by building leading lifestyle brands that excite consumers around the world. Lifestyle brands, representative of the activities and interests that consumers aspire to, generally extend across multiple geographic markets and product categories and therefore have greater opportunities for growth.

VF owns a diverse portfolio of brands with strong market positions in many product categories. VF has a broad customer base, and distributes products through specialty stores, upscale and traditional department stores, national chains and mass merchants, plus direct-to-consumer channels.

VF's businesses are grouped by product categories, and by brands within those product categories, for both management and internal financial reporting purposes. These groupings of businesses are called "coalitions" and are the basis for VF's reportable business segments. The five coalitions are Outdoor & Action Sports, Jeanswear, Imagewear, Sportswear and Contemporary Brands.

Highlights of 2012

All references to "organic" financial data exclude the Timberland® and SmartWool® brands ("Timberland"), acquired on September 13, 2011, and John Varvatos Enterprises, Inc. ("John Varvatos"), sold on April 30, 2012. All per share amounts are presented on a diluted basis.

• Revenues grew to a record $10.9 billion, an increase of 15% over 2011, composed of 6% organic growth and 9% growth from the addition of Timberland.

• International revenues rose 23%, reflecting 5% organic growth (net of a 6% negative impact from foreign currency translation) and 18% growth due to the inclusion of Timberland. International revenues represented 37% of total revenues in 2012.

• Direct-to-consumer revenues increased 25% over 2011 (10% excluding Timberland) and accounted for 21% of VF's total revenues. VF opened 141 retail stores in 2012.

• Gross margin increased to 46.5% in 2012 from 45.8% in 2011 with improvements in nearly every business.

• Cash flow from operations approximated $1.3 billion in 2012.

• VF made a $100.0 million discretionary contribution to the U.S. qualified defined benefit pension plan.

• VF increased the quarterly dividend rate by 21%, marking the 40th consecutive year of increase in the rate of dividends paid per share.

• VF sold its ownership in John Varvatos, resulting in a $42.0 million pretax gain on the sale ($0.32 per share including a $0.10 per share tax benefit which was triggered as a result of the sale).

• Earnings per share increased to $9.70 from $7.98, with an $0.87 per share contribution from Timberland that included a negative $0.25 per share impact from acquisition-related expenses. The 2011 year reflected a $0.38 per share contribution from Timberland that included a negative $0.22 per share impact from acquisition-related expenses.

Consolidated Statements of Income

The following table presents a summary of the changes in total revenues during
the last two years:



                                                            2012                     2011
                                                        Compared with            Compared with
In millions                                                 2011                     2010
Total revenues - prior year                            $       9,459.2          $       7,702.6
Operations and organic growth                                    667.6                    938.5
Acquisition in current year                                          -                    712.9
Acquisition in prior year (to anniversary date)                  981.0                      5.4
Disposition in current year                                      (58.1 )                      -
Impact of foreign currency translation                          (169.8 )                   99.8

Total revenues - current year                          $      10,879.9          $       9,459.2

VF reported revenue growth of 15% in 2012 and 23% in 2011. Every coalition achieved organic growth in both years, adjusting for the impact of the John Varvatos sale in the Contemporary Brands Coalition. As discussed in the "Information by Business Segment" section below, the Outdoor & Action Sports Coalition reported the most significant revenue increases in 2012 and 2011, driven by the acquisition of Timberland and organic growth.

Translating a foreign entity's financial statements from its functional currency into the U.S. dollar, VF's reporting currency, has an impact on VF's reported operating results. A stronger U.S. dollar in relation to the functional currencies of those countries where VF conducts its international business (primarily in Europe/euro-based countries) negatively impacted revenue comparisons by $169.8 million in 2012 relative to 2011, while a weaker U.S dollar positively impacted revenue comparison by $99.8 million in 2011 compared to 2010. The weighted average translation rates for the euro were $1.28, $1.39 and $1.33 per euro for 2012, 2011 and 2010, respectively. If the U.S. dollar remains at the exchange rate that was in effect at the end of December 2012 ($1.31 per euro), reported revenues in 2013 would be positively impacted compared with 2012.

The following table presents the percentage relationship to total revenues for components of the Consolidated Statements of Income:

                                                          2012        2011        2010
 Gross margin (total revenues less cost of goods sold)     46.5 %      45.8 %      46.7 %
 Marketing, administrative and general expenses            33.1        32.6        33.4
 Impairment of goodwill and intangible assets                 -           -         2.6

 Operating income                                          13.5 %      13.2 %      10.7 %

Gross margin improved to 46.5% in 2012 compared to 45.8% in 2011. This improvement is primarily due to the continued shift in the revenue mix towards higher margin businesses, including Outdoor & Action Sports, international and direct-to-consumer. The margin comparisons in 2012 were negatively impacted by 0.2% from benefits in 2011 that did not recur in 2012, related to the gain on facility closure and change in the inventory accounting policy discussed below.

The decline in gross margin to 45.8% in 2011 from 46.7% in 2010 was driven by a 1.9% net negative impact from higher product costs that were not fully offset by pricing increases. This decline was partially offset by an increased percentage of revenues coming from higher margin businesses, including Outdoor & Action Sports, international and direct-to-consumer. In addition, the 2011 gross margin benefited by 0.3% from (i) the gain on closure of a European jeanswear facility,
(ii) the change in the inventory accounting policy discussed in Note A to the Consolidated Financial Statements and (iii) restructuring expenses incurred during 2010 to reduce product costs that did not recur in 2011.

The lower ratio of marketing, administrative and general expenses as a percentage of total revenues in 2011, compared with 2010, was driven by leverage of operating expenses on higher revenues within organic businesses. The 2011 ratio also included Timberland acquisition-related expenses equal to 0.4% of revenue.

Operating margin increased 30 basis points, to 13.5% in 2012 from 13.2% in 2011. Timberland negatively impacted 2012 operating margin by 90 basis points, including 30 basis points from the impact of acquisition-related expenses. Timberland negatively impacted 2011 operating margin by 40 basis points, including 30 basis points from the impact of acquisition-related expenses.

Operating margin increased to 13.2% in 2011 from 10.7% in 2010. This comparison is positively impacted by 260 basis points from an impairment charge in 2010 that did not recur in 2011. The 2011 year includes a 40 basis point negative impact due to the inclusion of Timberland in 2011.

VF performs impairment testing for goodwill and indefinite-lived trademark intangible assets each year. Based on the results of the impairment tests performed, management concluded that no impairment charges were required in 2012 or 2011. In 2010, VF recorded a $201.7 million ($141.8 million net of related income tax benefits) noncash impairment charge to reduce the carrying values of goodwill and trademark intangible assets of the 7 For All Mankind® brand to their respective estimated fair values. For additional information, see Notes G and T to the Consolidated Financial Statements and the "Critical Accounting Policies and Estimates" section below.

Net interest expense increased $17.5 million to $90.3 million in 2012, due primarily to (i) the issuance of $900.0 million of term debt in 2011 to fund the Timberland acquisition and (ii) higher average levels of commercial paper borrowings throughout 2012. Net interest expense decreased $2.6 million in 2011 from 2010 due primarily to (i) the repayment of $200.0 million of long-term notes that matured in late 2010, (ii) higher interest rates earned on cash and equivalents held in foreign jurisdictions, offset by (iii) incremental interest expense on short and long-term borrowings to fund the Timberland acquisition.

Outstanding interest-bearing debt averaged $2.5 billion for 2012, $1.7 billion for 2011 and $1.1 billion for 2010, with short-term borrowings representing 25.0%, 24.0%, and 4.0% of average debt outstanding for the respective years. The weighted average interest rate on outstanding debt was 3.7% for 2012, 4.5% for 2011, and 6.6% for 2010. The weighted average interest rate decreased in 2012 primarily due to the full year inclusion of the lower average interest rates on the $900.0 million term debt issued in 2011 to fund the Timberland acquisition. The decrease in the weighted average interest rate in 2011 resulted from the partial year inclusion of the lower average interest rates on the $900.0 million term debt noted above, along with lower weighted average interest rates on commercial paper and international borrowings.

Other income (expense), net was income of $46.9 million in 2012 as compared to expense of $7.2 million in 2011, due primarily to a $42.0 million gain on the sale of VF's 80% ownership in John Varvatos. The remainder of the increase in 2012 was primarily due to foreign currency exchange gains.

Other income (expense), net was expense of $7.2 million in 2011 compared to income of $4.8 million in 2010. The change from 2011 compared to 2010 was due to higher foreign currency exchange losses in 2011 in addition to the recognition of a $5.7 million gain in 2010 from the acquisition of the remaining 50% ownership of Vans Latinoamericana S.A. de C.V. ("Vans Mexico").

Without discrete items, the effective income tax rate for 2012 increased by approximately 0.8% when compared with 2011. This increase was primarily the result of 2012 tax law changes in the U.S., partially offset by a higher percentage of income in lower tax rate jurisdictions compared with 2011. The international effective tax rate was 13.6% and 14.1% for years 2012 and 2011, respectively.

The effective income tax rate for 2011 was 23.6%, compared to 24.9% in 2010 (excluding the tax impact related to impairment charges). The 2011 income tax rate included a tax benefit of 1.4% for the discrete items discussed above. The 2010 income tax rate included $23.6 million of tax benefits related to prior years refund claims, which lowered the 2010 annual tax rate by 2.5%. In addition, the 2011 effective tax rate benefited from a higher percentage of income in lower tax rate jurisdictions compared with 2010.

As a result of the American Tax Relief Act of 2012 signed into law in January 2013, VF expects to record a tax benefit of approximately $8.0 million in the first quarter of 2013 primarily related to retroactive extension of certain tax credits and other provisions of the Internal Revenue Code to the beginning of 2012. Inclusive of this discrete item, VF expects the 2013 annual tax rate should approximate 24.0%.

Net income attributable to VF Corporation in 2012 increased to $1.1 billion ($9.70 per share) compared with $888.1 million ($7.98 per share) in 2011. The increase in earnings per share in 2012 resulted primarily from improved operating performance, as discussed in the "Information by Business Segment" section below. In addition, earnings per share in 2012 benefited by a $0.49 per share incremental contribution from the Timberland acquisition ($0.87 per share contribution in 2012 compared to $0.38 per share in 2011). Other factors impacting earnings per share in 2012 included the $0.32 per share gain on the sale of John Varvatos, and the negative effects of $0.32 per share from foreign currency translation and $0.19 per share from higher pension expense.

Net income attributable to VF Corporation in 2011 increased to $888.1 million ($7.98 per share), compared with $571.4 million ($5.18 per share) in 2010. The increase in earnings per share in 2011 primarily resulted from improved operating performance, as discussed in the "Information by Business Segment" section below. In addition, earnings per share in 2011 benefited by (i) $0.38 per share from the Timberland acquisition, (ii) $0.14 per share from foreign currency translation, (iii) $0.09 per share in restructuring expenses in 2010 that did not recur in 2011, (iv) $0.07 per share from the gain on a facility closure and (v) $0.04 per share from a change in inventory accounting.

Information by Business Segment

Management at each of the coalitions has direct control over and responsibility for its revenues and operating income, hereinafter termed "coalition revenues" and "coalition profit", respectively. VF management evaluates operating performance and makes investment and other decisions based on available opportunities and analysis of coalition revenues and coalition profit. Common costs such as information systems processing, retirement benefits and insurance are allocated to the coalitions based on appropriate metrics such as usage or number of employees.

                                  Outdoor
                                 & Action                                                        Contemporary
In millions                       Sports        Jeanswear       Imagewear        Sportswear         Brands           Other         Total
Coalition revenues - 2010        $ 3,204.7      $  2,537.6      $    909.4      $      497.8     $       438.7      $ 114.4      $  7,702.6
Operations and organic growth
(decline)                            570.2           171.3           112.5              45.7              41.6         (2.8 )         938.5
Acquisition in current year          712.9               -               -                 -                 -            -           712.9
Acquisition in prior year (to
anniversary date)                      5.4               -               -                 -                 -            -             5.4
Impact of foreign currency
translation                           68.8            22.9             3.3                 -               4.8            -            99.8

Coalition revenues - 2011          4,562.0         2,731.8         1,025.2             543.5             485.1        111.6         9,459.2
Operations and organic growth        441.0           101.1            51.7              33.8              26.1         13.9           667.6
Acquisition in prior year (to
anniversary date)                    981.0               -               -                 -                 -            -           981.0
Disposition in current year              -               -               -                 -             (58.1 )          -           (58.1 )
Impact of foreign currency
translation                         (117.9 )         (43.6 )          (1.2 )               -              (7.1 )          -          (169.8 )

Coalition revenues - 2012        $ 5,866.1      $  2,789.3      $  1,075.7      $      577.3     $       446.0      $ 125.5      $ 10,879.9


                                  Outdoor
                                 & Action                                                        Contemporary
In millions                       Sports        Jeanswear       Imagewear        Sportswear         Brands           Other         Total
Coalition profit - 2010          $   636.7      $    431.9      $    111.2      $       52.4     $        14.0      $     -      $  1,246.2
Operations and organic growth
(decline)                            105.8           (22.0 )          33.7               3.9              21.8         (1.1 )         142.1
Acquisition in current year           71.6               -                                 -                 -            -            71.6
Acquisition in prior year (to
anniversary date)                      0.6               -                                 -                 -            -             0.6
Impact of foreign currency
translation                           13.5             3.3             0.8                 -               0.1            -            17.7

Coalition profit - 2011              828.2           413.2           145.7              56.3              35.9         (1.1 )       1,478.2
Operations and organic growth
(decline)                            177.6            57.9            (0.2 )            16.7              18.7          0.8           271.5
Acquisition in prior year (to
anniversary date)                     46.9               -               -                 -                 -            -            46.9
Disposition in current year              -               -               -                 -              (4.3 )          -            (4.3 )
Impact of foreign currency
translation                          (33.3 )          (4.1 )          (0.4 )               -              (1.1 )          -           (38.9 )

Coalition profit - 2012          $ 1,019.4      $    467.0      $    145.1      $       73.0     $        49.2      $  (0.3 )    $  1,753.4

The following section discusses changes in revenues and profitability by coalition:

Outdoor & Action Sports:



                                                                              Percent
                                                                               change
      Dollars in millions     2012           2011           2010          2012        2011
      Coalition revenues    $ 5,866.1      $ 4,562.0      $ 3,204.7        28.6 %      42.4 %
      Coalition profit        1,019.4          828.2          636.7        23.1 %      30.1 %
      Operating margin           17.4 %         18.2 %         19.9 %

The Outdoor & Action Sports Coalition achieved record revenues in 2012 with an increase of 29% over 2011. Of this increase, 10% related to organic growth (which is net of a 3% negative impact from foreign currency translation) and 19% related to the addition of Timberland. In addition, The North Face® and Vans ® brands achieved global revenue growth of 9% and 23%, respectively. Foreign currency translation negatively impacted revenues by $117.9 million in 2012.

Domestic revenues increased 21% in 2012, with 12 percentage points of the increase coming from the Timberland acquisition. International revenues rose 37% in 2012, reflecting 11% organic growth (net of a 6% negative impact from foreign currency translation) and 26% growth due to the inclusion of Timberland. Direct-to-consumer revenues rose 37% in 2012 with 23 percentage points of the growth from the Timberland acquisition. The direct-to-consumer businesses of The North Face® and Vans® brands increased 13% and 18%, respectively, in 2012. New store openings, comp store growth and an expanding e-commerce business all contributed to the direct-to-consumer revenue growth.

Global revenues increased 42% in 2011 over 2010, reflecting 20% organic growth and 22% growth from the Timberland acquisition. Domestic revenues increased 31% over 2010 and international revenues rose 63%, with approximately one-half of the growth in each of the geographies coming from the Timberland acquisition. Of the 30% increase in international organic revenues, 6% was attributable to foreign currency translation.

Nearly all Outdoor & Action Sports brands achieved double-digit revenue growth in 2011, with The North Face® and Vans ® achieving global revenue growth of 21% and 23%, respectively. Revenues of the Kipling ®, Eastpak®, Reef® and Napapijri® brands increased 24%, 21%, 17% and 15%, respectively. Direct-to-consumer revenues in the Coalition rose 44% in 2011 over 2010 with approximately 25 percentage points of the increase from the Timberland acquisition. The direct-to-consumer businesses of The North Face® and Vans® brands increased 26% and 17%, respectively, in 2011. New store openings, comp store growth and an expanding e-commerce business all contributed to the direct-to-consumer revenue growth.

The decrease in operating margin for 2012 compared with 2011 was due to the inclusion for the full year of Timberland, which has a lower operating margin than the overall VF average.

Operating margins declined in 2011, compared with 2010, due primarily to the addition of Timberland.

Jeanswear:



                                                                             Percent
                                                                              change
     Dollars in millions     2012           2011           2010          2012        2011
     Coalition revenues    $ 2,789.3      $ 2,731.8      $ 2,537.6         2.1 %       7.7 %
     Coalition profit          467.0          413.2          431.9        13.0 %      (4.3 )%
     Operating margin           16.7 %         15.1 %         17.0 %

The Jeanswear Coalition consists of the global jeanswear businesses, led by the Wrangler® and Lee® brands.

Global Jeanswear revenues increased 2% in 2012 over 2011, led by 5% revenue growth in the domestic business. The increase in domestic revenues was due primarily to growth in the Mass and Western Specialty businesses as well as in our newest brand, Rock and Republic®, offsetting a decline in the Lee® brand revenues

Domestic Jeanswear revenues increased 4% in 2011 over 2010 with unit pricing contributing to 8% revenue growth, offset by a 4% reduction in unit volumes. The domestic jeanswear growth was led by increases in the Western Specialty and Lee® businesses of 11% and 8%, respectively. Mass market revenues in 2011 were flat with 2010 levels. International jeanswear revenue growth in 2011 was 17%, of which 3% was due to the impact of foreign currency translation. Asia revenues rose by 37%, and Mexico, Canada and Latin America each had double-digit growth. European Jeanswear revenues increased 6%, with approximately two-thirds of the increase attributable to favorable foreign currency translation.

Operating margin improved in 2012 over 2011, primarily driven by lower product costs. Operating margin in 2011 included 0.4% from the gain on a facility closure.

The decline in operating margin in 2011 from 2010 was driven by higher product costs that were not fully offset by pricing increases within the domestic jeanswear businesses. The operating margin in 2011 benefited 0.4% from the gain on a facility closure in 2011 and 0.4% from restructuring expenses in 2010 that did not recur in 2011.

Imagewear:



                                                                             Percent
                                                                             change
      Dollars in millions     2012           2011          2010         2012         2011
      Coalition revenues    $ 1,075.7      $ 1,025.2      $ 909.4         4.9 %       12.7 %
      Coalition profit          145.1          145.7        111.2        (0.4 )%      31.1 %
      Operating margin           13.5 %         14.2 %       12.2 %

The Imagewear Coalition consists of VF's Image business (occupational apparel and uniforms, including the Red Kap® and Bulwark® brand businesses) and Licensed Sports business (licensed high profile athletic apparel, which includes the Majestic ® brand business).

The increase in coalition revenues for 2012 was primarily attributable to a 6% increase in the Image business, due to growth in the government and public safety and industrial uniform businesses. Revenues in the Licensed Sports business increased 3% in 2012 due to expansion in the Harley Davidson, collegiate and National Basketball Association businesses.

The Image business revenues increased 19% in 2011 over 2010, driven by strength in the protective apparel and industrial uniform businesses. Revenues in the Licensed Sports business rose 6% due to continued growth in the National Football League licensed apparel business, including positive response to an expanded women's apparel offering.

The decline in operating margin in 2012 compared to 2011 was primarily due to higher product costs that negatively impacted the business during the first three quarters of 2012.

The improvement in operating margin in 2011 over 2010 resulted from a more favorable mix of business and leverage of operating expenses on higher revenues.

Sportswear:



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