UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
¨

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ________
or
þ
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from December 31, 2017 to March 31, 2018
Commission file number: 1-5256
vfcirclelogo.jpg
V. F. CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania
 
23-1180120
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. employer identification number)
105 Corporate Center Boulevard
Greensboro, North Carolina 27408
(Address of principal executive offices)
(336) 424-6000
(Registrant’s telephone number, including area code)
Former Fiscal Year: Saturday closest to December 31
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
þ 
  
Accelerated filer
 
¨
 
 
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
 
 
 
 
 
Emerging growth company
 
¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ 
On April 28, 2018, there were 394,458,433 shares of the registrant’s common stock outstanding.



VF CORPORATION
Table of Contents
 
Page
No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED)
VF CORPORATION
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)
 
March 2018
 
 
December 2017
 
March 2017
ASSETS
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and equivalents
 
$
680,762

 
 
$
563,483

 
$
603,262

Accounts receivable, less allowance for doubtful accounts of: March 2018 – $24,993; December 2017 – $26,266; March 2017 – $19,844
 
1,408,587

 
 
1,429,986

 
1,241,496

Inventories
 
1,861,441

 
 
1,706,609

 
1,593,434

Other current assets
 
358,953

 
 
296,986

 
352,605

Current assets of discontinued operations
 
373,580

 
 
380,700

 
301,353

Total current assets
 
4,683,323

 
 
4,377,764

 
4,092,150

Property, plant and equipment, net
 
1,011,617

 
 
1,014,638

 
897,445

Intangible assets, net
 
2,120,110

 
 
2,089,781

 
1,548,753

Goodwill
 
1,693,219

 
 
1,692,644

 
1,561,465

Other assets
 
803,041

 
 
783,675

 
707,751

Other assets of discontinued operations
 

 
 

 
438,714

TOTAL ASSETS
 
$
10,311,310

 
 
$
9,958,502

 
$
9,246,278

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Short-term borrowings
 
$
1,525,106

 
 
$
729,384

 
$
288,677

Current portion of long-term debt
 
6,265

 
 
6,165

 
253,736

Accounts payable
 
583,004

 
 
760,997

 
425,892

Accrued liabilities
 
938,427

 
 
1,146,535

 
820,948

Current liabilities of discontinued operations
 
86,027

 
 
101,019

 
46,606

Total current liabilities
 
3,138,829

 
 
2,744,100

 
1,835,859

Long-term debt
 
2,212,555

 
 
2,187,789

 
2,051,482

Other liabilities
 
1,271,830

 
 
1,306,713

 
895,728

Other liabilities of discontinued operations
 

 
 

 
90,152

Commitments and contingencies
 

 
 

 

Total liabilities
 
6,623,214

 
 
6,238,602

 
4,873,221

Stockholders’ equity
 
 
 
 
 
 
 
Preferred Stock, par value $1; shares authorized, 25,000,000; no shares outstanding at March 2018, December 2017 or March 2017
 

 
 

 

Common Stock, stated value $0.25; shares authorized, 1,200,000,000; shares outstanding at March 2018 – 394,313,070; December 2017 – 395,821,781; March 2017 – 406,964,289
 
98,578

 
 
98,955

 
101,741

Additional paid-in capital
 
3,607,424

 
 
3,523,340

 
3,367,026

Accumulated other comprehensive income (loss)
 
(864,030
)
 
 
(926,140
)
 
(988,040
)
Retained earnings
 
846,124

 
 
1,023,745

 
1,892,330

Total stockholders’ equity
 
3,688,096

 
 
3,719,900

 
4,373,057

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
10,311,310

 
 
$
9,958,502

 
$
9,246,278

See notes to consolidated financial statements.

3 VF Corporation March 2018 Form 10-QT


VF CORPORATION
Consolidated Statements of Income
(Unaudited)
 
 
Three Months Ended March
(In thousands, except per share amounts)
 
2018
 
 
2017
Net sales
 
$
3,022,922

 
 
$
2,483,896

Royalty income
 
22,524

 
 
16,444

Total revenues
 
3,045,446

 
 
2,500,340

Costs and operating expenses
 
 
 
 
 
Cost of goods sold
 
1,506,335

 
 
1,243,605

Selling, general and administrative expenses
 
1,227,752

 
 
967,082

Total costs and operating expenses
 
2,734,087

 
 
2,210,687

Operating income
 
311,359

 
 
289,653

Interest income
 
3,228

 
 
3,518

Interest expense
 
(24,393
)
 
 
(23,706
)
Other income (expense), net
 
3,939

 
 
(68
)
Income from continuing operations before income taxes
 
294,133

 
 
269,397

Income taxes
 
32,969

 
 
56,121

Income from continuing operations
 
261,164

 
 
213,276

Loss from discontinued operations, net of tax
 
(8,371
)
 
 
(4,113
)
Net income
 
$
252,793

 
 
$
209,163

Earnings (loss) per common share - basic
 
 
 
 
 
Continuing operations
 
$
0.66

 
 
$
0.52

Discontinued operations
 
(0.02
)
 
 
(0.01
)
Total earnings per common share - basic
 
$
0.64

 
 
$
0.51

Earnings (loss) per common share - diluted
 
 
 
 
 
Continuing operations
 
$
0.65

 
 
$
0.51

Discontinued operations
 
(0.02
)
 
 
(0.01
)
Total earnings per common share - diluted
 
$
0.63

 
 
$
0.50

Cash dividends per common share
 
$
0.46

 
 
$
0.42











See notes to consolidated financial statements.

VF Corporation March 2018 Form 10-QT 4



VF CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
Three Months Ended March
(In thousands)
 
2018
 
 
2017
Net income
 
$
252,793

 
 
$
209,163

Other comprehensive income (loss)
 
 
 
 
 
Foreign currency translation and other
 
 
 
 
 
Gains (losses) arising during the period
 
62,978

 
 
47,825

Income tax effect
 
6,354

 
 
4,473

Defined benefit pension plans
 
 
 
 
 
Amortization of net deferred actuarial losses
 
8,548

 
 
11,382

Amortization of deferred prior service costs
 
647

 
 
712

Actuarial gains (losses) and curtailment loss
 
(6,405
)
 
 
20,996

Income tax effect
 
(459
)
 
 
(12,114
)
Derivative financial instruments
 
 
 
 
 
Gains (losses) arising during the period
 
(25,530
)
 
 
(10,094
)
Income tax effect
 
4,452

 
 
2,560

Reclassification to net income for (gains) losses realized
 
13,960

 
 
(16,491
)
Income tax effect
 
(2,435
)
 
 
4,174

Other comprehensive income (loss)
 
62,110

 
 
53,423

Comprehensive income
 
$
314,903

 
 
$
262,586
















See notes to consolidated financial statements.

5 VF Corporation March 2018 Form 10-QT


VF CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
 
 
Three Months Ended March
(In thousands)
 
2018
 
 
2017
OPERATING ACTIVITIES
 
 
 
 
 
Net income
 
$
252,793

 
 
$
209,163

Adjustments to reconcile net income to cash used by operating activities:
 
 
 
 
 
Depreciation and amortization
 
71,532

 
 
66,438

Stock-based compensation
 
25,440

 
 
15,041

Provision for doubtful accounts
 
2,660

 
 
2,690

Pension expense in excess of contributions
 
1,413

 
 
7,781

Loss on sale of businesses
 
18,065

 
 
2,415

Other, net
 
(6,845
)
 
 
19,310

Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
 
38,686

 
 
(84,229
)
Inventories
 
(156,292
)
 
 
(159,712
)
Accounts payable
 
(187,553
)
 
 
(207,233
)
Income taxes
 
(65,234
)
 
 
(34,056
)
Accrued liabilities
 
(172,396
)
 
 
(22,721
)
Other assets and liabilities
 
(65,492
)
 
 
(25,049
)
Cash used by operating activities
 
(243,223
)
 
 
(210,162
)
INVESTING ACTIVITIES
 
 
 
 
 
Capital expenditures
 
(54,374
)
 
 
(40,856
)
Software purchases
 
(19,289
)
 
 
(20,657
)
Other, net
 
17,673

 
 
(6,824
)
Cash used by investing activities
 
(55,990
)
 
 
(68,337
)
FINANCING ACTIVITIES
 
 
 
 
 
Net increase in short-term borrowings
 
795,908

 
 
262,156

Payments on long-term debt
 
(1,484
)
 
 
(904
)
Purchases of treasury stock
 
(250,282
)
 
 
(438,297
)
Cash dividends paid
 
(181,373
)
 
 
(172,713
)
Proceeds from issuance of Common Stock, net of shares withheld for taxes
 
44,017

 
 
3,283

Cash provided (used) by financing activities
 
406,786

 
 
(346,475
)
Effect of foreign currency rate changes on cash, cash equivalents and restricted cash
 
12,220

 
 
2,228

Net change in cash, cash equivalents and restricted cash
 
119,793

 
 
(622,746
)
Cash, cash equivalents and restricted cash – beginning of year (a)
 
569,397

 
 
1,231,026

Cash, cash equivalents and restricted cash – end of period (a)
 
$
689,190

 
 
$
608,280

 
 
 
 
 
 
Balances per Consolidated Balance Sheets:
 
 
 
 
 
Cash and cash equivalents
 
$
680,762

 
 
$
603,262

Other current assets
 
3,804

 
 
3,174

Current assets of discontinued operations
 
2,330

 
 
1,182

Other assets
 
2,294

 
 
662

Total cash, cash equivalents and restricted cash
 
$
689,190

 
 
$
608,280

(a) The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows.

See notes to consolidated financial statements.

VF Corporation March 2018 Form 10-QT 6



VF CORPORATION
Consolidated Statements of Stockholders’ Equity
(Unaudited)
 
 
 
 
 
Additional Paid-in Capital
 
Accumulated
Other Comprehensive Loss
 
 
 
Common Stock
 
 
 
Retained Earnings
 (In thousands, except share amounts)
Shares
 
Amounts
 
 
 
Balance, December 2016
414,012,954

 
$
103,503

 
$
3,333,423

 
$
(1,041,463
)
 
$
2,545,458

Adoption of new accounting standard

 

 

 

 
(237,764
)
Net income

 

 

 

 
614,923

Dividends on Common Stock

 

 

 

 
(684,679
)
Purchase of treasury stock
(22,213,162
)
 
(5,553
)
 

 

 
(1,194,803
)
Stock-based compensation, net
4,021,989

 
1,005

 
189,917

 

 
(19,390
)
Foreign currency translation and other

 

 

 
248,378

 

Defined benefit pension plans

 

 

 
10,748

 

Derivative financial instruments

 

 

 
(143,803
)
 

Balance, December 2017
395,821,781

 
98,955

 
3,523,340

 
(926,140
)
 
1,023,745

Beginning balance adjustment (Note P)

 

 

 

 
15,492

Net income

 

 

 

 
252,793

Dividends on Common Stock

 

 

 

 
(181,373
)
Purchase of treasury stock
(3,361,101
)
 
(840
)
 

 

 
(249,442
)
Stock-based compensation, net
1,852,390

 
463

 
84,084

 

 
(15,091
)
Foreign currency translation and other

 

 

 
69,332

 

Defined benefit pension plans

 

 

 
2,331

 

Derivative financial instruments

 

 

 
(9,553
)
 

Balance, March 2018
394,313,070

 
$
98,578

 
$
3,607,424

 
$
(864,030
)
 
$
846,124














See notes to consolidated financial statements.

7 VF Corporation March 2018 Form 10-QT


VF CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
NOTE A — BASIS OF PRESENTATION

VF Corporation (together with its subsidiaries, collectively known as “VF” or the “Company”) changed to a 52/53 week fiscal year ending on the Saturday closest to March 31 of each year. VF previously used a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year. As a result of the change in fiscal year end, this document reflects the Company's Transition Report on Form 10-Q for the period from December 31, 2017 through March 31, 2018. For presentation purposes herein, all references to periods ended March 2018, December 2017 and March 2017 relate to the fiscal periods ended on March 31, 2018, December 30, 2017 and April 1, 2017, respectively. The Company’s next fiscal year will run from April 1, 2018 through March 30, 2019 (“Fiscal 2019”).
The Nautica® brand business and the Licensing Business (which comprised the Licensed Sports Group and JanSport® brand collegiate businesses) have been reported as discontinued operations in our Consolidated Statements of Income, and the related assets and liabilities have been presented as held-for-sale in the Consolidated Balance Sheets, through their dates of disposal. These changes have been applied to all periods presented. Unless otherwise noted, discussion within these notes
 
to the consolidated financial statements relates to continuing operations. Refer to Note C for additional information on discontinued operations.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and notes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. Similarly, the December 2017 condensed consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations and cash flows of VF for the interim periods presented. Operating results for the three months ended March 2018 are not necessarily indicative of results that may be expected for any other interim period or for Fiscal 2019. For further information, refer to the consolidated financial statements and notes included in VF’s Annual Report on Form 10-K for the year ended December 2017 (“2017 Form 10-K”).
NOTE B — ACQUISITIONS

Williamson-Dickie

On October 2, 2017, VF acquired 100% of the outstanding shares of Williamson-Dickie Mfg. Co. (“Williamson-Dickie”) for $800.7 million in cash, subject to working capital and other adjustments. The purchase price was primarily funded with short-term borrowings. During the three months ended March 2018, the purchase consideration was reduced by $2.3 million associated with the final working capital adjustment, resulting in a revised purchase price of $798.4 million.
Williamson-Dickie was a privately held company based in Ft. Worth, Texas, and is one of the largest companies in the workwear sector with a portfolio of brands including Dickies®, Workrite®, Kodiak®, Terra® and Walls®. The acquisition of Williamson-Dickie brings together complementary assets and capabilities, and creates a workwear business that will now serve an even broader set of consumers and industries around the world.
 
For the three months ended March 2018, Williamson-Dickie contributed revenues of $233.1 million and net income of $10.7 million, excluding restructuring charges.
The allocation of the purchase price is preliminary and subject to change, primarily for certain income tax matters. Accordingly, adjustments may be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the acquisition date. Goodwill decreased by $10.0 million during the three months ended March 2018, $2.3 million of which related to the final working capital adjustment and $7.7 million of which related to a measurement period adjustment of an acquired income tax balance.

VF Corporation March 2018 Form 10-QT 8



The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
(In thousands)
 
October 2, 2017
 
Cash and equivalents
 
$
60,172

 
Accounts receivable
 
146,403

 
Inventories
 
251,778

 
Other current assets
 
8,447

 
Property, plant and equipment
 
105,119

 
Intangible assets
 
397,755

 
Other assets
 
9,665

 
Total assets acquired
 
979,339

 
 
 
 
 
Short-term borrowings
 
17,565

 
Accounts payable
 
88,052

 
Other current liabilities
 
109,964

 
Deferred income tax liabilities
 
15,160

 
Other non-current liabilities
 
33,066

 
Total liabilities assumed
 
263,807

 
 
 
 
 
Net assets acquired
 
715,532

 
Goodwill
 
82,863

 
Purchase price
 
$
798,395

 

The goodwill is attributable to the acquired workforce of Williamson-Dickie and the significant synergies expected to arise as a result of the acquisition. All of the goodwill was assigned to the Imagewear coalition and $52.3 million is expected to be deductible for tax purposes.
The Dickies®, Kodiak®, Terra® and Walls® trademarks, which management believes to have indefinite lives, have been valued at $316.1 million. The Workrite® trademark, valued at $0.8 million, is being amortized over three years.
Amortizable intangible assets have been assigned values of $78.6 million for customer relationships and $2.3 million for distribution
 
agreements. Customer relationships are being amortized using an accelerated method over periods ranging from 10-13 years. Distribution agreements are being amortized on a straight-line basis over four years.
Total transaction expenses for the Williamson-Dickie acquisition were $15.0 million, all of which were recognized in the year ended December 2017 as selling, general and administrative expenses in VF's Consolidated Statements of Income.
The following unaudited pro forma summary presents consolidated information of VF as if the acquisition of Williamson-Dickie had occurred on January 3, 2016:
(In thousands)
Three Months Ended
April 1, 2017 (unaudited)
Total revenues
$
2,709,111

Income from continuing operations
219,469

Earnings per common share from continuing operations
 
Basic
$
0.53

Diluted
0.53


These pro forma amounts have been calculated after applying VF’s accounting policies and adjusting the results of Williamson-Dickie to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment and intangible assets had been applied from January 3, 2016, with related tax effects.
 
Pro forma financial information is not necessarily indicative of VF’s operating results if the acquisition had been effected at the date indicated, nor is it necessarily indicative of future operating results. Amounts do not include any marketing leverage, operating efficiencies or cost savings that VF believes are achievable.

9 VF Corporation March 2018 Form 10-QT


Icebreaker Holdings Limited

On November 1, 2017, VF entered into a definitive merger agreement to acquire 100% of the stock of Icebreaker Holdings Limited, a privately held company based in Auckland, New Zealand. The acquisition was completed on April 3, 2018 for NZ$274.4 million ($199.3 million) of cash, which is subject to working capital and other adjustments. The purchase price was primarily funded with short-term borrowings.
Icebreaker® is an outdoor brand specializing in high-performance apparel based on natural fibers, including Merino wool, plant-based fibers and recycled fibers. It is an ideal complement to VF's Smartwool® brand, which also features Merino wool in its clothing and accessories. Together, the Smartwool® and Icebreaker® brands will position VF as a global leader in the Merino wool and natural fiber categories. The Company is still in the process of aligning accounting policies and valuing the assets acquired and liabilities assumed, and as such, certain disclosures regarding this transaction have not been included herein.
Total transaction expenses for the Icebreaker® acquisition of $3.3 million have been recognized in selling, general and administrative
 
expenses in the Consolidated Statements of Income, of which $1.4 million was recognized during the three months ended March 2018. In addition, the Company has recognized a $9.6 million gain on derivatives used to hedge the purchase price of Icebreaker® in the other income (expense), net line item in the Consolidated Statements of Income, of which $4.3 million was recognized during the three months ended March 2018.
Altra®

On March 10, 2018, VF entered into a definitive merger agreement to acquire Altra®, an athletic and performance-based lifestyle footwear brand based in Logan, Utah. The purchase price is $135.0 million, subject to working capital and other adjustments. The acquisition is expected to close in the first quarter of Fiscal 2019, subject to satisfaction of customary closing conditions.

NOTE C — DISCONTINUED OPERATIONS
The Company continuously assesses the composition of our portfolio to ensure it is aligned with our strategic objectives and positioned to maximize growth and return to our shareholders.
Nautica® Brand Business
VF signed a definitive agreement for the sale of the Nautica® brand business on March 17, 2018, and completed the transaction on April 30, 2018. VF received cash proceeds of $289.1 million, which are subject to working capital and other adjustments.
During the fourth quarter of 2017, the Company reached the strategic decision to exit the Nautica® brand business, and determined that it met the held-for-sale and discontinued operations accounting criteria. Accordingly, the Company began to report the results of the Nautica® brand business as discontinued operations in the Consolidated Statements of Income and present the related assets and liabilities as held-for-sale in the Consolidated Balance Sheets. These changes have been applied for all periods presented.
The results of the Nautica® brand's North America business were previously reported in the former Sportswear coalition, and the results of the Asia business were previously reported in the Outdoor & Action Sports coalition. The results of the Nautica® brand business recorded in the loss from discontinued operations, net of tax line item in the Consolidated Statements of Income were losses of $8.4 million (including an $18.1 million increase in the estimated loss on sale) for the three months ended March 2018 and income of $1.4 million for the three months ended March 2017.
Certain corporate overhead costs and coalition costs previously allocated to the Nautica® brand business for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations.
Under the terms of the transition services agreement, the Company will provide certain support services for periods up to 12 months from the closing date of the transaction.
 
Licensing Business
In the first quarter of 2017, the Company reached the strategic decision to exit its Licensing Business, which comprised the Licensed Sports Group ("LSG") and the JanSport® brand collegiate businesses. Accordingly, the Company began to report the results of the businesses as discontinued operations in the Consolidated Statements of Income and present the related assets and liabilities as held-for-sale in the Consolidated Balance Sheets. These changes have been applied for all periods presented.
LSG included the Majestic® brand and was previously reported within our Imagewear coalition. On April 28, 2017, VF completed the sale of LSG to Fanatics, Inc. The Company received proceeds of $213.5 million, net of cash sold, and recorded an after-tax loss on sale of $4.1 million, of which $1.4 million is included in the loss from discontinued operations, net of tax line item in the Consolidated Statements of Income for the three months ended March 2017.
The LSG results recorded in the loss from discontinued operations, net of tax line item in the Consolidated Statements of Income were losses of $0.3 million (including the estimated loss on sale of $1.4 million) for the three months ended March 2017.
In the fourth quarter of 2017, VF completed the sale of the assets associated with the JanSport® brand collegiate business, which was previously included within our Outdoor & Action Sports coalition. The Company received net proceeds of $1.5 million and recorded an after-tax loss on sale of $0.2 million, of which $1.0 million is included in the loss from discontinued operations, net of tax line item in the Consolidated Statements of Income for the three months ended March 2017.
The JanSport® brand collegiate results recorded in the loss from discontinued operations, net of tax line item in the Consolidated Statements of Income were losses of $5.2 million (including the estimated loss on sale of $1.0 million) for the three months ended March 2017.
Certain corporate overhead and other costs previously allocated to the Licensing Business for segment reporting purposes do not

VF Corporation March 2018 Form 10-QT 10



qualify for classification within discontinued operations and have been reallocated to continuing operations. 
Under the terms of the transition services agreement, the Company is providing certain support services for periods ranging
 
from three to 24 months from the closing date of the transaction. Revenue and expense items associated with the transition services are primarily recorded in the Imagewear coalition.
Summarized Discontinued Operations Financial Information
The following table summarizes the major line items for the Nautica® brand business and the Licensing Business that are included in the loss from discontinued operations, net of tax line item in the Consolidated Statements of Income:
 
 
Three Months Ended March
(In thousands)
 
2018
 
 
2017
Revenues
 
$
94,362

 
 
$
202,667

Cost of goods sold
 
48,946

 
 
131,301

Selling, general and administrative expenses
 
34,649

 
 
62,073

Interest expense, net
 

 
 
(17
)
Income from discontinued operations before income taxes
 
10,767

 
 
9,276

Loss on the sale of discontinued operations before income taxes
 
(18,065
)
 
 
(3,531
)
Total income (loss) from discontinued operations before income taxes
 
(7,298
)
 
 
5,745

Income tax expense (a)
 
(1,073
)
 
 
(9,858
)
Loss from discontinued operations, net of tax
 
$
(8,371
)
 
 
$
(4,113
)
(a) 
The 2018 adjustment to the estimated loss on sale related to the Nautica® brand business was nondeductible for income tax purposes. Income tax expense for the three months ended March 2017 includes $7.5 million of deferred tax expense related to GAAP and tax basis differences for LSG.
The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of the periods presented:
(In thousands)
 
March 2018
 
 
December 2017 (c)
 
March 2017 (c)
Cash
 
$
2,330

 
 
$
2,592

 
$
1,182

Accounts receivable, net
 
26,298

 
 
27,941

 
56,208

Inventories
 
55,610

 
 
43,297

 
146,768

Other current assets
 
1,247

 
 
2,497

 
15,778

Property, plant and equipment, net
 
15,021

 
 
14,914

 
28,495

Intangible assets
 
262,202

 
 
262,352

 
305,509

Goodwill
 
49,005

 
 
49,005

 
182,292

Other assets
 
3,961

 
 
3,631

 
3,835

Allowance to reduce assets to estimated fair value, less costs to sell
 
(42,094
)
 

(25,529
)
 

Total assets of discontinued operations (a)
 
$
373,580

 
 
$
380,700

 
$
740,067

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
11,619

 
 
$
16,993

 
$
34,197

Accrued liabilities
 
10,658

 
 
18,203

 
15,726

Other liabilities
 
11,912

 
 
12,011

 
13,184

Deferred income tax liabilities (b)
 
51,838

 
 
53,812

 
73,651

Total liabilities of discontinued operations (a)
 
$
86,027

 
 
$
101,019

 
$
136,758

(a) 
Amounts at March 2017 have been classified as current and long-term in the Consolidated Balance Sheets.
(b) 
Deferred income tax balances reflect VF’s consolidated netting by jurisdiction.
(c) 
Certain assets and liabilities previously reported as discontinued operations will be retained by VF based on the terms of the definitive sale agreement, and thus have been removed from discontinued operations for all periods presented. The impact was not material to any periods presented.

The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows. There were no significant capital expenditures and operating noncash items for any periods presented. Depreciation and amortization expense was $5.6 million for the three months ended March 2017.

11 VF Corporation March 2018 Form 10-QT


NOTE D — SALE OF ACCOUNTS RECEIVABLE

VF has an agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis. Under the agreement, up to $367.5 million of VF’s accounts receivable may be sold to the financial institution and remain outstanding at any point in time. VF removes the accounts receivable from the Consolidated Balance Sheets at the time of sale. VF does not retain any interests in the sold accounts receivable but continues to service and collect outstanding accounts receivable on behalf of the financial institution. During the three months ended March 2018 and 2017, VF sold total accounts receivable of $258.5 million and $285.1 million,
 
respectively. As of March 2018December 2017 and March 2017, $191.2 million, $219.1 million and $145.3 million, respectively, of the sold accounts receivable had been removed from the Consolidated Balance Sheets but remained outstanding with the financial institution. The funding fee charged by the financial institution is included in the other income (expense), net line item in the Consolidated Statements of Income, and was $1.1 million and $0.9 million for the three months ended March 2018 and 2017, respectively. Net proceeds of this program are classified in operating activities in the Consolidated Statements of Cash Flows.
NOTE E — INVENTORIES
(In thousands)
 
March 2018
 
 
December 2017
 
March 2017
Finished products
 
$
1,654,137

 
 
$
1,490,788

 
$
1,400,708

Work-in-process
 
103,757

 
 
110,467

 
96,903

Raw materials
 
103,547

 
 
105,354

 
95,823

Total inventories
 
$
1,861,441

 
 
$
1,706,609

 
$
1,593,434

NOTE F — INTANGIBLE ASSETS
 
 
 
 
 
 
 
March 2018
 
 
December 2017
(In thousands)
 
Weighted
Average
Amortization
Period
 
Amortization
Method
 
 
Cost
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
 
Net
Carrying
Amount
Amortizable intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
18 years
 
Accelerated
 
 
$
344,613

 
$
143,069

 
$
201,544

 
 
$
204,215

License agreements
 
20 years
 
Accelerated
 
 
20,171

 
13,915

 
6,256

 
 
6,336

Trademarks
 
16 years
 
Straight-line
 
 
58,932

 
8,309

 
50,623

 
 
51,599

Other
 
9 years
 
Straight-line
 
 
9,194

 
4,024

 
5,170

 
 
5,353

Amortizable intangible assets, net
 
 
 
 
 
 
 
 
263,593

 
 
267,503

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks and trade names
 
 
 
 
 
 
 
 
1,856,517

 
 
1,822,278

Intangible assets, net
 
 
 
 
 
 
 
 
 
 
$
2,120,110

 
 
$
2,089,781


Intangible assets increased during the three months ended March 2018 due to the impact of foreign currency fluctuations.
Amortization expense for the three months ended March 2018 was $7.6 million. Based on the carrying amounts of amortizable intangible assets noted above, estimated amortization expense for the next five fiscal years is $29.4 million, $28.6 million, $27.1 million, $25.2 million and $23.8 million, respectively.

VF Corporation March 2018 Form 10-QT 12



NOTE G — GOODWILL
Changes in goodwill are summarized by business segment as follows:
(In thousands)
Outdoor &
Action Sports
 
Jeanswear
 
Imagewear
 
Total
Balance, December 2017
$
1,350,548

 
$
219,288

 
$
122,808

 
$
1,692,644

Measurement period adjustment to 2017 acquisition (Note B)

 

 
(9,974
)
 
(9,974
)
Currency translation
8,865

 
946

 
738

 
10,549

Balance, March 2018
$
1,359,413

 
$
220,234

 
$
113,572

 
$
1,693,219


Accumulated impairment charges for the Outdoor & Action Sports coalition were $31.1 million as of March 2018 and December 2017. No impairment charges were recorded during the three months ended March 2018.
During the three months ended March 2018, we completed the previously announced wind down of the lucy® brand operations. For
 
all periods presented in the above goodwill summary, VF has removed $51.6 million of goodwill and accumulated impairment charges related to the lucy® brand reporting unit, which previously had been fully impaired.
NOTE H - PENSION PLANS
The components of pension cost for VF’s defined benefit plans were as follows:
 
 
Three Months Ended March
(In thousands)
 
2018
 
 
2017
Service cost – benefits earned during the period
 
$
5,912

 
 
$
6,416

Interest cost on projected benefit obligations
 
14,825

 
 
14,815

Expected return on plan assets
 
(25,314
)
 
 
(23,355
)
Amortization of deferred amounts:
 
 
 
 
 
Net deferred actuarial losses
 
8,548

 
 
11,382

Deferred prior service costs
 
647

 
 
712

Net periodic pension cost
 
$
4,618

 
 
$
9,970


Actuarial valuations of VF's defined benefit plans were obtained as of March 31, 2018, due to the change in fiscal year end explained in Note A. Actuarial assumptions used in the March 31, 2018 valuations were reviewed and revised as appropriate, and were not materially different from the actuarial assumptions used in the December 31, 2017 valuations. 
VF contributed $3.2 million to its defined benefit plans during the three months ended March 2018, and intends to make approximately $40.1 million of contributions during Fiscal 2019.
 
In conjunction with the sale of the Licensing Business, the Company recognized a $1.1 million pension curtailment loss in the loss from discontinued operations, net of tax line item in the Consolidated Statements of Income for the three months ended March 2017.

13 VF Corporation March 2018 Form 10-QT


NOTE I — CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

During the three months ended March 2018, the Company purchased 3.4 million shares of Common Stock in open market transactions for $250.0 million under its share repurchase program authorized by VF’s Board of Directors. These transactions were treated as treasury stock transactions.
Common Stock outstanding is net of shares held in treasury which are, in substance, retired. During the three months ended March 2018, VF restored 3.4 million treasury shares to an unissued status, after which they were no longer recognized as shares held in treasury. There were no shares held in treasury at the end of March
 
2018, December 2017 or March 2017. The excess of the cost of treasury shares acquired over the $0.25 per share stated value of Common Stock is deducted from retained earnings.
VF Common Stock is also held by the Company’s deferred compensation plans and is treated as treasury shares for financial reporting purposes. During the three months ended March 2018, the Company purchased 3,870 shares of Common Stock in open market transactions for $0.3 million.

Balances related to shares held for deferred compensation plans were as follows:
(In thousands, except share amounts)
 
March 2018
 
 
December 2017
 
March 2017
Shares held for deferred compensation plans
 
284,785

 
 
317,515

 
427,567

Cost of shares held for deferred compensation plans
 
$
3,621

 
 
$
3,901

 
$
5,304


Accumulated Other Comprehensive Income (Loss)

Comprehensive income consists of net income and specified components of other comprehensive income (“OCI”), which relates to changes in assets and liabilities that are not included in net income under GAAP but are instead deferred and accumulated within a separate component of stockholders’ equity in the balance sheet. VF’s comprehensive income is presented in the Consolidated Statements of Comprehensive Income. The deferred components of OCI are reported, net of related income taxes, in accumulated OCI in stockholders’ equity, as follows:
(In thousands)
 
March 2018
 
 
December 2017
 
March 2017
Foreign currency translation and other
 
$
(476,869
)
 
 
$
(546,201
)
 
$
(742,281
)
Defined benefit pension plans
 
(289,618
)
 
 
(291,949
)
 
(281,721
)
Derivative financial instruments
 
(97,543
)
 
 
(87,990
)
 
35,962

Accumulated other comprehensive income (loss)
 
$
(864,030
)
 
 
$
(926,140
)
 
$
(988,040
)
The changes in accumulated OCI, net of related taxes, are as follows:
 
Three Months Ended March 2018
(In thousands)
Foreign Currency Translation and Other
 
Defined Benefit Pension Plans
 
Derivative Financial Instruments
 
Total
Balance, December 2017
$
(546,201
)
 
$
(291,949
)
 
$
(87,990
)
 
$
(926,140
)
Other comprehensive income (loss) before reclassifications
69,332

 
(4,852
)
 
(21,078
)
 
43,402

Amounts reclassified from accumulated other comprehensive income (loss)

 
7,183

 
11,525

 
18,708

Net other comprehensive income (loss)
69,332

 
2,331

 
(9,553
)
 
62,110

Balance, March 2018
$
(476,869
)
 
$
(289,618
)
 
$
(97,543
)
 
$
(864,030
)
 
 
Three Months Ended March 2017
(In thousands)
Foreign Currency Translation and Other
 
Defined Benefit Pension Plans
 
Derivative Financial Instruments
 
Total
Balance, December 2016
$
(794,579
)
 
$
(302,697
)
 
$
55,813

 
$
(1,041,463
)
Other comprehensive income (loss) before reclassifications
52,298

 
12,253

 
(7,534
)
 
57,017

Amounts reclassified from accumulated other comprehensive income (loss)

 
8,723

 
(12,317
)
 
(3,594
)
Net other comprehensive income (loss)
52,298

 
20,976

 
(19,851
)
 
53,423

Balance, March 2017
$
(742,281
)
 
$
(281,721
)
 
$
35,962

 
$
(988,040
)
 

VF Corporation March 2018 Form 10-QT 14



Reclassifications out of accumulated OCI are as follows:
 
(In thousands)
Details About Accumulated Other Comprehensive Income (Loss) Components
Affected Line Item in the Consolidated Statements of Income
 
 
Three Months Ended March
 
 
 
 
2018
 
 
2017
 
Amortization of defined benefit pension plans:
 
 
 
 
 
 
 
Net deferred actuarial losses
(a) 
 
 
$
(8,548
)
 
 
$
(11,382
)
 
Deferred prior service costs
(a) 
 
 
(647
)
 
 
(712
)
 
Pension curtailment loss
Loss from discontinued operations, net of tax
 
 

 
 
(1,105
)
 
 
Total before tax
 
 
(9,195
)
 
 
(13,199
)
 
 
Tax benefit
 
 
2,012

 
 
4,476

 
 
Net of tax
 
 
(7,183
)
 
 
(8,723
)
 
Gains (losses) on derivative financial instruments:
 
 
 
 
 
 
 
Foreign exchange contracts
Net sales
 
 
4,948

 
 
6,413

 
Foreign exchange contracts
Cost of goods sold
 
 
(13,286
)
 
 
11,274

 
Foreign exchange contracts
Selling, general and administrative expenses
 
 
(1,981
)
 
 
(87
)
 
Foreign exchange contracts
Other income (expense), net
 
 
(2,427
)
 
 
49

 
Interest rate contracts
Interest expense
 
 
(1,214
)
 
 
(1,158
)
 
 
Total before tax
 
 
(13,960
)
 
 
16,491

 
 
Tax benefit (expense)
 
 
2,435

 
 
(4,174
)
 
 
Net of tax
 
 
(11,525
)
 
 
12,317

 
Total reclassifications for the period
Net of tax
 
 
$
(18,708
)
 
 
$
3,594

(a) 
These accumulated OCI components are included in the computation of net periodic pension cost (refer to Note H for additional details).

15 VF Corporation March 2018 Form 10-QT


NOTE J — STOCK-BASED COMPENSATION

During the three months ended March 2018, VF granted stock options to employees and nonemployee members of VF’s Board of Directors to purchase 1,843,749 shares of its Common Stock at an exercise price of $74.80 per share. The exercise price of each option granted was equal to the fair market value of VF Common Stock
 
on the date of grant. Employee stock options vest in equal annual installments over three years. Stock options granted to nonemployee members of VF’s Board of Directors become exercisable one year from the date of grant.
The grant date fair value of each option award is calculated using a lattice option-pricing valuation model, which incorporates a range of assumptions for inputs as follows:
 
Three Months Ended March 2018
Expected volatility
24% to 29%
Weighted average expected volatility
25%
Expected term (in years)
6.1 to 7.6
Weighted average dividend yield
2.9%
Risk-free interest rate
1.9% to 2.9%
Weighted average fair value at date of grant
$15.34

Also during the three months ended March 2018, VF granted 351,490 performance-based restricted stock units (“RSU”) to employees that enable them to receive shares of VF Common Stock at the end of a three-year performance cycle. Each performance-based RSU has a potential final payout ranging from zero to two shares of VF Common Stock. The number of shares earned by participants, if any, is based on achievement of three-year financial targets set by the Talent and Compensation Committee of the Board of Directors. Shares are issued to participants in the year following the conclusion of the three-year performance period. The fair market value of VF Common Stock at the date the units were granted was $74.80 per share.
The actual number of performance-based RSUs earned may also be adjusted upward or downward by 25% of the target award, based on how VF’s total shareholder return (“TSR”) over the three-year period compares to the TSR for companies included in the Standard & Poor’s 500 Consumer Discretionary Index. The grant date fair value of the TSR-based adjustment related to the 2018 performance-based RSU grants was determined using a Monte Carlo simulation technique that incorporates option-pricing model inputs, and was $4.61 per share.
VF granted 18,205 nonperformance-based RSUs to nonemployee members of the Board of Directors during the three months ended March 2018. These units vest upon grant and will be settled in shares of VF Common Stock one year from the date of grant. The fair market value of VF Common Stock at the date the units were granted was $74.80 per share.
 
VF granted 16,000 nonperformance-based RSUs to certain key employees in international jurisdictions during the three months ended March 2018. These units generally vest over periods of up to four years from the date of grant and each unit entitles the holder to one share of VF Common Stock. The fair market value of VF Common Stock at the date the units were granted was $74.80 per share.
In addition, VF began making nonperformance-based RSU grants to employees as part of its annual stock compensation program and granted 372,869 of these nonperformance-based RSUs during the three months ended March 2018. These awards vest 50% over a two-year period and 50% over a four-year period from the date of grant and entitle the holder to one share of VF Common Stock. The fair market value of VF Common Stock at the date the units were granted was $74.80 per share.
For all nonperformance-based RSUs granted during the three months ended March 2018, dividend equivalents accrue and are payable in additional shares of VF Common Stock at the vesting date. Dividend equivalents are subject to the same risk of forfeiture as the nonperformance-based RSUs.
VF granted 56,331 restricted shares of VF Common Stock to certain members of management during the three months ended March 2018. These shares vest over periods of up to five years from the date of grant. The weighted average fair market value of VF Common Stock at the dates the shares were granted was $74.70 per share.

VF Corporation March 2018 Form 10-QT 16



NOTE K — INCOME TAXES

Income taxes for the three-month period ended March 2018 are computed using the actual tax rate for the period, due to the change in fiscal year end explained in Note A. Income taxes for the three-month period ended March 2017 were computed using the effective tax rate estimated to be applicable for the fiscal year ended December 2017.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act included a broad range of complex provisions impacting the taxation of multi-national companies. Generally, accounting for the impacts of newly enacted tax legislation is required to be completed in the period of enactment; however, in response to the complexities and ambiguity surrounding the Tax Act, the SEC released Staff Accounting Bulletin No. 118 (“SAB 118”) to provide companies with relief around the initial accounting for the Tax Act. Pursuant to SAB 118, the SEC has provided a one-year measurement period for companies to analyze and finalize accounting for the Tax Act. During the one-year measurement period, SAB 118 allows companies to recognize provisional amounts when reasonable estimates can be made for the impacts resulting from the Tax Act.
During the fourth quarter of 2017, VF recognized a provisional charge of approximately $465.5 million to reflect the impacts resulting from the Tax Act, primarily comprised of approximately $512.4 million related to the transition tax and approximately $89.5 million of tax benefits related to revaluing U.S. deferred tax assets and liabilities using the new U.S. corporate tax rate of 21%. Other provisional charges of $42.6 million were primarily related to U.S. federal and state tax on foreign income and dividends and establishing a deferred tax liability for foreign withholding taxes as the Company is not asserting indefinite reinvestment on its foreign earnings. All amounts recorded in 2017 related to the Tax Act remain provisional.
Under GAAP, companies are allowed to make an accounting policy election to either treat taxes resulting from global intangible low-tax income ("GILTI") as a current-period expense when they are incurred or factor such amounts into the measurement of deferred taxes as of March 2018. The Company has not completed its analysis related to this accounting policy election and has therefore considered the taxes resulting from GILTI as a current-period expense in computing tax for the three-month period ended March 2018. See Note P for additional discussion on GILTI policy election.
The Tax Act has significant complexity and our final tax liability may materially differ from provisional estimates due to additional guidance and regulations that may be issued by the U.S. Treasury Department, the Internal Revenue Service ("IRS") and state and local tax authorities, and for VF's finalization of the relevant calculations required by the new tax legislation. VF will finalize accounting for the Tax Act during the one-year measurement period, and any adjustments to the provisional amounts will be included in income tax expense or benefit in the appropriate periods, and disclosed if material, in accordance with guidance provided by SAB 118.
The effective income tax rate for the three months ended March 2018 was 11.2% compared to 20.8% in the three months ended March 2017. The three months ended March 2018 included a net discrete tax benefit of $16.1 million, which included a $12.1 million tax benefit related to stock compensation, a $7.3 million net tax benefit related to the realization of previously unrecognized tax benefits and interest, an $8.8 million tax expense related to the
 
change of a prior estimate of taxes payable, and a $5.1 million net tax benefit related to adjustments to provisional amounts recorded in 2017 under the Tax Act. The $16.1 million net discrete tax benefit in the three months ended March 2018 reduced the effective income tax rate by 5.5%. The three months ended March 2017 included a net discrete tax benefit of $1.1 million, which included a $3.0 million tax benefit related to stock compensation and a $1.9 million net tax expense related to unrecognized tax benefits and interest. The $1.1 million net discrete tax benefit in the three months ended March 2017 reduced the effective income tax rate by 0.4%. Without discrete items, the effective income tax rate for the three months ended March 2018 decreased by 4.5% compared with the estimated annual effective tax rate applied to the three months ended March 2017 primarily due to a higher percentage of income in lower tax rate jurisdictions, partially offset by an unfavorable impact from the Tax Act.
VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. In the U.S., the IRS examinations for tax years through 2014 have been effectively settled. The examination of Timberland’s 2011 tax return is ongoing. The IRS has proposed material adjustments to Timberland’s 2011 tax return that would significantly impact tax expense and assessment of interest charges. The Company has formally disagreed with the proposed adjustments. During 2015, VF filed a petition to the U.S. Tax Court to begin the process of resolving this matter, but it has not yet reached a resolution. In addition, VF is currently subject to examination by various state and international tax authorities. Management regularly assesses the potential outcomes of both ongoing and future examinations for the current and prior years, and has concluded that VF’s provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on VF’s consolidated financial statements. Management believes that some of these audits and negotiations will conclude during the next 12 months.
VF was granted a ruling which lowered the effective income tax rate on taxable earnings for years 2010 through 2014 under Belgium’s excess profit tax regime. In February 2015, the European Union Commission (“EU”) opened a state aid investigation into Belgium’s rulings. On January 11, 2016, the EU announced its decision that these rulings were illegal and ordered that tax benefits granted under these rulings should be collected from the affected companies, including VF. On March 22, 2016, the Belgium government filed an appeal seeking annulment of the EU decision. Additionally, on June 21, 2016, VF Europe BVBA filed its own application for annulment of the EU decision. Both of the listed requests for annulment remain open and unresolved.
On December 22, 2016, Belgium adopted a law which entitled the Belgium tax authorities to issue tax assessments, and demand timely payments from companies which benefited from the excess profits regime. On January 10, 2017, VF Europe BVBA received an assessment for €31.9 million tax and interest related to excess profits benefits received in prior years. VF Europe BVBA remitted €31.9 million ($33.9 million) on January 13, 2017, which was recorded as an income tax receivable based on the expected success of the aforementioned requests for annulment. An additional assessment of €3.1 million ($3.8 million) was received and paid in January 2018. If this matter is adversely resolved, these amounts will not be collected by VF.
During the three months ended March 2018, the amount of net unrecognized tax benefits and associated interest decreased by

17 VF Corporation March 2018 Form 10-QT


$9.8 million to $169.0 million. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits and interest may decrease during the next 12 months by approximately $14.7 million related to the completion of
 
examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $12.2 million would reduce income tax expense.
NOTE L — BUSINESS SEGMENT INFORMATION
VF’s businesses are grouped into product categories, and by brands within those product categories, for internal financial reporting used by management. These groupings of businesses within VF are referred to as “coalitions” and are the basis for VF’s reportable segments. Financial information for VF’s reportable segments is as follows:
 
 
Three Months Ended March
(In thousands)
 
2018
 
 
2017
Coalition revenues:
 
 
 
 
 
Outdoor & Action Sports
 
$
2,014,574

 
 
$
1,695,790

Jeanswear
 
639,547

 
 
647,442

Imagewear
 
371,040

 
 
134,966

Other
 
20,285

 
 
22,142

Total coalition revenues
 
$
3,045,446

 
 
$
2,500,340

Coalition profit:
 
 
 
 
 
Outdoor & Action Sports
 
$
292,295

 
 
$
232,452

Jeanswear
 
109,206

 
 
118,019

Imagewear
 
24,570

 
 
24,400

Other
 
(3,023
)
 
 
(2,195
)
Total coalition profit
 
423,048

 
 
372,676

Corporate and other expenses (a)
 
(107,750
)
 
 
(83,091
)
Interest expense, net
 
(21,165
)
 
 
(20,188
)
Income from continuing operations before income taxes
 
$
294,133

 
 
$
269,397

(a) 
Certain corporate overhead and other costs of $4.1 million for the three-month period ended March 2017, previously allocated to the former Sportswear coalition for segment reporting purposes, have been reallocated to continuing operations as discussed in Note C.
The results of Williamson-Dickie have been included in the Imagewear coalition since the October 2, 2017 acquisition date. The results of Kipling North America, which were previously included in the former Sportswear coalition, have been included in the Outdoor & Action Sports coalition for all periods presented.
 
In light of completed and pending transactions resulting from our active portfolio management strategy, along with recently effected organizational realignments, we are evaluating whether changes need to be made to our internal reporting structure to better support and assess the operations of our business going forward. We expect to finalize our assessment early in Fiscal 2019. If changes are made to our reporting structure, we will assess the resulting effect, if any, on our reporting segments, operating segments and reporting units.


VF Corporation March 2018 Form 10-QT 18



NOTE M – EARNINGS PER SHARE
 
 
Three Months Ended March
(In thousands, except per share amounts)
 
2018
 
 
2017
Earnings per share – basic:
 
 
 
 
 
Income from continuing operations
 
$
261,164

 
 
$
213,276

Weighted average common shares outstanding
 
395,253

 
 
411,990

Earnings per share from continuing operations
 
$
0.66

 
 
$
0.52

Earnings per share – diluted:
 
 
 
 
 
Income from continuing operations
 
$
261,164

 
 
$
213,276

Weighted average common shares outstanding
 
395,253

 
 
411,990

Incremental shares from stock options and other dilutive securities
 
6,023

 
 
3,970

Adjusted weighted average common shares outstanding
 
401,276

 
 
415,960

Earnings per share from continuing operations
 
$
0.65

 
 
$
0.51


For the three months ended March 2018, all outstanding options to purchase shares were dilutive and included in the calculation of diluted earnings per share. Outstanding options to purchase 10.6 million shares were excluded from the calculation of diluted earnings per share for the three-month period ended March 2017 because the effect of their inclusion would have been antidilutive.
 
In addition, 0.9 million and 1.1 million shares of performance-based RSUs were excluded from the calculations of diluted earnings per share for the three-month periods ended March 2018 and March 2017, respectively, because these units were not considered to be contingent outstanding shares in those periods.
NOTE N – 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. These inputs would normally be VF’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

19 VF Corporation March 2018 Form 10-QT


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
March 2018
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
185,118

 
$
185,118

 
$

 
$

Time deposits
7,714

 
7,714

 

 

Derivative financial instruments
31,400

 

 
31,400

 

Investment securities
194,160

 
183,802

 
10,358

 

Financial liabilities:
 
 
 
 
 
 
 
Derivative financial instruments
106,174

 

 
106,174

 

Deferred compensation
227,808

 

 
227,808

 

December 2017
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
265,432

 
$
265,432

 
$

 
$

Time deposits
13,591

 
13,591

 

 

Derivative financial instruments
22,970

 

 
22,970

 

Investment securities
197,837

 
185,723

 
12,114

 

Financial liabilities:
 
 
 
 
 
 
 
Derivative financial instruments
100,038

 

 
100,038

 

Deferred compensation
235,359

 

 
235,359

 

 
(a) 
There were no transfers among the levels within the fair value hierarchy during the three months ended March 2018 or the year ended December 2017.

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 foreign exchange forward 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) with underlying investments that are valued based on quoted prices for similar assets in active markets or quoted prices in inactive markets for identical 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.
 
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 March 2018 and December 2017, their carrying values approximated their fair values. Additionally, at March 2018 and December 2017, the carrying values of VF’s long-term debt, including the current portion, were $2,218.8 million and $2,194.0 million, respectively, compared with fair values of $2,403.9 million and $2,422.0 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.

VF Corporation March 2018 Form 10-QT 20



NOTE O – 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 $2.9 billion at both March 2018 and December 2017
 
and $2.2 billion at March 2017, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, Mexican peso, New Zealand dollar, Swiss franc, Swedish krona, Japanese yen, Korean won and Polish zloty. 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)
 
March 2018
 
 
December 2017
 
March 2017
 
 
March 2018
 
 
December 2017
 
March 2017
Foreign currency exchange contracts designated as hedging instruments
 
$
21,496

 
 
$
17,639

 
$
72,306

 
 
$
(105,795
)
 
 
$
(99,606
)
 
$
(25,460
)
Foreign currency exchange contracts not designated as hedging instruments
 
9,904

 
 
5,331

 

 
 
(379
)
 
 
(432
)
 
(213
)
Total derivatives
 
$
31,400

 
 
$
22,970

 
$
72,306

 
 
$
(106,174
)
 
 
$
(100,038
)
 
$
(25,673
)
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:
 
 
March 2018
 
 
December 2017
 
March 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
Derivative
Asset
 
Derivative
Liability
 
 
Derivative
Asset
 
Derivative
Liability
 
Derivative
Asset
 
Derivative
Liability
Gross amounts presented in the Consolidated Balance Sheets
 
$
31,400

 
$
(106,174
)
 
 
$
22,970

 
$
(100,038
)
 
$
72,306

 
$
(25,673
)
Gross amounts not offset in the Consolidated Balance Sheets
 
(20,918
)
 
20,918

 
 
(18,313
)
 
18,313

 
(25,316
)
 
25,316

Net amounts
 
$
10,482

 
$
(85,256
)
 
 
$
4,657

 
$
(81,725
)
 
$
46,990

 
$
(357
)
Derivatives are classified as current or noncurrent based on maturity dates, as follows:
(In thousands)
 
March 2018
 
 
December 2017
 
March 2017
Other current assets
 
$
26,741

 
 
$
20,771

 
$
63,986

Accrued liabilities
 
(96,087
)
 
 
(87,205
)
 
(19,630
)
Other assets
 
4,659

 
 
2,199

 
8,320

Other liabilities
 
(10,087
)
 
 
(12,833
)
 
(6,043
)

21 VF Corporation March 2018 Form 10-QT


Cash Flow Hedges
VF uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, purchases, production costs, operating costs and intercompany royalties. The effects of cash flow hedging included in VF’s Consolidated Statements of Income and Consolidated Statements of Comprehensive Income are summarized as follows:
(In thousands)
 
Gain (Loss) on Derivatives Recognized in OCI
Three Months Ended March