UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 1-5256

vfcirclelogoa01.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)
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 July 28, 2018, there were 396,461,022 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)
 
June 2018
 
 
March 2018
 
June 2017
ASSETS
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and equivalents
 
$
467,917

 
 
$
680,762

 
$
672,045

Accounts receivable, less allowance for doubtful accounts of: June 2018 – $25,204; March 2018 – $24,993; June 2017 – $18,817
 
1,428,535

 
 
1,408,587

 
1,143,573

Inventories
 
1,993,825

 
 
1,861,441

 
1,663,052

Other current assets
 
439,870

 
 
358,953

 
355,283

Current assets of discontinued operations
 

 
 
373,580

 
63,697

Total current assets
 
4,330,147

 
 
4,683,323

 
3,897,650

Property, plant and equipment, net
 
1,018,164

 
 
1,011,617

 
903,024

Intangible assets, net
 
2,184,276

 
 
2,120,110

 
1,630,939

Goodwill
 
1,816,162

 
 
1,693,219

 
1,582,751

Other assets
 
843,005

 
 
803,041

 
722,578

Other assets of discontinued operations
 

 
 

 
436,786

TOTAL ASSETS
 
$
10,191,754

 
 
$
10,311,310

 
$
9,173,728

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Short-term borrowings
 
$
1,316,923

 
 
$
1,525,106

 
$
921,109

Current portion of long-term debt
 
6,189

 
 
6,265

 
253,783

Accounts payable
 
675,581

 
 
583,004

 
492,480

Accrued liabilities
 
996,863

 
 
938,427

 
738,050

Current liabilities of discontinued operations
 

 
 
86,027

 
25,721

Total current liabilities
 
2,995,556

 
 
3,138,829

 
2,431,143

Long-term debt
 
2,156,627

 
 
2,212,555

 
2,111,623

Other liabilities
 
1,308,455

 
 
1,271,830

 
896,581

Other liabilities of discontinued operations
 

 
 

 
90,042

Commitments and contingencies
 

 
 

 

Total liabilities
 
6,460,638

 
 
6,623,214

 
5,529,389

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

 
 

 

Common Stock, stated value $0.25; shares authorized, 1,200,000,000; shares outstanding at June 2018 – 395,509,138; March 2018 – 394,313,070; June 2017 – 393,308,684
 
98,877

 
 
98,578

 
98,327

Additional paid-in capital
 
3,688,529

 
 
3,607,424

 
3,398,901

Accumulated other comprehensive income (loss)
 
(882,078
)
 
 
(864,030
)
 
(930,597
)
Retained earnings
 
825,788

 
 
846,124

 
1,077,708

Total stockholders’ equity
 
3,731,116

 
 
3,688,096

 
3,644,339

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 
$
10,191,754

 
 
$
10,311,310

 
$
9,173,728

See notes to consolidated financial statements.

3 VF Corporation Q1 2019 Form 10-Q


VF CORPORATION
Consolidated Statements of Income
(Unaudited)
 
 
Three Months Ended June
(In thousands, except per share amounts)
 
2018
 
 
2017
Net revenues
 
$
2,788,146

 
 
$
2,268,620

Costs and operating expenses
 
 
 
 
 
Cost of goods sold
 
1,384,977

 
 
1,142,476

Selling, general and administrative expenses
 
1,172,287

 
 
966,468

Total costs and operating expenses
 
2,557,264

 
 
2,108,944

Operating income
 
230,882

 
 
159,676

Interest income
 
3,393

 
 
3,583

Interest expense
 
(27,277
)
 
 
(24,190
)
Other income (expense), net
 
(20,666
)
 
 
(3,217
)
Income from continuing operations before income taxes
 
186,332

 
 
135,852

Income taxes
 
26,379

 
 
28,760

Income from continuing operations
 
159,953

 
 
107,092

Income from discontinued operations, net of tax
 
405

 
 
2,797

Net income
 
$
160,358

 
 
$
109,889

Earnings per common share - basic
 
 
 
 
 
Continuing operations
 
$
0.41

 
 
$
0.27

Discontinued operations
 

 
 
0.01

Total earnings per common share - basic
 
$
0.41

 
 
$
0.28

Earnings per common share - diluted
 
 
 
 
 
Continuing operations
 
$
0.40

 
 
$
0.27

Discontinued operations
 

 
 
0.01

Total earnings per common share - diluted
 
$
0.40

 
 
$
0.27

Cash dividends per common share
 
$
0.46

 
 
$
0.42












See notes to consolidated financial statements.

VF Corporation Q1 2019 Form 10-Q 4



VF CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
Three Months Ended June
(In thousands)
 
2018
 
 
2017
Net income
 
$
160,358

 
 
$
109,889

Other comprehensive income (loss)
 
 
 
 
 
Foreign currency translation and other
 
 
 
 
 
Gains (losses) arising during the period
 
(161,158
)
 
 
87,343

Income tax effect
 
(13,712
)
 
 
21,729

Defined benefit pension plans
 
 
 
 
 
Amortization of net deferred actuarial losses
 
8,822

 
 
10,002

Amortization of deferred prior service costs
 
669

 
 
645

Current period actuarial gains
 
53,940

 
 

Curtailment losses and settlement charges
 
16,325

 
 

Income tax effect
 
(20,655
)
 
 
(4,015
)
Derivative financial instruments
 
 
 
 
 
Gains (losses) arising during the period
 
94,629

 
 
(56,339
)
Income tax effect
 
(11,358
)
 
 
7,863

Reclassification to net income for (gains) losses realized
 
16,317

 
 
(11,319
)
Income tax effect
 
(1,867
)
 
 
1,534

Other comprehensive income (loss)
 
(18,048
)
 
 
57,443

Comprehensive income
 
$
142,310

 
 
$
167,332















See notes to consolidated financial statements.

5 VF Corporation Q1 2019 Form 10-Q


VF CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
 
 
Three Months Ended June
(In thousands)
 
2018 (a)
 
 
2017 (a)
OPERATING ACTIVITIES
 
 
 
 
 
Net income
 
$
160,358

 
 
$
109,889

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
 
71,130

 
 
65,470

Stock-based compensation
 
26,772

 
 
19,420

Provision for doubtful accounts
 
2,809

 
 
3,793

Pension expense in excess of contributions
 
2,537

 
 
5,206

(Gain) loss on sale of businesses, net of tax
 
(5,003
)
 
 
2,771

Other, net
 
10,525

 
 
11,526

Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
 
(25,482
)
 
 
127,500

Inventories
 
(140,751
)
 
 
(48,272
)
Accounts payable
 
87,126

 
 
49,100

Income taxes
 
(78,688
)
 
 
(92,983
)
Accrued liabilities
 
166,543

 
 
(47,408
)
Other assets and liabilities
 
(732
)
 
 
(396
)
Cash provided by operating activities
 
277,144

 
 
205,616

INVESTING ACTIVITIES
 
 
 
 
 
Business acquisitions, net of cash received
 
(321,395
)
 
 

Proceeds from sale of businesses, net of cash sold
 
288,273

 
 
208,215

Capital expenditures
 
(68,919
)
 
 
(37,355
)
Software purchases
 
(21,546
)
 
 
(13,074
)
Other, net
 
(5,643
)
 
 
(324
)
Cash (used) provided by investing activities
 
(129,230
)
 
 
157,462

FINANCING ACTIVITIES
 
 
 
 
 
Net (decrease) increase in short-term borrowings
 
(214,383
)
 
 
632,552

Payments on long-term debt
 
(1,557
)
 
 
(917
)
Purchases of treasury stock
 

 
 
(762,007
)
Cash dividends paid
 
(181,517
)
 
 
(164,893
)
Proceeds from issuance of Common Stock, net of shares withheld for taxes
 
53,500

 
 
11,430

Cash used by financing activities
 
(343,957
)
 
 
(283,835
)
Effect of foreign currency rate changes on cash, cash equivalents and restricted cash
 
(19,998
)
 
 
(10,583
)
Net change in cash, cash equivalents and restricted cash
 
(216,041
)
 
 
68,660

Cash, cash equivalents and restricted cash – beginning of year
 
689,190

 
 
608,280

Cash, cash equivalents and restricted cash – end of period
 
$
473,149

 
 
$
676,940

 
 
 
 
 
 
Balances per Consolidated Balance Sheets:
 
 
 
 
 
Cash and cash equivalents
 
$
467,917

 
 
$
672,045

Other current assets
 
4,067

 
 
3,716

Current assets of discontinued operations
 

 
 
497

Other assets
 
1,165

 
 
682

Total cash, cash equivalents and restricted cash
 
$
473,149

 
 
$
676,940

(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 Q1 2019 Form 10-Q 6



VF CORPORATION
Consolidated Statement of Stockholders’ Equity
(Unaudited)
 
 
 
 
 
Additional Paid-in Capital
 
Accumulated
Other Comprehensive Loss
 
 
 
Common Stock
 
 
 
Retained Earnings
 (In thousands, except share amounts)
Shares
 
Amounts
 
 
 
Balance, March 2018
394,313,070

 
$
98,578

 
$
3,607,424

 
$
(864,030
)
 
$
846,124

Adoption of new accounting standard

 

 

 

 
1,956

Net income

 

 

 

 
160,358

Dividends on Common Stock

 

 

 

 
(181,517
)
Stock-based compensation, net
1,196,068

 
299

 
81,105

 

 
(1,133
)
Foreign currency translation and other

 

 

 
(174,870
)
 

Defined benefit pension plans

 

 

 
59,101

 

Derivative financial instruments

 

 

 
97,721

 

Balance, June 2018
395,509,138

 
$
98,877

 
$
3,688,529

 
$
(882,078
)
 
$
825,788




















See notes to consolidated financial statements.

7 VF Corporation Q1 2019 Form 10-Q


VF CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 — 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. The Company's current fiscal year will run from April 1, 2018 through March 30, 2019 ("Fiscal 2019"). This document reflects the Company's first quarter of Fiscal 2019. For presentation purposes herein, all references to periods ended June 2018, March 2018 and June 2017 relate to the fiscal periods ended on June 30, 2018, March 31, 2018 and July 1, 2017, respectively.
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 5 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. 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 June 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 30, 2017 (“2017 Form 10-K”).
NOTE 2 – RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS

Recently Adopted Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)", a new accounting standard on revenue recognition that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The FASB subsequently issued updates to the standard to provide additional clarification on specific topics. Collectively, the guidance is referred to as FASB Accounting Standards Codification ("ASC") 606. The standard prescribes a five-step approach to revenue recognition: (1) identify the contracts with the customer; (2) identify the separate performance obligations in the contracts; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenue when, or as, each performance obligation is satisfied. The standard also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenues and cash flows arising from contracts with customers. The Company adopted this standard on April 1, 2018, utilizing the modified retrospective method and applying this approach to contracts not completed as of that date. The cumulative effect of initially applying the new standard has been recognized in retained earnings. Comparative prior period information has not been restated and continues to be reported under accounting standards in effect for those periods.
 
The adoption of ASC 606 resulted in a net increase of $2.0 million in the retained earnings line item of the Consolidated Balance Sheet as of April 1, 2018. The cumulative effect adjustment relates primarily to i) recognition of revenues for certain wholesale and e-commerce transactions at shipment rather than upon delivery to the customer based on our evaluation of the transfer of control of the goods, ii) discontinued capitalization of certain costs related to ongoing customer arrangements and iii) adjustments to the timing of recognition for certain royalty amounts.
Other effects of the adoption include presentation of allowances for sales incentive programs, discounts, markdowns, chargebacks, and returns as refund liabilities rather than as a reduction to accounts receivable and presentation of the right of return asset within other current assets rather than as a component of inventory in the Consolidated Balance Sheets. Additionally, sourcing fees received from customers and advertising contributions from licensees that had previously been reported as an offset to costs or expenses are now reported as revenue in the Consolidated Statement of Income. Refer to Note 3 for additional revenue disclosures.

VF Corporation Q1 2019 Form 10-Q 8



The following tables compare amounts reported in accordance with the requirements of ASC 606 to the amounts that would have been reported had the new standard not been applied:
Condensed Consolidated Balance Sheet
 
 
 
 
 
 
June 2018
(In thousands)
As Reported
 
Impact of Adoption
 
Balances without Adoption of ASC 606
ASSETS
 
 
 
 
 
Cash and equivalents
$
467,917

 
$

 
$
467,917

Accounts receivable, net
1,428,535

 
(179,981
)
 
1,248,554

Inventories
1,993,825

 
54,368

 
2,048,193

Other current assets
439,870

 
(49,400
)
 
390,470

Total current assets
4,330,147

 
(175,013
)
 
4,155,134

Property, plant and equipment, net
1,018,164

 

 
1,018,164

Goodwill and intangible assets, net
4,000,438

 

 
4,000,438

Other assets
843,005

 
381

 
843,386

TOTAL ASSETS
$
10,191,754

 
$
(174,632
)
 
$
10,017,122

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
Short-term borrowings and current portion of long-term debt
$
1,323,112

 
$

 
$
1,323,112

Accounts payable
675,581

 

 
675,581

Accrued liabilities
996,863

 
(167,292
)
 
829,571

Total current liabilities
2,995,556

 
(167,292
)
 
2,828,264

Long-term debt
2,156,627

 

 
2,156,627

Other liabilities
1,308,455

 
(1,545
)
 
1,306,910

Total liabilities
6,460,638

 
(168,837
)
 
6,291,801

Total stockholders' equity
3,731,116

 
(5,795
)
 
3,725,321

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
10,191,754

 
$
(174,632
)
 
$
10,017,122

Condensed Consolidated Statement of Income
 
 
 
 
 
 
Three Months Ended June 2018
(In thousands)
As Reported
 
Impact of Adoption
 
Balances without Adoption of ASC 606
Net revenues
$
2,788,146

 
$
(9,695
)
 
$
2,778,451

Cost of goods sold
1,384,977

 
(12,806
)
 
1,372,171

Selling, general and administrative expenses
1,172,287

 
3,576

 
1,175,863

Total costs and operating expenses
2,557,264

 
(9,230
)
 
2,548,034

Operating income
230,882

 
(465
)
 
230,417

Interest income (expense) and other income (expense), net
(44,550
)
 

 
(44,550
)
Income from continuing operations before income taxes
186,332

 
(465
)
 
185,867

Income taxes
26,379

 
(82
)
 
26,297

Income from continuing operations
159,953

 
(383
)
 
159,570

Income (loss) from discontinued operations, net of tax
405

 
(3,456
)
 
(3,051
)
Net income
$
160,358

 
$
(3,839
)
 
$
156,519


9 VF Corporation Q1 2019 Form 10-Q


Condensed Consolidated Statement of Cash Flows - Operating Activities
 
Three Months Ended June 2018
(In thousands)
As Reported
 
Impact of Adoption
 
Activities without Adoption of ASC 606
OPERATING ACTIVITIES
 
 
 
 
 
Net income
$
160,358

 
$
(3,839
)
 
$
156,519

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
71,130

 
144

 
71,274

Other adjustments, net
37,640

 
3,456

 
41,096

Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
(25,482
)
 
169,972

 
144,490

Inventories
(140,751
)
 
(48,565
)
 
(189,316
)
Accounts payable
87,126

 

 
87,126

Income taxes
(78,688
)
 
(82
)
 
(78,770
)
Accrued liabilities
166,543

 
(166,013
)
 
530

Other assets and liabilities
(732
)
 
44,927

 
44,195

Cash provided by operating activities
$
277,144

 
$

 
$
277,144

There was no impact to investing or financing activities within the Consolidated Statement of Cash Flows as a result of the adoption of ASC 606.

In March 2018, the FASB issued ASU 2018-05, "Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118", which allowed Securities and Exchange Commission ("SEC") registrants to record provisional amounts in earnings for the year ended December 30, 2017 due to the complexities involved in accounting for the enactment of the Tax Cuts and Jobs Act (“Tax Act”). The Company recognized the estimated income tax effects of the Tax Act in its 2017 consolidated financial statements in accordance with SEC Staff Accounting Bulletin No. 118 ("SAB 118") and recorded revisions of our provisional estimate during the three months ended June 2018 and March 2018. Refer to Note 13 for more information regarding the amounts recorded.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities", an update to their accounting guidance related to the recognition and measurement of certain financial instruments. This guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. This guidance became effective for VF in the first quarter of Fiscal 2019, but did not impact VF's consolidated financial statements. The FASB has subsequently issued an update to clarify the previous guidance. The amendments in this updated guidance will be effective for VF in the second quarter of Fiscal 2019. The Company does not expect the adoption of this subsequent guidance to have a material impact on VF’s consolidated financial statements.
In March 2016, the FASB issued ASU 2016-04, "Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products", an update to their accounting guidance on extinguishments of financial liabilities that exempts prepaid stored-value products, or gift cards, from the existing guidance. The updated guidance requires that financial liabilities related to prepaid stored-value products be subject to breakage accounting, consistent with ASC 606. This guidance became effective for VF in the first quarter of Fiscal 2019, but did not impact VF’s consolidated financial statements.
 
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments", an update to their accounting guidance that addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance became effective for VF in the first quarter of Fiscal 2019 but did not impact VF’s Consolidated Statements of Cash Flows.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business", an update that provides a more narrow framework to be used in evaluating whether a set of assets and activities constitutes a business. This guidance became effective for VF in the first quarter of Fiscal 2019 and was applied when accounting for the acquisitions completed during the period, but did not impact our conclusions on whether they are a business. Refer to Note 4 for further information related to acquisitions.
In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost", an update which requires employers to disaggregate the service cost component from other components of net periodic benefit costs. The standard requires employers to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit costs (which include interest cost, expected return on plan assets, amortization of prior service costs or credits and actuarial gains and losses) separately and outside of operating income. The update specifies that only the service cost component is eligible for capitalization, which is consistent with VF’s current practice. The presentation change in the Consolidated Statements of Income requires application on a retrospective basis. The ASU was adopted by the Company on April 1, 2018, and as a result, operating income increased and non-operating expense increased $1.6 million for the three months ended June 2017. VF applied the practical expedient permitted under the guidance which allows entities to use information previously disclosed in the pension and other post-retirement benefit plans footnote as the basis to apply the

VF Corporation Q1 2019 Form 10-Q 10



retrospective presentation requirements. Refer to pension disclosure in Note 10.
In May 2017, the FASB issued ASU 2017-09, "Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting", an update that amends the scope of modification accounting for share-based payment arrangements. This update provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. This guidance became effective for VF beginning in the first quarter of Fiscal 2019, but did not impact VF’s consolidated financial statements.
Recently Issued Accounting Standards
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", a new accounting standard on leasing. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics, including permitted transition methods. This new standard will require companies to record most leased assets and related liabilities on the balance sheet, and also retains a dual model approach for assessing lease classification and recognizing expense. VF's cross-functional implementation team has completed the design phase of the project, which involved reviewing the standard's provisions, evaluating real estate and non-real estate lease arrangements and identifying arrangements that may contain embedded leases. This project is now in the implementation phase and the team is collecting information from lease contracts, assessing potential embedded leases and evaluating accounting policy elections. VF is also evaluating the impact of the new accounting standard on the Company's systems, processes and controls. Based on the efforts to date, VF expects this standard will have a material impact on the Consolidated Balance Sheets but does not expect it to have a material impact on the Consolidated Statements of Income. The Company will adopt the new standard in the first quarter of the year ended March 28, 2020 ("Fiscal 2020") utilizing the modified retrospective method and will recognize a cumulative-effect adjustment in retained earnings at the beginning of the period of adoption.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. This guidance will be effective for VF in the first quarter of the year ended April 3, 2021 ("Fiscal 2021") with early adoption permitted. The Company is evaluating the impact that adopting this guidance will have on VF’s consolidated financial statements.
 
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", an update that amends and simplifies certain aspects of hedge accounting rules to better portray the economic results of risk management activities in the financial statements. This guidance will be effective for VF in the first quarter of Fiscal 2020 with early adoption permitted. The Company is evaluating the impact that adopting this guidance will have on VF’s consolidated financial statements.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that companies must make a policy decision to either record deferred taxes related to GILTI inclusions or treat any taxes on GILTI inclusions as period costs. The Company is continuing to evaluate these options and will make its decision regarding the accounting policy election within the measurement period as provided under SAB 118. The Company has considered the taxes resulting from GILTI as a current-period expense for the three months ended June 2018.
In February 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income", an update that addresses the effect of the change in the U.S. federal corporate income tax rate due to the enactment of the Tax Act on items within accumulated other comprehensive income (loss). The guidance will be effective for VF in the first quarter of Fiscal 2020 with early adoption permitted. The Company is evaluating the impact that adopting this guidance will have on VF’s consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, "Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting", an update that expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance will be effective for VF in the first quarter of Fiscal 2020 with early adoption permitted. The Company is evaluating the impact that adopting this guidance will have on VF's consolidated financial statements.
In July 2018, the FASB issued ASU 2018-09, "Codification Improvements", an update that provides technical corrections, clarifications and other improvements across a variety of accounting topics. The transition and effective date guidance is based on the facts and circumstances of each amendment included in the ASU; however, many will be effective for VF in the first quarter of Fiscal 2020. The Company is evaluating the impact that adopting this guidance will have on VF's consolidated financial statements.


11 VF Corporation Q1 2019 Form 10-Q


NOTE 3 - REVENUES

Revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied based on the transfer of control of promised goods or services. The transfer of control typically occurs at a point in time based on consideration of when the customer has i) an obligation to pay for, ii) physical possession of, iii) legal title to, iv) risks and rewards of ownership of and v) accepted the goods or services. The timing of revenue recognition within the wholesale channel occurs either on shipment or delivery of goods based on contractual terms with the customer. The timing of revenue recognition in the direct-to-consumer channel generally occurs at the point of sale within VF-operated or concession retail stores and either on shipment or delivery of goods for e-commerce transactions based on contractual terms with the customer. For finished products shipped directly to customers from our suppliers, the Company's promise to the customer is a performance obligation to provide the specified goods, and thus the Company is the principal in the arrangement and revenue is recognized on a gross basis at the transaction price. For sourcing arrangements, the Company's promise to the customer is to arrange for certain goods, typically finished products, to be provided and thus the Company is acting as an agent and revenue is recognized on a net basis at the fee amount earned.
The duration of contractual arrangements with our customers in the wholesale and direct-to-consumer channels is typically less than one year. Payment terms with customers are generally between 30 and 60 days. The Company does not adjust the promised amount of consideration for the effects of a significant financing component as it is expected, at contract inception, that the period between the transfer of the promised good or service to the customer and the customer payment for the good or service will be one year or less.
The amount of revenue recognized in both wholesale and direct-to-consumer channels reflects the expected consideration to be received for providing the goods or services to the customer, which includes estimates for variable consideration. Variable consideration includes allowances for trade terms, sales incentive programs, discounts, markdowns, chargebacks and product returns. Estimates of variable consideration are determined at contract inception and reassessed at each reporting date, at a minimum, to reflect any changes in facts and circumstances. The Company utilizes the expected value method in determining its estimates of variable consideration, based on evaluations of specific product and customer circumstances, historical and anticipated trends, and current economic conditions.
Certain products sold by the Company include an assurance warranty. Product warranty costs are estimated based on historical and anticipated trends, and are recorded as cost of goods sold at the time revenue is recognized.
Revenue from the sale of gift cards is deferred and recorded as a contract liability until the gift card is redeemed by the customer, factoring in breakage as appropriate.
Various VF brands maintain customer loyalty programs where customers earn rewards from qualifying purchases or activities, which are redeemable for discounts on future purchases or other rewards. For its customer loyalty programs, the Company estimates the stand-alone selling price of the loyalty rewards and allocates a portion of the consideration for the sale of products to the loyalty points earned. The deferred amount is recorded as a
 
contract liability, and is recognized as revenue when the points are redeemed or when the likelihood of redemption is remote.
The Company has elected to treat all shipping and handling activities as fulfillment costs and recognize the costs as selling, general and administrative expenses at the time the related revenue is recognized. Shipping and handling costs billed to customers are included in net revenues. Sales taxes and value added taxes collected from customers and remitted directly to governmental authorities are excluded from the transaction price.
The Company has licensing agreements for its symbolic intellectual property, most of which include minimum guaranteed royalties. Royalty income is recognized as earned over the respective license term based on the greater of minimum guarantees or the licensees' sales of licensed products at rates specified in the licensing contracts. Royalty income related to the minimum guarantees is recognized using a measure of progress with variable amounts recognized only when the cumulative earned royalty exceeds the minimum guarantees. As of June 2018, the Company expects to recognize $119.3 million of fixed consideration related to the future minimum guarantees in effect under its licensing agreements and expects such amounts to be recognized over time through December 2024. The variable consideration is not disclosed as a remaining performance obligation as the licensing arrangements qualify for the sales-based royalty exemption.
The Company has applied the practical expedient to recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less.
Performance Obligations
Disclosure is required for the aggregate transaction price allocated to performance obligations that are unsatisfied at the end of a reporting period, unless the optional practical expedients are applicable. VF is electing the practical expedients to not disclose the transaction price allocated to remaining performance obligations for i) variable consideration related to sales-based royalty arrangements and ii) contracts with an original expected duration of one year or less.
As of June 2018, there are no arrangements with transaction price allocated to remaining performance obligations other than contracts for which the Company has applied the practical expedients and fixed consideration related to future minimum guarantees discussed above.
For the three months ended June 2018, revenue recognized from performance obligations satisfied, or partially satisfied, in prior periods was not material.
Contract Balances
Accounts receivable represent the Company's unconditional right to receive consideration from a customer and are recorded at net invoiced amounts, less an estimated allowance for doubtful accounts.
Contract assets are rights to consideration in exchange for goods or services that have been transferred to a customer when that right is conditional on something other than the passage of time. Once the Company has an unconditional right to consideration

VF Corporation Q1 2019 Form 10-Q 12



under a contract, amounts are invoiced and contract assets are reclassified to accounts receivable. The Company's primary contract assets relate to sales-based royalty arrangements, which are discussed in more detail above.
Contract liabilities are recorded when a customer pays consideration, or the Company has a right to an amount of
 
consideration that is unconditional, before the transfer of a good or service to the customer and thus represent the Company's obligation to transfer the good or service to the customer at a future date. The Company's primary contract liabilities relate to gift cards, loyalty programs and sales-based royalty arrangements, which are discussed in more detail above.
The following table provides information about accounts receivable, contract assets and contract liabilities:
(In thousands)
 
June 2018
 
 
At Adoption - April 1, 2018
Accounts receivable, net
 
$
1,428,535

 
 
$
1,408,587

Contract assets (a)
 
2,931

 
 
2,600

Contract liabilities (b)
 
30,297

 
 
28,252

(a) 
Included in the other current assets line item in the Consolidated Balance Sheets.
(b) 
Included in the accrued liabilities line item in the Consolidated Balance Sheets.
For the three months ended June 2018, the Company recognized $13.1 million of revenue that was previously included in the contract liability balance. The change in the contract asset and contract liability balances primarily results from the timing differences between the Company's satisfaction of performance obligations and the customer's payment.
Disaggregation of Revenue
The following tables disaggregate our revenues by channel and geography, which provides a meaningful depiction of how the nature, timing and uncertainty of revenues are affected by economic factors. The wholesale channel includes fees generated from sourcing activities as the customers and point-in-time revenue recognition are similar to other wholesale arrangements.

Three Months Ended June 2018
(In thousands)
Outdoor
 
Active
 
Work
 
Jeans
 
Other
 
Total
Channel revenues

 

 

 

 

 

Wholesale
$
309,776

 
$
654,848

 
$
399,673

 
$
525,455

 
$
10,137

 
$
1,899,889

Direct-to-consumer
255,964

 
475,536

 
37,838

 
70,365

 
26,103

 
865,806

Royalty
2,860

 
6,553

 
5,091

 
7,947

 

 
22,451

Total
$
568,600

 
$
1,136,937

 
$
442,602

 
$
603,767

 
$
36,240

 
$
2,788,146



 

 

 

 

 

Geographic revenues

 

 

 

 

 

United States
$
262,856

 
$
644,105

 
$
350,136

 
$
440,312

 
$
36,240

 
$
1,733,649

International
305,744

 
492,832

 
92,466

 
163,455

 

 
1,054,497

Total
$
568,600

 
$
1,136,937

 
$
442,602

 
$
603,767

 
$
36,240

 
$
2,788,146


Three Months Ended June 2017
(In thousands)
Outdoor
 
Active
 
Work
 
Jeans
 
Other
 
Total
Channel revenues

 

 

 

 

 

Wholesale
$
290,237

 
$
541,476

 
$
205,010

 
$
509,851

 
$

 
$
1,546,574

Direct-to-consumer
242,904

 
362,280

 
1,847

 
70,665

 
28,320

 
706,016

Royalty
3,109

 
5,534

 

 
7,387

 

 
16,030

Total
$
536,250

 
$
909,290

 
$
206,857

 
$
587,903

 
$
28,320

 
$
2,268,620



 

 

 

 

 

Geographic revenues

 

 

 

 

 

United States
$
272,591

 
$
505,099

 
$
202,248

 
$
430,385

 
$
28,320

 
$
1,438,643

International
263,659

 
404,191

 
4,609

 
157,518

 

 
829,977

Total
$
536,250

 
$
909,290

 
$
206,857

 
$
587,903

 
$
28,320

 
$
2,268,620


13 VF Corporation Q1 2019 Form 10-Q


NOTE 4 — 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 was 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 June 2018, Williamson-Dickie contributed revenues of $219.1 million and net income of $14.8 million, including restructuring charges.
The allocation of the purchase price is preliminary and subject to change 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.
The following table summarizes the estimated fair values of the Williamson-Dickie 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 Work segment and $52.3 million is expected to be deductible for tax purposes.
The Dickies®, Kodiak®, Terra® and Walls® trademarks, which management determined 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 30, 2017 in the selling, general and administrative expenses line item in VF's Consolidated Statements of Income.

VF Corporation Q1 2019 Form 10-Q 14



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
June 2017
(unaudited)
Total revenues
$
2,484,272

Income from continuing operations
113,919

Earnings per common share from continuing operations
 
Basic
$
0.29

Diluted
0.28


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.
Icebreaker

On April 3, 2018, VF acquired 100% of the stock of Icebreaker Holdings Limited ("Icebreaker") for NZ$274.4 million ($198.5 million) in cash. The purchase price decreased NZ$1.0 million ($0.7 million) during the first quarter of Fiscal 2019 related to a working capital adjustment, and remains subject to further working capital
 
and other adjustments. The purchase price was primarily funded with short-term borrowings.
Icebreaker was a privately held company based in Auckland, New Zealand. Icebreaker®, the primary brand, specializes 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.
For the three months ended June 2018, Icebreaker contributed revenues of $25.7 million and a net loss of $0.8 million.
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 value of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the acquisition date.
The following table summarizes the estimated fair values of the Icebreaker assets acquired and liabilities assumed at the date of acquisition:
(In thousands)
 
April 3, 2018
 
Cash and equivalents
 
$
6,444

 
Accounts receivable
 
16,781

 
Inventories
 
31,728

 
Other current assets
 
3,931

 
Property, plant and equipment
 
3,858

 
Intangible assets
 
98,041

 
Other assets
 
4,758

 
Total assets acquired
 
165,541

 
 
 
 
 
Short-term borrowings
 
7,235

 
Accounts payable
 
2,075

 
Other current liabilities
 
21,919

 
Deferred income tax liabilities
 
22,802

 
Other non-current liabilities
 
433

 
Total liabilities assumed
 
54,464

 
 
 
 
 
Net assets acquired
 
111,077

 
Goodwill
 
86,760

 
Purchase price
 
$
197,837

 


15 VF Corporation Q1 2019 Form 10-Q


The goodwill is attributable to the acquired workforce of Icebreaker and the significant synergies expected to arise as a result of the acquisition. All of the goodwill has been assigned to the Outdoor segment and none is expected to be deductible for tax purposes.
The Icebreaker® trademark, which management determined to have an indefinite life, has been valued at $70.1 million. Amortizable intangible assets have been assigned values of $27.8 million for customer relationships and $0.2 million for distribution agreements. Customer relationships are being amortized using an accelerated method over 11.5 years. Distribution agreements are being amortized on a straight-line basis over four years.
Total transaction expenses for the Icebreaker acquisition of $7.4 million have been recognized in the selling, general and administrative expenses line item in the Consolidated Statements of Income, of which $4.1 million was recognized during the three months ended June 2018. In addition, the Company has recognized a $9.9 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 $0.3 million was recognized during the three months ended June 2018.
Pro forma results of operations of the Company would not be materially different as a result of the Icebreaker acquisition and therefore are not presented.
 
Altra

On June 1, 2018, VF acquired 100% of the stock of Icon-Altra LLC, plus certain assets in Europe ("Altra"). The purchase price was $131.7 million in cash, subject to working capital and other adjustments and was primarily funded with short-term borrowings.
Altra®, the primary brand, is an athletic and performance-based lifestyle footwear brand, based in Logan, Utah. Altra provides VF with a unique and differentiated technical footwear brand and a capability that, when applied across VF's footwear, direct-to-consumer and international platforms, will serve as a catalyst for growth.
For the three months ended June 2018, Altra contributed revenues of $4.0 million and net income of $0.1 million.
The Altra acquisition occurred late in the first quarter of Fiscal 2019, and VF is still in the process of valuing the assets acquired and liabilities assumed. Accordingly, the allocation of the purchase price is preliminary and subject to change, primarily for final adjustments to net working capital, income tax and limited other valuation matters. Adjustments may be made to the values of the acquired assets and liabilities as additional information is obtained about the facts and circumstances that existed at the valuation date.
The following table summarizes the estimated fair values of the Altra assets acquired and liabilities assumed at the date of acquisition:
(In thousands)
 
June 1, 2018
 
Accounts receivable
 
$
10,101

 
Inventories
 
9,434

 
Other current assets
 
575

 
Property, plant and equipment
 
1,214

 
Intangible assets
 
59,700

 
Total assets acquired
 
81,024

 
 
 
 
 
Accounts payable
 
5,068

 
Other current liabilities
 
7,415

 
Total liabilities assumed
 
12,483

 
 
 
 
 
Net assets acquired
 
68,541

 
Goodwill
 
63,122

 
Purchase price
 
$
131,663

 

The goodwill is attributable to the significant growth and synergies expected to arise as a result of the acquisition. All of the goodwill was assigned to the Outdoor segment and is expected to be deductible for tax purposes. The Altra® trademark, which management determined to have an indefinite life, has been valued at $46.4 million. Amortizable intangible assets have been assigned values of $13.0 million for customer relationships and $0.3 million for distribution agreements. Customer relationships are being amortized using an accelerated method over 15 years. Distribution agreements are being amortized on a straight-line basis over four years.
 
Total transaction expenses for the Altra acquisition of $2.3 million have been recognized in the selling, general and administrative expenses line item in the Consolidated Statements of Income during the three months ended June 2018.
Pro forma results of operations of the Company would not be materially different as a result of the Altra acquisition and therefore are not presented.

VF Corporation Q1 2019 Form 10-Q 16



NOTE 5 — 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
During the three months ended December 30, 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 has reported the results of the Nautica® brand business as discontinued operations in the Consolidated Statements of Income and presented the related assets and liabilities as held-for-sale in the Consolidated Balance Sheets. These changes have been applied for all periods presented.
On April 30, 2018, VF completed the sale of the Nautica® brand business for $289.1 million in cash. The estimated after-tax loss on sale is $38.6 million, which is subject to working capital and other adjustments.
The results of the Nautica® brand's North America business were previously reported in the former Sportswear segment, and the results of the Asia business were previously reported in the former Outdoor & Action Sports segment. The results of the Nautica® brand business recorded in the income from discontinued operations, net of tax line item in the Consolidated Statements of Income were income of $0.4 million (including a $5.0 million decrease in the estimated loss on sale) for the three months ended June 2018 and income of $7.8 million for the three months ended June 2017.
Certain corporate overhead costs and segment 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. Revenue and expense items associated with the transition services are recorded in the other category included in the reconciliation of segment revenues and segment profit in Note 14.
Licensing Business
During the three months ended April 1, 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 has reported the results of the businesses as discontinued operations in the Consolidated Statements of Income and presented 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 the former Imagewear segment. 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, resulting in a final after-tax loss on sale of $4.1 million, of which $3.0 million is included in the income from discontinued operations, net of tax line item in the Consolidated Statements of Income for the three months ended June 2017.
The LSG results recorded in the income from discontinued operations, net of tax line item in the Consolidated Statements of Income were losses of $4.6 million (including a $3.0 million adjustment to the estimated loss on sale) for the three months ended June 2017.
During the three months ended December 30, 2017, VF completed the sale of the assets associated with the JanSport® brand collegiate business, which was previously included within the former Outdoor & Action Sports segment. The Company received net proceeds of $1.5 million and recorded a final after-tax loss on sale of $0.2 million, of which a $0.2 million gain is included in the income from discontinued operations, net of tax line item in the Consolidated Statements of Income for the three months ended June 2017.
The JanSport® brand collegiate results recorded in the income from discontinued operations, net of tax line item in the Consolidated Statements of Income were losses of $0.4 million (including a $0.2 million decrease to the estimated loss on sale) for the three months ended June 2017.
Certain corporate overhead and other costs previously allocated to the Licensing 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 is providing certain support services for periods up to 24 months from the closing date of the transaction. Revenue and expense items associated with the transition services are primarily recorded in the Work segment.

17 VF Corporation Q1 2019 Form 10-Q


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 income from discontinued operations, net of tax line item in the Consolidated Statements of Income:
 
 
Three Months Ended June
(In thousands)
 
2018
 
 
2017
Revenues
 
$
21,913

 
 
$
123,456

Cost of goods sold
 
14,706

 
 
70,906

Selling, general and administrative expenses
 
12,391

 
 
45,602

Interest expense, net
 

 
 
(7
)
Other income, net
 
272

 
 
5

Income (loss) from discontinued operations before income taxes
 
(4,912
)
 
 
6,946

Gain (loss) on the sale of discontinued operations before income taxes
 
4,206

 
 
(6,386
)
Total income (loss) from discontinued operations before income taxes
 
(706
)
 
 
560

Income tax benefit
 
1,111

 
 
2,237

Income from discontinued operations, net of tax
 
$
405

 
 
$
2,797

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)
 
June 2018
 
 
March 2018
 
June 2017
Cash
 
$

 
 
$
2,330

 
$
497

Accounts receivable, net
 

 
 
26,298

 
12,101

Inventories
 

 
 
55,610

 
49,920

Other current assets
 

 
 
1,247

 
864

Property, plant and equipment, net
 

 
 
15,021

 
16,266

Intangible assets
 

 
 
262,202

 
264,348

Goodwill
 

 
 
49,005

 
153,656

Other assets
 

 
 
3,961

 
2,831

Allowance to reduce assets to estimated fair value, less costs to sell
 

 

(42,094
)
 

Total assets of discontinued operations (a)
 
$

 
 
$
373,580

 
$
500,483

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$

 
 
$
11,619

 
$
10,428

Accrued liabilities
 

 
 
10,658

 
15,293

Other liabilities
 

 
 
11,912

 
12,311

Deferred income tax liabilities (b)
 

 
 
51,838

 
77,731

Total liabilities of discontinued operations (a)
 
$

 
 
$
86,027

 
$
115,763

(a) 
Amounts at June 2017 related to the Nautica® brand business 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.

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 $3.1 million for the three months ended June 2017.

VF Corporation Q1 2019 Form 10-Q 18



NOTE 6 — 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 June 2018 and 2017, VF sold total accounts receivable of $317.6 million and $299.7 million, respectively. As of
 
June 2018March 2018 and June 2017, $212.8 million, $191.2 million and $199.3 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 $1.6 million and $1.0 million for the three months ended June 2018 and 2017, respectively. Net proceeds of this program are classified in operating activities in the Consolidated Statements of Cash Flows.
NOTE 7 — INVENTORIES
(In thousands)
 
June 2018
 
 
March 2018
 
June 2017
Finished products
 
$
1,766,072

 
 
$
1,654,137

 
$
1,462,010

Work-in-process
 
116,935

 
 
103,757

 
101,728

Raw materials
 
110,818

 
 
103,547

 
99,314

Total inventories
 
$
1,993,825

 
 
$
1,861,441

 
$
1,663,052

NOTE 8 — INTANGIBLE ASSETS
 
 
 
 
 
 
 
June 2018
 
 
March 2018
(In thousands)
 
Weighted
Average
Amortization
Period
 
Amortization
Method
 
 
Cost
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
 
Net
Carrying
Amount
Amortizable intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
17 years
 
Accelerated
 
 
$
370,718

 
$
143,481

 
$
227,237

 
 
$
201,544

License agreements
 
20 years
 
Accelerated
 
 
19,798

 
13,894

 
5,904

 
 
6,256

Trademarks
 
16 years
 
Straight-line
 
 
58,932

 
9,283

 
49,649

 
 
50,623

Other
 
8 years
 
Straight-line
 
 
9,287

 
4,191

 
5,096

 
 
5,170

Amortizable intangible assets, net
 
 
 
 
 
 
 
 
287,886

 
 
263,593

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks and trade names
 
 
 
 
 
 
 
 
1,896,390

 
 
1,856,517

Intangible assets, net
 
 
 
 
 
 
 
 
 
 
$
2,184,276

 
 
$
2,120,110


Intangible assets increased during the three months ended June 2018 due to the addition of intangible assets from the Icebreaker and Altra acquisitions, which was partially offset by the impact of foreign currency fluctuations.
Amortization expense for the three months ended June 2018 was $7.9 million. Based on the carrying amounts of amortizable intangible assets noted above, estimated amortization expense for the next five years beginning in Fiscal 2019 is $33.5 million, $32.8 million, $31.2 million, $29.2 million and $27.6 million, respectively.
Rock & Republic® Impairment Analysis
The Rock & Republic® brand has an exclusive wholesale distribution and licensing arrangement with Kohl's Corporation that covers all branded apparel, accessories and other merchandise. As of June 30, 2018, VF performed a quantitative impairment analysis of the
 
Rock & Republic® amortizing trademark intangible asset to determine if the carrying value was recoverable. We determined this testing was necessary based on the expectation that certain customer contract terms would be modified. Management used the income-based relief-from-royalty method and the contractual 4% royalty rate to calculate the pre-tax undiscounted future cash flows. Based on the analysis performed, management concluded that the trademark intangible asset does not require further testing as the undiscounted cash flows exceeded the carrying value of $49.0 million.
It is possible that VF's conclusion regarding the recoverability of the intangible asset could change in future periods as there can be no assurance that the estimates and assumptions used in the analysis as of June 30, 2018 will prove to be accurate predictions of the future.


19 VF Corporation Q1 2019 Form 10-Q


NOTE 9 — GOODWILL
Changes in goodwill are summarized by reportable segment as follows:
(In thousands)
Outdoor
 
Active
 
Work
 
Jeans
 
Total
Balance, March 2018
$
844,726

 
$
463,187

 
$
172,472

 
$
212,834

 
$
1,693,219

Fiscal 2019 acquisitions
149,882

 

 

 

 
149,882

Currency translation
(8,820
)
 
(12,772
)
 
(1,193
)
 
(4,154
)
 
(26,939
)
Balance, June 2018
$
985,788

 
$
450,415

 
$
171,279

 
$
208,680

 
$
1,816,162


In connection with the realignment of the Company's segment reporting structure, the Company allocated goodwill to any newly identified reporting units using a relative fair value approach as of the first day of the first quarter of Fiscal 2019. Balances as of March 2018 have been retrospectively adjusted to reflect the reallocation.
 
Refer to Note 14 for additional information regarding the Company's reportable segments.
Accumulated impairment charges for the Active segment were $31.1 million as of June 2018 and March 2018. No impairment charges were recorded during the three months ended June 2018.
NOTE 10 - PENSION PLANS
The components of pension cost for VF’s defined benefit plans were as follows:
 
 
Three Months Ended June
(In thousands)
 
2018
 
 
2017
Service cost – benefits earned during the period
 
$
6,224

 
 
$
6,115

Interest cost on projected benefit obligations
 
16,013

 
 
14,709

Expected return on plan assets
 
(23,834
)
 
 
(23,797
)
Pension settlement charges
 
6,842

 
 

Pension curtailment losses
 
9,483

 
 

Amortization of deferred amounts:
 
 
 
 
 
Net deferred actuarial losses
 
8,822

 
 
10,002

Deferred prior service costs
 
669

 
 
645

Net periodic pension cost
 
$
24,219

 
 
$
7,674

The amounts reported in these disclosures have not been segregated between continuing and discontinued operations.

On April 1, 2018, VF adopted ASU 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost", which requires the Company to disaggregate the service cost component from other components of net periodic pension cost. Accordingly, in the Consolidated Statements of Income, VF has reported the service cost component within operating income and the other components of net periodic pension cost (which include interest cost, expected return on plan assets, amortization of prior service costs or credits and actuarial gains and losses) in the other income (expense), net line item.
VF contributed $21.7 million to its defined benefit plans during the three months ended June 2018, and intends to make approximately $20.1 million of contributions during the remainder of Fiscal 2019.
 
In the first quarter of Fiscal 2019, VF approved a freeze of all future benefit accruals under the U.S. qualified defined benefit pension plan and the supplemental defined benefit pension plan, effective December 31, 2018. Accordingly, the Company recognized a $9.5 million pension curtailment loss in the other income (expense), net line item in the Consolidated Statement of Income for the three months ended June 2018. Actuarial valuations were obtained as of June 30, 2018.
Additionally, VF reported $6.8 million in settlement charges in the other income (expense), net line item in the Consolidated Statement of Income for the three months ended June 2018 related to the recognition of deferred actuarial losses resulting from lump sum payments of retirement benefits in the supplemental defined benefit pension plan. An actuarial valuation was obtained as of April 30, 2018 ("April 2018").
Actuarial assumptions used in the interim valuations were reviewed and revised as appropriate. The discount rates used to determine pension obligations were as follows:
 
 
June 2018
 
April 2018
 
U.S. qualified defined benefit pension plan
 
4.25
%
 
N/A

 
Supplemental defined benefit pension plan
 
4.24
%
 
4.22
%
 

VF Corporation Q1 2019 Form 10-Q 20



NOTE 11 — CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Common Stock

During the three months ended June 2018, the Company did not purchase shares of Common Stock in open market transactions under its share repurchase program authorized by VF’s Board of Directors.
Common Stock outstanding is net of shares held in treasury which are, in substance, retired. There were no shares held in treasury at the end of June 2018, March 2018 or June 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 June 2018, the Company did not purchase shares of Common Stock in open market transactions related to its deferred compensation plans.

Balances related to shares held for deferred compensation plans were as follows:
(In thousands, except share amounts)
 
June 2018
 
 
March 2018
 
June 2017
Shares held for deferred compensation plans
 
210,124

 
 
284,785

 
343,975

Cost of shares held for deferred compensation plans
 
$
2,663

 
 
$
3,621

 
$
4,167


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)
 
June 2018
 
 
March 2018
 
June 2017
Foreign currency translation and other
 
$
(651,739
)
 
 
$
(476,869
)
 
$
(633,209
)
Defined benefit pension plans
 
(230,517
)
 
 
(289,618
)
 
(275,089
)
Derivative financial instruments
 
178

 
 
(97,543
)
 
(22,299
)
Accumulated other comprehensive income (loss)
 
$
(882,078
)
 
 
$
(864,030
)
 
$
(930,597
)
The changes in accumulated OCI, net of related taxes, are as follows:
 
Three Months Ended June 2018
(In thousands)
Foreign Currency Translation and Other
 
Defined Benefit Pension Plans
 
Derivative Financial Instruments
 
Total
Balance, March 2018
$
(476,869
)
 
$
(289,618
)
 
$
(97,543
)
 
$
(864,030
)
Other comprehensive income (loss) before reclassifications
(174,870
)
 
40,228

 
83,271

 
(51,371
)
Amounts reclassified from accumulated other comprehensive income (loss)

 
18,873

 
14,450

 
33,323

Net other comprehensive income (loss)
(174,870
)
 
59,101

 
97,721

 
(18,048
)
Balance, June 2018
$
(651,739
)
 
$
(230,517
)
 
$
178

 
$
(882,078
)
 
 
Three Months Ended June 2017
(In thousands)
Foreign Currency Translation and Other
 
Defined Benefit Pension Plans
 
Derivative Financial Instruments
 
Total
Balance, March 2017
$
(742,281
)
 
$
(281,721
)
 
$
35,962

 
$
(988,040
)
Other comprehensive income (loss) before reclassifications
109,072

 

 
(48,476
)
 
60,596

Amounts reclassified from accumulated other comprehensive income (loss)

 
6,632

 
(9,785
)
 
(3,153
)
Net other comprehensive income (loss)
109,072

 
6,632

 
(58,261
)
 
57,443

Balance, June 2017
$
(633,209
)
 
$
(275,089
)
 
$
(22,299
)
 
$
(930,597
)