Quarterly report pursuant to Section 13 or 15(d)

Discontinued Operations

v3.7.0.1
Discontinued Operations
 3 Months Ended
Apr. 01, 2017
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
Discontinued Operations
Divestiture of the Licensing Business
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. In the first quarter of 2016, the Company began exploring strategic options for our LSG business.
On April 3, 2017, VF signed a definitive agreement to sell LSG to Fanatics, Inc. for $225.0 million in cash, subject to working capital adjustments. The sale transaction was completed on April 28, 2017. LSG includes the Majestic® brand, which supplies apparel and fanware through licensing agreements with U.S. and international professional sports leagues and teams, and was previously included within our Imagewear coalition. Under the terms of the transition services agreement, the Company will provide certain support services for periods ranging from three to 24 months from the closing date of the transaction.
In conjunction with the LSG divestiture, VF executed its plan to entirely exit all of its licensing businesses and hold the assets of the JanSport® collegiate licensing business for sale. The JanSport® collegiate business was previously included within our Outdoor & Action Sports coalition.
Management determined that the expected disposals met the criteria for presentation as discontinued operations in the first quarter of 2017. Accordingly, the results of the Licensing Business have been presented as discontinued operations in VF’s Consolidated Statements of Income beginning in the first quarter of 2017, and thus have been excluded from continuing operations and segment results for all periods presented. In addition, the related assets and liabilities of the Licensing Business have been classified as held-for-sale in VF’s Consolidated Balance Sheets for all periods presented. Certain corporate overhead and other costs previously allocated to this business for segment reporting purposes do not qualify for classification within discontinued operations and have been reallocated to continuing operations. In the first quarter of 2017, the Company recognized an after-tax estimated loss on the sale of the Licensing Business of $2.4 million, which is included in the income (loss) from discontinued operations, net of tax line item in the Consolidated Statement of Income.
Divestiture of the Contemporary Brands Coalition
On August 26, 2016, VF completed the sale of its Contemporary Brands coalition to Delta Galil Industries, Ltd. for $116.9 million. The Contemporary Brands coalition included the businesses of the 7 For All Mankind®, Splendid®, and Ella Moss® brands (the “Businesses”) and was previously disclosed as a separate reportable segment of VF.
The transaction resulted in an after-tax loss on sale of $104.4 million which was included in the loss from discontinued operations, net of tax line item in the 2016 Consolidated Statement of Income.
VF has reported the results of the Businesses in the income (loss) from discontinued operations, net of tax line item in the Consolidated Statement of Income for the quarter ended March 2016 and excluded them from continuing operations and segment results. The after-tax income included in income (loss) from discontinued operations for the first quarter of 2016 was $3.4 million. The assets and liabilities of the Businesses have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheet at March 2016.
Certain corporate overhead costs and interest expense previously allocated to the Contemporary Brands coalition for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations for the periods presented.
VF is providing certain support services under transition services agreements for a limited period of time. These support services did not have a material impact on VF’s Consolidation Statement of Income for the three months ended March 2017.
Summarized Discontinued Operations Financial Information
The following table summarizes the major line items included in the income (loss) from discontinued operations for the divestitures of the Licensing Business and Contemporary Brands coalition:
 
Three Months Ended March
In thousands
2017
 
2016
Revenues
$
121,330

 
$
204,883

Cost of goods sold
88,221

 
121,306

Selling, general and administrative expenses
25,637

 
59,122

Interest expense, net
(18
)
 
(135
)
Other income (expense), net
—

 
(2
)
Income from discontinued operations before income taxes
7,454

 
24,318

Estimated loss on the disposal of discontinued operations before income taxes
(3,531
)
 
—

Total income from discontinued operations before income taxes
3,923

 
24,318

Income tax expense(a)
(9,439
)
 
(5,984
)
Income (loss) from discontinued operations, net of tax
$
(5,516
)
 
$
18,334

(a) 
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 2017
 
December 2016
 
March 2016
Accounts receivable, net
$
44,281

 
$
36,285

 
$
71,113

Inventories
94,718

 
98,025

 
148,812

Other current assets, including cash and equivalents
14,650

 
1,535

 
7,849

Property, plant and equipment
11,696

 
13,640

 
56,017

Intangible assets
40,164

 
42,427

 
212,852

Goodwill
28,636

 
28,636

 
28,636

Other assets
921

 
692

 
4,297

Total assets of discontinued operations(a)
$
235,066

 
$
221,240

 
$
529,576

Accounts payable
$
21,789

 
$
21,674

 
$
21,538

Accrued liabilities
2,849

 
13,531

 
8,767

Other liabilities
763

 
791

 
11,504

Deferred income tax liabilities(b)
(4,080
)
 
(4,081
)
 
(4,140
)
Total liabilities of discontinued operations(a)
$
21,321

 
$
31,915

 
$
37,669

(a) 
Amounts at December 2016 and March 2016 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 $3.0 million and $4.8 million for the three months ended March 2017 and 2016, respectively.