Quarterly report pursuant to Section 13 or 15(d)

Discontinued Operations

v3.7.0.1
Discontinued Operations
 6 Months Ended
Jul. 01, 2017
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
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.
Divestiture of the Licensing Business
On April 28, 2017, VF completed the sale of LSG to Fanatics, Inc. for $225.0 million in cash, subject to working capital adjustments.  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. Revenue and expense items associated with the transition services are primarily recorded in the Imagewear coalition.
Through the end of the second quarter of 2017, VF has received net proceeds of $208.2 million and recorded an estimated after-tax loss on sale of $4.4 million, which is included in the loss from discontinued operations, net of tax line item in the Consolidated Statements of Income for the first six months of 2017. The adjustment to the estimated after-tax loss on sale was $3.0 million in the second quarter of 2017. VF expects to finalize the working capital adjustments during the third quarter of 2017.
Beginning in the first quarter of 2017, VF has reported the results of LSG in the loss from discontinued operations, net of tax line item in the Consolidated Statements of Income; accordingly the results have been excluded from continuing operations and segment results for all periods presented. The LSG results, including the estimated loss on sale, recorded in the loss from discontinued operations, net of tax line item were losses of $4.6 million and $4.9 million for the second quarter and first six months of 2017, respectively, and income of $11.8 million and $27.0 million for the second quarter and first six months of 2016, respectively. Prior to the sale, the related assets and liabilities of LSG were reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets.
In conjunction with the LSG divestiture, VF executed its plan to entirely exit all of its licensing businesses, and has classified the assets of the JanSport® brand collegiate business as held-for-sale in VF’s Consolidated Balance Sheets for all periods presented. The assets of the JanSport® brand collegiate business are recorded at their fair value of $0.3 million at June 2017.
Management determined that the expected sale of the JanSport® brand collegiate business met the criteria for presentation as discontinued operations in the first quarter of 2017. Accordingly, the results of the JanSport® brand collegiate 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. The JanSport® brand collegiate results, including the estimated loss on sale, recorded in the loss from discontinued operations, net of tax line item were losses of $0.4 million and $5.6 million for the second quarter and first six months of 2017, respectively, and losses of $0.0 million and $0.3 million for the second quarter and first six months of 2016, respectively. The JanSport® brand collegiate business was previously included within our Outdoor & Action Sports coalition.
Certain corporate overhead and other costs previously allocated to the licensing business for segment reporting purposes do not qualify for classification within discontinued operations and have been reallocated to continuing operations. 
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, $100.6 million of which was included in the loss from discontinued operations, net of tax line item in the Consolidated Statements of Income for the second quarter and first half of 2016.
VF has reported the results of the Businesses as discontinued operations for the second quarter and first six months of 2016 and excluded them from continuing operations and segment results. The results of the Businesses, including the loss on sale, recorded in the loss from discontinued operations, net of tax line item for the second quarter and first six months of 2016 were losses of $97.3 million and $93.9 million, respectively. The assets and liabilities of the Businesses have been reported as current assets and liabilities of discontinued operations in the Consolidated Balance Sheet at June 2016.
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 six months ended June 2017.
Summarized Discontinued Operations Financial Information
The following table summarizes the major line items included in the loss from discontinued operations for the divestitures of the Licensing Business and Contemporary Brands coalition:
 
Three Months Ended June
 
Six Months Ended June
In thousands
2017
 
2016
 
2017
 
2016
Revenues
$
32,495

 
$
195,072

 
$
153,825

 
$
399,955

Cost of goods sold
26,371

 
113,033

 
114,592

 
234,339

Selling, general and administrative expenses
9,081

 
62,738

 
34,718

 
121,860

Interest expense, net
(7
)
 
(27
)
 
(25
)
 
(162
)
Other income (expense), net
—

 
(2
)
 
—

 
(4
)
Income (loss) from discontinued operations before income taxes
(2,964
)
 
19,272

 
4,490

 
43,590

Estimated loss on the sale of discontinued operations before income taxes
(6,386
)
 
(149,836
)
 
(9,917
)
 
(149,836
)
Total loss from discontinued operations before income taxes
(9,350
)
 
(130,564
)
 
(5,427
)
 
(106,246
)
Income tax (expense) benefit(a)
4,374

 
45,086

 
(5,065
)
 
39,102

Loss from discontinued operations, net of tax
$
(4,976
)
 
$
(85,478
)
 
$
(10,492
)
 
$
(67,144
)
(a) 
Income tax (expense) benefit for the three and six months ended June 2017 includes $1.1 million and $8.6 million, respectively, 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
June 2017
 
December 2016
 
June 2016
Accounts receivable, net
$
—

 
$
36,285

 
$
68,803

Inventories
—

 
98,025

 
166,448

Other current assets, including cash and equivalents
—

 
1,535

 
6,290

Property, plant and equipment
315

 
13,640

 
53,702

Intangible assets
—

 
42,427

 
210,814

Goodwill
—

 
28,636

 
28,636

Other assets
—

 
692

 
3,923

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


—

 
(149,836
)
Total assets of discontinued operations(a)
$
315

 
$
221,240

 
$
388,780

Accounts payable
$
—

 
$
21,674

 
$
30,339

Accrued liabilities
—

 
13,531

 
10,512

Other liabilities
—

 
791

 
11,365

Deferred income tax liabilities(b)
—

 
(4,081
)
 
(4,140
)
Total liabilities of discontinued operations(a)
$
—

 
$
31,915

 
$
48,076

(a) 
Amounts at December 2016 and June 2016 have been classified as current and long-term in the Consolidated Balance Sheets for the licensing business.
(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 $8.1 million for the six months ended June 2017 and 2016, respectively.