VF Corporation Transition report pursuant to Rule 13a-10 or 15d-10

Transition report pursuant to Rule 13a-10 or 15d-10

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS

3 Months Ended

Mar. 31, 2018

Discontinued Operations and Disposal Groups [Abstract]

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 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.