Quarterly report pursuant to Section 13 or 15(d)

RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS

v3.10.0.1
RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS
 6 Months Ended
Sep. 29, 2018
Accounting Changes and Error Corrections [Abstract]  
RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS
RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS

Recently Adopted Accounting Standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 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 Topic 606 ("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 Sheet. 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 Statements of Income. Refer to Note 3 for additional revenue disclosures.
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
 
 
 
 
 
 
September 2018
(In thousands)
As Reported
 
Impact of Adoption
 
Balances without Adoption of ASC 606
ASSETS
 
 
 
 
 
Cash and equivalents
$
352,781

 
$
—

 
$
352,781

Accounts receivable, net
2,196,064

 
(231,161
)
 
1,964,903

Inventories
2,247,908

 
70,451

 
2,318,359

Other current assets
621,201

 
(61,518
)
 
559,683

Total current assets
5,417,954

 
(222,228
)
 
5,195,726

Property, plant and equipment, net
1,035,671

 
—

 
1,035,671

Goodwill and intangible assets, net
3,846,913

 
—

 
3,846,913

Other assets
829,887

 
348

 
830,235

TOTAL ASSETS
$
11,130,425

 
$
(221,880
)
 
$
10,908,545

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
Short-term borrowings and current portion of long-term debt
$
1,576,401

 
$
—

 
$
1,576,401

Accounts payable
732,453

 
—

 
732,453

Accrued liabilities
1,199,842

 
(211,325
)
 
988,517

Total current liabilities
3,508,696

 
(211,325
)
 
3,297,371

Long-term debt
2,150,595

 
—

 
2,150,595

Other liabilities
1,291,578

 
(1,545
)
 
1,290,033

Total liabilities
6,950,869

 
(212,870
)
 
6,737,999

Total stockholders' equity
4,179,556

 
(9,010
)
 
4,170,546

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
11,130,425

 
$
(221,880
)
 
$
10,908,545

Condensed Consolidated Statements of Income
 
Three Months Ended September 2018
 
 
Six Months Ended September 2018
(In thousands)
As Reported
 
Impact of Adoption
 
Balances without Adoption of ASC 606
 
 
As Reported
 
Impact of Adoption
 
Balances without Adoption of ASC 606
Net revenues
$
3,907,386

 
$
(6,288
)
 
$
3,901,098

 
 
$
6,695,532

 
$
(15,983
)
 
$
6,679,549

Cost of goods sold
1,950,601

 
(7,599
)
 
1,943,002

 
 
3,335,578

 
(20,405
)
 
3,315,173

Selling, general and administrative expenses
1,298,116

 
5,218

 
1,303,334

 
 
2,470,403

 
8,794

 
2,479,197

Total costs and operating expenses
3,248,717

 
(2,381
)
 
3,246,336

 
 
5,805,981

 
(11,611
)
 
5,794,370

Operating income
658,669

 
(3,907
)
 
654,762

 
 
889,551

 
(4,372
)
 
885,179

Interest income (expense) and other income (expense), net
(59,568
)
 
—

 
(59,568
)
 
 
(104,118
)
 
—

 
(104,118
)
Income from continuing operations before income taxes
599,101

 
(3,907
)
 
595,194

 
 
785,433

 
(4,372
)
 
781,061

Income taxes
91,980

 
(692
)
 
91,288

 
 
118,359

 
(774
)
 
117,585

Income from continuing operations
507,121

 
(3,215
)
 
503,906

 
 
667,074

 
(3,598
)
 
663,476

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

 
—

 
—

 
 
405

 
(3,456
)
 
(3,051
)
Net income
$
507,121

 
$
(3,215
)
 
$
503,906

 
 
$
667,479

 
$
(7,054
)
 
$
660,425

Condensed Consolidated Statement of Cash Flows - Operating Activities
 
Six Months Ended September 2018
(In thousands)
As Reported
 
Impact of Adoption
 
Activities without Adoption of ASC 606
OPERATING ACTIVITIES
 
 
 
 
 
Net income
$
667,479

 
$
(7,054
)
 
$
660,425

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
144,995

 
173

 
145,168

Other adjustments, net
113,715

 
3,456

 
117,171

Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
(837,808
)
 
223,528

 
(614,280
)
Inventories
(433,351
)
 
(65,680
)
 
(499,031
)
Accounts payable
150,613

 
—

 
150,613

Income taxes
(91,579
)
 
(774
)
 
(92,353
)
Accrued liabilities
384,211

 
(207,414
)
 
176,797

Other assets and liabilities
4,676

 
53,765

 
58,441

Cash provided by operating activities
$
102,951

 
$
—

 
$
102,951

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 No. 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 and six months ended September 2018 and the three months ended March 2018. Refer to Note 13 for more information regarding the amounts recorded.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities", an update to the 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 became effective for VF in the second quarter of Fiscal 2019, but did not impact VF's consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-04, "Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products", an update to the 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 No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments", an update to the 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 No. 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 subsequent to the adoption date, 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 No. 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, VF reported increases in operating income and non-operating expense of $1.5 million and $3.1 million for the three and six months ended September 2017, respectively. 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 retrospective presentation requirements. Refer to pension disclosure in Note 10.
In May 2017, the FASB issued ASU No. 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 No. 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 nearing completion of the implementation phase which included collecting information from lease contracts, assessing potential embedded leases, evaluating accounting policy elections and implementing a new lease management system. Additionally, VF is updating processes and internal controls over systems and financial reporting to respond to relevant risks associated with the new standard including the preparation of the required financial information and new disclosures. 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, if any, at the beginning of the period of adoption.
In June 2016, the FASB issued ASU No. 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 No. 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 does not expect the accounting policy election to have a material impact on VF's consolidated financial statements. The Company has considered the taxes resulting from GILTI as a current-period expense for the three and six months ended September 2018.
In February 2018, the FASB issued ASU No. 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 No. 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 No. 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 update; however, many of them 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.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement", an update that modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The guidance will be effective for VF in the first quarter of Fiscal 2021 with early adoption permitted. The Company is evaluating the impact that adopting this guidance will have on VF's disclosures.
In August 2018, the FASB issued ASU No. 2018-14, "Compensation— Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans", an update that modifies the disclosure requirements for employers who sponsor defined benefit pension or other postretirement plans. The guidance will be effective for VF in Fiscal 2021 with early adoption permitted. The Company is evaluating the impact that adopting this guidance will have on VF's disclosures.
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract", an update that aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance will be effective for VF in the first quarter of Fiscal 2021 with early adoption permitted. The Company is evaluating the impact that adopting this guidance will have on VF's consolidated financial statements.