VF Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

DISCONTINUED OPERATIONS AND OTHER DIVESTITURES

DISCONTINUED OPERATIONS AND OTHER DIVESTITURES

6 Months Ended

Sep. 29, 2018

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONS AND OTHER DIVESTITURES

The Company continuously assesses the composition of its portfolio to ensure it is aligned with its strategic objectives and positioned to maximize growth and return to shareholders.

Discontinued Operations

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 held-for-sale assets and liabilities as assets and liabilities of discontinued operations in the Consolidated Balance Sheets through the date of sale.

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 (loss) 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 six months ended September 2018, and losses of $87.1 million and $79.3 million for the three and six months ended September 2017, respectively, including a $104.7 million impairment charge recorded during the three months ended September 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 related expense items associated with the transition services are recorded in the Other category, and operating expense reimbursements are recorded within the corporate and other expenses line item, 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 held-for-sale assets and liabilities as assets and liabilities of discontinued operations in the Consolidated Balance Sheets through their respective dates of sale.

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 $2.7 million is included in the income (loss) from discontinued operations, net of tax line item in the Consolidated Statements of Income for the six months ended September 2017. The final adjustment to the after-tax loss on sale was $0.3 million in the three months ended September 2017.

The LSG results recorded in the income (loss) from discontinued operations, net of tax line item in the Consolidated Statements of Income were income of $0.3 million (including a $0.3 million adjustment to the estimated loss on sale) and losses of $4.3 million (including a $2.7 million adjustment to the estimated loss on sale) for the three and six months ended September 2017, respectively.

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 (loss) from discontinued operations, net of tax line item in the Consolidated Statements of Income for the six months ended September 2017.

The JanSport^® brand collegiate results recorded in the income (loss) from discontinued operations, net of tax line item in the Consolidated Statements of Income were losses of $0.9 million and $1.3 million (including a $0.2 million decrease to the estimated loss on sale) for the three and six months ended September 2017, respectively.

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 related expense items associated with the transition services are recorded in the Work segment, and operating expense reimbursements are recorded within the corporate and other expenses line item in the reconciliation of segment revenues and segment profit in Note 14.

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 (loss) from discontinued operations, net of tax line item in the Consolidated Statements of Income:



	Three Months Ended September					Six Months Ended September

(In thousands)	2018		2017			2018			2017
Net revenues	$	—	$	122,382		$	21,913		$	245,838
Cost of goods sold	—		69,287			14,706			140,193
Selling, general and administrative expenses	—		39,867			12,391			85,469
Impairment of goodwill	—		104,651			—			104,651
Interest expense, net	—		(1		)	—			(8		)
Other income, net	—		3			272			8
Loss from discontinued operations before income taxes	—		(91,421		)	(4,912		)	(84,475		)
Gain (loss) on the sale of discontinued operations before income taxes	—		411			4,206			(5,975		)
Total loss from discontinued operations before income taxes	—		(91,010		)	(706		)	(90,450		)
Income tax benefit	—		3,330			1,111			5,567
Income (loss) from discontinued operations, net of tax	$	—	$	(87,680	)	$	405		$	(84,883	)

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)	September 2018		March 2018			September 2017
Cash	$	—	$	2,330		$	593
Accounts receivable, net	—		26,298			36,232
Inventories	—		55,610			66,112
Other current assets	—		1,247			1,034
Property, plant and equipment, net	—		15,021			15,861
Intangible assets	—		262,202			263,349
Goodwill	—		49,005			49,005
Other assets	—		3,961			2,984
Allowance to reduce assets to estimated fair value, less costs to sell	—		(42,094		)	—
Total assets of discontinued operations ^(a)	$	—	$	373,580		$	435,170


Accounts payable	$	—	$	11,619		$	21,726
Accrued liabilities	—		10,658			15,074
Other liabilities	—		11,912			12,192
Deferred income tax liabilities ^(b)	—		51,838			77,731
Total liabilities of discontinued operations ^(a)	$	—	$	86,027		$	126,723


^(a)	Amounts at September 2017 related to the Nautica^®brand business have been classified as current and noncurrent 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 for any periods presented. Depreciation and amortization expense was $6.5 million for the six months ended September 2017. An operating noncash item of $104.7 million related to the impairment of goodwill for the Nautica^®brand business is included in the Consolidated Statement of Cash Flows for the six months ended September 2017.

Other Divestitures

Reef^®Brand Business

During the three months ended September 2018, the Company reached the decision to sell the Reef^® brand business, which is included in the Active segment. The Company determined that the associated assets and liabilities met the held-for-sale accounting criteria and they were classified accordingly in the September 2018 Consolidated Balance Sheet. VF recorded an estimated $9.9 million loss based on the anticipated terms of the sale. The loss is included in the other income (expense), net line item in the Consolidated Statement of Income for the three months ended September 2018.

VF signed a definitive agreement for the sale of the Reef^® brand business on October 2, 2018, and completed the transaction on October 26, 2018. VF received cash proceeds of $139.4 million, which are subject to working capital and other adjustments.

Van Moer Business

During the three months ended September 2018, the Company reached the decision to sell the Van Moer business acquired with Williamson-Dickie, which is included in the Work segment. The Company determined that the associated assets and liabilities of the business met the held-for-sale accounting criteria and they were classified accordingly in the September 2018 Consolidated Balance Sheet. VF recorded a $22.4 million loss on the sale which is included in the other income (expense), net line item in the Consolidated Statement of Income for the three months ended September 2018.

On October 5, 2018, VF completed the sale of the Van Moer business, and received cash proceeds of €7.0 million ($8.1 million).

Summarized Held-for-Sale Financial Information

The following table presents the assets and liabilities of the Reef^®brand and Van Moer businesses at September 2018:



(In thousands)	September 2018
Cash	$	2,059
Accounts receivable, net	19,013
Inventories	32,856
Other current assets	1,649
Property, plant and equipment, net	4,859
Intangible assets	83,332
Goodwill	48,381
Other assets	24
Allowance to reduce assets to estimated fair value, less costs to sell	(32,321		)
Total assets held-for-sale	$	159,852

Accounts payable	$	4,030
Accrued liabilities	5,857
Other liabilities	1,471
Total liabilities held-for-sale	$	11,358

Spin-Off of Jeans Business

On August 13, 2018, VF announced its intention to spin-off its Jeans business, which will include the Wrangler^®, Lee^® and Rock & Republic^® brands, as well as the VF Outlet business, into an independent, publicly-traded company. For the three months ended September 2018, the Company incurred $12.5 million of expenses associated with the spin-off, which have been recognized in the selling, general and administrative expenses line item in the Consolidated Statement of Income.