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

9 Months Ended

Dec. 28, 2019

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

Jeans Business

On May 22, 2019, VF completed the spin-off its Jeans business, which included the Wrangler^®, Lee^® and Rock & Republic^® brands, as well as the VF Outlet^TM business, into an independent, publicly traded company now operating under the name Kontoor Brands, Inc. ("Kontoor Brands") and trading under the symbol "KTB" on the New York Stock Exchange. The spin-off was effected through a distribution to VF shareholders of one share of Kontoor Brands common stock for every seven shares of VF common stock held on the record date of May 10, 2019. Accordingly, the Company has reported the results of the Jeans business and the related cash flows as discontinued operations in the Consolidated Statements of Income and Consolidated Statements of Cash Flows, respectively, and presented the related assets and liabilities as assets and liabilities of discontinued operations in the Consolidated Balance Sheets, through the date the spin-off was completed.

In connection with the spin-off, Kontoor Brands entered into a credit agreement with respect to $1.55 billion in senior secured credit facilities consisting of a senior secured five-year $750.0 million term loan A facility, a senior secured seven-year $300.0 million term loan B facility and a five-year $500.0 million senior secured revolving credit facility (collectively, the "Kontoor Credit Facilities"). Prior to the effective date of the spin-off, Kontoor Brands incurred $1.05 billion of indebtedness under the Kontoor Credit Facilities, which was primarily used to fund a transfer of $906.1 million to VF and its subsidiaries, net of $126.8 million of cash received from VF. As a result of the spin-off, VF divested net assets of $54.9 million, including the indebtedness under the Kontoor Credit Facilities. Also included in the net assets divested was $75.3 million of net accumulated other comprehensive losses attributable to the Jeans business, primarily related to foreign currency translation.

The results of the Wrangler^®, Lee^® and Rock & Republic^® brands were previously reported in the Jeans segment, the results of the Wrangler^®RIGGS brand were previously reported in the Work segment, and the results of the non-VF products sold in VF Outlet^TMstores were previously reported in the Other category included in the reconciliation of segment revenues and segment profit. The results of the Jeans business recorded in the income (loss) from discontinued operations, net of tax line item in the Consolidated Statements of Income were income of $12.3 million and a loss of $35.8 million for the three and nine months ended December 2019, respectively, and income of $54.0 million and $243.6 million for the three and nine months ended December 2018, respectively.

Certain corporate overhead costs and segment costs previously allocated to the Jeans business for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations. The results of the Jeans business reported as discontinued operations include $59.5 million of separation and related expenses during the nine months ended December 2019.

In connection with the spin-off of the Jeans business, the Company entered into several agreements with Kontoor Brands that govern the relationship of the parties following the spin-off including the Separation and Distribution Agreement, the Tax Matters Agreement, the Transition Services Agreement, the VF Intellectual Property License Agreement and the Employee Matters Agreement. Under the terms of the Transition Services Agreement, the Company and Kontoor Brands agreed to provide each other certain transitional services including information technology, information management, human resources, employee benefits administration, supply chain, facilities, and other limited finance and accounting related services for periods up to 24 months. Payments and operating expense reimbursements for transition services are recorded within the reportable segments or within the corporate and other expenses line item, in the reconciliation of segment profit in Note 15, based on the function providing the service.

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 and the related cash flows as discontinued operations in the Consolidated Statements of Income and Consolidated Statements of Cash Flows, respectively.

On April 30, 2018, VF completed the sale of the Nautica^® brand business. The Company received proceeds of $285.8 million, net of cash sold, resulting in a final after-tax loss on sale of $38.2 million, of which a $0.4 million and $5.4 million decrease in the estimated loss on sale was included in the income (loss) from discontinued operations, net of tax line item in the Consolidated Statements of Income for the three and nine months ended December 2018, respectively.

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 (reflecting a $0.4 million decrease in the estimated loss on sale) and $0.8 million (including a $5.4 million decrease in the estimated loss on sale) for the three and nine months ended December 2018, respectively.

Under the terms of the transition services agreement, the Company provided certain services for periods up to 12 months from the closing date of the transaction. Revenue and related expense items associated with the transition services were recorded in the Other category, and operating expense reimbursements were recorded within the corporate and other expenses line item, in the reconciliation of segment revenues and segment profit in Note 15.

Summarized Discontinued Operations Financial Information

The following table summarizes the major line items for the Jeans business and Nautica^® brand 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 December					Nine Months Ended December

(In thousands)	2019		2018			2019			2018
Net revenues	$	—	$	712,447		$	335,203		$	2,073,367
Cost of goods sold	—		431,711			203,124			1,231,315
Selling, general and administrative expenses	—		209,651			152,798			544,685
Interest, net	—		1,373			(552		)	3,650
Other income (expense), net	—		(747		)	(667		)	(3,801		)
Income (loss) from discontinued operations before income taxes	—		71,711			(21,938		)	297,216
Gain on the sale of discontinued operations before income taxes	—		383			—			4,589
Total income (loss) from discontinued operations before income taxes	—		72,094			(21,938		)	301,805
Income tax benefit (expense) ^(a)	12,256		(17,705		)	(13,834		)	(57,425		)
Income (loss) from discontinued operations, net of tax	$	12,256	$	54,389		$	(35,772	)	$	244,380


^(a)	Income tax benefit for the three months ended December 2019 reflects a return to accrual adjustment to the previously recorded tax expense. Income tax expense for the nine months ended December 2019 includes additional tax expense on nondeductible transaction costs and uncertain tax positions.

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)	December 2019		March 2019		December 2018
Cash and equivalents	$	—	$	97,892	$	83,334
Accounts receivable, net	—		242,941		208,258
Inventories	—		510,370		464,454
Other current assets	—		44,827		44,444
Property, plant and equipment, net	—		142,091		138,975
Intangible assets	—		51,913		53,059
Goodwill	—		213,570		219,612
Other assets	—		74,144		62,393
Total assets of discontinued operations	$	—	$	1,377,748	$	1,274,529

Short-term borrowings	$	—	$	5,995	$	3,215
Accounts payable	—		113,866		109,272
Accrued liabilities	—		141,621		118,531
Other liabilities	—		48,581		45,896
Total liabilities of discontinued operations	$	—	$	310,063	$	276,914

Other Divestitures

Reef^®Brand Business

During the three months ended September 29, 2018, the Company reached the decision to sell the Reef^® brand business, which was included in the Active segment.

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, and recorded a $14.4 million final loss on sale, of which $4.5 million and $14.4 million were recorded in the three and nine months ended December 2018, respectively. The loss was included in the other income (expense), net line item in the Consolidated Statements of Income.

Van Moer Business

During the three months ended September 29, 2018, the Company reached the decision to sell the Van Moer business, which was acquired in connection with the Williamson-Dickie business and included in the Work segment.

VF completed the sale of the Van Moer business on October 5, 2018, and received cash proceeds of €7.0 million ($8.1 million). VF recorded a $22.4 million final loss on sale, which was included in the other income (expense), net line item in the Consolidated Statement of Income for the nine months ended December 2018.