Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2018
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 1-5256

vfcirclelogoa03.jpg

V. F. CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania
 
23-1180120
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. employer identification number)
105 Corporate Center Boulevard
Greensboro, North Carolina 27408
(Address of principal executive offices)
(336) 424-6000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
þ 
  
Accelerated filer
 
¨
 
 
 
 
 
 
Non-accelerated filer
 
¨ 
  
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ 
On October 27, 2018, there were 396,806,395 shares of the registrant’s common stock outstanding.



VF CORPORATION
Table of Contents
 
Page
No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED)
VF CORPORATION
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)
 
September 2018
 
 
March 2018
 
September 2017
ASSETS
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
Cash and equivalents
 
$
352,781

 
 
$
680,762

 
$
1,545,535

Accounts receivable, less allowance for doubtful accounts of: September 2018 – $28,316; March 2018 – $24,993; September 2017 – $21,467
 
2,196,064

 
 
1,408,587

 
1,815,198

Inventories
 
2,247,908

 
 
1,861,441

 
1,843,451

Other current assets
 
461,349

 
 
358,953

 
318,957

Current assets held-for-sale
 
159,852

 
 

 

Current assets of discontinued operations
 

 
 
373,580

 
104,286

Total current assets
 
5,417,954

 
 
4,683,323

 
5,627,427

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

 
 
1,011,617

 
905,671

Intangible assets, net
 
2,084,087

 
 
2,120,110

 
1,673,173

Goodwill
 
1,762,826

 
 
1,693,219

 
1,593,868

Other assets
 
829,887

 
 
803,041

 
743,898

Other assets of discontinued operations
 

 
 

 
330,884

TOTAL ASSETS
 
$
11,130,425

 
 
$
10,311,310

 
$
10,874,921

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
Short-term borrowings
 
$
1,570,516

 
 
$
1,525,106

 
$
1,985,287

Current portion of long-term debt
 
5,885

 
 
6,265

 
253,831

Accounts payable
 
732,453

 
 
583,004

 
532,381

Accrued liabilities
 
1,188,484

 
 
938,427

 
1,013,096

Current liabilities held-for-sale
 
11,358

 
 

 

Current liabilities of discontinued operations
 

 
 
86,027

 
36,800

Total current liabilities
 
3,508,696

 
 
3,138,829

 
3,821,395

Long-term debt
 
2,150,595

 
 
2,212,555

 
2,144,221

Other liabilities
 
1,291,578

 
 
1,271,830

 
881,962

Other liabilities of discontinued operations
 

 
 

 
89,923

Commitments and contingencies
 

 
 

 

Total liabilities
 
6,950,869

 
 
6,623,214

 
6,937,501

Stockholders’ equity
 
 
 
 
 
 
 
Preferred Stock, par value $1; shares authorized, 25,000,000; no shares outstanding at September 2018, March 2018 or September 2017
 

 
 

 

Common Stock, stated value $0.25; shares authorized, 1,200,000,000; shares outstanding at September 2018 – 397,161,808; March 2018 – 394,313,070; September 2017 – 394,502,698
 
99,290

 
 
98,578

 
98,626

Additional paid-in capital
 
3,795,395

 
 
3,607,424

 
3,456,661

Accumulated other comprehensive income (loss)
 
(862,916
)
 
 
(864,030
)
 
(914,896
)
Retained earnings
 
1,147,787

 
 
846,124

 
1,297,029

Total stockholders’ equity
 
4,179,556

 
 
3,688,096

 
3,937,420

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

 
 
$
10,311,310

 
$
10,874,921

See notes to consolidated financial statements.


3 VF Corporation Q2 FY19 Form 10-Q


VF CORPORATION
Consolidated Statements of Income
(Unaudited)
 
 
Three Months Ended September
 
 
Six Months Ended September
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
 
2018
 
 
2017
 
 
2018
 
 
2017
Net revenues
 
$
3,907,386

 
 
$
3,392,934

 
 
$
6,695,532

 
 
$
5,661,554

Costs and operating expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
1,950,601

 
 
1,689,041

 
 
3,335,578

 
 
2,831,517

Selling, general and administrative expenses
 
1,298,116

 
 
1,128,366

 
 
2,470,403

 
 
2,094,834

Total costs and operating expenses
 
3,248,717

 
 
2,817,407

 
 
5,805,981

 
 
4,926,351

Operating income
 
658,669

 
 
575,527

 
 
889,551

 
 
735,203

Interest income
 
2,845

 
 
4,571

 
 
6,238

 
 
8,154

Interest expense
 
(28,358
)
 
 
(27,108
)
 
 
(55,635
)
 
 
(51,298
)
Other income (expense), net
 
(34,055
)
 
 
(1,913
)
 
 
(54,721
)
 
 
(5,130
)
Income from continuing operations before income taxes
 
599,101

 
 
551,077

 
 
785,433

 
 
686,929

Income taxes
 
91,980

 
 
77,257

 
 
118,359

 
 
106,017

Income from continuing operations
 
507,121

 
 
473,820

 
 
667,074

 
 
580,912

Income (loss) from discontinued operations, net of tax
 

 
 
(87,680
)
 
 
405

 
 
(84,883
)
Net income
 
$
507,121

 
 
$
386,140

 
 
$
667,479

 
 
$
496,029

Earnings (loss) per common share - basic
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
1.28

 
 
$
1.20

 
 
$
1.69

 
 
$
1.47

Discontinued operations
 

 
 
(0.22
)
 
 

 
 
(0.21
)
Total earnings per common share - basic
 
$
1.28

 
 
$
0.98

 
 
$
1.69

 
 
$
1.26

Earnings (loss) per common share - diluted
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
1.26

 
 
$
1.19

 
 
$
1.66

 
 
$
1.46

Discontinued operations
 

 
 
(0.22
)
 
 

 
 
(0.21
)
Total earnings per common share - diluted
 
$
1.26

 
 
$
0.97

 
 
$
1.67

 
 
$
1.24

Cash dividends per common share
 
$
0.46

 
 
$
0.42

 
 
$
0.92

 
 
$
0.84












See notes to consolidated financial statements.


VF Corporation Q2 FY19 Form 10-Q 4



VF CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
Three Months Ended September
 
 
Six Months Ended September
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
2018
 
 
2017
 
 
2018
 
 
2017
Net income
 
$
507,121

 
 
$
386,140

 
 
$
667,479

 
 
$
496,029

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation and other
 
 
 
 
 
 
 
 
 
 
 
Gains (losses) arising during the period
 
(12,600
)
 
 
53,481

 
 
(173,758
)
 
 
140,824

Income tax effect
 
(1,623
)
 
 
11,764

 
 
(15,335
)
 
 
33,493

Defined benefit pension plans
 
 
 
 
 
 
 
 
 
 
 
Amortization of net deferred actuarial losses
 
6,655

 
 
10,030

 
 
15,477

 
 
20,032

Amortization of deferred prior service costs (credits)
 
(59
)
 
 
643

 
 
610

 
 
1,288

Current period actuarial gains (losses)
 
(1,898
)
 
 

 
 
52,042

 
 

Curtailment losses and settlement charges
 
1,342

 
 

 
 
17,667

 
 

Income tax effect
 
(1,562
)
 
 
(3,743
)
 
 
(22,217
)
 
 
(7,758
)
Derivative financial instruments
 
 
 
 
 
 
 
 
 
 
 
Gains (losses) arising during the period
 
15,240

 
 
(51,147
)
 
 
109,869

 
 
(107,486
)
Income tax effect
 
(89
)
 
 
(679
)
 
 
(11,447
)
 
 
7,184

Reclassification to net income for (gains) losses realized
 
13,846

 
 
(4,609
)
 
 
30,163

 
 
(15,928
)
Income tax effect
 
(90
)
 
 
(39
)
 
 
(1,957
)
 
 
1,495

Other comprehensive income (loss)
 
19,162

 
 
15,701

 
 
1,114

 
 
73,144

Comprehensive income
 
$
526,283

 
 
$
401,841

 
 
$
668,593

 
 
$
569,173















See notes to consolidated financial statements.


5 VF Corporation Q2 FY19 Form 10-Q


VF CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
 
 
Six Months Ended September
 
 
 
 
 
 
(In thousands)
 
2018 (a)
 
 
2017 (a)
OPERATING ACTIVITIES
 
 
 
 
 
Net income
 
$
667,479

 
 
$
496,029

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
 
Impairment of goodwill
 

 
 
104,651

Depreciation and amortization
 
144,995

 
 
141,152

Stock-based compensation
 
55,129

 
 
42,668

Provision for doubtful accounts
 
10,415

 
 
8,706

Pension expense in excess of contributions
 
1,595

 
 
9,820

(Gain) loss on sale of businesses, net of tax
 
24,788

 
 
2,521

Other, net
 
21,788

 
 
(4,123
)
Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
 
(837,808
)
 
 
(541,345
)
Inventories
 
(433,351
)
 
 
(230,707
)
Accounts payable
 
150,613

 
 
95,957

Income taxes
 
(91,579
)
 
 
(43,069
)
Accrued liabilities
 
384,211

 
 
148,968

Other assets and liabilities
 
4,676

 
 
(14,383
)
Cash provided by operating activities
 
102,951

 
 
216,845

INVESTING ACTIVITIES
 
 
 
 
 
Business acquisitions, net of cash received
 
(320,405
)
 
 

Proceeds from sale of businesses, net of cash sold
 
288,273

 
 
213,494

Capital expenditures
 
(140,196
)
 
 
(83,537
)
Software purchases
 
(32,748
)
 
 
(32,794
)
Other, net
 
(13,251
)
 
 
(3,734
)
Cash (used) provided by investing activities
 
(218,327
)
 
 
93,429

FINANCING ACTIVITIES
 
 
 
 
 
Net increase in short-term borrowings
 
40,219

 
 
1,697,179

Payments on long-term debt
 
(3,107
)
 
 
(1,845
)
Purchases of treasury stock
 
(480
)
 
 
(762,059
)
Cash dividends paid
 
(363,851
)
 
 
(330,280
)
Proceeds from issuance of Common Stock, net of shares withheld for taxes
 
130,114

 
 
44,861

Cash (used) provided by financing activities
 
(197,105
)
 
 
647,856

Effect of foreign currency rate changes on cash, cash equivalents and restricted cash
 
(17,270
)
 
 
(16,142
)
Net change in cash, cash equivalents and restricted cash
 
(329,751
)
 
 
941,988

Cash, cash equivalents and restricted cash – beginning of year
 
689,190

 
 
608,280

Cash, cash equivalents and restricted cash – end of period
 
$
359,439

 
 
$
1,550,268

 
 
 
 
 
 
Balances per Consolidated Balance Sheets:
 
 
 
 
 
Cash and cash equivalents
 
$
352,781

 
 
$
1,545,535

Other current assets
 
3,919

 
 
3,309

Current assets held-for-sale
 
2,059

 
 

Current assets of discontinued operations
 

 
 
593

Other assets
 
680

 
 
831

Total cash, cash equivalents and restricted cash
 
$
359,439

 
 
$
1,550,268

(a) 
The cash flows related to discontinued operations and held-for-sale assets and liabilities have not been segregated, and remain included in the major classes of assets and liabilities. Accordingly, the Consolidated Statements of Cash Flows include the results of continuing and discontinued operations.
See notes to consolidated financial statements.


VF Corporation Q2 FY19 Form 10-Q 6



VF CORPORATION
Consolidated Statement of Stockholders’ Equity
(Unaudited)
 
 
 
 
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Common Stock
 
 
 
 (In thousands, except share amounts)
Shares
 
Amounts
 
 
 
Balance, March 2018
394,313,070

 
$
98,578

 
$
3,607,424

 
$
(864,030
)
 
$
846,124

Adoption of new accounting standard

 

 

 

 
1,956

Net income

 

 

 

 
667,479

Dividends on Common Stock

 

 

 

 
(363,851
)
Purchase of treasury stock
(5,210
)
 
(1
)
 

 

 
(479
)
Stock-based compensation, net
2,853,948

 
713

 
187,971

 

 
(3,442
)
Foreign currency translation and other

 

 

 
(189,093
)
 

Defined benefit pension plans

 

 

 
63,579

 

Derivative financial instruments

 

 

 
126,628

 

Balance, September 2018
397,161,808

 
$
99,290

 
$
3,795,395

 
$
(862,916
)
 
$
1,147,787





















See notes to consolidated financial statements.


7 VF Corporation Q2 FY19 Form 10-Q


VF CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 — BASIS OF PRESENTATION

VF Corporation (together with its subsidiaries, collectively known as “VF” or the “Company”) changed to a 52/53 week fiscal year ending on the Saturday closest to March 31 of each year. VF previously used a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year. The Company's current fiscal year runs from April 1, 2018 through March 30, 2019 ("Fiscal 2019"). Accordingly, this Form 10-Q presents our second quarter of Fiscal 2019. For presentation purposes herein, all references to periods ended September 2018, March 2018 and September 2017 relate to the fiscal periods ended on September 29, 2018, March 31, 2018 and September 30, 2017, respectively.
The Nautica® brand business and the Licensing Business (which comprised the Licensed Sports Group and JanSport® brand collegiate businesses) have been reported as discontinued operations in our Consolidated Statements of Income, and the related held-for-sale assets and liabilities have been presented as assets and liabilities of discontinued operations in the Consolidated Balance Sheets, through their dates of disposal. These changes have been applied to all periods presented. Unless otherwise noted, discussion within these notes to the consolidated financial statements relates to continuing operations. Refer to Note 5 for additional information on discontinued operations.
During the three months ended September 2018, the Company reached the decision to sell its Reef® brand and Van Moer
 
businesses. 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. Refer to Note 5 for additional information on divestitures.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and notes required by generally accepted accounting principles in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to fairly state the consolidated financial position, results of operations and cash flows of VF for the interim periods presented. Operating results for the three and six months ended September 2018 are not necessarily indicative of results that may be expected for any other interim period or for Fiscal 2019. For further information, refer to the consolidated financial statements and notes included in VF’s Annual Report on Form 10-K for the year ended December 30, 2017 (“2017 Form 10-K”).
NOTE 2 — 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.


VF Corporation Q2 FY19 Form 10-Q 8



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



9 VF Corporation Q2 FY19 Form 10-Q


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


VF Corporation Q2 FY19 Form 10-Q 10



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


11 VF Corporation Q2 FY19 Form 10-Q


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.
NOTE 3 — REVENUES

Revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied based on the transfer of control of promised goods or services. The transfer of control typically occurs at a point in time based on consideration of when the customer has i) an obligation to pay for, ii) physical possession of, iii) legal title to, iv) risks and rewards of ownership of and v) accepted the goods or services. The timing of revenue recognition within the wholesale channel occurs either on shipment or delivery of goods based on contractual terms with the customer. The timing of revenue recognition in the direct-to-consumer channel generally occurs at the point of sale within VF-operated or concession retail stores and either on shipment or delivery of goods for e-commerce transactions based on contractual terms with the customer. For finished products shipped directly to customers from our suppliers, the Company's promise to the customer is a performance obligation to provide the specified goods, and thus the Company is the principal in the arrangement and revenue is recognized on a gross basis at the transaction price. For sourcing arrangements, the Company's promise to the customer is to arrange for certain goods, typically finished products, to be provided and thus the Company is acting as an agent and revenue is recognized on a net basis at the fee amount earned.
The duration of contractual arrangements with our customers in the wholesale and direct-to-consumer channels is typically less than one year. Payment terms with customers are generally between 30 and 60 days. The Company does not adjust the promised amount of consideration for the effects of a significant financing component as it is expected, at contract inception, that the period between the transfer of the promised good or service to the customer and the customer payment for the good or service will be one year or less.
The amount of revenue recognized in both wholesale and direct-to-consumer channels reflects the expected consideration to be received for providing the goods or services to the customer, which includes estimates for variable consideration. Variable consideration includes allowances for trade terms, sales incentive programs, discounts, markdowns, chargebacks and product returns. Estimates of variable consideration are determined at contract inception and reassessed at each reporting date, at a minimum, to reflect any changes in facts and circumstances. The Company utilizes the expected value method in determining its estimates of variable consideration, based on evaluations of specific product and customer circumstances, historical and anticipated trends, and current economic conditions.
Certain products sold by the Company include an assurance warranty. Product warranty costs are estimated based on historical and anticipated trends, and are recorded as cost of goods sold at the time revenue is recognized.
Revenue from the sale of gift cards is deferred and recorded as a contract liability until the gift card is redeemed by the customer, factoring in breakage as appropriate.
Various VF brands maintain customer loyalty programs where customers earn rewards from qualifying purchases or activities,
 
which are redeemable for discounts on future purchases or other rewards. For its customer loyalty programs, the Company estimates the stand-alone selling price of the loyalty rewards and allocates a portion of the consideration for the sale of products to the loyalty points earned. The deferred amount is recorded as a contract liability, and is recognized as revenue when the points are redeemed or when the likelihood of redemption is remote.
The Company has elected to treat all shipping and handling activities as fulfillment costs and recognize the costs as selling, general and administrative expenses at the time the related revenue is recognized. Shipping and handling costs billed to customers are included in net revenues. Sales taxes and value added taxes collected from customers and remitted directly to governmental authorities are excluded from the transaction price.
The Company has licensing agreements for its symbolic intellectual property, most of which include minimum guaranteed royalties. Royalty income is recognized as earned over the respective license term based on the greater of minimum guarantees or the licensees' sales of licensed products at rates specified in the licensing contracts. Royalty income related to the minimum guarantees is recognized using a measure of progress with variable amounts recognized only when the cumulative earned royalty exceeds the minimum guarantees. As of September 2018, the Company expects to recognize $98.6 million of fixed consideration related to the future minimum guarantees in effect under its licensing agreements and expects such amounts to be recognized over time through December 2024. The variable consideration is not disclosed as a remaining performance obligation as the licensing arrangements qualify for the sales-based royalty exemption.
The Company has applied the practical expedient to recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less.
Performance Obligations
Disclosure is required for the aggregate transaction price allocated to performance obligations that are unsatisfied at the end of a reporting period, unless the optional practical expedients are applicable. VF is electing the practical expedients to not disclose the transaction price allocated to remaining performance obligations for i) variable consideration related to sales-based royalty arrangements and ii) contracts with an original expected duration of one year or less.
As of September 2018, there are no arrangements with transaction price allocated to remaining performance obligations other than contracts for which the Company has applied the practical expedients and fixed consideration related to future minimum guarantees discussed above.
For the three and six months ended September 2018, revenue recognized from performance obligations satisfied, or partially satisfied, in prior periods was not material.


VF Corporation Q2 FY19 Form 10-Q 12



Contract Balances

Accounts receivable represent the Company's unconditional right to receive consideration from a customer and are recorded at net invoiced amounts, less an estimated allowance for doubtful accounts.
Contract assets are rights to consideration in exchange for goods or services that have been transferred to a customer when that right is conditional on something other than the passage of time. Once the Company has an unconditional right to consideration under a contract, amounts are invoiced and contract assets are reclassified to accounts receivable. The Company's primary
 
contract assets relate to sales-based royalty arrangements, which are discussed in more detail above.
Contract liabilities are recorded when a customer pays consideration, or the Company has a right to an amount of consideration that is unconditional, before the transfer of a good or service to the customer and thus represent the Company's obligation to transfer the good or service to the customer at a future date. The Company's primary contract liabilities relate to gift cards, loyalty programs and sales-based royalty arrangements, which are discussed in more detail above.
The following table provides information about accounts receivable, contract assets and contract liabilities:
(In thousands)
 
September 2018
 
 
At Adoption - April 1, 2018 (a)
Accounts receivable, net
 
$
2,196,064

 
 
$
1,408,587

Contract assets (b)
 
3,371

 
 
2,600

Contract liabilities (c)
 
33,005

 
 
28,252

(a) 
The Company adopted ASC 606 on April 1, 2018. Refer to Note 2 for additional information.
(b) 
Included in the other current assets line item in the Consolidated Balance Sheets.
(c) 
Included in the accrued liabilities line item in the Consolidated Balance Sheets.
For the three and six months ended September 2018, the Company recognized $11.3 million and $24.4 million, respectively, of revenue that was previously included in the contract liability balance. The change in the contract asset and contract liability balances primarily results from the timing differences between the Company's satisfaction of performance obligations and the customer's payment.
Disaggregation of Revenue
The following tables disaggregate our revenues by channel and geography, which provides a meaningful depiction of how the nature, timing and uncertainty of revenues are affected by economic factors. The wholesale channel includes fees generated from sourcing activities as the customers and point-in-time revenue recognition are similar to other wholesale arrangements.

Three Months Ended September 2018
(In thousands)
Outdoor
 
Active
 
Work
 
Jeans
 
Other
 
Total
Channel revenues

 

 

 

 

 

Wholesale
$
1,130,716

 
$
684,028

 
$
433,551

 
$
560,307

 
$
7,378

 
$
2,815,980

Direct-to-consumer
332,548

 
610,672

 
34,425

 
64,415

 
27,821

 
1,069,881

Royalty
3,239

 
5,261

 
4,851

 
8,174

 

 
21,525

Total
$
1,466,503

 
$
1,299,961

 
$
472,827

 
$
632,896

 
$
35,199

 
$
3,907,386

 
 
 
 
 
 
 
 
 
 
 
 
Geographic revenues

 

 

 

 

 

United States
$
674,076

 
$
652,494

 
$
376,293

 
$
429,772

 
$
35,199

 
$
2,167,834

International
792,427

 
647,467

 
96,534

 
203,124

 

 
1,739,552

Total
$
1,466,503

 
$
1,299,961

 
$
472,827

 
$
632,896

 
$
35,199

 
$
3,907,386



13 VF Corporation Q2 FY19 Form 10-Q


 
Three Months Ended September 2017
(In thousands)
Outdoor
 
Active
 
Work
 
Jeans
 
Other
 
Total
Channel revenues

 

 

 

 

 

Wholesale
$
1,065,419

 
$
592,249

 
$
208,215

 
$
606,230

 
$

 
$
2,472,113

Direct-to-consumer
311,172

 
491,235

 
1,847

 
68,668

 
29,370

 
902,292

Royalty
4,411

 
6,132

 

 
7,986

 

 
18,529

Total
$
1,381,002

 
$
1,089,616

 
$
210,062

 
$
682,884

 
$
29,370

 
$
3,392,934

 
 
 
 
 
 
 
 
 
 
 
 
Geographic revenues

 

 

 

 

 

United States
$
668,166

 
$
498,397

 
$
204,360

 
$
450,688

 
$
29,370

 
$
1,850,981

International
712,836

 
591,219

 
5,702

 
232,196

 

 
1,541,953

Total
$
1,381,002

 
$
1,089,616

 
$
210,062

 
$
682,884

 
$
29,370

 
$
3,392,934

 
Six Months Ended September 2018
(In thousands)
Outdoor
 
Active
 
Work
 
Jeans
 
Other
 
Total
Channel revenues
 
 
 
 
 
 
 
 
 
 
 
Wholesale
$
1,440,492

 
$
1,338,876

 
$
833,224

 
$
1,085,762

 
$
17,515

 
$
4,715,869

Direct-to-consumer
588,512

 
1,086,208

 
72,263

 
134,780

 
53,924

 
1,935,687

Royalty
6,099

 
11,814

 
9,942

 
16,121

 

 
43,976

Total
$
2,035,103

 
$
2,436,898

 
$
915,429

 
$
1,236,663

 
$
71,439

 
$
6,695,532

 
 
 
 
 
 
 
 
 
 
 
 
Geographic revenues

 

 

 

 

 

United States
$
936,932

 
$
1,296,599

 
$
726,429

 
$
870,084

 
$
71,439

 
$
3,901,483

International
1,098,171

 
1,140,299

 
189,000

 
366,579

 

 
2,794,049

Total
$
2,035,103

 
$
2,436,898

 
$
915,429

 
$
1,236,663

 
$
71,439

 
$
6,695,532

 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended September 2017
(In thousands)
Outdoor
 
Active
 
Work
 
Jeans
 
Other
 
Total
Channel revenues
 
 
 
 
 
 
 
 
 
 
 
Wholesale
$
1,355,656

 
$
1,133,725

 
$
413,225

 
$
1,116,081

 
$

 
$
4,018,687

Direct-to-consumer
554,076

 
853,515

 
3,694

 
139,333

 
57,690

 
1,608,308

Royalty
7,520

 
11,666

 

 
15,373

 

 
34,559

Total
$
1,917,252

 
$
1,998,906

 
$
416,919

 
$
1,270,787

 
$
57,690

 
$
5,661,554

 
 
 
 
 
 
 
 
 
 
 
 
Geographic revenues
 
 
 
 
 
 
 
 
 
 
 
United States
$
940,757

 
$
1,003,496

 
$
406,608

 
$
881,073

 
$
57,690

 
$
3,289,624

International
976,495

 
995,410

 
10,311

 
389,714

 

 
2,371,930

Total
$
1,917,252

 
$
1,998,906

 
$
416,919

 
$
1,270,787

 
$
57,690

 
$
5,661,554




VF Corporation Q2 FY19 Form 10-Q 14



NOTE 4 — ACQUISITIONS

Williamson-Dickie

On October 2, 2017, VF acquired 100% of the outstanding shares of Williamson-Dickie Mfg. Co. (“Williamson-Dickie”) for $800.7 million in cash, subject to working capital and other adjustments. The purchase price was primarily funded with short-term borrowings. During the three months ended March 2018, the purchase consideration was reduced by $2.3 million associated with the final working capital adjustment, resulting in a revised purchase price of $798.4 million. No additional adjustments have been made since that date, and the purchase price allocation was finalized during the three months ended September 2018.
Williamson-Dickie was a privately held company based in Ft. Worth, Texas, and was one of the largest companies in the workwear sector
 
with a portfolio of brands including Dickies®, Workrite®, Kodiak®, Terra® and Walls®. The acquisition of Williamson-Dickie brings together complementary assets and capabilities, and creates a workwear business that will now serve an even broader set of consumers and industries around the world.
For the three and six months ended September 2018, Williamson-Dickie contributed revenues of $252.8 million and $471.9 million, respectively, and net income of $18.5 million and $33.3 million, respectively.

The following table summarizes the fair values of the Williamson-Dickie assets acquired and liabilities assumed at the date of acquisition:
(In thousands)
 
October 2, 2017
Cash and equivalents
 
$
60,172

Accounts receivable
 
146,403

Inventories
 
251,778

Other current assets
 
8,447

Property, plant and equipment
 
105,119

Intangible assets
 
397,755

Other assets
 
9,665

Total assets acquired
 
979,339

 
 
 
Short-term borrowings
 
17,565

Accounts payable
 
88,052

Other current liabilities
 
109,964

Deferred income tax liabilities
 
15,160

Other non-current liabilities
 
33,066

Total liabilities assumed
 
263,807

 
 
 
Net assets acquired
 
715,532

Goodwill
 
82,863

Purchase price
 
$
798,395


The goodwill is attributable to the acquired workforce of Williamson-Dickie and the significant synergies expected to arise as a result of the acquisition. All of the goodwill was assigned to the Work segment and $52.3 million is expected to be deductible for tax purposes.
The Dickies®, Kodiak®, Terra® and Walls® trademarks, which management determined to have indefinite lives, have been valued at $316.1 million. The Workrite® trademark, valued at $0.8 million, is being amortized over three years.
 
Amortizable intangible assets have been assigned values of $78.6 million for customer relationships and $2.3 million for distribution agreements. Customer relationships are being amortized using an accelerated method over periods ranging from 10-13 years. Distribution agreements are being amortized on a straight-line basis over four years.
Total transaction expenses for the Williamson-Dickie acquisition were $15.0 million, all of which were recognized in the year ended December 30, 2017 in the selling, general and administrative expenses line item in the Consolidated Statements of Income.


15 VF Corporation Q2 FY19 Form 10-Q


The following unaudited pro forma summary presents consolidated information of VF as if the acquisition of Williamson-Dickie had occurred on January 3, 2016:
(In thousands)
Three Months Ended
September 2017
(unaudited)
 
Six Months Ended
September 2017
(unaudited)
Net revenues
$
3,632,451

 
$
6,116,723

Income from continuing operations
491,669

 
605,588

Earnings per common share from continuing operations
 
 
 
Basic
$
1.25

 
$
1.53

Diluted
1.24

 
1.52


These pro forma amounts have been calculated after applying VF’s accounting policies and adjusting the results of Williamson-Dickie to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment and intangible assets had been applied from January 3, 2016, with related tax effects.
Pro forma financial information is not necessarily indicative of VF’s operating results if the acquisition had been effected at the date indicated, nor is it necessarily indicative of future operating results. Amounts do not include any marketing leverage, operating efficiencies or cost savings that VF believes are achievable.
Icebreaker

On April 3, 2018, VF acquired 100% of the stock of Icebreaker Holdings Limited ("Icebreaker") for NZ$274.4 million ($198.5 million) in cash, subject to working capital and other adjustments. The purchase price was primarily funded with short-term borrowings. The purchase price decreased NZ$1.3 million ($0.9 million) and NZ$2.3 million ($1.6 million) during the three and six months ended September 2018, respectively, related to working capital adjustments, resulting in a revised purchase price of NZ$272.1 million ($197.0 million).
 
Icebreaker was a privately held company based in Auckland, New Zealand. Icebreaker®, the primary brand, specializes in high-performance apparel based on natural fibers, including Merino wool, plant-based fibers and recycled fibers. It is an ideal complement to VF's Smartwool® brand, which also features Merino wool in its clothing and accessories. Together, the Smartwool® and Icebreaker® brands will position VF as a global leader in the Merino wool and natural fiber categories.
For the three and six months ended September 2018, Icebreaker contributed revenues of $53.7 million and $79.4 million, respectively, representing 1.4% and 1.2% of VF's revenues in the respective periods. Icebreaker contributed net income of $7.0 million and $6.2 million in the three and six months ended September 2018, respectively, representing 1.4% and 0.9% of VF's net income in the respective periods.
The allocation of the purchase price is preliminary and subject to change for certain income tax matters. Accordingly, further adjustments may be made to the value of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the acquisition date.


VF Corporation Q2 FY19 Form 10-Q 16



The following table summarizes the estimated fair values of the Icebreaker assets acquired and liabilities assumed at the date of acquisition:
(In thousands)
 
April 3, 2018
Cash and equivalents
 
$
6,444

Accounts receivable
 
16,781

Inventories
 
31,728

Other current assets
 
3,931

Property, plant and equipment
 
3,858

Intangible assets
 
98,041

Other assets
 
4,758

Total assets acquired
 
165,541

 
 
 
Short-term borrowings
 
7,235

Accounts payable
 
2,075

Other current liabilities
 
21,919

Deferred income tax liabilities
 
22,802

Other non-current liabilities
 
433

Total liabilities assumed
 
54,464

 
 
 
Net assets acquired
 
111,077

Goodwill
 
85,875

Purchase price
 
$
196,952


The goodwill is attributable to the acquired workforce of Icebreaker and the significant synergies expected to arise as a result of the acquisition. All of the goodwill has been assigned to the Outdoor segment and none is expected to be deductible for tax purposes.
The Icebreaker® trademark, which management determined to have an indefinite life, has been valued at $70.1 million. Amortizable intangible assets have been assigned values of $27.8 million for customer relationships and $0.2 million for distribution agreements. Customer relationships are being amortized using an accelerated method over 11.5 years. Distribution agreements are being amortized on a straight-line basis over four years.
Total transaction expenses for the Icebreaker acquisition of $7.4 million have been recognized in the selling, general and administrative expenses line item in the Consolidated Statements of Income, of which $4.1 million was recognized during the three months ended June 2018. In addition, the Company has recognized a $9.9 million gain on derivatives used to hedge the purchase price of Icebreaker in the other income (expense), net line item in the Consolidated Statements of Income, of which $0.3 million was recognized during the three months ended June 2018.
Pro forma results of operations of the Company would not be materially different as a result of the Icebreaker acquisition and therefore are not presented.
 
Altra

On June 1, 2018, VF acquired 100% of the stock of Icon-Altra LLC, plus certain assets in Europe ("Altra"). The purchase price was $131.7 million in cash, subject to working capital and other adjustments and was primarily funded with short-term borrowings. The purchase price decreased $0.1 million during the three months ended September 2018, related to working capital adjustments, resulting in a revised purchase price of $131.6 million.
Altra®, the primary brand, is an athletic and performance-based lifestyle footwear brand, based in Logan, Utah. Altra provides VF with a unique and differentiated technical footwear brand and a capability that, when applied across VF's footwear platforms, will serve as a catalyst for growth.
For the three and six months ended September 2018, Altra contributed revenues of $17.0 million and $21.0 million, respectively, and net income of $1.9 million and $2.0 million, respectively.
The allocation of the purchase price is preliminary and subject to change, primarily for final adjustments to working capital balances and limited other valuation matters. Further adjustments may be made to the values of the acquired assets and liabilities as additional information is obtained about the facts and circumstances that existed at the acquisition date.


17 VF Corporation Q2 FY19 Form 10-Q


The following table summarizes the estimated fair values of the Altra assets acquired and liabilities assumed at the date of acquisition:
(In thousands)
 
June 1, 2018
Accounts receivable
 
$
10,101

Inventories
 
9,310

Other current assets
 
575

Property, plant and equipment
 
1,107

Intangible assets
 
59,700

Total assets acquired
 
80,793

 
 
 
Accounts payable
 
5,068

Other current liabilities
 
7,415

Total liabilities assumed
 
12,483

 
 
 
Net assets acquired
 
68,310

Goodwill
 
63,247

Purchase price
 
$
131,557


The goodwill is attributable to the significant growth and synergies expected to arise as a result of the acquisition. All of the goodwill was assigned to the Outdoor segment and is expected to be deductible for tax purposes. The Altra® trademark, which management determined to have an indefinite life, has been valued at $46.4 million. Amortizable intangible assets have been assigned values of $13.0 million for customer relationships and $0.3 million for distribution agreements. Customer relationships are being amortized using an accelerated method over 15 years. Distribution agreements are being amortized on a straight-line basis over four years.
 
Total transaction expenses for the Altra acquisition of $2.3 million were recognized in the selling, general and administrative expenses line item in the Consolidated Statements of Income during the three months ended June 2018.
Pro forma results of operations of the Company would not be materially different as a result of the Altra acquisition and therefore are not presented.
NOTE 5 — 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.


VF Corporation Q2 FY19 Form 10-Q 18



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
)