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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2019
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
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) |
8505 E. Orchard Road
Greenwood Village, Colorado 80111
(Address of principal executive offices)
(720) 778-4000
(Registrant’s telephone number, including area code)
|
| | |
Securities registered pursuant to Section 12(b) of the Act: |
(Title of each class) | (Trading Symbol(s)) | (Name of each exchange on which registered) |
Common Stock, without par value, stated capital, $0.25 per share | VFC | New York Stock Exchange |
0.625% Senior Notes due 2023 | VFC23 | New York Stock Exchange |
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 | | ☑ | | 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 ☑
On July 27, 2019, there were 398,176,515 shares of the registrant’s common stock outstanding.
VF CORPORATION
Table of Contents
PART I — FINANCIAL INFORMATION
|
|
ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED) |
VF CORPORATION
Consolidated Balance Sheets
(Unaudited) |
| | | | | | | | | | | | | |
(In thousands, except share amounts) | | June 2019 | | | March 2019 | | June 2018 |
ASSETS | | | | | | | |
Current assets | | | | | | | |
Cash and equivalents | | $ | 606,080 |
| | | $ | 445,119 |
| | $ | 392,175 |
|
Accounts receivable, less allowance for doubtful accounts of: June 2019 ‑ $20,671; March 2019 - $19,638; June 2018 - $19,135 | | 1,306,270 |
| | | 1,465,855 |
| | 1,222,938 |
|
Inventories | | 1,665,132 |
| | | 1,432,660 |
| | 1,521,659 |
|
Other current assets | | 413,373 |
| | | 433,793 |
| | 401,515 |
|
Current assets of discontinued operations | | — |
| | | 896,030 |
| | 791,860 |
|
Total current assets | | 3,990,855 |
| | | 4,673,457 |
| | 4,330,147 |
|
Property, plant and equipment, net | | 865,141 |
| | | 915,177 |
| | 875,338 |
|
Intangible assets, net | | 1,980,921 |
| | | 1,972,364 |
| | 2,129,013 |
|
Goodwill | | 1,544,132 |
| | | 1,541,314 |
| | 1,594,986 |
|
Operating lease right-of-use assets | | 1,281,106 |
| | | — |
| | — |
|
Other assets | | 739,809 |
| | | 772,755 |
| | 774,613 |
|
Other assets of discontinued operations | | — |
| | | 481,718 |
| | 487,657 |
|
TOTAL ASSETS | | $ | 10,401,964 |
| | | $ | 10,356,785 |
| | $ | 10,191,754 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
Current liabilities | | | | | | | |
Short-term borrowings | | $ | 67,658 |
| | | $ | 659,060 |
| | $ | 1,311,861 |
|
Current portion of long-term debt | | 5,068 |
| | | 5,263 |
| | 6,189 |
|
Accounts payable | | 588,417 |
| | | 580,867 |
| | 565,943 |
|
Accrued liabilities | | 1,286,002 |
| | | 1,154,932 |
| | 864,483 |
|
Current liabilities of discontinued operations | | — |
| | | 261,482 |
| | 247,080 |
|
Total current liabilities | | 1,947,145 |
| | | 2,661,604 |
| | 2,995,556 |
|
Long-term debt | | 2,126,835 |
| | | 2,115,884 |
| | 2,156,627 |
|
Operating lease liabilities | | 1,043,664 |
| | | — |
| | — |
|
Other liabilities | | 1,132,706 |
| | | 1,232,200 |
| | 1,260,681 |
|
Other liabilities of discontinued operations | | — |
| | | 48,581 |
| | 47,774 |
|
Commitments and contingencies | |
| | |
| |
|
Total liabilities | | 6,250,350 |
| | | 6,058,269 |
| | 6,460,638 |
|
Stockholders’ equity | | | | | | | |
Preferred Stock, par value $1; shares authorized, 25,000,000; no shares outstanding at June 2019, March 2019 or June 2018 | | — |
| | | — |
| | — |
|
Common Stock, stated value $0.25; shares authorized, 1,200,000,000; shares outstanding at June 2019 – 397,922,120; March 2019 – 396,824,662; June 2018 – 395,509,138 | | 99,481 |
| | | 99,206 |
| | 98,877 |
|
Additional paid-in capital | | 3,988,385 |
| | | 3,921,784 |
| | 3,688,529 |
|
Accumulated other comprehensive income (loss) | | (867,386 | ) | | | (902,075 | ) | | (882,078 | ) |
Retained earnings | | 931,134 |
| | | 1,179,601 |
| | 825,788 |
|
Total stockholders’ equity | | 4,151,614 |
| | | 4,298,516 |
| | 3,731,116 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 10,401,964 |
| | | $ | 10,356,785 |
| | $ | 10,191,754 |
|
See notes to consolidated financial statements.
3 VF Corporation Q1 FY20 Form 10-Q
VF CORPORATION
Consolidated Statements of Income
(Unaudited)
|
| | | | | | | | | |
| | Three Months Ended June |
| | | | | |
(In thousands, except per share amounts) | | 2019 | | | 2018 |
Net revenues | | $ | 2,271,479 |
| | | $ | 2,137,135 |
|
Costs and operating expenses | | | | | |
Cost of goods sold | | 1,036,114 |
| | | 1,005,289 |
|
Selling, general and administrative expenses | | 1,102,073 |
| | | 1,018,747 |
|
Total costs and operating expenses | | 2,138,187 |
| | | 2,024,036 |
|
Operating income | | 133,292 |
| | | 113,099 |
|
Interest income | | 7,129 |
| | | 2,146 |
|
Interest expense | | (22,127 | ) | | | (26,999 | ) |
Other income (expense), net | | 5,598 |
| | | (19,425 | ) |
Income from continuing operations before income taxes | | 123,892 |
| | | 68,821 |
|
Income taxes | | 26,643 |
| | | 7,457 |
|
Income from continuing operations | | 97,249 |
| | | 61,364 |
|
Income (loss) from discontinued operations, net of tax | | (48,028 | ) | | | 98,994 |
|
Net income | | $ | 49,221 |
| | | $ | 160,358 |
|
Earnings (loss) per common share - basic | | | | | |
Continuing operations | | $ | 0.25 |
| | | $ | 0.16 |
|
Discontinued operations | | (0.12 | ) | | | 0.25 |
|
Total earnings per common share - basic | | $ | 0.12 |
| | | $ | 0.41 |
|
Earnings (loss) per common share - diluted | | | | | |
Continuing operations | | $ | 0.24 |
| | | $ | 0.15 |
|
Discontinued operations | | (0.12 | ) | | | 0.25 |
|
Total earnings per common share - diluted | | $ | 0.12 |
| | | $ | 0.40 |
|
Weighted average shares outstanding | | | | | |
Basic | | 396,727 |
| | | 394,165 |
|
Diluted | | 401,914 |
| | | 399,548 |
|
See notes to consolidated financial statements.
VF Corporation Q1 FY20 Form 10-Q 4
VF CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
|
| | | | | | | | | |
| | Three Months Ended June |
| | | | | |
(In thousands) | | 2019 | | | 2018 |
Net income | | $ | 49,221 |
| | | $ | 160,358 |
|
Other comprehensive income (loss) | | | | | |
Foreign currency translation and other | | | | | |
Gains (losses) arising during the period | | 12,829 |
| | | (161,158 | ) |
Income tax effect | | 2,943 |
| | | (13,712 | ) |
Defined benefit pension plans | | | | | |
Current period actuarial gains (losses) | | — |
| | | 53,940 |
|
Amortization of net deferred actuarial losses | | 4,019 |
| | | 8,822 |
|
Amortization of deferred prior service costs | | 13 |
| | | 669 |
|
Reclassification of net actuarial loss from settlement charge | | — |
| | | 6,842 |
|
Reclassification of deferred prior service cost due to curtailments | | — |
| | | 9,483 |
|
Income tax effect | | (1,708 | ) | | | (20,655 | ) |
Derivative financial instruments | | | | | |
Gains arising during the period | | 14,774 |
| | | 94,629 |
|
Income tax effect | | (3,874 | ) | | | (11,358 | ) |
Reclassification to net income for (gains) losses realized | | (10,495 | ) | | | 16,317 |
|
Income tax effect | | 2,756 |
| | | (1,867 | ) |
Other comprehensive income (loss) | | 21,257 |
| | | (18,048 | ) |
Comprehensive income | | $ | 70,478 |
| | | $ | 142,310 |
|
See notes to consolidated financial statements.
5 VF Corporation Q1 FY20 Form 10-Q
VF CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
|
| | | | | | | | | |
| | Three Months Ended June |
| | | | | |
(In thousands) | | 2019 | | | 2018 |
OPERATING ACTIVITIES | | | | | |
Net income | | $ | 49,221 |
| | | $ | 160,358 |
|
Income (loss) from discontinued operations, net of tax | | (48,028 | ) | | | 98,994 |
|
Income from continuing operations, net of tax | | 97,249 |
| | | 61,364 |
|
Adjustments to reconcile net income to cash (used) provided by operating activities: | | | | | |
Depreciation and amortization, including operating lease right-of-use assets | | 159,178 |
| | | 52,896 |
|
Stock-based compensation | | 33,469 |
| | | 24,960 |
|
Provision for doubtful accounts | | 2,161 |
| | | 2,448 |
|
Pension expense (less than) in excess of contributions | | (2,837 | ) | | | 2,537 |
|
Other, net | | 12,685 |
| | | 6,206 |
|
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | | 164,266 |
| | | (27,309 | ) |
Inventories | | (228,120 | ) | | | (139,170 | ) |
Accounts payable | | 7,148 |
| | | 79,518 |
|
Income taxes | | 7,867 |
| | | (73,558 | ) |
Accrued liabilities | | (233,610 | ) | | | 107,262 |
|
Operating lease right-of-use assets and liabilities | | (102,586 | ) | | | — |
|
Other assets and liabilities | | 3,738 |
| | | 2,183 |
|
Cash (used) provided by operating activities - continuing operations | | (79,392 | ) | | | 99,337 |
|
Cash provided by operating activities - discontinued operations | | 13,212 |
| | | 177,807 |
|
Cash (used) provided by operating activities | | (66,180 | ) | | | 277,144 |
|
INVESTING ACTIVITIES | | | | | |
Business acquisitions, net of cash received | | — |
| | | (321,395 | ) |
Proceeds from sale of businesses, net of cash sold | | — |
| | | 288,273 |
|
Capital expenditures | | (46,270 | ) | | | (62,484 | ) |
Software purchases | | (14,512 | ) | | | (21,514 | ) |
Other, net | | 62,478 |
| | | 5,373 |
|
Cash provided (used) by investing activities - continuing operations | | 1,696 |
| | | (111,747 | ) |
Cash used by investing activities - discontinued operations | | (2,327 | ) | | | (17,483 | ) |
Cash used by investing activities | | (631 | ) | | | (129,230 | ) |
FINANCING ACTIVITIES | | | | | |
Net decrease in short-term borrowings | | (585,477 | ) | | | (214,383 | ) |
Payments on long-term debt | | (1,479 | ) | | | (1,557 | ) |
Cash dividends paid | | (202,538 | ) | | | (181,517 | ) |
Cash received from Kontoor Brands, net of cash transferred of $126.8 million | | 906,148 |
| | | — |
|
Proceeds from issuance of Common Stock, net of shares withheld for taxes | | 7,199 |
| | | 53,500 |
|
Cash provided (used) by financing activities | | 123,853 |
| | | (343,957 | ) |
Effect of foreign currency rate changes on cash, cash equivalents and restricted cash | | 5,078 |
| | | (19,998 | ) |
Net change in cash, cash equivalents and restricted cash | | 62,120 |
| | | (216,041 | ) |
Cash, cash equivalents and restricted cash – beginning of year | | 556,587 |
| | | 689,190 |
|
Cash, cash equivalents and restricted cash – end of period | | $ | 618,707 |
| | | $ | 473,149 |
|
Continued on next page.
See notes to consolidated financial statements.
VF Corporation Q1 FY20 Form 10-Q 6
VF CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
|
| | | | | | | | | |
| | Three Months Ended June |
| | | | | |
(In thousands) | | 2019 | | | 2018 |
Balances per Consolidated Balance Sheets: | | | | | |
Cash and cash equivalents | | $ | 606,080 |
| | | $ | 392,175 |
|
Other current assets | | 3,909 |
| | | 4,067 |
|
Current and other assets of discontinued operations | | — |
| | | 75,759 |
|
Other assets | | 8,718 |
| | | 1,148 |
|
Total cash, cash equivalents and restricted cash | | $ | 618,707 |
| | | $ | 473,149 |
|
See notes to consolidated financial statements.
7 VF Corporation Q1 FY20 Form 10-Q
VF CORPORATION
Consolidated Statements of Stockholders’ Equity
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 2019 | |
| | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | | |
| Common Stock | | | | | | |
(In thousands, except share amounts) | Shares | | Amounts | | | | | Total | |
Balance, March 2019 | 396,824,662 |
| | $ | 99,206 |
| | $ | 3,921,784 |
| | $ | (902,075 | ) | | $ | 1,179,601 |
| | $ | 4,298,516 |
| |
Adoption of new accounting standard, ASU 2016-02 | — |
| | — |
| | — |
| | — |
| | (2,491 | ) | | (2,491 | ) | |
Adoption of new accounting standard, ASU 2018-02 | — |
| | — |
| | — |
| | (61,861 | ) | | 61,861 |
| | — |
| |
Net income | — |
| | — |
| | — |
| | — |
| | 49,221 |
| | 49,221 |
| |
Dividends on Common Stock ($0.51 per share) | — |
| | — |
| | — |
| | — |
| | (202,538 | ) | | (202,538 | ) | |
Stock-based compensation, net | 1,097,458 |
| | 275 |
| | 66,601 |
| | — |
| | (24,312 | ) | | 42,564 |
| |
Foreign currency translation and other | — |
| | — |
| | — |
| | 15,772 |
| | — |
| | 15,772 |
| |
Defined benefit pension plans | — |
| | — |
| | — |
| | 2,324 |
| | — |
| | 2,324 |
| |
Derivative financial instruments | — |
| | — |
| | — |
| | 3,161 |
| | — |
| | 3,161 |
| |
Spin-off of Jeans Business | — |
| | — |
| | — |
| | 75,293 |
| | (130,208 | ) | | (54,915 | ) | |
Balance, June 2019 | 397,922,120 |
| | $ | 99,481 |
| | $ | 3,988,385 |
| | $ | (867,386 | ) | | $ | 931,134 |
| | $ | 4,151,614 |
| |
| | | | | | | | | | | | |
| Three Months Ended June 2018 | |
| | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | | |
| Common Stock | | | | | | |
(In thousands, except share amounts) | Shares | | Amounts | | | | | Total | |
Balance, March 2018 | 394,313,070 |
| | $ | 98,578 |
| | $ | 3,607,424 |
| | $ | (864,030 | ) | | $ | 846,124 |
| | $ | 3,688,096 |
| |
Adoption of new accounting standard, ASU 2014-09 | — |
| | — |
| | — |
| | — |
| | 1,956 |
| | 1,956 |
| |
Net income | — |
| | — |
| | — |
| | — |
| | 160,358 |
| | 160,358 |
| |
Dividends on Common Stock ($0.46 per share) | — |
| | — |
| | — |
| | — |
| | (181,517 | ) | | (181,517 | ) | |
Stock-based compensation, net | 1,196,068 |
| | 299 |
| | 81,105 |
| | — |
| | (1,133 | ) | | 80,271 |
| |
Foreign currency translation and other | — |
| | — |
| | — |
| | (174,870 | ) | | — |
| | (174,870 | ) | |
Defined benefit pension plans | — |
| | — |
| | — |
| | 59,101 |
| | — |
| | 59,101 |
| |
Derivative financial instruments | — |
| | — |
| | — |
| | 97,721 |
| | — |
| | 97,721 |
| |
Balance, June 2018 | 395,509,138 |
| | $ | 98,877 |
| | $ | 3,688,529 |
| | $ | (882,078 | ) | | $ | 825,788 |
| | $ | 3,731,116 |
| |
See notes to consolidated financial statements.
VF Corporation Q1 FY20 Form 10-Q 8
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”) uses a 52/53 week fiscal year ending on the Saturday closest to March 31 of each year. The Company's current fiscal year runs from March 31, 2019 through March 28, 2020 ("Fiscal 2020"). Accordingly, this Form 10-Q presents our first quarter of Fiscal 2020. For presentation purposes herein, all references to periods ended June 2019 and June 2018 relate to the fiscal periods ended on June 29, 2019 and June 30, 2018, respectively. References to March 2019 relate to information as of March 30, 2019.
On May 22, 2019, VF completed the spin-off of its Jeans business, which included the Wrangler®, Lee® and Rock & Republic® brands, as well as the VF OutletTM business, into an independent, publicly traded company. As a result, VF reported the operating results for the Jeans business in the income (loss) from discontinued operations, net of tax line item in the Consolidated Statements of Income for all periods presented. In addition, the related assets and liabilities have been reported as assets and liabilities of discontinued operations in the Consolidated Balance Sheets, through the date the spin-off was completed.
Additionally, the Nautica® brand business has 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 the date of sale. 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.
Certain prior year amounts have been reclassified to conform to the Fiscal 2020 presentation.
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. Similarly, the March 2019 condensed consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. 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 months ended June 2019 are not necessarily indicative of results that may be expected for any other interim period or for Fiscal 2020. 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 March 30, 2019 (“Fiscal 2019 Form 10-K”).
NOTE 2 — RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS
Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, “Leases (Topic 842)”, a new accounting standard on leasing. The FASB subsequently issued updates to the standard to provide additional clarification on specific topics, including permitted transition methods. Collectively, the guidance is referred to as FASB Accounting Standards Codification ("ASC") 842. This standard requires companies to record most leased assets and liabilities on the balance sheet, and also retains a dual model approach for assessing lease classification and recognizing expense. The Company adopted this standard on March 31, 2019, utilizing the modified retrospective method and has recognized the cumulative effect of initially applying the new standard in retained earnings. The effective date of the adoption has been used as the date of initial application, and thus comparative prior period financial information has not been restated and continues to be reported under accounting standards in effect for those periods.
The standard provides certain optional practical expedients for transition. The Company elected the transition relief package of practical expedients by applying previous accounting conclusions under ASC Topic 840, Leases ("ASC 840"), to all leases that existed prior to the transition date. As a result, VF did not reassess (i) whether existing or expired contracts contain leases, (ii) lease classification for any existing or expired leases, or (iii) whether lease origination costs qualified as initial direct costs. The
Company also elected the land easement practical expedient, which allows the Company to apply ASC 842 prospectively to land easements after the adoption date if they were not previously accounted for under ASC 840. Certain leases contain both lease and non-lease components. For leases associated with specific asset classes, including certain real estate, vehicles, manufacturing machinery and IT equipment, VF has elected the practical expedient which permits entities to account for separate lease and non-lease components as a single component. For all other lease contracts, the Company has elected to account for each lease component separately from the non-lease components of the contract. When applicable, VF will measure the consideration to be paid pursuant to the agreement and allocate this consideration to the lease and non-lease components based on relative stand-alone prices. Further, the Company made an accounting policy election to not recognize right-of-use assets and lease liabilities for leases with terms of 12 months or less.
The adoption of ASC 842 resulted in a net decrease of $2.5 million in the retained earnings line item of the Consolidated Balance Sheet as of March 31, 2019. The adoption of ASC 842 also resulted in the recognition of operating lease right-of-use assets and operating lease liabilities within the Consolidated Balance Sheet. Refer to Note 10 for additional lease disclosures.
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
9 VF Corporation Q1 FY20 Form 10-Q
aspects of hedge accounting rules to better portray the economic results of risk management activities in the financial statements. The FASB subsequently issued updates to the standard to provide additional guidance on specific topics. This guidance became effective for VF in the first quarter of Fiscal 2020, but did not impact VF's consolidated financial statements.
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 Cuts and Jobs Act ("Tax Act") on items within accumulated other comprehensive income (loss). The guidance became effective for VF in the first quarter of Fiscal 2020. The Company elected to reclassify the income tax effects of the Tax Act on items within accumulated other comprehensive income (loss) of $61.9 million to retained earnings, which primarily related to deferred taxes previously recorded for pension benefits. The adoption of this guidance did not have an impact on VF's consolidated results of operations or cash flows.
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. This guidance became effective for VF in the first quarter of Fiscal 2020, but did not impact 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 became effective for VF in the first quarter of Fiscal 2020. The guidance did not impact VF's consolidated financial statements.
Recently Issued Accounting Standards
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. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. 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 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.
VF Corporation Q1 FY20 Form 10-Q 10
NOTE 3 — REVENUES
The following table provides information about accounts receivable, contract assets and contract liabilities:
|
| | | | | | | | | | | | | |
(In thousands) | | June 2019 | | | March 2019 | | June 2018 |
Accounts receivable, net | | $ | 1,306,270 |
| | | $ | 1,465,855 |
| | $ | 1,222,938 |
|
Contract assets (a) | | 1,576 |
| | | 2,569 |
| | 1,543 |
|
Contract liabilities (b) | | 44,364 |
| | | 30,181 |
| | 27,105 |
|
| |
(a) | Included in the other current assets line item in the Consolidated Balance Sheets. |
| |
(b) | Included in the accrued liabilities and other liabilities line items in the Consolidated Balance Sheets. |
For the three months ended June 2019, the Company recognized $24.7 million of revenue that was included in the contract liability balance during the period. 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.
For the three months ended June 2019, revenue recognized from performance obligations satisfied, or partially satisfied, in prior periods was not material.
As of June 2019, the Company expects to recognize $85.0 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 related to licensing arrangements is not disclosed as a remaining performance obligation as it qualifies for the sales-based royalty exemption. VF has also elected the practical expedient to not disclose the transaction price allocated to remaining performance obligations for contracts with an original expected duration of one year or less.
As of June 2019, there were 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.
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 June 2019 | |
(In thousands) | Outdoor | | Active | | Work | | Other | | Total | |
Channel revenues |
| |
| |
| |
| |
| |
Wholesale | $ | 341,756 |
| | $ | 660,142 |
| | $ | 377,548 |
| | $ | 2,808 |
| | $ | 1,382,254 |
| |
Direct-to-consumer | 266,342 |
| | 565,887 |
| | 40,852 |
| | 3,454 |
| | 876,535 |
| |
Royalty | 2,522 |
| | 6,097 |
| | 4,071 |
| | — |
| | 12,690 |
| |
Total | $ | 610,620 |
| | $ | 1,232,126 |
| | $ | 422,471 |
| | $ | 6,262 |
| | $ | 2,271,479 |
| |
| | | | | | | | | | |
Geographic revenues |
| |
| |
| |
| |
| |
United States | $ | 303,052 |
| | $ | 711,205 |
| | $ | 346,160 |
| | $ | — |
| | $ | 1,360,417 |
| |
International | 307,568 |
| | 520,921 |
| | 76,311 |
| | 6,262 |
| | 911,062 |
| |
Total | $ | 610,620 |
| | $ | 1,232,126 |
| | $ | 422,471 |
| | $ | 6,262 |
| | $ | 2,271,479 |
| |
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 2018 |
(In thousands) | Outdoor | | Active | | Work | | Other | | Total |
Channel revenues |
| |
| |
| |
| |
|
Wholesale | $ | 309,776 |
| | $ | 654,848 |
| | $ | 381,364 |
| | $ | 8,305 |
| | $ | 1,354,293 |
|
Direct-to-consumer | 255,964 |
| | 475,536 |
| | 36,838 |
| | — |
| | 768,338 |
|
Royalty | 2,860 |
| | 6,553 |
| | 5,091 |
| | — |
| | 14,504 |
|
Total | $ | 568,600 |
| | $ | 1,136,937 |
| | $ | 423,293 |
| | $ | 8,305 |
| | $ | 2,137,135 |
|
| | | | | | | | | |
Geographic revenues |
| |
| |
| |
| |
|
United States | $ | 262,856 |
| | $ | 644,105 |
| | $ | 331,099 |
| | $ | 8,305 |
| | $ | 1,246,365 |
|
International | 305,744 |
| | 492,832 |
| | 92,194 |
| | — |
| | 890,770 |
|
Total | $ | 568,600 |
| | $ | 1,136,937 |
| | $ | 423,293 |
| | $ | 8,305 |
| | $ | 2,137,135 |
|
11 VF Corporation Q1 FY20 Form 10-Q
NOTE 4 — ACQUISITIONS
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$1.4 million ($0.9 million) for the year ended March 2019, related to working capital adjustments, resulting in a revised purchase price of NZ$273.0 million ($197.6 million). The purchase price allocation was finalized during the three months ended March 2019.
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 position VF as a global leader in the Merino wool and natural fiber categories.
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 | | 21,262 |
|
Deferred income tax liabilities | | 26,870 |
|
Other noncurrent liabilities | | 433 |
|
Total liabilities assumed | | 57,875 |
|
| | |
Net assets acquired | | 107,666 |
|
Goodwill | | 89,943 |
|
Purchase price | | $ | 197,609 |
|
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 were 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 and the remainder was recognized prior to Fiscal 2019. In addition, the Company 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 and the remainder was recognized prior to Fiscal 2019.
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.
VF Corporation Q1 FY20 Form 10-Q 12
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 year ended March 2019, related to working capital adjustments, resulting in a revised purchase price of $131.6 million. The allocation of the purchase price was finalized during the three months ended December 2018, resulting in a decrease of goodwill
by $1.5 million related to a final adjustment to working capital balances.
Altra®, the primary brand, is an athletic and performance-based lifestyle footwear brand. 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.
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 | | $ | 11,629 |
|
Inventories | | 9,310 |
|
Other current assets | | 575 |
|
Property, plant and equipment | | 1,107 |
|
Intangible assets | | 59,700 |
|
Total assets acquired | | 82,321 |
|
| | |
Accounts payable | | 5,068 |
|
Other current liabilities | | 7,415 |
|
Total liabilities assumed | | 12,483 |
|
| | |
Net assets acquired | | 69,838 |
|
Goodwill | | 61,719 |
|
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.