Quarterly report pursuant to Section 13 or 15(d)

TRANSACTIONS WITH FORMER PARENT

v3.19.2
TRANSACTIONS WITH FORMER PARENT
 6 Months Ended
Jun. 29, 2019
Related Party Transactions [Abstract]  
TRANSACTIONS WITH FORMER PARENT TRANSACTIONS WITH FORMER PARENT

Prior to the Separation, the Company's financial statements were prepared on a carve-out basis and were derived from the consolidated financial statements and accounting records of VF. The following discussion summarizes activity between the Company and VF.
Allocation of General Corporate Expenses
Prior to the Separation, the Company's statements of income included expenses for certain centralized functions and other programs provided and administered by VF that were charged directly to the Company. In addition, for purposes of preparing these financial statements on a carve-out basis, the Company was allocated a portion of VF's total corporate expenses. See Note 1 in the Company's 2018 Form 10 for a discussion of the methodology used to allocate corporate-related costs for purposes of preparing these financial statements on a carve-out basis.
Sales and Purchases To and From Former Parent
During the first two months of the second quarter of fiscal year 2019 and the first five months of fiscal year 2019 through the Separation date, the Company's sales to VF totaled $3.4 million and $14.1 million, respectively, and $12.1 million and $25.6 million for the three and six months ended June 2018, respectively, which are included in "net revenues" in the Company's statements of income. The Company's cost of goods sold includes items purchased from VF totaling $0.2 million and $0.5 million for the first two months of the second quarter of fiscal year 2019 and the first five months of fiscal year 2019 through the Separation date, respectively, and $0.4 million and $1.2 million for the three and six months ended June 2018, respectively. At June 2019, December 2018 and June 2018, the aggregate amount of inventories purchased from VF that remained on the Company's balance sheets were approximately $1.0 million, $0.8 million and $2.3 million, respectively.
Notes To and From Former Parent
All notes to and from former parent were settled in connection with the Separation. At December 2018 and June 2018, the Company had notes receivable from former parent of $517.9 million and $546.7 million, respectively, with VF as the counterparty. The weighted-average interest rate for these notes was approximately 3.4% and 2.4% at December 2018 and June 2018, respectively.
At December 2018 and June 2018, the Company had notes payable to former parent of $269.1 million and $269.1 million, respectively, with VF as the counterparty. The weighted-average interest rate for these notes was approximately 3.4% and 2.3% at December 2018 and June 2018, respectively.
The Company recorded net interest income related to these notes for the first two months of the second quarter of fiscal year 2019 and the first five months of fiscal year 2019 through the Separation date of $1.4 million and $3.8 million, respectively, and $1.7 million and $3.3 million for the three and six months ended June 2018, respectively, which is reflected in "interest income from former parent, net" within the Company's statements of income.
Due To and From Former Parent
All amounts due to and from former parent were settled in connection with the Separation. Balances that were in due to and from former parent were generated by (i) the sale of trade accounts receivable to VF, as discussed in Note 5 to the Company's financial statements, (ii) hedging agreements with VF, and (iii) sourcing payable to VF.
Prior to the Separation, the Company did not enter into derivative contracts. However, VF entered into derivative contracts with external counterparties to hedge certain foreign currency transactions with exposure to the euro, Mexican peso, Polish zloty, Canadian dollar, and other currencies. The Company entered into offsetting internal contracts with VF with maturities up to 20 months, and cash settled with VF on any asset or liability that arose under these contracts.
Due from former parent, current consists of the following:
(in thousands)
 
December 2018
 
June 2018
Sale of trade accounts receivable
 
$
544,858

 
$
553,355

Hedging agreements with VF
 
2,832

 
621


 
$
547,690

 
$
553,976


As discussed in Note 5 to the financial statements, the Company sold certain of its trade accounts receivable to VF, who then sold them to a financial institution and periodically remitted cash back to the Company.
Due from former parent, noncurrent consists of the following:
(in thousands)
 
December 2018
 
June 2018
Hedging agreements with VF
 
$
611

 
$
—

Due to former parent, current consists of the following:
(in thousands)
 
December 2018
 
June 2018
Sourcing payable
 
$
16,140

 
$
59,424

Net Transfers To and From VF
Net transfers to and from VF are included in "former parent investment" within the statements of equity. The components of the transfers to and from VF are as follows:
 
 
Six Months Ended June
 
 
 
 
 
 
(in thousands)
 
2019(a)
 
 
2018
General financing activities
 
$
(723,155
)
 
 
$
203,402

Corporate allocations
 
47,903

 
 
61,465

Stock-based compensation expense
 
9,582

 
 
5,552

Pension (benefit) costs
 
(2,246
)
 
 
4,275

Purchases from parent
 
3,193

 
 
1,644

Sales to parent
 
(13,988
)
 
 
(25,612
)
Other income tax
 
10,863

 
 
34,684

Transition tax related to the Tax Act
 
3,937

 
 
—

Cash dividend to former parent
 
(1,032,948
)
 
 
—

Total net transfers (to) from former parent
 
$
(1,696,859
)
 
 
$
285,410

 
 
 
 
 
 
(a) Activity reflected through the Separation date