Document

The Williamson-Dickie acquisition significantly impacted the December 2017 Consolidated Balance Sheet. Accordingly, the table below presents the December 2017 balance sheet accounts excluding the Williamson-Dickie balances at that date so that the remaining 乱伦巴士 balances are comparable with the December 2016 balances.



	December 2017						December 2016
(In thousands)	As Reported		Williamson-Dickie		乱伦巴士 excluding Williamson-Dickie		As Reported
Accounts receivable	$	1,422,101	$	132,402	$	1,289,699	$	1,148,797
Inventories	1,705,171		236,749		1,468,422		1,424,571
Other current assets	296,712		10,601		286,111		293,888
Property, plant and equipment	1,002,700		100,520		902,180		895,960
Intangible assets and goodwill	3,782,425		488,570		3,293,855		3,088,595
Other assets	781,253		12,291		768,962		922,312
Short-term borrowings	729,384		—		729,384		26,029
Current portion of long-term debt	6,165		2,285		3,880		253,689
Accounts payable	755,569		84,425		671,144		620,194
Accrued liabilities	1,143,330		48,987		1,094,343		812,032
Long-term debt	2,187,789		25,490		2,162,299		2,039,180
Other liabilities	1,305,613		21,811		1,283,802		885,825

Unless noted otherwise, the discussion that follows relates to 乱伦巴士's businesses excluding the Williamson-Dickie balances at December 2017. The discussion refers to significant changes in balances at December 2017 compared to December 2016:


•	Increase in accounts receivable — primarily due to higher wholesale shipments in the fourth quarter of 2017 and the impact of foreign currency fluctuations.


•	Increase in inventories — driven by the impact of foreign currency fluctuations.


•	Increase in intangible assets and goodwill — driven by the impact of foreign currency fluctuations.


•	Decrease in other assets — primarily due to the cumulative-effect adjustment to retained earnings of a deferred charge upon the early adoption of the accounting standards update regarding intra-entity asset transfers; partially offset by an increase in net pension assets for certain defined benefit plans and the impact of foreign currency fluctuations.


•	Increase in short-term borrowings — due to the increase in commercial paper borrowings primarily related to the funding of the Williamson-Dickie acquisition.


•	Decrease in current portion of long-term debt — due to the repayment of $250.0 million of notes that matured during the year.


•	Increase in accounts payable — primarily due to the timing of inventory purchases and payments to vendors and the impact of foreign currency fluctuations.


•	Increase in accrued liabilities — primarily due to changes in the fair value of derivative liabilities related to foreign exchange contracts, an increase in accrued income taxes related to the current portion of the transition tax related to the Tax Act and the impact of foreign currency fluctuations.


•	Increase in long-term debt — due to foreign currency fluctuations of euro-denominated bonds.


•	Increase in other liabilities — primarily due to an increase in accrued income taxes from the noncurrent portion of the transition tax related to the Tax Act, partially offset by a decrease in deferred income tax liabilities resulting from revaluation at the lower U.S. corporate rate required by the Tax Act.

乱伦巴士 Corporation 2017 Form 10-K 29

Liquidity and Cash Flows

The financial condition of 乱伦巴士 is reflected in the following:



(Dollars in millions)	2017	2016
Working capital	$1,355.6	$2,383.2
Current ratio	1.5 to 1	2.4 to 1
Debt to total capital	44.0%	31.9%

For the ratio of debt to total capital, debt is defined as short-term and long-term borrowings, and total capital is defined as debt plus stockholders’ equity. The increase in the debt to total capital ratio at December 2017 compared to 2016 was primarily due to the increase in short-term borrowings, partially offset by the decrease in total long-term debt, as discussed in “Balance Sheets” above. In addition, 乱伦巴士 repurchased $1.2 billion of stock and paid $684.7 million in dividends in 2017, which reduced stockholders’ equity by $1.9 billion. Stockholder's equity was also reduced by $237.8 million related to the cumulative-effect adjustment upon the early adoption of the accounting standards update regarding intra-entity

asset transfers and the impact of the $465.5 million provisional net charge related to the Tax Act.

乱伦巴士’s primary source of liquidity is the strong annual cash flow provided by operating activities. Cash from operations is typically lower in the first half of the year as inventory builds to support peak sales periods in the second half of the year. Cash provided by operating activities in the second half of the year is substantially higher as inventories are sold and accounts receivable are collected. Additionally, direct-to-consumer sales are highest in the fourth quarter of the year.

In summary, our cash flows were as follows:



(In millions)	2017			2016			2015
Cash provided by operating activities	$	1,474.7		$	1,480.6		$	1,203.6
Cash used by investing activities	(776.3		)	(112.4		)	(322.8		)
Cash used by financing activities	(1,363.0		)	(1,076.9		)	(840.2		)

The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows. Accordingly, the information in the table above and cash flow discussion below include the results of continuing and discontinued operations.

Cash Provided by Operating Activities

Cash flow provided by operating activities is dependent on the level of net income, adjustments to net income and changes in working capital. Cash provided by operating activities remained relatively flat as lower net income was offset by working capital changes primarily related to an increase in accrued income tax payable resulting from the Tax Act.

Cash provided by operating activities increased $277.0 million in 2016 primarily due to i) a $250.0 million discretionary contribution to the U.S. qualified pension plan in 2015 that did not recur in 2016, and ii) a decrease in net cash usage from working capital changes due in part to higher collections of accounts receivable and lower increases of inventory, partially offset by higher levels of cash tax payments compared to 2015.

Cash Used by Investing Activities

乱伦巴士’s investing activities in 2017 related primarily to the Williamson-Dickie acquisition of $740.5 million, net of cash received. Additionally, the activities included $215.0 million of proceeds from the sale of LSG, which is $99.0 million higher than the proceeds received from the sale of the Contemporary Brands coalition in 2016. Capital expenditures of $169.6 million and software purchases of $65.2 million offset the proceeds received. Capital expenditures decreased $6.3 million compared to 2016. Software purchases increased $21.0 million in 2017 primarily due to system implementations and investments in our digital platform.

乱伦巴士’s investing activities in 2016 related primarily to capital expenditures of $175.8 million and software purchases of $44.2 million, partially offset by $116.0 million of proceeds from the sale of its Contemporary Brands coalition. Capital expenditures

decreased $78.7 million compared to 2015 primarily due to the purchase in 2015 of a headquarters building in the Outdoor & Action Sports coalition. Software purchases decreased $19.1 million in 2016 primarily due to the completion of a major system implementation that incurred significant costs through the middle of 2015.

Cash Used by Financing Activities

The increase in cash used by financing activities in 2017 compared to 2016 was driven by i) no long-term debt borrowings in 2017 compared to $951.8 million in proceeds during 2016, ii) the $250.0 million repayment of long-term debt discussed in "Balance Sheets" above, iii) a $199.9 million increase in purchases of treasury stock, and iv) a $48.7 million increase in cash dividends paid. These increases were partially offset by the $1.1 billion increase in net cash generated by short-term borrowings as discussed in “Balance Sheets” above.

The increase in cash used by financing activities in 2016 compared to 2015 was driven by i) the $853.3 million net decrease in short-term borrowings, ii) a $267.8 million increase in purchases of treasury stock and iii) a $70.7 million increase in cash dividends paid. These increases were partially offset by $951.8 million of proceeds from the issuance of long-term debt.

During 2017, 2016 and 2015, 乱伦巴士 purchased 22.2 million, 15.9 million and 10.0 million shares, respectively, of its Common Stock in open market transactions. The respective cost was $1.2 billion, $1.0 billion and $732.6 million with an average price per share of $54.04 in 2017, $62.80 in 2016 and $73.00 in 2015.

In March 2017, 乱伦巴士's Board of Directors approved a $5.0 billion share repurchase authorization, replacing the 2013 authorization. As of

30 乱伦巴士 Corporation 2017 Form 10-K

the end of 2017, 乱伦巴士 has purchased 14.0 million shares of its Common Stock in open market transactions at a total cost of $762.1 million (average price per share of $54.46) under the new share repurchase authorization, and had $4.2 billion remaining for future repurchases. 乱伦巴士 will continue to evaluate its use of capital, giving first priority to business acquisitions and then to direct shareholder return in the form of dividends and share repurchases.

乱伦巴士 relied on continued strong cash generation to finance its ongoing operations. In addition, 乱伦巴士 has significant liquidity from its available cash balances and credit facilities. 乱伦巴士 maintains a $2.25 billion senior unsecured revolving line of credit (the “Global Credit Facility”). The Global Credit Facility expires in April 2020 and 乱伦巴士 may request two extensions of one year each, subject to stated terms and conditions. The Global Credit Facility may be used to borrow funds in both U.S. dollar and certain non-U.S. dollar currencies, and has a $50.0 million letter of credit sublimit. In addition, the Global Credit Facility supports 乱伦巴士’s U.S. commercial paper program for short-term, seasonal working capital requirements and general corporate purposes, including share repurchases. Borrowings under the Global Credit Facility are priced at a credit spread of 80.5 basis points over the appropriate LIBOR benchmark for each currency. 乱伦巴士 is also required to pay a facility fee to the lenders, currently equal to 7.0 basis points of the committed amount of the facility. The credit spread and facility fee are subject to adjustment based on 乱伦巴士’s credit ratings.

乱伦巴士 has a commercial paper program that allows for borrowings up to $2.25 billion to the extent that it has borrowing capacity under the Global Credit Facility. Commercial paper borrowings and standby letters of credit issued as of December 2017 were $705.0 million and $15.3 million, respectively, leaving $1.5 billion available for borrowing against the Global Credit Facility at December 2017.

乱伦巴士 has $267.0 million of international lines of credit with various banks, which are uncommitted and may be terminated at any time

by either 乱伦巴士 or the banks. Total outstanding balances under these arrangements were $24.4 million and $26.0 million at December 2017 and 2016, respectively. Borrowings under these arrangements had a weighted average interest rate of 9.9% and 7.2% at December 2017 and 2016, respectively, excluding accepted letters of credit which are non-interest bearing to 乱伦巴士.

乱伦巴士 repaid $250.0 million of 5.95% fixed-rate notes on November 1, 2017, using a combination of operating cash flows and commercial paper borrowings.

乱伦巴士’s favorable credit agency ratings allow for access to additional liquidity at competitive rates. At the end of 2017, 乱伦巴士’s long-term debt ratings were ‘A’ by Standard & Poor’s Ratings Services and ‘A3’ by Moody’s Investors Service, and commercial paper ratings by those rating agencies were ‘A-1’ and ‘Prime-2’, respectively. None of 乱伦巴士’s long-term debt agreements contain acceleration of maturity clauses based solely on changes in credit ratings. However, if there were a change in control of 乱伦巴士 and, as a result of the change in control, the 2021, 2023 and 2037 notes were rated below investment grade by recognized rating agencies, 乱伦巴士 would be obligated to repurchase the notes at 101% of the aggregate principal amount of notes repurchased, plus any accrued and unpaid interest.

Cash dividends totaled $1.72 per share in 2017, compared to $1.53 in 2016 and $1.33 in 2015. The dividend payout ratio was 96.2% of diluted earnings per share in 2017, 59.9% in 2016 and 47.2% in 2015. Based on the quarterly dividend in place, the current indicated annual dividend rate for 2018 is $1.84 per share.

Following is a summary of 乱伦巴士’s contractual obligations and commercial commitments at the end of 2017 that will require the use of funds:



			Payment Due or Forecasted by Calendar Year
(In millions)	Total		2018		2019		2020		2021		2022		Thereafter
Recorded liabilities:
Long-term debt ⁽¹⁾	$	2,186	$	4	$	4	$	4	$	502	$	—	$	1,672
Other ⁽²⁾	452		123		82		59		45		41		102
Unrecorded commitments:
Interest payment obligations ⁽³⁾	840		65		65		65		64		47		534
Operating leases ⁽⁴⁾	1,156		346		272		207		138		86		107
Minimum royalty payments ⁽⁵⁾	31		16		7		5		3		—		—
Inventory obligations ⁽⁶⁾	1,820		1,820		—		—		—		—		—
Other obligations ⁽⁷⁾	442		365		48		12		8		3		6
	$	6,927	$	2,739	$	478	$	352	$	760	$	177	$	2,421


⁽¹⁾	Long-term debt consists of required principal payments on long-term debt and capital lease obligations.


⁽²⁾	Other recorded liabilities represent payments due for long-term liabilities in 乱伦巴士’s Consolidated Balance Sheet related to deferred compensation and other employee-related benefits, product warranty claims and other liabilities. These amounts are based on historical and forecasted cash outflows. Amounts exclude liabilities for unrecognized income tax benefits and deferred income taxes.

Obligations under our qualified defined benefit pension plans and unfunded supplemental executive retirement plan are not included in the table above. Contractual cash obligations for these plans cannot be determined due to the number of assumptions required to estimate our future benefit obligations, including return on assets, discount rate and future compensation increases. The liabilities associated with these plans are presented in Note N to the consolidated financial statements. We currently estimate that we will make contributions of approximately $35.1 million to our pension plans during calendar year 2018. Future contributions may differ from our planned contributions due to many factors, including changes

乱伦巴士 Corporation 2017 Form 10-K 31

in tax and other benefit laws, changes to the plan, or significant differences between expected and actual pension asset performance or interest rates.


⁽³⁾	Interest payment obligations represent required interest payments on long-term debt and the interest portion of payments on capital leases. Amounts exclude amortization of debt issuance costs, debt discounts and acquisition costs that would be included in interest expense in the consolidated financial statements.


⁽⁴⁾	Operating leases represent required minimum lease payments during the noncancelable lease term. Most real estate leases also require payment of related operating expenses such as taxes, insurance, utilities and maintenance, which are not included above.


⁽⁵⁾	Minimum royalty payments represent obligations under license agreements to use trademarks owned by third parties and include required minimum advertising commitments. Actual payments could exceed minimum royalty obligations.


⁽⁶⁾	Inventory obligations represent binding commitments to purchase finished goods, raw materials and sewing labor that are payable upon delivery of the inventory to 乱伦巴士. This obligation excludes the amount included in accounts payable at December 2017 related to inventory purchases.

⁽⁷⁾

Other obligations represent other binding commitments for the expenditure of funds, including (i) amounts related to contracts not involving the purchase of inventories, such as the noncancelable portion of service or maintenance agreements for management information systems, (ii) capital expenditures for approved projects, and (iii) amounts related to the definitive merger agreement to acquire 100% of the stock of Icebreaker Holdings, Ltd.

乱伦巴士 had other financial commitments at the end of 2017 that are not included in the above table but may require the use of funds under certain circumstances:


•	$123.9 million of surety bonds, custom bonds, standby letters of credit and international bank guarantees are not included in the above table because they represent contingent guarantees of performance under self-insurance and other programs and would only be drawn upon if 乱伦巴士 were to fail to meet its other obligations.


•	Purchase orders for goods or services in the ordinary course of business are not included in the above table because they represent authorizations to purchase rather than binding commitments.

Management believes that 乱伦巴士’s cash balances and funds provided by operating activities, as well as its Global Credit Facility, additional borrowing capacity and access to capital markets, taken as a whole, provide (i) adequate liquidity to meet all of its current and long-term obligations when due, (ii) adequate liquidity to fund capital expenditures and to maintain the planned dividend payout rate, and (iii) flexibility to meet investment opportunities that may arise.

乱伦巴士 does not participate in transactions with unconsolidated entities or financial partnerships established to facilitate off-balance sheet arrangements or other limited purposes.

Risk Management

乱伦巴士 is exposed to risks in the ordinary course of business. Management regularly assesses and manages exposures to these risks through operating and financing activities and, when appropriate, by (i) taking advantage of natural hedges within 乱伦巴士, (ii) purchasing insurance from commercial carriers, or (iii) using derivative financial instruments. Some potential risks are discussed below:

Insured risks

乱伦巴士 is self-insured for a significant portion of its employee medical, workers’ compensation, vehicle and general liability exposures. 乱伦巴士 purchases insurance from highly-rated commercial carriers to cover other risks, including directors and officers, property and umbrella, and to establish stop-loss limits on self-insurance arrangements.

Cash and equivalents risks

乱伦巴士 had $566.1 million of cash and equivalents at the end of 2017. Management continually monitors the credit ratings of the financial institutions with whom 乱伦巴士 conducts business. Similarly, management monitors the credit quality of cash equivalents.

Defined benefit pension plan risks

At the end of 2017, 乱伦巴士’s defined benefit pension plans were underfunded by a net total of $134.2 million. The underfunded status includes a $162.0 million liability related to our unfunded U.S. nonqualified defined benefit plan, $48.5 million of net liabilities related to our non-U.S. defined benefit plans, and a $76.3 million asset related to our U.S. qualified defined benefit

plan. 乱伦巴士 has made significant cash contributions in recent years to improve the funded status of its plans, including a discretionary contribution to the U.S. qualified plan of $250.0 million in 2015. 乱伦巴士 will continue to evaluate the funded status and future funding requirements of these plans, which depends in part on the future performance of the plans’ investment portfolios. Management believes that 乱伦巴士 has sufficient liquidity to make any required contributions to the pension plans in future years.

乱伦巴士’s reported earnings are subject to risks due to the volatility of its pension expense, which has ranged in recent years from $34.8 million in 2017 to $113.0 million in 2016, including the $50.9 million settlement charge discussed below. These fluctuations are primarily due to varying amounts of actuarial gains and losses that are deferred and amortized to future years’ expense. The assumptions that impact actuarial gains and losses include the rate of return on investments held by the pension plans, the discount rate used to value participant liabilities and demographic characteristics of the participants.

During 2016, 乱伦巴士 took an additional step in managing pension risk by offering former employees in the U.S. qualified plan a one-time option to receive a distribution of their deferred vested benefits, pursuant to which the plan paid $197.1 million in lump-sum distributions to settle $224.7 million of projected benefit obligations. The Company recorded $50.9 million in settlement charges during 2016 to recognize the related deferred actuarial losses in accumulated other comprehensive income (loss). No additional funding of the pension plan was required as all distributions were paid out of existing plan assets, and the plan’s funded status remained materially unchanged as a result of this offer. However, assuming other key assumptions remain

32 乱伦巴士 Corporation 2017 Form 10-K

unchanged, pension expense will decrease in future years due to lower amortization of net deferred actuarial losses. Refer to Note N to the consolidated financial statements and the “Critical Accounting Policies and Estimates” section below.

乱伦巴士 has taken a series of steps to manage the risk and volatility in the pension plans and their impact on the financial statements. In 2005, 乱伦巴士’s U.S. defined benefit plans were closed to new entrants, which did not affect the benefits of existing plan participants at that date or their accrual of future benefits. In more recent years, the investment strategy of the U.S. qualified plan has been revised to define dynamic asset allocation targets that are dependent upon changes in the plan’s funded status, capital market expectations, and risk tolerance. Additionally, 乱伦巴士 completed the one-time lump-sum offering noted above during 2016 which reduced the number of plan participants in the U.S. qualified plan by 23%. Management will continue to evaluate actions that may help to reduce 乱伦巴士’s risks related to its defined benefit plans.

Interest rate risks

乱伦巴士 limits the risk of interest rate fluctuations by managing the mix of fixed and variable interest rate debt. In addition, 乱伦巴士 may use derivative financial instruments to manage risk. Since all of 乱伦巴士’s long-term debt has fixed interest rates, the exposure relates to changes in interest rates on variable rate short-term borrowings (which averaged approximately $870 million during 2017). However, any change in interest rates would also affect interest income earned on 乱伦巴士’s cash equivalents. Based on the average amount of variable rate borrowings and cash equivalents during 2017, the effect of a hypothetical 1% increase in interest rates would be a decrease in reported net income of approximately $3.6 million.

Foreign currency exchange rate risks

乱伦巴士 is a global enterprise subject to the risk of foreign currency fluctuations. Approximately 41% of 乱伦巴士’s revenues in 2017 were generated in international markets. Most of 乱伦巴士’s foreign businesses operate in functional currencies other than the U.S. dollar. In periods where the U.S. dollar strengthens relative to the euro or other foreign currencies where 乱伦巴士 has operations, there is a negative impact on 乱伦巴士’s operating results upon translation of those foreign operating results into the U.S. dollar. As discussed later in this section, management hedges 乱伦巴士’s investments in certain foreign operations and foreign currency transactions.

The reported values of assets and liabilities in these foreign businesses are subject to fluctuations in foreign currency exchange rates. For net advances to and investments in 乱伦巴士’s foreign businesses that are considered to be long-term, the impact of changes in foreign currency exchange rates on those long-term advances is deferred as a component of accumulated OCI in stockholders’ equity. The U.S. dollar value of net investments in foreign subsidiaries fluctuates with changes in the underlying functional currencies. On September 20, 2016, 乱伦巴士 issued €850 million of euro-denominated fixed-rate notes which it has designated as a net investment hedge of 乱伦巴士’s investment in certain foreign operations. Because this debt qualified as a nonderivative hedging instrument, foreign currency transaction gains or losses of the debt are deferred in the foreign currency translation and other component of accumulated OCI as an offset to the foreign currency translation adjustments on the hedged investments. Any amounts deferred in accumulated OCI will remain until the hedged investment is sold or substantially liquidated.

乱伦巴士 monitors net foreign currency market exposures and enters into derivative foreign currency contracts to hedge the effects of

exchange rate fluctuations for a significant portion of forecasted foreign currency cash flows or specific foreign currency transactions (relating to cross-border inventory purchases, production costs, product sales, operating costs and intercompany royalty payments). 乱伦巴士’s practice is to buy or sell foreign currency exchange contracts that cover up to 80% of foreign currency exposures for periods of up to 24 months. Currently, 乱伦巴士 uses only foreign exchange forward contracts but may use options or collars in the future. This use of financial instruments allows management to reduce the overall exposure to risks from exchange rate fluctuations on 乱伦巴士’s cash flows and earnings, since gains and losses on these contracts will offset losses and gains on the transactions being hedged.

For cash flow hedging contracts outstanding at the end of 2017, if there were a hypothetical 10% change in foreign currency exchange rates compared to rates at the end of 2017, it would result in a change in fair value of those contracts of approximately $230 million. However, any change in the fair value of the hedging contracts would be substantially offset by a change in the fair value of the underlying hedged exposure impacted by the currency rate changes.

Counterparty risks

乱伦巴士 is exposed to credit-related losses in the event of nonperformance by counterparties to derivative hedging instruments. To manage this risk, we have established counterparty credit guidelines and only enter into derivative transactions with financial institutions that have ‘A minus/A3’ investment grade credit ratings or better. 乱伦巴士 continually monitors the credit rating of, and limits the amount hedged with, each counterparty. Additionally, management utilizes a portfolio of financial institutions to minimize exposure to potential counterparty defaults and adjusts positions as necessary. 乱伦巴士 also monitors counterparty risk for derivative contracts within the defined benefit pension plans.

Commodity price risks

乱伦巴士 is exposed to market risks for the pricing of cotton, leather, rubber, wool and other materials, which we either purchase directly or in a converted form such as fabric or shoe soles. To manage risks of commodity price changes, management negotiates prices in advance when possible. 乱伦巴士 has not historically managed commodity price exposures by using derivative instruments.

Deferred compensation and related investment security risks

乱伦巴士 has nonqualified deferred compensation plans in which liabilities to the plans’ participants are based on the market values of the participants’ selection of a hypothetical portfolio of investment funds, including 乱伦巴士 Common Stock. 乱伦巴士 invests in a portfolio of securities that substantially mirrors the participants’ investment selections. The increases and decreases in deferred compensation liabilities (except for the participants’ investment selections in 乱伦巴士 Common Stock) are substantially offset by corresponding increases and decreases in the market value of 乱伦巴士’s investments, resulting in an insignificant net exposure to operating results and financial position. The 乱伦巴士 Common Stock is treated as treasury shares for financial reporting purposes, so any gains or losses on those shares result in exposure to operating results and financial position as a result of the corresponding change in participant liabilities.

乱伦巴士 Corporation 2017 Form 10-K 33

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

乱伦巴士 has chosen accounting policies that management believes are appropriate to accurately and fairly report 乱伦巴士’s operating results and financial position in conformity with accounting principles generally accepted in the U.S. 乱伦巴士 applies these accounting policies in a consistent manner. Significant accounting policies are summarized in Note A to the consolidated financial statements.

The application of these accounting policies requires that 乱伦巴士 make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses, contingent assets and liabilities, and related disclosures. These estimates, assumptions and judgments are based on historical experience, current trends and other factors believed to be reasonable under the circumstances. Management evaluates these estimates and assumptions on an ongoing basis. Because 乱伦巴士’s business cycle is relatively short (i.e., from the date

that inventory is received until that inventory is sold and the trade receivable is collected), actual results related to most estimates are known within a few months after any balance sheet date. In addition, 乱伦巴士 may retain outside specialists to assist in valuations of business acquisitions, impairment testing of goodwill and intangible assets, equity compensation, pension benefits and self-insured liabilities. If actual results ultimately differ from previous estimates, the revisions are included in results of operations when the actual amounts become known.

乱伦巴士 believes the following accounting policies involve the most significant management estimates, assumptions and judgments used in preparation of the consolidated financial statements or are the most sensitive to change from outside factors. The application of these critical accounting policies and estimates is discussed with the Audit Committee of the Board of Directors.

Inventories

乱伦巴士’s inventories are stated at the lower of cost or net realizable value. Cost includes all material, labor and overhead costs incurred to manufacture or purchase the finished goods. Overhead allocated to manufactured product is based on the normal capacity of plants and does not include amounts related to idle capacity or abnormal production inefficiencies. 乱伦巴士 performs a detailed review at each business unit, at least quarterly, of all inventories on the basis of individual styles or individual style-size-color stock keeping units to identify slow moving or excess products, discontinued and to-be-discontinued products, and off-quality merchandise. This review matches inventory on hand, plus current production and purchase commitments, with current and expected future sales orders. Management performs an evaluation to estimate net realizable value using a systematic and consistent methodology of forecasting future demand, market conditions and selling prices

less costs of disposal. If the estimated net realizable value is less than cost, 乱伦巴士 provides an allowance to reflect the lower value of that inventory. This methodology recognizes inventory exposures at the time such losses are evident rather than at the time goods are actually sold. Historically, these estimates of future demand and selling prices have not varied significantly from actual results due to 乱伦巴士’s timely identification and ability to rapidly dispose of these distressed inventories.

Existence of physical inventory is verified through periodic physical inventory counts and ongoing cycle counts at most locations throughout the year. 乱伦巴士 provides for estimated inventory losses that have likely occurred since the last physical inventory date. Historically, physical inventory shrinkage has not been significant.

Long-Lived Assets, Including Intangible Assets and Goodwill

乱伦巴士 allocates the purchase price of an acquired business to the fair values of the tangible and intangible assets acquired and liabilities assumed, with any excess purchase price recorded as goodwill. 乱伦巴士 evaluates fair value at acquisition using three valuation techniques - the replacement cost, market and income methods - and weights the valuation methods based on what is most appropriate in the circumstances. The process of assigning fair values, particularly to acquired intangible assets, is highly subjective.

Fair value for acquired intangible assets is generally based on the present value of expected cash flows. Indefinite-lived trademark or trade name intangible assets (collectively referred to herein as “trademarks”) represent individually acquired trademarks, some of which are registered in multiple countries. Definite-lived customer relationship intangible assets are based on the value of relationships with wholesale customers at the time of acquisition. Definite-lived license intangible assets relate to 乱伦巴士's licensing contracts with customers. Goodwill represents the excess of cost of an acquired business over the fair value of net tangible assets and identifiable intangible assets acquired, and is assigned at the reporting unit level.

乱伦巴士’s depreciation policies for property, plant and equipment reflect judgments on their estimated economic lives and residual value,

if any. 乱伦巴士’s amortization policies for definite-lived intangible assets reflect judgments on the estimated amounts and duration of future cash flows expected to be generated by those assets. In evaluating the amortizable life for customer relationship intangible assets, management considers historical attrition patterns for various groups of customers. For license-related intangible assets, management considers historical trends and anticipated license renewal periods.

乱伦巴士’s policy is to review property, plant and equipment and definite-lived intangible assets for potential impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. 乱伦巴士 tests for potential impairment at the asset or asset group level, which is the lowest level for which there are identifiable cash flows that are largely independent. 乱伦巴士 measures recoverability of the carrying value of an asset or asset group by comparison to the estimated undiscounted cash flows expected to be generated by the asset. If the forecasted undiscounted cash flows to be generated by the asset are not expected to be adequate to recover the asset’s carrying value, a fair value analysis must be performed, and an impairment charge is recorded if there is an excess of the asset’s carrying value over its estimated fair value.

34 乱伦巴士 Corporation 2017 Form 10-K

When testing customer relationship intangible assets for potential impairment, management considers historical customer attrition rates and projected revenues and profitability related to customers that existed at acquisition. Management uses the multi-period excess earnings method, which is a specific application of the discounted cash flow method, to value customer relationship assets. Under this method, 乱伦巴士 calculates the present value of the after-tax cash flows expected to be generated by the customer relationship asset after deducting contributory asset charges.

乱伦巴士’s policy is to evaluate indefinite-lived intangible assets and goodwill for possible impairment as of the beginning of the fourth quarter of each year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount. As part of its annual impairment testing, 乱伦巴士 may elect to assess qualitative factors as a basis for determining whether it is necessary to perform quantitative impairment testing. If management’s assessment of these qualitative factors indicates that it is not more likely than not that the fair value of the intangible asset or reporting unit is less than its carrying value, then no further testing is required. Otherwise, the intangible asset or reporting unit must be quantitatively tested for impairment.

An indefinite-lived intangible asset is quantitatively tested for possible impairment by comparing the estimated fair value of the asset to its carrying value. Fair value of an indefinite-lived trademark is based on an income approach using the relief-from-royalty method. Under this method, forecasted revenues for products sold with the trademark are assigned a royalty rate that would be charged to license the trademark (in lieu of ownership), and the estimated fair value is calculated as the present value of those forecasted royalties avoided by owning the trademark. The appropriate discount rate is based on the reporting unit’s weighted average cost of capital (“WACC”) that considers market participant assumptions, plus a spread that factors in the risk of the intangible asset. The royalty rate is selected based on consideration of i) royalty rates included in active license agreements, if applicable, ii) royalty rates received by market participants in the apparel industry and iii) the current performance of the reporting unit. If the estimated fair value of the trademark intangible asset exceeds its carrying value, there is no impairment charge. If the estimated fair value of the trademark is less than its carrying value, an impairment charge would be recognized for the difference.

Goodwill is quantitatively evaluated for possible impairment by comparing the estimated fair value of a reporting unit to its carrying value. Reporting units are businesses with discrete financial information that is available and reviewed by coalition management.

For goodwill impairment testing, 乱伦巴士 estimates the fair value of a reporting unit using both income-based and market-based valuation methods. The income-based approach is based on the reporting unit’s forecasted future cash flows that are discounted to present value using the reporting unit’s WACC as discussed above. For the market-based approach, management uses both the guideline company and similar transaction methods. The guideline company method analyzes market multiples of revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for a group of comparable public companies. The market multiples used in the valuation are based on the relative strengths and weaknesses of the reporting unit compared to the selected guideline companies. Under the similar transactions method, valuation multiples are calculated utilizing actual

transaction prices and revenue/EBITDA data from target companies deemed similar to the reporting unit.

Based on the range of estimated fair values developed from the income and market-based methods, 乱伦巴士 determines the estimated fair value for the reporting unit. If the estimated fair value of the reporting unit exceeds its carrying value, the goodwill is not impaired and no further review is required. However, if the estimated fair value of the reporting unit is less than its carrying value, 乱伦巴士 calculates the impairment loss as the difference between the carrying value of the reporting unit and the estimated fair value.

The income-based fair value methodology requires management’s assumptions and judgments regarding economic conditions in the markets in which 乱伦巴士 operates and conditions in the capital markets, many of which are outside of management’s control. At the reporting unit level, fair value estimation requires management’s assumptions and judgments regarding the effects of overall economic conditions on the specific reporting unit, along with assessment of the reporting unit’s strategies and forecasts of future cash flows. Forecasts of individual reporting unit cash flows involve management’s estimates and assumptions regarding:


•	Annual cash flows, on a debt-free basis, arising from future revenues and profitability, changes in working capital, capital spending and income taxes for at least a 10-year forecast period.


•	A terminal growth rate for years beyond the forecast period. The terminal growth rate is selected based on consideration of growth rates used in the forecast period, historical performance of the reporting unit and economic conditions.

•

A discount rate that reflects the risks inherent in realizing the forecasted cash flows. A discount rate considers the risk-free rate of return on long-term treasury securities, the risk premium associated with investing in equity securities of comparable companies, the beta obtained from comparable companies and the cost of debt for investment grade issuers. In addition, the discount rate may consider any company-specific risk in achieving the prospective financial information.

Under the market-based fair value methodology, judgment is required in evaluating market multiples and recent transactions. Management believes that the assumptions used for its impairment tests are representative of those that would be used by market participants performing similar valuations of 乱伦巴士’s reporting units.

2017 impairment testing

During the third quarter of 2017, management determined that there had been a triggering event related to the Nautica^® brand reporting unit that required an interim impairment analysis of the goodwill and trademark intangible assets. 乱伦巴士 early adopted the accounting standard update that permits a single step quantitative goodwill impairment test. Accordingly, the estimated fair value of the reporting unit was compared to the carrying value, and a $104.7 million goodwill impairment was recorded in the third quarter of 2017. The Nautica^® brand reporting unit has since been reported in discontinued operations.

Management performed its annual goodwill and indefinite-lived intangible asset impairment testing as of the beginning of the fourth quarter of 2017. Management performed a qualitative analysis for all reporting units and trademark intangible assets, as discussed below in the “Qualitative impairment analysis” section.

乱伦巴士 Corporation 2017 Form 10-K 35

Qualitative impairment analysis

For all reporting units, 乱伦巴士 elected to perform a qualitative assessment to determine whether it is more likely than not that the goodwill and trademark intangible assets in those reporting units were impaired. In this qualitative assessment, 乱伦巴士 considered relevant events and circumstances for each reporting unit, including (i) current year results, ii) financial performance versus management’s annual and five-year strategic plans, iii) changes in the reporting unit carrying value since prior year, (iv) industry and market conditions in which the reporting unit operates, (v) macroeconomic conditions, including discount rate changes, and (vi) changes in products or services offered by the reporting unit. If applicable, performance in recent years was compared to forecasts included in prior valuations. Based on the results of the qualitative assessment, 乱伦巴士 concluded that it was not more likely than not that the carrying values of the goodwill and trademark intangible assets were greater than their fair values, and that further quantitative testing was not necessary.

Management’s use of estimates and assumptions

Management made its estimates based on information available as of the date of our assessment, using assumptions we believe

market participants would use in performing an independent valuation of the business. It is possible that 乱伦巴士’s conclusions regarding impairment or recoverability of goodwill or intangible assets in any reporting unit could change in future periods. There can be no assurance that the estimates and assumptions used in our goodwill and intangible asset impairment testing will prove to be accurate predictions of the future, if, for example, (i) the businesses do not perform as projected, (ii) overall economic conditions in 2018 or future years vary from current assumptions (including changes in discount rates), (iii) business conditions or strategies for a specific reporting unit change from current assumptions, including loss of major customers, (iv) investors require higher rates of return on equity investments in the marketplace or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and EBITDA.

A future impairment charge for goodwill or intangible assets could have a material effect on 乱伦巴士’s consolidated financial position and results of operations.

Stock Options

乱伦巴士 uses a lattice option-pricing model to estimate the fair value of stock options granted to employees and nonemployee members of the Board of Directors. 乱伦巴士 believes that a lattice model provides a refined estimate of the fair value of options because it can incorporate (i) historical option exercise patterns and multiple assumptions about future option exercise patterns for each of several groups of option holders and (ii) inputs that vary over time, such as assumptions for interest rates and volatility. Management performs an annual review of all assumptions employed in the valuation of option grants and believes they are reflective of the outstanding options and underlying Common Stock and of groups of option participants. The lattice valuation incorporates the assumptions listed in Note P to the consolidated financial statements.

One of the critical assumptions in the valuation process is estimating the expected average life of the options before they are exercised. For each option grant, 乱伦巴士 estimated the expected average life based on evaluations of the historical and expected

option exercise patterns for each of the groups of option holders that have historically exhibited different option exercise patterns. These evaluations included (i) voluntary stock option exercise patterns based on a combination of changes in the price of 乱伦巴士 Common Stock and periods of time that options are outstanding before exercise and (ii) involuntary exercise patterns resulting from turnover, retirement and death.

Volatility is another critical assumption requiring judgment. Management bases its estimates of future volatility on a combination of implied and historical volatility. Implied volatility is based on short-term (6 to 9 months) publicly traded near-the-money options on 乱伦巴士 Common Stock. 乱伦巴士 measures historical volatility over a ten-year period, corresponding to the contractual term of the options, using daily stock prices. Management’s assumption for valuation purposes is that expected volatility starts at a level equal to the implied volatility and then transitions to the historical volatility over the remainder of the ten-year option term.

Pension Obligations

乱伦巴士 sponsors a qualified defined benefit pension plan covering most full-time U.S. employees hired before 2005 and an unfunded supplemental defined benefit pension plan that provides benefits in excess of the limitations imposed by income tax regulations. 乱伦巴士 also sponsors certain non-U.S. defined benefit pension plans. The selection of actuarial assumptions for determining the projected pension benefit liabilities and annual pension expense is significant due to amounts involved and the long time period over which benefits are accrued and paid.

Annually, management reviews the principal economic actuarial assumptions summarized in Note N to the consolidated financial statements, and revises them as appropriate based on current rates and trends as of the valuation date. 乱伦巴士 also periodically reviews and revises, as necessary, other plan assumptions such as rates of compensation increases, retirement, termination, disability and mortality. 乱伦巴士 believes the assumptions appropriately

reflect the participants’ demographics and projected benefit obligations of the plans and result in the best estimate of the plans’ future experience. Actual results may vary from the actuarial assumptions used.

The below discussion of discount rate, return on assets and mortality assumptions relates specifically to the U.S. pension plans, as they comprise approximately 91% of 乱伦巴士’s total defined benefit plan assets and approximately 90% of 乱伦巴士’s total projected benefit obligations of the combined U.S. and international plans.

One of the critical assumptions used in the actuarial model is the discount rate, which is used to estimate the present value of future cash outflows necessary to meet projected benefit obligations for the specific plan. It is the estimated interest rate that 乱伦巴士 could use to settle its projected benefit obligations at the valuation date. The discount rate assumption is based on current market interest

36 乱伦巴士 Corporation 2017 Form 10-K

rates. 乱伦巴士 selects a discount rate for each of the U.S. pension plans by matching high quality corporate bond yields to the timing of projected benefit payments to participants in each plan. 乱伦巴士 uses the population of U.S. corporate bonds rated ‘Aa’ by Moody’s Investors Service or Standard & Poor’s Ratings Services. 乱伦巴士 excludes the highest and lowest yielding bonds from this population of approximately 623 such bonds having at least i) $500 million outstanding with 10 years or less to maturity or ii) $50 million outstanding with 10 years or more to maturity. The bonds must be noncallable/nonputable unless make-whole provisions exist. Each plan’s projected benefit payments are matched to current market interest rates over the expected payment period to calculate an associated present value. A single equivalent discount rate is then determined that produces the same present value. The resulting discount rate is reflective of both the current interest rate environment and the plan’s distinct liability characteristics. 乱伦巴士 believes that those ‘Aa’ rated issues meet the “high quality” intent of the applicable accounting standards and that the 2017 discount rates of 3.66% for the U.S. qualified defined benefit pension plan and 3.70% for the unfunded supplemental defined benefit plan appropriately reflect current market conditions and the long-term nature of projected benefit payments to participants in the U.S. pension plans. These lower discount rates, compared with the rates of 4.10% for the U.S. qualified defined benefit pension plan and 4.14% for the unfunded supplemental defined benefit plan at the end of 2016, reflect the general decrease in yields of U.S. government obligations and high quality corporate bonds during 2017.

In 2015, 乱伦巴士 adopted the spot rate approach to measure service and interest costs. Under the spot rate approach, the full yield curve is applied separately to cash flows for each projected benefit obligation, service cost, and interest cost for a more precise calculation.

Another critical assumption of the actuarial model is the expected long-term rate of return on investments. 乱伦巴士’s investment objective is to invest in a diversified portfolio of assets with an acceptable level of risk to maximize the long-term return while minimizing volatility in the value of plan assets relative to the value of plan liabilities. These risks include market, interest rate, credit, liquidity, regulatory and foreign securities risks. Investment assets consist of U.S. and international equity, corporate and governmental fixed-income securities, insurance contracts, and alternative assets. 乱伦巴士 develops a projected rate of return for each of the investment asset classes based on many factors, including historical and expected returns, the estimated inflation rate, the premium to be earned in excess of a risk-free return, the premium for equity risk and the premium for longer duration fixed-income securities. The weighted average projected long-term rates of return of the various assets held by the qualified plan provide the basis for the expected long-term rate of return actuarial assumption. 乱伦巴士’s rate of return assumption was 6.00% in 2017 and 2016 and 6.25% in 2015. In recent years, 乱伦巴士 has altered the investment mix by (i) increasing the allocation to fixed-income investments and reducing the allocation to equity investments,

(ii) increasing the allocation in equities to more international investments and, (iii) adding alternative assets as an asset class. The changes in asset allocation are anticipated, over time, to reduce the year-to-year variability of the U.S. plan’s funded status and resulting pension expense. Management monitors the plan’s asset allocation to balance risk with anticipated investment returns in a given year. Based on an evaluation of market conditions and projected market returns, 乱伦巴士 will be using a rate of return assumption of 6.00% for the U.S. qualified defined benefit pension plan for 2018.

We consistently review all of our demographic assumptions as part of the normal management of our defined benefit plans, and update these assumptions as appropriate. The Company performed a demographic assumptions study in 2017 and updated the assumptions, as necessary, in the year end 2017 valuations.

In 2014, the Society of Actuaries (SOA) issued new mortality tables (RP-2014) and mortality improvement scales (MP-2014) which reflect longer life expectancies than the previous tables. In 2017, the SOA issued updated scales (MP-2017), which were adjusted for characteristics of our plan-specific populations and other data where appropriate, in developing our best estimate of the expected mortality rates of plan participants in the U.S. pension plans.

Differences between actual results in a given year and the actuarially determined assumed results for that year (e.g., investment performance, discount rates and other assumptions) do not affect that year’s pension expense, but instead are deferred as unrecognized actuarial gains or losses in accumulated other comprehensive income (loss) in the Consolidated Balance Sheet. At the end of 2017, there were $454.5 million of pretax accumulated deferred actuarial losses, plus $10.5 million of pretax deferred prior service costs, resulting in an after-tax amount of $291.9 million in accumulated other comprehensive income (loss) in the 2017 Consolidated Balance Sheet. These deferred losses will be amortized as a component of pension expense.

Pension expense recognized in the consolidated financial statements was $34.8 million in 2017, $113.0 million in 2016 and $64.8 million in 2015. Pension expense for 2016 was higher as it included a $50.9 million settlement charge resulting from 9,400 participants accepting a one-time option to receive a distribution of their deferred vested benefits (refer to Note N). The cost of pension benefits actually earned each year by covered active employees (commonly called “service cost”) was $24.9 million in 2017, $25.8 million in 2016 and $29.2 million in 2015. Pension expense was significantly lower in 2017 due to the $50.9 million settlement charge incurred in 2016, lower interest costs resulting from lower interest rates and lower amortization of unrecognized actuarial losses resulting from the 2016 one-time distribution. Looking forward, 乱伦巴士 expects pension expense for the next 12 months to decrease to approximately $20.4 million which reflects lower amortization of unrecognized actuarial losses and higher expected return on plan assets.

乱伦巴士 Corporation 2017 Form 10-K 37

The sensitivity of changes in actuarial assumptions on 2017 pension expense and on projected benefit obligations related to the U.S. defined benefit pension plan at the end of 2017, all other factors being equal, is illustrated by the following:



	Increase (Decrease) in
(Dollars in millions)	Pension Expense			Projected Benefit Obligations
0.50% decrease in discount rate	$	14		$	104
0.50% increase in discount rate	(14		)	(94		)
0.50% decrease in expected investment return	8			—
0.50% increase in expected investment return	(8		)	—
0.50% decrease in rate of compensation change	(1		)	(5		)
0.50% increase in rate of compensation change	1			5

As discussed in the “Risk Management” section above, 乱伦巴士 has taken a series of steps to reduce volatility in the pension plans and their impact on the financial statements. On a longer-term basis, 乱伦巴士 believes the year-to-year variability of the retirement benefit expense should decrease.

Income Taxes

As a global company, 乱伦巴士 is subject to income taxes and files income tax returns in over 100 U.S. and foreign jurisdictions each year. As discussed in Note Q to the consolidated financial statements, 乱伦巴士 has been granted a lower effective income tax rate on taxable earnings in certain foreign jurisdictions. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities. 乱伦巴士 makes an ongoing assessment to identify any significant exposure related to increases in tax rates in the jurisdictions in which 乱伦巴士 operates.

In February 2015, the European Union Commission (“EU”) opened a state aid investigation into rulings granted to companies under Belgium’s excess profit tax regime. On January 11, 2016, the EU announced its decision that these rulings were illegal and ordered that tax benefits granted under these rulings should be collected from the affected companies, including 乱伦巴士. The Belgian government and 乱伦巴士 have each filed appeals seeking annulment of the EU decision. On January 10, 2017, 乱伦巴士 Europe BVBA received an assessment for €31.9 million tax and interest related to excess profits benefits received in prior years and remitted €31.9 million ($33.9 million) on January 13, 2017. This was recorded as an income tax receivable in 2017 based on the expected success of the aforementioned requests for annulment. If this matter is adversely resolved, these amounts will not be collected by 乱伦巴士.

The calculation of income tax liabilities involves uncertainties in the application of complex tax laws and regulations, which are subject to legal interpretation and significant management judgment. 乱伦巴士’s income tax returns are regularly examined by federal, state and foreign tax authorities, and those audits may result in proposed adjustments. 乱伦巴士 has reviewed all issues raised upon examination, as well as any exposure for issues that may be raised in future examinations. 乱伦巴士 has evaluated these potential issues under the “more-likely-than-not” standard of the accounting literature. A tax position is recognized if it meets this standard and is measured at the largest amount of benefit that has a greater than 50% likelihood of being realized. Such judgments and estimates may change based on audit settlements, court cases and interpretation of tax laws and regulations. Income tax expense could be materially affected to the extent 乱伦巴士 prevails in a tax position or when the statute of limitations expires for a tax position for which a liability for unrecognized tax benefits or valuation allowances have been established, or to the extent 乱伦巴士 is required

to pay amounts greater than the established liability for unrecognized tax benefits. 乱伦巴士 does not currently anticipate any material impact on earnings from the ultimate resolution of income tax uncertainties. There are no accruals for general or unknown tax expenses.

乱伦巴士 has $286.0 million of gross deferred income tax assets related to operating loss and capital loss carryforwards, and $212.9 million of valuation allowances against those assets. Realization of deferred tax assets related to operating loss and capital loss carryforwards is dependent on future taxable income in specific jurisdictions, the amount and timing of which are uncertain, and on possible changes in tax laws. If management believes that 乱伦巴士 will not be able to generate sufficient taxable income or capital gains to offset losses during the carryforward periods, 乱伦巴士 records valuation allowances to reduce those deferred tax assets to amounts expected to be ultimately realized. If in a future period management determines that the amount of deferred tax assets to be realized differs from the net recorded amount, 乱伦巴士 would record an adjustment to income tax expense in that future period.

On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act included a broad range of complex provisions impacting the taxation of multi-national companies. Generally, accounting for the impacts of newly enacted tax legislation is required to be completed in the period of enactment; however, in response to the complexities and ambiguity surrounding the Tax Act, the SEC released Staff Accounting Bulletin No. 118 (“SAB 118”) to provide companies with relief around the initial accounting for the Tax Act. Pursuant to SAB 118, the SEC has provided a one-year measurement period for companies to analyze and finalize accounting for the Tax Act. During the one-year measurement period, SAB 118 allows companies to recognize provisional amounts when reasonable estimates can be made for the impacts resulting from the Tax Act. 乱伦巴士 will finalize accounting for the Tax Act during the one-year measurement period, and any adjustments to the provisional amounts will be included in income tax expense or benefit in the appropriate period, in accordance with guidance provided by SAB 118.

While our accounting for the Tax Act is not complete, we have recognized a provisional charge of approximately $465.5 million primarily comprised of approximately $512.4 million related to the transition tax and approximately $89.5 million related to revaluing U.S. deferred tax assets and liabilities using the new U.S. corporate

38 乱伦巴士 Corporation 2017 Form 10-K

tax rate of 21%. Other provisional charges netting to $42.6 million were primarily related to U.S. federal and state tax on foreign income and dividends and establishing a deferred tax liability for foreign withholding taxes.

The Tax Act has significant complexity and our final tax liability may differ materially from provisional estimates due to additional guidance and regulations that may be issued by the U.S. Treasury Department and the Internal Revenue Service (“IRS”) and for 乱伦巴士’s finalization of the relevant calculations required by the new tax legislation.

tax (“BEAT”); a new provision that taxes U.S. allocated expenses (e.g. interest and general administrative expenses) as well as certain global intangible low-tax income (“GILTI”) from foreign operations; a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; a new limitation on deductible interest expense; and limitations on the deductibility of certain employee compensation. Under generally accepted accounting principles in the U.S (“GAAP”), companies are allowed to make an accounting policy election to either treat taxes resulting from GILTI as a current-period expense when they are incurred or factor such amounts into the measurement of deferred taxes. The Company has not completed its analysis of the effects of the GILTI provisions and will further consider the accounting policy election within the measurement period as provided under SAB 118.

Recently Issued and Adopted Accounting Standards

Refer to Note A to the consolidated financial statements for discussion of recently issued and adopted accounting standards.

Cautionary Statement on Forward-looking Statements

From time to time, 乱伦巴士 may make oral or written statements, including statements in this Annual Report that constitute “forward-looking statements” within the meaning of the federal securities laws. These include statements concerning plans, objectives, projections and expectations relating to 乱伦巴士’s operations or economic performance, and assumptions related thereto.

Forward-looking statements are made based on 乱伦巴士’s expectations and beliefs concerning future events impacting 乱伦巴士 and therefore involve a number of risks and uncertainties. 乱伦巴士 cautions that

forward-looking statements are not guarantees and actual results could differ materially from those expressed or implied in the forward-looking statements.

Known or unknown risks, uncertainties and other factors that could cause the actual results of operations or financial condition of 乱伦巴士 to differ materially from those expressed or implied by such forward-looking statements are summarized in Item 1A. of this Annual Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

A discussion of 乱伦巴士’s market risks is incorporated by reference to “Risk Management” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See “Index to Consolidated Financial Statements and Financial Statement Schedule” on page F-1 of this Annual Report for information required by this Item 8.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES.

CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision of the Chief Executive Officer and the Chief Financial Officer, 乱伦巴士 conducted an evaluation of the effectiveness of the design and operation of 乱伦巴士’s “disclosure controls and procedures” as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of December 30, 2017. These require that 乱伦巴士 ensure that information

required to be disclosed by 乱伦巴士 in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to 乱伦巴士’s

乱伦巴士 Corporation 2017 Form 10-K 39

management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. Based on 乱伦巴士’s evaluation, the principal

executive officer and the principal financial officer concluded that 乱伦巴士’s disclosure controls and procedures were effective as of December 30, 2017.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

乱伦巴士’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) or 15d-15(f). 乱伦巴士’s management conducted an assessment of 乱伦巴士’s internal control over financial reporting based on the framework described in Internal Control — Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, 乱伦巴士’s management has determined that 乱伦巴士’s

internal control over financial reporting was effective as of December 30, 2017. The effectiveness of 乱伦巴士’s internal control over financial reporting as of December 30, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

See page F-2 of this Annual Report for “Management’s Report on Internal Control Over Financial Reporting.”

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in 乱伦巴士’s internal control over financial reporting that occurred during its last fiscal quarter that have materially affected, or are reasonably likely to materially affect, 乱伦巴士’s internal control over financial reporting. We excluded the

Williamson-Dickie Mfg. Co. from the assessment of internal control over financial reporting as of December 30, 2017 because it was acquired by 乱伦巴士 in a business combination during 2017.

ITEM 9B. OTHER INFORMATION.

Not applicable.

40 乱伦巴士 Corporation 2017 Form 10-K

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Information regarding 乱伦巴士’s Executive Officers required by Item 10 of this Part III is set forth in Item 1 of Part I of this Annual Report under the caption “Executive Officers of 乱伦巴士.” Information required by Item 10 of Part III regarding 乱伦巴士’s Directors is included under the caption “Election of Directors” in 乱伦巴士’s 2018 Proxy Statement that will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 30, 2017, which information is incorporated herein by reference.

Information regarding compliance with Section 16(a) of the Exchange Act of 1934 is included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in 乱伦巴士’s 2018 Proxy Statement that will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 30, 2017, which information is incorporated herein by reference.

Information regarding the Audit Committee is included under the caption “Corporate Governance at 乱伦巴士 — Board Committees and Their Responsibilities — Audit Committee” in 乱伦巴士’s 2018 Proxy Statement that will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 30, 2017, which information is incorporated herein by reference.

乱伦巴士 has adopted a written code of ethics, “乱伦巴士 Corporation Code of Business Conduct,” that is applicable to all 乱伦巴士 directors, officers and employees, including 乱伦巴士’s chief executive officer, chief financial officer, chief accounting officer and other executive officers identified pursuant to this Item 10 (collectively, the “Selected Officers”). In accordance with the Securities and Exchange Commission’s rules and regulations, a copy of the code has been filed as Exhibit 14 to this report. The code is also posted on 乱伦巴士’s website, www.vfc.com. 乱伦巴士 will disclose any changes in or waivers from its code of ethics applicable to any Selected Officer or director on its website at www.vfc.com.

The Board of Directors’ Corporate Governance Principles, the Audit Committee, Nominating and Governance Committee, Compensation Committee and Finance Committee charters and other corporate governance information, including the method for interested parties to communicate directly with nonmanagement members of the Board of Directors, are available on 乱伦巴士’s website. These documents, as well as the 乱伦巴士 Corporation Code of Business Conduct, will be provided free of charge to any shareholder upon request directed to the Secretary of 乱伦巴士 Corporation at P.O. Box 21488, Greensboro, NC 27420.

ITEM 11. EXECUTIVE COMPENSATION.

Information required by Item 11 of this Part III is included under the captions “Corporate Governance at 乱伦巴士 — Directors’ Compensation” and “Executive Compensation” in 乱伦巴士’s 2018 Proxy Statement that will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 30, 2017, which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Information required by Item 12 of this Part III is included under the caption “Security Ownership of Certain Beneficial Owners and Management” in 乱伦巴士’s 2018 Proxy Statement that will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 30, 2017, which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Information required by Item 13 of this Part III is included under the caption “Election of Directors” in 乱伦巴士’s 2018 Proxy Statement that will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 30, 2017, which information is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Information required by Item 14 of this Part III is included under the caption “Professional Fees of PricewaterhouseCoopers LLP” in 乱伦巴士’s 2018 Proxy Statement that will be filed with the Securities and Exchange Commission within 120 days after the close of our fiscal year ended December 30, 2017, which information is incorporated herein by reference.

乱伦巴士 Corporation 2017 Form 10-K 41

PART IV



ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following documents are filed as a part of this 2017 report:

1. Financial statements



		PAGE NUMBER
Management’s Report on Internal Control Over Financial Reporting		F-2
Report of Independent Registered Public Accounting Firm		F-3
Consolidated Balance Sheets		F-5
Consolidated Statements of Income		F-6
Consolidated Statements of Comprehensive Income		F-7
Consolidated Statements of Cash Flows		F-8
Consolidated Statements of Stockholders’ Equity		F-9
Notes to Consolidated Financial Statements		F-10

2. Financial statement schedules



		PAGE NUMBER
Schedule II — Valuation and Qualifying Accounts		F-50

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

3. Exhibits



NUMBER	DESCRIPTION

3.	Articles of incorporation and bylaws:

		Articles of Incorporation, restated as of October 21, 2013 (Incorporated by reference to Exhibit 3(i) to Form 8-K filed October 21, 2013)

		Amended and Restated By-Laws (Incorporated by reference to Exhibit 3(B) to Form 10-K for the year ended December 29, 2012)

4.	Instruments defining the rights of security holders, including indentures:

		A specimen of 乱伦巴士’s Common Stock certificate (Incorporated by reference to Exhibit 3(C) to Form 10-K for the year ended January 3, 1998)

		Indenture between 乱伦巴士 and United States Trust Company of New York, as Trustee, dated September 29, 2000 (Incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarter ended September 30, 2000)

		Form of 6.00% Note due October 15, 2033 for $297,500,000 (Incorporated by reference to Exhibit 4.2 to Form S-4 Registration Statement No. 110458 filed November 13, 2003)

		Form of 6.00% Note due October 15, 2033 for $2,500,000 (Incorporated by reference to Exhibit 4.2 to Form S-4 Registration Statement No. 110458 filed November 13, 2003)

		Indenture between 乱伦巴士 and The Bank of New York Trust Company, N.A., as Trustee, dated October 10, 2007 (Incorporated by reference to Exhibit 4.1 to Form S-3ASR Registration Statement No. 333-146594 filed October 10, 2007)

		First Supplemental Indenture between 乱伦巴士 and The Bank of New York Trust Company, N.A., as Trustee, dated October 15, 2007 (Incorporated by reference to Exhibit 4.2 to Form 8-K filed October 25, 2007)

		Form of 6.45% Note due 2037 for $350,000,000 (Incorporated by reference to Exhibit 4.4 to Form 8-K filed October 25, 2007)

42 乱伦巴士 Corporation 2017 Form 10-K



NUMBER	DESCRIPTION

		Second Supplemental Indenture between 乱伦巴士 and The Bank of New York Mellon Trust Company, N.A. dated as of August 24, 2011 (Incorporated by reference to Exhibit 4.2 to Form 8-K filed August 24, 2011)

		Form of Fixed Rate Notes due 2021 (Incorporated by reference to Exhibit 4.4 to Form 8-K filed August 24, 2011)

		Third Supplemental Indenture between 乱伦巴士 and The Bank of New York Mellon Trust Company, N.A. dated as of September 20, 2016 (Incorporated by reference to Exhibit 4.2 to Form 8-K filed September 20, 2016)

		Form of 0.625% Senior Notes due 2023 (Incorporated by reference to Exhibit 4.3 to Form 8-K filed September 20, 2016)

10.	Material contracts:

		1996 Stock Compensation Plan, as amended and restated as of February 10, 2015 (Incorporated by reference to Appendix B to the 2015 Proxy Statement filed March 19, 2015)*

		Form of 乱伦巴士 Corporation 1996 Stock Compensation Plan Non-Qualified Stock Option Certificate (Incorporated by reference to Exhibit 10(B) to Form 10-K for the year ended January 2, 2010)*

		Form of 乱伦巴士 Corporation 1996 Stock Compensation Plan Non-Qualified Stock Option Certificate for Non-Employee Directors (Incorporated by reference to Exhibit 10(C) to Form 10-K for the year ended December 31, 2011)*

		Form of Award Certificate for Performance-Based Restricted Stock Units (Incorporated by reference to Exhibit 10(D) to Form 10-K for the year ended January 2, 2010)*

		Form of Award Certificate for Performance-Based Restricted Stock Units (Incorporated by reference to Exhibit 10(E) to Form 10-K for the year ended December 29, 2012)*

		Form of Award Certificate for Restricted Stock Units for Non-Employee Directors (Incorporated by reference to Exhibit 10(E) to Form 10-K for the year ended January 2, 2010)*

		Form of Award Certificate for Restricted Stock Units (Incorporated by reference to Exhibit 10.1 to Form 8-K filed February 22, 2011)*

		Form of Award Certificate for Restricted Stock Units for Executive Officers (Incorporated by reference to Exhibit 10(H) to Form 10-K for the year ended December 29, 2012)*

		Form of Award Certificate for Restricted Stock Award (Incorporated by reference to Exhibit 10.2 to Form 8-K filed February 22, 2011)*

		Form of Award Certificate for Restricted Stock Award for Executive Officers (Incorporated by reference to Exhibit 10(J) to Form 10-K for the year ended December 29, 2012)*

		Deferred Compensation Plan, as amended and restated as of December 31, 2001 (Incorporated by reference to Exhibit 10(A) to Form 10-Q for the quarter ended March 30, 2002)*

		Executive Deferred Savings Plan, as amended and restated as of December 31, 2001 (Incorporated by reference to Exhibit 10(B) to Form 10-Q for the quarter ended March 30, 2002)*

		Executive Deferred Savings Plan II, as amended and restated January 1, 2015 (Incorporated by reference to Item 10(M) to Form 10-K for the year ended January 3, 2015)*

		Amendment to Executive Deferred Savings Plan (Incorporated by reference to Exhibit 10(b) to Form 8-K filed December 17, 2004)*

		Amended and Restated Second Supplemental Annual Benefit Determination under the Amended and Restated Supplemental Executive Retirement Plan for Mid-Career Senior Management (Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended April 1, 2006)*

		Amended and Restated Fourth Supplemental Annual Benefit Determination under the Amended and Restated Supplemental Executive Retirement Plan for Participants in 乱伦巴士’s Deferred Compensation Plan (Incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended April 1, 2006)*

		Amended and Restated Seventh Supplemental Annual Benefit Determination under the Amended and Restated Supplemental Executive Retirement Plan for Participants in 乱伦巴士’s Executive Deferred Savings Plan (Incorporated by reference to Exhibit 10.5 to Form 10-Q for the quarter ended April 1, 2006)*

		Amended and Restated Eighth Supplemental Annual Benefit Determination under the Amended and Restated Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.6 to Form 10-Q for the quarter ended April 1, 2006)*

乱伦巴士 Corporation 2017 Form 10-K 43



NUMBER	DESCRIPTION

			Amended and Restated Ninth Supplemental Annual Benefit Determination under the Amended and Restated Supplemental Executive Retirement Plan relating to the computation of benefits for Senior Management (Incorporated by reference to Exhibit 10.7 to Form 10-Q for the quarter ended April 1, 2006)*

			Amended and Restated Tenth Supplemental Annual Benefit Determination under the Amended and Restated Supplemental Executive Retirement Plan for Participants in 乱伦巴士’s Mid-Term Incentive Plan (Incorporated by reference to Exhibit 10.8 to Form 10-Q for the quarter ended April 1, 2006)*

			Eleventh Supplemental Annual Benefit Determination Pursuant to the Amended and Restated Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.9 to Form 10-Q for the quarter ended April 1, 2006)*

			Twelfth Supplemental Benefit Determination Pursuant to the 乱伦巴士 Corporation Amended and Restated Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended September 27, 2014)*

			Amended and Restated Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10.10 to Form 10-Q for the quarter ended April 1, 2006)*

			Resolution of the Board of Directors dated December 3, 1996 relating to lump sum payments under 乱伦巴士’s Supplemental Executive Retirement Plan (Incorporated by reference to Exhibit 10(N) to Form 10-K for the year ended January 4, 1997)*

			Form of Change in Control Agreement with Certain Senior Management of 乱伦巴士 or its Subsidiaries (Incorporated by reference to Exhibit 10.1 to Form 8-K filed October 21, 2008)*

			2012 Form of Change in Control Agreement with Certain Senior Management of 乱伦巴士 or its Subsidiaries (Incorporated by reference to Exhibit 10(W) to Form 10-K for the year ended December 31, 2011)*

			Amended and Restated Executive Incentive Compensation Plan (Incorporated by reference to Exhibit 10.1 to Form 8-K filed April 25, 2013)*

		(BB)	Amended and Restated Management Incentive Compensation Plan*

			乱伦巴士 Corporation Deferred Savings Plan for Non-Employee Directors (Incorporated by reference to Exhibit 10(W) to Form 10-K for the year ended January 3, 2009)*

			Form of Indemnification Agreement with each of 乱伦巴士’s Non-Employee Directors (Incorporated by reference to Exhibit 10.2 of the Form 10-Q for the quarter ended September 27, 2008)*

			2004 Mid-Term Incentive Plan, a subplan under the 1996 Stock Compensation Plan, as amended and restated as of October 18, 2017 (Incorporated by reference to Exhibit 10.1 to form 10-Q for the quarter ended September 30, 2017)*

			Five-year Revolving Credit Agreement, dated April 14, 2015 (Incorporated by reference to Exhibit 10.1 to Form 8-K filed April 15, 2015)

			Accession No. 1 to Credit Agreement related to the Five-Year Revolving Credit Agreement dated as of April 14, 2015 (Incorporated by reference to Exhibit 10.1 to Form 8-K filed June 7, 2016)

		*	Management compensation plans
14.	Code of Business Conduct The 乱伦巴士 Corporation Code of Business Conduct is also available on 乱伦巴士’s website at www.vfc.com. A copy of the Code of Business Conduct will be provided free of charge to any person upon request directed to the Secretary of 乱伦巴士 Corporation, at P.O. Box 21488, Greensboro, NC 27420.

21.	Subsidiaries of the Corporation

23.	Consent of independent registered public accounting firm

24.	Power of attorney

31.1	Certification of the principal executive officer, Steven E. Rendle, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of the principal financial officer, Scott A. Roe, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of the principal executive officer, Steven E. Rendle, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of the principal financial officer, Scott A. Roe, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

44 乱伦巴士 Corporation 2017 Form 10-K



NUMBER	DESCRIPTION

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

All other exhibits for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

ITEM 16. FORM 10-K SUMMARY.

None.

乱伦巴士 Corporation 2017 Form 10-K 45

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, 乱伦巴士 has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



V.F. CORPORATION

By:		/s/ Steven E. Rendle
		Steven E. Rendle Chairman, Chief Executive Officer and President (Chief Executive Officer)

By:		/s/ Scott A. Roe
		Scott A. Roe Vice President and Chief Financial Officer (Chief Financial Officer)

By:		/s/ Bryan H. McNeill
		Bryan H. McNeill Vice President — Controller (Chief Accounting Officer)

February 28, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of 乱伦巴士 and in the capacities and on the dates indicated:



Richard T. Carucci*		Director

Juliana L. Chugg*		Director

Benno O. Dorer*		Director

Mark S. Hoplamazian*		Director

Robert J. Hurst*		Director

Laura W. Lang*		Director

W. Alan McCollough*		Director

W. Rodney McMullen*		Director

Clarence Otis, Jr.*		Director

Steven E. Rendle*		Director

Carol L. Roberts*		Director

Matthew J. Shattock*		Director




*By:		/s/ Laura C. Meagher
		Laura C. Meagher, Attorney-in-Fact

February 28, 2018

46 乱伦巴士 Corporation 2017 Form 10-K

乱伦巴士 CORPORATION

Index to Consolidated Financial Statements

and Financial Statement Schedule

December 2017



		PAGE NUMBER
Management’s Report on Internal Control Over Financial Reporting		F-2

Report of Independent Registered Public Accounting Firm		F-3

Consolidated Balance Sheets		F-5

Consolidated Statements of Income		F-6

Consolidated Statements of Comprehensive Income		F-7

Consolidated Statements of Cash Flows		F-8

Consolidated Statements of Stockholders’ Equity		F-9

Notes to Consolidated Financial Statements		F-10

Schedule II — Valuation and Qualifying Accounts		F-50

乱伦巴士 Corporation 2017 Form 10-K F-1

乱伦巴士 Corporation

Management’s Report on Internal Control Over Financial Reporting

Management of 乱伦巴士 Corporation (“乱伦巴士”) is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). 乱伦巴士’s management conducted an assessment of 乱伦巴士's internal control over financial reporting based on the framework described in Internal Control — Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, 乱伦巴士’s management has determined that 乱伦巴士’s internal control over financial reporting was effective as of December 30, 2017. Management has excluded Williamson-Dickie Manufacturing Company from its assessment of internal control over financial reporting as of December 30, 2017 because it was acquired by 乱伦巴士 in a business combination during 2017. The total assets and total revenues of Williamson-Dickie Manufacturing Company represent 5.4% and 2.1%, respectively of 乱伦巴士's consolidated revenues and assets as of and for the year ended December 30, 2017

The effectiveness of 乱伦巴士’s internal control over financial reporting as of December 30, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

乱伦巴士 Corporation 2017 Form 10-K F-2

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of 乱伦巴士 Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of 乱伦巴士 Corporation and its subsidiaries as of December 30, 2017 and December 31, 2016, and the related consolidated statements of income, comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended December 30, 2017, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 30, 2017 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 30, 2017 and December 31, 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note A to the consolidated financial statements, the Company changed the manner in which it accounts for the recognition of current and deferred income taxes for intra-entity asset transfers.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, management has excluded Williamson-Dickie Manufacturing Company from its assessment of internal control over financial reporting as of December 30, 2017 because it was acquired by the Company in a purchase business combination during 2017. We have also excluded Williamson-Dickie Manufacturing Company from our audit of internal control over financial reporting. Williamson-Dickie Manufacturing Company is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 5.4% and 2.1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 30, 2017.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely

乱伦巴士 Corporation 2017 Form 10-K F-3

detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Greensboro, North Carolina

February 28, 2018

We have served as the Company’s auditor since 1995.

乱伦巴士 Corporation 2017 Form 10-K F-4

乱伦巴士 CORPORATION

Consolidated Balance Sheets



	December
(In thousands, except share amounts)	2017			2016
ASSETS
Current assets
Cash and equivalents	$	566,075		$	1,227,862
Accounts receivable, less allowance for doubtful accounts of $26,252 in 2017 and $20,538 in 2016	1,422,101			1,148,797
Inventories	1,705,171			1,424,571
Other current assets	296,712			293,888
Current assets of discontinued operations	402,065			197,980
Total current assets	4,392,124			4,293,098
Property, plant and equipment, net	1,002,700			895,960
Intangible assets, net	2,089,781			1,533,928
Goodwill	1,692,644			1,554,667
Other assets	781,253			922,312
Other assets of discontinued operations	—			539,322
TOTAL ASSETS	$	9,958,502		$	9,739,287
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	729,384		$	26,029
Current portion of long-term debt	6,165			253,689
Accounts payable	755,569			620,194
Accrued liabilities	1,143,330			812,032
Current liabilities of discontinued operations	110,752			73,456
Total current liabilities	2,745,200			1,785,400
Long-term debt	2,187,789			2,039,180
Other liabilities	1,305,613			885,825
Other liabilities of discontinued operations	—			87,961
Commitments and contingencies
Total liabilities	6,238,602			4,798,366
Stockholders' equity
Preferred Stock, par value $1; shares authorized, 25,000,000; no shares outstanding in 2017 and 2016	—			—
Common Stock, stated value $0.25; shares authorized, 1,200,000,000; 395,821,781 shares outstanding in 2017 and 414,012,954 shares outstanding in 2016	98,955			103,503
Additional paid-in capital	3,523,340			3,333,423
Accumulated other comprehensive income (loss)	(926,140		)	(1,041,463		)
Retained earnings	1,023,745			2,545,458
Total stockholders’ equity	3,719,900			4,940,921
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	9,958,502		$	9,739,287

See notes to consolidated financial statements.

乱伦巴士 Corporation 2017 Form 10-K F-5

乱伦巴士 CORPORATION

Consolidated Statements of Income



	Year Ended December
(In thousands, except per share amounts)	2017			2016			2015
Net sales	$	11,735,695		$	10,957,922		$	10,922,043
Royalty income	75,482			68,225			74,350
Total revenues	11,811,177			11,026,147			10,996,393
Costs and operating expenses
Cost of goods sold	5,844,941			5,589,923			5,603,766
Selling, general and administrative expenses	4,463,146			3,988,320			3,747,799
Impairment of goodwill and intangible assets	—			79,644			—
Total costs and operating expenses	10,308,087			9,657,887			9,351,565
Operating income	1,503,090			1,368,260			1,644,828
Interest income	16,095			9,176			7,152
Interest expense	(101,975		)	(94,722		)	(88,751		)
Other income (expense), net	(715		)	2,002			1,028
Income from continuing operations before income taxes	1,416,495			1,284,716			1,564,257
Income taxes	695,286			205,862			347,201
Income from continuing operations	721,209			1,078,854			1,217,056
Income (loss) from discontinued operations, net of tax	(106,286		)	(4,748		)	14,537
Net income	$	614,923		$	1,074,106		$	1,231,593
Earnings (loss) per common share - basic
Continuing operations	$	1.81		$	2.59		$	2.86
Discontinued operations	(0.27		)	(0.01		)	0.03
Total earnings per common share - basic	$	1.54		$	2.58		$	2.90
Earnings (loss) per common share - diluted
Continuing operations	$	1.79		$	2.56		$	2.82
Discontinued operations	(0.26		)	(0.01		)	0.03
Total earnings per common share - diluted	$	1.52		$	2.54		$	2.85
Cash dividends per common share	$	1.72		$	1.53		$	1.33

See notes to consolidated financial statements.

乱伦巴士 Corporation 2017 Form 10-K F-6

乱伦巴士 CORPORATION

Consolidated Statements of Comprehensive Income



	Year Ended December
(In thousands)	2017			2016			2015
Net income	$	614,923		$	1,074,106		$	1,231,593
Other comprehensive income (loss)
Foreign currency translation and other
Gains (losses) arising during year	202,428			(52,028		)	(361,814		)
Less income tax effect	45,950			(24,382		)	586
Defined benefit pension plans
Current year actuarial gains (losses), plan amendments and curtailment losses	(18,130		)	(5,384		)	(62,556		)
Amortization of net deferred actuarial losses	41,440			65,212			61,966
Amortization of deferred prior service costs	2,646			2,584			3,038
Reclassification of net actuarial loss from settlement charge	—			50,922			4,062
Less income tax effect	(15,208		)	(43,836		)	(1,571		)
Derivative financial instruments
Gains (losses) arising during year	(138,716		)	90,708			89,993
Less income tax effect	15,636			(9,672		)	(34,668		)
Reclassification to net income for (gains) losses realized	(24,067		)	(107,457		)	(64,976		)
Less income tax effect	3,344			35,092			25,404
Marketable securities
Gains (losses) arising during year	—			—			495
Less income tax effect	—			—			(195		)
Reclassification to net income for (gains) losses realized	—			—			(1,177		)
Less income tax effect	—			—			463
Other comprehensive income (loss)	115,323			1,759			(340,950		)
Comprehensive income	$	730,246		$	1,075,865		$	890,643

See notes to consolidated financial statements.

乱伦巴士 Corporation 2017 Form 10-K F-7

乱伦巴士 CORPORATION

Consolidated Statements of Cash Flows



	Year Ended December
(In thousands)	2017			2016			2015
OPERATING ACTIVITIES
Net income	$	614,923		$	1,074,106		$	1,231,593
Adjustments to reconcile net income to cash provided by operating activities:
Impairment of goodwill and intangible assets	104,651			79,644			143,562
Depreciation and amortization	290,503			281,577			272,075
Stock-based compensation	81,641			67,762			73,420
Provision for doubtful accounts	21,171			17,283			12,006
Pension expense in excess of (less than) contributions	25,022			89,005			(208,709		)
Deferred income taxes	(79,838		)	(71,625		)	7,088
Loss on sale of businesses	29,841			104,357			—
Other, net	(2,006		)	(15,232		)	(34,784		)
Changes in operating assets and liabilities:
Accounts receivable	(107,083		)	47,102			(124,248		)
Inventories	17,005			(37,210		)	(175,098		)
Accounts payable	21,494			(9,553		)	14,225
Income taxes	460,350			(129,574		)	4,206
Accrued liabilities	31,928			28,904			(14,505		)
Other assets and liabilities	(34,942		)	(45,978		)	2,785
Cash provided by operating activities	1,474,660			1,480,568			1,203,616
INVESTING ACTIVITIES
Proceeds from sale of businesses, net of cash sold	214,968			115,983			—
Business acquisitions, net of cash received	(740,541		)	—			—
Capital expenditures	(169,553		)	(175,840		)	(254,501		)
Software purchases	(65,177		)	(44,226		)	(63,283		)
Other, net	(15,948		)	(8,331		)	(5,038		)
Cash used by investing activities	(776,251		)	(112,414		)	(322,822		)
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings	686,453			(421,069		)	432,262
Payments on long-term debt	(254,314		)	(13,276		)	(3,975		)
Payment of debt issuance costs	—			(6,807		)	(1,475		)
Proceeds from long-term debt	—			951,817			—
Purchases of treasury stock	(1,200,356		)	(1,000,468		)	(732,623		)
Cash dividends paid	(684,679		)	(635,994		)	(565,275		)
Proceeds from issuance of Common Stock, net of shares withheld for taxes	89,893			48,918			30,871
Cash used by financing activities	(1,363,003		)	(1,076,879		)	(840,215		)
Effect of foreign currency rate changes on cash, cash equivalents and restricted cash	2,965			(6,645		)	(66,680		)
Net change in cash, cash equivalents and restricted cash	(661,629		)	284,630			(26,101		)
Cash, cash equivalents and restricted cash — beginning of year ^(a)	1,231,026			946,396			972,497
Cash, cash equivalents and restricted cash — end of year ^(a)	$	569,397		$	1,231,026		$	946,396

Balances per Consolidated Balance Sheets:
Cash and cash equivalents	$	566,075		$	1,227,862		$	945,605
Other current assets	2,452			2,469			—
Other assets	870			695			791
Total cash, cash equivalents and restricted cash	$	569,397		$	1,231,026		$	946,396

^(a) The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows.

See notes to consolidated financial statements.

乱伦巴士 Corporation 2017 Form 10-K F-8

乱伦巴士 CORPORATION

Consolidated Statements of Stockholders' Equity



(In thousands, except share amounts)	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Retained Earnings
	Shares		Amounts			Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Retained Earnings
Balance, December 2014	432,859,891		$	108,215		$	2,993,186	$	(702,272	)	$	3,231,753
Net income	—		—			—		—			1,231,593
Dividends on Common Stock	—		—			—		—			(565,275		)
Purchase of treasury stock	(10,036,100	)	(2,509		)	—		—			(730,114		)
Stock-based compensation, net	3,790,483		948			199,489		—			(39,226		)
Foreign currency translation and other	—		—			—		(361,228		)	—
Defined benefit pension plans	—		—			—		4,939			—
Derivative financial instruments	—		—			—		15,753			—
Marketable securities	—		—			—		(414		)	—
Balance, December 2015	426,614,274		106,654			3,192,675		(1,043,222		)	3,128,731
Net income	—		—			—		—			1,074,106
Dividends on Common Stock	—		—			—		—			(635,994		)
Purchase of treasury stock	(15,932,075	)	(3,983		)	—		—			(996,485		)
Stock-based compensation, net	3,330,755		832			140,748		—			(24,900		)
Foreign currency translation and other	—		—			—		(76,410		)	—
Defined benefit pension plans	—		—			—		69,498			—
Derivative financial instruments	—		—			—		8,671			—
Balance, December 2016	414,012,954		103,503			3,333,423		(1,041,463		)	2,545,458
Adoption of new accounting standard	—		—			—		—			(237,764		)
Net income	—		—			—		—			614,923
Dividends on Common Stock	—		—			—		—			(684,679		)
Purchase of treasury stock	(22,213,162	)	(5,553		)	—		—			(1,194,803		)
Stock-based compensation, net	4,021,989		1,005			189,917		—			(19,390		)
Foreign currency translation and other	—		—			—		248,378			—
Defined benefit pension plans	—		—			—		10,748			—
Derivative financial instruments	—		—			—		(143,803		)	—
Balance, December 2017	395,821,781		$	98,955		$	3,523,340	$	(926,140	)	$	1,023,745

See notes to consolidated financial statements.

乱伦巴士 Corporation 2017 Form 10-K F-9

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

乱伦巴士 Corporation (together with its subsidiaries, collectively known as “乱伦巴士” or the "Company”) is a global apparel and footwear company based in the United States. 乱伦巴士 designs, produces, procures, markets and distributes a variety of products, including jeanswear, outerwear, footwear, backpacks, luggage, and occupational and performance apparel for consumers of all ages. Products are marketed primarily under 乱伦巴士-owned brand names.

Basis of Presentation

The consolidated financial statements and related disclosures are presented in accordance with generally accepted accounting principles in the U.S (“GAAP”). The consolidated financial statements include the accounts of 乱伦巴士 and its controlled subsidiaries, after elimination of intercompany transactions and balances.

The Nautica^® brand business, the Licensing Business (which comprised the Licensed Sports Group and JanSport^® brand collegiate businesses), and the Contemporary Brands coalition have been reported as discontinued operations in our Consolidated Statements of Income, and the related assets and liabilities have been presented as held-for-sale 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 C for additional information on discontinued operations.

Fiscal Year

乱伦巴士 operates and reports using a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year. All references to “2017”, “2016” and “2015” relate to the 52-week fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016, respectively. Certain foreign subsidiaries report using a December 31 year-end due to local statutory requirements. During the first quarter of 2017, the Company approved a change in fiscal year end to the Saturday closest to March 31 from the Saturday closest to December 31. Accordingly, 乱伦巴士 will report a transition quarter that runs from December 31, 2017 through March 31, 2018. The Company's next fiscal year will run from April 1, 2018 through March 30, 2019 (“Fiscal 2019”).

Use of Estimates

In preparing the consolidated financial statements in accordance with GAAP, management makes estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Foreign Currency Translation and Transaction

The financial statements of most foreign subsidiaries are measured using the foreign currency as the functional currency. Assets and liabilities denominated in a foreign currency are translated into U.S. dollars using exchange rates in effect at the balance sheet date, and revenues and expenses are translated at average exchange rates during the period. Resulting translation gains and losses, and transaction gains and losses on long-term

advances to foreign subsidiaries, are reported in other comprehensive income (loss) (“OCI”).

Foreign currency transactions are denominated in a currency other than the functional currency of a particular entity. These transactions generally result in receivables or payables that are fixed in the foreign currency. Transaction gains or losses arise when exchange rate fluctuations either increase or decrease the functional currency cash flows from the originally recorded transaction. As discussed in Note V, 乱伦巴士 enters into derivative contracts to manage foreign currency risk on certain of these transactions. Foreign currency transaction gains and losses reported in the Consolidated Statements of Income, net of the related hedging losses and gains, were a gain of $4.8 million in 2017, a loss of $9.7 million in 2016, and a loss of $8.7 million in 2015.

Cash and Equivalents

Cash and equivalents are demand deposits, receivables from third-party credit card processors, and highly liquid investments that mature within three months of their purchase dates. Cash equivalents totaling $279.0 million and $855.6 million at December 2017 and 2016, respectively, consist of money market funds and short-term time deposits.

Accounts Receivable

Trade accounts receivable are recorded at invoiced amounts, less estimated allowances for trade terms, sales incentive programs, discounts, markdowns, chargebacks and returns as discussed below in Revenue Recognition. Royalty receivables are recorded at amounts earned based on the licensees’ sales of licensed products, subject in some cases to contractual minimum royalties due from individual licensees. 乱伦巴士 maintains an allowance for doubtful accounts for estimated losses that will result from the inability of customers and licensees to make required payments. The allowance is determined based on review of specific customer accounts where collection is doubtful, as well as an assessment of the collectability of total receivables considering the aging of balances, historical and anticipated trends, and current economic conditions. All accounts are subject to ongoing review of ultimate collectability. Receivables are written off against the allowance when it is probable the amounts will not be recovered.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on the first-in, first-out (“FIFO”) method and is net of discounts or rebates received from vendors.

Long-lived Assets, Including Intangible Assets and Goodwill

Property, plant and equipment, intangible assets and goodwill are initially recorded at cost. 乱伦巴士 capitalizes improvements to property, plant and equipment that substantially extend the useful life of the asset, and interest cost incurred during construction of major assets. Assets under capital leases are recorded at the present value of minimum lease payments. Repair and maintenance costs are expensed as incurred.

Cost for acquired intangible assets represents the fair value at acquisition date, which is generally based on the present value of

乱伦巴士 Corporation 2017 Form 10-K F-10

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

expected cash flows. Trademark intangible assets represent individual acquired trademarks, some of which are registered in multiple countries. Customer relationship intangible assets are based on the value of relationships with wholesale customers in place at the time of acquisition. License intangible assets relate to 乱伦巴士's licensing contracts with customers.

Goodwill represents the excess of cost of an acquired business over the fair value of net tangible assets and identifiable intangible assets acquired. Goodwill is assigned at the reporting unit level.

Depreciation of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the assets, ranging from 3 to 10 years for machinery and equipment and up to 40 years for buildings. Amortization expense for leasehold improvements and assets under capital leases is recognized over the shorter of their estimated useful lives or the lease terms, and is included in depreciation expense.

Intangible assets determined to have indefinite lives, consisting of major trademarks and trade names, are not amortized. Other intangible assets, primarily customer relationships, license intangible assets and trademarks determined to have a finite life, are amortized over their estimated useful lives ranging from 3 to 24 years. Amortization of intangible assets is computed using straight-line or accelerated methods consistent with the timing of the expected benefits to be received.

Depreciation and amortization expense related to producing or otherwise obtaining finished goods inventories is included in cost of goods sold, and other depreciation and amortization expense is included in selling, general and administrative expenses.

乱伦巴士’s policy is to review property, plant and equipment and amortizable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If forecasted undiscounted cash flows to be generated by the asset are not expected to recover the asset’s carrying value, an impairment charge is recorded for the excess of the asset’s carrying value over its estimated fair value.

乱伦巴士’s policy is to evaluate indefinite-lived intangible assets and goodwill for possible impairment as of the beginning of the fourth quarter of each year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount. 乱伦巴士 may first assess qualitative factors as a basis for determining whether it is necessary to perform quantitative impairment testing. If 乱伦巴士 determines that it is not more likely than not that the fair value of an asset or reporting unit is less than its carrying value, then no further testing is required. Otherwise, the assets must be quantitatively tested for impairment.

An indefinite-lived intangible asset is quantitatively evaluated for possible impairment by comparing the estimated fair value of the asset with its carrying value. An impairment charge is recorded if the carrying value of the asset exceeds its estimated fair value.

Goodwill is quantitatively evaluated for possible impairment by comparing the estimated fair value of a reporting unit with its carrying value, including the goodwill assigned to that reporting unit. An impairment charge is recorded if the carrying value of the reporting unit exceeds its estimated fair value.

Derivative Financial Instruments

Derivative financial instruments are measured at fair value in the Consolidated Balance Sheets. Unrealized gains and losses are recognized as assets and liabilities, respectively, and classified as current or noncurrent based on the derivatives’ maturity dates. The accounting for changes in the fair value of derivative instruments (i.e., gains and losses) depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. To qualify for hedge accounting treatment, all hedging relationships must be formally documented at the inception of the hedges and must be highly effective in offsetting changes to future cash flows of hedged transactions. 乱伦巴士’s hedging practices are described in Note V. 乱伦巴士 does not use derivative instruments for trading or speculative purposes. Hedging cash flows are classified in the Consolidated Statements of Cash Flows in the same category as the items being hedged.

乱伦巴士 formally documents hedging instruments and hedging relationships at the inception of each contract. Further, at the inception of a contract and on an ongoing basis, 乱伦巴士 assesses whether the hedging instruments are effective in offsetting the risk of the hedged transactions. Occasionally, a portion of a derivative instrument will be considered ineffective in hedging the originally identified exposure due to a decline in amount or a change in timing of the hedged exposure. In that case, hedge accounting treatment is discontinued for the ineffective portion of that hedging instrument, and any change in fair value for the ineffective portion is recognized in net income.

乱伦巴士 also uses derivative contracts to manage foreign currency exchange risk on certain assets and liabilities, and to hedge the exposure on the foreign currency denominated purchase price of acquisitions. These contracts are not designated as hedges, and are measured at fair value in the Consolidated Balance Sheets with changes in fair value recognized directly in net income.

The counterparties to the derivative contracts are financial institutions having at least A-rated investment grade credit ratings. To manage its credit risk, 乱伦巴士 continually monitors the credit risks of its counterparties, limits its exposure in the aggregate and to any single counterparty, and adjusts its hedging positions as appropriate. The impact of 乱伦巴士’s credit risk and the credit risk of its counterparties, as well as the ability of each party to fulfill its obligations under the contracts, is considered in determining the fair value of the derivative contracts. Credit risk has not had a significant effect on the fair value of 乱伦巴士’s derivative contracts. 乱伦巴士 does not have any credit risk-related contingent features or collateral requirements with its derivative contracts.

Revenue Recognition

Revenue is recognized when (i) there is a contract or other arrangement of sale, (ii) the sales price is fixed or determinable, (iii) title and the risks of ownership have been transferred to the customer and (iv) collection of the receivable is reasonably assured. Sales to wholesale customers are recognized when title and the risks and rewards of ownership have passed to the customer, based on the terms of sale. E-commerce sales are generally recognized when the product has been received by the customer. Sales at 乱伦巴士-operated and concession retail stores are recognized at the time products are purchased by consumers.

乱伦巴士 Corporation 2017 Form 10-K F-11

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

Revenue from the sale of gift cards is deferred until the gift card is redeemed by the customer or the Company determines that the likelihood of redemption is remote and that it does not have a legal obligation to remit the value of the unredeemed gift card to any jurisdiction under unclaimed property regulations.

Various 乱伦巴士 brands maintain customer loyalty programs where customers earn rewards from qualifying purchases or activities. 乱伦巴士 recognizes revenue when (i) rewards are redeemed by the customer, (ii) points or certificates expire or (iii) a breakage factor is applied based on historical redemption patterns.

Net sales reflect adjustments for estimated allowances for trade terms, sales incentive programs, discounts, markdowns, chargebacks and returns. These allowances are estimated based on evaluations of specific product and customer circumstances, historical and anticipated trends and current economic conditions.

Shipping and handling costs billed to customers are included in net sales. Sales taxes and value added taxes collected from customers and remitted directly to governmental authorities are excluded from net sales.

Royalty income is recognized as earned based on the greater of the licensees’ sales of licensed products at rates specified in the licensing contracts or contractual minimum royalty levels.

Cost of Goods Sold

Cost of goods sold for 乱伦巴士-manufactured goods includes all materials, labor and overhead costs incurred in the production process. Cost of goods sold for purchased finished goods includes the purchase costs and related overhead. In both cases, overhead includes all costs related to manufacturing or purchasing finished goods, including costs of planning, purchasing, quality control, depreciation, freight, duties, royalties paid to third parties and shrinkage. For product lines with a warranty, a provision for estimated future repair or replacement costs, based on historical and anticipated trends, is recorded when these products are sold.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include costs of product development, selling, marketing and advertising, 乱伦巴士-operated retail stores, concession retail stores, warehousing, distribution, shipping and handling, licensing and administration. Advertising costs are expensed as incurred and totaled $715.9 million in 2017, $637.6 million in 2016 and $652.5 million in 2015. Advertising costs include cooperative advertising payments made to 乱伦巴士’s customers as reimbursement for their costs of advertising 乱伦巴士’s products, and totaled $44.6 million in 2017, $51.8 million in 2016 and $55.4 million in 2015. Shipping and handling costs for delivery of products to customers totaled $349.1 million in 2017, $307.3 million in 2016 and $324.1 million in 2015. Expenses related to royalty income, including amortization of licensed intangible assets, were $4.2 million in 2017 and $4.5 million in both 2016 and 2015.

Rent Expense

乱伦巴士 enters into noncancelable operating leases for retail stores, office space, distribution facilities and equipment. Leases for real estate typically have initial terms ranging from 3 to 15 years, generally with renewal options. Leases for equipment typically have initial terms ranging from 2 to 5 years. Most leases have fixed

rentals, with many of the real estate leases requiring additional payments for real estate taxes and occupancy-related costs. Contingent rent expense, owed when sales at individual retail store locations exceed a stated base amount, is recognized when the liability is probable. Rent expense for leases having rent holidays, landlord incentives or scheduled rent increases is recorded on a straight-line basis over the lease term beginning with the earlier of the lease commencement date or the date 乱伦巴士 takes possession or control of the leased premises. The amount of the excess straight-line rent expense over scheduled payments is recorded as a deferred liability.

Self-insurance

乱伦巴士 is self-insured for a significant portion of its employee medical, workers’ compensation, vehicle, property and general liability exposures. Liabilities for self-insured exposures are accrued at the present value of amounts expected to be paid based on historical claims experience and actuarial data for forecasted settlements of claims filed and for incurred but not yet reported claims. Accruals for self-insured exposures are included in current and noncurrent liabilities based on the expected periods of payment. Excess liability insurance has been purchased to limit the amount of self-insured risk on claims.

Income Taxes

Income taxes are provided on pre-tax income for financial reporting purposes. Income taxes are based on amounts of taxes payable or refundable in the current year and on expected future tax consequences of events that are recognized in the consolidated financial statements in different periods than they are recognized in tax returns. As a result of timing of recognition and measurement differences between financial accounting standards and income tax laws, temporary differences arise between amounts of pretax financial statement income and taxable income, and between reported amounts of assets and liabilities in the Consolidated Balance Sheets and their respective tax bases. Deferred income tax assets and liabilities reported in the Consolidated Balance Sheets reflect the estimated future tax impact of these temporary differences and net operating loss and net capital loss carryforwards, based on tax rates currently enacted for the years in which the differences are expected to be settled or realized. Realization of deferred tax assets is dependent on future taxable income in specific jurisdictions. Valuation allowances are used to reduce deferred tax assets to amounts considered more likely than not to be realized. Accrued income taxes in the Consolidated Balance Sheets include unrecognized income tax benefits, along with related interest and penalties, appropriately classified as current or noncurrent. All deferred tax assets and liabilities are classified as noncurrent in the Consolidated Balance Sheets. The provision for income taxes also includes estimated interest and penalties related to uncertain tax positions.

Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share assumes conversion of potentially dilutive securities such as stock options, restricted stock and restricted stock units.

乱伦巴士 Corporation 2017 Form 10-K F-12

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

Concentration of Risks

乱伦巴士 markets products to a broad customer base throughout the world. Products are sold at a range of price points through multiple wholesale and direct-to-consumer channels. 乱伦巴士’s ten largest customers, all U.S.-based retailers, accounted for 19% of 2017 total revenues, and sales to 乱伦巴士’s largest customer accounted for 8% of 2017 total revenues. Sales are generally made on an unsecured basis under customary terms that may vary by product, channel of distribution or geographic region. 乱伦巴士 continuously monitors the creditworthiness of its customers and has established internal policies regarding customer credit limits. The breadth of product offerings, combined with the large number and geographic diversity of its customers, limits 乱伦巴士’s concentration of risks.

Legal and Other Contingencies

Management periodically assesses liabilities and contingencies in connection with legal proceedings and other claims that may arise from time to time. When it is probable that a loss has been or will be incurred, an estimate of the loss is recorded in the consolidated financial statements. Estimates of losses are adjusted when additional information becomes available or circumstances change. A contingent liability is disclosed when there is at least a reasonable possibility that a material loss may have been incurred. Management believes that the outcome of any outstanding or pending matters, individually and in the aggregate, will not have a material adverse effect on the consolidated financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform with the 2017 presentation, as discussed below in Recently Adopted Accounting Standards.

Recently Adopted Accounting Standards

In July 2015, the FASB issued an update to their accounting guidance related to inventory that changes the measurement principle from lower of cost or market to lower of cost or net realizable value. This guidance became effective in the first quarter of 2017, but did not impact 乱伦巴士’s consolidated financial statements.

In March 2016, the FASB issued an update to their accounting guidance on equity method accounting. The guidance eliminates the requirement to retroactively apply the equity method when an entity obtains significant influence over a previously held investment. This guidance became effective in the first quarter of 2017, but did not impact 乱伦巴士’s consolidated financial statements.

In March 2016, the FASB issued an update to their accounting guidance on derivative financial instruments when there is a change in the counterparty to a derivative contract (novation). The new guidance clarifies that the novation of a derivative contract that has been designated as a hedging instrument does not, in and of itself, require dedesignation of that hedging relationship, provided that all other hedge accounting criteria continue to be met. This guidance became effective in the first quarter of 2017, but did not impact 乱伦巴士’s consolidated financial statements.

In March 2016, the FASB issued an update to their accounting guidance on derivative financial instruments that clarifies the steps required to determine bifurcation of an embedded derivative. This guidance became effective in the first quarter of 2017, but did not impact 乱伦巴士’s consolidated financial statements.

In October 2016, the FASB issued an update to their accounting guidance on the recognition of current and deferred income taxes for intra-entity asset transfers. The new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Company early adopted this guidance in the first quarter of 2017 using the modified retrospective method, which requires a cumulative adjustment to retained earnings as of the beginning of the period of adoption. The cumulative adjustment to the January 1, 2017 Consolidated Balance Sheet was a reduction in both the other assets and retained earnings line items of $237.8 million.

In October 2016, the FASB issued an update to their accounting guidance that changes how a single decision maker will consider its indirect interests when performing the primary beneficiary analysis under the variable interest entity model. This guidance became effective in the first quarter of 2017, but did not impact 乱伦巴士’s consolidated financial statements.

In November 2016, the FASB issued an update that requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows. The Company early adopted this guidance in the first quarter of 2017 on a retrospective basis and the Consolidated Statements of Cash Flows included herein reflect $3.3 million, $3.2 million and $0.8 million of restricted cash for December 2017, December 2016 and December 2015, respectively. The Company’s restricted cash is generally held as collateral for certain transactions.

In January 2017, the FASB issued an update that eliminates the second step from the quantitative goodwill impairment test. The single step quantitative test requires companies to compare the fair value of a reporting unit with its carrying amount and record an impairment charge for the amount that the carrying amount exceeds the fair value, up to the total amount of goodwill allocated to that reporting unit. 乱伦巴士 will continue to have the option of first performing a qualitative assessment to determine whether it is necessary to complete the quantitative goodwill impairment test. The Company early adopted this guidance in the third quarter of 2017 and recorded a goodwill impairment charge for the Nautica^®brand reporting unit, which has since been reported in discontinued operations.

Recently Issued Accounting Standards

In May 2014, the FASB issued 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 has subsequently issued updates to the standard to provide additional clarification on specific topics. 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. A cross-functional implementation team has completed 乱伦巴士’s impact analysis and is in the process of performing the disclosure assessment phase of the project. The new guidance is not expected to have a material impact on 乱伦巴士’s

乱伦巴士 Corporation 2017 Form 10-K F-13

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

revenue streams within the wholesale, direct-to-consumer and royalty channels. Expected changes will include 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, and discontinued capitalization of certain costs related to ongoing customer arrangements. Additionally, expected changes to 乱伦巴士's Consolidated Balance Sheets will include presentation of allowances for sales incentive programs, discounts, markdowns, chargebacks, and returns as accrued liabilities rather than as a reduction to accounts receivable, and the presentation of estimated cost of inventory associated with the allowance for sales returns within other current assets rather than as a component of inventory. 乱伦巴士 is continuing its assessment of the new standard, including the impact on processes, accounting policies, disclosures and internal controls over financial reporting. The Company will adopt the new standard utilizing the modified retrospective method in the first quarter of Fiscal 2019.

In January 2016, the FASB issued an update to their 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 will be effective for 乱伦巴士 in the first quarter of Fiscal 2019. The Company does not expect the adoption of this guidance to have a material impact on 乱伦巴士’s consolidated financial statements.

In February 2016, the FASB issued a new accounting standard on leasing. This new standard will require 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. 乱伦巴士's cross-functional implementation team has completed the design and assessment phase of the project and the implementation phase is in progress. 乱伦巴士’s assessment efforts involved reviewing the standard's provisions, evaluating real estate and non-real estate lease arrangements and identifying arrangements that may contain embedded leases. 乱伦巴士 is also evaluating the impact of the new accounting standard on the Company's systems, processes and controls. Based on the efforts to date, 乱伦巴士 expects this standard will have a material impact on 乱伦巴士’s 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 Fiscal 2020, but has not yet selected a transition method.

In March 2016, the FASB issued an update to their 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 gift card liabilities be subject to breakage accounting, consistent with the new revenue recognition standard discussed above. This guidance will be effective for 乱伦巴士 in the first quarter of Fiscal 2019. The Company does not expect the adoption of this guidance to have a material impact on 乱伦巴士’s consolidated financial statements.

In June 2016, the FASB issued an update to their accounting guidance on the measurement of credit losses on financial instruments, which amends the impairment model by requiring 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 乱伦巴士 in the first quarter of Fiscal 2021 with early adoption

permitted. The Company is evaluating the impact that adopting this guidance will have on 乱伦巴士’s consolidated financial statements.

In August 2016, the FASB issued an update to their accounting guidance that addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance will be effective for 乱伦巴士 in the first quarter of Fiscal 2019. The Company does not expect the adoption of this guidance to have a material impact on 乱伦巴士’s consolidated financial statements.

In January 2017, the FASB issued 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 will be effective for 乱伦巴士 in the first quarter of Fiscal 2019 with early adoption permitted. The Company will apply this guidance to any transactions after adoption but does not expect it to have a material impact on 乱伦巴士’s consolidated financial statements.

In March 2017, the FASB issued an update which requires employers to disaggregate the service cost component from other components of net periodic benefit costs and to disclose the amounts of net periodic benefit costs that are included in each income statement line item. 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 乱伦巴士’s current practice (Refer to Note N for components of net periodic benefit costs). The presentation change in the Consolidated Statements of Income will be applied on a retrospective basis when 乱伦巴士 adopts this guidance in the first quarter of Fiscal 2019. Other than the presentation changes noted above, the Company does not expect the adoption of this guidance to have a material impact on 乱伦巴士’s consolidated financial statements.

In May 2017, the FASB issued 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 will be effective for 乱伦巴士 beginning in the first quarter of Fiscal 2019 and is required to be applied prospectively to an award modified on or after the adoption date. The Company will apply this guidance to any future changes made to the terms or conditions of share-based payment awards after adoption but does not expect it to have a material impact on 乱伦巴士’s consolidated financial statements.

In August 2017, the FASB issued 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 乱伦巴士 in the first quarter of Fiscal 2020 with early adoption permitted. The Company is evaluating the impact that adopting this guidance will have on 乱伦巴士’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 Cuts and Jobs Act (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

乱伦巴士 Corporation 2017 Form 10-K F-14

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

taxes related to GILTI inclusions or treat any taxes on GILTI inclusions as period costs. The Company has not completed its analysis of the effects of the GILTI provisions and will further consider the accounting policy election within the measurement period as provided under SAB 118.

In February 2018, the FASB issued 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 乱伦巴士 in the first quarter of Fiscal 2020 with early adoption permitted. The Company is evaluating the impact that adopting this guidance will have on 乱伦巴士’s consolidated financial statements.

NOTE B — ACQUISITIONS

Williamson-Dickie

On August 11, 2017, 乱伦巴士 entered into a definitive merger agreement to acquire 100% of the outstanding shares of Williamson-Dickie Mfg. Co. (“Williamson-Dickie”). The acquisition was completed on October 2, 2017 for $800.7 million in cash, which is subject to working capital and other adjustments. The purchase price was primarily funded with short-term borrowings.

Williamson-Dickie was a privately held company based in Ft. Worth, Texas, and is 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.

Williamson-Dickie contributed revenues of $247.2 million and net income of $11.4 million to 乱伦巴士 for the period from October 2, 2017 through December 30, 2017.

The allocation of the purchase price is preliminary and subject to change, primarily for certain income tax matters and final adjustments for net working capital. Accordingly, adjustments may be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the valuation date.

The following table summarizes the estimated fair values of the 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	117,621
Deferred income tax liabilities	15,160
Other non-current liabilities	33,066
Total liabilities assumed	271,464

Net assets acquired	707,875
Goodwill	92,837
Purchase Price	$	800,712

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 Imagewear coalition and $53.6 million is expected to be deductible for tax purposes.

The Dickies^®, Kodiak^®, Terra^® and Walls^® trademarks, which management believes to have indefinite lives, have been valued at $316.1 million. The Workrite^® trademark, valued at $0.8 million, will be amortized over three years.

Amortizable intangible assets have been assigned values of $78.6 million for customer relationships and $2.3 million for distribution

乱伦巴士 Corporation 2017 Form 10-K F-15

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

agreements. Customer relationships are being amortized using an accelerated method over periods ranging from 10 to 13 years.

Distribution agreements are being amortized on a straight-line basis over four years.

The following unaudited pro forma summary presents consolidated information of 乱伦巴士 as if the acquisition of Williamson-Dickie had occurred on January 3, 2016:



(In thousands)	Pro forma year ended December 2017 (unaudited)		Pro forma year ended December 2016 (unaudited)
Total revenues	$	12,475,116	$	11,888,704
Income from continuing operations	763,563		1,097,572
Earnings per common share from continuing operations
Basic	$	1.91	$	2.64
Diluted	1.89		2.60

These pro forma amounts have been calculated after applying 乱伦巴士’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 consequential tax effects.

The pro forma financial information in 2017 and 2016 excludes $41.6 million and $4.1 million, respectively, of expense related to Williamson-Dickie’s executive compensation plans, which were terminated concurrent with the merger. The pro forma financial information in 2016 includes $12.2 million of 乱伦巴士’s transaction expenses related to the acquisition.

Pro forma financial information is not necessarily indicative of 乱伦巴士’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 乱伦巴士 believes are achievable.

Icebreaker Holdings, Ltd.

On November 1, 2017, 乱伦巴士 entered into a definitive merger agreement to acquire 100% of the stock of Icebreaker Holdings, Ltd., a privately held company based in Auckland, New Zealand. The purchase price is NZ$288 million ($204.3 million at December 30, 2017), subject to working capital adjustments. 乱伦巴士 has entered into foreign exchange forward contracts to hedge the purchase price. The acquisition is expected to close in the first quarter of Fiscal 2019, subject to satisfaction of customary closing conditions.

NOTE C — DISCONTINUED OPERATIONS

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

Nautica^® Brand Business

During the fourth quarter of 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 began to report the results of the Nautica^® brand business as discontinued operations in the Consolidated Statements of Income and present the related assets and liabilities as held-for-sale in the Consolidated Balance Sheets. These changes have been applied for all periods presented.

The results of the Nautica^® brand's North America business were previously reported in the Sportswear coalition, and the results of the Asia business were previously reported in the Outdoor & Action Sports coalition. The results of the Nautica^® brand business recorded in the income (loss) from discontinued operations, net of tax line item were losses of $95.2 million for 2017 (including an estimated loss on sale of $25.5 million recorded in the fourth quarter of 2017) and income of $31.4 million and $54.0 million for 2016 and 2015 respectively.

Certain corporate overhead costs and coalition 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. In addition, the third quarter 2017 goodwill impairment charge of $104.7 million related to the Nautica^® reporting unit, previously excluded from the calculation of coalition profit, was reclassified to discontinued operations.

Licensing Business

In the first quarter of 2017, the company reached the strategic decision to exit its Licensing Business, which comprised the Licensed Sports Group (“LSG”) and JanSport^® brand collegiate businesses. Accordingly, the Company began to report the results of the businesses as discontinued operations in the Consolidated Statements of Income and present the related assets and liabilities as held-for-sale in the Consolidated Balance Sheets. These changes have been applied for all periods presented.

LSG included the Majestic^® brand and was previously included within our Imagewear coalition. On April 28, 2017, 乱伦巴士 completed the sale of LSG to Fanatics, Inc. The Company received proceeds of $213.5 million, net of cash sold, and recorded an after-tax loss on sale of $4.1 million, which is included in the income (loss) from discontinued operations, net of tax line item in the 2017 Consolidated Statements of Income.

乱伦巴士 Corporation 2017 Form 10-K F-16

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

The LSG results recorded in the income (loss) from discontinued operations, net of tax line item were losses of $4.6 million for 2017 (including the loss on sale of $4.1 million) and income of $63.3 million and $44.2 million for 2016 and 2015, respectively.

In the fourth quarter of 2017, 乱伦巴士 completed the sale of the assets associated with the JanSport^® brand collegiate business, which was previously included within our Outdoor & Action Sports coalition. The Company received net proceeds of $1.5 million and recorded an after-tax loss on sale of $0.2 million, which is included in the income (loss) from discontinued operations, net of tax line item in the 2017 Consolidated Statements of Income.

The JanSport^® brand collegiate results recorded in the income (loss) from discontinued operations, net of tax line item were losses of $6.5 million (including the loss on sale of $0.2 million), $1.0 million and $0.2 million for 2017, 2016 and 2015, 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 ranging from three to 24 months from the closing date of the transaction. Revenue and expense items associated with the transition services are primarily recorded in the Imagewear coalition.

Contemporary Brands Coalition

Beginning in the second quarter of 2016, 乱伦巴士 reported the results of the Contemporary Brands coalition within discontinued operations in the Consolidated Statements of Income. These changes have been applied for all periods presented.

On August 26, 2016, 乱伦巴士 completed the sale of its Contemporary Brands coalition to Delta Galil Industries, Ltd. for $116.0 million, net of cash sold. The Contemporary Brands coalition included the businesses of the 7 For All Mankind^®, Splendid^® and Ella Moss^® brands and was previously disclosed as a separate reportable segment of 乱伦巴士. The transaction resulted in an after-tax loss on sale of $104.4 million which was included in the income (loss) from discontinued operations, net of tax line item in the 2016 Consolidated Statement of Income.

The results of the Contemporary Brands coalition recorded in the income (loss) from discontinued operations, net of tax line item were losses of $98.4 million (including the loss on sale of $104.4 million) and $83.5 million for 2016 and 2015, respectively.

Certain corporate overhead costs and interest expense previously allocated to the Contemporary Brands coalition for segment reporting purposes did not qualify for classification within discontinued operations and have been reallocated to continuing operations. In addition, goodwill and intangible asset impairment charges related to the Contemporary Brands coalition, previously excluded from the calculation of coalition profit, were reclassified to discontinued operations.

乱伦巴士 provided certain support services under transition services agreements and completed these services during the third quarter of 2017. These services did not have a material impact on 乱伦巴士’s 2017 Consolidated Statement of Income.

Summarized Discontinued Operations Financial Information

The following table summarizes the major line items included in the income (loss) from discontinued operations for the Nautica^® brand business, the Licensing Business and the Contemporary Brands coalition:



(In thousands)	2017			2016			2015
Revenues	$	588,383		$	1,180,677		$	1,380,351
Cost of goods sold	349,382			691,715			790,034
Selling, general and administrative expenses	191,898			354,773			430,587
Impairment of goodwill and intangible assets	104,651			—			143,562
Interest income (expense), net	(27		)	(199		)	(663		)
Other income (expense), net	6			2			627
Income (loss) from discontinued operations before income taxes	(57,569		)	133,992			16,132
Loss on the sale of discontinued operations, before income taxes	(34,019		)	(154,275		)	—
Total income (loss) from discontinued operations before income taxes	(91,588		)	(20,283		)	16,132
Income tax (expense) benefit^(a)	(14,698		)	15,535			(1,595		)
Income (loss) from discontinued operations, net of tax	$	(106,286	)	$	(4,748	)	$	14,537


^(a)	The full year 2017 income tax expense is impacted by $8.6 million of tax expense related to GAAP and tax basis differences for LSG. Additionally, the 2017 goodwill impairment charge and estimated loss on sale related to the Nautica^® brand business were nondeductible for income tax purposes.

乱伦巴士 Corporation 2017 Form 10-K F-17

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of the periods presented.



(In thousands)	2017			2016
Accounts receivable, net	$	35,826		$	48,881
Inventories	44,735			144,754
Other current assets	2,771			4,345
Property, plant and equipment	26,852			43,690
Intangible assets	262,352			305,770
Goodwill	49,005			182,292
Other assets	6,053			7,570
Allowance to adjust assets to estimated fair value, less costs of disposal	(25,529		)	—
Total assets of discontinued operations^(a)	$	402,065		$	737,302
Accounts payable	$	22,421		$	44,450
Accrued liabilities	21,408			29,006
Other liabilities	13,449			14,624
Deferred income tax liabilities^(b)	53,474			73,337
Total liabilities of discontinued operations^(a)	$	110,752		$	161,417


^(a)	Amounts at December 2016 have been classified as current and long-term in the Consolidated Balance Sheet.


^(b)	Deferred income tax balances reflect 乱伦巴士's consolidated netting by jurisdiction.

The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows. The following table summarizes depreciation and amortization, capital expenditures and the significant operating noncash items from discontinued operations for each of the periods presented:



(In thousands)	2017		2016		2015
Depreciation and amortization	$	14,023	$	27,360	$	39,189
Capital expenditures	2,592		4,795		13,536
Impairment of goodwill and intangible assets	104,651		—		143,562

NOTE D — ACCOUNTS RECEIVABLE



(In thousands)	2017		2016
Trade	$	1,357,424	$	1,106,018
Royalty and other	90,929		63,317
Total accounts receivable	1,448,353		1,169,335
Less allowance for doubtful accounts	26,252		20,538
Accounts receivable, net	$	1,422,101	$	1,148,797

乱伦巴士 has an agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis. Under the agreement, up to $367.5 million of 乱伦巴士’s accounts receivable may be sold to the financial institution and remain outstanding at any point in time. 乱伦巴士 removes the accounts receivable from the Consolidated Balance Sheets at the time of sale. 乱伦巴士 does not retain any interests in the sold accounts receivable but continues to service and collect outstanding accounts receivable on behalf of the financial institution. During 2017 and 2016, 乱伦巴士 sold total accounts receivable of $1,180.7 million

and $1,333.9 million, respectively. As of December 2017 and 2016, $219.1 million and $209.5 million, respectively, of the sold accounts receivable had been removed from the Consolidated Balance Sheets but remained outstanding with the financial institution. The funding fee charged by the financial institution is included in the other income (expense), net line item in the Consolidated Statements of Income, and was $3.9 million in 2017, $3.4 million in 2016 and $1.9 million in 2015. Net proceeds of this program are classified in operating activities in the Consolidated Statements of Cash Flows.

乱伦巴士 Corporation 2017 Form 10-K F-18

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE E — INVENTORIES



(In thousands)	2017		2016
Finished products	$	1,490,738	$	1,233,018
Work-in-process	109,911		97,256
Raw materials	104,522		94,297
Total inventories	$	1,705,171	$	1,424,571

NOTE F — PROPERTY, PLANT AND EQUIPMENT



(In thousands)	2017		2016
Land and improvements	$	103,232	$	85,704
Buildings and improvements	1,052,859		931,190
Machinery and equipment	1,301,633		1,216,762
Property, plant and equipment, at cost	2,457,724		2,233,656
Less accumulated depreciation and amortization	1,455,024		1,337,696
Property, plant and equipment, net	$	1,002,700	$	895,960

乱伦巴士 Corporation 2017 Form 10-K F-19

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE G — INTANGIBLE ASSETS



(In thousands)	Weighted Average Amortization Period	Amortization Method	Cost		Accumulated Amortization		Net Carrying Amount
December 2017
Amortizable intangible assets:
Customer relationships	18 years	Accelerated	$	338,209	$	133,994	$	204,215
License agreements	20 years	Accelerated	19,996		13,660		6,336
Trademarks	16 years	Straight-line	58,932		7,333		51,599
Other	9 years	Straight-line	9,001		3,648		5,353
Amortizable intangible assets, net							267,503
Indefinite-lived intangible assets:
Trademarks and trade names							1,822,278
Intangible assets, net							$	2,089,781



(In thousands)	Weighted Average Amortization Period	Amortization Method	Cost		Accumulated Amortization		Net Carrying Amount
December 2016
Amortizable intangible assets:
Customer relationships	20 years	Accelerated	$	233,092	$	107,679	$	125,413
License agreements	20 years	Accelerated	19,150		12,402		6,748
Trademark	16 years	Straight-line	58,132		3,633		54,499
Other	10 years	Straight-line	6,036		2,739		3,297
Amortizable intangible assets, net							189,957
Indefinite-lived intangible assets:
Trademarks and trade names							1,343,971
Intangible assets, net							$	1,533,928

Intangible assets increased during 2017 due to the Williamson-Dickie acquisition (Note B) and the impact of foreign currency fluctuations.

乱伦巴士 did not record any impairment charges in 2017 or 2015. In 2016, 乱伦巴士 recorded an impairment charge of $40.3 million to write off the remaining trademark asset balance for the lucy^®brand, which was part of the Outdoor & Action Sports Coalition. Refer to Note U for additional information on the fair value measurements.

Amortization expense (excluding impairment charges) for 2017, 2016 and 2015 was $20.0 million, $18.8 million and $16.3 million, respectively. Estimated amortization expense for calendar years 2018 through 2022 is $27.9 million, $26.7 million, $25.6 million, $24.3 million and $22.4 million, respectively.

乱伦巴士 Corporation 2017 Form 10-K F-20

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE H — GOODWILL

Changes in goodwill are summarized by business segment as follows:



(In thousands)	Outdoor & Action Sports			Jeanswear			Imagewear			Total
Balance, December 2015	$	1,363,133		$	212,871		$	30,111		$	1,606,115
Impairment charge	(39,344		)	—			—			(39,344		)
Currency translation	(9,998		)	(2,106		)	—			(12,104		)
Balance, December 2016	1,313,791			210,765			30,111			1,554,667
2017 acquisition	—			—			92,837			92,837
Currency translation	36,757			8,523			(140		)	45,140
Balance, December 2017	$	1,350,548		$	219,288		$	122,808		$	1,692,644

乱伦巴士 did not record any impairment charges in 2017 or 2015 based on the results of its annual goodwill impairment testing. In 2016, 乱伦巴士 recorded an impairment charge of $39.3 million to write off the remaining goodwill balance related to its lucy^®brand reporting unit, which was part of the Outdoor & Action Sports coalition. Refer to

Note U for additional information on fair value measurements.

Accumulated impairment charges for the Outdoor & Action Sports coalition were $82.7 million as of December 2017 and December 2016.

NOTE I — OTHER ASSETS



(In thousands)	2017		2016
Deferred charge (Note Q)	$	—	$	276,473
Computer software, net of accumulated amortization of $171,147 in 2017 and $128,415 in 2016	232,237		194,685
Investments held for deferred compensation plans (Note N)	201,744		192,477
Deferred income taxes (Note Q)	103,601		42,171
Pension assets (Note N)	82,296		41,281
Deposits	44,847		33,761
Partnership stores and shop-in-shop costs, net of accumulated amortization of $118,643 in 2017 and $91,764 in 2016	34,149		33,773
Derivative financial instruments (Note V)	2,199		18,821
Other investments	12,697		10,860
Deferred line of credit issuance costs	1,078		1,545
Other	66,405		76,465
Other assets	$	781,253	$	922,312

乱伦巴士 Corporation 2017 Form 10-K F-21

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE J — SHORT-TERM BORROWINGS



(In thousands)	2017		2016
Commercial paper borrowings	$	705,000	$	—
International borrowing arrangements	24,384		26,029
Short-term borrowings	$	729,384	$	26,029

乱伦巴士 maintains a $2.25 billion senior unsecured revolving line of credit (the “Global Credit Facility”). The Global Credit Facility expires in April 2020 and 乱伦巴士 may request two extensions of one year each, subject to stated terms and conditions. The Global Credit Facility may be used to borrow funds in both U.S. dollar and certain non-U.S. dollar currencies, and has a $50.0 million letter of credit sublimit. In addition, the Global Credit Facility supports 乱伦巴士’s U.S. commercial paper program for short-term, seasonal working capital requirements and general corporate purposes, including share repurchases. Borrowings under the Global Credit Facility are priced at a credit spread of 80.5 basis points over the appropriate LIBOR benchmark for each currency. 乱伦巴士 is also required to pay a facility fee to the lenders, currently equal to 7.0 basis points of the committed amount of the facility. The credit spread and facility fee are subject to adjustment based on 乱伦巴士’s credit ratings.

The Global Credit Facility contains certain restrictive covenants, which include maintenance of a consolidated indebtedness to consolidated capitalization ratio, as defined therein, equal to or below 60%. If 乱伦巴士 fails in the performance of any covenants, the lenders may terminate their obligation to make advances and

declare any outstanding obligations to be immediately due and payable. At the end of 2017, 乱伦巴士 was in compliance with all covenants.

乱伦巴士’s commercial paper program allows for borrowings of up to $2.25 billion to the extent it has borrowing capacity under the Global Credit Facility. Outstanding commercial paper borrowings totaled $705.0 million at December 2017. As of December 2016, there were no outstanding commercial paper borrowings. The Global Credit Facility also had $15.3 million of outstanding standby letters of credit issued on behalf of 乱伦巴士 as of December 2017, leaving $1.53 billion available for borrowing against this facility.

乱伦巴士 has $267.0 million of international lines of credit with various banks, which are uncommitted and may be terminated at any time by either 乱伦巴士 or the banks. Total outstanding balances under these arrangements were $24.4 million and $26.0 million at December 2017 and 2016, respectively. Borrowings under these arrangements had a weighted average interest rate of 9.9% and 7.2% at December 2017 and 2016, respectively, excluding accepted letters of credit which are non-interest bearing to 乱伦巴士.

NOTE K — ACCRUED LIABILITIES



(In thousands)	2017		2016
Compensation	$	249,579	$	152,017
Other taxes	155,839		127,005
Income taxes	134,837		69,983
Restructuring	32,438		50,677
Customer discounts and allowances	45,483		44,845
Advertising	48,418		40,011
Freight, duties and postage	43,487		43,008
Deferred compensation (Note N)	38,885		34,498
Interest	16,317		19,899
Derivative financial instruments (Note V)	87,205		18,574
Insurance	17,799		17,520
Product warranty claims (Note M)	12,833		12,993
Pension liabilities (Note N)	27,277		10,669
Other	232,933		170,333
Accrued liabilities	$	1,143,330	$	812,032

乱伦巴士 Corporation 2017 Form 10-K F-22

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE L — LONG-TERM DEBT



(In thousands)	2017		2016
5.95% notes, due 2017	$	—	$	249,823
3.50% notes, due 2021	497,705		497,128
0.625% notes, due 2023	1,015,500		889,760
6.00% notes, due 2033	292,568		292,251
6.45% notes, due 2037	346,300		346,112
Capital leases	41,881		17,795
Total long-term debt	2,193,954		2,292,869
Less current portion	6,165		253,689
Long-term debt, due beyond one year	$	2,187,789	$	2,039,180

Interest payments are due annually on the 2023 notes and semiannually on all other notes.

All notes, along with any amounts outstanding under the Global Credit Facility (Note J), rank equally as senior unsecured obligations of 乱伦巴士. All notes contain customary covenants and events of default, including limitations on liens and sale-leaseback transactions and a cross-acceleration event of default. The cross-acceleration provision of the 2033 notes is triggered if more than $50.0 million of other debt is in default and has been accelerated by the lenders. For the other notes, the cross-acceleration trigger is $100.0 million. If 乱伦巴士 fails in the performance of any covenant under the indentures that govern the respective notes, the trustee or lenders may declare the principal due and payable immediately. At the end of 2017, 乱伦巴士 was in compliance with all covenants. None of the long-term debt agreements contain acceleration of maturity clauses based solely on changes in credit ratings. However, if there were a change in control of 乱伦巴士 and, as a result of the change in control, the 2021, 2023 and 2037 notes were rated below investment grade by recognized rating agencies, then 乱伦巴士 would be obligated to repurchase those notes at 101% of the aggregate principal amount plus any accrued interest.

乱伦巴士 may redeem its notes, in whole or in part, at a price equal to the greater of (i) 100% of the principal amount, plus accrued interest to the redemption date, or (ii) the sum of the present value of the remaining scheduled payments of principal and interest discounted to the redemption date at an adjusted treasury rate, as defined, plus 20 basis points for the 2021 notes, 15 basis points for the 2023 and 2033 notes and 25 basis points for the 2037 notes, plus accrued interest to the redemption date. In addition, the 2021 and 2023 notes can be redeemed at 100% of the principal amount plus accrued interest to the redemption date within the three months prior to maturity.

The 2021 notes have a principal balance of $500.0 million and are recorded net of unamortized original issue discount and debt

issuance costs. Interest expense on these notes is recorded at an effective annual interest rate of 4.69%, including amortization of a deferred loss on an interest rate hedging contract (Note V), original issue discount and debt issuance costs.

The 2023 notes have a principal balance of €850.0 million and are recorded net of unamortized original issue discount and debt issuance costs. Interest expense on these notes is recorded at an effective annual interest rate of 0.712% which includes amortization of original issue discount and debt issuance costs. The Company has designated these notes as a net investment hedge of 乱伦巴士's investment in certain foreign operations. Refer to Note V for additional information.

The 2033 notes have a principal balance of $300.0 million and are recorded net of unamortized original issue discount and debt issuance costs. Interest expense on these notes is recorded at an effective annual interest rate of 6.19%, including amortization of a deferred gain on an interest rate hedging contract (Note V), original issue discount and debt issuance costs.

The 2037 notes have a principal balance of $350.0 million and are recorded net of unamortized debt issuance costs.

The $250.0 million of 5.95% fixed-rate notes were repaid at their maturity during 2017.

Capital leases, including additions from the Williamson-Dickie acquisition, relate primarily to buildings and improvements (Note F), expire at dates through 2036 and have an effective interest rate of 3.49%. Assets under capital leases are included in property, plant and equipment at a cost of $66.2 million, less accumulated amortization of $33.8 million at the end of 2017, and a cost of $42.7 million, less accumulated amortization of $30.3 million at the end of 2016.

乱伦巴士 Corporation 2017 Form 10-K F-23

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

The scheduled payments of long-term debt and future minimum lease payments for capital leases at the end of 2017 for the next five calendar years and thereafter are summarized as follows:



(In thousands)	Notes and Other		Capital Leases		Total
2018	$	—	$	7,510	$	7,510
2019	—		6,650		6,650
2020	—		6,035		6,035
2021	500,000		3,408		503,408
2022	—		1,571		1,571
Thereafter	1,671,870		25,610		1,697,480
	2,171,870		50,784		2,222,654
Less unamortized debt discount	7,237		—		7,237
Less unamortized debt issuance costs	12,560		—		12,560
Less amounts representing interest	—		8,903		8,903
Total long-term debt	2,152,073		41,881		2,193,954
Less current portion	—		6,165		6,165
Long-term debt, due beyond one year	$	2,152,073	$	35,716	$	2,187,789

NOTE M — OTHER LIABILITIES



(In thousands)	2017		2016
Deferred income taxes (Note Q)	$	58,374	$	147,281
Deferred compensation (Note N)	201,116		196,942
Income taxes	628,713		181,629
Pension liabilities (Note N)	189,191		165,642
Deferred rent credits	85,844		77,732
Product warranty claims	49,733		49,879
Derivative financial instruments (Note V)	12,833		7,000
Other	79,809		59,720
Other liabilities	$	1,305,613	$	885,825

乱伦巴士 accrues warranty costs at the time revenue is recognized. Product warranty costs are estimated based on historical experience and specific identification of the product requirements, which may fluctuate based on product mix. Activity relating to accrued product warranty claims is summarized as follows:



(In thousands)	2017			2016			2015
Balance, beginning of year	$	62,872		$	63,114		$	62,288
Accrual for products sold during the year	10,584			12,022			16,673
Repair or replacement costs incurred	(12,654		)	(11,956		)	(14,136		)
Currency translation	1,764			(308		)	(1,711		)
Balance, end of year	62,566			62,872			63,114
Less current portion (Note K)	12,833			12,993			13,550
Long-term portion	$	49,733		$	49,879		$	49,564

乱伦巴士 Corporation 2017 Form 10-K F-24

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE N — RETIREMENT AND SAVINGS BENEFIT PLANS

乱伦巴士 has several retirement and savings benefit plans covering eligible employees. 乱伦巴士 retains the right to curtail or discontinue any of the plans, subject to local regulations.

Defined Benefit Pension Plans

Defined benefit plans provide pension benefits based on participant compensation and years of service. 乱伦巴士 sponsors a noncontributory qualified defined benefit pension plan covering most full-time U.S. employees employed before 2005 (the “U.S. qualified plan”) and an unfunded supplemental defined benefit pension plan that provides benefits in excess of limitations imposed by income tax regulations (the “U.S. nonqualified plan”). The U.S. qualified plan is fully funded

at the end of 2017, and 乱伦巴士’s net underfunded status primarily relates to obligations under the unfunded U.S. nonqualified plan. The U.S. qualified and nonqualified plans comprise 91% of 乱伦巴士’s total defined benefit plan assets and 90% of 乱伦巴士’s total projected benefit obligations at December 2017, and the remainder relates to non-U.S. defined benefit plans. A December 31 measurement date is used to value plan assets and obligations for all pension plans.

The amounts reported in these disclosures have not been segregated between continuing and discontinued operations.

The components of pension cost for 乱伦巴士’s defined benefit plans were as follows:



(In thousands)	2017			2016			2015
Service cost — benefits earned during the year	$	24,890		$	25,839		$	29,223
Interest cost on projected benefit obligations	58,989			68,020			77,620
Expected return on plan assets	(94,807		)	(99,540		)	(111,095		)
Settlement charges	—			50,922			4,062
Curtailments	1,671			—			—
Amortization of deferred amounts:
Net deferred actuarial losses	41,440			65,212			61,966
Deferred prior service costs	2,646			2,584			3,038
Total pension expense	$	34,829		$	113,037		$	64,814
Weighted average actuarial assumptions used to determine pension expense:
Discount rate in effect for determining service cost	4.08		%	4.54		%	3.93		%
Discount rate in effect for determining interest cost	3.26		%	3.56		%	3.93		%
Expected long-term return on plan assets	5.72		%	5.81		%	6.05		%
Rate of compensation increase	3.78		%	3.90		%	3.91		%

In 2017, the Company recorded curtailment charges of $1.7 million which comprised (i) $1.1 million within the U.S. qualified plan related to the sale of the Licensing Business (recorded in the income (loss) from discontinued operations, net of tax line item) and (ii) $0.6 million within the U.S. nonqualified plan related to restructuring initiatives.

乱伦巴士 Corporation 2017 Form 10-K F-25

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

The following provides a reconciliation of the changes in fair value of 乱伦巴士’s defined benefit plan assets and projected benefit obligations for each year, and the funded status at the end of each year:



(In thousands)	2017			2016
Fair value of plan assets, beginning of year	$	1,673,297		$	1,755,374
Actual return on plan assets	204,017			191,219
乱伦巴士 contributions	9,807			24,031
Participant contributions	4,011			3,644
Benefits paid	(93,900		)	(286,271		)
Currency translation	12,417			(14,700		)
Fair value of plan assets, end of year	1,809,649			1,673,297
Projected benefit obligations, beginning of year	1,808,327			1,912,015
Service cost	24,890			25,839
Interest cost	58,989			68,020
Participant contributions	4,011			3,644
Actuarial loss	131,040			100,242
Benefits paid	(93,900		)	(286,271		)
Curtailments	(5,664		)	—
Currency translation	16,128			(15,162		)
Projected benefit obligations, end of year	1,943,821			1,808,327
Funded status, end of year	$	(134,172	)	$	(135,030	)

Pension benefits are reported in the Consolidated Balance Sheets as a net asset or liability based on the overfunded or underfunded status of the defined benefit plans, assessed on a plan-by-plan basis.



(In thousands)	2017			2016
Amounts included in Consolidated Balance Sheets:
Other assets (Note I)	$	82,296		$	41,281
Accrued liabilities (Note K)	(27,277		)	(10,669		)
Other liabilities (Note M)	(189,191		)	(165,642		)
Funded status	$	(134,172	)	$	(135,030	)
Accumulated other comprehensive loss, pretax:
Net deferred actuarial losses	$	454,463		$	476,071
Deferred prior service costs	10,533			14,883
Total accumulated other comprehensive loss, pretax	$	464,996		$	490,954
Accumulated benefit obligations	$	1,837,776		$	1,717,786
Weighted average actuarial assumptions used to determine pension obligations:
Discount rate	3.46		%	3.87		%
Rate of compensation increase	3.73		%	3.78		%

Accumulated benefit obligations at any measurement date are the present value of vested and unvested pension benefits earned, without considering projected future compensation increases. Projected benefit obligations are the present value of vested and unvested pension benefits earned, considering projected future compensation increases.

At the end of 2015, the Company changed to the spot rate approach to measure service and interest costs for our defined benefit plans. Previously, the same single equivalent discount rate determined for measuring the projected benefit obligation was also used to determine service cost and interest cost. Under the spot rate

approach, the full yield curve is applied separately to cash flows for each projected benefit obligation, service cost, and interest cost for a more precise calculation. The Company has applied the spot rate approach in calculating 2016 and 2017 pension expense.

In 2016, the Company offered former employees in the U.S. qualified plan a one-time option to receive a distribution of their deferred vested benefits. Approximately 9,400 participants accepted a distribution, representing 66% of eligible participants and a 23% reduction in the total number of plan participants at the beginning of the year. In December 2016, the plan paid $197.1 million in lump-sum distributions to settle $224.7 million of

乱伦巴士 Corporation 2017 Form 10-K F-26

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

projected benefit obligations related to these participants. 乱伦巴士 recorded $50.9 million in settlement charges during 2016 to recognize the related deferred actuarial losses in accumulated OCI.

乱伦巴士 recorded $4.1 million in settlement charges during 2015, related to the recognition of deferred actuarial losses resulting from lump-sum payments of retirement benefits to participants in 乱伦巴士’s supplemental defined benefit pension plan.

Deferred actuarial gains and losses are changes in the amount of either the benefit obligation or the value of plan assets resulting from differences between expected amounts for a year using actuarial assumptions and the actual results for that year. These amounts are deferred as a component of accumulated OCI and amortized to pension expense in future years. For the U.S. qualified plan, amounts in excess of 20% of projected benefit obligations at the beginning of the year are amortized over five years; amounts between (i) 10% of the greater of projected benefit obligations or plan assets and (ii) 20% of projected benefit obligations are amortized over the expected average remaining years of service of active participants; and amounts less than the greater of 10% of projected benefit obligations or plan assets are not amortized. For the U.S. nonqualified plan, amounts in excess of 10% of the pension benefit obligations are amortized on a straight-line basis over the expected average remaining years of service of active participants.

Deferred prior service costs related to plan amendments are also recorded in accumulated OCI and amortized to pension expense on a straight-line basis over the average remaining years of service for active employees. The estimated amounts of accumulated OCI to be amortized to pension expense in calendar year 2018 are $34.1 million of deferred actuarial losses and $2.6 million of deferred prior service costs.

Management’s investment objectives are to invest plan assets in a diversified portfolio of securities to provide long-term growth, minimize the volatility of the value of plan assets relative to plan liabilities, and to ensure plan assets are sufficient to pay the benefit obligations. Investment strategies focus on diversification among multiple asset classes, a balance of long-term investment return at an acceptable level of risk and liquidity to meet benefit payments. The primary objective of the investment strategies is to more closely align plan assets with plan liabilities by utilizing dynamic asset allocation targets dependent upon changes in the plan’s funded ratio, capital market expectations and risk tolerance.

Plan assets are primarily composed of common collective trust funds that invest in liquid securities diversified across equity, fixed-income, real estate and other asset classes. Fund assets are allocated among independent investment managers who have full discretion to manage their portion of the fund’s assets, subject to strategy and risk guidelines established with each manager. The overall strategy, the resulting allocations of plan assets and the performance of funds and individual investment managers are continually monitored. Derivative financial instruments may be used by investment managers for hedging purposes to gain exposure to alternative asset classes through the futures markets. There are no direct investments in 乱伦巴士 debt or equity securities and no significant concentrations of security risk.

The expected long-term rate of return on plan assets was based on an evaluation of the weighted average expected returns for the major asset classes in which the plans have invested. Expected returns by asset class were developed through analysis of historical market returns, current market conditions, inflation expectations and equity and credit risks. Inputs from various investment advisors on long-term capital market returns and other variables were also considered where appropriate.

乱伦巴士 Corporation 2017 Form 10-K F-27

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

The fair value of investments held by 乱伦巴士’s defined benefit plans at December 2017 and 2016, by asset class, is summarized below. Refer to Note U for a description of the three levels of the fair value measurement hierarchy.



	Total Plan Assets			Fair Value Measurements
(In thousands)				Level 1			Level 2		Level 3
December 2017
Plan assets
Cash equivalents	$	8,191		$	8,191		$	—	$	—
Fixed income securities:
U.S. Treasury and government agencies	8			—			8		—
Insurance contracts	69,448			—			69,448		—
Commodities	(372		)	(372		)	—		—
Total plan assets in the fair value hierarchy	77,275			$	7,819		$	69,456	$	—
Plan assets measured at net asset value
Cash equivalents	36,313
Equity securities:
Domestic	152,154
International	173,608
Fixed income securities:
Corporate and international bonds	1,215,558
Alternative investments	154,741
Total plan assets measured at net asset value	1,732,374
Total plan assets	$	1,809,649



	Total Plan Assets		Fair Value Measurements
(In thousands)			Level 1		Level 2		Level 3
December 2016
Plan assets
Cash equivalents	$	2,896	$	2,896	$	—	$	—
Fixed income securities:
U.S. Treasury and government agencies	10		—		10		—
Insurance contracts	63,013		—		63,013		—
Commodities	506		506		—		—
Total plan assets in the fair value hierarchy	66,425		$	3,402	$	63,023	$	—
Plan assets measured at net asset value
Cash equivalents	27,486
Equity securities:
Domestic	134,254
International	142,772
Fixed income securities:
Corporate and international bonds	1,140,894
Alternative investments	161,466
Total plan assets measured at net asset value	1,606,872
Total plan assets	$	1,673,297

乱伦巴士 Corporation 2017 Form 10-K F-28

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

Cash equivalents include cash held by individual investment managers of other asset classes for liquidity purposes (Level 1), and an institutional fund that invests primarily in short-term U.S. government securities measured at their daily net asset value. The fair values of insurance contracts are provided by the insurance companies and are primarily based on accumulated contributions plus returns guaranteed by the insurers (Level 2). Commodities consist of derivative commodity futures contracts (Level 1).

Equity and fixed-income securities generally represent institutional funds measured at their daily net asset value derived from quoted prices of the underlying investments. Alternative investments are primarily in funds of hedge funds (“FoHFs”), which are comprised of different and independent hedge funds with various investment strategies. The administrators of the FoHFs utilize unobservable inputs to calculate the net asset value of the FoHFs on a monthly basis.

乱伦巴士 makes contributions to its defined benefit plans sufficient to meet minimum funding requirements under applicable laws, plus discretionary amounts as determined by management. 乱伦巴士 made a discretionary contribution of $250.0 million to the U.S. qualified plan during 2015. 乱伦巴士 does not currently plan to make any contributions to the U.S. qualified plan during calendar year 2018, and intends to make approximately $35.1 million of contributions to its other defined benefit plans during calendar year 2018. The estimated future benefit payments for all of 乱伦巴士’s defined benefit plans, on a calendar year basis, are approximately $105.7 million in 2018, $97.7 million in 2019, $95.5 million in 2020, $99.4 million in 2021, $104.1 million in 2022 and $546.8 million for the years 2023 through 2027.

Other Retirement and Savings Plans

乱伦巴士 sponsors a nonqualified retirement savings plan for employees whose contributions to a 401(k) plan would be limited by provisions of the Internal Revenue Code. This plan allows participants to defer a portion of their compensation and to receive matching contributions for a portion of the deferred amounts. Participants earn a return on their deferred compensation based on their selection of a hypothetical portfolio of publicly traded mutual funds, a separately managed fixed-income fund and 乱伦巴士 Common Stock. Changes in the fair value of the participants’ hypothetical investments are recorded as an adjustment to deferred compensation liabilities and compensation expense. Expense under this plan was $1.3 million in 2017, $1.7 million in 2016 and $2.2 million in 2015. Deferred compensation, including accumulated earnings, is distributable in cash at participant-specified dates upon retirement, death, disability or termination of

employment. 乱伦巴士 sponsors a similar nonqualified plan that permits nonemployee members of the Board of Directors to defer their Board compensation and invest in hypothetical shares of 乱伦巴士 Common Stock. 乱伦巴士 also has remaining obligations under other deferred compensation plans, primarily related to acquired companies. At December 2017, 乱伦巴士’s liability to participants under all deferred compensation plans was $240.0 million, of which $38.9 million was recorded in accrued liabilities (Note K) and $201.1 million was recorded in other liabilities (Note M).

乱伦巴士 has purchased (i) publicly traded mutual funds, a separately managed fixed-income fund and 乱伦巴士 Common Stock in the same amounts as most of the participant-directed hypothetical investments underlying the deferred compensation liabilities and (ii) variable life insurance contracts that invest in institutional funds that are substantially the same as the participant-directed hypothetical investments. These investment securities and earnings thereon (other than 乱伦巴士 Common Stock) are intended to provide a source of funds to meet the deferred compensation obligations, and serve as an economic hedge of the financial impact of changes in deferred compensation liabilities. They are held in an irrevocable trust but are subject to claims of creditors in the event of 乱伦巴士’s insolvency. 乱伦巴士 also has assets related to deferred compensation plans of acquired companies, which are primarily invested in life insurance contracts. At December 2017, the fair value of investments held for all deferred compensation plans was $234.3 million, of which $32.6 million was recorded in other current assets and $201.7 million was recorded in other assets (Note I). The 乱伦巴士 Common Stock purchased to match participant-directed hypothetical investments is treated as treasury stock for financial reporting purposes (Note O), which is the primary reason for the difference in carrying value of the deferred compensation assets and liabilities. Realized and unrealized gains and losses on these deferred compensation assets (other than 乱伦巴士 Common Stock) are recorded in compensation expense in the Consolidated Statements of Income and substantially offset losses and gains resulting from changes in deferred compensation liabilities to participants.

乱伦巴士 sponsors 401(k) plans as well as other domestic and foreign retirement and savings plans. Expense for these plans totaled $41.2 million in 2017, $39.7 million in 2016 and $40.0 million in 2015.

乱伦巴士 Corporation 2017 Form 10-K F-29

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE O — CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Common Stock

During 2017, the Company purchased 22.2 million shares of Common Stock in open market transactions for $1.2 billion under its share repurchase program authorized by 乱伦巴士’s Board of Directors. These transactions were treated as treasury stock transactions.

Common Stock outstanding is net of shares held in treasury which are, in substance, retired. During 2017, 2016 and 2015, 乱伦巴士 restored 22.3 million, 16.1 million and 10.1 million treasury shares, respectively, to an unissued status, after which they were no longer

recognized as shares held in treasury. There were no shares held in treasury at the end of 2017, 2016 or 2015. The excess of the cost of treasury shares acquired over the $0.25 per share stated value of Common Stock is deducted from retained earnings.

乱伦巴士 Common Stock is also held by the Company’s deferred compensation plans (Note N) and is treated as treasury shares for financial reporting purposes. During 2017, the Company purchased 6,540 shares of Common Stock in open market transactions for $0.4 million.

Balances related to shares held for deferred compensation plans are as follows:



(In thousands, except share amounts)	2017		2016		2015
Shares held for deferred compensation plans	317,515		439,667		562,649
Cost of shares held for deferred compensation plans	$	3,901	$	5,464	$	6,823

Accumulated Other Comprehensive Income (Loss)

Comprehensive income consists of net income and specified components of OCI, which relates to changes in assets and liabilities that are not included in net income under GAAP but are instead deferred and accumulated within a separate component of

stockholders’ equity in the balance sheet. 乱伦巴士’s comprehensive income is presented in the Consolidated Statements of Comprehensive Income.

The deferred components of OCI are reported, net of related income taxes, in accumulated OCI in stockholders’ equity, as follows:



(In thousands)	2017			2016
Foreign currency translation and other	$	(546,201	)	$	(794,579	)
Defined benefit pension plans	(291,949		)	(302,697		)
Derivative financial instruments	(87,990		)	55,813
Accumulated other comprehensive income (loss)	$	(926,140	)	$	(1,041,463	)

乱伦巴士 Corporation 2017 Form 10-K F-30

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

The changes in accumulated OCI, net of related taxes, are as follows:



(In thousands)	Foreign Currency Translation and Other			Defined Benefit Pension Plans			Derivative Financial Instruments			Marketable Securities			Total
Balance, December 2014	$	(356,941	)	$	(377,134	)	$	31,389		$	414		$	(702,272	)
Other comprehensive income (loss) before reclassifications	(361,228		)	(37,238		)	55,325			300			(342,841		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			42,177			(39,572		)	(714		)	1,891
Net other comprehensive income (loss)	(361,228		)	4,939			15,753			(414		)	(340,950		)
Balance, December 2015	(718,169		)	(372,195		)	47,142			—			(1,043,222		)
Other comprehensive income (loss) before reclassifications	(76,410		)	(4,357		)	81,036			—			269
Amounts reclassified from accumulated other comprehensive income (loss)	—			73,855			(72,365		)	—			1,490
Net other comprehensive income (loss)	(76,410		)	69,498			8,671			—			1,759
Balance, December 2016	(794,579		)	(302,697		)	55,813			—			(1,041,463		)
Other comprehensive income (loss) before reclassifications	248,378			(17,970		)	(123,080		)	—			107,328
Amounts reclassified from accumulated other comprehensive income (loss)	—			28,718			(20,723		)	—			7,995
Net other comprehensive income (loss)	248,378			10,748			(143,803		)	—			115,323
Balance, December 2017	$	(546,201	)	$	(291,949	)	$	(87,990	)	$	—		$	(926,140	)

乱伦巴士 Corporation 2017 Form 10-K F-31

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

Reclassifications out of accumulated OCI are as follows:



(In thousands) Details About Accumulated Other Comprehensive Income (Loss) Components	Affected Line Item in the Consolidated Statements of Income	2017			2016			2015
Amortization of defined benefit pension plans:
Net deferred actuarial losses	^(a)	$	(41,440	)	$	(65,212	)	$	(61,966	)
Deferred prior service costs	^(a)	(2,646		)	(2,584		)	(3,038		)
Pension settlement charges	Selling, general and administrative expenses	—			(50,922		)	(4,062		)
Pension curtailment loss	Income (loss) from discontinued operations, net of tax	(1,105		)	—			—
Pension curtailment loss	Income (loss) from discontinued operations, net of tax	(1,105		)	—			—
Pension curtailment loss	Selling, general and administrative expenses	(566		)	—			—
	Total before tax	(45,757		)	(118,718		)	(69,066		)
	Tax benefit	17,039			44,863			26,889
	Net of tax	(28,718		)	(73,855		)	(42,177		)
Gains (losses) on derivative financial instruments:
Foreign exchange contracts	Net sales	33,641			28,798			(68,543		)
Foreign exchange contracts	Cost of goods sold	610			84,613			132,432
Foreign exchange contracts	Selling, general and administrative expenses	(3,610		)	(4,314		)	(1,885		)
Foreign exchange contracts	Selling, general and administrative expenses	(3,610		)	(4,314		)	(1,885		)
Foreign exchange contracts	Other income (expense), net	(1,851		)	2,864			7,267
Interest rate contracts	Interest expense	(4,723		)	(4,504		)	(4,295		)
	Total before tax	24,067			107,457			64,976
	Tax expense	(3,344		)	(35,092		)	(25,404		)
	Net of tax	20,723			72,365			39,572
Gains (losses) on sale of marketable securities:	Other income (expense), net	—			—			1,177
	Tax expense	—			—			(463		)
	Net of tax	—			—			714
Total reclassifications for the year	Net of tax	$	(7,995	)	$	(1,490	)	$	(1,891	)


^(a)	These accumulated OCI components are included in the computation of net periodic pension cost (refer to Note N for additional details).

乱伦巴士 Corporation 2017 Form 10-K F-32

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE P — STOCK-BASED COMPENSATION

Pursuant to the amended and restated 1996 Stock Compensation Plan approved by stockholders, 乱伦巴士 is authorized to grant nonqualified stock options, restricted stock units (“RSUs”) and restricted stock to officers, key employees and nonemployee members of 乱伦巴士’s Board of Directors. Substantially all stock-based compensation awards are classified as equity awards, which are accounted for in stockholders’ equity in the Consolidated Balance Sheets. On a limited basis, cash-settled stock appreciation rights are granted to employees in certain international jurisdictions.

These awards are accounted for as liabilities in the Consolidated Balance Sheets and remeasured to fair value each reporting period until the awards are settled. Compensation cost for all awards expected to vest is recognized over the shorter of the requisite service period or the vesting period. Awards that do not vest are forfeited.

The amounts reported in these disclosures have not been segregated between continuing and discontinued operations.

Total stock-based compensation cost and the associated income tax benefits recognized in the Consolidated Statements of Income, and stock-based compensation costs included in inventory in the Consolidated Balance Sheets, are as follows:



(In thousands)	2017		2016		2015
Stock-based compensation cost	$	81,641	$	67,762	$	73,420
Income tax benefits	26,697		22,870		28,090
Stock-based compensation costs included in inventory	1,938		1,332		1,345

At the end of 2017, there was $62.1 million of total unrecognized compensation cost related to all stock-based compensation arrangements that will be recognized over a weighted average period of 1 year.

At the end of 2017, there were 32,735,057 shares available for future grants of stock options and stock awards under the 1996 Stock

Compensation Plan. Shares for option exercises are issued from 乱伦巴士’s authorized but unissued Common Stock. 乱伦巴士 has a practice of repurchasing shares of Common Stock in the open market to offset, on a long-term basis, dilution caused by awards under equity compensation plans.

Stock Options

Stock options are granted with an exercise price equal to the fair market value of 乱伦巴士 Common Stock on the date of grant. Employee stock options vest in equal annual installments over three years, and compensation cost is recognized ratably over the shorter of

the requisite service period or the vesting period. Stock options granted to nonemployee members of 乱伦巴士’s Board of Directors become exercisable one year from the date of grant. All options have ten-year terms.

The grant date fair value of each option award is calculated using a lattice option-pricing valuation model, which incorporates a range of assumptions for inputs as follows:



	2017	2016	2015
Expected volatility	23% to 30%	21% to 29%	19% to 29%
Weighted average expected volatility	24%	24%	22%
Expected term (in years)	6.3 to 7.7	6.3 to 7.6	5.9 to 7.5
Weighted average dividend yield	2.8%	2.2%	2.0%
Risk-free interest rate	0.7% to 2.4%	0.4% to 1.7%	0.1% to 2.3%
Weighted average fair value at date of grant	$9.90	$12.08	$13.72

Expected volatility over the contractual term of an option was based on a combination of the implied volatility from publicly traded options on 乱伦巴士 Common Stock and the historical volatility of 乱伦巴士 Common Stock. The expected term represents the period of time over which vested options are expected to be outstanding before exercise. 乱伦巴士 used historical data to estimate option exercise behaviors and to estimate the number of options that would vest.

Groups of employees that have historically exhibited similar option exercise behaviors were considered separately in estimating the expected term for each employee group. Dividend yield represents expected dividends on 乱伦巴士 Common Stock for the contractual life of the options. Risk-free interest rates for the periods during the contractual life of the option were the implied yields at the date of grant from the U.S. Treasury zero coupon yield curve.

乱伦巴士 Corporation 2017 Form 10-K F-33

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

Stock option activity for 2017 is summarized as follows:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (In thousands)

Outstanding, December 2016	14,780,183		$	47.38
Granted	3,508,940		53.68
Exercised	(3,342,247	)	31.35
Forfeited/cancelled	(696,792	)	60.90
Outstanding, December 2017	14,250,084		52.03		6.7	$	315,861
Exercisable, December 2017	8,705,990		47.84		5.4	$	229,595

The total fair value of stock options that vested during 2017, 2016 and 2015 was $28.0 million, $26.7 million and $25.9 million, respectively. The total intrinsic value of stock options exercised during 2017, 2016 and 2015 was $106.7 million, $86.6 million and $132.8 million, respectively.

Restricted Stock Units

乱伦巴士 grants performance-based RSUs that enable employees to receive shares of 乱伦巴士 Common Stock at the end of a three-year period. Each RSU has a potential final payout ranging from zero to two shares of 乱伦巴士 Common Stock. The number of shares earned by participants, if any, is based on achievement of a three-year baseline profitability goal and annually established performance goals set by the Compensation Committee of the Board of Directors. Shares are issued to participants in the year following the conclusion of each three-year performance period.

The actual number of shares earned may also be adjusted upward or downward by 25% of the target award, based on how 乱伦巴士’s total shareholder return (“TSR”) over the three-year period compares to the TSR for companies included in the Standard & Poor’s 500 Index. The grant date fair value of the TSR-based adjustment was determined using a Monte Carlo simulation technique that incorporates option-pricing model inputs, and was $2.67, $4.48

and $3.78 per share for the 2017, 2016 and 2015 RSU grants, respectively.

乱伦巴士 also grants nonperformance-based RSUs to certain key employees in international jurisdictions and to nonemployee members of the Board of Directors. Each RSU entitles the holder to one share of 乱伦巴士 Common Stock. The employee RSUs generally vest four years from the date of grant. The RSUs granted to nonemployee members of the Board of Directors vest upon grant and will be settled in shares of 乱伦巴士 Common Stock one year from the date of grant.

Dividend equivalents on the RSUs accrue without compounding and are payable in additional shares of 乱伦巴士 Common Stock when the RSUs vest. Dividend equivalents are subject to the same risk of forfeiture as the RSUs.

RSU activity for 2017 is summarized as follows:



	Performance-based				Nonperformance-based
	Number Outstanding		Weighted Average Grant Date Fair Value		Number Outstanding		Weighted Average Grant Date Fair Value

Outstanding, December 2016	1,494,625		$	63.68	298,913		$	52.76
Granted	615,937		53.69		209,056		57.49
Issued as Common Stock	(524,488	)	56.86		(155,013	)	41.15
Forfeited/cancelled	(81,523	)	59.04		(17,863	)	59.50
Outstanding, December 2017	1,504,551		62.22		335,093		60.72
Vested, December 2017	853,740		66.14		17,964		53.47

The weighted average fair value of performance-based RSUs granted during 2017, 2016 and 2015 was $53.69, $61.31 and $75.33 per share, respectively, which was equal to the fair market value of the underlying 乱伦巴士 Common Stock on each grant date. The total fair market value of awards outstanding at the end of 2017 was $111.3 million. Awards earned and vested for the three-year performance period ended in 2017 and distributable in early 2018

totaled 450,175 shares of 乱伦巴士 Common Stock having a value of $36.4 million, as approved by the Compensation Committee of the Board of Directors. Similarly, 480,855 shares of 乱伦巴士 Common Stock having a value of $24.3 million were earned for the performance period ended in 2016, and 1,067,426 shares of 乱伦巴士 Common Stock having a value of $61.9 million were earned for the performance period ended in 2015.

乱伦巴士 Corporation 2017 Form 10-K F-34

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

The weighted average fair value of nonperformance-based RSUs granted during 2017, 2016 and 2015 was $57.49, $61.83 and $71.17 per share, respectively, which was equal to the fair market value

of the underlying 乱伦巴士 Common Stock on each grant date. The total market value of awards outstanding at the end of 2017 was $24.8 million.

Restricted Stock

乱伦巴士 grants restricted shares of 乱伦巴士 Common Stock to certain members of management. The fair value of the restricted shares, equal to the fair market value of 乱伦巴士 Common Stock at the grant date, is recognized ratably over the vesting period. Restricted

shares vest over periods of up to five years from the date of grant. Dividends accumulate in the form of additional restricted shares and are subject to the same risk of forfeiture as the restricted stock.

Restricted stock activity for 2017 is summarized below:



	Nonvested Shares Outstanding		Weighted Average Grant Date Fair Value

Nonvested shares, December 2016	622,692		$	53.45
Granted	423,076		56.52
Dividend equivalents	17,848		61.56
Vested	(262,201	)	47.13
Forfeited	(116,452	)	59.13
Nonvested shares, December 2017	684,963		57.01

Nonvested shares of restricted stock had a market value of $50.7 million at the end of 2017. The market value of the shares that vested during 2017, 2016 and 2015 was $19.4 million, $3.9 million and $14.1 million, respectively.

NOTE Q — INCOME TAXES

The provision for income taxes was computed based on the following amounts of income from continuing operations before income taxes:



(In thousands)	2017		2016		2015
Domestic	$	364,846	$	301,760	$	741,246
Foreign	1,051,649		982,956		823,011
Income before income taxes	$	1,416,495	$	1,284,716	$	1,564,257

The provision for income taxes consisted of:



(In thousands)	2017			2016			2015
Current:
Federal	$	618,611		$	115,570		$	194,776
Foreign	135,007			123,960			111,976
State	21,506			37,957			33,361
	775,124			277,487			340,113
Deferred:
Federal and state	(76,039		)	(63,610		)	401
Foreign	(3,799		)	(8,015		)	6,687
Income taxes	$	695,286		$	205,862		$	347,201

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act included a broad range of complex provisions impacting the taxation of multi-national companies. Generally, accounting for the impacts of newly enacted

tax legislation is required to be completed in the period of enactment, however in response to the complexities and ambiguity surrounding the Tax Act, the SEC released Staff Accounting Bulletin No. 118 (“SAB 118”) to provide companies with relief around the initial accounting for the Tax Act. Pursuant to SAB 118, the SEC has

乱伦巴士 Corporation 2017 Form 10-K F-35

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

provided a one-year measurement period for companies to analyze and finalize accounting for the Tax Act. During the one-year measurement period, SAB 118 allows companies to recognize provisional amounts when reasonable estimates can be made for the impacts resulting from the Tax Act. 乱伦巴士 will finalize accounting for the Tax Act during the one-year measurement period, and any adjustments to the provisional amounts will be included in income tax expense or benefit in the appropriate period, and disclosed if material, in accordance with guidance provided by SAB 118.

While our accounting for the Tax Act is not complete, we have recognized a provisional charge (based on information available as of February 9, 2018) of approximately $465.5 million, primarily comprised of approximately $512.4 million related to the transition tax and approximately $89.5 million tax benefit related to revaluing U.S. deferred tax assets and liabilities using the new U.S. corporate tax rate of 21%. Other provisional charges of $42.6 million were primarily related to U.S. federal and state tax on foreign income and dividends and establishing a deferred tax liability for foreign withholding taxes as the Company is not asserting indefinite reinvestment on its foreign earnings.

The income tax payable attributable to the transition tax is due over an 8-year period beginning in 2018. At December 30, 2017, a noncurrent income tax payable of approximately $430.4 million attributable to the transition tax is reflected in "other liabilities" of the Consolidated Balance Sheet.

The Tax Act has significant complexity and our final tax liability may materially differ from provisional estimates due to additional guidance and regulations that may be issued by the U.S. Treasury Department, the Internal Revenue Service (“IRS”) and state and local tax authorities, and for 乱伦巴士’s finalization of the relevant calculations required by the new tax legislation.

乱伦巴士 continues to analyze the provisions of the Tax Act which are effective after December 30, 2017, including but not limited to, the creation of a new minimum tax called the base erosion anti-abuse tax (“BEAT”); a new provision that taxes U.S. allocated expenses (e.g. interest and general administrative expenses) as well as certain global intangible low-tax income (“GILTI”) from foreign operations; a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; a new limitation on deductible interest expense; and limitations on the deductibility of certain employee compensation. Under GAAP, companies are allowed to make an accounting policy election to either treat taxes resulting from GILTI as a current-period expense when they are incurred or factor such amounts into the measurement of deferred taxes. The Company has not completed its analysis of the effects of the GILTI provisions and will further consider the accounting policy election within the measurement period as provided under SAB 118.

The differences between income taxes computed by applying the statutory federal income tax rate and income tax expense reported in the consolidated financial statements are as follows:



(In thousands)	2017			2016			2015
Tax at federal statutory rate	$	495,772		$	449,650		$	547,489
State income taxes, net of federal tax benefit	23,684			24,426			20,383
Foreign rate differences	(217,131		)	(262,392		)	(193,514		)
Tax reform	465,501			—			—
Capital losses	(67,032		)	—			—
Valuation allowances (federal)	37,296			—			—
Stock compensation (federal)	(22,826		)	(25,135		)	—
Other	(19,978		)	19,313			(27,157		)
Income taxes	$	695,286		$	205,862		$	347,201

Income tax expense includes tax benefits of $10.1 million, $19.4 million and $40.5 million in 2017, 2016 and 2015, respectively, from favorable audit outcomes on certain tax matters and from expiration of statutes of limitations.

On January 4, 2016, 乱伦巴士 sold certain intellectual property rights among various subsidiaries, which more closely aligns the intellectual property rights for certain foreign operations with the respective business activities of those operations, consistent with how the intellectual property is used and developed within the business. The sale of these intellectual property rights was classified as an intra-entity transaction under GAAP, and as such, the corresponding gain was eliminated from the 2016 consolidated financial statements, and the tax impact of the gain was established at the transaction date as a deferred charge of $291.1 million within the other assets line item on the 2016 Consolidated Balance Sheet. In October 2016, the FASB issued an update to their accounting guidance on the recognition of current and deferred income taxes for intra-entity asset transfers. The new guidance requires an

entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Company early adopted this guidance in the first quarter of 2017 using the modified retrospective method, which requires a cumulative adjustment to retained earnings as of the beginning of the period of adoption. The cumulative adjustment to the January 1, 2017 Consolidated Balance Sheet was a reduction in both the other assets and retained earnings line items of $237.8 million.

乱伦巴士 was granted a ruling which lowered the effective income tax rate on taxable earnings for years 2010 through 2014 under Belgium’s excess profit tax regime. In February 2015, the European Union Commission (“EU”) opened a state aid investigation into Belgium’s rulings. On January 11, 2016, the EU announced its decision that these rulings were illegal and ordered that tax benefits granted under these rulings should be collected from the affected companies, including 乱伦巴士.

On March 22, 2016, the Belgium government filed an appeal seeking annulment of the EU decision. Additionally, on June 21,

乱伦巴士 Corporation 2017 Form 10-K F-36

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

2016, 乱伦巴士 Europe BVBA filed its own application for annulment of the EU decision. Both of the listed requests for annulment remain open and unresolved.

On December 22, 2016, Belgium adopted a law which entitled the Belgium tax authorities to issue tax assessments, and demand timely payments from companies which benefited from the excess profits regime. On January 10, 2017, 乱伦巴士 Europe BVBA received an assessment for €31.9 million tax and interest related to excess profits benefits received in prior years. 乱伦巴士 Europe BVBA remitted €31.9 million ($33.9 million) on January 13, 2017, which was recorded as an income tax receivable in 2017 based on the expected

success of the aforementioned requests for annulment. An additional assessment of €3.1 million ($3.8 million) was received and paid in January 2018. If this matter is adversely resolved, these amounts will not be collected by 乱伦巴士.

In addition, 乱伦巴士 has been granted a lower effective income tax rate on taxable earnings in another foreign jurisdiction for the years 2010 through 2019. This lower rate, when compared with the country’s statutory rate, resulted in income tax reductions of $17.8 million ($0.04 per diluted share) in 2017, $12.0 million ($0.03 per diluted share) in 2016 and $3.2 million ($0.01 per diluted share) in 2015.

Deferred income tax assets and liabilities consisted of the following:



(In thousands)	2017			2016
Deferred income tax assets:
Inventories	$	21,146		$	31,260
Deferred compensation	55,326			87,765
Other employee benefits	45,464			77,360
Stock compensation	45,960			68,722
Other accrued expenses	158,596			157,907
Capital loss carryforwards	34,705			—
Operating loss carryforwards	251,236			152,587
Gross deferred income tax assets	612,433			575,601
Valuation allowances	(225,141		)	(114,990		)
Net deferred income tax assets	387,292			460,611
Deferred income tax liabilities:
Depreciation	25,574			35,461
Intangible assets	237,667			471,493
Other deferred tax liabilities	78,824			58,767
Deferred income tax liabilities	342,065			565,721
Net deferred income tax assets (liabilities)	$	45,227		$	(105,110	)
Amounts included in the Consolidated Balance Sheets:
Other assets (Note I)	$	103,601		$	42,171
Other liabilities (Note M)	(58,374		)	(147,281		)
	$	45,227		$	(105,110	)

乱伦巴士 has potential tax benefits totaling $216.3 million for foreign operating loss carryforwards, of which $190.4 million have an unlimited carryforward life. In addition, there are $0.8 million of potential tax benefits for federal operating loss carryforwards that expire in 2020, $34.7 million of potential tax benefits for capital loss carryforwards that expire in 2022 and $34.2 million of potential tax benefits for state operating loss and credit carryforwards that expire between 2018 and 2037.

A valuation allowance has been provided where it is more likely than not that the deferred tax assets related to those operating loss carryforwards will not be realized. Valuation allowances

totaled $163.5 million for available foreign operating loss carryforwards, $27.1 million for available capital loss carryforwards, $22.3 million for available state operating loss and credit carryforwards, and $12.2 million for other foreign deferred income tax assets. During 2017, 乱伦巴士 had a net increase in valuation allowances of $27.1 million related to capital loss carryforwards, $5.4 million related to state operating loss and credit carryforwards and an increase of $77.6 million related to foreign operating loss carryforwards and other foreign deferred tax assets, inclusive of foreign currency effects.

乱伦巴士 Corporation 2017 Form 10-K F-37

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

A reconciliation of the change in the accrual for unrecognized income tax benefits is as follows:



(In thousands)	Unrecognized Income Tax Benefits			Accrued Interest and Penalties			Unrecognized Income Tax Benefits Including Interest and Penalties
Balance, December 2014	$	113,604		$	17,219		$	130,823
Additions for current year tax positions	13,470			—			13,470
Additions for prior year tax positions	4,396			3,188			7,584
Reductions for prior year tax positions	(32,432		)	(6,350		)	(38,782		)
Reductions due to statute expirations	(11,780		)	(2,528		)	(14,308		)
Payments in settlement	(11,437		)	(2,065		)	(13,502		)
Currency translation	(144		)	(95		)	(239		)
Balance, December 2015	75,677			9,369			85,046
Additions for current year tax positions	121,025			—			121,025
Additions for prior year tax positions	6,164			2,880			9,044
Reductions for prior year tax positions	(4,798		)	(1,362		)	(6,160		)
Reductions due to statute expirations	(14,985		)	(1,335		)	(16,320		)
Payments in settlement	(6,108		)	(829		)	(6,937		)
Currency translation	(9		)	(14		)	(23		)
Balance, December 2016	176,966			8,709			185,675
Additions for current year tax positions	28,049			—			28,049
Additions for prior year tax positions	22,968			6,808			29,776
Reductions for prior year tax positions	(22,163		)	(279		)	(22,442		)
Reductions due to statute expirations	(9,028		)	(915		)	(9,943		)
Payments in settlement	(855		)	(248		)	(1,103		)
Currency translation	55			11			66
Balance, December 2017	$	195,992		$	14,086		$	210,078



(In thousands)	2017		2016
Amounts included in the Consolidated Balance Sheets:
Unrecognized income tax benefits, including interest and penalties	$	210,078	$	185,675
Less deferred tax benefits	31,197		35,141
Total unrecognized tax benefits	$	178,881	$	150,534

The unrecognized tax benefits of $178.9 million at the end of 2017, if recognized, would reduce the annual effective tax rate.

乱伦巴士 files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. In the U.S., the IRS examinations for tax years through 2013 have been effectively settled. The examination of Timberland’s 2011 tax return is ongoing. The IRS has proposed material adjustments to Timberland’s 2011 tax return that would significantly impact tax expense and assessment of interest charges. The Company has formally disagreed with the proposed adjustments. During 2015, 乱伦巴士 filed a petition to the U.S. Tax Court to begin the process of resolving this matter, but it has not yet reached a resolution.

In addition, 乱伦巴士 is currently subject to examination by various state and international tax authorities. Management regularly assesses the potential outcomes of both ongoing and future examinations for the current and prior years, and has concluded that 乱伦巴士’s provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on 乱伦巴士’s consolidated financial statements. Management believes that some of these audits and negotiations will conclude during the next 12 months. Management also believes that it is reasonably possible that the amount of unrecognized income tax benefits may decrease by $27.0 million within the next 12 months due to settlement of audits and expiration of statutes of limitations, $24.8 million of which would reduce income tax expense.

乱伦巴士 Corporation 2017 Form 10-K F-38

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE R — BUSINESS SEGMENT INFORMATION

乱伦巴士’s businesses are grouped into product categories, and by brands within those product categories, for internal financial reporting used by management. These groupings of businesses within 乱伦巴士 are referred to as “coalitions” and are the basis for 乱伦巴士’s reportable segments, as described below:



• Outdoor & Action Sports		High performance outdoor apparel and footwear, backpacks, handbags and technical equipment

• Jeanswear		Denim and casual apparel

• Imagewear		Occupational workwear

• Other		Sales of non-乱伦巴士 products at 乱伦巴士 Outlet^® stores

The results of Williamson-Dickie have been included in the Imagewear coalition since the October 2, 2017 acquisition date. The results of Kipling North America, which were previously included in the Sportswear coalition, have been included in the Outdoor & Action Sports coalition for all periods presented.

Management at each of the coalitions has direct control over and responsibility for its revenues, operating income and assets, hereinafter termed “coalition revenues,” “coalition profit” and “coalition assets,” respectively. 乱伦巴士 management evaluates operating performance and makes investment and other decisions based on coalition revenues and coalition profit. In light of recent activity related to our active portfolio management strategy, along with recently announced organizational realignments, we are evaluating whether changes may need to be made to our internal reporting structure to better support and assess the operations of our business going forward. If changes are made, we will assess the resulting effect on our reportable segments, operating segments and reporting units, if any.

Accounting policies used for internal management reporting at the individual coalitions are consistent with those in Note A, except as stated below. Corporate costs (other than common costs allocated to the coalitions), impairment charges and net interest expense are not controlled by coalition management and therefore are

excluded from the measurement of coalition profit. Common costs such as information systems processing, retirement benefits and insurance are allocated from corporate costs to the coalitions based on appropriate metrics such as usage or employment. Corporate costs that are not allocated to the coalitions consist of corporate headquarters expenses (including compensation and benefits of corporate management and staff, certain legal and professional fees and administrative and general costs) and other expenses which include a portion of defined benefit pension costs, development costs for management information systems, costs of registering, maintaining and enforcing certain of 乱伦巴士’s trademarks and miscellaneous consolidated costs. Defined benefit pension plans in the U.S. are centrally managed. The current year service cost component of pension cost is allocated to the coalitions, while the remaining pension cost components are reported in corporate and other expenses.

Coalition assets, for internal management purposes, are those used directly in or resulting from the operations of each business unit, such as accounts receivable, inventories and property, plant and equipment. Corporate assets primarily include corporate facilities, investments held in trust for deferred compensation plans and information systems.

乱伦巴士 Corporation 2017 Form 10-K F-39

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

Financial information for 乱伦巴士’s reportable segments is as follows:



(In thousands)	2017			2016			2015
Coalition revenues:
Outdoor & Action Sports	$	8,212,456		$	7,618,564		$	7,492,789
Jeanswear	2,655,361			2,737,701			2,792,244
Imagewear	830,215			551,808			577,462
Other	113,145			118,074			133,898
Total coalition revenues	$	11,811,177		$	11,026,147		$	10,996,393
Coalition profit:
Outdoor & Action Sports	$	1,378,294		$	1,243,201		$	1,288,789
Jeanswear	421,945			491,912			535,385
Imagewear	113,252			104,023			105,946
Other ^(a)	(3,086		)	(4,817		)	14,979
Total coalition profit	1,910,405			1,834,319			1,945,099
Impairment of goodwill and intangible assets ^(b)	—			(79,644		)	—
Corporate and other expenses ^{(c) (d)}	(408,030		)	(384,413		)	(299,243		)
Interest expense, net ^(e)	(85,880		)	(85,546		)	(81,599		)
Income from continuing operations before income taxes	$	1,416,495		$	1,284,716		$	1,564,257


^(a)	Reflects a $16.6 million gain in 2015 recognized on the sale of a 乱伦巴士 Outlet^® location.


^(b)	Represents goodwill and intangible asset impairment charges in 2016 related to the Outdoor & Action Sports coalition (Notes G, H and U). The impairment charges were excluded from the profit of the Outdoor & Action Sports coalition since they are not part of the ongoing operations of the business.


^(c)	Reflects a $50.9 million pension settlement charge in 2016 (Note N).


^(d)	Certain corporate overhead and other costs of $16.6 million, $44.3 million and $48.2 million in 2017, 2016 and 2015, respectively, previously allocated to the Sportswear, Imagewear, Outdoor & Action Sports and Contemporary Brands coalitions for segment reporting purposes, have been reallocated to continuing operations as discussed in Note C.


^(e)	Interest expense of $2.3 million in 2015, previously allocated to the Contemporary Brands coalition for segment reporting purposes, has been reallocated to continuing operations as discussed in Note C.



(In thousands)	2017		2016
Coalition assets:
Outdoor & Action Sports	$	2,560,648	$	2,442,882
Jeanswear	1,055,004		943,764
Imagewear	713,082		207,104
Other	60,128		63,351
Total coalition assets	4,388,862		3,657,101
Cash and equivalents	566,075		1,227,862
Intangible assets and goodwill	3,782,425		3,088,595
Deferred income taxes	103,601		42,231
Corporate assets	715,474		986,196
Assets of discontinued operations	402,065		737,302
Consolidated assets	$	9,958,502	$	9,739,287

乱伦巴士 Corporation 2017 Form 10-K F-40

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017



(In thousands)	2017		2016		2015
Capital expenditures: ^(a)
Outdoor & Action Sports	$	104,230	$	115,508	$	168,679
Jeanswear	30,726		38,802		31,844
Imagewear	7,794		5,034		5,445
Other	1,981		2,390		2,679
Corporate	22,087		9,311		32,318
	$	166,818	$	171,045	$	240,965
Depreciation and amortization expense: ^(b)
Outdoor & Action Sports	$	140,682	$	141,799	$	131,877
Jeanswear	53,205		47,726		41,823
Imagewear	11,682		3,863		3,559
Other	3,560		3,537		4,510
Corporate	68,016		57,291		51,117
	$	277,145	$	254,216	$	232,886


^(a)	Excludes $2.6 million, $4.8 million and $13.5 million of capital expenditures related to discontinued operations in 2017, 2016 and 2015, respectively. These amounts are included in capital expenditures in our Consolidated Statements of Cash Flows as we did not segregate cash flows related to discontinued operations (Note C).


^(b)	Excludes $14.0 million, $27.4 million and $39.2 million of depreciation and amortization related to discontinued operations in 2017, 2016 and 2015, respectively. These amounts are included in depreciation and amortization in our Consolidated Statements of Cash Flows as we did not segregate cash flows related to discontinued operations (Note C).

Supplemental information (with revenues by geographic area based on the location of the customer) is as follows:



(In thousands)	2017		2016		2015
Total revenues:
U.S.	$	6,785,196	$	6,526,223	$	6,654,226
Foreign, primarily Europe	5,025,981		4,499,924		4,342,167
	$	11,811,177	$	11,026,147	$	10,996,393
Property, plant and equipment:
U.S.	$	595,499	$	547,036
Foreign, primarily Europe	407,201		348,924
	$	1,002,700	$	895,960

No single customer accounted for 10% or more of the Company’s total revenues in 2017, 2016 and 2015.

乱伦巴士 Corporation 2017 Form 10-K F-41

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE S — COMMITMENTS

乱伦巴士 is obligated under noncancelable operating leases related primarily to retail stores, office space, distribution facilities and equipment. Rent expense, net of sublease income that was not significant in any period, was included in the Consolidated Statements of Income as follows:



(In thousands)	2017		2016		2015
Minimum rent expense	$	355,217	$	337,879	$	297,724
Contingent rent expense	24,410		18,062		23,002
Rent expense	$	379,627	$	355,941	$	320,726

Future minimum lease payments during the noncancelable lease term are $346.4 million, $272.1 million, $206.8 million, $137.9 million and $85.5 million for calendar years 2018 through 2022, respectively, and $106.6 million thereafter.

乱伦巴士 has entered into licensing agreements that provide 乱伦巴士 rights to market products under trademarks owned by other parties. Royalties under these agreements are recognized in cost of goods sold in the Consolidated Statements of Income. Certain of these agreements contain minimum royalty and minimum advertising requirements. Future minimum royalty payments, including any required advertising payments, are $15.5 million, $7.2 million, $4.8 million, $3.5 million and $0.2 million for calendar years 2018 through 2022, respectively, and $0.1 million thereafter.

In the ordinary course of business, 乱伦巴士 has entered into purchase commitments for raw materials, contract production and finished

products. These agreements typically range from 3 to 6 months in duration and require total payments of $1.8 billion in calendar year 2018.

乱伦巴士 has entered into commitments for (i) service and maintenance agreements related to its management information systems, (ii) capital spending and (iii) advertising. Future payments under these agreements are $160.7 million, $48.1 million, $12.0 million, $8.3 million and $3.1 million for calendar years 2018 through 2022, respectively, and $5.6 million thereafter.

Surety bonds, customs bonds, standby letters of credit and international bank guarantees, all of which represent contingent guarantees of performance under self-insurance and other programs, totaled $123.9 million as of December 2017. These commitments would only be drawn upon if 乱伦巴士 were to fail to meet its claims or other obligations.

NOTE T — EARNINGS PER SHARE



(In thousands, except per share amounts)	2017		2016		2015
Earnings per share — basic:
Income from continuing operations	$	721,209	$	1,078,854	$	1,217,056
Weighted average common shares outstanding	399,223		416,103		425,408
Earnings per share from continuing operations	$	1.81	$	2.59	$	2.86
Earnings per share — diluted:
Income from continuing operations	$	721,209	$	1,078,854	$	1,217,056
Weighted average common shares outstanding	399,223		416,103		425,408
Incremental shares from stock options and other dilutive securities	4,336		5,978		6,671
Adjusted weighted average common shares outstanding	403,559		422,081		432,079
Earnings per share from continuing operations	$	1.79	$	2.56	$	2.82

Outstanding options to purchase 6.9 million, 5.8 million and 2.4 million shares of Common Stock were excluded from the calculations of diluted earnings per share in 2017, 2016 and 2015, respectively, because the effect of their inclusion would have been antidilutive to those years. In addition, 0.9 million shares of

performance-based RSUs were excluded from the calculations of diluted earnings per share in each of 2017, 2016 and 2015, because these units were not considered to be contingent outstanding shares.

乱伦巴士 Corporation 2017 Form 10-K F-42

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE U — FAIR VALUE MEASUREMENTS

Financial assets and financial liabilities measured and reported at fair value are classified in a three-level hierarchy that prioritizes the inputs used in the valuation process. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs, as follows:


•	Level 1 — Quoted prices in active markets for identical assets or liabilities.


•	Level 2 — Significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable

data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.


•	Level 3 — Prices or valuation techniques that require significant unobservable data inputs. These inputs would normally be 乱伦巴士’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

Recurring Fair Value Measurements

The following table summarizes financial assets and financial liabilities that are measured and recorded in the consolidated financial statements at fair value on a recurring basis:



			Fair Value Measurement Using ^(a)
(In thousands)	Total Fair Value		Level 1		Level 2		Level 3
December 2017
Financial assets:
Cash equivalents:
Money market funds	$	265,432	$	265,432	$	—	$	—
Time deposits	13,591		13,591		—		—
Derivative financial instruments	22,970		—		22,970		—
Investment securities	197,837		185,723		12,114		—
Financial liabilities:
Derivative financial instruments	100,038		—		100,038		—
Deferred compensation	235,359		—		235,359		—
December 2016
Financial assets:
Cash equivalents:
Money market funds	$	840,842	$	840,842	$	—	$	—
Time deposits	14,774		14,774		—		—
Derivative financial instruments	103,340		—		103,340		—
Investment securities	194,853		177,788		17,065		—
Financial liabilities:
Derivative financial instruments	25,574		—		25,574		—
Deferred compensation	230,900		—		230,900		—


^(a)	There were no transfers among the levels within the fair value hierarchy during 2017 or 2016.

乱伦巴士’s cash equivalents include money market funds and short-term time deposits that approximate fair value based on Level 1 measurements. The fair value of derivative financial instruments, which consist of foreign exchange forward contracts, is determined based on observable market inputs (Level 2), including spot and forward exchange rates for foreign currencies, and considers the credit risk of the Company and its counterparties. Investment securities are held in 乱伦巴士’s deferred compensation plans as an economic hedge of the related deferred compensation liabilities (Note N). These investments are classified as trading securities and primarily include mutual funds (Level 1) that are valued based

on quoted prices in active markets and a separately managed fixed-income fund (Level 2) with underlying investments that are valued based on quoted prices for similar assets in active markets or quoted prices in inactive markets for identical assets. Liabilities related to 乱伦巴士’s deferred compensation plans are recorded at amounts due to participants, based on the fair value of the participants’ selection of hypothetical investments.

All other financial assets and financial liabilities are recorded in the consolidated financial statements at cost, except life insurance contracts which are recorded at cash surrender value. These other

乱伦巴士 Corporation 2017 Form 10-K F-43

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

financial assets and financial liabilities include cash held as demand deposits, accounts receivable, short-term borrowings, accounts payable and accrued liabilities. At December 2017 and 2016, their carrying values approximated their fair values. Additionally, at December 2017 and 2016, the carrying values of 乱伦巴士’s long-term debt, including the current portion, were $2,194.0 million and $2,292.9 million, respectively, compared with fair values of $2,422.0 million and $2,486.6 million at those respective dates. Fair value for long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings.

Nonrecurring Fair Value Measurements

In conjunction with the acquisition of Williamson-Dickie, the Company measured tangible and intangible assets acquired and liabilities assumed at fair value using valuation techniques including the replacement cost, market and income methods. Refer to Note B for additional details regarding the acquisition and purchase price allocation.

Certain non-financial assets, primarily property, plant and equipment, goodwill and intangible assets, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, these assets are required to be assessed for impairment whenever events or circumstances indicate that their carrying value may not be fully recoverable, and at least annually for goodwill and indefinite-lived intangible assets. In the event an impairment is required, the asset is adjusted to fair value, using market-based assumptions.

The Company recorded $17.2 million and $8.2 million of fixed asset impairments in 2017 and 2016, respectively, related to retail store assets and other fixed assets. These impairments are recorded in the selling, general and administrative expenses line item in the Consolidated Statements of Income. There were no significant impairment charges related to property, plant and equipment in 2015.

Management performed its annual impairment testing of goodwill and indefinite-lived intangible assets as of the beginning of the fourth quarter of 2017. Management performed a qualitative analysis for all reporting units and trademark intangible assets. No impairment charges of goodwill or intangible assets were recorded in 2017 except for a goodwill impairment charge of $104.7 million recorded in the third quarter of 2017 related to the Nautica^® brand business, which has since been reported as discontinued operations for 2017.

乱伦巴士 recognized impairment charges of $79.6 million in the 2016 Consolidated Statement of Income related to the lucy^®brand, of which $39.3 million related to the remaining goodwill and $40.3 million related to the remaining trademark intangible asset. No other impairment charges were recorded as a result of the 2016 quantitative analyses. No impairment charges were recorded in 2015.

Our impairment testing of goodwill, trademarks, customer relationships and license intangible assets utilizes significant unobservable inputs (Level 3) to determine fair value.

The fair value of reporting units for goodwill impairment testing is determined using a combination of two valuation methods: an income approach and a market approach. The income approach is based on projected future (debt-free) cash flows that are discounted to present value. The appropriate discount rate is based on the reporting unit’s weighted average cost of capital (“WACC”) that takes market participant assumptions into consideration. For the market approach, management uses both the guideline company and similar transaction methods. The guideline company method analyzes market multiples of revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for a group of comparable public companies. The market multiples used in the valuation are based on the relative strengths and weaknesses of the reporting unit compared to the selected guideline companies. Under the similar transactions method, valuation multiples are calculated utilizing actual transaction prices and revenue/EBITDA data from target companies deemed similar to the reporting unit.

Management uses the income-based relief-from-royalty method to value trademark intangible assets. Under this method, revenues expected to be generated by the trademark are multiplied by a selected royalty rate. The royalty rate is selected based on consideration of i) royalty rates included in active license agreements, if applicable, ii) royalty rates received by market participants in the apparel industry, and iii) the current performance of the reporting unit. The estimated after-tax royalty revenue stream is then discounted to present value using the reporting unit’s WACC plus a spread that factors in the risk of the intangible asset.

For the valuation of customer relationship intangible assets, management uses the multi-period excess earnings method which is a specific application of the discounted cash flows method. Under this method, 乱伦巴士 calculates the present value of the after-tax cash flows expected to be generated by the customer relationship asset after deducting contributory asset charges.

Management’s revenue and profitability forecasts used in the reporting unit and intangible asset valuations were developed in conjunction with management’s strategic plan review performed each fourth quarter, and our resulting revised outlook for business performance, and considered recent performance and trends, strategic initiatives and industry trends. Assumptions used in the valuations are similar to those that would be used by market participants performing independent valuations of these businesses.

乱伦巴士 Corporation 2017 Form 10-K F-44

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE V — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Summary of Derivative Financial Instruments

All of 乱伦巴士’s outstanding derivative financial instruments are foreign exchange forward contracts. Although derivatives meet the criteria for hedge accounting at the inception of the hedging relationship, a limited number of derivative contracts intended to hedge assets and liabilities are not designated as hedges for accounting purposes. The notional amounts of outstanding derivative

contracts were $2.9 billion at December 2017 and $2.2 billion at December 2016, consisting primarily of contracts hedging exposures to the euro, British pound, Canadian dollar, New Zealand dollar, Swiss franc, Mexican peso, Chinese renminbi yuan, Swedish krona, Japanese yen, Polish zloty and Korean won. Derivative contracts have maturities up to 20 months.

The following table presents outstanding derivatives on an individual contract basis:



	Fair Value of Derivatives with Unrealized Gains				Fair Value of Derivatives with Unrealized Losses

(In thousands)	2017		2016		2017			2016
Foreign currency exchange contracts designated as hedging instruments	$	17,639	$	103,340	$	(99,606	)	$	(25,292	)
Foreign currency exchange contracts not designated as hedging instruments	5,331		—		(432		)	(282		)
Total derivatives	$	22,970	$	103,340	$	(100,038	)	$	(25,574	)

乱伦巴士 records and presents the fair values of all derivative assets and liabilities in the Consolidated Balance Sheets on a gross basis, even though they are subject to master netting agreements. However, if 乱伦巴士 were to offset and record the asset and liability balances of its foreign exchange forward contracts on a net basis in accordance with the terms of its master netting agreements, the amounts presented in the Consolidated Balance Sheets as of December 2017 and December 2016 would be adjusted from the current gross presentation to the net amounts as detailed in the following table:



	2017						2016
(In thousands)	Derivative Asset			Derivative Liability			Derivative Asset			Derivative Liability
Gross amounts presented in the Consolidated Balance Sheets	$	22,970		$	(100,038	)	$	103,340		$	(25,574	)
Gross amounts not offset in the Consolidated Balance Sheets	(18,313		)	18,313			(22,341		)	22,341
Net amounts	$	4,657		$	(81,725	)	$	80,999		$	(3,233	)

Derivatives are classified as current or noncurrent based on maturity dates, as follows:



(In thousands)	2017			2016
Other current assets	$	20,771		$	84,519
Accrued liabilities (Note K)	(87,205		)	(18,574		)
Other assets (Note I)	2,199			18,821
Other liabilities (Note M)	(12,833		)	(7,000		)

乱伦巴士 Corporation 2017 Form 10-K F-45

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

Cash Flow Hedges

乱伦巴士 uses derivative contracts primarily to hedge a portion of the exchange risk for its forecasted sales, purchases, production costs, operating costs and intercompany royalties. The effects of cash flow hedging included in 乱伦巴士’s Consolidated Statements of Income and Consolidated Statements of Comprehensive Income are summarized as follows:



(In thousands) Cash Flow Hedging Relationships	Gain (Loss) on Derivatives Recognized in OCI

	2017			2016		2015
Foreign currency exchange	$	(138,716	)	$	90,708	$	89,993



(In thousands)	Gain (Loss) Reclassified from Accumulated OCI into Income

Location of Gain (Loss)	2017			2016			2015
Net sales	$	33,641		$	28,798		$	(68,543	)
Cost of goods sold	610			84,613			132,432
Selling, general and administrative expenses	(3,610		)	(4,314		)	(1,885		)
Other income (expense), net	(1,851		)	2,864			7,267
Interest expense	(4,723		)	(4,504		)	(4,295		)
Total	$	24,067		$	107,457		$	64,976

Derivative Contracts Not Designated as Hedges

乱伦巴士 uses derivative contracts to manage foreign currency exchange risk on third-party accounts receivable and payable and intercompany borrowings. These contracts are not designated as hedges, and are recorded at fair value in the Consolidated Balance Sheets. Changes in the fair values of these instruments are recognized directly in earnings. Gains or losses on these contracts largely offset the net transaction losses or gains on the related assets and liabilities.

In addition, 乱伦巴士 has entered into foreign exchange forward contracts to hedge the purchase price of the Icebreaker Holdings, Ltd. acquisition. These contracts are not designated as hedges, and are recorded at fair value in the Consolidated Balance Sheets. Changes in the fair values of these instruments are recognized directly in earnings.

Following is a summary of these derivatives included in 乱伦巴士’s Consolidated Statements of Income:



(In thousands) Derivatives Not Designated as Hedges	Location of Gain (Loss) on Derivatives Recognized in Income	Gain (Loss) on Derivatives Recognized in Income

		2017			2016		2015
Foreign currency exchange	Cost of goods sold	$	(1,929	)	$	1,674	$	(4,179	)
Foreign currency exchange	Other income (expense), net	1,028			83		2,806
Total		$	(901	)	$	1,757	$	(1,373	)

Other Derivative Information

There were no significant amounts recognized in earnings for the ineffective portion of any hedging relationships during 2017, 2016 and 2015.

At December 2017, accumulated OCI included $63.7 million of pretax net deferred losses for foreign exchange contracts that are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on exchange rates in effect when outstanding derivative contracts are settled.

乱伦巴士 entered into interest rate swap derivative contracts in 2011 and 2003 to hedge the interest rate risk for issuance of long-term debt due in 2021 and 2033, respectively. In each case, the contracts were terminated concurrent with the issuance of the debt, and the realized gain or loss was deferred in accumulated OCI. The remaining pretax net deferred loss in accumulated OCI was $18.0

million at December 2017, which will be reclassified into interest expense in the Consolidated Statements of Income over the remaining terms of the associated debt instruments. During 2017, 2016 and 2015, 乱伦巴士 reclassified $4.7 million, $4.5 million and $4.3 million, respectively, of net deferred losses from accumulated OCI into interest expense, and expects to reclassify $4.9 million to interest expense during the next 12 months.

Net Investment Hedge

The Company has designated its €850.0 million of euro-denominated fixed-rate notes as a net investment hedge of 乱伦巴士’s investment in certain foreign operations. Because this debt qualified as a nonderivative hedging instrument, foreign currency transaction gains or losses of the debt are deferred in the foreign currency translation and other component of accumulated OCI as an offset to the foreign currency translation adjustments on the hedged investments. During 2017, the Company recognized an

乱伦巴士 Corporation 2017 Form 10-K F-46

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

after-tax loss of $92.9 million in OCI related to the net investment hedge. During 2016, the Company recognized an after-tax gain of $34.4 million in OCI related to the net investment hedge transaction. Any amounts deferred in accumulated OCI will remain

until the hedged investment is sold or substantially liquidated. The Company recorded no ineffectiveness from its net investment hedge during 2017 or 2016.

NOTE W — SUPPLEMENTAL CASH FLOW INFORMATION



(In thousands)	2017		2016		2015
Income taxes paid, net of refunds	$	331,194	$	434,795	$	339,010
Interest paid, net of amounts capitalized	99,939		87,521		83,850
Noncash transactions:
Property, plant and equipment expenditures included in accounts payable or accrued liabilities	26,146		28,103		9,445
Computer software costs included in accounts payable or accrued liabilities	22,880		15,143		4,394

The cash flows related to discontinued operations have not been segregated, and are included in the Consolidated Statements of Cash Flows. Accordingly, the information above includes the results of continuing and discontinued operations.

NOTE X — RESTRUCTURING

The Company typically incurs restructuring costs related to the cost optimization of ongoing business activities and the integration of acquired businesses.

Of the $27.0 million of restructuring charges recognized in 2017, $20.2 million were reflected in selling, general and administrative expenses and $6.8 million in cost of goods sold. Of the $55.1 million of restructuring charges recognized in 2016, $31.8 million were reflected in selling, general and administrative expenses and $23.3 million in cost of goods sold.

The Company did not recognize significant incremental costs relating to the 2016 actions during 2017, and has completed most of the related restructuring activities as of December 2017. Of the $38.2 million total restructuring accrual at December 2017, $27.2 million is expected to be paid out within the next 12 months and is classified within accrued liabilities. The remaining $11.0 million will be paid out beyond the next 12 months and thus is classified within other liabilities.

The components of the restructuring charges in 2017 and 2016 are as follows:



(In thousands)	2017 Charges		2016 Charges
Severance and employee-related benefits	$	22,611	$	50,395
Asset impairments	—		3,394
Other	4,436		1,310
Total restructuring charges	$	27,047	$	55,099

Restructuring costs by business segment are as follows:



(In thousands)	2017 Charges		2016 Charges
Outdoor & Action Sports	$	12,793	$	18,083
Jeanswear	6,993		20,357
Imagewear	3,895		1,308
Other	—		1,277
Corporate	3,366		14,074
Total	$	27,047	$	55,099

乱伦巴士 Corporation 2017 Form 10-K F-47

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

The activity in the restructuring accrual for December 2017 and 2016 is as follows:



(In thousands)	Severance			Other			Total
Accrual at December 2015	$	—		$	—		$	—
Charges	50,395			1,310			51,705
Cash payments	(667		)	(432		)	(1,099		)
Accrual at December 2016	49,728			878			50,606
Charges	22,611			4,436			27,047
Cash payments	(37,349		)	(878		)	(38,227		)
Adjustments to accruals	(2,783		)	—			(2,783		)
Currency translation	1,601			—			1,601
Accrual at December 2017	$	33,808		$	4,436		$	38,244

NOTE Y — SUBSEQUENT EVENTS

On February 13, 2018, 乱伦巴士’s Board of Directors declared a quarterly cash dividend of $0.46 per share, payable on March 19, 2018 to shareholders of record on March 9, 2018. The Board of Directors also granted approximately 1,800,000 stock options, 350,000 performance-based RSUs, 400,000 nonperformance-based RSUs and 50,000 shares of restricted 乱伦巴士 Common Stock at market value.

乱伦巴士 Corporation 2017 Form 10-K F-48

乱伦巴士 CORPORATION

Notes to Consolidated Financial Statements

December 2017

NOTE Z — QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)



(In thousands, except per share amounts)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter ^{(a) (b) (c)}			Full Year
2017
Total revenues	$	2,500,340		$	2,268,620		$	3,392,934		$	3,649,283		$	11,811,177
Operating income	289,653			158,117			573,949			481,371			1,503,090
Income (loss) from continuing operations ^(c)	213,276			107,092			473,820			(72,979		)	721,209
Income (loss) from discontinued operations, net of tax	(4,113		)	2,797			(87,680		)	(17,290		)	(106,286		)
Net income (loss)	$	209,163		$	109,889		$	386,140		$	(90,269	)	$	614,923
Earnings (loss) per common share - basic ^(d)
Continuing operations	$	0.52		$	0.27		$	1.20		$	(0.18	)	$	1.81
Discontinued operations	(0.01		)	0.01			(0.22		)	(0.04		)	(0.27		)
Total earnings (loss) per common share - basic	$	0.51		$	0.28		$	0.98		$	(0.23	)	$	1.54
Earnings (loss) per common share - diluted ^(d)
Continuing operations	$	0.51		$	0.27		$	1.19		$	(0.18	)	$	1.79
Discontinued operations	(0.01		)	0.01			(0.22		)	(0.04		)	(0.26		)
Total earnings (loss) per common share - diluted	$	0.50		$	0.27		$	0.97		$	(0.23	)	$	1.52
Dividends per common share	$	0.42		$	0.42		$	0.42		$	0.46		$	1.72
2016
Total revenues	$	2,538,568		$	2,231,203		$	3,218,833		$	3,037,543		$	11,026,147
Operating income	304,733			186,252			594,849			282,426			1,368,260
Income from continuing operations	236,252			130,450			474,069			238,083			1,078,854
Income (loss) from discontinued operations, net of tax	24,017			(79,435		)	24,420			26,250			(4,748		)
Net income	$	260,269		$	51,015		$	498,489		$	264,333		$	1,074,106
Earnings (loss) per common share - basic ^(d)
Continuing operations	$	0.56		$	0.31		$	1.15		$	0.58		$	2.59
Discontinued operations	0.06			(0.19		)	0.06			0.06			(0.01		)
Total earnings per common share - basic	$	0.62		$	0.12		$	1.21		$	0.64		$	2.58
Earnings (loss) per common share - diluted ^(d)
Continuing operations	$	0.55		$	0.31		$	1.13		$	0.57		$	2.56
Discontinued operations	0.06			(0.19		)	0.06			0.06			(0.01		)
Total earnings per common share - diluted	$	0.61		$	0.12		$	1.19		$	0.63		$	2.54
Dividends per common share	$	0.37		$	0.37		$	0.37		$	0.42		$	1.53


^(a)	乱伦巴士 recorded the following charges during the fourth quarter of 2017: restructuring — $27.0 million ($18.6 million after-tax), transaction and deal-related costs — $15.6 million ($13.6 million after-tax).


^(b)	乱伦巴士 recorded the following charges during the fourth quarter of 2016: restructuring — $55.1 million ($41.8 million after-tax), goodwill and intangible asset impairment charges — $79.6 million ($64.1 million after-tax) and pension settlement charge — $50.9 million ($31.4 million after-tax).


^(c)	乱伦巴士 recorded a $465.5 million provisional tax charge during the fourth quarter of 2017 related to the transitional impact of the Tax Act (Note Q).


^(d)	Per share amounts are computed independently for each quarter presented using unrounded numbers. The sum of the quarters may not equal the total year amount due to the impact of changes in average quarterly shares outstanding and rounding.

乱伦巴士 Corporation 2017 Form 10-K F-49

Schedule II — Valuation and Qualifying Accounts



COL. A	COL. B		COL. C				COL. D			COL. E
			ADDITIONS
Description	Balance at Beginning of Period		(1) Charged to Costs and Expenses		(2) Charged to Other Accounts		Deductions			Balance at End of Period
(In thousands)
Fiscal year ended December 2017
Allowance for doubtful accounts	$	20,538	$	21,046			$	15,332	^(a)	$	26,252
Other accounts receivable allowances	$	157,835	1,613,257				1,562,097		^(b)	$	208,995
Valuation allowance for deferred income tax assets	$	114,990			110,151	^(c)				$	225,141
Fiscal year ended December 2016
Allowance for doubtful accounts	$	22,990	16,684		—		19,136		^(a)	$	20,538
Other accounts receivable allowances	$	161,745	1,482,855		—		1,486,765		^(b)	$	157,835
Valuation allowance for deferred income tax assets	$	100,951	—		14,039	^(c)	—			$	114,990
Fiscal year ended December 2015
Allowance for doubtful accounts	$	24,784	12,455		—		14,249		^(a)	$	22,990
Other accounts receivable allowances	$	151,575	1,335,706		—		1,325,536		^(b)	$	161,745
Valuation allowance for deferred income tax assets	$	96,802	—		4,149	^(c)	—			$	100,951


^(a)	Deductions include accounts written off, net of recoveries, and the effects of foreign currency translation.


^(b)	Deductions include discounts, markdowns and returns, and the effects of foreign currency translation.


^(c)	Additions relate to circumstances where it is more likely than not that deferred income tax assets will not be realized and the effects of foreign currency translation.

乱伦巴士 Corporation 2017 Form 10-K F-50