| INCOME TAXES | INCOME TAXES The provision for income taxes was computed based on the following amounts of income from continuing operations before income taxes: Year Ended March Three Months (Transition Period) Year Ended December (In thousands) 2020 2019 2018 2017 Domestic $ (91,063 ) $ 73,769 $ (67,963 ) $ 15,523 Foreign 818,271 964,544 199,279 772,356 Income before income taxes $ 727,208 $ 1,038,313 $ 131,316 $ 787,879 The provision for income taxes consisted of: Year Ended March Three Months (Transition Period) Year Ended December (In thousands) 2020 2019 2018 2017 Current: Federal $ 12,926 $ 89,309 $ (24,251 ) $ 502,612 Foreign 157,052 115,332 25,724 94,370 State 2,583 11,229 (3,067 ) 3,471 172,561 215,870 (1,594 ) 600,453 Deferred: Federal and state 38,511 (48,000 ) (7,117 ) (77,820 ) Foreign (113,010 ) 17 11,052 (2,824 ) (74,499 ) (47,983 ) 3,935 (80,644 ) Income taxes $ 98,062 $ 167,887 $ 2,341 $ 519,809 On May 19, 2019, Switzerland voted to approve the Federal Act on Tax Reform and AHV Financing ("Swiss Tax Act"). Provisions of the Swiss Tax Act were enacted for Swiss federal purposes during the second quarter of Fiscal 2020, and later enacted for certain cantons during the fourth quarter. These provisions resulted in adjustments to deferred tax assets and liabilities such that a net tax benefit of $93.6 million was recorded for the year ended March 2020. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("U.S. Tax Act"). In response to the complexities and ambiguity surrounding the U.S. Tax Act, the Securities and Exchange Commission released Staff Accounting Bulletin No. 118 ("SAB 118") to provide companies with relief around the initial accounting for the U.S. Tax Act, providing a one-year measurement period for companies to analyze and finalize accounting for the Tax Act. VF finalized its accounting for the U.S. Tax Act during the one-year measurement period under SAB 118 and recognized additional net charges of $18.2 million , resulting in a cumulative net charge of $483.7 million . The measurement period adjustments included $5.1 million of net tax benefit recognized in the three months ended March 2018 and $23.3 million of net tax expense recognized during the year ended March 2019. On January 15, 2019 final regulations under Section 965 related to the transition tax were released. After analyzing these regulations, the Company recorded an additional net charge of $13.9 million during the year ended March 2019, primarily comprised of $20.7 million tax expense related to transition tax and a net tax benefit of $6.8 million related to a reduction in unrecognized tax benefits as a result of the final regulations. The income tax payable attributable to the transition tax is due over an 8-year period beginning in 2018. At March 28, 2020, a noncurrent income tax payable of approximately $372.3 million attributable to the transition tax is reflected in the other liabilities line item of the Consolidated Balance Sheet. 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: Year Ended March Three Months Ended March (Transition Period) Year Ended December (In thousands) 2020 2019 2018 2017 Tax at federal statutory rate $ 152,714 $ 218,046 $ 27,576 $ 275,757 State income taxes, net of federal tax benefit 14,363 12,594 (7,031 ) 10,660 Foreign rate differences (22,038 ) (74,528 ) (5,252 ) (159,599 ) Tax reform (93,598 ) 37,262 (5,107 ) 465,501 Goodwill impairment 45,613 — — — Capital losses — — — (67,032 ) Valuation allowances (federal) — — 977 37,296 Stock compensation (federal) (12,245 ) (21,614 ) (8,843 ) (19,883 ) Other 13,253 (3,873 ) 21 (22,891 ) Income taxes $ 98,062 $ 167,887 $ 2,341 $ 519,809 Income tax expense includes tax benefits of $13.4 million , $6.3 million , $9.8 million and $10.1 million in the years ended March 2020 and 2019 , the three months ended March 2018 and the year ended December 2017 , respectively, from favorable audit outcomes on certain tax matters and from expiration of statutes of limitations. VF 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 VF. On March 22, 2016, the Belgium government filed an appeal seeking annulment of the EU decision. Additionally, on June 21, 2016, VF Europe BVBA filed its own application for annulment of the EU decision. 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, VF Europe BVBA received an assessment for €31.9 million tax and interest related to excess profits benefits received in prior years. VF 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. On February 14, 2019 the General Court annulled the EU decision and on April 26, 2019 the EU appealed the General Court's annulment. Both listed requests for annulment remain open and unresolved. Additionally, the EU has initiated proceedings related to individual rulings granted by Belgium, including the ruling granted to VF. If this matter is adversely resolved, these amounts will not be collected by VF. In addition, VF has been granted a lower effective income tax rate on taxable earnings in another foreign jurisdiction that will expire as of the end of June 2020. This lower rate, when compared with the country’s statutory rate, resulted in income tax reductions of $15.3 million ( $0.04 per diluted share) in the year ended March 2020 , $15.7 million ( $0.04 per diluted share) in the year ended March 2019 , $7.5 million ( $0.02 per diluted share) in the three months ended March 2018 and $17.8 million ( $0.04 per diluted share) in the year ended December 2017 . Deferred income tax assets and liabilities consisted of the following: (In thousands) March 2020 March 2019 Deferred income tax assets: Inventories $ 19,153 $ 16,292 Deferred compensation 32,715 39,317 Other employee benefits 31,814 58,908 Stock compensation 28,894 30,441 Lease liability 270,669 — Other accrued expenses 87,384 102,240 Capital loss carryforwards 15,704 19,066 Operating loss carryforwards 221,584 219,774 Gross deferred income tax assets 707,917 486,038 Valuation allowances (172,912 ) (177,987 ) Net deferred income tax assets 535,005 308,051 Deferred income tax liabilities: Depreciation 49,748 21,819 Intangible assets 99,861 218,089 Right-of-use asset 257,843 — Other deferred tax liabilities 105,588 80,741 Deferred income tax liabilities 513,040 320,649 Net deferred income tax assets (liabilities) $ 21,965 $ (12,598 ) Amounts included in the Consolidated Balance Sheets: Other assets (Note 11) $ 183,336 $ 95,399 Other liabilities (Note 15) (161,371 ) (107,997 ) $ 21,965 $ (12,598 ) At the end of Fiscal 2020, the Company is not asserting indefinite reinvestment with regards to short-term liquid assets of its foreign subsidiaries, as well as certain noncurrent assets that are expected to be converted to liquid assets in the foreseeable future. All other foreign earnings, including basis differences of certain foreign subsidiaries, continue to be considered indefinitely reinvested. As of the end of Fiscal 2020, there was $3.9 billion of undistributed earnings of international subsidiaries which have substantially been included for U.S. federal income tax purposes, but if distributed could result in additional U.S. state income or other taxes. The Company has not determined the deferred tax liability associated with these undistributed earnings and basis differences, as such determination is not practicable. VF has potential tax benefits totaling $213.0 million for foreign operating loss carryforwards, of which $160.3 million have an unlimited carryforward life. In addition, there are $15.7 million of potential tax benefits for federal and state capital loss carryforwards that begin to expire in 2022 and $8.6 million of potential tax benefits for state operating loss and credit carryforwards that expire between 2021 and 2040 . 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 $158.4 million for available foreign operating loss carryforwards, $2.7 million for available capital loss carryforwards, $5.4 million for available state operating loss and credit carryforwards, and $6.4 million for other foreign deferred income tax assets. During Fiscal 2020 , VF had a net decrease in valuation allowances of $2.5 million related to capital loss carryforwards, a net decrease of $9.7 million related to state operating loss and credit carryforwards and an increase of $7.1 million related to foreign operating loss carryforwards and other foreign deferred tax assets, inclusive of foreign currency effects. A reconciliation of the change in the accrual for unrecognized income tax benefits is as follows: (In thousands) Unrecognized Accrued Unrecognized 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 Additions for current year tax positions 2,012 — 2,012 Additions for prior year tax positions 477 2,340 2,817 Reductions for prior year tax positions (201 ) (3 ) (204 ) Reductions due to statute expirations (9,222 ) (985 ) (10,207 ) Payments in settlement — — — Currency translation 17 2 19 Balance, March 2018 189,075 15,440 204,515 Additions for current year tax positions 8,511 — 8,511 Additions for prior year tax positions 16,211 12,521 28,732 Reductions for prior year tax positions (18,753 ) (467 ) (19,220 ) Reductions due to statute expirations (30 ) (7 ) (37 ) Payments in settlement (6,754 ) (919 ) (7,673 ) Currency translation (35 ) (3 ) (38 ) Balance, March 2019 188,225 26,565 214,790 Additions for current year tax positions 20,328 — 20,328 Additions for prior year tax positions 3,136 10,029 13,165 Reductions for prior year tax positions (3,521 ) (254 ) (3,775 ) Reductions due to statute expirations (11,135 ) (1,817 ) (12,952 ) Payments in settlement (664 ) (146 ) (810 ) Decrease due to divestiture (11,619 ) (3,723 ) (15,342 ) Currency translation (27 ) (42 ) (69 ) Balance, March 2020 $ 184,723 $ 30,612 $ 215,335 (In thousands) March 2020 March 2019 Amounts included in the Consolidated Balance Sheets: Unrecognized income tax benefits, including interest and penalties $ 215,335 $ 214,790 Less deferred tax benefits 50,197 40,862 Total unrecognized tax benefits $ 165,138 $ 173,928 The unrecognized tax benefits of $165.1 million at the end of Fiscal 2020 , if recognized, would reduce the annual effective tax rate. VF 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 2015 have been effectively settled. The examination of Timberland’s 2011 tax return is ongoing. In addition, VF 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 VF’s provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on VF’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 $16.9 million within the next 12 months due to settlement of audits and expiration of statutes of limitations, $9.8 million of which would reduce income tax expense. |
