Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.20.1
INCOME TAXES
 12 Months Ended
Mar. 28, 2020
Income Tax Disclosure [Abstract]  
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
Ended March
(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
Ended March
(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
Income Tax
Benefits
 
Accrued
Interest
and Penalties
 
Unrecognized
Income Tax
Benefits
Including Interest
and Penalties
 
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.