Note J – Income Taxes

The effective income tax rate for the first quarter of 2014 was 22.2% compared with 20.1% in the first quarter of 2013. The first quarter of 2014 included a net discrete tax benefit of $8.4 million, which included $4.1 million of prior year refund claims and $1.4 million of net tax benefits related to the realization of previously unrecognized tax benefits and interest, reducing the effective income tax rate by 2.2%. The first quarter of 2013 included a net discrete tax benefit of $13.5 million, which included $8.3 million of tax benefits related to the extension of certain tax credits and other provisions of the Internal Revenue Code enacted in 2013 which were retroactive to 2012, and $5.6 million of tax benefits related to the realization of previously unrecognized tax benefits and interest, reducing the effective income tax rate by 4.0%. Without discrete items, the effective tax rate for the first quarter of 2014 increased by 0.3% compared with the 2013 period primarily due to the impact of tax law changes in the U.S.

VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous states and foreign jurisdictions. In the U.S., the Internal Revenue Service (“IRS”) examination for tax years 2007, 2008 and 2009 was completed in 2012. VF has appealed the results of the 2007 to 2009 examination to the IRS Appeals office. Tax years prior to 2007 have been effectively settled with the IRS. The IRS commenced its examination of VF’s 2010 and 2011 tax returns during the fourth quarter of 2013 and Timberland’s 2010 and 2011 tax years during 2012. In addition, VF is currently subject to examinations 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 to ensure VF’s provision for income taxes is sufficient. 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 examinations and negotiations will conclude during the next 12 months.

During the first quarter of 2014, the amount of net unrecognized tax benefits and associated interest increased by $2.5 million to $112.1 million. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits and interest may decrease during the next 12 months by approximately $48.6 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $41.5 million would reduce income tax expense.