Note J – Income Taxes

The effective income tax rate for the first quarter of 2015 was 23.8% compared with 22.2% in the first quarter of 2014. The first quarter of 2015 included a net discrete tax benefit of $6.3 million, which included $4.2 million of tax benefits related to state refund claims and the settlement of state tax audits. The $6.3 million tax benefit reduced the effective income tax rate by 1.7%. 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%. Without discrete items, the effective income tax rate for the first quarter of 2015 increased by 1.1% compared with the 2014 period primarily due to a lower percentage of projected foreign earnings for 2015, reflecting the impact of changes in foreign currency exchange rates.

VF files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state 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 such examination is still ongoing. During the second quarter of 2014, the IRS completed its examination of Timberland’s 2010 tax return. The examination of Timberland’s 2011 tax return is still ongoing. The IRS has proposed material adjustments to Timberland’s 2011 tax return, and the Company has formally disagreed with the findings. 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.

During the first quarter of 2015, the amount of net unrecognized tax benefits and associated interest increased by $1.5 million to $109.0 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 $43.5 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $36.8 million would reduce income tax expense.