Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.21.1
INCOME TAXES
 12 Months Ended
Apr. 03, 2021
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
(In thousands) 2021 2020 2019
Domestic $ (152,073) $ (91,063) $ 73,769 
Foreign 608,545  818,271  964,544 
Income before income taxes $ 456,472  $ 727,208  $ 1,038,313 
The provision for income taxes consisted of:
Year Ended March
(In thousands) 2021 2020 2019
Current:
Federal $ 6,373  $ 12,926  $ 89,309 
Foreign 109,543  157,052  115,332 
State 25,462  2,583  11,229 
141,378  172,561  215,870 
Deferred:
Federal and state (24,133) 38,511  (48,000)
Foreign (15,679) (113,010) 17 
(39,812) (74,499) (47,983)
Income taxes $ 101,566  $ 98,062  $ 167,887 
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 U.S. 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 April 3, 2021, a noncurrent income tax payable of approximately $316.8 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
(In thousands) 2021 2020 2019
Tax at federal statutory rate $ 95,859  $ 152,714  $ 218,046 
State income taxes, net of federal tax benefit 13,771  14,363  12,594 
Foreign rate differences (5,605) (22,038) (74,528)
Tax reform —  (93,598) 37,262 
Goodwill impairment 2,631  45,613  — 
Stock compensation (federal) (4,783) (12,245) (21,614)
Other (307) 13,253  (3,873)
Income taxes $ 101,566  $ 98,062  $ 167,887 

Income tax expense includes tax benefits of $3.6 million, $13.4 million and $6.3 million in the years ended March 2021, 2020 and 2019, 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 expired as of the end of June 2020. This lower rate, when compared with the country’s statutory rate, resulted in income tax reductions of $3.8 million ($0.01 per diluted share) in the year ended March 2021, $15.3 million ($0.04 per diluted share) in the year ended March 2020 and $15.7 million ($0.04 per diluted share) in the year ended March 2019.
Deferred income tax assets and liabilities consisted of the following:
(In thousands) March 2021 March 2020
Deferred income tax assets:
Inventories $ 33,023  $ 19,153 
Deferred compensation 39,794  32,715 
Other employee benefits 32,770  31,814 
Stock compensation 25,258  28,894 
Operating lease liabilities 354,747  270,669 
Other accrued expenses 148,790  87,384 
Outside basis difference on assets held-for-sale 228,735  — 
Interest expense limitation carryforward 20,503  — 
Capital loss carryforwards 2,458  15,704 
Operating loss carryforwards 323,902  221,584 
Gross deferred income tax assets 1,209,980  707,917 
Valuation allowances (500,601) (172,912)
Net deferred income tax assets 709,379  535,005 
Deferred income tax liabilities:
Depreciation 52,564  49,748 
Intangible assets 414,321  99,861 
Operating lease right-of-use assets 318,747  257,843 
Other deferred tax liabilities 65,222  105,588 
Deferred income tax liabilities 850,854  513,040 
Net deferred income tax assets (liabilities) $ (141,475) $ 21,965 
Amounts included in the Consolidated Balance Sheets:
Other assets (Note 11) $ 201,237  $ 183,336 
Other liabilities (Note 15) (342,712) (161,371)
$ (141,475) $ 21,965 

At the end of Fiscal 2021, the Company is not asserting indefinite reinvestment with regards to short-term liquid assets of its foreign subsidiaries. All other foreign earnings, including basis differences of certain foreign subsidiaries, continue to be considered indefinitely reinvested. As of the end of Fiscal 2021, there was approximately $500.0 million 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 $308.4 million for foreign operating loss carryforwards, of which $116.6 million have an unlimited carryforward life. In addition, there are $2.5 million of potential tax benefits for state capital loss carryforwards that begin to expire in 2022 and $15.5 million of potential tax benefits for federal and state operating loss and credit carryforwards that expire between 2022 and 2041.
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 $261.4 million for available foreign operating loss carryforwards, $2.5 million for available capital loss carryforwards, $6.1 million for available state operating loss and credit carryforwards, and $5.6 million for other foreign deferred income tax assets. In addition there is a valuation allowance of $225.0 million for the basis difference on assets held-for-sale. During Fiscal 2021, VF had a net decrease in valuation allowances of $0.2 million related to capital loss carryforwards, a net increase of $0.7 million related to state operating loss and credit carryforwards and an increase of $102.2 million related to foreign operating loss carryforwards and other foreign deferred tax assets, inclusive of foreign currency effects. VF also increased the valuation allowance by $225.0 million related to the basis difference on assets held-for-sale.
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, 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 
Additions for current year tax positions 6,609  —  6,609 
Additions for prior year tax positions 20,950  8,064  29,014 
Reductions for prior year tax positions (2,073) (1,399) (3,472)
Reductions due to statute expirations (761) (216) (977)
Payments in settlement (3,464) (650) (4,114)
Additions due to acquisitions 17,066  1,673  18,739 
Currency translation (40) 57  17 
Balance, March 2021 $ 223,010  $ 38,141  $ 261,151 
(In thousands) March 2021 March 2020
Amounts included in the Consolidated Balance Sheets:
Unrecognized income tax benefits, including interest and penalties $ 261,151  $ 215,335 
Less deferred tax benefits 70,954  50,197 
Total unrecognized tax benefits $ 190,197  $ 165,138 

The unrecognized tax benefits of $190.2 million at the end of Fiscal 2021, 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 $34.2 million within the next 12 months due to settlement of audits and expiration of statutes of limitations, $12.1 million of which would reduce income tax expense.