Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.24.1.1.u2
INCOME TAXES
 12 Months Ended
Mar. 30, 2024
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) 2024 2023 2022
Domestic $ (970,325) $ (885,562) $ 518,386 
Foreign 736,640  928,849  1,004,864 
Income (loss) before income taxes $ (233,685) $ 43,287  $ 1,523,250 
The provision for income taxes consisted of:
Year Ended March
(In thousands) 2024 2023 2022
Current:
Federal $ 236,135  $ (114,772) $ 231,469 
Foreign 759,679  106,192  196,540 
State 134,483  (13,163) 36,461 
1,130,297  (21,743) 464,470 
Deferred:
Federal and state (316,470) (46,677) (177,381)
Foreign (78,630) (6,877) 19,892 
(395,100) (53,554) (157,489)
Income tax expense (benefit) $ 735,197  $ (75,297) $ 306,981 
The differences between income taxes computed by applying the statutory federal income tax rate and income tax expense (benefit) reported in the consolidated financial statements are as follows:
Year Ended March
(In thousands) 2024 2023 2022
Tax at federal statutory rate $ (49,074) $ 9,090  $ 319,882 
State income taxes, net of federal tax benefit (28,867) (17,301) 16,641 
Foreign rate differences 54,941  (38,609) (62,928)
Tax reform —  (94,877) 67,358 
Tax litigation 691,053  —  — 
Goodwill impairment 55,076  74,624  — 
Stock compensation 3,908  2,304  (1,977)
Non-taxable contingent consideration adjustments —  —  (28,090)
Interest on tax receivable 11,972  (11,972) — 
Other (3,812) 1,444  (3,905)
Income tax expense (benefit) $ 735,197  $ (75,297) $ 306,981 

Income tax expense (benefit) includes tax benefits of $34.7 million, $10.6 million and $2.2 million in the years ended March 2024, 2023 and 2022, respectively, from other favorable audit outcomes on certain tax matters and from expiration of statutes of limitations. Income tax expense (benefit) in the year ended March 2023 also includes a $94.9 million favorable adjustment to VF’s transition tax liability under the U.S. Tax Act pursuant to the Internal Revenue Service ("IRS") examinations for tax year 2017 and short-tax year 2018.
On May 19, 2019, Switzerland voted to approve the Federal Act on Tax Reform and AHV Financing ("Swiss Tax Act"). In Fiscal 2022, $67.4 million net tax expense was recorded due to changes to the related deferred tax assets.
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. During 2015, the European Union Commission ("EU") investigated and announced its decision that these rulings were illegal and ordered the tax benefits to be collected from affected companies, including VF.
During 2017 and 2018, VF Europe BVBA was assessed and paid €35.0 million in tax and interest, which was recorded as an income tax receivable and was included in the other current assets line item in VF's Consolidated Balance Sheets, based on the expected success of the requests for annulment. After subsequent annulments and appeals, the General Court confirmed the decision of the EU on September 20, 2023. As a result, VF wrote off the related income tax receivable and recorded a benefit for the associated foreign tax credit, resulting in $26.1 million of net income tax expense in the second quarter of Fiscal 2024.
In addition, VF has been granted a lower effective income tax rate on taxable earnings in one foreign jurisdiction that will expire in March 2026. This lower rate, when compared with the country statutory rate, resulted in income tax reductions of $44.2 million ($0.11 per diluted share) in the year ended March 2024, $57.8 million ($0.15 per diluted share) in the year ended March 2023 and $0.4 million ($0.00 per diluted share) in the year ended March 2022.
Deferred income tax assets and liabilities consisted of the following:
(In thousands) March 2024 March 2023
Deferred income tax assets:
Inventories $ 88,299  $ 74,395 
Depreciation and capitalized research and development 12,785  — 
Deferred compensation 19,904  24,557 
Stock compensation 26,961  27,589 
Operating lease liabilities 352,821  361,676 
Other employee benefits 3,170  — 
Other accrued expenses 117,689  109,050 
Interest expense limitation carryforward 143,077  3,932 
Capital loss carryforwards 153,789  166,587 
Operating loss and credit carryforwards 557,272  331,167 
Gross deferred income tax assets 1,475,767  1,098,953 
Valuation allowances (436,047) (424,932)
Net deferred income tax assets 1,039,720  674,021 
Deferred income tax liabilities:
Depreciation and capitalized research and development —  26,303 
Intangible assets 120,682  277,473 
Operating lease right-of-use assets 320,896  330,235 
Other employee benefits —  3,707 
Outside basis difference in subsidiaries 216,215  46,690 
Other deferred tax liabilities 2,224  2,042 
Deferred income tax liabilities 660,017  686,450 
Net deferred income tax assets (liabilities) $ 379,703  $ (12,429)
Amounts included in the Consolidated Balance Sheets:
Other assets (Note 11) $ 389,783  $ 95,117 
Other liabilities (Note 16) (10,080) (107,546)
$ 379,703  $ (12,429)

At the end of Fiscal 2024, 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. 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 $453.4 million for foreign operating loss carryforwards, of which $86.3 million have an unlimited carryforward life. There are $153.8 million of potential tax benefits for capital loss carryforwards that begin to expire in 2026 and $48.7 million of foreign tax credit carryforwards that begin to expire in 2030 and $5.3 million of general business credit carryforwards that begin to expire in 2044. Additionally, there are $49.9 million of potential tax benefits for state operating loss and credit carryforwards that expire between 2025 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 $218.1 million for available foreign operating loss carryforwards, $150.3 million for available capital loss carryforwards, $48.7 million for foreign tax credit carryforwards, $18.2 million for available state operating loss and credit carryforwards, and $0.7 million for other foreign deferred income tax assets. During Fiscal 2024, VF had a net decrease in valuation allowances of $1.2 million related to capital loss carryforwards, a net increase of $48.7 million related to foreign tax credit carryforwards, a net increase of $8.2 million related to state operating loss and credit carryforwards and a decrease of $44.6 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, March 2021 $ 223,010  $ 38,141  $ 261,151 
Additions for current year tax positions 28,098  —  28,098 
Additions for prior year tax positions (a)
112,850  32,642  145,492 
Reductions for prior year tax positions (895) (532) (1,427)
Reductions due to statute expirations (5,803) (840) (6,643)
Payments in settlement (21,278) (730) (22,008)
Decrease due to divestiture (506) (340) (846)
Currency translation 186  (43) 143 
Balance, March 2022 335,662  68,298  403,960 
Additions for current year tax positions 22,319  —  22,319 
Additions for prior year tax positions 13,324  20,577  33,901 
Reductions for prior year tax positions (3,747) (951) (4,698)
Reductions due to statute expirations (15,369) (1,699) (17,068)
Payments in settlement (3,847) (1,608) (5,455)
Currency translation (172) (10) (182)
Balance, March 2023 348,170  84,607  432,777 
Additions for current year tax positions 15,982  —  15,982 
Additions for prior year tax positions (b)
165,426  78,133  243,559 
Reductions for prior year tax positions (36,943) (3,809) (40,752)
Reductions due to statute expirations (1,436) (383) (1,819)
Payments in settlement (c)
(210,874) (74,659) (285,533)
Currency translation (11) (4) (15)
Balance, March 2024 $ 280,314  $ 83,885  $ 364,199 
(a)The year ended March 2022 included an increase resulting from updated estimates related to intellectual property transfers completed in a prior period.
(b)The year ended March 2024 includes an increase due to uncertainty in the application of court decisions upheld upon appeal.
(c)The year ended March 2024 includes a settlement with the tax authorities related to intellectual property transfers completed in a prior period.
(In thousands) March 2024 March 2023
Amounts included in the Consolidated Balance Sheets (a):
Unrecognized income tax benefits, including interest and penalties $ 364,199  $ 432,777 
Less deferred tax benefits 61,368  135,175 
Total unrecognized tax benefits $ 302,831  $ 297,602 
(a)Included in the accrued liabilities and other liabilities line items in the Consolidated Balance Sheets.

The unrecognized tax benefits of $302.8 million at the end of Fiscal 2024, 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.
As previously reported, VF petitioned the U.S. Tax Court (the "Tax Court") to resolve an IRS dispute regarding the timing of income inclusion associated with VF’s acquisition of The Timberland Company in September 2011. While the IRS argued that all such income should have been immediately included in 2011, VF reported periodic income inclusions in subsequent tax years. In Fiscal 2023, the Tax Court issued its final decision in favor of the IRS, which was appealed by VF. On October 19, 2022, VF paid
$875.7 million related to the 2011 taxes and interest being disputed, which was recorded as an income tax receivable and began to accrue interest income. These amounts were included in the other assets line item in VF's Consolidated Balance Sheet, based on our assessment of the position under the more-likely-than-not standard of the accounting literature. On September 8, 2023, the U.S. Court of Appeals for the First Circuit (“Appeals Court”) upheld the Tax Court’s decision in favor of the IRS. As a result of the Appeals Court decision, VF determined that its position no longer met the more-likely-than-not threshold, and thus wrote off the related income tax receivable and associated interest and recorded $690.0 million of income tax expense in the second quarter of Fiscal 2024. This amount included the reversal of $19.6 million of interest income, of which $7.5 million was recorded in the first quarter of Fiscal 2024. This amount reflects the total estimated net impact to VF’s tax expense, which includes the expected reduction in taxes paid on the periodic inclusions that VF has reported, release of related
deferred tax liabilities, and consideration of indirect tax effects resulting from the decision. The estimated impact is subject to future adjustments based on finalization with tax authorities.
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 $4.6 million within the next 12 months due to settlement of audits and expiration of statutes of limitations of which $1.6 million would reduce income tax expense.