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Income Taxes
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9 Months Ended |
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Sep. 29, 2012
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| Income Taxes |
Note J — Income Taxes The effective income tax rate was 24.2% in the first nine months of 2012, compared with 24.1% in the first nine months of 2011. The tax rates in both periods were lowered by discrete items. The first nine months of 2012 included $8.0 million in tax benefits related to the settlement of prior years’ tax audits, $6.5 million in tax benefits from the realization of unrecognized tax benefits related to foreign taxes and $11.1 million in tax benefits from the utilization of a capital loss carryforward, which was triggered by the sale of John Varvatos. The first nine months of 2011 included $6.0 million in net tax benefits related to settlements of prior years’ tax audits and filings, $2.8 million of tax benefits related to the realization of unrecognized tax benefits resulting from expiration of statutes of limitations and $16.8 million in income tax benefits related to the release of valuation allowances in foreign jurisdictions due to improved profitability in the respective jurisdictions. 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 addition, Timberland filed a consolidated U.S. federal income tax return through the time of acquisition. The United States Internal Revenue Service (“IRS”) is currently examining VF’s tax years 2007, 2008 and 2009. The IRS commenced an examination of Timberland’s 2010 tax year during the second quarter of 2012. Additionally, the IRS audit of Timberland’s 2008 and 2009 tax years was settled during the second quarter of 2012. VF is currently subject to examination by various state tax authorities. While the outcome of any one examination is not expected to have a material impact on VF’s consolidated financial statements, management regularly assesses the outcomes of both ongoing and future examinations to ensure VF’s provision for income taxes is sufficient. Management believes that some of these audits and negotiations will conclude during the next 12 months. During the first nine months of 2012, the amount of unrecognized tax benefits and associated interest decreased by $6.6 million to $96.1 million. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits may decrease during the next 12 months by approximately $2.5 million related to the completion of audits and other settlements with tax authorities and the expiration of statutes of limitations. Of the $2.5 million, $2.3 million would reduce income tax expense. |