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INCOME TAXES | 12 Months Ended
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Apr. 02, 2022
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) |  | 2022 |  |  | 2021 |  | 2020
Domestic |  | $ | 518,386 |  |  |  | $ | (152,073) |  |  | $ | (91,063) |
Foreign |  | 1,004,864 |  |  |  | 608,545 |  |  | 818,271 |
Income before income taxes |  | $ | 1,523,250 |  |  |  | $ | 456,472 |  |  | $ | 727,208 |
The provision for income taxes consisted of:
|  | Year Ended March
(In thousands) |  | 2022 |  |  | 2021 |  | 2020
Current: |  |  |  |  |  |  |
Federal |  | $ | 231,469 |  |  |  | $ | 6,373 |  |  | $ | 12,926 |
Foreign |  | 196,540 |  |  |  | 109,543 |  |  | 157,052 |
State |  | 36,461 |  |  |  | 25,462 |  |  | 2,583 |
|  | 464,470 |  |  |  | 141,378 |  |  | 172,561 |
Deferred: |  |  |  |  |  |  |
Federal and state |  | (177,381) |  |  |  | (24,133) |  |  | 38,511 |
Foreign |  | 19,892 |  |  |  | (15,679) |  |  | (113,010) |
|  | (157,489) |  |  |  | (39,812) |  |  | (74,499) |
Income taxes |  | $ | 306,981 |  |  |  | $ | 101,566 |  |  | $ | 98,062 |
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. In the fourth quarter of Fiscal 2022, $67.4 million net tax expense was recorded related to changes to these previously recorded deferred tax assets. 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"), which included a transition tax under Section 965. The income tax payable attributable to the transition tax is due over an 8-year period that began in 2018. At the end of Fiscal 2022, a noncurrent income tax payable of approximately $246.4 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) |  | 2022 |  |  | 2021 |  | 2020
Tax at federal statutory rate |  | $ | 319,882 |  |  |  | $ | 95,859 |  |  | $ | 152,714 |
State income taxes, net of federal tax benefit |  | 16,641 |  |  |  | 13,771 |  |  | 14,363 |
Foreign rate differences |  | (62,928) |  |  |  | (5,605) |  |  | (22,038) |
Tax reform |  | 67,358 |  |  |  | — |  |  | (93,598) |
Goodwill impairment |  | — |  |  |  | 2,631 |  |  | 45,613 |
Stock compensation (federal) |  | (1,977) |  |  |  | (4,783) |  |  | (12,245) |
Non-taxable contingent consideration adjustments |  | (28,090) |  |  |  | — |  |  | — |
Other |  | (3,905) |  |  |  | (307) |  |  | 13,253 |
Income taxes |  | $ | 306,981 |  |  |  | $ | 101,566 |  |  | $ | 98,062 |
Income tax expense includes tax benefits of $2.2 million, $3.6 million and $13.4 million in the years ended March 2022, 2021 and 2020, 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. 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. Requests for annulment were filed by Belgium and VF Europe BVBA individually. During 2017 and 2018, VF Europe BVBA was assessed and paid €35.0 million tax and interest, which was recorded as an income tax receivable based on the expected success of the requests for annulment. During 2019, the General Court annulled the EU decision and the EU subsequently appealed the General Court’s annulment. In September 2021, the General Court's judgment was set aside by the Court of Justice of the EU and the case was sent back to the General Court to determine whether the excess profit tax regime amounted to illegal State aid. The case remains open and unresolved. 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 one foreign jurisdiction that expired at the end of June 2020 and another foreign jurisdiction that will expire in March 2026. These lower rates, when compared with the country statutory rates, resulted in income tax reductions of $0.4 million ($0.00 per diluted share) in the year ended March 2022, $3.8 million ($0.01 per diluted share) in the year ended March 2021 and $15.3 million ($0.04 per diluted share) in the year ended March 2020. Deferred income tax assets and liabilities consisted of the following:
(In thousands) |  | March 2022 |  |  | March 2021
Deferred income tax assets: |  |  |  |  |
Inventories |  | $ | 38,661 |  |  |  | $ | 33,023 |
Deferred compensation |  | 32,349 |  |  |  | 39,794 |
Other employee benefits |  | 16,870 |  |  |  | 32,770 |
Stock compensation |  | 27,610 |  |  |  | 25,258 |
Operating lease liabilities |  | 327,668 |  |  |  | 354,747 |
Other accrued expenses |  | 132,747 |  |  |  | 148,790 |
Outside basis difference on assets held-for-sale |  | — |  |  |  | 228,735 |
Interest expense limitation carryforward |  | 1,711 |  |  |  | 20,503 |
Capital loss carryforwards |  | 166,622 |  |  |  | 2,458 |
Operating loss carryforwards |  | 512,388 |  |  |  | 323,902 |
Gross deferred income tax assets |  | 1,256,626 |  |  |  | 1,209,980 |
Valuation allowances |  | (616,533) |  |  |  | (500,601) |
Net deferred income tax assets |  | 640,093 |  |  |  | 709,379 |
Deferred income tax liabilities: |  |  |  |  |
Depreciation |  | 10,768 |  |  |  | 52,564 |
Intangible assets |  | 361,182 |  |  |  | 414,321 |
Operating lease right-of-use assets |  | 295,227 |  |  |  | 318,747 |
Other deferred tax liabilities |  | 22,337 |  |  |  | 65,222 |
Deferred income tax liabilities |  | 689,514 |  |  |  | 850,854 |
Net deferred income tax assets (liabilities) |  | $ | (49,421) |  |  |  | $ | (141,475) |
Amounts included in the Consolidated Balance Sheets: |  |  |  |  |
Other assets (Note 11) |  | $ | 100,980 |  |  |  | $ | 201,237 |
Other liabilities (Note 15) |  | (150,401) |  |  |  | (342,712) |
|  | $ | (49,421) |  |  |  | $ | (141,475) |
At the end of Fiscal 2022, 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 2022, there was approximately $340.0 million of undistributed earnings of international subsidiaries which could result in additional U.S. 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 $491.2 million for foreign operating loss carryforwards, of which $109.7 million have an unlimited carryforward life. In addition, there are $166.6 million of potential tax benefits for capital loss carryforwards that begin to expire in 2023 and $21.2 million of potential tax benefits for state operating loss and credit carryforwards that expire between 2023 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 $452.0 million for available foreign operating loss carryforwards, $152.2 million for available capital loss carryforwards, $4.3 million for available state operating loss and credit carryforwards, and $8.0 million for other foreign deferred income tax assets. During Fiscal 2022, VF had a net increase in valuation allowances of $149.7 million related to capital loss carryforwards, a net decrease of $1.8 million related to state operating loss and credit carryforwards and an increase of $192.9 million related to foreign operating loss carryforwards and other foreign deferred tax assets, inclusive of foreign currency effects. VF also decreased the valuation allowance by $224.9 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 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 |  |
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 |  |
(a)The year ended March 2022 includes an increase resulting from updated estimates related to intellectual property transfers completed in a prior period.
(In thousands) |  | March 2022 |  |  | March 2021
Amounts included in the Consolidated Balance Sheets: |  |  |  |  |
Unrecognized income tax benefits, including interest and penalties |  | $ | 403,960 |  |  |  | $ | 261,151 |
Less deferred tax benefits |  | 126,179 |  |  |  | 70,954 |
Total unrecognized tax benefits |  | $ | 277,781 |  |  |  | $ | 190,197 |
The unrecognized tax benefits of $277.8 million at the end of Fiscal 2022, 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 “Court”) to resolve an Internal Revenue Service ("IRS") dispute regarding the timing of income inclusion associated with VF’s acquisition of The Timberland Company in September 2011. While the IRS argues that all such income should have been immediately included in 2011, VF has reported periodic income inclusions in subsequent tax years. Both parties moved for summary judgment on the issue, and on January 31, 2022, the Court issued its opinion in favor of the IRS. VF believes the opinion of the Court was in error based on the technical merits and intends to appeal. VF continues to believe its timing and treatment of the income inclusion is appropriate and VF is vigorously defending its position. No impact of the Court opinion has been recorded in the consolidated financial statements based on our assessment of the position under the more-likely-than-not standard of the accounting literature. Refer to Note 21 for additional details on this matter. 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 $255.9 million within the next 12 months due to settlement of audits and expiration of statutes of limitations, $11.6 million of which would reduce income tax expense.

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