鲍鱼直播 Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Mar. 30, 2019

听

The provision for income taxes was computed based on the following amounts of income from continuing operations before income taxes:



听	听	Year Ended March		听	听	Three Months Ended March (Transition Period)		听	Year Ended December
(In thousands)	听	2019		听	听	2018		听	2017		听	2016
Domestic	听	$	337,066	听	听	$	4,163	听	$	364,846	听	$	301,760
Foreign	听	1,190,338		听	听	289,970		听	1,051,649		听	982,956
Income before income taxes	听	$	1,527,404	听	听	$	294,133	听	$	1,416,495	听	$	1,284,716

The provision for income taxes consisted of:



听	听	Year Ended March			听	听	Three Months Ended March (Transition Period)			听	Year Ended December
(In thousands)	听	2019			听	听	2018			听	2017			听	2016
Current:	听	听			听	听	听			听	听			听	听
Federal	听	$	143,872		听	听	$	(4,864	)	听	$	618,611		听	$	115,570
Foreign	听	164,974			听	听	36,634			听	135,007			听	123,960
State	听	22,455			听	听	896			听	21,506			听	37,957
听	听	331,301			听	听	32,666			听	775,124			听	277,487
Deferred:	听	听			听	听	听			听	听			听	听
Federal and state	听	(53,715		)	听	听	(13,656		)	听	(76,039		)	听	(63,610		)
Foreign	听	(9,186		)	听	听	13,959			听	(3,799		)	听	(8,015		)
听	听	(62,901		)	听	听	303			听	(79,838		)	听	(71,625		)
Income taxes	听	$	268,400		听	听	$	32,969		听	$	695,286		听	$	205,862

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act. The Tax Act included a broad range of complex provisions impacting the taxation of multi-national companies. Generally, accounting for the impacts of newly enacted tax legislation is required to be completed in the period of enactment, however in response to the complexities and ambiguity surrounding the Tax Act, the SEC released SAB 118 to provide companies with relief around the initial accounting for the Tax Act. Pursuant to SAB 118, the SEC provided a one-year measurement period for companies to analyze and finalize accounting for the Tax Act. During the one-year measurement period, SAB 118 allowed companies to recognize provisional amounts when reasonable estimates could be made for the impacts resulting from the Tax Act.

鲍鱼直播 finalized its accounting for the Tax Act during the one-year measurement period under SAB 118, and recognized additional net charges of $18.2 million, primarily comprised of $14.3 million tax expense related to the transition tax, additional tax benefits of $0.3 million related to revaluing U.S. deferred tax assets and liabilities using the new U.S. corporate tax rate of 21%, and $4.2 million tax expense related to establishing a deferred tax liability for foreign withholding taxes, resulting in a cumulative net charge of $483.7 million. The measurement period adjustments include $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, 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听March 30, 2019, a noncurrent income tax payable of approximately $416.1 million attributable to the transition tax is reflected in the other liabilities line item of the Consolidated Balance Sheet.

The Tax Act created a new tax on certain GILTI from foreign operations. Under GAAP, companies may make an accounting policy election to either treat taxes resulting from GILTI as a current-period expense when they are incurred or factor such amounts into the measurement of deferred taxes. The Company completed its analysis of the effects of the GILTI provisions and determined it will treat the taxes resulting from GILTI as a current-period expense, which is consistent with the treatment prior to the accounting policy election.

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:



听	听	Year Ended March			听	听	Three Months Ended March (Transition Period)			听	Year Ended December
(In thousands)	听	2019			听	听	2018			听	2017			听	2016
Tax at federal statutory rate	听	$	320,755		听	听	$	61,768		听	$	495,772		听	$	449,650
State income taxes, net of federal tax benefit	听	32,954			听	听	(4,745		)	听	23,684			听	24,426
Foreign rate differences	听	(84,702		)	听	听	(9,227		)	听	(217,131		)	听	(262,392		)
Tax reform	听	37,262			听	听	(5,107		)	听	465,501			听	鈥�
Capital losses	听	鈥�			听	听	鈥�			听	(67,032		)	听	鈥�
Valuation allowances (federal)	听	鈥�			听	听	977			听	37,296			听	鈥�
Stock compensation (federal)	听	(26,398		)	听	听	(10,060		)	听	(22,826		)	听	(25,135		)
Other	听	(11,471		)	听	听	(637		)	听	(19,978		)	听	19,313
Income taxes	听	$	268,400		听	听	$	32,969		听	$	695,286		听	$	205,862

Income tax expense includes tax benefits of $6.3 million, $9.8 million, $10.1 million and $19.4 million in the year ended March 2019, the three months ended March 2018 and the years ended December 2017 and 2016, respectively, from favorable audit outcomes on certain tax matters and from expiration of statutes of limitations.

On January 4, 2016, 鲍鱼直播 sold certain intellectual property rights among various subsidiaries, which more closely aligns the intellectual property rights for certain foreign operations with the respective business activities of those operations, consistent with how the intellectual property is used and developed within the business. The sale of these intellectual property rights was classified as an intra-entity transaction under GAAP, and as such, the corresponding gain was eliminated from the 2016 consolidated financial statements, and the tax impact of the gain was established at the transaction date as a deferred charge of $291.1 million within the other assets line item on the 2016 Consolidated Balance Sheet. In October 2016, the FASB issued an update to their accounting guidance on the recognition of current and deferred income taxes for intra-entity asset transfers. The new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Company early adopted this guidance in the first quarter of 2017 using the modified retrospective method, which requires a cumulative adjustment to retained earnings as of the beginning of the period of adoption. The cumulative adjustment to the January 1, 2017 Consolidated Balance Sheet was a reduction in both the other assets and retained earnings line items of $237.8 million.

鲍鱼直播 was granted a ruling which lowered the effective income tax rate on taxable earnings for years 2010 through 2014 under Belgium鈥檚 excess profit tax regime. In February 2015, the European Union Commission (鈥淓U鈥�) opened a state aid investigation into Belgium鈥檚 rulings. On January听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 鲍鱼直播.

On March 22, 2016, the Belgium government filed an appeal seeking annulment of the EU decision. Additionally, on June 21, 2016, 鲍鱼直播 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, 鲍鱼直播 Europe BVBA received an assessment for 鈧�31.9 million tax and interest related to excess profits benefits received in prior years. 鲍鱼直播 Europe BVBA remitted 鈧�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 鈧�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. If this matter is adversely resolved, these amounts will not be collected by 鲍鱼直播.

In addition, 鲍鱼直播 has been granted a lower effective income tax rate on taxable earnings in another foreign jurisdiction for the years 2010 through 2019. This lower rate, when compared with the country鈥檚 statutory rate, resulted in income tax reductions of $15.7 million ($0.04 per diluted share) in the year ended March 2019, $7.5 million ($0.02 per diluted share) in the three months ended March 2018, $17.8 million ($0.04 per diluted share) in the year ended December 2017 and $12.0 million ($0.03 per diluted share) in the year ended December 2016.

Deferred income tax assets and liabilities consisted of the following:

(In thousands)

听

March 2019

听

March 2018

听

December 2017

Deferred income tax assets:

听

Inventories

听

32,647

听

24,797

听

21,146

Deferred compensation

听

51,913

听

53,843

听

55,326

Other employee benefits

听

69,594

听

52,456

听

45,464

Stock compensation

听

37,317

听

38,244

听

45,960

Other accrued expenses

听

127,684

听

155,635

听

158,632

Capital loss carryforwards

听

19,423

听

46,069

听

34,705

Operating loss carryforwards

听

229,955

听

252,695

听

251,236

Gross deferred income tax assets

听

568,533

听

623,739

听

612,469

Valuation allowances

听

(188,258

)

听

(226,269

)

听

(225,141

)

Net deferred income tax assets

听

380,275

听

397,470

听

387,328

Deferred income tax liabilities:

听

Depreciation

听

25,355

听

27,023

听

25,272

Intangible assets

听

222,769

听

223,435

听

237,667

Other deferred tax liabilities

听

91,464

听

82,406

听

78,824

Deferred income tax liabilities

听

339,588

听

332,864

听

341,763

Net deferred income tax assets (liabilities)

听

40,687

听

64,606

听

45,565

Amounts included in the Consolidated Balance Sheets:

听

Other assets (Note 10)

听

109,551

听

105,493

听

103,601

Other liabilities (Note 14)

听

(68,864

)

听

(40,887

)

听

(58,036

)

听

40,687

听

64,606

听

45,565

At the end of Fiscal 2019, the Company is not asserting indefinite reinvestment with regards to short-term liquid assets of certain 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.

鲍鱼直播 has potential tax benefits totaling $199.3 million for foreign operating loss carryforwards, of which $171.3 million have an unlimited carryforward life. In addition, there are $0.1 million of potential tax benefits for federal operating loss carryforwards that expire in 2020, $19.4 million of potential tax benefits for federal and state capital loss carryforwards that begin to expire in 2022 and $30.5 million of potential tax benefits for state operating loss and credit carryforwards that expire between 2020 and 2039.

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 $150.5 million for available foreign operating loss carryforwards, $5.1 million for available capital loss carryforwards, $22.7 million for available state operating loss and credit carryforwards, and $10.0 million for other foreign deferred income tax assets. During Fiscal 2019, 鲍鱼直播 had a net decrease in valuation allowances of $25.5 million related to capital loss carryforwards,a net increase of $1.7 million related to state operating loss and credit carryforwards and a decrease of $17.1 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			听	Accrued Interest and听Penalties			听	Unrecognized Income Tax Benefits Including听Interest and Penalties			听
Balance, December 2015	$	75,677		听	$	9,369		听	$	85,046		听
Additions for current year tax positions	121,025			听	鈥�			听	121,025			听
Additions for prior year tax positions	6,164			听	2,880			听	9,044			听
Reductions for prior year tax positions	(4,798		)	听	(1,362		)	听	(6,160		)	听
Reductions due to statute expirations	(14,985		)	听	(1,335		)	听	(16,320		)	听
Payments in settlement	(6,108		)	听	(829		)	听	(6,937		)	听
Currency translation	(9		)	听	(14		)	听	(23		)	听
Balance, December 2016	176,966			听	8,709			听	185,675			听
Additions for current year tax positions	28,049			听	鈥�			听	28,049			听
Additions for prior year tax positions	22,968			听	6,808			听	29,776			听
Reductions for prior year tax positions	(22,163		)	听	(279		)	听	(22,442		)	听
Reductions due to statute expirations	(9,028		)	听	(915		)	听	(9,943		)	听
Payments in settlement	(855		)	听	(248		)	听	(1,103		)	听
Currency translation	55			听	11			听	66			听
Balance, December 2017	195,992			听	14,086			听	210,078			听
Additions for current year tax positions	2,012			听	鈥�			听	2,012			听
Additions for prior year tax positions	477			听	2,340			听	2,817			听
Reductions for prior year tax positions	(201		)	听	(3		)	听	(204		)	听
Reductions due to statute expirations	(9,222		)	听	(985		)	听	(10,207		)	听
Payments in settlement	鈥�			听	鈥�			听	鈥�			听
Currency translation	17			听	2			听	19			听
Balance, March 2018	189,075			听	15,440			听	204,515			听
Additions for current year tax positions	8,511			听	鈥�			听	8,511			听
Additions for prior year tax positions	16,211			听	12,521			听	28,732			听
Reductions for prior year tax positions	(18,753		)	听	(467		)	听	(19,220		)	听
Reductions due to statute expirations	(30		)	听	(7		)	听	(37		)	听
Payments in settlement	(6,754		)	听	(919		)	听	(7,673		)	听
Currency translation	(35		)	听	(3		)	听	(38		)	听
Balance, March 2019	$	188,225		听	$	26,565		听	$	214,790		听

(In thousands)

听

March 2019

听

March 2018

听

December 2017

Amounts included in the Consolidated Balance Sheets:

听

Unrecognized income tax benefits, including interest and penalties

听

214,790

听

204,515

听

210,078

Less deferred tax benefits

听

40,862

听

35,474

听

31,197

Total unrecognized tax benefits

听

173,928

听

169,041

听

178,881

The unrecognized tax benefits of $173.9 million at the end of Fiscal 2019, if recognized, would reduce the annual effective tax rate.

鲍鱼直播 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 2014 have been effectively settled. The examination of Timberland鈥檚 2011 tax return is ongoing.

In addition, 鲍鱼直播 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 鲍鱼直播鈥檚 provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on 鲍鱼直播鈥檚 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 $28.5 million within the next 12 months due to settlement of audits and expiration of statutes of limitations, $27.1 million of which would reduce income tax expense.