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. 28, 2020

听

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

听

Year Ended March

听

Three Months
Ended March
(Transition Period)

听

Year Ended December

听

(In thousands)

听

2020

听

2019

听

2018

听

2017

Domestic

听

(91,063

)

听

73,769

听

(67,963

)

听

15,523

Foreign

听

818,271

听

964,544

听

199,279

听

772,356

Income before income taxes

听

727,208

听

1,038,313

听

131,316

听

787,879

The provision for income taxes consisted of:

听

Year Ended March

听

Three Months
Ended March
(Transition Period)

听

Year Ended December

听

(In thousands)

听

2020

听

2019

听

2018

听

2017

Current:

听

Federal

听

12,926

听

89,309

听

(24,251

)

听

502,612

Foreign

听

157,052

听

115,332

听

25,724

听

94,370

State

听

2,583

听

11,229

听

(3,067

)

听

3,471

听

172,561

听

215,870

听

(1,594

)

听

600,453

Deferred:

听

Federal and state

听

38,511

听

(48,000

)

听

(7,117

)

听

(77,820

)

Foreign

听

(113,010

)

听

11,052

听

(2,824

)

听

(74,499

)

听

(47,983

)

听

3,935

听

(80,644

)

Income taxes

听

98,062

听

167,887

听

2,341

听

519,809

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 Tax Act.

鲍鱼直播 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听March听28, 2020, a noncurrent income tax payable of approximately $372.3 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:

听

Year Ended March

听

Three Months

Ended March

(Transition Period)

听

Year Ended December

听

(In thousands)

听

2020

听

2019

听

2018

听

2017

Tax at federal statutory rate

听

152,714

听

218,046

听

27,576

听

275,757

State income taxes, net of federal tax benefit

听

14,363

听

12,594

听

(7,031

)

听

10,660

Foreign rate differences

听

(22,038

)

听

(74,528

)

听

(5,252

)

听

(159,599

)

Tax reform

听

(93,598

)

听

37,262

听

(5,107

)

听

465,501

Goodwill impairment

听

45,613

听

鈥�

听

鈥�

听

鈥�

Capital losses

听

鈥�

听

鈥�

听

鈥�

听

(67,032

)

Valuation allowances (federal)

听

鈥�

听

鈥�

听

977

听

37,296

Stock compensation (federal)

听

(12,245

)

听

(21,614

)

听

(8,843

)

听

(19,883

)

Other

听

13,253

听

(3,873

)

听

(22,891

)

Income taxes

听

98,062

听

167,887

听

2,341

听

519,809

Income tax expense includes tax benefits of $13.4 million, $6.3 million, $9.8 million and $10.1 million in the years ended March 2020 and 2019, the three months ended March 2018 and the year ended December 2017, respectively, from favorable audit outcomes on certain tax matters and from expiration of statutes of limitations.

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. Additionally, the EU has initiated proceedings related to individual rulings granted by Belgium, including the ruling granted to 鲍鱼直播. 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 that will expire as of the end of June 2020. This lower rate, when compared with

the country鈥檚 statutory rate, resulted in income tax reductions of $15.3 million ($0.04 per diluted share) in the year ended March 2020, $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 and $17.8 million ($0.04 per diluted share) in the year ended December 2017.

Deferred income tax assets and liabilities consisted of the following:



(In thousands)	听	March 2020			听	听	March 2019
Deferred income tax assets:	听	听			听	听	听
Inventories	听	$	19,153		听	听	$	16,292
Deferred compensation	听	32,715			听	听	39,317
Other employee benefits	听	31,814			听	听	58,908
Stock compensation	听	28,894			听	听	30,441
Lease liability	听	270,669			听	听	鈥�
Other accrued expenses	听	87,384			听	听	102,240
Capital loss carryforwards	听	15,704			听	听	19,066
Operating loss carryforwards	听	221,584			听	听	219,774
Gross deferred income tax assets	听	707,917			听	听	486,038
Valuation allowances	听	(172,912		)	听	听	(177,987		)
Net deferred income tax assets	听	535,005			听	听	308,051
Deferred income tax liabilities:	听	听			听	听	听
Depreciation	听	49,748			听	听	21,819
Intangible assets	听	99,861			听	听	218,089
Right-of-use asset	听	257,843			听	听	鈥�
Other deferred tax liabilities	听	105,588			听	听	80,741
Deferred income tax liabilities	听	513,040			听	听	320,649
Net deferred income tax assets (liabilities)	听	$	21,965		听	听	$	(12,598	)
Amounts included in the Consolidated Balance Sheets:	听	听			听	听	听
Other assets (Note 11)	听	$	183,336		听	听	$	95,399
Other liabilities (Note 15)	听	(161,371		)	听	听	(107,997		)
听	听	$	21,965		听	听	$	(12,598	)

At the end of Fiscal 2020, the Company is not asserting indefinite reinvestment with regards to short-term liquid assets of its foreign subsidiaries, as well as certain noncurrent assets that are expected to be converted to liquid assets in the foreseeable future. All other foreign earnings, including basis differences of certain foreign subsidiaries, continue to be considered indefinitely reinvested. As of the end of Fiscal 2020, there was $3.9 billion 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.

鲍鱼直播 has potential tax benefits totaling $213.0 million for foreign operating loss carryforwards, of which $160.3 million have an unlimited carryforward life. In addition, there are $15.7 million of potential tax benefits for federal and state capital loss

carryforwards that begin to expire in 2022 and $8.6 million of potential tax benefits for state operating loss and credit carryforwards that expire between 2021 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 $158.4 million for available foreign operating loss carryforwards, $2.7 million for available capital loss carryforwards, $5.4 million for available state operating loss and credit carryforwards, and $6.4 million for other foreign deferred income tax assets. During Fiscal 2020, 鲍鱼直播 had a net decrease in valuation allowances of $2.5 million related to capital loss carryforwards, a net decrease of $9.7 million related to state operating loss and credit carryforwards and an increase of $7.1 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 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
Additions for current year tax positions	20,328			听	鈥�			听	20,328			听
Additions for prior year tax positions	3,136			听	10,029			听	13,165			听
Reductions for prior year tax positions	(3,521		)	听	(254		)	听	(3,775		)	听
Reductions due to statute expirations	(11,135		)	听	(1,817		)	听	(12,952		)	听
Payments in settlement	(664		)	听	(146		)	听	(810		)	听
Decrease due to divestiture	(11,619		)	听	(3,723		)	听	(15,342		)	听
Currency translation	(27		)	听	(42		)	听	(69		)	听
Balance, March 2020	$	184,723		听	$	30,612		听	$	215,335		听



(In thousands)	听	March 2020		听	听	March 2019
Amounts included in the Consolidated Balance Sheets:	听	听		听	听	听
Unrecognized income tax benefits, including interest and penalties	听	$	215,335	听	听	$	214,790
Less deferred tax benefits	听	50,197		听	听	40,862
Total unrecognized tax benefits	听	$	165,138	听	听	$	173,928

The unrecognized tax benefits of $165.1 million at the end of Fiscal 2020, 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 2015 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 $16.9 million within the next 12 months due to settlement of audits and expiration of statutes of limitations, $9.8 million of which would reduce income tax expense.