ֱ

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.23.1
INCOME TAXES
 12 Months Ended
Apr. 01, 2023
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) 2023 2022 2021
Domestic $ (885,562) $ 518,386 $ (152,073)
Foreign 928,849 1,004,864 608,545
Income before income taxes $ 43,287 $ 1,523,250 $ 456,472
The provision for income taxes consisted of:
Year Ended March
(In thousands) 2023 2022 2021
Current:
Federal $ (114,772) $ 231,469 $ 6,373
Foreign 106,192 196,540 109,543
State (13,163) 36,461 25,462
(21,743) 464,470 141,378
Deferred:
Federal and state (46,677) (177,381) (24,133)
Foreign (6,877) 19,892 (15,679)
(53,554) (157,489) (39,812)
Income tax expense (benefit) $ (75,297) $ 306,981 $ 101,566
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, $67.4million 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 2023, a noncurrent income tax payable of approximately $113.0million 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 (benefit) reported in the consolidated financial statements are as follows:
Year Ended March
(In thousands) 2023 2022 2021
Tax at federal statutory rate $ 9,090 $ 319,882 $ 95,859
State income taxes, net of federal tax benefit (17,301) 16,641 13,771
Foreign rate differences (38,609) (62,928) (5,605)
Tax reform (94,877) 67,358 —
Goodwill impairment 74,624 — 2,631
Stock compensation (federal) 2,304 (1,977) (4,783)
Non-taxable contingent consideration adjustments — (28,090) —
Interest on tax receivable (11,972) — —
Other 1,444 (3,905) (307)
Income tax expense (benefit) $ (75,297) $ 306,981 $ 101,566

Income tax expense (benefit) in the year ended March 2023 includes a $94.9million favorable adjustment to ֱ’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. Income tax expense (benefit) also includes tax benefits of $10.6 million, $2.2 million and $3.6 million in the years ended March 2023, 2022 and 2021, respectively, from other favorable audit outcomes on certain tax matters and from expiration of statutes of limitations.
ֱ 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 ֱ. Requests for annulment were filed by Belgium and ֱ Europe BVBA individually. During 2017 and 2018, ֱ Europe BVBA was assessed and paid €35.0 million tax and interest, which was recorded as an income tax receivable and is included in the other current assets line item in ֱ's Consolidated Balance
Sheets, 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 ֱ.
In addition, ֱ 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 $57.8 million ($0.15 per diluted share) in the year ended March 2023, $0.4 million ($0.00 per diluted share) in the year ended March 2022 and $3.8 million ($0.01 per diluted share) in the year ended March 2021.
Deferred income tax assets and liabilities consisted of the following:
(In thousands) March 2023 March 2022
Deferred income tax assets:
Inventories $ 74,395 $ 38,661
Deferred compensation 24,557 32,349
Other employee benefits — 16,870
Stock compensation 27,589 27,610
Operating lease liabilities 361,676 327,668
Other accrued expenses 109,050 105,978
Interest expense limitation carryforward 3,932 1,711
Capital loss carryforwards 166,587 166,622
Operating loss and credit carryforwards 331,167 539,157
Gross deferred income tax assets 1,098,953 1,256,626
Valuation allowances (424,932) (616,533)
Net deferred income tax assets 674,021 640,093
Deferred income tax liabilities:
Depreciation 26,303 10,768
Intangible assets 277,473 361,182
Operating lease right-of-use assets 330,235 295,227
Other employee benefits 3,707 —
Other deferred tax liabilities 48,732 22,337
Deferred income tax liabilities 686,450 689,514
Net deferred income tax assets (liabilities) $ (12,429) $ (49,421)
Amounts included in the Consolidated Balance Sheets:
Other assets (Note 11) $ 95,117 $ 100,980
Other liabilities (Note 15) (107,546) (150,401)
$ (12,429) $ (49,421)

At the end of Fiscal 2023, 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 2023, there was approximately $346.0million 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.
ֱ has potential tax benefits totaling $295.4 million for foreign operating loss carryforwards, of which $106.0 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 2026 and $20.5 million of potential tax benefits for state operating loss and credit carryforwards that expire between 2024 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 $262.5 million for available foreign operating loss carryforwards, $151.5 million for available capital loss carryforwards, $10.0 million for available state operating loss and credit carryforwards, and $0.9 million for other foreign deferred income tax assets. During Fiscal 2023, ֱ had a net decrease in valuation allowances of $0.6 million related to capital loss carryforwards, a net increase of $5.6 million related to state operating loss and credit carryforwards and a decrease of $196.6 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
andPenalties		 Unrecognized
Income Tax
Benefits
IncludingInterest
and Penalties
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
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
(a)The year ended March 2022 included an increase resulting from updated estimates related to intellectual property transfers completed in a prior period.
(In thousands) March 2023 March 2022
Amounts included in the Consolidated Balance Sheets:
Unrecognized income tax benefits, including interest and penalties $ 432,777 $ 403,960
Less deferred tax benefits 135,175 126,179
Total unrecognized tax benefits $ 297,602 $ 277,781

The unrecognized tax benefits of $297.6 million at the end of Fiscal 2023, if recognized, would reduce the annual effective tax rate.
ֱ 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, ֱ petitioned the U.S. Tax Court (the “Court”) to resolve an IRS dispute regarding the timing of income inclusion associated with ֱ’s acquisition of The
Timberland Company in September 2011. While the IRS argues that all such income should have been immediately included in 2011, ֱ has reported periodic income inclusions in subsequent tax years. Both parties moved for summary judgment on the issue. On January 31, 2022, the Court issued its opinion in favor of the IRS and on July 14, 2022 issued its final decision. ֱ believes the opinion of the Court was in error based on the technical merits and filed a notice of appeal on October 7, 2022. ֱ continues to believe its timing and treatment of the income inclusion is appropriate and ֱ is vigorously defending its position. On October 19, 2022, ֱ paid $875.7million related to the 2011 taxes and interest being disputed, which was recorded
as an income tax receivable and will accrue interest income. These amounts are included in the other assets line item in ֱ's Consolidated Balance Sheet at March 2023, 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, ֱ 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 ֱ’s provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on ֱ’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 $281.4 million within the next 12 months due to settlement of audits and expiration of statutes of limitations, primarily comprised of tax payments related to intellectual property transfers completed in a prior period. The overall decrease of unrecognized tax benefits would reduce income tax expense by $23.7 million.
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on the current analysis of the provisions, the Company does not expect this legislation to have a material impact on ֱ's income tax accounts.