INCOME TAXES |
3 Months Ended |
|---|---|
Mar. 30, 2019 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | INCOME TAXES For purposes of the Company's combined financial statements, income taxes have been calculated as if the Company were filing income tax returns on a standalone basis. The Company's U.S. operations and certain of its non-U.S. operations historically have been included within the tax returns of VF, or VF's subsidiaries, that may not remain with the Company after the Separation. The Company believes the assumptions supporting its allocations and presentation of income taxes on a separate return basis are reasonable. However, the Company's tax results, as presented in the combined financial statements, may not be reflective of the results that the Company expects to generate in future periods.
On January 15, 2019, final regulations under Section 965 related to the transition tax were released. After analyzing these regulations during the three months ended March 2019, the Company recorded an additional net charge of $0.2 million, primarily comprised of $3.9 million of tax expense related to transition tax and a net tax benefit of $3.7 million related to a reduction in unrecognized tax benefits as a result of the final regulations.
The effective income tax rate for the three months ended March 2019 was 44.7% compared to 15.0% in the 2018 period. The three months ended March 2019 included a net discrete tax expense of $1.2 million, primarily comprised of $2.8 million of net tax expense related to unrecognized tax benefits and interest, $2.2 million of tax benefit related to stock compensation, and $0.2 million of tax expense related to adjustments of previously recorded amounts based on final regulations for the transition tax. The $1.2 million net discrete tax expense in the three months ended March 2019 increased the effective income tax rate by 4.4%.
The effective tax rate for the three months ended March 2018 included a net discrete tax benefit of $6.3 million, which included $5.5 million of net tax benefits related to the realization of previously
unrecognized tax benefits and interest and $0.8 million of tax benefit related to stock compensation. The $6.3 million net discrete tax benefit in the 2018 period decreased the effective income tax rate by 6.7%.
Without discrete items, the effective income tax rate for the three months ended March 2019 increased by 18.6% compared with the 2018 period primarily due to losses incurred in the current period for certain Central and South American jurisdictions for which no related tax benefit was recognized.
The Company is part of VF's consolidated U.S. federal income tax return, as well as separate and combined VF income tax returns in numerous state and international jurisdictions. In the U.S., the Internal Revenue Service examinations for VF's tax years through 2014 have been effectively settled. 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 the Company's provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on the Company's combined financial statements. Management believes that some of these audits and negotiations will conclude during the next 12 months.
During the three months ended March 2019, the amount of net unrecognized tax benefits and associated interest decreased by $2.6 million to $48.7 million. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits and interest may decrease during the next 12 months by approximately $6.3 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $6.1 million would reduce income tax expense.
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