|9 Months Ended|
Sep. 28, 2019
|Income Tax Disclosure [Abstract]|
|INCOME TAXES||INCOME TAXES
Prior to the Separation, the Company's operations were historically included in VF’s U.S. combined federal and state income tax returns. For the periods prior to the Separation, the income tax expense and deferred tax balances presented in these interim financial statements were calculated on a carve-out basis, which applied the accounting guidance as if the Company filed its own tax returns in each jurisdiction and included tax losses and tax credits that may not reflect tax positions taken by VF. Certain tax attributes reported by the Company on a carve-out basis were not transferred to the Company as part of the Separation. These attributes primarily related to losses in certain Central America and South America ("CASA") jurisdictions.
During the third quarter of 2019, the Company recorded a $32.6 million non-cash impairment charge related to the Rock & Republic® trademark intangible asset that resulted in a tax benefit of $7.4 million.
The effective income tax rate for the nine months ended September 2019 was 25.7% compared to 21.1% in the 2018 period. Effective with the Separation, the Company established a corporate legal entity structure that is subject to U.S. corporate income tax on a standalone basis. Tax expense for the nine-month period is based on five months of combined financial statements prepared on a carve-out basis using VF information and four months of the consolidated results of the Company on a standalone basis.
The nine months ended September 2019 included a net discrete tax expense of $1.1 million, comprised of $3.4 million of tax benefit related to stock compensation and $4.5 million of tax expense primarily related to an increase in unrecognized tax benefits and interest. The $1.1 million net discrete tax expense in the nine months ended September 2019 increased the effective income tax rate by 1.2%.
The effective tax rate for the nine months ended September 2018 included a net discrete tax benefit of $1.8 million, which included $4.6 million of net tax benefits related to the realization of previously unrecognized tax benefits and interest, $2.9 million of tax benefit related to stock compensation, and $5.7 million of net tax expense related to adjustments to provisional amounts recorded in 2017 under the Tax Act. The $1.8 million net discrete tax benefit in the 2018 period decreased the effective income tax rate by 0.6%.
Without discrete items, the effective income tax rate increased by 2.8% for the nine months ended September 2019 compared to the 2018 period primarily due to losses incurred in the periods prior to the Separation for certain CASA jurisdictions for which no related tax benefit was recognized.
The Company will file a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. The Company has not filed its initial consolidated U.S. federal income tax return; therefore, there are no open IRS examinations. However, the Company is currently subject to examination by various U.S. state and international tax authorities where existing legal entities were transferred to the Company as part of the Separation. 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. Management does not anticipate that ongoing audits or negotiations will conclude during the next 12 months.
During the nine months ended September 2019, the amount of net unrecognized tax benefits and associated interest decreased by $38.8 million to $12.5 million. The decrease in net unrecognized tax benefits was primarily related to reserves that were presented in the prior periods on a carve-out basis but were not transferred to the Company as part of the Separation. 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 $0.6 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, which would reduce income tax expense. The Company accounts for interest and penalties related to unrecognized tax benefits as a component of tax expense.
No definition available.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef