大象传媒

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.21.1
INCOME TAXES
 12 Months Ended
Apr. 03, 2021
Income Tax Disclosure [Abstract] 听
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) 2021 2020 2019
Domestic $ (152,073) $ (91,063) $ 73,769听
Foreign 608,545听 818,271听 964,544听
Income before income taxes $ 456,472听 $ 727,208听 $ 1,038,313听
The provision for income taxes consisted of:
Year Ended March
(In thousands) 2021 2020 2019
Current:
Federal $ 6,373听 $ 12,926听 $ 89,309听
Foreign 109,543听 157,052听 115,332听
State 25,462听 2,583听 11,229听
141,378听 172,561听 215,870听
Deferred:
Federal and state (24,133) 38,511听 (48,000)
Foreign (15,679) (113,010) 17听
(39,812) (74,499) (47,983)
Income taxes $ 101,566听 $ 98,062听 $ 167,887听
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 U.S. Tax Act.
大象传媒 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April 3, 2021, a noncurrent income tax payable of approximately $316.8听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:
Year Ended March
(In thousands) 2021 2020 2019
Tax at federal statutory rate $ 95,859听 $ 152,714听 $ 218,046听
State income taxes, net of federal tax benefit 13,771听 14,363听 12,594听
Foreign rate differences (5,605) (22,038) (74,528)
Tax reform 鈥斕 (93,598) 37,262听
Goodwill impairment 2,631听 45,613听 鈥斕
Stock compensation (federal) (4,783) (12,245) (21,614)
Other (307) 13,253听 (3,873)
Income taxes $ 101,566听 $ 98,062听 $ 167,887听

Income tax expense includes tax benefits of $3.6 million, $13.4 million and $6.3 million in the years ended March 2021, 2020 and 2019, respectively, from favorable audit outcomes on certain tax matters and from expiration of statutes of limitations.
大象传媒 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 大象传媒.
On March 22, 2016, the Belgium government filed an appeal seeking annulment of the EU decision. Additionally, on June 21, 2016, 大象传媒 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, 大象传媒 Europe BVBA received an assessment for 鈧31.9 million tax and interest
related to excess profits benefits received in prior years. 大象传媒 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 大象传媒. If this matter is adversely resolved, these amounts will not be collected by 大象传媒.
In addition, 大象传媒 has been granted a lower effective income tax rate on taxable earnings in another foreign jurisdiction that expired 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 $3.8 million ($0.01 per diluted share) in the year ended March 2021, $15.3 million ($0.04 per diluted share) in the year ended March 2020 and $15.7 million ($0.04 per diluted share) in the year ended March 2019.
Deferred income tax assets and liabilities consisted of the following:
(In thousands) March 2021 March 2020
Deferred income tax assets:
Inventories $ 33,023听 $ 19,153听
Deferred compensation 39,794听 32,715听
Other employee benefits 32,770听 31,814听
Stock compensation 25,258听 28,894听
Operating lease liabilities 354,747听 270,669听
Other accrued expenses 148,790听 87,384听
Outside basis difference on assets held-for-sale 228,735听 鈥斕
Interest expense limitation carryforward 20,503听 鈥斕
Capital loss carryforwards 2,458听 15,704听
Operating loss carryforwards 323,902听 221,584听
Gross deferred income tax assets 1,209,980听 707,917听
Valuation allowances (500,601) (172,912)
Net deferred income tax assets 709,379听 535,005听
Deferred income tax liabilities:
Depreciation 52,564听 49,748听
Intangible assets 414,321听 99,861听
Operating lease right-of-use assets 318,747听 257,843听
Other deferred tax liabilities 65,222听 105,588听
Deferred income tax liabilities 850,854听 513,040听
Net deferred income tax assets (liabilities) $ (141,475) $ 21,965听
Amounts included in the Consolidated Balance Sheets:
Other assets (Note 11) $ 201,237听 $ 183,336听
Other liabilities (Note 15) (342,712) (161,371)
$ (141,475) $ 21,965听

At the end of Fiscal 2021, 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 2021, there was approximately $500.0听million 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.
大象传媒 has potential tax benefits totaling $308.4 million for foreign operating loss carryforwards, of which $116.6 million have an unlimited carryforward life. In addition, there are $2.5 million of potential tax benefits for state capital loss carryforwards that begin to expire in 2022 and $15.5 million of potential tax benefits for federal and state operating loss and credit carryforwards that expire between 2022 and 2041.
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 $261.4 million for available foreign operating loss carryforwards, $2.5 million for available capital loss carryforwards, $6.1 million for available state operating loss and credit carryforwards, and $5.6 million for other foreign deferred income tax assets. In addition there is a valuation allowance of $225.0 million for the basis difference on assets held-for-sale. During Fiscal 2021, 大象传媒 had a net decrease in valuation allowances of $0.2 million related to capital loss carryforwards, a net increase of $0.7 million related to state operating loss and credit carryforwards and an increase of $102.2 million related to foreign operating loss carryforwards and other foreign deferred tax assets, inclusive of foreign currency effects. 大象传媒 also increased the valuation allowance by $225.0 million related to the basis difference on assets held-for-sale.
A reconciliation of the change in the accrual for unrecognized income tax benefits is as follows:
(In thousands) Unrecognized
Income Tax
Benefits		 Accrued
Interest
and听Penalties		 Unrecognized
Income Tax
Benefits
Including听Interest
and Penalties
Balance, March 2018 $ 189,075听 $ 15,440听 $ 204,515听
Additions for current year tax positions 8,511听 鈥斕 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) (467) (19,220)
Reductions due to statute expirations (30) (7) (37)
Payments in settlement (6,754) (919) (7,673)
Currency translation (35) (3) (38)
Balance, March 2019 188,225听 26,565听 214,790听
Additions for current year tax positions 20,328听 鈥斕 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) (254) (3,775)
Reductions due to statute expirations (11,135) (1,817) (12,952)
Payments in settlement (664) (146) (810)
Decrease due to divestiture (11,619) (3,723) (15,342)
Currency translation (27) (42) (69)
Balance, March 2020 184,723听 30,612听 215,335听
Additions for current year tax positions 6,609听 鈥斕 6,609听
Additions for prior year tax positions 20,950听 8,064听 29,014听
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听 1,673听 18,739听
Currency translation (40) 57听 17听
Balance, March 2021 $ 223,010听 $ 38,141听 $ 261,151听
(In thousands) March 2021 March 2020
Amounts included in the Consolidated Balance Sheets:
Unrecognized income tax benefits, including interest and penalties $ 261,151听 $ 215,335听
Less deferred tax benefits 70,954听 50,197听
Total unrecognized tax benefits $ 190,197听 $ 165,138听

The unrecognized tax benefits of $190.2 million at the end of Fiscal 2021, if recognized, would reduce the annual effective tax rate.
大象传媒 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, 大象传媒 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 大象传媒鈥檚 provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on 大象传媒鈥檚 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 $34.2 million within the next 12 months due to settlement of audits and expiration of statutes of limitations, $12.1 million of which would reduce income tax expense.