Research Update: VF Corp. Outlook Revised To Negative From Stable On Elevated Leverage; 'A-' Issuer Credit Rating Affirmed

U.S.-based VF Corp. will likely have to increase debt by more than $845 million to pay the assessed tax in order to appeal an unfavorable decision from the U.S. Tax Court regarding its post-acquisition restructuring of Timberland Co. in September 2011. The Tax Court decision states that the full value of the Timberland intellectual property (IP) should have been taxable upon the date of transfer to Switzerland and not annually as VF has paid. The company intends to appeal this outcome and if the decision is reversed, the company would receive a refund of the assessed tax along with accrued interest. We revised the outlook to negative from stable to reflect elevated leverage above our prior expectations combined with the

...- U.S.-based VF Corp. will likely have to increase debt by more than $845 million to pay the assessed tax in order to appeal an unfavorable decision from the U.S. Tax Court regarding its post-acquisition restructuring of Timberland Co. in September 2011. - The Tax Court decision states that the full value of the Timberland intellectual property (IP) should have been taxable upon the date of transfer to Switzerland and not annually as VF has paid. The company intends to appeal this outcome and if the decision is reversed, the company would receive a refund of the assessed tax along with accrued interest. - We revised the outlook to negative from stable to reflect elevated leverage above our prior expectations combined with the company's acquisitive growth strategy, which has become somewhat less conservative. At the same time, we affirmed the 'A-' issuer credit rating and all issue-level ratings on the company. - The negative outlook indicates we could lower the ratings within the next two...

Research Update