Dive Brief:
- A federal judge has sided with the IRS in a case involving Timberland and the timeline of tax payments, according to court documents.
- As a result of the decision, VF Corporation, which purchased Timberland in 2011, must pay a tax expense estimated to be up to $730 million, plus approximately $19.6 million in the reversal of accrued interest income, according to a Form 8-K filed with the Securities and Exchange Commission Monday.
- “The Company is disappointed with the Appeals Court’s decision, as it believes the decision of the U.S. Tax Court was in error based on the technical merits,” the VFC filing reads.
Dive Insight:
The decision last week centered on whether TBL Licensing, formerly known as the Timberland Company, could pay taxes on its 2011 transfer of $1.5 billion worth of “intangible property” to an affiliated overseas corporation annually, over a period of years.
The IRS disagreed with TBL’s assessment, and stated that TBL was required to pay taxes on the entire $1.5 billion in its 2011 tax returns, per the court documents. The Tax Court sided with the IRS.
The U.S. Supreme Court accepts few tax cases on appeal, and VFC didn’t indicate whether it would pursue further legal action on the decision.
A spokesperson for VFC declined to comment further.
In its 8-K, VFC stated that the “estimated non-cash increase in tax expense” will be made during the second quarter of the company’s 2024 fiscal year.
In October 2022, the company paid $875.7 million “related to the 2011 taxes and interest being disputed,” the filing states.
This doesn’t change anything directly for the company, Tom Nikic, senior vice president of equity research at Wedbush Securities, said in emailed comments to Fashion Dive.
“But it does hinder their ability to reduce the debt burden on their balance sheet, which is something that management has spoken about extensively in recent quarters,” Nikic said. “Getting back the $875 million that they paid the IRS last year would have gone a long way towards cleaning up the balance sheet, but they can no longer count on that cash windfall to help them.”
VFC also owns Vans, Dickies and the North Face. The company has faced pressure lately after it reported in its most recent quarterly earnings that many of its brands experienced revenue declines, other than North Face, which grew 12%
In its most recent earnings, the company reported that Timberland experienced a 6% decrease in revenue, and Vans saw a drop of 22%.
The company recently named Bracken Darrell CEO after Steve Rendle unexpectedly retired after 25 years with the company. At the time of Darrell’s hire, analysts noted that turning the Vans brand around could be Darrell’s first and foremost priority, “while also navigating an increasingly challenging consumer environment and working with CFO Matt Puckett to clean up an over-leveraged balance sheet.”
