-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F686eSnkxjBNKSgzS9sXUussND2ZGy6EivtWWepS8AM1W8g7MNEjceg6UYSqAfTa kpp/MKMHWfpYY8sVKEoPqQ== 0000950135-96-004743.txt : 19961111 0000950135-96-004743.hdr.sgml : 19961111 ACCESSION NUMBER: 0000950135-96-004743 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960927 FILED AS OF DATE: 19961108 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIMBERLAND CO CENTRAL INDEX KEY: 0000814361 STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140] IRS NUMBER: 020312554 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09548 FILM NUMBER: 96657415 BUSINESS ADDRESS: STREET 1: 200 DOMAIN DR CITY: STRATHAM STATE: NH ZIP: 03885 BUSINESS PHONE: 6037729500 MAIL ADDRESS: STREET 1: 200 DOMAIN DR CITY: STRATHAM STATE: NH ZIP: 03885 10-Q 1 THE TIMBERLAND COMPANY FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended September 27, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission File Number 1-9548 ------ The Timberland Company - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 02-0312554 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 200 Domain Drive, Stratham, New Hampshire 03885 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (603) 772-9500 ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- On November 1, 1996, 8,377,762 shares of the registrant's Class A Common Stock were outstanding and 2,734,451 shares of the registrant's Class B Common Stock were outstanding. 2 THE TIMBERLAND COMPANY FORM 10-Q TABLE OF CONTENTS Page(s) ------- Independent Accountants' Report 1 Part I Financial Information (unaudited) - ---------------------------- Consolidated Balance Sheets - 2-3 September 27, 1996 and December 31, 1995 Consolidated Statements of Operations - 4 For the three and nine months ended September 27, 1996 and September 29, 1995 Consolidated Statements of Cash Flows - 5 For the nine months ended September 27, 1996 and September 29, 1995 Notes to Consolidated Financial Statements 6-8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Part II Other Information 13 - ------------------------- 3 Form 10-Q Page 1 INDEPENDENT ACCOUNTANTS' REPORT - -------------------------------------- To the Stockholders and Board of Directors of The Timberland Company: We have reviewed the accompanying consolidated balance sheet of The Timberland Company and subsidiaries as of September 27, 1996, and the related consolidated statements of operations for the three-month and nine-month periods ended September 27, 1996 and September 29, 1995, and the related consolidated statements of cash flows for the nine-month periods ended September 27, 1996 and September 29, 1995. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of The Timberland Company and subsidiaries as of December 31, 1995, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended (not presented herein); and, in our report dated February 7, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1995, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it was derived. Deloitte & Touche LLP Boston, Massachusetts October 16, 1996 4 Form 10-Q Page 2 Part I Financial Information - ---------------------------- THE TIMBERLAND COMPANY CONSOLIDATED BALANCE SHEETS ASSETS (Dollars in Thousands) (Unaudited)
September 27, December 31, 1996 1995 ------------- ------------ Current assets Cash and equivalents $ 18,676 $ 38,389 Accounts receivable, net of allowance for doubtful accounts of $3,870 at September 27, 1996 and $2,658 at December 31, 1995 152,658 95,786 Inventories 192,753 180,636 Prepaid expenses 10,466 12,752 Deferred and refundable income taxes 9,405 10,267 -------- -------- Total current assets 383,958 337,830 -------- -------- Property, plant and equipment 103,930 95,937 Less accumulated depreciation and amortization (56,312) (43,533) -------- -------- Net property, plant and equipment 47,618 52,404 -------- -------- Excess of cost over fair value of net assets acquired, net 23,008 24,271 -------- -------- Other assets, net 5,404 6,903 -------- -------- $459,988 $421,408 ======== ========
See accompanying notes to consolidated financial statements. 5 Form 10-Q Page 3 THE TIMBERLAND COMPANY CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (Dollars in Thousands) (Unaudited)
September 27, December 31, 1996 1995 ------------- ------------ Current liabilities Current maturities of long-term obligations $ 7,767 $ 7,733 Accounts payable 30,179 25,207 Accrued expenses Payroll and related 12,502 7,882 Interest and other 41,193 28,001 Income taxes payable 7,543 892 -------- -------- Total current liabilities 99,184 69,715 -------- -------- Long-term obligations, less current maturities 198,875 199,454 -------- -------- Deferred income taxes 10,019 10,018 -------- -------- Stockholders' equity Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued -- -- Class A Common Stock, $.01 par value (1 vote per share); 30,000,000 shares authorized; 8,374,442 shares issued at September 27, 1996 and 8,316,554 shares at December 31, 1995 84 83 Class B Common Stock, $.01 par value (10 votes per share); convertible into Class A shares on a one-for-one basis; 15,000,000 shares authorized; 2,734,451 shares issued at September 27, 1996 and 2,735,381 shares at December 31, 1995 27 27 Additional paid-in capital 60,454 59,716 Retained earnings 89,227 80,181 Cumulative translation adjustment 2,238 2,334 Less treasury stock at cost; 18,369 shares at September 27, 1996 and December 31, 1995 (120) (120) -------- -------- 151,910 142,221 -------- -------- $459,988 $421,408 ======== ========
See accompanying notes to consolidated financial statements. 6 Form 10-Q Page 4 THE TIMBERLAND COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share data) (Unaudited)
For the For the Three Months Ended Nine Months Ended ---------------------- ----------------------- Sept. 27, Sept. 29, Sept.27, Sept. 29, 1996 1995 1996 1995 -------- -------- -------- -------- Revenues $227,547 $212,597 $468,879 $479,323 Cost of goods sold 144,246 149,041 299,472 334,716 -------- -------- -------- -------- Gross profit 83,301 63,556 169,407 144,607 -------- -------- -------- -------- Operating expenses Selling 40,357 38,251 106,574 106,054 General and administrative 11,250 11,266 32,837 34,990 Amortization of goodwill 421 422 1,263 1,264 Restructuring charge -- -- -- 16,000 -------- -------- -------- -------- Total operating expenses 52,028 49,939 140,674 158,308 -------- -------- -------- -------- Operating income (loss) 31,273 13,617 28,733 (13,701) -------- -------- -------- -------- Other expense (income) Interest expense 4,856 6,459 15,143 17,300 Other, net 243 (4,243) (116) (11,012) -------- -------- -------- -------- Total other expense 5,099 2,216 15,027 6,288 -------- -------- -------- -------- Income (loss) before income taxes 26,174 11,401 13,706 (19,989) -------- -------- -------- -------- Provision (benefit) for income taxes 9,273 4,333 4,660 (7,595) -------- -------- -------- -------- Net income (loss) $ 16,901 $ 7,068 $ 9,046 $(12,394) ======== ======== ======== ======== Earnings (loss) per share $ 1.51 $ .63 $ .81 $ (1.11) ======== ======== ======== ======== Weighted average shares outstanding and share equivalents 11,169 11,259 11,185 11,172 ======== ======== ======== ========
See accompanying notes to consolidated financial statements. . 7 THE TIMBERLAND COMPANY Form 10-Q Page 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
For the Nine Months Ended ----------------- Sept. 27, Sept. 29, 1996 1995 --------- --------- Cash flows from operating activities: Net income (loss) $ 9,046 $(12,394) Adjustments to reconcile net income (loss) to net cash used in operating activities: Deferred income taxes 1 250 Depreciation and amortization 15,189 14,113 Gain on distributorship transaction -- (12,107) Restructuring charge -- 9,914 Loss on disposition of equipment -- 468 Increase (decrease) in cash from changes in working capital items, net of effects of distributorship transaction: Accounts receivable (57,458) (37,227) Inventories (12,169) (9,782) Prepaid expenses 2,678 4,504 Accounts payable 4,875 (10,735) Accrued expenses 17,766 17,066 Income taxes 7,508 (15,876) -------- -------- Net cash used in operating activities (12,564) (51,806) -------- -------- Cash flows from investing activities: Proceeds from distributorship transaction -- 24,000 Proceeds from sale of equipment 681 1,756 Additions to property, plant and equipment, net (7,864) (12,354) Other, net 40 (911) -------- -------- Net cash provided (used) by investing activities (7,143) 12,491 -------- -------- Cash flows from financing activities: Net borrowings under short-term credit facilities -- 35,487 Proceeds from long-term obligations -- 525 Payments on long-term and capital lease obligations (545) (921) Issuance of common stock 739 1,210 -------- -------- Net cash provided by financing activities 194 36,301 -------- -------- Effect of exchange rate changes on cash (200) 343 -------- -------- Net decrease in cash and equivalents (19,713) (2,671) Cash and equivalents at beginning of period 38,389 6,381 -------- -------- Cash and equivalents at end of period $ 18,676 $ 3,710 ======== ======== Supplemental disclosures of cash flow information: Interest paid $ 9,312 $ 12,007 Income taxes paid (refunded) (2,853) 8,031
See accompanying notes to consolidated financial statements. 8 Form 10-Q Page 6 THE TIMBERLAND COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands except per share data) 1. In the opinion of management, the accompanying unaudited consolidated financial statements contain the adjustments necessary to present fairly the Company's financial position, results of operations and changes in cash flows for the interim periods presented. Such adjustments consisted of normal recurring items. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Certain prior period amounts have been reclassified for consistent presentation with the current period presentation. 2. The results of operations for the nine months ended September 27, 1996 are not necessarily indicative of the results to be expected for the full year. Historically, the Company's revenues have been more heavily weighted to the second half of the year. 3. Inventories consist of the following:
September 27, 1996 December 31, 1995 ------------------ ----------------- Raw Materials $ 11,111 $ 10,374 Work-in-process 5,131 5,494 Finished goods 176,511 164,768 -------- -------- $192,753 $180,636 ======== ========
4. Indebtedness On June 21, 1996, the Company entered into an unsecured committed revolving credit agreement (the "Agreement"), with a group of banks. The Agreement provides for up to $80,000 in letters of credit under an overall $100,000 committed facility expiring on June 21, 1998. Under the terms of the Agreement, the Company may borrow at interest rates based upon the lenders' cost of funds. The Agreement provides for a facility fee of 3/8% per annum on the full commitment, places limitations on the payment of dividends and the incurrence of additional debt, and also contains certain other financial and operating covenants. 5. New Accounting Pronouncements The Company has adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of", effective January 1, 1996. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Adopting SFAS No. 121 had no material effect on the Company's consolidated financial statements. 9 Form 10-Q Page 7 THE TIMBERLAND COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation", which was adopted by the Company effective January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted to continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock-based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share in the 1996 annual consolidated financial statements. 6. Restructuring Charge During the second quarter of 1995, the Company closed its manufacturing facilities in Boone, North Carolina and Mountain City, Tennessee, reduced its manufacturing operations in the Dominican Republic and downsized its corporate office work force due to a reorganized management structure. These actions resulted in a one-time pre-tax charge of $16,000. The Company has two remaining manufacturing facilities: one in Puerto Rico and one in the Dominican Republic. All other product is sourced by the Company from third-party contract manufacturers. Of the total charge for restructuring, $9,914 related to anticipated losses associated with the disposal of assets and is a non-cash item, $3,891 related to payments for contractual lease obligations and expenditures to close idle facilities, and $2,195 related to payments for severance and other employee liabilities. The Company has substantially completed these restructuring actions. Cash expenditures related to the restructuring plan of $4,322 have been incurred as of September 27, 1996. The Company has funded the restructuring plan from internal sources and available borrowing capacity. 7. Other Income On January 26, 1995, the Company appointed Inchcape plc ("Inchcape") as the exclusive distributor of Timberland[Registered Trademark] products throughout most of the Asia/Pacific region. The agreement included Inchcape's acquisition of the Company's Australian and New Zealand subsidiaries and future consideration provided to Inchcape for the total sum of $24,000. The transaction resulted in a first quarter 1995 non-recurring pre-tax gain of $7,358. During the third quarter of 1995, the agreement was amended to include South Korea. In addition to the expansion of territories and other modifications, the amended agreement eliminated the future consideration provided to Inchcape included in the original agreement. This resulted in a non-recurring pre-tax gain of $4,749 in the third quarter of 1995. 10 Form 10-Q Page 8 THE TIMBERLAND COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 8. Legal Proceedings The Company is involved in various litigation and legal matters which have arisen in the ordinary course of business. Management believes that the ultimate resolution of any existing matter will not have a material adverse effect on the Company's consolidated financial statements. The Company and two of its officers and directors have been named as defendants in two actions filed in the United States District Court for the District of New Hampshire, one filed by Jerrold Schaffer on December 12, 1994, and the other filed by Gershon Kreuser on January 4, 1995. On April 24, 1995, the District Court granted plaintiffs' motion, assented to by defendants, to consolidate the two actions. On June 23, 1995, plaintiffs filed a consolidated amended complaint (the "Amended Complaint") with the District Court. The Amended Complaint alleges that defendants violated federal securities laws by making material misstatements and omissions in certain of the Company's public filings and statements in 1994. Specifically, the Amended Complaint alleges that such statements and omissions had the effect of artificially inflating the market price for the Company's Class A Common Stock until the disclosure by the Company on December 9, 1994 of its expectation that results for the fourth quarter were not likely to meet analysts' anticipated levels. Damages are unspecified. On March 18, 1996, the District Court denied defendants' motion to dismiss the Amended Complaint. On March 19, 1996, the District Court granted plaintiffs' motion for class certification for all purchasers of the Company's Class A Common Stock between May 12, 1994 and December 9, 1994. Management believes this action is without merit and intends to defend it vigorously. Accordingly, at this time, management does not expect the outcome of such litigation to have a material adverse effect on the Company's consolidated financial statements. 11 Form 10-Q Page 9 THE TIMBERLAND COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) RESULTS OF OPERATIONS - --------------------- The following table sets forth selected items in the Company's consolidated statements of operations as percentages of revenues for the periods indicated.
For the For the Three Months Ended Nine Months Ended --------------------- --------------------- Sept. 27, Sept. 29, Sept. 27, Sept. 29, 1996 1995 1996 1995 -------- --------- --------- --------- Revenues 100.0% 100.0% 100.0% 100.0% Cost of goods sold 63.4 70.1 63.9 69.8 ----- ----- ----- ----- Gross profit 36.6 29.9 36.1 30.2 ----- ----- ----- ----- Operating expenses Selling 17.7 18.0 22.7 22.1 General and administrative 4.9 5.3 7.0 7.3 Amortization of goodwill .2 .2 .3 .3 Restructuring charge -- -- -- 3.3 ----- ----- ----- ----- Total operating expenses 22.9 23.5 30.0 33.0 ----- ----- ----- ----- Operating income (loss) 13.7 6.4 6.1 (2.9) ----- ----- ----- ----- Other expense (income) Interest expense 2.1 3.0 3.2 3.6 Other, net .1 (2.0) 0.0 (2.3) ----- ----- ----- ----- Total other expense 2.2 1.0 3.2 1.3 ----- ----- ----- ----- Income (loss) before income taxes 11.5 5.4 2.9 (4.2) Provision (benefit) for income taxes 4.1 2.0 1.0 (1.6) ----- ----- ----- ----- Net income (loss) 7.4% 3.3% 1.9% (2.6)% ===== ===== ===== =====
Note: Percentages may not add due to rounding. 12 Form 10-Q Page 10 Third Quarter 1996 Compared with Third Quarter 1995 - --------------------------------------------------- Revenues for the third quarter of 1996 were $227.5 million, an increase of 7.0% compared to the $212.6 million reported in the third quarter of 1995. Domestic revenues for the third quarter of 1996 were $158.4 million, an increase of $15.6 million, or 10.9%, from the same period in 1995. The increase was attributable to unit volume increases in wholesale footwear and retail and factory outlet stores offset by unit volume declines in wholesale apparel and accessories. International revenues for the third quarter of 1996 were $69.1 million, a decrease of $.7 million compared with the same period in 1995. The decline in revenues reflects more off-price sales in the third quarter of 1995, partially offset by an increase in apparel and accessories unit volume in 1996. Footwear revenues increased $12.9 million, or 8.2%, to $170.1 million in the third quarter of 1996, compared to the same period in 1995, primarily as a result of a unit volume increase in the fall footwear line. Revenues attributable to apparel and accessories increased $1.8 million, or 3.3%, in the third quarter of 1996 compared to the same period in 1995. Revenues from Timberland's retail and factory stores for the third quarter of 1996 were $46.1 million, representing 20.3% of total revenues in the third quarter of 1996 compared to 17.5% in the third quarter of 1995. Domestic retail sales were up 22.7% for the third quarter of 1996 compared to the same period in 1995; however, domestic comparable retail store sales declined 1.9%. At September 27, 1996, there were 30 first quality stores and 38 factory outlet stores owned and operated by Timberland compared to 27 first quality stores and 31 factory outlets stores at September 29, 1995. Gross profit as a percentage of revenue for the third quarter of 1996 was 36.6%, up 6.7 points from the 29.9% for the third quarter of 1995. This increase resulted from improvements in the Company's business systems; including savings from improved manufacturing efficiencies and an expanded and enhanced sourcing effort; fewer off-price sales in the third quarter of 1996 than in the same period in 1995, which reflected better inventory control and a more efficient factory store system; and a reduction in sales returns and allowances. Operating expenses were $52.0 million in the third quarter of 1996 compared to $49.9 million in the third quarter of 1995. As a percentage of revenues, operating expenses decreased in the third quarter of 1996 to 22.9% from 23.5% in the third quarter of 1995. Interest expense for the third quarter of 1996 decreased by $1.6 million to $4.9 million from the comparable period in 1995. The decrease is due to a reduction in short-term and long-term borrowings. Other income of $4.2 million for the third quarter of 1995 reflects an amendment to the Company's agreement with Inchcape plc for distribution rights in Asia-Pacific, which resulted in a $4.7 million non-recurring pre-tax gain for the third quarter of 1995. The effective tax rate for the third quarter of 1996 was 35% compared to 38% in the third quarter of 1995. The decline in the effective tax rate reflects a relative increase in Puerto Rican sourced income. 13 Form 10-Q Page 11 Nine Months ended September 27, 1996 Compared with Nine Months ended September - ------------------------------------------------------------------------------ 29, 1995 - -------- Revenues for the first nine months of 1996 were $468.9 million, a decrease of 2.2% from the $479.3 million for the comparable period in 1995. Revenues for the first nine months of 1995 include $6.1 million of licensing fees and royalties, of which $5.2 million was received in connection with one-time licensing agreement signing fees. The remainder of the decline is primarily a result of demand softening in the Company's domestic wholesale footwear business in the first six months of 1996, where unit sales of performance sandals and women's footwear were down, and an insufficient number of successful new products were introduced. Gross profit as a percentage of revenues for the first nine months of 1996 was 36.1%, compared to 30.2% for the comparable period in 1995. The improvement is attributable to the same factors cited for the percentage increase in the third quarter of 1996 compared to the third quarter of 1995. Operating expenses for the first nine months of 1996 decreased $1.6 million to $140.7 million from $142.3 million (exclusive of a one-time $16.0 million pre-tax manufacturing restructuring charge) for the comparable period in 1995. This dollar decrease compared to the prior year period was attributable to a reduction in general and administrative expenses. During the second quarter of 1995, the Company closed its manufacturing facilities in Boone, North Carolina and Mountain City, Tennessee, reduced its manufacturing operations in the Dominican Republic and downsized its corporate office workforce due to a reorganized management structure. These actions resulted in a one-time pre-tax charge of $16.0 million and the elimination of approximately 1,800 positions. The Company has two remaining manufacturing facilities: one in Puerto Rico and one in the Dominican Republic. All other product is sourced by the Company from third-party contract manufacturers. Of the total charge for restructuring in 1995, $9.9 million related to anticipated losses associated with the disposal of assets and is a non-cash item, $3.9 million related to payments for contractual lease obligations and expenditures to close idle facilities, and $2.2 million related to payments for severance and other employee liabilities. The Company has substantially completed these restructuring actions. Cash expenditures related to the restructuring plan of $4.3 million have been incurred as of September 27, 1996. The Company has funded the cost of the restructuring plan from internal sources and available borrowing capacity. Interest expense for the first nine months of 1996 was $15.1 million, a decrease of $2.2 million from the comparable period in 1995, due to a reduction in short-term and long-term borrowings during the first nine months of 1996. For the first nine months of 1995, other expense (income) included a non-recurring pre-tax gain of $12.1 million resulting from the Company's appointment on January 26, 1995 of Inchcape plc as the exclusive distributor of Timberland[Registered Trademark] products throughout most of the Asia/Pacific region. The agreement, which was amended in the third quarter to expand the territory to include South Korea and to eliminate certain future consideration to Inchcape, included Inchcape's acquisition of the Company's Australian and New Zealand subsidiaries for a total sum of $24 million. The effective tax rate for the first nine months of 1996 was 34%, compared to a rate of 38% for the same period last year. 14 Form 10-Q Page 12 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash used by operations during the first nine months of 1996 amounted to $12.6 million, compared to $51.8 million used during the same period in 1995. Accounts receivable increased $56.9 million from year end 1995, and decreased $9.8 million from September 29, 1995. Wholesale days sales outstanding decreased to 70 days at September 27, 1996 from 79 days at September 29, 1995. Inventories were $192.8 million at September 27, 1996, a $28.4 million, or 12.9%, decrease from September 29, 1995, and a $12.1 million, or 6.7%, increase from year-end 1995. Inventory turns were 2.8 times for the third quarter of 1996, compared to 2.3 times for the third quarter of 1995. During the first nine months of 1996, $7.1 million of cash was used in investing activities compared to $12.5 million being provided in the same period in 1995, due primarily to $24 million of cash proceeds received from the agreement with Inchcape plc. Capital expenditures for the first nine months of 1996 were $7.9 million, compared to $12.4 million for the same period in 1995. During the first nine months of 1996, $.2 million of cash was provided by financing activities compared to $36.3 million of cash provided in the third quarter of 1995. Short-term borrowings accounted for $35.5 million of the cash provided by financing activities for the first nine months of 1995. The Company uses unsecured revolving and committed lines of credit as the primary sources of financing for its seasonal and other working capital requirements. On June 21, 1996, the Company entered into an unsecured committed revolving credit agreement (the "Agreement"), with a group of banks. The Agreement provides for up to $80 million in letters of credit under an overall $100 million committed facility expiring on June 21, 1998. Under the terms of the Agreement, the Company may borrow at interest rates based upon the lenders' cost of funds. The Agreement provides for a facility fee of 3/8% per annum on the full commitment, places limitations on the payment of dividends and the incurrence of additional debt, and also contains certain other financial and operating covenants. The Company's debt to capital ratio was 57.6% at September 27, 1996, compared to 59.3% at December 31, 1995 and 66.0% at September 29, 1995. Management believes that the Company's capital needs for the remainder of 1996 will be met through its existing credit facilities and cash flows from operations without the need for additional permanent financing. However, as discussed in an exhibit to the Company's Form 10-K for the year ended December 31, 1995, entitled "Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995", several risks and uncertainties could cause the Company to need to raise additional capital through equity and/or debt financing. The availability and terms of any such financing would be subject to the Company's financial condition and prevailing market and other factors at that time. 15 Form 10-Q Page 13 Part II Other Information - ------------------------- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Description ------- ----------- 27 Financial Data Schedule (b) Reports on Form 8-K -- There were no reports on Form 8-K filed during the period covered by this report. Signatures ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Timberland Company (Registrant) Date: November 8, 1996 /s/ Keith D. Monda ---------------- -------------------------------- Keith D. Monda Senior Vice President - Finance and Administration and Chief Financial Officer Date: November 8, 1996 /s/ Dennis W. Hagele ---------------- -------------------------------- Dennis W. Hagele Vice President Finance and Corporate Controller and Chief Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 27, 1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS DEC-31-1996 SEP-27-1996 1 18,676 0 156,528 3,870 192,753 383,958 103,930 56,312 459,988 99,184 198,875 111 0 0 151,799 459,988 468,879 468,879 299,472 299,472 1,263 1,785 15,143 13,706 4,660 9,046 0 0 0 9,046 .81 0
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