-----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, V4KqLh4lmYbwJU7MV7QxndUIl1+LEkU74Jys5pTjlfaJdaa1/xAZ1RuCW9bc2hVW MyQczfzP0UUFIP0TuI/Njg== 0000950135-00-002880.txt : 20000516 0000950135-00-002880.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950135-00-002880 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: SEC FILE NUMBER: 001-09548 FILM NUMBER: 634916 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 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 March 31, 2000 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 April 28, 2000, 15,550,842 shares of the registrant's Class A Common Stock were outstanding and 4,675,200 shares of the registrant's Class B Common Stock were outstanding. 2 THE TIMBERLAND COMPANY FORM 10-Q TABLE OF CONTENTS PAGE(S) PART I FINANCIAL INFORMATION (UNAUDITED) Condensed Consolidated Balance Sheets - 1-2 March 31, 2000 and December 31, 1999 Condensed Consolidated Statements of Income - 3 For the three months ended March 31, 2000 and March 26, 1999 Condensed Consolidated Statements of Cash Flows - 4 For the three months ended March 31, 2000 and March 26, 1999 Notes to Condensed Consolidated Financial Statements 5-6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9 PART II OTHER INFORMATION 10 3 Form 10-Q Page 1 PART I FINANCIAL INFORMATION THE TIMBERLAND COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (Dollars in Thousands) (Unaudited)
MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ Current assets Cash and equivalents $158,729 $196,085 Accounts receivable, net of allowance for doubtful accounts of $4,679 at March 31, 2000 and $4,910 at December 31, 1999 102,660 78,696 Inventory 131,762 114,673 Prepaid expense 13,461 9,890 Deferred income taxes 15,099 15,297 -------- -------- Total current assets 421,711 414,641 -------- -------- Property, plant and equipment 134,333 130,425 Less accumulated depreciation and amortization (80,276) (75,019) -------- -------- Net property, plant and equipment 54,057 55,406 Excess of cost over fair value of net assets acquired, net 17,112 17,533 Other assets, net 4,863 5,731 -------- -------- $497,743 $493,311 ======== ========
See accompanying notes to condensed consolidated financial statements. 4 Form 10-Q Page 2 THE TIMBERLAND COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (Dollars in Thousands, Except Per Share Data) (Unaudited)
MARCH 31, DECEMBER 31, 2000 1999 --------- ------------ Current liabilities Accounts payable $ 25,914 $ 33,247 Accrued expense Payroll and related 19,886 30,570 Interest and other 50,320 35,038 Income taxes payable 18,533 13,500 --------- --------- Total current liabilities 114,653 112,355 --------- --------- Long-term debt 100,000 100,000 Deferred income taxes 8,356 8,588 Excess of fair value of acquired assets over cost, net 4,844 -- 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; 18,681,543 shares issued at March 31, 2000 and 18,638,355 shares at December 31, 1999 187 187 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; 4,675,200 shares issued at March 31, 2000 and 4,675,698 shares at December 31, 1999 47 47 Additional paid-in capital 84,516 82,755 Deferred compensation (3,474) (3,658) Retained earnings 296,875 282,209 Accumulated other comprehensive loss (4,830) (4,151) Less treasury stock at cost, 3,103,849 shares at March 31, 2000 and 2,671,349 shares at December 31, 1999 (103,431) (85,021) --------- --------- 269,890 272,368 --------- --------- $ 497,743 $ 493,311 ========= =========
See accompanying notes to condensed consolidated financial statements. 5 Form 10-Q Page 3 THE TIMBERLAND COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, Except Per Share Data) (Unaudited) FOR THE THREE MONTHS ENDED ------------------------------ MARCH 31, MARCH 26, 2000 1999 --------- --------- Revenue $208,604 $176,897 Cost of goods sold 113,183 103,768 -------- -------- Gross profit 95,421 73,129 -------- -------- Operating expense Selling 57,600 47,447 General and administrative 15,225 12,513 Amortization of goodwill 321 421 -------- -------- Total operating expense 73,146 60,381 -------- -------- Operating income 22,275 12,748 -------- -------- Other expense (income) Interest expense 2,316 2,204 Other, net (1,930) (988) -------- -------- Total other expense 386 1,216 -------- -------- Income before income taxes 21,889 11,532 -------- -------- Provision for income taxes 7,223 3,690 -------- -------- Net income $ 14,666 $ 7,842 ======== ======== Basic earnings per share $ .72 $ .35 ======== ======== Weighted-average shares outstanding 20,378 22,202 ======== ======== Diluted earnings per share $ .69 $ .34 ======== ======== Weighted-average shares outstanding 21,306 22,730 ======== ======== Prior year earnings per share and weighted-average shares have been restated to reflect the 2-for-1 stock split in September, 1999. See accompanying notes to condensed consolidated financial statements. 6 Form 10-Q Page 4 THE TIMBERLAND COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
FOR THE THREE MONTHS ENDED ---------------------------- MARCH 31, MARCH 26, 2000 1999 --------- --------- Cash flows from operating activities: Net income $ 14,666 $ 7,842 Adjustments to reconcile net income to net cash used by operating activities: Deferred income taxes (34) (497) Depreciation and amortization 4,355 4,546 Increase (decrease) in cash from changes in working capital items: Accounts receivable (20,754) (25,955) Inventory (9,538) (12,230) Prepaid expense (1,885) (1,009) Accounts payable (10,138) 3,637 Accrued expense 1,036 6,461 Income taxes (1,356) (7,232) -------- -------- Net cash used by operating activities (23,648) (24,437) -------- -------- Cash flows from investing activities: Acquisition of Asian Distributor business 5,237 -- Additions to property, plant and equipment, net (2,514) (3,514) Other, net 256 (855) -------- -------- Net cash provided (used) by investing activities 2,979 (4,369) -------- -------- Cash flows from financing activities: Common stock repurchases (18,410) -- Issuance of common stock 1,761 149 -------- -------- Net cash provided (used) by financing activities (16,649) 149 -------- -------- Effect of exchange rate changes on cash (38) (545) -------- -------- Net decrease in cash and equivalents (37,356) (29,202) Cash and equivalents at beginning of period 196,085 151,889 -------- -------- Cash and equivalents at end of period $158,729 $122,687 ======== ======== - -------------------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information: Interest paid $ 52 $ 27 Income taxes paid 2,224 11,605 - --------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements. 7 Form 10-Q Page 5 THE TIMBERLAND COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands) (Unaudited) 1. In the opinion of management, the accompanying unaudited condensed 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 condensed 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, as amended by Amendment No. 1 on Form 10-K/A, for the year ended December 31, 1999. 2. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. Historically, the Company's revenue has been more heavily weighted to the second half of the year. 3. Inventory consisted of the following: MARCH 31, 2000 DECEMBER 31, 1999 -------------- ----------------- Raw materials $ 3,812 $ 4,493 Work-in-process 2,636 2,832 Finished goods 125,314 107,348 -------- -------- $131,762 $114,673 ======== ======== 4. Comprehensive income for the three months ended March 31, 2000 and March 26, 1999 follows: March 31, March 26, 2000 1999 --------- --------- Net income $14,666 $ 7,842 Change in cumulative translation adjustment (679) (2,272) ------- ------- Comprehensive income $13,987 $ 5,570 ======= ======= 5. Business segment revenue, income (loss) before income taxes and total assets for the three months ended March 31, 2000 and March 26, 1999 follow:
U.S. U.S. UNALLOCATED 2000 WHOLESALE RETAIL INTERNATIONAL CORPORATE CONSOLIDATED ---- --------- ------ ------------- ----------- ------------ Revenue $ 92,726 $34,143 $ 81,735 $ -- $208,604 Income (loss) before income taxes 24,593 (258) 13,240 (15,686) 21,889 Total assets 135,734 32,350 126,243 203,416 497,743 1999 ---- Revenue $ 79,246 $25,998 $ 71,653 $ -- $176,897 Income (loss) before income taxes 17,275 (1,306) 12,326 (16,763) 11,532 Total assets 159,704 33,378 103,642 177,183 473,907
A discussion of segment revenue and profitability is contained in Management's Discussion and Analysis of Financial Condition and Results of Operations. 8 Form 10-Q Page 6 THE TIMBERLAND COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands) (Unaudited) 6. Dilutive securities included in the calculation of diluted weighted-average shares were 850,473 and 527,988 for the first quarter of 2000 and 1999, respectively. All share and per share amounts have been restated for the stock split in September, 1999. 7. On February 18, 2000, the Company signed an agreement under which it will re-acquire from Inchcape plc the exclusive distribution rights for the sale of Timberland(R) branded products throughout the Asia-Pacific region. In connection with this transaction, the Company acquired the stock of the Inchcape plc distribution subsidiaries in Japan, Hong Kong, Malaysia and Singapore (the Asian subsidiaries). The purchase price allocation is as follows: Acquisition of business: Fair value of assets acquired $ 20,729 Fair value of liabilities assumed (14,082) -------- Fair value of net assets acquired 6,647 Cash paid (1,223) Acquisition costs (480) -------- Excess of fair value of acquired net assets over cost $ 4,944 ========
The fair value of net assets acquired reflects $6,460 of cash received resulting in net cash received of $5,237. As a result of the acquisition, the Company has released Inchcape plc from its obligations under the Distributorship, Supply and Retail Development Agreement dated January 26, 1995. Additionally, with respect to businesses in other countries, the Company may terminate them, identify new distributors, or directly distribute products in those countries. Also, as part of the transaction, the Company will participate with Inchcape plc in any net proceeds received from the disposition of the assets in Australia, New Zealand, Thailand and Taiwan. This transaction has been accounted for under the purchase method of accounting and, accordingly, the results of operations for the Asian subsidiaries for the period from the acquisition date are included in the accompanying condensed consolidated financial statements. The purchase price has been allocated to the assets purchased and liabilities assumed based on preliminary fair values at the date of acquisition. This transaction resulted in the recording of excess of fair value of acquired net assets over cost, which is being amortized on a straight-line basis over a 10 year period. Pro-forma data is not provided since this transaction does not have a material impact on the Company's condensed consolidated financial statements. 9 Form 10-Q Page 7 THE TIMBERLAND COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) RESULTS OF OPERATIONS FIRST QUARTER 2000 COMPARED WITH FIRST QUARTER 1999 Revenue for the first quarter of 2000 was $208.6 million, an increase of $31.7 million, or 17.9%, compared with the $176.9 million reported for the first quarter of 1999. Domestic revenue for the first quarter of 2000 was $126.9 million, an increase of $21.6 million, or 20.5%, compared with the same period in 1999. Domestic revenue represented 60.8% of total revenue for the first quarter of 2000, compared with 59.5% for the first quarter of 1999. The U.S. Wholesale business segment revenue increased 17.0% for the first quarter of 2000, compared with the same period in 1999, primarily due to increased footwear unit sales. This increase was partially offset by a decline in domestic wholesale apparel unit sales and average selling price. The U.S. Retail segment revenue increased 31.3%, compared with the same period in 1999. Footwear and apparel and accessories unit sales drove this improvement. Comparable domestic retail and factory store sales increased 12.5%. International revenue for the first quarter of 2000 was $81.7 million, an increase of $10.1 million, or 14.1%, compared with the same period in 1999. International revenue comprised 39.2% of total revenue for the first quarter of 2000, compared with 40.5% for the first quarter of 1999. International revenue for the first quarter of 2000 reflects the acquisition of the Asian subsidiaries (see Note 7). Excluding Asia, international revenue increased 5.4%, compared with the same period in 1999. This improvement over the prior year period was due to unit sales increases in the European wholesale and retail markets, in both footwear and apparel, partially offset by the impact of foreign exchange and, to a lesser degree, lower footwear and apparel average selling prices. On a constant dollar basis, European revenue grew 15.1%, compared with the same period in 1999. Footwear revenue for the first quarter of 2000 was $155.4 million, an increase of $24.8 million, or 19.0%, compared with the same period in 1999. The increase was attributable to growth in unit sales worldwide and, to a lesser degree, the acquisition of the Asian subsidiaries, partially offset by the impact of foreign exchange on sales of the Company's European subsidiaries. By category, the increase was primarily attributable to Boots and, to a lesser degree, the Mountain Athletics (TM) by Timberland sub-brand and Kids' footwear. These increases were partially offset by declines in the Men's Casual and Performance categories. In total, footwear unit sales increased 20.5% over the same period last year. Apparel and accessories revenue for the first quarter of 2000 was $50.6 million, an increase of $8.0 million, or 18.8%, compared with the same period in 1999. The increase occurred primarily in worldwide retail unit sales and, to a lesser degree, the acquisition of the Asian subsidiaries. These unit sales increases were partially offset by an overall 2.2% decline in average selling price. In total, apparel and accessories unit sales increased 21.4% over the same period last year. Worldwide revenue from Company-owned retail and factory stores for the first quarter of 2000 was $47.4 million, an increase of $14.8 million, or 45.5%, compared with the same period in 1999. The increase in revenue was primarily due to footwear and apparel and accessories unit sales, and, to a lesser degree, the acquisition of the Asian subsidiaries. Excluding the impact of the Asian subsidiaries, worldwide retail revenue increased 31.2%, compared with the same period last year. 10 Form 10-Q Page 8 Gross profit as a percentage of revenue for the first quarter of 2000 was 45.7%, an increase of 4.4 percentage points from the 41.3% reported for the first quarter of 1999. The improvement in gross profit was due primarily to lower manufacturing and third party sourcing costs and to mix of higher margin products. Operating expense was $73.1 million for the first quarter of 2000, up $12.8 million, or 21.1%, from the $60.4 million reported for the first quarter of 1999. Operating expense as a percentage of revenue for the first quarter of 2000 increased to 35.1%, from the 34.1% reported for the first quarter of 1999. The increase reflects continued investments in selling, marketing, distribution and product development. Excluding Asia, operating expense grew at the same rate as revenue. Interest expense for the first quarter of 2000 and 1999 was $2.3 million and $2.2 million, respectively. Other income, at $1.9 million, was $0.9 million higher than the same period last year due to interest income generated by higher average cash equivalents balances. Income (loss) before income taxes for the first quarter of 2000 improved in all segments compared with the same period in 1999. The improvement in the U.S. Wholesale segment was primarily due to increased unit sales, improved gross margin rates and lower operating expense as a percentage of revenue in the wholesale footwear business. In the U.S. Retail segment, the improvement was due to both footwear and apparel unit sales, improved gross margin rates and lower operating expense as a percentage of revenue. Internationally, increased footwear and, to a lesser degree, apparel unit sales drove the income before taxes improvement, substantially offset by the impact of foreign exchange. The effective tax rate for the three months ended March 31, 2000 and March 26, 1999 was 33% and 32%, respectively. LIQUIDITY AND CAPITAL RESOURCES Cash used by operations for the first quarter of 2000 was $23.6 million, compared with $24.4 million used during the same period in 1999. The use of cash in 2000 was primarily due to increases in accounts receivable and inventory, and a reduction in accounts payable, from year end 1999. The use of cash for receivables and inventory is directionally consistent with prior year performance as a result of business requirements, but reflects enhanced inventory and receivables management. The reduction in accounts payable was due to a higher year end 1999 balance compared with the balance at year end 1998. Days sales outstanding at March 31, 2000 were 44 days compared with 51 days at March 26, 1999. Wholesale days sales outstanding decreased to 46 days at March 31, 2000 from 55 days at March 26, 1999. Inventory turns increased to 3.6 times for the first quarter of 2000, compared with 2.9 times for the first quarter of 1999. Net cash provided by investing activities amounted to $3.0 million for the first quarter of 2000. Cash used by financing activities was $4.4 million for the first quarter of 1999. The cash provided in 2000 was due to the acquisition of the Asian subsidiaries, as referenced in Note 7, partially offset by capital expenditures. Capital expenditures for the first quarter of 2000 were $2.5 million, compared with $3.5 million for the same period in 1999. Cash used by financing activities was $16.6 million in the first quarter of 2000, reflecting stock repurchases of $18.4 million. Cash provided by financing activities was $0.1 million for the first quarter of 1999. The Company has available unsecured revolving and committed lines of credit as sources of financing for its seasonal and other working capital requirements. The Company's debt-to-capital ratio was 27.0% at March 31, 2000, compared with 26.9% at December 31, 1999 and March 26, 1999. The increase in the ratio from December 31, 1999 was due to the stock repurchase program. 11 Form 10-Q Page 9 Management believes that the Company's capital needs for 2000 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, 1999, 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 prevailing market conditions and other factors at that time. NEW ACCOUNTING PRONOUNCEMENTS In 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," SFAS No. 133 was not required to be implemented by the Company until fiscal 2000. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133-An Amendment of FASB Statement No. 133." SFAS No. 137 delayed the original implementation date of SFAS No. 133 by one year. Since the requirements of SFAS No. 133 are complex and its scope far reaching, the Company has not completed its evaluation of the impact of this standard on its consolidated financial statements. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's current policies and business practices regarding derivative instruments are consistent with its fiscal year end 1999 Annual Report disclosure. As of March 31, 2000, the Company had no short-term financing outstanding and one long-term debt instrument outstanding at a fixed interest rate of 8.94% with a maturity in December, 2001. The Company's foreign currency exposure is generated primarily from its European operating subsidiaries. As of March 31, 2000, there were no material foreign currency transactions or cash exposures that were not hedged. Based upon sensitivity analysis, a 10% change in foreign exchange rates would cause the fair value of the Company's financial instruments to increase/decrease by approximately $8.5 million. 12 Form 10-Q Page 10 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: May 15, 2000 /s/ Brian P. McKeon ---------------------------- Brian P. McKeon Senior Vice President and Chief Financial Officer Date: May 15, 2000 /s/ Dennis W. Hagele ---------------------------- Dennis W. Hagele Vice President-Finance and Corporate Controller (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 MARCH 31, 2000 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 158,729 0 107,339 4,679 131,762 421,711 134,333 80,276 497,743 114,653 100,000 0 0 234 269,656 497,743 208,604 208,604 113,183 113,183 321 398 2,316 21,899 7,223 14,666 0 0 0 14,666 .72 .69
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