-----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, SlriAs3TuGxb+fA+KyT+Gd+06idjLncVITkfrCGrJ+QSrrrc0RLYJZkO3hL2I742 TY+cQ0xqWnBFsLyWKichhw== 0000950135-01-001002.txt : 20010329 0000950135-01-001002.hdr.sgml : 20010329 ACCESSION NUMBER: 0000950135-01-001002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 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-K SEC ACT: SEC FILE NUMBER: 001-09548 FILM NUMBER: 1582605 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-K 1 b38204tce10-k.txt THE TIMBERLAND COMPANY 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 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 (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 200 DOMAIN DRIVE, STRATHAM, NEW HAMPSHIRE 03885 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 772-9500 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of Class A Common Stock of the Company held by non-affiliates of the Company was approximately $1,743,491,350 on February 23, 2001. For purposes of the foregoing sentence, the term "affiliate" includes each director and executive officer of the Company. See Item 12 of this Form 10-K. 31,686,407 shares of Class A Common Stock and 7,932,400 shares of Class B Common Stock of the Company were outstanding on February 23, 2001. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's Annual Report to security holders for the fiscal year ended December 31, 2000 are incorporated by reference in Part I, Item 1, and Part II, Items 5, 6, 7, 7A and 8, of this Form 10-K. Portions of the Company's definitive Proxy Statement for the 2001 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are incorporated by reference in Part III, Items 10, 11, 12 and 13, of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS OVERVIEW The Timberland Company was incorporated in Delaware on December 20, 1978. It is the successor to Abington Shoe Company, which was incorporated in Massachusetts in 1933. We refer to The Timberland Company, together with its subsidiaries, as "Timberland" or the "Company". The Company designs, develops, engineers, markets and distributes, under the Timberland(R), Mountain Athletics(TM) by Timberland, and Timberland PRO(TM) brands, premium-quality footwear and apparel and accessories products for men, women and children. These products provide functional performance, classic styling and lasting protection from the elements. The Company believes that the combination of these features makes Timberland's products an outstanding value and distinguishes Timberland from its competitors. Timberland's products are sold primarily through independent retailers, better-grade department stores and athletic stores that reinforce the high level of quality, performance and service associated with Timberland. In addition, Timberland's products are sold in Timberland(R) specialty stores and Timberland(R) factory outlet stores dedicated exclusively to selling Timberland(R) products. CURRENT PRODUCTS Timberland's heritage lies in designing, developing and marketing innovative and functional footwear, apparel and accessories to meet the demands of the outdoors. The Company's products fall into two primary groups: (1) footwear and (2) apparel and accessories (including product care and licensed products). The following table presents the percentage of the Company's total product revenue (excluding royalties from third party distributors and licensees) derived from the Company's sales of footwear and of apparel and accessories for the past three years:
PRODUCT 2000 1999 1998 - ------- ---- ---- ---- Footwear............................................... 77.5% 79.1% 76.9% Apparel and Accessories................................ 22.5 20.9 23.1
Footwear In 1973, the Company produced its first pair of waterproof leather boots under the Timberland(R) brand. The Company currently offers a broad variety of footwear products for men, women and children, featuring premium materials, state-of-the-art functional design and components and advanced construction methods. The Company's footwear design and development group is organized into the following teams: men's, women's, kids', boots/Timberland PRO(TM), performance and Mountain Athletics(TM). Each team is responsible for all aspects of the footwear development process. Timberland(R) men's 2000 footwear products span the range from casual work product to rugged outdoor performance products. Key categories included Work Casual, Casual, Boat Shoes, Sandals, Rugged and Trek Travel collections. Timberland(R) women's 2000 footwear products included the Work Casual, Rugged Casual, Casual and Sandals collections. Timberland(R) kids' footwear products are scaled-down versions of the Company's high-quality adult footwear products and in 2000 included the first kids' only product from Timberland -- the crib bootie. Timberland(R) performance footwear products for men and women included the Enthusiast, Recreational and Classic Day Hiking collections and the Walking, Amphibious and Travel Adventure Collections in 2000. Timberland(R) boots included the classic work boots for which the Company is widely recognized and in 2000 was updated to include new silhouettes, styles and colors. In 2000, Timberland expanded the introduction of the Timberland PRO(TM) and Mountain Athletics(TM) by Timberland sub-brands, including the rollout of the Timberland PRO(TM) series in Europe during the second quarter of 2000. The Timberland PRO(TM) series of work boots provides the professional tradesperson with footwear that meets the specific needs of his or her trade and the quality and innovation of Timberland(R) work 1 3 boots. Mountain Athletics(TM) by Timberland footwear is engineered to meet the demanding needs of the outdoor athlete, and includes technical features designed specifically for such outdoor sports as trail running, fastpacking, bouldering and scrambling. Most Timberland(R) performance footwear products and many other Timberland(R) footwear products offer advanced technologies such as Active Comfort Technology(TM) (ACT(TM)), an integrated system developed by the Company that combines some or all of the following features: - Advanced Combination Construction -- designed to deliver forefoot flexibility for maneuverability and rear-foot stability for rugged terrain; - B.S.F.P.(TM) motion efficiency system -- Timberland's patent pending technology designed to deliver improved traction, energy-return and length of wear; - Guaranteed Waterproof Construction; and - Climate Control -- moisture-wicking, breathable linings to help control foot perspiration. Apparel and Accessories Timberland(R) adult apparel products consist primarily of rugged outerwear, sweaters, shirts, pants and shorts for men. These products feature, in certain models, premium waterproof leathers, waterproof and water resistant fabric, rust-proof hardware, canvas, denim, high-quality specialty cotton, wool and other quality performance materials. Timberland(R) boys' apparel products are designed, manufactured and distributed pursuant to a license agreement, as is Timberland(R) girls' apparel, which was introduced in Europe in 2000. While the Company currently does not manufacture or distribute women's apparel, the Company will continue its evaluation of alternatives for women's apparel, including third party licensing. Timberland introduced Mountain Athletics(TM) apparel products in Fall 2000. Timberland(R) and Mountain Athletics(TM) by Timberland accessories products for men, women and children include all products other than footwear and apparel products. Many of these products, including watches, men's belts, day packs and travel gear, socks and legwear, gloves, sunglasses and ophthalmic frames, hats and caps, and men's small leather goods, are designed, manufactured and distributed pursuant to licensing agreements with third parties. Timberland receives a royalty on sales of these licensed products. Third-party licensing enables the Company to expand Timberland's reach to appropriate and well-defined product categories and to benefit from the expertise of the licensees, in a manner that reduces the risks to the Company associated with pursuing such opportunities. Timberland(R) accessories also include leather care products and a limited collection of leather goods, including luggage, briefcases, handbags, wardrobe accessories and small leather goods. PRODUCT SALES: BUSINESS SEGMENTS AND OPERATIONS BY GEOGRAPHIC AREA Timberland's products are sold in the United States and internationally primarily through independent retailers, better-grade department stores and athletic stores which reinforce the high level of quality, performance and service associated with Timberland. In addition, Timberland's products are sold in Timberland(R) specialty stores and Timberland(R) factory outlet stores dedicated exclusively to selling Timberland(R) products. The Company plans to offer its products for sale through its website in 2001. The Company operates in an industry which includes the designing, engineering, marketing and distribution of footwear and apparel and accessories products for men, women and children. The Company has six revenue generating business units with separate management teams and financial reporting accountability. For financial reporting purposes, the Company aggregates these business units into the following three reportable segments, each sharing similar product, distribution, marketing and economic conditions: U.S. Wholesale, U.S. Retail and International. The U.S. Wholesale segment is comprised of the Company's worldwide product development and manufacturing/sourcing for footwear and apparel and accessories, and the sale of such products to wholesale customers in the United States. The U.S. Wholesale segment also includes royalties from licensed products 2 4 sold in the United States and the management costs and expenses associated with the Company's worldwide licensing efforts. The U.S. Retail segment includes the Company-operated specialty and factory outlet stores in the United States. The International segment consists of the marketing, selling and distribution of footwear, apparel and accessories and licensed products outside of the United States, including the Company's subsidiaries (which use wholesale and retail channels to sell footwear and apparel and accessories), independent distributors and licensees. The following table presents the percentage of the Company's total revenue generated by each of these reporting segments for the past three years:
2000 1999 1998 ---- ---- ---- U.S. Wholesale......................................... 53.8% 53.2% 52.3% U.S. Retail............................................ 18.3 19.0 18.5 International.......................................... 27.9 27.8 29.2
More detailed information regarding these reportable segments, and each of the geographic areas in which the Company operates, is set forth in Note 11 to the Company's consolidated financial statements, entitled "Business Segments and Geographical Information," appearing in the Company's 2000 Annual Report, which information is incorporated into this Form 10-K by reference. U.S. Wholesale The Company's wholesale customer accounts within the United States range from better-grade department and retail stores to athletic stores. Many of these wholesale accounts merchandise Timberland's products in selling areas dedicated exclusively to Timberland's products, or "concept shops." These accounts are serviced through a combination of field and corporate-based sales teams responsible for these distribution channels. The Company also services its wholesale accounts through its principal showroom in New York City and a regional showroom in Dallas, Texas. U.S. Retail At December 31, 2000, the Company operated 21 specialty stores and 51 factory outlet stores in the United States. Timberland(R) Specialty Stores. These stores carry current season, first quality merchandise and provide: - an environment to showcase Timberland's products as an integrated source of footwear and apparel and accessories; - sales and consumer-trend information which assists the Company in developing its marketing strategies, including point-of-purchase marketing materials; and - an opportunity to develop training and customer service programs, which also serve as models which may be adopted by the Company's wholesale customers. Timberland(R) Factory Outlet Stores. These stores serve as a primary channel for the sale of excess, damaged or discontinued products. The Company views these factory outlet stores as a way to preserve the integrity of the Timberland name, while maximizing the return associated with the sale of such products. International The Company sells its products internationally through its operating divisions in the United Kingdom, France, Germany, Italy, Spain, Japan, Singapore, Malaysia, Hong Kong and Taiwan. These operating divisions provide support for the sale of Timberland's products to wholesale customers and operate Timberland(R) specialty stores and factory outlet stores in their respective countries. At December 31, 2000, the Company operated 78 specialty stores and 18 factory outlet stores in Europe and Asia. 3 5 Timberland(R) products are sold elsewhere in Europe and in the Middle East, Canada, Africa, Central America, South America, Australia and New Zealand by distributors, franchisees and commission agents, some of which also may operate Timberland(R) specialty and factory outlet stores located in their respective countries. In 2000, the Company completed its previously announced re-acquisition of the exclusive distribution rights for the Asia-Pacific region from Inchcape plc. In connection with that transaction, the Company acquired the stock of the Inchcape plc distribution subsidiaries in Japan, Hong Kong, Malaysia and Singapore. In July 2000, the Company acquired Inchcape plc's Taiwan assets and established a branch office to operate the Taiwan business. The Company has established a new distributor in Australia and New Zealand and plans to establish a direct presence or to pursue arrangements with appropriate distributors in other markets in the Asia-Pacific region. DISTRIBUTION The Company distributes its products through three Company-managed distribution facilities which are located in Danville, Kentucky, Ontario, California, and Enschede, Holland. ADVERTISING AND MARKETING The Company designs its marketing programs and advertising campaigns to increase brand awareness among consumers and to emphasize the attributes that distinguish the Timberland(R) brand from competing brands and make the Company's products an outstanding value. The Company's distributors and licensees also fund marketing campaigns, over which the Company maintains approval rights to ensure consistent and effective brand presentation. During 2000, the Company's international, national and regional advertising campaigns mainly appeared in the following media: active-lifestyle, fashion, business and sports-oriented consumer periodicals; trade press outlets; and outdoor advertising placements in key markets. The Company's advertising campaigns are increasingly delivered throughout the year, rather than during select seasons as has historically been the case. The Company reinforced these advertising efforts with a variety of promotional campaigns, retail promotions, point-of-purchase displays and materials, public relations efforts, and cooperative advertising programs with its retailers, as well as retail sales clerk training and other sales incentive programs. In 2000, the Company launched the Mountain Athletics(TM) magazine and, in conjunction with Mountain Athletics(TM) by Timberland sub-brand, formed promotional partnerships with groups like USA Cycling and the All American Trail Running Association. In addition, the Company introduced the Timberland PRO(TM) mobile, a point of work program, which is touring the U.S. delivering consumer impressions of its Timberland PRO(TM) series of work boots at job sites, factories, and sports events targeted at the core work consumer. The Company maintains internet web sites for use in its marketing efforts. The Company also promotes its products at various industry trade shows in the United States and internationally. SEASONALITY In 2000, as has been historically the case, the Company's revenue was higher in the last two quarters of the year than in the first two quarters. Accordingly, the amount of fixed costs related to the Company's operations typically represented a larger percentage of revenue in the first two quarters of 2000 than in the last two quarters of 2000. The Company expects this seasonality to continue in 2001. BACKLOG At December 31, 2000, Timberland's backlog of orders from its customers was approximately $266 million, compared to $216 million at December 31, 1999 and $188 million at December 31, 1998. While all orders in the backlog are subject to cancellation by customers, the Company expects that the majority of such orders will be filled in 2001. The Company does not believe that its order backlog at year-end is representative of the orders which will be filled during 2001. The lack of reliability of backlog as an indication of orders to be 4 6 filled is due to the risk of cancellation associated with such orders, the seasonality of the Company's revenue and the difficulty of planning in advance orders scheduled for immediate fulfillment. MANUFACTURING The Company has two manufacturing facilities located in Puerto Rico and the Dominican Republic. During 2000, the Company manufactured approximately 15% of its footwear unit volume, compared to approximately 18% during 1999 and 20% during 1998. The remainder of the Company's footwear products and all of its apparel and accessories products were produced by independent manufacturers and licensees in Asia, Europe, Mexico, South and Central America. Approximately 60% of the Company's 2000 footwear unit volume was produced by independent manufacturers in China and Taiwan. Three of these manufacturers produced approximately 11% to 16% each of the Company's 2000 footwear volume. The Company currently plans to retain its internal manufacturing capability in order to continue benefiting from reduced lead times, favorable duty rates and tax benefits. To the extent that the Company manufactures its products outside the United States, or is dependent upon foreign operations with unaffiliated parties, the Company is subject to the usual risks of doing business abroad. These risks potentially include, among other risks, foreign exchange rate fluctuations, import restrictions, anti-dumping investigations, political or labor disturbances, expropriation and acts of war. The Company maintains a quality management group, which develops, reviews and updates the Company's quality and production standards. To help ensure such standards are met, the group also conducts product quality audits at the Company's and independent manufacturers' factories and distribution centers. The Company has offices in Bangkok, Thailand, Taichung, Taiwan, Zhu Hai, China and Ho Chi Minh City, Vietnam to supervise the Company's sourcing activities conducted in the Asia-Pacific region and in Leon, Mexico for Central America. RAW MATERIALS In 2000, five suppliers provided, in the aggregate, approximately 78% of the Company's leather purchases. One of these suppliers provided approximately 40% of the Company's leather purchases in 2000. Although the Company believes that leather will continue to be available from these or alternative sources, leather hide prices have increased and may continue to increase in 2001 due to a reduction in global beef demand caused in large part by the diseases impacting European cattle and due to reduced supply in the U.S. as a result of lower profitability of U.S. ranchers and beef packers. If leather hide prices continue to increase in 2001, then there could be an adverse impact on the Company's financial performance. The Company has established a central network of suppliers through which the Company's manufacturing facilities and independent manufacturers can purchase raw materials. The Company seeks sources of raw materials local to manufacturers, in an effort to reduce lead times while maintaining the Company's high quality standards. The Company believes that key strategic alliances with leading raw materials vendors help reduce the cost and provide greater consistency of raw materials procured to produce Timberland(R) products and improve compliance with the Company's production standards. In 2000, the Company finalized contracts with global vendors for such raw materials as leather, leather linings, box toes and counters, synthetic laces and leather laces. TRADEMARKS AND TRADE NAMES; PATENTS; RESEARCH & DEVELOPMENT The Company's principal trade name is The Timberland Company and the Company's principal trademarks are TIMBERLAND and the TREE DESIGN LOGO, which have been registered in the United States and many foreign countries. Other Company trademarks or registered trademarks are; ACT; Active Comfort Technology; B.S.F.P.; Endoskeleton; For The Journey; Gear For Outdoor Athletes; Guaranteed Waterproof Construction; ISN, Independent Suspension Network; Jackson Mountain; More Quality Than You May Ever Need; Mountain Athletics; Path of Service; PRO 24-7; PRO 24-7 Plus; Pull On Your Boots; Pull On Your Boots and Make a Difference; Smart Comfort; TBL; This is a trip; This is not baggage; This is 5 7 your new best friend; Timberland PRO; Trail Grip; Weathergear; Workboots For The Professional; Z-Warp, and the following design logos: TIMBERLAND PRODUCTS TRADEMARKS The Company regards its trade name and trademarks as valuable assets and believes that they are important factors in marketing its products. The Company seeks to protect and defend vigorously its trade name and trademarks against infringement under the laws of the United States and other countries. In addition, the Company seeks to protect and defend vigorously its patents, designs, copyrights and all other proprietary rights under applicable laws. The Company conducts research, design and development efforts for its products, including field testing of a number of its products to evaluate and improve product performance. However, the Company's expenses relating to research, design and development have not represented a material expenditure relative to its other expenses. 6 8 COMPETITION The Company's footwear, apparel and accessories products are marketed in highly competitive environments that are subject to rapid changes in consumer preference. Although the footwear industry is fragmented to a great degree, many of the Company's competitors are larger and have substantially greater resources than the Company, including athletic shoe companies, many of which compete directly with some of the Company's products. In addition, the Company faces competition from retailers that are establishing products under private labels and from at least two direct mail companies in the United States. Product quality, performance, design, styling and pricing, as well as consumer awareness, are all important elements of competition in the footwear and the apparel and accessories markets served by the Company. Although changing fashion trends generally affect demand for particular products, the Company believes that, because of the functional performance, classic styling and high quality of Timberland(R) footwear products, demand for most Timberland footwear products is less sensitive to changing trends in fashion than other products that are designed specifically to meet such trends. The Company does not believe that any of its principal competitors offers a complete line of products that provide the same quality and performance as the complete line of Timberland(R) footwear and apparel and accessories products. However, the Company does have many competitors, some of whom have significantly greater resources than the Company, that vary significantly by category and geographic region. The competition from some of these competitors is particularly strong where such competitor's business is focused on one or a few product categories or geographic regions in which the Company also competes. ENVIRONMENTAL MATTERS Compliance with federal, state and local environmental regulations has not had, nor is it expected to have, any material effect on the capital expenditures, earnings or competitive position of the Company based on information and circumstances known to the Company at this time. EMPLOYEES At December 31, 2000, the Company had approximately 5,400 employees worldwide. Management considers its employee relations to be good. None of the Company's employees is represented by a labor union, and the Company has never suffered a material interruption of business caused by labor disputes. EXECUTIVE OFFICERS OF THE REGISTRANT The following table lists the names, ages and principal occupations during the past five years of the Company's executive officers. All executive officers serve at the discretion of the Company's Board of Directors.
NAME AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS - ---- --- ----------------------------------------------- Sidney W. Swartz......................... 65 Chairman of the Board since June 1986; Chief Executive Officer and President, June 1986- June 1998. Jeffrey B. Swartz........................ 41 President and Chief Executive Officer since June 1998; Chief Operating Officer, May 1991- June 1998; Executive Vice President, March 1990-June 1998. Jeffrey Swartz is the son of Sidney Swartz.
7 9
NAME AGE PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS - ---- --- ----------------------------------------------- Kenneth P. Pucker........................ 38 Executive Vice President since September, 1999; Senior Vice President and General Manager -- Footwear, December 1997-September 1999; Vice President and General Merchandising Manager -- Footwear, April 1996-December 1997; Vice President -- Strategic Initiatives, January 1995-April 1996; General Manager -- The Outdoor Footwear Company (a subsidiary of the Company), October 1993-January 1995. Brian P. McKeon.......................... 38 Chief Financial Officer and Senior Vice President -- Finance and Administration since March 2000; Pepsi Cola North America: Vice President and Chief Financial Officer, October 1999 -- February 2000; Vice President, Strategic Planning, May 1996-October, 1999; Finance Director, Eastern Business Unit, March 1994-May 1996. David N. Smith........................... 44 Senior Vice President-Supply Chain since January 2000. The Estee Lauder Companies Inc.: Vice President -- Strategy, Global Operations, August 1995-January 2000; Fisons, plc: General Manager, May 1992-August 1995. Carden N. Welsh.......................... 47 Senior Vice President -- International since May 1998; Treasurer, April 1991-May 1998. Dennis W. Hagele......................... 57 Vice President -- Finance and Corporate Controller (Chief Accounting Officer) since October 1994. Danette Wineberg......................... 54 Vice President and General Counsel since October 1997; Little Caesar Enterprises, Inc.: General Counsel, November 1993-October 1997.
ITEM 2. PROPERTIES Since April 1994, the Company has leased its worldwide headquarters located in Stratham, New Hampshire. The Company entered into a new lease for such property that expires in September 2010, with the option to extend the term for two additional five-year periods. The Company considers its headquarters facilities adequate and suitable for its current needs. The Company leases its manufacturing facilities located in Isabela, Puerto Rico, and Santiago, Dominican Republic, under 11 leasing arrangements, which expire on various dates through April 2003. The Company owns its distribution facility in Danville, Kentucky, and leases its facilities in Ontario, California, and Enschede, Holland. The Company and its subsidiaries lease all of its specialty and factory outlet stores. The Company's subsidiaries also lease office and warehouse space to meet their individual requirements. ITEM 3. LEGAL PROCEEDINGS The Company is involved in various litigation and legal matters that 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year ended December 31, 2000, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise. 8 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is included in the Company's 2000 Annual Report under the caption "Quarterly Market Information and Related Matters" and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is included in the Company's 2000 Annual Report under the caption "Five Year Summary of Selected Financial Data" and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is included in the Company's 2000 Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is included in the Company's 2000 Annual Report under the caption "Quantitative and Qualitative Disclosures about Market Risk" and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is included in the Company's 2000 Annual Report and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Reference is made to the information set forth under the caption "Executive Officers of the Registrant" in Item 1 of Part I of this Form 10-K and to the information under the caption "Information with Respect to Nominees" in the Company's definitive Proxy Statement (the "2001 Proxy Statement") relating to its 2001 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission (the "Commission") within 120 days after the close of the Company's fiscal year ended December 31, 2000, which information is incorporated herein by reference. Reference is also made to the information set forth in the Company's 2001 Proxy Statement with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Reference is made to the information set forth under the caption "Executive Compensation" in the Company's 2001 Proxy Statement, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is made to the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's 2001 Proxy Statement, which information is incorporated herein by reference. The aggregate market value of the Class A Common Stock held by non-affiliates of the Company appearing on the cover page of this report includes the shares owned by The Sidney 9 11 W. Swartz 1982 Family Trust, The Swartz Foundation and The Sidney and Judith Swartz Charitable Remainder Unitrust. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reference is made to the information set forth under the caption "Certain Relationships and Related Transactions" in the Company's 2001 Proxy Statement, which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS. The following financial statements appearing in the Company's 2000 Annual Report are incorporated by reference in this report: ANNUAL REPORT
PAGE ---- Consolidated Balance Sheets as of December 31, 2000 and 1999...................................................... 24 For the years ended December 31, 2000, 1999 and 1998: Consolidated Statements of Income........................... 25 Consolidated Statements of Changes in Stockholders' Equity.................................................... 26 Consolidated Statements of Cash Flows....................... 27 Notes to Consolidated Financial Statements.................. 28 Independent Auditors' Report................................ 39
(a)(2) FINANCIAL STATEMENT SCHEDULE. The following additional financial data should be read in conjunction with the consolidated financial statements in the Company's 2000 Annual Report:
FORM 10-K PAGE -------------- Independent Auditors' Report on Schedule II................. F-1 Schedule II -- Valuation and Qualifying Accounts............ F-2
All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are inapplicable and have, therefore, been omitted. (b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Company during the fourth quarter of 2000. (c) EXHIBITS. Listed below are all the Exhibits filed as part of this report, some of which are incorporated by reference from documents previously filed by the Company with the Commission in accordance with the provisions of Rule 12b-32 of the Exchange Act. 10 12
EXHIBIT DESCRIPTION - ------- ----------- (3) ARTICLES OF INCORPORATION AND BY-LAWS 3.1 (a) Restated Certificate of Incorporation dated May 14, 1987, filed herewith (b) Certificate of Amendment of Restated Certificate of Incorporation dated May 22, 1987, filed herewith (c) Certificate of Ownership merging The Nathan Company into The Timberland Company dated July 31, 1987, filed herewith (d) Certificate of Amendment of Restated Certificate of Incorporation dated June 14, 2000, filed herewith 3.2 By-Laws, as amended May 19, 1993(2) (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES (See also Exhibits 3.1 and 3.2) 4.1 Specimen stock certificate for shares of the Company's Class A Common Stock(3) (10) MATERIAL CONTRACTS 10.1 Agreement dated as of August 29, 1979 between The Timberland Company and Sidney W. Swartz(1) 10.2 (a) The Company's 1987 Stock Option Plan, as amended(4) (b) The Company's 1997 Stock Option Plan for Non-Executive Employees(5) (c) The Company's 1997 Incentive Plan(4) 10.3 The Company's 1991 Employee Stock Purchase Plan, as amended(6) 10.4 (a) The Company's 1991 Stock Option Plan for Non-Employee Directors(7) (b) Amendment No. 1 dated December 7, 2000, filed herewith 10.5 The Timberland Company Short Term Incentive Plan(2) 10.6 The Timberland Company Retirement Earnings 401(k) Plan and Trust Agreements(8) 10.7 The Timberland Company Profit Sharing Plan and Trust Agreements(8) 10.8 (a) Credit Agreement dated as of April 30, 1998 among The Timberland Company, certain banks listed therein and Morgan Guaranty Trust Company of New York, as Agent(9) (b) Amendment No. 1 dated as of October 20, 2000 to Credit Agreement, filed herewith 10.9 The Timberland Company Deferred Compensation Plan(10) 10.10 Change of Control Severance Agreement, filed herewith (13) ANNUAL REPORT TO SECURITY HOLDERS 13. Portions of the 2000 Annual Report as incorporated herein by reference, filed herewith (21) SUBSIDIARIES 21. List of subsidiaries of the registrant, filed herewith (23) CONSENT OF EXPERTS AND COUNSEL 23. Consent of Deloitte & Touche LLP, filed herewith
(99) ADDITIONAL EXHIBIT 99. Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995, filed herewith
Pursuant to paragraph 4(iii) of Item 601(b), Regulation S-K, the Company has filed as Exhibits only the instruments defining the rights of holders of long-term debt of the Company and its consolidated subsidiaries with respect to which the total amount of securities authorized thereunder exceeds 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish to the Commission, upon its request, copies of other instruments defining the rights of holders of long-term debt of the Company and its subsidiaries, with respect to which the total amount does not exceed 10% of such assets. The Company also agrees to furnish to the Commission, upon its request, copies of any omitted schedule or exhibit to any Exhibit filed herewith. 11 13 - --------------- (1) Filed as an exhibit to Registration Statement on Form S-1, numbered 33-14319, and incorporated herein by reference. (2) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and incorporated herein by reference. (3) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference. (4) Filed on June 21, 1995, as an exhibit to Registration Statement on Form S-8, numbered 33-60457, and incorporated herein by reference. (5) Filed on September 9, 1997 as an exhibit to Registration Statement on Form S-8, numbered 333-35223, and incorporated herein by reference. (6) Filed on June 21, 1995, as an exhibit to Registration Statement on Form S-8, numbered 33-60459, and incorporated herein by reference. (7) Filed on August 18, 1992, as an exhibit to Registration Statement on Form S-8, numbered 33-50998, and incorporated herein by reference. (8) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference. (9) Filed as an exhibit to the Quarterly Report on Form 10-Q for the fiscal period ended June 26, 1998, and incorporated herein by reference. (10) Filed on December 15, 2000, as an exhibit to Registration Statement on Form S-8, numbered 333-51912, and incorporated herein by reference. 12 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 March 28, 2001 By: /s/ JEFFREY B. SWARTZ --------------------------------------------- Jeffrey B. Swartz, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ SIDNEY W. SWARTZ Chairman of the Board and March 28, 2001 - --------------------------------------------------- Director Sidney W. Swartz /s/ JEFFREY B. SWARTZ President, Chief Executive March 28, 2001 - --------------------------------------------------- Officer Jeffrey B. Swartz and Director (Principal Executive Officer) /s/ BRIAN P. MCKEON Chief Financial Officer and March 28, 2001 - --------------------------------------------------- Senior Vice Brian P. McKeon President -- Finance and Administration /s/ DENNIS W. HAGELE Vice President -- Finance and March 28, 2001 - --------------------------------------------------- Corporate Controller (Chief Dennis W. Hagele Accounting Officer) /s/ ROBERT M. AGATE Director March 28, 2001 - --------------------------------------------------- Robert M. Agate /s/ JOHN E. BEARD Director, Secretary March 28, 2001 - --------------------------------------------------- John E. Beard /s/ JOHN F. BRENNAN Director March 28, 2001 - --------------------------------------------------- John F. Brennan /s/ IAN W. DIERY Director March 28, 2001 - --------------------------------------------------- Ian W. Diery
13 15
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN A. FITZSIMMONS Director March 28, 2001 - --------------------------------------------------- John A. Fitzsimmons /s/ VIRGINIA H. KENT Director March 28, 2001 - --------------------------------------------------- Virginia H. Kent /s/ ABRAHAM ZALEZNIK Director March 28, 2001 - --------------------------------------------------- Abraham Zaleznik
14 16 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of The Timberland Company Stratham, New Hampshire We have audited the consolidated financial statements of The Timberland Company and subsidiaries (the "Company") as of December 31, 2000 and 1999, and for each of the three years in the period ended December 31, 2000, and have issued our report thereon dated January 31, 2001; such consolidated financial statements and report are included in your 2000 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of The Timberland Company listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ DELOITTE & TOUCHE LLP Boston, Massachusetts January 31, 2001 15 17 SCHEDULE II THE TIMBERLAND COMPANY VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
ADDITIONS DEDUCTIONS ---------- ----------- BALANCE AT CHARGED TO CHARGED TO WRITE-OFFS, BALANCE BEGINNING OF COSTS AND OTHER NET OF AT END DESCRIPTION PERIOD EXPENSES ACCOUNTS RECOVERIES OF PERIOD ----------- ------------ ---------- ---------- ----------- --------- Allowance for doubtful accounts: Year ended December 31, 2000................. $4,910 $2,395 -- $1,480 $5,825 December 31, 1999................. 4,769 3,618 -- 3,477 4,910 December 31, 1998................. 3,742 2,383 -- 1,356 4,769 Group insurance reserve: Year ended December 31, 2000................. $1,124 $5,298 -- $5,819 $ 603 December 31, 1999................. 1,077 5,793 -- 5,746 1,124 December 31, 1998................. 1,100 4,377 -- 4,400 1,077
16 18 TIMBERLAND, the TREE DESIGN LOGO, ACT, Active Comfort Technology, B.S.F.P., Endoskeleton, For The Journey, Gear For Outdoor Athletes, Guaranteed Waterproof Construction, ISN, Independent Suspension Network, Jackson Mountain, More Quality Than You May Ever Need, Mountain Athletics, Path of Service, PRO-24-7; PRO24-7 Plus; Pull On Your Boots, Pull On Your Boots and Make a Difference, Smart Comfort, TBL, This is a trip, This is not baggage, This is your new best friend, Timberland PRO, Trail Grip, Weathergear, Workboots For The Professional, Z-Warp, the PRO 24/7 and PRO 24/7 Plus logos, the PRO Series logo, the Mountain Athletics logos, the Endoskeleton logo, the Independent Suspension Network logo, the Z-Warp logo, and Smart Comfort logo are trademarks or registered trademarks of The Timberland Company. (C)The Timberland Company 2001 All Rights Reserved. 983-10K1-01 EX-3.1(A) 2 b38204tcex3-1a.txt RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1(a) THE TIMBERLAND COMPANY The Timberland Company, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of this corporation is The Timberland Company. The date of filing its original Certificate of Incorporation with the Secretary of State was December 20, 1978. 2. Pursuant to Sections 245 and 242 of the General Corporation Law of the State of Delaware (the "General Corporation Law"), the Restated Certificate of Incorporation (i) was approved and proposed for submission to the stockholders of this corporation by a written consent of the sole director of this corporation dated May 13, 1987, in accordance with Section 141 of the General Corporation Law, (ii) was adopted by unanimous written consents dated May 13, 1987 of all holders of shares of the outstanding capital stock of this corporation; and that, since each stockholder executed such a written consent, the notice of such action required by said Section 228 was not required to be given. 3. This Restated Certificate of Incorporation both restates and integrates the Certificate of Incorporation of this corporation as heretofore amended and supplemented and further amends such Certificate of Incorporation. 4. The text of the Restated Certificate of Incorporation is herein set forth in full: 2 THE TIMBERLAND COMPANY RESTATED CERTIFICATE OF INCORPORATION 1. NAME. The name of the corporation is The Timberland Company. 2. REGISTERED OFFICE. The registered office of the corporation in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the corporation at such address is The Corporation Trust Company. 3. PURPOSE. The Purpose of the corporation is to engage in any manufacturing, mercantile, selling, management, service or other business or any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, and to have as additional purposes all powers granted to corporations by the laws of said State, provided that no such purpose shall include any activity inconsistent with the General Corporation Law of said State. 4. CAPITAL STOCK, ETC. A statement of the designations, numbers, relative rights, preferences and limitations of the capital stock of the corporation and of certain other matters is as follows: 4.1. Designation and Numbers. The aggregate number of shares which the corporation shall have the authority to issue is 47,000,000. The number of shares of each class and the par value of each share of each class are as follows:
Name of Class Number of Shares Par Value - ------------- ---------------- --------- Preferred Stock 2,000,000 $.01 Class A Common Stock 30,000,000 $.01 Class B Common Stock 15,000,000 $.01
4.2. Preferred Stock. The shares of Preferred Stock may be issued from time to time in one or more series. As contemplated, and to the extent permitted, by Section 151 (a) of the General Corporation Law of the State of Delaware and to the extent not inconsistent with the other provisions of this Restated Certificate of Incorporation, the Board of Directors is authorized to establish and designate the different series, and to fix 2 3 and determine the variations in the relative numbers, rights, preferences and limitations as between and among the different series, in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors pursuant to this Section 4.2. 4.3. Class A Common Stock and Class B Common Stock. Except as otherwise provided in this Section 4.3, the Class A Common Stock and Class B Common Stock shall have the same rights and privileges and shall rank equally, share ratably and be identical in all respects as to all matters. 4.3.1. Dividends and Other Distributions. Subject to the limitations, if any, prescribed in the provisions of any series of Preferred Stock, holders of shares of Class A Common Stock and holders of shares of Class B Common Stock shall be entitled to receive, when and as declared by the Board of Directors out of the assets or funds of the corporation which are by law available therefor, dividends payable in cash or in property (other than shares of Class A Common Stock or shares of Class B Common Stock) or in any combination thereof. Dividends in cash and property (other than dividends payable in Class A Common Stock or Class B Common Stock) with respect to the Class A Common Stock and the Class B Common Stock shall be paid at the same rate and at the same time on both such classes, and not on either one of them without the other. Holders of shares of Class A Common Stock and holders of shares of Class B Common Stock shall be entitled to receive, when and as declared by the Board of Directors out of the assets or funds of the Corporation which are by law available therefor, dividends payable in shares of Class A Common Stock and shares of Class B Common Stock; provided, however, that any such dividend payable in respect of the Class A Common Stock shall be payable only in shares of Class A Common Stock and any such dividend payable with respect to shares of Class B Common Stock shall be payable only in shares of Class B Common Stock; and provided, further, that no such dividend shall be paid on either class unless there shall be declared and paid at the same time a dividend at the same rate on the other class. 4.3.2. Voting Rights and Powers. Except as otherwise provided in this Section 4.3.2, with respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holder of the outstanding shares of the Class A Common Stock and the holders of the outstanding shares of the Class B Common Stock shall, except as otherwise required by law, vote together as a single class, and every holders of outstanding shares of the Class A Common Stock shall be entitled to cast thereon one (1) vote in person or by proxy for each share of the Class A Common Stock standing in his name, and every holder of the outstanding shares of the Class B Common Stock shall be entitled to cast thereon ten (10) votes in person or by proxy for each share of the Class B Common Stock standing in his name. With respect to the election of directors at each annual meeting, or special meeting in lieu of the annual meeting, of the stockholders of the corporation, the holders of the Class A Common Stock shall have the right, voting separately as a class, to elect a number of the directors of the corporation equal to 25% of the total number of to be 3 4 elected at such meeting (and, if such number is not a whole number, rounded upwards to the nearest whole number); provided, however, that if at any time the aggregate number of issued and outstanding shares of Class B Common Stock is less than 12.5% of the aggregate number of issued and outstanding shares of Class A Common Stock and Class B Common Stock, then the holders of Class A Common Stock and Class B Common Stock shall vote together as a class for the election of directors, with each holder of Class A Common Stock and each holder of Class B Common Stock entitled to cast one (1) vote in person or by proxy for each share of such Class A Common Stock and for each share of such Class B Common Stock standing in his name. With respect to any proposed amendment to this Restated Certificate of Incorporation which would change the powers, preferences, relative voting power or special rights of the shares of the Class A Common Stock or the Class B Common Stock so as to affect either class adversely relative to the other, the approval of a majority of the votes entitled to be cast by the holders of the class adversely affected by the proposed amendment, voting separately as a class, shall be obtained in addition to the approval of a majority of the votes entitled to be cast by the holders of the Class A Common Stock and the Class B Common Stock voting together as a single class as hereinbefore provided. 4.3.3. Conversion of Class B Common Stock into Class A Common Stock. (a) Each share of Class B Common Stock may at any time at the option of the holders be converted into one fully paid and nonassessable share of Class A Common Stock. Such right shall be exercised by the surrender to the corporation of the certificate representing such share of Class B Common Stock to be converted at the principal executive offices of the corporation, or if an agent for the registration of transfer of shares of Class A Common Stock is then duly appointed and acting (said agent being hereinafter referred to as the "Transfer Agent"), then at the office of the Transfer Agent, accompanied by a written notice of the election by the holder thereof to convert and (if so required by the corporation or the Transfer Agent) by instruments of transfer, in form satisfactory to the corporation and the Transfer Agent, duly executed by such holder or his duly authorized attorney, and by transfer tax stamps or funds therefor, as required pursuant to paragraph (e) below. (b) As promptly as practicable after any such exercise of a holder's election to convert, the corporation will deliver, or cause to be delivered at the office of the Transfer Agent, to or upon the written order of the holder of such certificate, a certificate or certificates representing the number of full shares of Class A Common Stock issuable upon such conversion, issued in such name or names as such holder may direct. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of the surrender of the certificate representing shares of Class B Common Stock, and all rights of the holder of such shares as such holder shall cease at such time and the 4 5 person in whose name a certificate representing the shares of Class A Common Stock are to be issued shall be treated for all purposes as having become the record holder of such shares of Class A Common Stock at such time. (c) No adjustments in respect of dividends shall be made upon the conversion of any share of Class B Common Stock, but exercise of the election to convert shall not deprive a holder of Class B Common Stock of the right to receive any dividend or distribution in respect of such stock payable to holders of record of Class B Common Stock prior to the effective date of conversion. (d) The corporation covenants that it will at all times reserve and keep available from authorized but unissued shares or from treasury shares or from any combination thereof, solely for the purpose of issuance upon conversion of the outstanding shares of Class B Common Stock, such number of shares of Class A Common Stock as shall be issuable upon the conversion of all such outstanding shares. (e) The issuance of a certificate for shares of Class A Common Stock upon conversion of shares of Class B Common Stock shall be made without charge for any stamp or other similar tax in respect of such issuance except that if any such certificate is to be issued in a name other than that of the holder of the shares of Class B Common Stock converted, the person requesting the issuance thereof shall pay to the corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the corporation that such tax has been paid. (f) Shares of Class B Common Stock which have been issued and converted into shares of Class A Common Stock will have the status of authorized and unissued shares and may be reissued as shares of Class B Common Stock by the Board of Directors. 4.3.4. Limitations on Transfer of Class B Common Stock. (a) No person holding shares of Class B Common Stock (a "Class B Holder") may transfer such shares of Class B Common Stock, whether by sale, assignment, gift, devise, bequest, appointment or otherwise, except to a "Permitted Transferee" of such Class B Holder. The term "Permitted Transferee" shall mean: (i) the spouse of such Class B Holder; (ii) a parent or lineal descendant of such Class B Holder, whether by blood or adoption; (iii) the brother or sister of such Class B Holder; (iv) the estate of such Holder or a trust for the exclusive benefit of such Class B Holder or any one or more of the persons referred to in clauses (i) through (iii) above; 5 6 (v) the corporation; or (vi) any other transferee designated by the Board of Directors as a Permitted Transferee for purposes of the specific transfer involved. (b) Any purported transfer of shares of Class B Common Stock other than to a Permitted Transferee shall constitute the irrevocable election by the holder to convert such shares into Class A Common Stock and to transfer to the transferee such shares of Class A Common Stock; and the sole right of the transferee upon presentation of certificates representing such Class B Common Stock for registration of transfer shall be to receive certificates representing the requisite number of shares of Class A Common Stock upon delivery to the corporation or the Transfer Agent of the documentation and payment (if any) called for by paragraph (a) of the Section 4.3.3 hereof. Until such delivery to the corporation or the Transfer Agent, neither the shares of Class B Common Stock represented by such certificates surrendered for registration of transfer nor the shares of Class A Common Stock into which such shares are to be converted shall carry any voting right, and dividends or other distributions with respect thereto shall be withheld until such delivery has been completed. (c) Each certificate representing shares of Class B Common Stock shall be registered in the actual name of the owner thereof and not in "street name" or in any nominee name. (d) Notwithstanding anything to the contrary set forth herein, any holder of Class B Common Stock may pledge such holder's shares of Class B Common Stock to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee; provided, however, that such shares shall not be transferred to, or registered in the name of, the pledgee and shall remain subject to the provision of this Section 4.3.4. In the event of foreclosure or other similar action by the pledgee, such pledged shares of Class B Common Stock may not be transferred to the pledgee and may only be converted into shares of Class A Common Stock. (e) The corporation shall note on the certificates representing the shares of Class B Common Stock the restrictions on transfer and registration of transfer imposed by this Section 4.3.4. 4.3.5. Liquidation, Dissolution, Merger, Consolidation, etc. In the event the corporation shall be liquidated, dissolved or wound up, whether voluntarily or involuntarily, after there shall have been paid to or set aside for the full preferential amounts to which the holders of any class or series having a preference over the Class A Common stock and Class B Common Stock are entitled, the holders of the Class B Common Stock and the holders of the Class A Common Stock shall be entitled to share ratably as a single class, share and share alike, in the remaining net assets of the corporation. A merger or consolidation of the corporation with or into any other corporation or a sale or conveyance of all or any part of the assets of the corporation (which shall not in fact result in the 6 7 liquidation of the corporation and the distribution of assets to stockholders) shall not be deemed to be a voluntary or involuntary liquidation or dissolution or winding up of the corporation within the meaning of this Section 4.3.5. 5. BY-LAWS. Subject to the limitations and exceptions, if any, contained therein, by-laws may be adopted, amended or repealed by the Board of Directors. 6. SPECIAL MEETINGS OF STOCKHOLDERS. A special meeting of the stockholders shall be called by the secretary, or in the case of the death, absence, incapacity or refusal of the secretary, by an assistant secretary or some other officer, only upon application of a majority of the directors. 7. WRITTEN CONSENTS OF STOCKHOLDERS. Action may be taken in lieu of meetings by written consent of the holders of outstanding shares of capital stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. 8. INDEMNIFICATION OF OFFICERS AND DIRECTORS. The corporation shall indemnify each person who is or was or has agreed to be a director or officer of the corporation against expenses (including attorney's fees and expenses), judgments, fines, penalties and amounts paid in settlement in connection with defending, investigating, preparing to defend or being or preparing to be a witness in any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, to the maximum extent permitted from time to time under the law of the State of Delaware. Such indemnification shall not be exclusive of other indemnification rights arising under any by-law, contract, agreement, vote, directors or stockholders or otherwise and shall inure to the benefit of the heirs and legal representatives of such person. 9. LIABILITY OF DIRECTORS. Except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the corporation shall be liable for any breach of fiduciary duty. No amendment to or repeal of this Article 9 shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. 10. CORPORATE BOOKS. The books of the corporation may (subject to any statutory requirements) be kept outside the State of Delaware in any such place as may be designated by the Board of Directors or in the by-laws of the corporation. 7 8 IN WITNESS WHEREOF, The Timberland Company has caused this certificate to be signed by Sidney W. Swartz, its President, and John E. Beard, its Secretary, and its corporate seal affixed hereto, this 13th day of May 1987. This certificate is to be filed with the Secretary of State of the State of Delaware, and recorded with the Recorder of Deeds of New Castle County, Delaware, pursuant to Sections 103 and 245 of the General Corporation Law of the State of Delaware. THE TIMBERLAND COMPANY By: /s/ Sidney W. Swartz -------------------- Sidney w. Swartz President Attest: /s/ John E. Beard ----------------- John E. Beard Secretary 8 EX-3.1(B) 3 b38204tcex3-1b.txt CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE 1 EXHIBIT 3.1(b) CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF THE TIMBERLAND COMPANY The Timberland Company, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That the Board of Directors of the Corporation, acting by unanimous written consent on May 21, 1987, adopted a resolution setting forth a proposed amendment to the Restated Certificate of Incorporation of the Corporation, declaring the advisability thereof and calling for submitting the proposed amendment to the shareholders of the Corporation for their approval and adoption. The resolution setting forth the proposed amendment is as follows: RESOLVED: That Section 4.3.2 of the Restated Certificate of Incorporation of this Corporation be deleted in its entirety and that there be substituted in lieu thereof a new Section 4.3.2 which shall read in its entirety as set forth in Exhibit A hereto. Exhibit A attached hereto is a correct and complete copy of Exhibit A attached to said consent. SECOND: That the stockholders of the Corporation duly approved and adopted such resolution by written consent on May 21, 1987 in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware, and written notice has been given in accordance with the provisions of such Section. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of the Corporation will not be reduced under or by reason of the said amendment. IN WITNESS WHEREOF, said The Timberland Company has caused this certificate to be signed by Sidney W. Swartz, President and attested to by John E. Beard, Secretary, this 21st day of May, 1987. THE TIMBERLAND COMPANY By /s/ Sidney W. Swartz --------------------------------- ATTEST: By: /s/ John E. Beard --------------------------------- 2 EXHIBIT A 4.3.2 Voting Rights and Powers. Except as otherwise provided in this Section 4.3.2, with respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the holders of the outstanding shares of the Class A Common Stock and the holders of the outstanding shares of the Class B Common Stock shall, except as otherwise required by law, vote together as a single class, and every holder of the outstanding shares of the Class A Common Stock shall be entitled to cast thereon one (1) vote in person or by proxy for each share of the Class A Common Stock standing in his name, and every holder of outstanding shares of the Class B Common Stock shall be entitled to cast thereon ten (10) votes in person or by proxy for each share of the Class B Common stock standing in his name. With respect to the election of directors at each annual meeting, or special meeting in lieu of the annual meeting, of the stockholders of the corporation, (i) the holders of the Class A Common Stock shall have the right, voting separately as a class, to elect a number of the directors of the corporation equal to 25% of the total number of directors to be elected at such meeting (and, if such number is not a whole number, rounded upwards to the nearest whole number) (such directors being referred to herein as the "Class A Directors"), and (ii) the holders of Class A Common Stock and Class B Common Stock shall vote together as provided in the first sentence of this Section 4.3.2 for the election of all directors who are not Class A Directors; provided, however, that if at any time the aggregate number of issued and outstanding shares of Class B Common Stock is less than 12.5% of the aggregate number of issued and outstanding shares of Class A Common Stock and Class B Common Stock, then the holders of Class A Common Stock and Class B Common Stock shall vote together as a class for the election of all directors who are not Class A Directors, with each holder of Class A Common Stock and each holder of Class B Common Stock entitled to cast one (1) vote in person or by proxy for each share of such Class A Common Stock and for each share of such Class B Common Stock standing in his name. With respect to any proposed amendment to this Restated Certificate of Incorporation which would change the powers, preferences, relative voting power or special rights of the shares of the Class A Common Stock or the Class B Common Stock so as to affect either class adversely relative to the other, the approval of a majority of the votes entitled to be cast by the holders of the class adversely affected by the proposed amendment, voting separately as a class, shall be obtained in addition to the approval of a majority of the votes entitled to be cast by the holders of the Class A Common Stock and the Class B Common Stock voting together as a single class as hereinbefore provided. EX-3.1(C) 4 b38204tcex3-1c.txt CERTIFICATE OF OWNERSHIP 1 EXHIBIT 3.1(c) Certificate of Ownership Merging THE NATHAN COMPANY Into THE TIMBERLAND COMPANY (Pursuant to Section 253 of the General Corporation Law of Delaware) The Timberland Company, a corporation incorporated on the 20th day of December, 1978, pursuant to the provisions of the General Corporation Law of the State of Delaware does hereby certify that this corporation owns all the capital stock of The Nathan Company, a corporation organized under the laws of the State of Delaware, and this corporation, by a resolution of all of the directors consented to in writing and dated July 27, 1987, determined to and did merge into itself said The Nathan Company, which resolution is in the following words to wit: WHEREAS this corporation owns all the outstanding stock of The Nathan Company, a corporation organized and existing under the laws of the State of Delaware ("Nathan"); and WHEREAS this corporation desires to merge Nathan into itself and to be possessed of all the estate, property, rights, privileges and franchises of Nathan; NOW, THEREFORE, be it RESOLVED, that this corporation merge Nathan into itself, and it does hereby merge Nathan into itself, and assumes all of its liabilities and obligations, and FURTHER RESOLVED, that the president or a vice-president, and the secretary, assistant secretary or treasurer of this corporation be and they are hereby authorized and directed to make and execute, under the corporate seal of this corporation, a certificate of ownership setting forth a copy of the resolution to merge Nathan into itself and to assume its liabilities and obligations, and the date of adoption thereof, and to file the same in the office of the Secretary of State of Delaware, and a certified copy thereof in the office of the Recorder of Deeds of New Castle County; and FURTHER RESOLVED, that the officers of this corporation be and they hereby are authorized and directed to do all acts and things whatsoever, whether within or without the State of Delaware, which may be in any way necessary or desirable to effect said merger, in every case the taking of such acts to be deemed conclusively authorized by this resolution; and 2 FURTHER RESOLVED, that this merger shall be effective on July 31, 1987. IN WITNESS WHEREOF, said corporation has caused this certificate to be signed by its president and attested by its secretary, and its corporate seal to be hereto affixed, this 29th day of July, A.D. 1987. THE TIMBERLAND COMPANY By: /s/ Sidney W. Swartz -------------------- Sidney Swartz, President Attest: /s/ John E. Beard - ----------------- John E. Beard, Secretary EX-3.1(D) 5 b38204tcex3-1d.txt CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE 1 EXHIBIT 3.1(d) CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF THE TIMBERLAND COMPANY The Timberland Company, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Board of Directors of The Timberland Company duly adopted resolutions proposing an amendment to the Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and directing that the following proposal approving said amendment be considered at the next annual meeting of the stockholders of said corporation: That section 4.1 of the Restated Certificate of Incorporation of this corporation be deleted in its entirety and that there be substituted in lieu thereof a new section 4.1 which shall read in its entirety as follows: 4.1 Designation and Numbers. The aggregate number of shares that the corporation shall have the authority to issue is 77,000,000. The number of shares of each class and the par value of each share of each class are as follows:
Name of Class Number of Shares Par Value ------------- ---------------- --------- Preferred Stock 2,000,000 $.01 Class A Common Stock 60,000,000 $.01 Class B Common Stock 15,000,000 $.01
SECOND: That thereafter, pursuant to the amended By-laws of said corporation the annual meeting of the stockholders was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, The Timberland Company has caused this certificate to be signed by Jeffrey B. Swartz, its President and attested to by Danette Wineberg, Assistant Secretary, this 14th day of June 2000. THE TIMBERLAND COMPANY By: /s/ Jeffrey B. Swartz -------------------------------- Jeffrey B. Swartz President ATTEST: By: /s/ Danette Wineberg --------------------------------- Danette Wineberg Assistant Secretary EX-10.4(B) 6 b38204tcex10-4b.txt AMENDMENT NO.1 DATED DECEMBER 7, 2000 1 Exhibit 10.4(b) Amendment No. 1 to The Timberland Company 1991 Stock Option Plan For Non-Employee Directors 1. As a result of a 2-for-1 stock split by the Company in September, 1999 and July, 2000, the 100,000 shares initially reserved for issuance under the Plan were adjusted pursuant to the terms of the Plan to 200,000 and 400,000 shares, respectively, on the dates of the stock splits. Therefore, to reflect such adjustments, Section 4.a. is hereby amended by deleting "100,000" and replacing it with "400,000". 2(a). Section 6.a. is hereby amended by deleting "5,000" in the first paragraph and by replacing it with "10,000." 2(b). Section 6.a. is hereby further amended by deleting "1,250" in the second paragraph and by replacing it with "2,500." This Amendment No. 1 is effective December 7, 2000. EX-10.8(B) 7 b38204tcex10-8b.txt AMENDMENT NO. 1 DATED AS OF OCTOBER 20, 2000 1 Exhibit 10.8(b) AMENDMENT NO. 1 TO THE CREDIT AGREEMENT AMENDMENT dated as of October 20, 2000 to the Credit Agreement dated as of April 30, 1998 (the "CREDIT AGREEMENT") among THE TIMBERLAND COMPANY (the "COMPANY") , the BANKS party thereto (the "BANKS") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as agent (the "AGENT"). The parties hereto agree as follows: SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. SECTION 2. Amendments. (a) The figure "$100,000,000" appearing in Section 5.09 of the Credit Agreement is changed to "$75,000,000." (b) The figure "$100,000,000" appearing in Section 5.10 of the Credit Agreement is changed to "$140,000,000." SECTION 3. Representations of Company. The Company represents and warrants that (i) the representations and warranties of the Company set forth in Article 4 of the Credit Agreement will be true on and as of the Amendment Effective Date and (ii) no Default will have occurred and be continuing on such date. SECTION 4. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 6. Effectiveness. This Amendment shall become effective as of the date hereof on the date (the "AMENDMENT EFFECTIVE DATE") when the Agent shall have received from each of the Company and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Agent) that such party has signed a counterpart hereof. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. THE TIMBERLAND COMPANY By: ________________________________ Name: Title: 3 BANKS MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ________________________________ Name: Title: FLEET NATIONAL BANK (formerly known as BankBoston N.A.) By: ________________________________ Name: Title: ABN AMRO BANK N.V. By: ________________________________ Name: Title: By: ________________________________ Name: Title: THE NORTHERN TRUST COMPANY By: ________________________________ Name: Title: 4 FIRST UNION NATIONAL BANK By: ________________________________ Name: Title: EX-10.10 8 b38204tcex10-10.txt CHANGE OF CONTROL SEVERANCE AGREEMENT 1 EXHIBIT 10.10 [TIMBERLAND LOGO] CHANGE OF CONTROL SEVERANCE AGREEMENT This is an agreement (the "Agreement") between The Timberland Company (the "Company") and _____________(the "Executive"). [See attached schedule of Executives] The Company wishes to ensure the continued dedication of management to Company duties in the event of an actual or threatened change of control of the Company. The Executive has an important position in the management of the Company and wishes to continue in that position or such other position as may be assigned by the Company. The parties therefore agree as follows: 1. This Agreement is effective as of ___________. If the Executive's employment with the Company terminates other than by death or disability within 24 months following a Change of Control, the Executive may become entitled to benefits as described below. 2. A "Change of Control" will occur at such time as (i) the Swartz Family ceases to hold, or there is executed a definitive binding agreement under which the Swartz Family would cease to hold, that number of shares of voting stock of the Company necessary to elect a majority of the members of the Board of Directors of the Company (the "Board") or (ii) the stockholders of the Company approve a definitive binding agreement (A) to dispose of all or substantially all of the Company's assets to a party other than the Swartz Family or an entity controlled by the Swartz Family, or (B) to liquidate the Company. For this purpose, the "Swartz Family" includes only Sidney W. Swartz, Jeffrey B. Swartz, the lineal descendants of Jeffrey B. Swartz, the Sidney W. Swartz 1982 Family Trust and any other trust or foundation controlled by Sidney W. Swartz and/or Jeffrey B. Swartz. 3. The Agreement will terminate immediately, and the Company will have no further obligation to the Executive under the Agreement, if: (i) the Company terminates the Executive's employment for Cause, (ii) the Executive voluntarily terminates his employment without Good Reason other than in accordance with Section 5 below, (iii) the Executive's employment is terminated as a result of his death or Disability, or (iv) the Executive's employment is terminated for any reason at any time other than during the 24 months following a Change of Control. "Cause" means (i) the willful and continued failure of the Executive to substantially perform his duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written specific demand by the Board or the Chief Executive Officer of the Company for substantial performance is delivered to the Executive, 2 (ii) fraud or dishonesty by the Executive with respect to the Company, or (iii) the Executive's conviction of, or plea of nolo contendre to, any felony. The Company may treat a termination of the Executive's employment as termination for Cause only after (A) giving the Executive written notice of the intention to terminate for Cause and of his right to a hearing and (B) conducting a hearing at least 10 days after such notice at which the Executive may be represented by counsel. Termination by the Executive for "Good Reason" means termination within 60 days following (i) a diminution in, or assignment of duties inconsistent with, the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities in effect immediately before the Change of Control, excluding an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of written notice of the matter by the Executive, (ii) a failure to pay the Executive an annual base salary at least equal to the annual base salary in effect immediately before the Change of Control, (iii) a failure to pay the Executive an annual bonus at least equal to the average of the annual bonuses paid to him under the Company's Short Term Incentive Program with respect to the five full fiscal years of the Company (or for such fewer number of fiscal years for which the Executive has been eligible for the Program) preceding the Change of Control, except to the extent that such failure results from a general reduction in bonus payments to executives based solely on Company performance and such reduction is not caused by a material raising of the standards by which Company performance is measured, (iv) exclusion of the Executive from stock option programs or other incentive compensation programs in which other Company executives holding materially equivalent positions are permitted to participate, (v) exclusion of the Executive from life, health or accident insurance plans or other material welfare benefit plans in which other Company executives holding materially equivalent positions are permitted to participate, (vi) failure to provide the Executive with an office and secretarial support materially equivalent to that provided immediately prior to the Change of Control, (vii) relocation of the Executive's principal place of work without his consent to a location more than 35 miles from its location immediately prior to the Change of Control, (vii) imposition without the Executive's consent of travel requirements that cause the Executive to be away from his principal place of work for significantly more consecutive or aggregate days in any calendar year than was required of him immediately prior to the Change of Control, or (viii) failure by the Company to comply with the provisions of Section 12 of this Agreement. "Disability" means eligibility by the Executive for benefits under the Company's Long Term Disability Plan. 4. If, within 24 months following a Change of Control, the Company terminates the Executive's employment without Cause or the Executive terminates his employment for Good Reason, the Company will provide benefits as follows: (a) Within 90 days following the termination of employment, the Company will pay to the Executive a lump-sum cash amount equal to 200% of the sum of (i) the Executive's annual base salary in effect at the time of the termination of employment (or if the Executive's 3 annual base salary has been reduced within 61 days prior to the termination, the base salary in effect immediately prior to the reduction), plus (ii) the average of the annual bonuses earned by the Executive under the Company's Short Term Incentive Program with respect to the three full fiscal years of the Company (or such fewer number of fiscal years for which the Executive has been eligible for the Program) preceding the termination of employment, or if the Executive has been eligible for less than a full fiscal year, his target bonus for the year of termination. (b) The Company will continue for a period of 24 months following the date of termination to provide the Executive with any medical, dental, disability and life insurance and automobile allowance benefits in effect at the time of his termination (or, if his level of benefits has been reduced within 61 days of the termination, his level of benefits in effect prior to the reduction). To the extent the Company is unable to provide such benefits to the Executive under its existing plans and arrangements, it will arrange to provide the Executive with substantially similar benefits upon comparable terms. 5. If, during the 13th full calendar month following a Change of Control, the Executive terminates his employment with the Company other than for Good Reason by giving 10 days written notice, and if the Executive complies with the agreement not to compete set forth below, the Company will provide benefits as follows: (a) The Company will pay to the Executive 50% of the amounts that he would have received under Section 4(a) above had his termination been for Good Reason. Such payment will be made in 12 equal monthly instalments. (b) The Company will provide the benefits described in Section 4(b) above for a period of 12 months. As a condition to receipt of any benefits under this Section 5, the Executive agrees that he will not, for a period of six months following his termination of employment, engage in, be employed by, or in any way advise or act for, or have any financial interest in, any business that is a competitor of the Company without the express written consent of the Company. The ownership of less than 5% of any class of publicly-traded securities of a corporation will not be considered a financial interest in that corporation for this purpose. 6. In the event of a Change of Control, any options to purchase Company stock held by the Executive under the Company's stock compensation plans and arrangements will become immediately exercisable to the extent not otherwise provided for under such plans and arrangements and remain exercisable for the period of time during which such options would otherwise have remained exercisable under the terms of their governing documents. 7. In the event that it is determined that any payment or benefit provided by the Company to or for the benefit of the Executive, either under this Agreement or otherwise, will be subject to the excise tax imposed by section 4999 of the Internal Revenue Code or any successor provision ("section 4999"), the Company will, prior to the date on which any 4 amount of the excise tax must be paid or withheld, make an additional lump-sum payment (the "gross-up payment") to the Executive. The gross-up payment will be sufficient, after giving effect to all federal, state and other taxes and charges (including interest and penalties, if any) with respect to the gross-up payment, to make the Executive whole for all taxes (including withholding taxes) and any associated interest and penalties, imposed under or as a result of section 4999. Determinations under this Section 7 will be made by an accounting firm, benefits consulting firm or other firm expert in such determinations to be chosen by the Company after consultation with the Executive (the "Firm"). The determinations of the Firm will be binding upon the Company and the Executive except to the extent that the determinations are established in resolution (including by settlement) of a controversy with the Internal Revenue Service to have been incorrect. All fees and expenses of the Firm will be paid by the Company. If the Internal Revenue Service asserts a claim that, if successful, would require the Company to make a gross-up payment or an additional gross-up payment, the Company and the Executive will cooperate fully in resolving the controversy with the Internal Revenue Service. The Company will make or advance such gross-up payments as are necessary to prevent the Executive from having to bear the cost of payments made to the Internal Revenue Service in the course of, or as a result of, the controversy. The Firm will determine the amount of such gross-up payments or advances and will determine after resolution of the controversy whether any advances must be returned by the Executive to the Company. The Company will bear all expenses of the controversy and will gross Executive up for any additional taxes that may be imposed upon Executive as a result of its payment of such expenses. 8. All payments made by the Company under this Agreement will be reduced by any tax or other amounts required to be withheld by the Company under applicable law. 9. Benefits payable under this Agreement as a result of termination of the Executive's employment will be considered severance pay in consideration of his past service and his continued service from the effective date of the Agreement, and his entitlement thereto will nether be governed by any duty to mitigate his damages by seeking further employment nor offset by any compensation that he may receive from other employment. 10. The Company will pay any reasonable fees and expenses (including legal fees and other costs of arbitration or litigation) that the Executive incurs in enforcing his rights under this Agreement. 11. The Executive will be deemed to be employed by the Company if employed by a subsidiary of the Company. For this purpose, a "subsidiary" is any entity in which the Company has voting control. 12. Except as provided in this Section 12, neither the Company nor the Executive may assign this Agreement or any interest herein without the prior written consent of the other. 5 The Company will require that any entity with which it agrees to merge or consolidate or to which it agrees to transfer substantially all of the Company's assets, expressly assume the obligations of the Company under this Agreement. 13. If the Executive dies after becoming entitled to benefits under this Agreement following termination of employment but before all such benefits have been provided, (i) all unpaid cash amounts will be paid to the beneficiary that has been designated by the Executive in writing (the "beneficiary"), or if none, to the Executive's estate, (ii) all applicable insurance coverage will be provided to the Executive's family as though Executive had continued to live, and (iii) any stock options that become exercisable will be exercisable by the beneficiary, or if none, the estate. 14. Benefits that become payable under this Agreement are in lieu of benefits to the Executive under any and all other severance plans or arrangements of the Company. 15. Nothing contained in this Agreement is to be construed as a contract of employment between the Company and the Executive, or as a right of the Executive to continue in the employ of the Company, or as a limitation of the right of the Company to discharge the Executive with or without Cause. 16. This Agreement may be amended or modified only by a written instrument signed by the Executive and by the President or Chairman of the Board of the Company. 17. This is a New Hampshire contract and is to be construed and enforced under and be governed by the laws of the State of New Hampshire. The Timberland Company __________________________________ By:________________________________ 6 SCHEDULE OF EXECUTIVES WHO HAVE EXECUTED THE CHANGE OF CONTROL SEVERANCE AGREEMENT WITH THE TIMBERLAND COMPANY Jeffrey B. Swartz Kenneth P. Pucker Carden N. Welsh Brian P. McKeon David N. Smith Frank Bifulco Bruce Johnson Dennis W. Hagele Danette Wineberg Greg Saltzberg Richard O'Roarke EX-13 9 b38204tcex13.txt PORTIONS OF THE 2000 ANNUAL REPORT 1 Exhibit 13 FINANCIAL REVIEW FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA SELECTED STATEMENT OF INCOME DATA (Dollars in Thousands, Except Per Share Data)
Years Ended December 31, 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------- Revenue $1,091,478 $917,216 $862,168 $796,458 $689,973 Net income before extraordinary item 124,124 75,247 59,156 47,321 20,419 Net income 121,998 75,247 59,156 47,321 20,419 Earnings per share before extraordinary item Basic 3.09 1.75 1.29 1.05 .46 Diluted 2.91 1.70 1.26 1.01 .45 Earnings per share after extraordinary item Basic 3.04 1.75 1.29 1.05 .46 Diluted 2.86 1.70 1.26 1.01 .45 - -----------------------------------------------------------------------------------------
Earnings per share have been restated to reflect the 2-for-1 stock splits in September 1999 and July 2000. SELECTED BALANCE SHEET DATA (Dollars in Thousands)
December 31, 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------- Cash and equivalents $114,852 $196,085 $151,889 $ 98,771 $ 93,336 Working capital 236,687 302,286 291,835 242,911 269,603 Total assets 476,311 493,311 469,467 420,003 449,586 Total long-term debt -- 100,000 100,000 100,000 189,454 Stockholders' equity 316,751 272,368 266,193 214,895 165,360 - ---------------------------------------------------------------------------------------------
2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discusses The Timberland Company's (the "Company") results of operations and liquidity and capital resources. The discussion should be read in conjunction with the consolidated financial statements and related notes. RESULTS OF OPERATIONS (Amounts in Thousands, Except Per Share Data)
Years Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Revenue $1,091,478 100.0% $917,216 100.0% $862,168 100.0% Gross profit 508,512 46.6 393,102 42.9 342,839 39.8 Operating expense 324,340 29.7 276,551 30.2 248,249 28.8 Operating income 184,172 16.9 116,551 12.7 94,590 11.0 Interest expense 5,648 0.5 9,342 1.0 9,538 1.1 Other, net (8,128) 0.7 (3,449) 0.4 (1,942) 0.2 Net income before extraordinary item 124,124 11.4 75,247 8.2 59,156 6.9 Extraordinary item - loss on debt extinguishment, net of tax benefit of $1,071 2,126 0.2 -- -- -- -- Net income 121,998 11.2 75,247 8.2 59,156 6.9 Earnings per share before extraordinary item Basic $3.09 $1.75 $1.29 Diluted $2.91 $1.70 $1.26 Earnings per share after extraordinary item Basic $3.04 $1.75 $1.29 Diluted $2.86 $1.70 $1.26 Weighted-average shares outstanding Basic 40,119 42,895 45,698 Diluted 42,647 44,355 47,035 - -----------------------------------------------------------------------------------------------------
Earnings per share and weighted-average shares have been restated to reflect the 2-for-1 stock splits in September 1999 and July 2000. Revenue increased to $1,091.5 million in 2000 from $917.2 million in 1999 and $862.2 million in 1998. This represents an increase of 19.0% in 2000 and a 6.4% increase in 1999, each compared with the prior year. Excluding the acquisition of the Asian subsidiaries (see Note 2), revenue for 2000 grew 13.2%, compared with the prior year period. Footwear revenue was $838.0 million in 2000, $713.4 million in 1999, and $651.8 million in 1998. This represents an increase of 17.5% in 2000 and an increase of 9.5% in 1999, each compared with the prior year. The revenue increase in 2000, compared with 1999, was primarily due to domestic wholesale unit sales and, to a lesser degree, the acquisition of the Asian subsidiaries, partially offset by the impact of foreign exchange. By product, the increase was primarily attributable to unit volume growth in Boots and, to a lesser degree, Kids', the Timberland PRO(TM) series and the Mountain Athletics(TM) by Timberland sub-brand. These increases were partially offset by unit volume decreases in the domestic Men's, the Performance and the Women's categories. The increase in 1999, compared with 1998, was primarily due to increases in domestic and, to a lesser degree, European unit sales, partially offset by the impact of foreign exchange. By product, the increase in 1999, compared with 1998, was primarily attributable to unit volume growth in Boots and, to a lesser degree, the combination of the introduction of the new Mountain Athletics by Timberland sub-brand and Timberland PRO series sub-brands, Kids' and Men's Casual footwear in Europe. These increases in revenue were partially offset by domestic wholesale unit volume decreases in the Performance and, to a lesser degree, the Casual categories. Worldwide footwear revenue represented 77.5%, 79.1% and 76.9% of total product revenue in 2000, 1999 and 1998, respectively. Revenue attributable to apparel and accessories was $242.9 million in 2000, $189.0 million in 1999 and $195.8 million in 1998. The revenue increase of 28.5% in 2000, compared with 1999, reflects double-digit increases 3 across the Company's domestic and international businesses, resulting primarily from increased domestic and European retail unit sales, the acquisition of the Asian subsidiaries, and, to a lesser degree, European and domestic wholesale unit sales. These increases were partially offset by foreign exchange. The revenue decrease of 3.5% in 1999, compared with 1998, was primarily due to a reduction in domestic wholesale revenue, partially offset by increases in European average selling price and unit sales, and domestic retail unit sales. The decrease in domestic wholesale revenue was primarily due to the Company's focus on rationalizing its domestic distribution strategy and better managing inventory levels. That focus also reduced wholesale off-price apparel sales by $6.9 million. Worldwide apparel and accessories revenue represented 22.5%, 20.9% and 23.1% of total product revenue in 2000, 1999 and 1998, respectively. Worldwide revenue from Company-owned specialty and factory outlet stores was $280.7 million in 2000, $210.5 million in 1999 and $191.7 million in 1998. This represents an increase of 33.3% in 2000 and 9.8% in 1999, each compared with the prior year. The increase in revenue in 2000, compared with 1999, was primarily due to the acquisition of the Asian subsidiaries and, to a lesser degree, increases in domestic apparel and accessories and footwear unit sales, partially generated by new retail locations. Excluding Asia, revenue for 2000 increased 14.7%, compared with the prior year period. The increase in revenue in 1999, compared with 1998, was primarily due to increases in footwear and, to a lesser degree, apparel and accessories unit sales, again, partially generated by new retail locations. Worldwide retail revenue represented 25.7%, 22.9% and 22.2% of total revenue in 2000, 1999 and 1998, respectively. The Company has three reportable business segments: U.S. Wholesale, U.S. Retail and International (for a more detailed description and additional financial information regarding segments, see the "Business Segments and Geographic Information" note (Note 11) to the Company's consolidated financial statements). Domestic revenue, comprised of the U.S. Wholesale and U.S. Retail segments, amounted to $787.0 million in 2000, $662.5 million in 1999 and $610.3 million in 1998, or 72.1%, 72.2% and 70.8% of total revenue for each of the three years, respectively. The U.S. Wholesale segment revenue increased by 20.3% in 2000, compared with 1999, and by 8.4% in 1999, compared with 1998, both primarily due to increases in footwear unit sales. The U.S. Retail segment revenue increased by 14.6% in 2000, compared with 1999, primarily due to apparel and accessories unit sales, and to a lesser degree, footwear unit sales. The U.S. Retail segment revenue increased by 8.9% in 1999, compared with 1998, primarily due to footwear unit sales and, to a lesser degree, apparel and accessories unit sales. Increases in both 2000 and 1999, compared to the respective prior year periods, were enhanced by new retail locations, with comparable domestic store sales increases of 4.5% in 2000, compared with 1999, and 5.4% in 1999, compared with 1998. International segment revenue increased by 19.6% in 2000, compared with 1999, and by 1.1% in 1999, compared with 1998. The increase in 2000, compared with 1999, was primarily due to the acquisition of the Asian subsidiaries and, to a lesser degree, European footwear and apparel and accessories unit sales, partially offset by the impact of foreign exchange. Excluding Asia, revenue for 2000 decreased 1.6% compared with 1999. On a constant dollar basis, excluding Asia, revenue for 2000 increased 10.1% over 1999, reflecting double-digit increases in four of the Company's five European subsidiaries. The increase in 1999, compared with 1998, was primarily due to higher European unit sales and apparel and accessories average selling prices. This increase was substantially offset by the impact of foreign exchange and, to a lesser degree, lower revenue in Asia where the Company operated through an independent distributor. The gross profit margin was 46.6% in 2000, 42.9% in 1999 and 39.8% in 1998. The increase in margin percentage in 2000, compared with 1999, was primarily due to improved design and development of footwear and apparel, a reduction in third party sourcing costs and internal manufacturing efficiencies and, to a lesser degree, the acquisition of the Asian subsidiaries, which include a higher percentage of higher margin retail sales. These improvements were partially offset by increases in leather prices. The Asian subsidiaries added 0.9 percentage points to the Company's gross profit rate in 2000. The increase in margin percentage in 1999, compared with 1998, was primarily due to a reduction in sourcing costs, improvements in manufacturing efficiencies and product mix in apparel, including fewer off-price apparel sales. Operating expense was $324.3 million, or 29.7% of revenue in 2000, $276.6 million, or 30.2% of revenue in 1999 and $248.2 million, or 28.8% of revenue, in 1998. The 17.3% increase in operating expense in 2000, compared with 1999, was principally due to the acquisition of the Asian subsidiaries and, to a lesser degree, expenditures to promote business growth, predominantly selling and marketing expenses. Excluding Asia, operating expense increased 5.9%, which resulted in a 1.9 percentage point decrease in operating expense as a percent of revenue for 2000, compared with the prior year period. The 11.4% increase in operating expense in 1999, compared with 1998, was also principally due to selling and marketing related expenditures. 4 Operating income, which is pre-tax earnings before interest expense and other, net, was $184.2 million in 2000, $116.6 million in 1999 and $94.6 million in 1998. As a percentage of revenue, operating income was 16.9% in 2000, 12.7% in 1999 and 11.0% in 1998. Segment operating income improved in all segments in 2000 and 1999, compared with the respective prior years. In the U.S. Wholesale segment, in both footwear and apparel, revenue increases, combined with improved gross margin rates, and, to a lesser degree, lower operating expense rates, drove the improvement in operating income. In the U.S. Retail segment, increased revenue drove the improvement in operating income, as gross margin and expense rates were nearly equal to the prior year. Internationally, the acquisition of the Asian subsidiaries was the primary reason for the year over year operating income improvement. In the Company's European subsidiaries, improved revenue and contribution, as measured on a constant dollar basis, was offset by the impact of foreign exchange. The increase in the Unallocated Corporate operating loss in 2000, compared with 1999, was primarily due to higher marketing and United States distribution expenses. The decrease in interest expense was primarily due to the prepayment of the $100.0 million in senior notes (see Note 3). The decrease in other, net reflects the $5.1 million of Inchcape plc proceeds received from Inchcape plc's disposition of distributor assets (see Note 2). The increase in Unallocated Corporate expenses in 1999, compared with 1998, was primarily due to finance, information systems, legal and administrative expenses incurred in the support of company-wide activities, and United States distribution expenses. Interest expense was $5.6 million in 2000, compared with $9.3 million in 1999 and $9.5 million in 1998. The decrease from 1999 to 2000 was primarily due to the aforementioned prepayment of the senior notes. The decrease from 1998 to 1999 was due to lower levels of short-term borrowings. The effective income tax rate was 33.5% in 2000, 32.0% in 1999 and 32.0% in 1998. For an analysis of the effective tax rate, see the "Income Taxes" note (Note 9) to the Company's consolidated financial statements. The Company believes that inflation has not had a significant impact on the Company's operations over the past three years. LIQUIDITY AND CAPITAL RESOURCES Cash generated by operations amounted to $141.3 million in 2000, $137.8 million in 1999 and $86.5 million in 1998. The Company's earnings and continued improvements in working capital management were the principal sources of cash generation. The increase in receivables in 2000, compared with 1999, was primarily due to the acquisition of the Asian subsidiaries and a general increase in business volume. The increase in inventory was also primarily due to the acquisition of the Asian subsidiaries. The reduction in inventory in 1999, compared with the respective prior year, was achieved by improved forecasting accuracy and the reduction of excess and obsolete product in the business system. Inventory turns were 4.0 times in 2000, compared with 3.7 times in 1999 and 3.2 times in 1998. Days sales outstanding at December 31, 2000 were 29 days, compared with 26 days at December 31, 1999 and 27 days at December 31, 1998. Domestic wholesale days sales outstanding were 32 days, 29 days and 34 days at the end of 2000, 1999 and 1998, respectively. Days sales outstanding increased in 2000, compared with 1999, partially due to the impact of adding Asian receivables for holiday sales. Net cash used by investing activities amounted to $32.4 million in 2000, $23.7 million in 1999 and $21.8 million in 1998. Of the net cash used by investing activities, capital expenditures were $35.4 million in 2000, $20.1 million in 1999 and $20.7 million in 1998. A majority of capital expenditures during the three years ended December 31, 2000, 1999 and 1998 were for transportation and distribution equipment, manufacturing machinery and equipment, retail store additions and building improvements, and information system enhancements. The acquisition of the Asian subsidiaries generated $5.2 million of cash (see Note 2). During 2000, 1999 and 1998, net cash used in financing activities amounted to $188.5 million, $66.8 million and $12.4 million, respectively. In 2000, 1999 and 1998, $101.7 million, $71.7 million and $16.2 million was used to repurchase outstanding shares of the Company's Class A Common Stock, respectively. Financing activities in 2000 also includes the prepayment of $100.0 million in senior notes. The extraordinary item associated with this debt prepayment is included in financing activities (see Note 3). The Company uses funds from operations and unsecured revolving and committed lines of credit as the primary sources of financing for its seasonal and other working capital requirements. On April 30, 1998, the Company entered into a revolving credit agreement to provide up to $80.0 million in letters of credit under an overall $100.0 million committed facility. This agreement expires on June 19, 2001. The Company is in the process of 5 negotiating a replacement facility that is expected, at a minimum, to provide the same level of borrowing as the current facility and extend through 2004. The Company had no debt at December 31, 2000. At December 31, 1999 and 1998, the Company had $100.0 million in debt. The Company's debt to capital ratio was 26.9% at December 31, 1999 and 27.3% at December 31, 1998. Management believes that the Company's capital requirements for 2001 will be met through the use of its current cash balances, through its existing credit facilities and through cash flow from operations, without the need for additional permanent financing. However, if the need arises, the Company's ability to obtain any additional credit facilities will depend upon prevailing market conditions, the Company's financial condition and the terms and conditions of such additional facilities. NEW ACCOUNTING PRONOUNCEMENTS A discussion of new accounting pronouncements is included in the "Summary of Significant Accounting Policies" note (Note 1) to the Company's consolidated financial statements. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the financial position and results of operations of the Company are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and income. The Company regularly assesses these risks and has established policies and business practices to protect against the adverse effect of these and other potential exposures. The Company utilizes cash from operations and U.S. dollar denominated borrowings to fund its working capital and investment needs. Short-term debt, if required, is used to meet working capital requirements and long-term debt, if required, is generally used to finance long-term investments. In addition, derivative instruments are used by the Company in its hedging of foreign currency transactions. These debt instruments and derivative instruments are viewed as risk management tools and are not used for trading or speculative purposes. Cash balances are normally invested in high-grade securities with terms under three months. The Company has available unsecured committed and uncommitted lines of credit as sources of financing for its working capital requirements. Borrowings under these credit agreements bear interest at variable rates based on either lenders' cost of funds, plus an applicable spread or prevailing money market rates. At December 31, 2000, the Company had no short-term or long-term debt outstanding. At December 31, 1999, the Company had no short-term debt 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 and, to a lesser degree, its Asian operating subsidiaries. The Company seeks to minimize the impact of these foreign currency fluctuations by hedging the related transactions with foreign currency forward contracts. These contracts are short-term and expire in twelve months or less. Based upon sensitivity analysis as of December 31, 2000, a 10% change in foreign exchange rates would cause the fair value of the Company's financial instruments to increase/decrease by approximately $5.0 million. EURO Effective January 1, 1999, the European Monetary Union ("EMU") created a single currency, the euro, for its member countries. A transition period, from January 1, 1999 through December 31, 2001, will allow the member countries to methodically eliminate their local currencies and to convert to the euro. During this transition period, either the euro or a member country's present currency will be accepted as legal tender. In 1998, the Company formed a task force to study the requirements of conversion to the euro and the related impact to the Company (four of the five European subsidiaries of the Company operate in countries that are members of the EMU). The task force reviewed technology requirements, pricing and competitive implications, banking, the impact on hedging programs and the timing and costs related to each of these issues. From this review, a conversion program was developed and implemented in 1998. As of December 31, 1999, the accounting and ledger systems of the Company's European subsidiaries were euro compliant. Additionally, the Company could invoice and manage all wholesale orders in local currency 6 and euros. At the subsidiaries' retail locations, all credit card readers were euro compliant and all price tags and displays were in both local currency and euros. The retail store registers and merchandising/inventory management systems were euro compliant as of the end of 2000. Throughout 2001, the Company will continue to review and potentially adjust its European subsidiaries' wholesale and retail pricing for consistency among markets. By the close of the third quarter, the Company will be completing euro compliance efforts on its financial reporting and consolidation systems to support all euro process and system changes. The Company believes that the adoption of the euro will not have a material impact on the Company's consolidated financial statements. FORWARD-LOOKING INFORMATION As discussed in an exhibit to the Company's Form 10-K for the year ended December 31, 2000, entitled "Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995," investors should be aware of factors that could affect the Company's actual results and could cause such results to differ materially from those contained in forward-looking statements made by or on behalf of the Company. These factors include, but are not limited to: (i) the Company's ability to source from and sell product into international markets, which may be affected by import restrictions, political and environmental concerns, as well as the Company's ability to manage its foreign exchange rate risks by hedging, and other similar activities such as conversion to the euro; (ii) the Company's ability to successfully market and sell its products in view of changing consumer trends, consumer acceptance of products, and economic and other factors, such as inflationary or recessionary trends affecting retail market conditions; (iii) the Company's ability to successfully invest in its infrastructure and product based upon its advance sales forecasts; (iv) the Company's ability to obtain adequate raw materials at competitive prices; (v) the Company's ability to locate and retain independent manufacturers to produce lower cost, high quality products with rapid turn-around times; (vi) the Company's ability to recover its investment in and expenditures of its retail organization through adequate sales at such retail locations; and (vii) the Company's ability to respond to actions of the Company's competitors, some of whom have substantially greater resources than those of the Company. QUARTERLY MARKET INFORMATION AND RELATED MATTERS The Company's Class A Common Stock is traded on the New York Stock Exchange under the symbol TBL. There is no market for shares of the Company's Class B Common Stock; however, shares of Class B Common Stock may be converted into shares of Class A Common Stock on a one-for-one basis and will automatically be converted upon any transfer (except for estate planning transfers and transfers approved by the Board of Directors). The following table presents the high and low closing sales prices of the Company's Class A Common Stock for the past two years, as reported by the New York Stock Exchange.
2000 1999 High Low High Low - -------------------------------------------------------------------------------- First Quarter 26 5/8 18 1/2 16 9/64 10 41/64 Second Quarter 39 11/32 24 18 1/2 14 17/32 Third Quarter 44 3/16 31 1/4 21 5/32 15 23/32 Fourth Quarter 69 3/16 33 13/16 26 7/16 17 7/8
Quarterly stock prices have been restated to reflect the 2-for-1 stock splits in September 1999 and July 2000. As of February 23, 2001, the number of record holders of the Company's Class A Common Stock was approximately 780 and the number of record holders of the Company's Class B Common Stock was 7. The closing sales price of the Company's Class A Common Stock on February 23, 2001 was $55.40 per share. The Company has never declared a dividend on either the Company's Class A or Class B Common Stock and does not contemplate doing so in the foreseeable future. In addition, the Company's ability to pay cash dividends is limited pursuant to loan agreements (see notes to the Company's consolidated financial statements). 7 CONSOLIDATED BALANCE SHEETS As of December 31, 2000 and 1999 (Amounts in Thousands, Except Share and Per Share Data)
2000 1999 - ----------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and equivalents $114,852 $196,085 Accounts receivable, net of allowance for doubtful accounts of $5,825 in 2000 and $4,910 in 1999 105,727 78,696 Inventory 131,917 114,673 Prepaid expense 13,717 9,890 Prepaid income taxes 15,547 15,297 - ----------------------------------------------------------------------------------------------------- Total current assets 381,760 414,641 - ----------------------------------------------------------------------------------------------------- Property, plant and equipment 150,462 130,425 Less accumulated depreciation and amortization (76,817) (75,019) - ----------------------------------------------------------------------------------------------------- Net property, plant and equipment 73,645 55,406 - ----------------------------------------------------------------------------------------------------- Excess of cost over fair value of net assets acquired, net 15,848 17,533 Other assets, net 5,058 5,731 - ----------------------------------------------------------------------------------------------------- Total assets $476,311 $493,311 - ----------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $49,437 $33,247 Accrued expense Payroll and related 34,311 30,570 Other and interest 41,976 35,038 Income taxes payable 19,349 13,500 - ----------------------------------------------------------------------------------------------------- Total current liabilities 145,073 112,355 - ----------------------------------------------------------------------------------------------------- Long-term debt -- 100,000 Deferred income taxes 8,975 8,588 Excess of fair value of acquired assets over cost, net 5,512 -- 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); 60,000,000 shares authorized; 39,833,928 shares issued at December 31, 2000 and 37,276,710 shares issued at December 31, 1999 398 187 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; 7,932,900 shares issued at December 31, 2000 and 9,351,396 shares issued at December 31, 1999 79 47 Additional paid-in capital 109,756 82,755 Deferred compensation (4,373) (3,658) Retained earnings 403,972 282,209 Accumulated other comprehensive loss (7,292) (4,151) Less treasury stock at cost; 8,151,039 shares at December 31, 2000 and 5,342,698 shares at December 31, 1999 (185,789) (85,021) - ----------------------------------------------------------------------------------------------------- Total stockholders' equity 316,751 272,368 - ----------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $476,311 $493,311 - -----------------------------------------------------------------------------------------------------
Shares have been restated to reflect the 2-for-1 stock splits in September 1999 and July 2000. The accompanying notes are an integral part of these consolidated financial statements. 8 CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2000, 1999 and 1998 (Amounts in Thousands, Except Per Share Data)
2000 1999 1998 - ---------------------------------------------------------------------------------------------- Revenue $1,091,478 $917,216 $862,168 Cost of goods sold 582,966 524,114 519,329 - ---------------------------------------------------------------------------------------------- Gross profit 508,512 393,102 342,839 - ---------------------------------------------------------------------------------------------- Operating expense Selling 258,081 219,545 195,688 General and administrative 65,129 55,321 50,876 Amortization of goodwill 1,130 1,685 1,685 - ---------------------------------------------------------------------------------------------- Total operating expense 324,340 276,551 248,249 - ---------------------------------------------------------------------------------------------- Operating income 184,172 116,551 94,590 - ---------------------------------------------------------------------------------------------- Other expense (income) Interest expense 5,648 9,342 9,538 Other, net (8,128) (3,449) (1,942) - ---------------------------------------------------------------------------------------------- Total other expense (income) (2,480) 5,893 7,596 - ---------------------------------------------------------------------------------------------- Income before income taxes 186,652 110,658 86,994 Provision for income taxes 62,528 35,411 27,838 - ---------------------------------------------------------------------------------------------- Net income before extraordinary item $ 124,124 $ 75,247 $ 59,156 - ---------------------------------------------------------------------------------------------- Extraordinary item -- loss on debt extinguishment, net of tax benefit of $1,071 (see Note 3) 2,126 -- -- - ---------------------------------------------------------------------------------------------- Net income $ 121,998 $ 75,247 $ 59,156 - ---------------------------------------------------------------------------------------------- Earnings per share before extraordinary item Basic $ 3.09 $ 1.75 $ 1.29 Diluted $ 2.91 $ 1.70 $ 1.26 - ---------------------------------------------------------------------------------------------- Earnings per share after extraordinary item Basic $ 3.04 $ 1.75 $ 1.29 Diluted $ 2.86 $ 1.70 $ 1.26 - ---------------------------------------------------------------------------------------------- Weighted-average shares outstanding Basic 40,119 42,895 45,698 Diluted 42,647 44,355 47,035 - ----------------------------------------------------------------------------------------------
Earnings per share and weighted-average shares have been restated to reflect the 2-for-1 stock splits in September 1999 and July 2000. The accompanying notes are an integral part of these consolidated financial statements. 9 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Years Ended December 31, 2000, 1999 and 1998 (Dollars in Thousands)
Accumulated Class A Class B Additional Other Common Common Paid-in Deferred Retained Comprehensive Treasury Stock Stock Capital Compensation Earnings Income (Loss) Stock - ------------------------------------------------------------------------------------------------------------------------ Balance, January 1, 1998 $ 88 $ 26 $ 68,568 $ - $147,921 $ (1,595) $ (113) Issuance of shares under employee stock plans 4 (3) 3,843 - - - - Repurchase of common stock - - - - - - (16,223) Tax benefit from stock option plans - - 2,300 - - - - Comprehensive income: Net income - - - - 59,156 - - Translation adjustment - - - - - 2,221 - Comprehensive income - - - - - - - - ------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1998 92 23 74,711 - 207,077 626 (16,336) Issuance of shares under employee stock plans 3 1 5,544 (3,705) - - 2,985 Amortization of deferred compensation - - - 47 - - - Repurchase of common stock - - - - - - (71,670) Tax benefit from stock option plans - - 2,500 - - - - 2-for-1 stock split 92 23 - - (115) - - Comprehensive income: Net income - - - - 75,247 - - Translation adjustment - - - - - (4,777) - Comprehensive income - - - - - - - - ------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1999 187 47 82,755 (3,658) 282,209 (4,151) (85,021) Issuance of shares under employee stock plans 17 (9) 14,401 (404) - - 950 Amortization of deferred compensation - - - 799 - - - Loan on restricted stock issuance - - - (1,110) - - - Repurchase of common stock - - - - - - (101,718) Tax benefit from stock option plans - - 12,600 - - - - 2-for-1 stock split 194 41 - - (235) - - Comprehensive income: Net income - - - - 121,998 - - Translation adjustment - - - - - (3,141) - Comprehensive income - - - - - - - - ------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2000 $ 398 $ 79 $ 109,756 $ (4,373) $403,972 $ (7,292) $(185,789) - ------------------------------------------------------------------------------------------------------------------------
Consolidated Comprehensive Stockholders' Income Equity - ----------------------------------------------------------------------------- Balance, January 1, 1998 $ 214,895 Issuance of shares under employee stock plans 3,844 Repurchase of common stock (16,223) Tax benefit from stock option plans 2,300 Comprehensive income: Net income $ 59,156 59,156 Translation adjustment 2,221 2,221 ----------- Comprehensive income $ 61,377 - - ----------------------------------------------------------------------------- Balance, December 31, 1998 266,193 Issuance of shares under employee stock plans 4,828 Amortization of deferred compensation 47 Repurchase of common stock (71,670) Tax benefit from stock option plans 2,500 2-for-1 stock split - Comprehensive income: Net income $ 75,247 75,247 Translation adjustment (4,777) (4,777) ----------- Comprehensive income $ 70,470 - - ----------------------------------------------------------------------------- Balance, December 31, 1999 272,368 Issuance of shares under employee stock plans 14,955 Amortization of deferred compensation 799 Loan on restricted stock issuance (1,110) Repurchase of common stock (101,718) Tax benefit from stock option plans 12,600 2-for-1 stock split - Comprehensive income: Net income $ 121,998 121,998 Translation adjustment (3,141) (3,141) ----------- Comprehensive income $ 118,857 - - ----------------------------------------------------------------------------- Balance, December 31, 2000 $ 316,751 - -----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 10 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2000, 1999 and 1998 (Dollars in Thousands)
2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 121,998 $ 75,247 $ 59,156 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes 137 (714) (35) Depreciation and amortization 19,291 24,410 18,199 Loss (gain) on disposal of property, plant and equipment (131) 396 1,303 Extraordinary item 2,126 -- -- Tax benefit from stock option plans 12,600 2,500 2,300 Increase (decrease) in cash from changes in working capital: Accounts receivable (24,419) (2,687) (2,781) Inventory (10,479) 15,817 11,637 Prepaid expense (1,104) 1,679 1,112 Accounts payable 14,120 10,144 5,083 Accrued expense 7,681 15,290 (9,975) Income taxes (507) (4,301) 459 - --------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 141,313 137,781 86,458 - --------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Acquisition of Asian Distributor business 5,237 -- -- Proceeds from sale of property, plant and equipment -- 81 97 Additions to property, plant and equipment (35,444) (20,094) (20,683) Other, net (2,169) (3,701) (1,245) - --------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (32,376) (23,714) (21,831) - --------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Extinguishment of debt (100,000) -- -- Extraordinary item (2,126) -- -- Common stock repurchases (101,718) (71,670) (16,223) Issuance of common stock 15,359 4,828 3,844 - --------------------------------------------------------------------------------------------------------------------- Net cash used by financing activities (188,485) (66,842) (12,379) - --------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash (1,685) (3,029) 870 - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and equivalents (81,233) 44,196 53,118 Cash and equivalents at beginning of year 196,085 151,889 98,771 - --------------------------------------------------------------------------------------------------------------------- Cash and equivalents at end of year $ 114,852 $ 196,085 $ 151,889 - --------------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Interest paid $ 5,863 $ 9,165 $ 9,378 Income taxes paid 55,471 40,848 27,336 - ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in Thousands, Except Share and Per Share Data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation The consolidated financial statements include the accounts of The Timberland Company and its subsidiaries (the "Company"). All material intercompany transactions have been eliminated in consolidation. Recognition of Revenue Revenue consists of sales to customers, license fees and royalties. Sales are recognized upon shipment of product to customers. License fees and royalties are recognized when earned. Translation of Foreign Currencies The Company translates financial statements denominated in foreign currencies by translating balance sheet accounts at the end of period exchange rates and statement of income accounts at the average exchange rates for the period. Translation gains and losses are recorded in stockholders' equity and reflected in other comprehensive income, and transaction gains and losses are reflected in net income. Derivatives The Company is exposed to foreign exchange risk when it sells goods in local currencies through its foreign subsidiaries. It is the Company's policy to hedge a portion of this risk through forward sales of foreign currencies, thereby locking in the future exchange rates. Gains and losses on the underlying contracts are accounted for using hedge accounting. Accordingly, the change in the fair value of the contracts that hedge firm commitments is deferred and recognized as part of the related foreign currency transaction upon occurrence. Unhedged currency gains and losses are recognized through income as incurred. All derivative instruments used by the Company are for the aforementioned purposes only. The Company will adopt Statement of Financial Accounting Standards No. 133 in the first quarter of 2001. A discussion of the expected impact of the adoption of this standard is addressed within this note under New Accounting Pronouncements. Cash and Equivalents Cash and equivalents consist of short-term, highly liquid investments that normally have original maturities to the Company of three months or less. Inventory Inventory is stated at the lower of cost (first-in, first-out) or market. Property, Plant and Equipment Property, plant and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets or over the terms of the related leases, if such periods are shorter. The principal estimated useful lives are: building and improvements, 4 to 30 years; machinery and equipment, 3 to 12 years; lasts, patterns and dies, 3 years. Excess of Cost Over Fair Value of Net Assets Acquired The excess of cost over the fair value of net assets acquired is being amortized on a straight-line basis over periods of 10, 15 and 40 years. Accumulated amortization amounted to $15,927 and $14,242 at December 31, 2000 and 1999, respectively. Excess of Fair Value of Acquired Assets Over Cost The excess of fair value of acquired assets over cost is being amortized on a straight-line basis over a period of 10 years. Accumulated amortization amounted to $555 at December 31, 2000 (see Note 2). Accrued Insurance Costs The Company is self-insured for workers' compensation, healthcare and short-term disability up to certain specified limits. Expenses associated with such self-insurance programs are accrued based upon estimates of the amounts required to cover incurred incidents. Income Taxes Income taxes are determined based on the income reported in the Company's financial statements, regardless of when such taxes are payable. In addition, tax assets and liabilities are adjusted to reflect the changes in U.S. and 12 applicable foreign income tax laws when enacted. Future tax benefits, such as prepaid income taxes, are recognized to the extent that realization of such benefits is more likely to occur than not. Accounting for Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the Company to make assumptions that affect the estimates reported in these consolidated financial statements. Actual results may differ from these estimates. Stock Splits In 2000 and 1999, the Company's Board of Directors approved 2-for-1 stock splits of Timberland's Class A and Class B Common Stock, effective July 17, 2000 and September 15, 1999. All share and per share amounts in the accompanying consolidated financial statements and related notes have been restated for all periods to reflect the stock splits. Earnings Per Share Basic Earnings Per Share ("EPS") excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding for the periods presented. Diluted EPS reflects the potential dilution that would occur if securities such as stock options were exercised. Dilutive securities (see Note 13) included in the calculation of diluted weighted-average shares were 2,527,353 in 2000, 1,459,944 in 1999 and 1,337,292 in 1998. Long-lived Assets The Company continually evaluates the carrying values and estimated useful lives of its long-lived assets, primarily property, plant and equipment and intangible assets. When factors indicate that such assets should be evaluated for possible impairment, the Company uses estimates of future operating results and cash flows to determine whether the assets are economically recoverable. Stock-based Compensation The Company accounts for stock-based compensation using the method prescribed by Accounting Principles Board Opinion No. 25 and related interpretations. The Company follows Statement of Financial Accounting Standards No. 123 for disclosure purposes. Comprehensive Income Comprehensive income, in the case of the Company, is the combination of reported net income and other comprehensive income, which is comprised of foreign currency translation adjustments. Comprehensive income has no impact on the Company's reported net income. Comprehensive income is included in the consolidated statements of changes in stockholders' equity. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." 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." That statement amended SFAS No. 133 to defer its effective date by one year to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133." That statement made certain changes in the hedging provisions of SFAS No. 133, and is effective concurrent with SFAS No. 133 (collectively hereafter referred to as the "Statement"). The Statement will require the Company to recognize all derivatives on its balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset by the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company will adopt the Statement on January 1, 2001. As a result of this adoption, the Company will record in the first quarter of fiscal 2001 the cumulative effect of a change in accounting adjustment to other comprehensive income for derivatives which hedge foreign currency cash flows of certain forecasted transactions. That adjustment is expected to be immaterial. The fair value of those derivatives was previously deferred, to be 13 recorded at the time the hedged transaction occurred. In general, the Company believes that its current risk management philosophy and approach will remain largely unchanged after the adoption of the Statement. In June 2000, the Securities and Exchange Commission issued Staff Accounting Bulletin 101, and related amendments, which address revenue recognition interpretations. In September 2000, the FASB's Emerging Issues Task Force ("EITF") concluded discussion on Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." Both documents were effective in the Company's fourth quarter of 2000. Neither document identified any matters that would materially impact the Company's consolidated financial statements or require a change in the Company's accounting policies. In July 2000, the EITF concluded discussion on Issue 00-15, "Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option." As a result of that discussion, in the consolidated statements of cash flows, the Company has included the tax benefit from stock option plans in operating activities, rather than in financing activities. Prior year periods have been reclassified to conform with the current year presentation. 2. ACQUISITION OF ASIAN DISTRIBUTOR BUSINESS On February 18, 2000, the Company signed an agreement pursuant to which it re-acquired from Inchcape plc the exclusive distribution rights for the sale of Timberland(R) brand 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 $ 21,852 Fair value of liabilities assumed (14,082) - -------------------------------------------------------------------------------- Fair value of net assets acquired 7,770 Cash paid (1,223) Acquisition costs (480) - -------------------------------------------------------------------------------- Excess of fair value of acquired net assets over cost $ 6,067 - --------------------------------------------------------------------------------
The fair value of net assets acquired includes $6,460 of cash, resulting in net cash received of $5,237. 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 consolidated financial statements. The purchase price has been allocated to the assets purchased and liabilities assumed based on 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 consolidated financial statements. As part of this transaction, the Company released Inchcape plc from its obligations under the Distributorship, Supply and Retail Development Agreement dated January 26, 1995. As part of this transaction, the Company received from Inchcape plc $5,055, which represented a portion of the proceeds from the disposition of the assets in Australia, New Zealand, Thailand and Taiwan. All proceeds were recognized in other income. On July 31, 2000, the Company acquired Inchcape plc's Taiwan based net assets for $662. Taiwan is included in the Company's consolidated financial statements and does not have a material impact on those statements. Taiwan is included in all subsequent references to the Asian subsidiaries. 3. LONG-TERM DEBT AND EXTRAORDINARY LOSS As of December 31, 2000, the Company had no long-term debt outstanding. On June 30, 2000, the Company prepaid $100,000 of 8.94% senior notes with a maturity of December 15, 2001. As a result of that prepayment, the Company recorded an extraordinary loss of $2,126 after taxes, or $0.05 per share diluted ($0.05 basic). The loss primarily consisted of a prepayment penalty and costs associated with the early redemption of the debt combined with accelerated amortization of bond issuance costs, net of tax benefits of $1,071. The prepayment of the senior notes was financed with cash from operations. The Company's long-term debt, at December 31, 1999, consisted of the $100,000 of 8.94% notes. 14 4. NOTES PAYABLE The Company has an unsecured committed revolving credit agreement (the "Agreement") with a group of banks. The Agreement expires on June 19, 2001 and provides for $100,000 of committed borrowings, of which up to $80,000 may be used for letters of credit. Under the terms of the Agreement, the Company may borrow at interest rates (7.1% at December 31, 2000) based upon the lenders' cost of funds, plus an applicable spread. The Agreement provides for a facility fee of 0.20% per annum on the full commitment, places limitations on incurring additional debt, stock repurchases and on the amount of dividends the Company may pay, and also contains certain other financial and operating covenants. The Company is in the process of negotiating a replacement facility that is expected, at a minimum, to provide the same level of borrowing as the current facility and extend through 2004. Additionally, the Company has uncommitted lines of credit available from certain banks totaling $35,000 at December 31, 2000. Borrowings under these lines are at prevailing money market rates (7.0% at December 31, 2000). These arrangements may be terminated at any time at the option of the banks or the Company. 5. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK The following table illustrates the U.S. dollar equivalent of foreign exchange contracts at December 31, 2000 and 1999 along with maturity dates, net unrealized gain (loss) and net unrealized gain (loss) deferred. Unrealized gains or losses are determined based on the difference between the settlement and year-end foreign exchange rates. The contract amount represents the net amount of all purchase and sale contracts of a foreign currency.
Contract Amount Net Unrealized (U.S. $ Maturity Unrealized Unrealized Net Unrealized Gain (Loss) Equivalent) Date Gross Gain Gross (Loss) Gain (Loss) Deferred - ------------------------------------------------------------------------------------------------------------------- December 31, 2000 - ------------------------------------------------------------------------------------------------------------------- Pounds Sterling $12,125 2001 $ 181 $ - $ 181 $ 181 Euro 34,808 2001 - (14) (14) (14) Japanese Yen 7,098 2001 713 - 713 713 - ------------------------------------------------------------------------------------------------------------------- Total $54,031 $ 894 $(14) $ 880 $ 880 - ------------------------------------------------------------------------------------------------------------------- December 31, 1999 - ------------------------------------------------------------------------------------------------------------------- Pounds Sterling $16,509 2000 $ 33 $ - $ 33 $ 31 Euro 35,004 2000 2,585 - 2,585 2,585 - ------------------------------------------------------------------------------------------------------------------- Total $51,513 $2,618 $ - $2,618 $2,616 - -------------------------------------------------------------------------------------------------------------------
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high credit quality financial institutions, thereby minimizing exposure to concentrations of credit risk. Credit risk with respect to trade receivables is limited, due to the large number of customers included in the Company's customer base. The Company had an allowance for doubtful accounts receivable of $5,825 and $4,910 at December 31, 2000 and 1999, respectively. 6. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as follows:
December 31, 2000 1999 - ------------------------------------------------------------------------------------------------ Carrying Carrying or Contract Fair or Contract Fair Amount Value Amount Value - ------------------------------------------------------------------------------------------------ Cash and equivalents(1) $114,852 $114,852 $196,085 $196,085 Long-term debt(2) - - 100,000 103,549 Foreign currency contracts(3) 54,031 53,151 51,513 48,895 - ------------------------------------------------------------------------------------------------
(1) The carrying amounts of cash and equivalents approximate their fair values. (2) The fair value of the Company's long-term debt is estimated based on rates available to the Company as of December 31, 1999 for debt of the same remaining maturities. (3) The fair value of foreign currency contracts is estimated by obtaining the appropriate year-end rates as of December 31, 2000 and 1999, respectively. 15 7. INVENTORY Inventory consists of the following:
December 31, 2000 1999 - -------------------------------------------------------------------------------- Raw materials $ 4,099 $ 4,493 Work-in-process 2,006 2,832 Finished goods 125,812 107,348 - -------------------------------------------------------------------------------- Total $131,917 $114,673 - --------------------------------------------------------------------------------
8. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
December 31, 2000 1999 - -------------------------------------------------------------------------------- Land and improvements $ 501 $ 501 Building and improvements 38,455 30,369 Machinery and equipment 97,632 89,327 Lasts, patterns and dies 13,874 10,228 - -------------------------------------------------------------------------------- Total $150,462 $130,425 - --------------------------------------------------------------------------------
9. INCOME TAXES The components of the provision for income taxes are as follows:
Years Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Current Deferred Current Deferred Current Deferred - ----------------------------------------------------------------------------------------------------- Federal $43,758 $191 $24,354 $(454) $18,588 $ 26 State 10,764 (54) 6,092 (260) 5,003 (78) Puerto Rico 469 - 421 - 317 17 Foreign 6,329 - 5,258 - 3,965 - - ----------------------------------------------------------------------------------------------------- Total $61,320 $137 $36,125 $(714) $27,873 $(35) - -----------------------------------------------------------------------------------------------------
The 2000 current provision includes the $1,071 tax benefit from the prepayment of the senior notes which is reflected in the extraordinary item on the Company's consolidated statements of income. The provision for income taxes differs from the amount computed using the statutory federal income tax rate of 35% due to the following:
Years Ended December 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------- Federal income tax at statutory rate $64,209 35.0% $38,730 35.0% $30,448 35.0% Federal tax exempt operations in Puerto Rico (7,231) (3.9) (6,550) (5.9) (4,688) (5.4) State taxes, net of applicable federal benefit 7,538 4.1 4,274 3.9 3,324 3.8 Other, net (3,059) (1.7) (1,043) (1.0) (1,246) (1.4) - ----------------------------------------------------------------------------------------------------------- Total $61,457 33.5% $35,411 32.0% $27,838 32.0% - -----------------------------------------------------------------------------------------------------------
16 The tax effects of temporary differences and carry-forwards that give rise to significant portions of prepaid tax assets and deferred tax liabilities at December 31, 2000 and 1999 consist of the following:
2000 1999 - ---------------------------------------------------------------------------------------------- Assets Liabilities Assets Liabilities - ---------------------------------------------------------------------------------------------- Current: Inventory $ 4,498 $ - $ 5,701 $ - Receivable allowances 7,696 - 7,288 - Employee benefits accruals 2,769 - 2,569 - Other 584 - (261) - - ---------------------------------------------------------------------------------------------- Total current $15,547 $ - $15,297 $ - - ---------------------------------------------------------------------------------------------- Non-current: Accelerated depreciation and amortization $ 4,064 $ - $ 3,808 $ - Puerto Rico tollgate taxes - (2,470) - (2,470) Undistributed foreign earnings - (9,965) - (9,372) Other - (604) - (554) Net operating loss carry-forwards 90 - 30 - Less-valuation allowance (90) - (30) - - ---------------------------------------------------------------------------------------------- Total non-current $ 4,064 $ (13,039) $ 3,808 $ (12,396) - ----------------------------------------------------------------------------------------------
The Company's consolidated income before taxes included earnings from its subsidiary in Puerto Rico, which are substantially exempt from Puerto Rico income tax under an exemption which expires in 2012 and federal income taxes under an exemption which becomes limited after 2001 and currently expires after 2005. Deferred tollgate taxes have been provided on all of the accumulated earnings of the subsidiary in Puerto Rico which are subject to tollgate tax. Deferred income taxes are also provided on the undistributed earnings of the Company's foreign subsidiaries. 10. LEASE COMMITMENTS The Company leases its corporate headquarters facility, manufacturing facilities, retail stores, showrooms, two distribution facilities and certain equipment under non-cancelable operating leases expiring at various dates through 2014. The approximate minimum rental commitments under all non-cancelable leases as of December 31, 2000 are as follows: 2001 $ 25,413 2002 23,603 2003 19,225 2004 14,849 2005 11,769 Thereafter 32,972 -------------------------------- Total $127,831 --------------------------------
Most of the leases for retail space provide for renewal options, contain normal escalation clauses and require the Company to pay real estate taxes, maintenance and other expenses. The aggregate base rent obligation for a lease is expensed on a straight-line basis over the term of the lease. Rental expense for all operating leases was $32,509, $21,509 and $18,483 for the years ended December 31, 2000, 1999 and 1998, respectively. 11. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION The Company has six revenue generating business units with separate management teams and financial reporting accountability. These units have been aggregated into three reportable segments, each sharing similar product, distribution, marketing and economic conditions. The reportable segments are U.S. Wholesale, U.S. Retail and International. The U.S. Wholesale segment is comprised of the worldwide product development and manufacturing/ sourcing for footwear and apparel and accessories and the sale of such products to wholesale customers in the United States. This segment also includes royalties from licensed products sold in the United States and the management costs and expenses associated with the Company's worldwide licensing efforts. The U.S. Retail segment includes the Company operated specialty and factory outlet stores in the United States. The International segment consists of the marketing, selling and distribution of footwear, apparel and accessories and licensed products outside of the United States. Products are sold outside of the United States through the Company's subsidiaries (which use wholesale and retail channels to sell footwear and apparel and accessories), independent distributors and licensees. In 2000, the International segment includes the results for the Asian subsidiaries. 17 The Unallocated Corporate component of segment reporting consists primarily of the corporate finance, legal, information services and administrative expenses incurred in support of company-wide activities, United States distribution expenses and a majority of United States marketing expenses. Unallocated Corporate also includes other expense (income) which is primarily interest expense, interest income and other miscellaneous income/expense. Such expenses are not allocated among the reported business segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates segment performances based on operating contribution, which represents pre-tax income before unallocated corporate expenses, interest and other expenses, net, and on operating cash flow measurements. Total assets are disaggregated to the extent that assets apply specifically to a single segment. Unallocated Corporate assets primarily consist of cash and equivalents, manufacturing/sourcing assets, computers and related equipment, and United States transportation and distribution equipment.
Unallocated U.S. Wholesale U.S. Retail International Corporate Consolidated - -------------------------------------------------------------------------------------------------------------- 2000 Revenue $587,676 $199,274 $304,528 $ - $1,091,478 Depreciation and amortization 4,859 2,602 3,545 8,285 19,291 Operating income (loss) 214,927 27,107 39,459 (97,321) 184,172 Interest expense - - - 5,648 5,648 Other, net - - - (8,128) (8,128) Income (loss) before income taxes 214,927 27,107 39,459 (94,841) 186,652 - -------------------------------------------------------------------------------------------------------------- Total assets 147,096 36,061 128,962 164,192 476,311 Expenditures for capital additions 8,018 2,689 6,141 18,596 35,444 - -------------------------------------------------------------------------------------------------------------- 1999 Revenue $488,597 $173,937 $254,682 $ - $ 917,216 Depreciation and amortization 7,587 2,927 4,433 9,416 24,410 Operating income (loss) 150,306 22,167 38,594 (94,516) 116,551 Interest expense - - - 9,342 9,342 Other, net - - - (3,449) (3,449) Income (loss) before income taxes 150,306 22,167 38,594 (100,409) 110,658 - -------------------------------------------------------------------------------------------------------------- Total assets 126,134 32,856 108,096 226,225 493,311 Expenditures for capital additions 7,965 2,457 6,685 2,987 20,094 - -------------------------------------------------------------------------------------------------------------- 1998 Revenue $450,543 $159,732 $251,893 $ - $ 862,168 Depreciation and amortization 4,026 3,243 4,399 6,531 18,199 Operating income (loss) 125,016 17,728 36,363 (84,517) 94,590 Interest expense - - - 9,538 9,538 Other, net - - - (1,942) (1,942) Income (loss) before income taxes 125,016 17,728 36,363 (92,113) 86,994 - -------------------------------------------------------------------------------------------------------------- Total assets 150,282 32,846 92,846 193,493 469,467 Expenditures for capital additions 5,120 1,660 3,578 10,325 20,683 - --------------------------------------------------------------------------------------------------------------
18 The following summarizes the Company's operations in different geographic areas for the years ended December 31, 2000, 1999 and 1998, respectively:
Other United States Europe Foreign Consolidated - -------------------------------------------------------------------------------- 2000 Revenue $786,950 $225,279 $79,249 $1,091,478 Long-lived assets 69,863 15,646 9,042 94,551 - -------------------------------------------------------------------------------- 1999 Revenue $662,534 $227,618 $27,064 $ 917,216 Long-lived assets 55,501 17,198 5,971 78,670 - -------------------------------------------------------------------------------- 1998 Revenue $610,275 $216,587 $35,306 $ 862,168 Long-lived assets 58,414 16,911 6,576 81,901 - --------------------------------------------------------------------------------
The U.S. Wholesale and Retail segments and Unallocated Corporate comprise the United States geographic area. The International segment is divided into two geographic areas, Europe and Other Foreign. Other Foreign revenue consists primarily of the Company's Asian subsidiaries. Other Foreign assets consist primarily of the Company's owned manufacturing facilities in the Caribbean, assets related to the Company's sourcing operations and the Company's Asian subsidiaries. 12. STOCKHOLDERS' EQUITY The Company's Class A Common Stock and Class B Common Stock are identical in all respects, except that shares of Class A Common Stock carry one vote per share, while shares of Class B Common Stock carry ten votes per share. In addition, holders of Class A Common Stock have the right, voting separately as a class, to elect 25% of the directors of the Company, and vote together with the holders of Class B Common Stock for the remaining directors. In 2000 and 1999, 1,418,496 and 1,252 shares of Class B Common Stock were converted to Class A Common Stock, respectively. During the second quarter of 2000, the Company's shareholders approved an increase in the authorized number of shares of Class A Common Stock from 30,000,000 to 60,000,000 shares. On October 14, 1998, the Board of Directors authorized a repurchase for up to 4,000,000 shares of the Company's Class A Common Stock, from time to time, at the discretion of management, and as market and business conditions may warrant. During 1998 and the first half of 1999, the Company repurchased 1,600,000 and 2,400,000 shares, respectively, under that authorization. On June 11, 1999, the Board of Directors authorized a second repurchase, for up to an additional 4,000,000 shares of the Company's Class A Common Stock. During the second half of 1999 and as of December 31, 2000, the Company repurchased 1,462,600 and 2,537,400 shares, respectively, under that authorization. On October 18, 2000, the Board of Directors authorized a third repurchase, for up to an additional 4,000,000 shares of the Company's Class A Common Stock. As of December 31, 2000, the Company had repurchased 318,300 shares under that authorization. The Company may use repurchased shares to offset shares that may be issued under the Company's stock-based employee incentive plans, or for other purposes. 13. STOCK AND EMPLOYEE BENEFIT PLANS Under the Company's 1997 Incentive Plan (the "1997 Plan"), 4,000,000 shares of Class A Common Stock have been reserved for issuance. In addition to stock options, any of the following incentives may be awarded to participants under the 1997 Plan: stock appreciation rights ("SARs"), restricted stock, unrestricted stock, awards entitling the recipient to delivery in the future of Class A Common Stock or other securities, securities which are convertible into or exchangeable for shares of Class A Common Stock and cash bonuses. The option price per share and vesting periods of stock options are determined by the Compensation Committee of the Board of Directors. All outstanding stock options granted under the 1997 Plan have been granted at fair market value, become exercisable in equal installments over four years beginning one year after the grant date, and expire ten years after the date of grant. 19 Under its 1991 Stock Option Plan for Non-Employee Directors (the "1991 Plan"), the Company has reserved 400,000 shares of Class A Common Stock for the granting of stock options to eligible non-employee directors of the Company. Under the terms of the 1991 Plan, stock option grants are awarded on a predetermined formula basis and no grant can be made after November 15, 2001. The exercise price of options granted under the 1991 Plan is the fair market value of the stock on the date of the grant. Stock options granted under the 1991 Plan become exercisable in equal installments over four years, beginning one year after the grant date, and expire ten years after the grant date. Options to purchase an aggregate of 1,213,986, 1,422,684 and 1,231,068 shares were exercisable under all option arrangements at December 31, 2000, 1999 and 1998, respectively. Under the existing stock option plans, there were 666,320 and 1,284,020 shares available for future grants at December 31, 2000 and 1999, respectively. The following summarizes transactions under all stock option arrangements for the years ended December 31, 2000, 1999 and 1998:
Range of Weighted-Average Number of Shares Exercise Prices Exercise Price - ---------------------------------------------------------------------------------- January 1, 1998 3,234,740 $ 1.60 - 20.81 $ 7.81 - ---------------------------------------------------------------------------------- Granted 1,153,400 8.75 - 20.74 16.77 Exercised (504,800) 1.60 - 12.53 5.68 Canceled (500,920) 4.35 - 20.81 9.01 - ---------------------------------------------------------------------------------- December 31, 1998 3,382,420 1.60 - 20.81 11.01 - ---------------------------------------------------------------------------------- Granted 1,535,800 15.19 - 24.63 16.66 Exercised (514,962) 1.60 - 20.81 7.12 Canceled (208,946) 4.38 - 20.52 14.17 - ---------------------------------------------------------------------------------- December 31, 1999 4,194,312 1.60 - 24.63 13.43 - ---------------------------------------------------------------------------------- Granted 1,063,950 18.75 - 57.81 26.01 Exercised (1,107,522) 1.60 - 23.75 11.48 Canceled (425,804) 4.34 - 34.94 15.64 - ---------------------------------------------------------------------------------- December 31, 2000 3,724,936 $ 1.60 - 57.81 $17.34 - ----------------------------------------------------------------------------------
The following summarizes information about all stock options outstanding at December 31, 2000:
Options Outstanding Options Exercisable ------------------------------------------------------ ------------------------------ Weighted-Average Weighted- Weighted- Range of Number Remaining Average Number Average Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price - ---------------------------------------------------------------------------------------------------------- $ 3.34- 5.34 459,680 3.57 Years $ 4.91 459,680 $ 4.91 5.44-12.53 484,904 6.05 10.17 301,154 9.81 12.59-14.97 27,000 7.13 14.07 11,500 13.41 15.19 808,452 8.15 15.19 120,252 15.19 16.00-17.81 141,100 7.62 17.67 60,250 17.76 18.03 373,500 7.16 18.03 146,500 18.03 18.34-20.88 301,200 7.71 19.86 66,350 20.00 22.63 500,200 9.16 22.63 - - 22.75-23.75 374,150 9.05 23.25 47,050 23.74 24.63-57.81 254,750 9.53 37.40 1,250 24.63 - ---------------------------------------------------------------------------------------------------------- $ 3.34-57.81 3,724,936 7.47 $17.34 1,213,986 $11.02 - ----------------------------------------------------------------------------------------------------------
Pursuant to the terms of its 1991 Employee Stock Purchase Plan, as amended (the "ESPP Plan"), the Company is authorized to issue up to an aggregate of 1,200,000 shares of its Class A Common Stock to eligible employees electing to participate in the ESPP Plan. Eligible employees may contribute, through payroll withholdings, from 2% to 10% of their regular base compensation during six month participation periods beginning January 1 and July 1 of each year. At the end of each participation period, the accumulated deductions are applied toward the purchase of Class A Common Stock at a price equal to 85% of the market price at the beginning or end of the 20 participation period, whichever is lower. Employee purchases amounted to 47,359 shares in 2000, 84,338 shares in 1999 and 75,600 shares in 1998 at prices ranging from $8.03 to $29.94 per share. At December 31, 2000, a total of 379,223 shares were available for future purchases. The weighted-average fair values of those purchase rights granted in 2000, 1999 and 1998 were $8.92, $3.54 and $4.66, respectively. The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock plans and provides certain pro-forma disclosures regarding the Company plans as required by SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for stock option grants issued under any of the Company's stock option plans. Had compensation cost for stock option grants issued been determined under the provisions of SFAS No. 123, the Company's net income and diluted earnings per share in 2000, 1999 and 1998 would have been: $117,392 and $2.75 before the extraordinary item and $115,266 and $2.70 after the extraordinary item, $69,767 and $1.58 and $55,901 and $1.19, respectively. The pro-forma effect on net income and earnings per share for 2000, 1999 and 1998 is not representative of the pro-forma effect on net income in future years because the provisions of SFAS No. 123 do not take into consideration pro-forma compensation expense related to grants made prior to 1995. The fair value of each stock option granted in 2000, 1999 and 1998 under the Company's plans was estimated on the date of grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used to value grants issued under the plans in 2000, 1999 and 1998, respectively: expected volatility of 54.1%, 54.4% and 39.9%; risk-free interest rates of 6.5%, 5.4% and 5.5%; expected lives of 5.4, 5.2 and 5.5 years; and no dividend payments. The weighted-average fair values per share of stock options granted during 2000, 1999 and 1998 were $13.94, $8.65 and $7.34, respectively. In December 1999, the Company issued 156,000 restricted shares of Class A Common Stock under the 1997 Plan. Those shares are subject to restrictions on sale and transferability, a risk of forfeiture and certain other terms and conditions. Those restrictions lapse over a five-year period in equal amounts each year. Upon issuance of this stock under the 1997 Plan, unearned compensation, equivalent to the market value of the shares at the date of the grant, was charged to stockholders' equity. In the second quarter of 2000, the Company made a loan of approximately $1,100 related to the restricted stock issuance in December 1999. That amount is included in deferred compensation in the consolidated balance sheets and resulted in the revaluation of unearned compensation. Unearned compensation is being amortized to expense over the five-year vesting period. The Company maintains a contributory 401(k) Retirement Earnings Plan (the "401(k) Plan") for eligible salaried and hourly employees who are at least 18 years of age with six or more months of service. Under the provisions of the 401(k) Plan, employees may contribute between 2% and 16% of their base salary up to certain limits. The 401(k) Plan provides for Company matching contributions not to exceed 3% of the employee's compensation or, if less, 50% of the employee's contribution. Vesting of the Company contribution begins at 25% after one year of service and increases by 25% each year until full vesting occurs. The Company maintains two contributory 165(e) Retirement Earnings Plans (the "165(e) Plans") for eligible salaried and hourly employees of its manufacturing facilities and a non-contributory profit sharing plan for eligible hourly employees not covered by the 401(k) or 165(e) Plans. The Company's contribution expense under all retirement plans was $1,283 in 2000, $1,193 in 1999 and $1,081 in 1998. 14. LITIGATION The Company is involved in various litigation and legal matters that 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. 21 15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the quarterly results of operations for the years ended December 31, 2000, 1999 and 1998, respectively:
2000 Quarter Ended March 31 June 30(1) September 29 December 31 - ----------------------------------------------------------------------------------------------------------------------- Revenue $208,604 $177,064 $375,246 $330,564 Gross profit 95,421 82,400 178,152 152,540 Net income before extraordinary item 14,666 11,133 57,453 40,888 Net income 14,666 8,991 57,453 40,888 Earnings per share before extraordinary item Basic .36 .28 1.44 1.03 Diluted .34 .26 1.35 .96 Earnings per share after extraordinary item Basic .36 .22 1.44 1.03 Diluted .34 .21 1.35 .96 - ----------------------------------------------------------------------------------------------------------------------- 1999 Quarter Ended March 26 June 25 September 24 December 31 - ----------------------------------------------------------------------------------------------------------------------- Revenue $176,897 $152,937 $310,939 $276,442 Gross profit 73,129 61,017 134,357 124,598 Net income 7,842 2,402 35,140 29,864 Basic earnings per share .18 .06 .83 .72 Diluted earnings per share .17 .05 .81 .69 - ----------------------------------------------------------------------------------------------------------------------- 1998 Quarter Ended March 27 June 26 September 25 December 31 - ----------------------------------------------------------------------------------------------------------------------- Revenue $163,058 $144,741 $291,857 $262,513 Gross profit 66,945 57,431 116,309 102,153 Net income 7,365 1,901 29,095 20,795 Basic earnings per share .16 .04 .63 .46 Diluted earnings per share .16 .04 .62 .45 - -----------------------------------------------------------------------------------------------------------------------
Earnings per share data has been restated to reflect the 2-for-1 stock splits in September 1999 and July 2000. (1) In the second quarter of 2000, the Company recorded a $2.1 million after tax extraordinary loss. The loss primarily consisted of a prepayment penalty and other costs associated with the early redemption of $100.0 million in senior notes. 22 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of The Timberland Company: We have audited the accompanying consolidated balance sheets of The Timberland Company and subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the companies at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Boston, Massachusetts January 31, 2001 EX-21 10 b38204tcex21.txt LIST OF SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION ------------------ ----------------------------- The Outdoor Footwear Company Delaware The Timberland Finance Company Delaware The Timberland World Trading Company Delaware Timberland Europe, Inc. Delaware Timberland International Sales Corporation U.S. Virgin Islands Timberland Direct Sales, Inc. Delaware Timberland Retail, Inc. Delaware Timberland Manufacturing Company Delaware Timberland Aviation, Inc. Delaware Timberland Netherlands, Inc. Delaware (Formerly Timberland Scandinavia, Inc.) Timberland International, Inc. Delaware Timberland SAS France Timberland World Trading GmbH Germany Timberland (UK) Limited United Kingdom Timberland GmbH Austria Timberland Espana, S.A. Spain The Recreational Footwear Company (Dominicana), S.A. Dominican Republic Component Footwear Dominicana, S.A. Dominican Republic Timberland Footwear & Clothing Company Inc. Canada Les Vetements & Chaussures Timberland Inc. The Recreational Footwear Company Cayman Islands Timberland Netherlands Holdings B.V. The Netherlands The Timberland Company Y Compania Limitada Chile Timberland Asia LLC Delaware Timberland Taiwan LLC Delaware Timberland Hong Kong Ltd. Hong Kong Timberland Japan, Inc. Japan Timberland Lifestyle Brand Malaysia Sdn Bhd Malaysia Timberland Lifestyle Brand Singapore Pte. Ltd. Singapore Timberland Retail, Srl Italy
EX-23 11 b38204tcex23.txt CONSENT OF DELOITTE & TOUCHE LLP 1 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of The Timberland Company and its subsidiaries on Form S-8 Nos. 333-51912, 333-35223, 33-60459, 33-67128, 33-56913, 33-17552, 33-41660, 33-19183, 33-50998, 33-60457 and 333-84959 and on Form S-3 No. 33-56921 of our reports dated January 31, 2001, appearing in and incorporated by reference in the Annual Report on Form 10-K of The Timberland Company and its subsidiaries for the year ended December 31, 2000. /s/ DELOITTE & TOUCHE LLP Boston, Massachusetts March 28, 2001 EX-99 12 b38204tcex99.txt CAUTIONARY STATEMENT 1 Exhibit 99 CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Timberland Company (the "Company") wishes to take advantage of The Private Securities Litigation Reform Act of 1995, which provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information. Prospective information is based on management's then current expectations or forecasts. Such information is subject to the risk that such expectations or forecasts, or the assumptions used in making such expectations or forecasts, may become inaccurate. The following discussion identifies important factors that could affect the Company's actual results and could cause such results to differ materially from those contained in forward-looking statements made by or on behalf of the Company: INTERNATIONAL. The Company manufactures and sources a majority of its products outside the United States. Timberland(R) products are sold in the U.S. and internationally through its stores, operating divisions, wholesale customers, distributors, commission agents, franchisees and licensees. Accordingly, the Company is subject to the risks of doing business abroad, including, among other risks, import restrictions, anti-dumping investigations, political or labor disturbances, expropriation and acts of war. In addition, although the Company pays for the purchase and manufacture of its products primarily in U.S. dollars, it does sell its products in markets where the local currency is not the U.S. dollar. Therefore, the Company is subject to fluctuations in foreign currency exchange rates. In addition, although the Company believes that the adoption of the euro by the European Monetary Union will not have a material impact on the Company's consolidated financial statements, such result is in part dependent on the Company's ability to successfully convert its European operations to the euro. The Company re-acquired exclusive distribution rights for the Asia-Pacific region from Inchcape plc. in 2000. The Company took over the management of the sale of Timberland products in Japan, Singapore, Malaysia and Hong Kong through subsidiaries. The Company is pursuing arrangements with appropriate distributors in other markets in the Asia-Pacific region. The Company's revenue from its operations in this region would be adversely affected if general economic difficulties in the region do not improve or the Company's efforts to integrate its Asia-Pacific operations require greater investment in infrastructure and/or more time than currently expected. In addition, while the Company believes it has chosen third party manufacturers with sufficient financial strength, a continued economic downturn could cause the Company's suppliers to fail to make and ship orders placed by the Company. The Company could utilize its own factories and sourced manufacturers in other countries in such an event to cover any resulting shortfall; however, delivery of these products would be delayed from the original production schedule. CONSUMER TRENDS AND RETAIL MARKET CONDITIONS. Sales of the Company's products are subject to consumer trends and economic and other factors affecting the retail market. For example, decreased consumer spending, a shift towards discount retailers, softness in the retail market and weakened financial condition of wholesale customers could adversely affect the Company's sales. The Company believes that its more fashion-focused women's footwear product line and men's collection apparel products are more susceptible to 2 changing fashion trends and consumer preferences than are the Company's other products. In addition, warmer than anticipated weather conditions have, in past fall/winter selling seasons, reduced sales as a result of decreased consumer demand at retail for the Company's higher margin boot products. Such conditions could adversely affect the Company's financial performance in the future, especially if a greater proportion of the Company's revenue were to be made up of "at once" orders. CONSUMER ACCEPTANCE OF PRODUCTS. The success of the Company's products and marketing strategy will depend on a favorable reception by the Company's wholesale customers and consumers at retail. This reception is conditioned, in part, on the Company's ability to build its brand, including its Timberland PRO(TM) and Mountain Athletics(TM) by Timberland sub-brands, into a world class lifestyle brand and on the Company's ability to respond to the demands of the marketplace for greater speed and exceptional customer service. DEPENDENCE ON SALES FORECASTS. The Company bases, in part, its investments in infrastructure and product on sales forecasts that are necessarily made in advance of actual sales. The Company does business in highly competitive markets, and the Company's business is affected by a variety of factors, including: - - brand awareness - - product innovations - - retail market conditions - - economic and other factors - - changing consumer preferences - - fashion trends - - weather conditions One of management's principal challenges is to improve its ability to predict these factors, in order to enable the Company to better and more rapidly match production of its products with demand. In addition, the Company's growth over the years has created the need to increase these investments in infrastructure and product and to enhance the Company's operational systems. To the extent sales forecasts are not achieved, these investments would represent a higher percentage of revenue, and the Company would experience higher inventory levels and associated carrying costs, all of which would adversely affect the Company's financial performance. RAW MATERIALS. The Company depends on a few key sources for leather, its principal raw material, and other proprietary materials used in its products. In 2000, five suppliers provided, in the aggregate, approximately 78% of the Company's leather purchases. One of these suppliers provided approximately 40% of the Company's leather purchases in 2000. Although the Company believes that leather will continue to be available from these or alternative sources, leather hide prices have increased and may continue to increase in 2001 due to a reduction in global beef demand caused in large part by the diseases impacting European cattle and due to reduced supply in the U.S. as a result of lower profitability of U.S. ranchers and beef packers. If leather hide prices continue to increase in 2001, then there could be an adverse impact on the Company's financial performance. 3 DEPENDENCE UPON INDEPENDENT MANUFACTURERS. During 2000, the Company manufactured approximately 15% of its footwear unit volume, compared to approximately 18% during 1999 and 20% during 1998. Independent manufacturers and licensees in Asia, Europe, South and Central America and Mexico produced the remainder of the Company's footwear products and all of its apparel and accessories products. (See the "International" paragraph above for a discussion of the risks of doing business abroad to which the Company may be subject.) Independent manufacturers in China and Taiwan produced approximately 60% of the Company's 2000 footwear unit volume; and three of these manufacturers produced approximately 11% to 16% each of the Company's 2000 footwear volume. The Company believes that the shift towards sourcing product from independent manufacturers will continue to reduce manufacturing overhead and product costs, increase product quality and increase the Company's flexibility to meet changing consumer demand for particular product lines. However, the success of these measures depends on the ability of the Company's independent manufacturers to provide high quality product at lower cost and to do so with rapid turn-around times. There can be no assurance that the Company will be able to maintain current relationships or locate additional manufacturers that can meet the Company's requirements. MANUFACTURING. The Company currently plans to retain its internal manufacturing capability in order to continue benefiting from reduced lead times, favorable duty rates and tax benefits. However, the Company continues to evaluate its manufacturing facilities and independent manufacturing alternatives in order to determine the appropriate size and scope of its manufacturing facilities. There can be no assurance that the costs of products that continue to be manufactured by the Company can remain competitive with sourced products. RETAIL ORGANIZATION. In 1986, the Company opened the first Timberland(R) store dedicated exclusively to Timberland(R) products. At the end of 2000, the Company operated 21 specialty stores and 51 factory outlet stores in the United States and 78 specialty stores and 18 factory outlet stores in Europe and Asia. The significant increase in stores in Asia is attributable to the Company's acquisition of Inchcape plc., as discussed above in the "International" paragraph. Revenue from retail stores operated by the Company in the U.S. represented 18.3% of the Company's revenue for 2000. The Company has made significant capital investments in opening these stores and incurs significant expenditures in operating these stores. The higher level of fixed costs related to the Company's retail organization adversely affects profitability, particularly in the first half of the year, as the Company's revenue historically has been more heavily weighted to the second half of the year. The same market conditions affecting the Company's wholesale customers described above also affect the performance of the Company's retail organization. The Company's ability to recover the investment in and expenditures of its retail organization, particularly its specialty stores, would be adversely affected if sales at its retail stores were lower than anticipated. Although the Company believes its factory outlet stores enable the Company to preserve the integrity of the sale of excess, damaged or discontinued products, and maximize the return associated with such sales, the Company's gross margin could be adversely affected if off-price sales increase as a percentage of revenue. 4 COMPETITION. The Company markets its products in highly competitive environments. Many of the Company's competitors are larger and have substantially greater resources than the Company for marketing, research and development, and other purposes. These competitors include athletic footwear companies, branded apparel companies and private labels established by retailers. Furthermore, efforts by the Company's footwear competitors to dispose of their excess inventory could put downward pressure on retail prices and could cause the Company's wholesale customers to redirect some of their purchases away from the Company's products. LICENSING. Since late 1994, the Company has entered into several licensing agreements which enable the Company to expand the Timberland(R) brand to product categories and geographic territories in which the Company has not had an appreciable presence. The rights granted under these agreements are typically exclusive, and the Company may not terminate these agreements at will, although the Company has reserved its right to terminate these agreements for cause. The success of the Timberland brand in these products or territories will, therefore, largely depend on the efforts and financial condition of its licensees. In addition, although the Company is pursuing additional licensing opportunities, there can be no assurance that the Company will be able to locate licensees and negotiate acceptable terms with licensees for additional products and territories. PRICING OF PRODUCTS. The prices the Company is able to obtain for its new and expanded product offerings, and the Company's ability to increase prices of its other products, will depend upon consumer acceptance of such prices, as well as competitive and other market factors. MANAGEMENT AND CONTROL. Sidney W. Swartz, the Company's Chairman, and various trusts established for the benefit of his family or for charitable purposes, hold approximately 79% of the combined voting power of the Company's capital stock in the aggregate, enabling him to control the Company's affairs and to influence the election of the three directors entitled to be elected by the holders of Class A Common Stock voting separately as a class. Jeffrey B. Swartz, the Company's President and Chief Executive Officer, is the son of Sidney Swartz. The loss or retirement of these or other key executives could adversely affect the Company. LIQUIDITY AND CAPITAL RESOURCES. Management believes that the Company's capital needs for 2001 can be met through its current cash balances, through its existing credit facilities and through cash flow from operations, without the need for additional long-term financing. The existing credit facilities expire in June, 2001 and the Company is in the process of negotiating a replacement facility. The Company may also need to raise additional capital in the future in order to finance its anticipated growth and capital requirements beyond 2001. The terms and availability of any such additional or replacement financing will be subject to prevailing market conditions and other factors at that time. In addition, the Company's revolving credit facility places limitations on the payment of cash dividends and contain other financial and operational covenants with which the Company must comply. If the Company does not comply with such covenants, the Company's ability to use such credit facilities or to obtain other financing could be adversely affected. 5 INTELLECTUAL PROPERTY. The Company has spent, and may be required in the future to spend, significant amounts to protect and defend its trade name, trademarks, patents, designs and other proprietary rights. The Company is also susceptible to injury from parallel trade and counterfeiting of its products. LITIGATION. The Company is involved in various litigation and legal matters that have arisen and will arise in the ordinary course of business. The costs of prosecuting or defending these matters or an unfavorable outcome in these matters could adversely affect the Company's operating results. ACCOUNTING STANDARDS. Changes in the accounting standards promulgated by the Financial Accounting Standards Board or other authoritative bodies could have an adverse affect on the Company's future reported operating results. ENVIRONMENTAL AND OTHER REGULATION. The Company is subject to various environmental and other laws and regulations, which may change periodically. Compliance with such laws or changes therein could have a negative impact on the Company's future reported operating results. -----END PRIVACY-ENHANCED MESSAGE-----