-----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, DA/8L8omb55Oz+IIfWy+L1LajlUasb9Id9rSNChDbyXeXlxe4Y19kfc+ou9dKylR SDrCl2KEWxvLMbElKLN3Zg== 0000950135-99-003817.txt : 19990809 0000950135-99-003817.hdr.sgml : 19990809 ACCESSION NUMBER: 0000950135-99-003817 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990625 FILED AS OF DATE: 19990806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIMBERLAND CO CENTRAL INDEX KEY: 0000814361 STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140] IRS NUMBER: 020312554 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09548 FILM NUMBER: 99679714 BUSINESS ADDRESS: STREET 1: 200 DOMAIN DR CITY: STRATHAM STATE: NH ZIP: 03885 BUSINESS PHONE: 6037729500 MAIL ADDRESS: STREET 1: 200 DOMAIN DR CITY: STRATHAM STATE: NH ZIP: 03885 10-Q 1 THE TIMBERLAND COMPANY 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended June 25, 1999 ------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to _________________ Commission File Number 1-9548 ------ The Timberland Company - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 02-0312554 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 200 Domain Drive, Stratham, New Hampshire 03885 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (603) 772-9500 ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- On July 23, 1999, 8,228,464 shares of the registrant's Class A Common Stock were outstanding and 2,337,849 shares of the registrant's Class B Common Stock were outstanding. 2 THE TIMBERLAND COMPANY FORM 10-Q TABLE OF CONTENTS Page(s) ------- Part I Financial Information (unaudited) - ---------------------------------------- Condensed Consolidated Balance Sheets - 1-2 June 25, 1999 and December 31, 1998 Condensed Consolidated Statements of Income - 3 For the three and six months ended June 25, 1999 and June 26, 1998 Condensed Consolidated Statements of Cash Flows - 4 For the six months ended June 25, 1999 and June 26, 1998 Notes to Condensed Consolidated Financial Statements 5-7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8-13 Part II Other Information 13-14 - ------------------------- 3 Form 10-Q Page 1 Part I Financial Information - ---------------------------- THE TIMBERLAND COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (Dollars in Thousands) (Unaudited)
June 25, December 31, 1999 1998 -------- ------------ Current assets Cash and equivalents $ 62,199 $151,889 Accounts receivable, net of allowance for doubtful accounts of $4,262 at June 25, 1999 and $4,769 at December 31, 1998 89,774 79,024 Inventory 165,634 131,218 Prepaid expense 12,729 11,897 Deferred income taxes 13,463 13,538 -------- -------- Total current assets 343,799 387,566 -------- -------- Property, plant and equipment 137,780 131,237 Less accumulated depreciation and amortization (78,515) (74,316) -------- -------- Net property, plant and equipment 59,265 56,921 -------- -------- Excess of cost over fair value of net assets acquired, net 18,375 19,217 Other assets, net 5,430 5,763 -------- -------- $426,869 $469,467 ======== ========
See accompanying notes to condensed consolidated financial statements. 4 Form 10-Q Page 2 THE TIMBERLAND COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (Dollars in Thousands, Except Per Share Data) (Unaudited)
June 25, December 31, 1999 1998 -------- ------------ Current liabilities Accounts payable $ 28,413 $ 25,890 Accrued expense Payroll and related 17,609 22,090 Interest and other 34,469 29,528 Income taxes payable 4,329 18,223 -------- -------- Total current liabilities 84,820 95,731 -------- -------- Long-term debt 100,000 100,000 Deferred income taxes 7,646 7,543 Stockholders' equity Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued - - Class A Common Stock, $.01 par value (1 vote per share); 30,000,000 shares authorized; 9,230,285 shares issued at June 25, 1999 and 9,177,383 shares at December 31, 1998 92 92 Class B Common Stock, $.01 par value (10 votes per share); convertible into Class A shares on a one-for-one basis; 15,000,000 shares authorized; 2,337,849 shares issued at June 25, 1999 and 2,338,162 shares at December 31, 1998 23 23 Additional paid-in capital 76,278 74,711 Retained earnings 217,322 207,077 Accumulated other comprehensive income (loss) (3,010) 626 Less treasury stock at cost, 1,017,368 shares at June 25, 1999 and 417,368 shares at December 31, 1998 (56,302) (16,336) -------- -------- 234,403 266,193 -------- -------- $426,869 $469,467 ======== ========
See accompanying notes to condensed consolidated financial statements. 5 Form 10-Q Page 3 THE TIMBERLAND COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, Except Per Share Data) (Unaudited)
For the For the Three Months Ended Six Months Ended ------------------------- ---------------------- June 25, June 26, June 25, June 26, 1999 1998 1999 1998 -------- -------- -------- -------- Revenue $152,937 $144,741 $329,834 $307,798 Cost of goods sold 91,920 87,310 195,688 183,422 -------- -------- -------- -------- Gross profit 61,017 57,431 134,146 124,376 -------- -------- -------- -------- Operating expense Selling 43,189 41,062 90,638 83,467 General and administrative 12,205 11,463 24,717 23,599 Amortization of goodwill 421 421 842 842 -------- -------- -------- -------- Total operating expense 55,815 52,946 116,197 107,908 -------- -------- -------- -------- Operating income 5,202 4,485 17,949 16,468 -------- -------- -------- -------- Other expense (income) Interest expense 2,323 2,337 4,526 4,571 Other, net (653) (648) (1,641) (1,730) -------- -------- -------- -------- Total other expense 1,670 1,689 2,885 2,841 -------- -------- -------- -------- Income before income taxes 3,532 2,796 15,064 13,627 -------- -------- -------- -------- Provision for income taxes 1,130 895 4,820 4,361 -------- -------- -------- -------- Net income $ 2,402 $ 1,901 $ 10,244 $ 9,266 ======== ======== ======== ======== Basic earnings per share $ .22 $ .17 $ .93 $ .81 ======== ======== ======== ======== Weighted-average shares outstanding 10,901 11,459 11,001 11,419 ======== ======== ======== ======== Diluted earnings per share $ .21 $ .16 $ .91 $ .78 ======== ======== ======== ======== Weighted-average shares outstanding 11,246 11,920 11,305 11,867 ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements. . 6 Form 10-Q Page 4 THE TIMBERLAND COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
For the Six Months Ended ------------------------------ June 25, June 26, 1999 1998 -------- --------- Cash flows from operating activities: Net income $ 10,244 $ 9,266 Adjustments to reconcile net income to net cash used by operating activities: Deferred income taxes 178 (285) Depreciation and amortization 9,721 9,534 Increase (decrease) in cash from changes in working capital items: Accounts receivable (13,732) (19,147) Inventory (34,864) (57,358) Prepaid expense (1,122) 1,047 Accounts payable 4,340 9,128 Accrued expense 1,558 (10,011) Income taxes (13,642) (9,998) -------- -------- Net cash used by operating activities (37,319) (67,824) -------- -------- Cash flows from investing activities: Additions to property, plant and equipment, net (10,757) (8,528) Other, net (2,093) (653) -------- -------- Net cash used by investing activities (12,850) (9,181) -------- -------- Cash flows from financing activities: Common stock repurchases (39,966) - Issuance of common stock 1,567 2,975 -------- -------- Net cash provided (used) by financing activities (38,399) 2,975 -------- -------- Effect of exchange rate changes on cash (1,122) 16 -------- -------- Net decrease in cash and equivalents (89,690) (74,014) Cash and equivalents at beginning of period 151,889 98,771 -------- -------- Cash and equivalents at end of period $ 62,199 $ 24,757 ======== ======== Supplemental disclosure of cash flow information: Interest paid $ 4,543 $ 4,603 Income tax paid 18,536 14,635
See accompanying notes to condensed consolidated financial statements. 7 Form 10-Q Page 5 THE TIMBERLAND COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands) (Unaudited) 1. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain the adjustments necessary to present fairly the Company's financial position, results of operations and changes in cash flows for the interim periods presented. Such adjustments consisted of normal recurring items. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 2. The results of operations for the three and six months ended June 25, 1999 are not necessarily indicative of the results to be expected for the full year. Historically, the Company's revenue has been more heavily weighted to the second half of the year. 3. Inventory consisted of the following: June 25, 1999 December 31, 1998 ------------- ----------------- Raw materials $ 4,653 $ 6,253 Work-in-process 3,989 3,913 Finished goods 156,992 121,052 -------- -------- $165,634 $131,218 ======== ======== 4. Comprehensive income for the three and six months ended June 25, 1999 and June 26, 1998 follows: For the For the Three Months Ended Six Months Ended ------------------- ------------------ June 25, June 26, June 25, June 26, 1999 1998 1999 1998 ------- ------- ------- ------- Net Income $ 2,402 $1,901 $10,244 $9,266 Change in cumulative translation adjustment (1,364) (80) (3,636) (243) ------- ------ ------- ------ Comprehensive income $ 1,038 $1,821 $ 6,608 $9,023 ======= ====== ======= ====== 8 Form 10-Q Page 6 THE TIMBERLAND COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands) (Unaudited) 5. Business segment revenue, income (loss) before income taxes and total assets for the three and six months ended June 25, 1999 and June 26, 1998 follow: For the Three Months Ended June 25, 1999 and June 26, 1998 ----------------------------------------------------------
U.S. U.S. Unallocated 1999 Wholesale Retail International Corporate Consolidated ---- --------- ------- ------------- --------- ------------ Revenue $ 81,662 $30,295 $40,980 $ - $152,937 Income (loss) before income taxes 17,494 1,803 461 (16,226) 3,532 Total assets 179,704 32,641 97,838 116,686 426,869 1998 ---- Revenue $ 75,573 $26,651 $42,517 $ - $144,741 Income (loss) before income taxes 17,006 1,041 1,914 (17,165) 2,796 Total assets 221,859 31,055 94,257 74,316 421,487
For the Six Months Ended June 25, 1999 and June 26, 1998 --------------------------------------------------------
U.S. U.S. Unallocated 1999 Wholesale Retail International Corporate Consolidated ---- --------- ------ ------------- ----------- ------------ Revenue $160,908 $56,293 $112,633 $ - $329,834 Income (loss) before income taxes 34,771 497 12,787 (32,991) 15,064 1998 ---- Revenue $153,572 $48,703 $105,523 $ - $307,798 Income (loss) before income taxes 36,024 (609) 12,853 (34,641) 13,627
A discussion of segment revenue and profitability is contained in Management's Discussion and Analysis of Financial Condition and Results of Operations. 6. Dilutive securities included in the calculation of diluted weighted-average shares were 345,271 and 460,883 for the second quarter of 1999 and 1998, respectively, and 304,633 and 447,663 for the first six months of 1999 and 1998, respectively. 9 Form 10-Q Page 7 7. Repurchase Authorization The Company recently completed the one million share stock repurchase program authorized by the Board of Directors in October 1998. On June 11, 1999, the Board authorized the repurchase of up to an additional one million shares of the Company's Class A Common Stock. As with the completed program, the repurchases will be conducted from time to time, at the discretion of management and as market and business conditions may warrant. The Company may use repurchased shares to offset shares which may be issued under the Company's stock-based employee incentive plans. 8. Subsequent Event On July 28, 1999, the Company announced that the Board of Directors approved a 2-for-1 split of its Class A and Class B Common Stock. The additional shares will be distributed on September 15, 1999, to shareholders of record on August 31, 1999. The shares presented in the condensed consolidated balance sheets as of June 25, 1999 and June 26, 1998 and the number of shares used in the computation of earnings per share in the condensed consolidated statements of income for the three and six months ended June 25, 1999 and June 26, 1998, were based on the number of shares outstanding before giving effect to the stock split. On a proforma basis, giving effect to the stock split, outstanding shares and revised earnings per share would have been as follows: June 25, 1999 June 26, 1998 ------------- ------------- Proforma issued and outstanding shares of: Class A Common Stock 18,460,570 18,354,766 Class B Common Stock 4,675,698 4,676,324 Proforma earnings per share: Three months ended: Basic earnings per share $.11 $.08 Diluted earnings per share $.11 $.08 Six months ended: Basic earnings per share $.47 $.41 Diluted earnings per share $.45 $.39 In connection with the stock split, the Board also increased the number of shares authorized under its previously announced repurchase program (Note 7) from up to one million shares to up to two million shares. 10 Form 10-Q Page 8 THE TIMBERLAND COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) RESULTS OF OPERATIONS - --------------------- Second Quarter 1999 Compared with Second Quarter 1998 - ----------------------------------------------------- Revenue for the second quarter of 1999 was $152.9 million, an increase of $8.2 million, or 5.7%, compared with the $144.7 million reported for the second quarter of 1998. Footwear revenue for the second quarter of 1999 was $119.2 million, an increase of $8.3 million, or 7.5%, compared with the same period in 1998. The increase was primarily attributable to growth in both the domestic wholesale and, to a lesser degree, the worldwide retail markets. By product, the increase was primarily attributable to Boots and Kids', partially offset by a decrease in Performance. In total, footwear unit sales increased 14.2% compared with the same period last year while the average selling price decreased 5.8%. The decrease in the average selling price was primarily due to the mix of merchandise sold. Apparel and accessories revenue for the second quarter of 1999 was $30.9 million, an increase of $1.1 million, or 3.7%, compared with the same period in 1998. The increase occurred in both the domestic retail and European wholesale markets. This increase was partially offset by a decrease in domestic wholesale revenue. In total, apparel and accessories unit sales were comparable to the prior year period. Worldwide revenue from Company-owned retail and factory stores for the second quarter of 1999 was $38.7 million, an increase of $4.8 million, or 14.1%, compared with the same period in 1998. This represented 25.3% of total revenue for the second quarter of 1999, compared with 23.5% for the second quarter of 1998. This improvement was primarily due to both footwear and, to a lesser degree, apparel and accessories unit sales. Domestic revenue for the second quarter of 1999 was $112.0 million, an increase of $9.7 million, or 9.5%, compared with the same period in 1998. Domestic revenue represented 73.2% of total revenue for the second quarter of 1999, compared with 70.6% for the second quarter of 1998. The U.S. Wholesale segment revenue increased 8.1% in the second quarter of 1999, compared with the same period in 1998, primarily due to an increase in footwear unit sales. The U.S. Retail segment revenue increased 13.7%, compared with the same period in 1998. Comparable U.S. Retail Store sales increased 7.3%. A 20.8% increase in footwear and apparel and accessories unit sales drove this improvement, partially offset by an average price decrease of 5.9%. The decrease in the average selling price was primarily due to more factory outlet sales, when compared with the same period in 1998. International revenue for the second quarter of 1999 was $41.0 million, a decrease of $1.5 million, or 3.6%, compared with the second quarter of 1998. International revenue comprised 26.8% of total revenue for the second quarter of 1999, compared with 29.4% for the second quarter of 1998. The International segment revenue decrease was primarily due to the market conditions affecting the Company's distributors covering Asia and Latin America and the impact of foreign exchange on the Company's European subsidiaries, partially offset by three of the five European subsidiaries delivering double digit revenue increases compared with the same period in 1998. Gross profit as a percentage of revenue for the second quarter of 1999 was 39.9%, up 0.2 percentage points from the 39.7% reported for the second quarter of 1998. The improvement in gross margin was due primarily to a shift in mix to a greater proportion of retail revenue. 11 Form 10-Q Page 9 Operating expense was $55.8 million for the second quarter of 1999, up $2.9 million, or 5.4%, from the $52.9 million reported for the second quarter of 1998. Operating expense as a percentage of revenue for the second quarter of 1999 decreased to 36.5% from 36.6% for the second quarter of 1998. The dollar increase was primarily due to increases in selling and distribution expenses, partially offset by lower marketing spending. Interest expense for both the second quarter of 1999 and 1998 was $2.3 million resulting from the same debt structure for both periods. Income (loss) before income taxes for the second quarter of 1999, compared with the same period in 1998, increased in the U.S. Wholesale and U.S. Retail segments. In the U.S. Wholesale segment, the improvement was primarily due to increased footwear revenue, partially offset by increased off-price apparel sales. The U.S. Retail segment improvement was also due to increased revenue but was also affected by favorable operating expense rate performance. The International segment decreased primarily due to revenue declines to the Company's Asian and Latin American distributors, partially offset by increased revenue in three of the five European subsidiaries and improved gross margin rates in Europe. The effective tax rate for the three months ended June 25, 1999 and June 26, 1998, was 32%. Six Months Ended June 25, 1999 Compared with Six Months Ended June 26, 1998 - --------------------------------------------------------------------------- Revenue for the first six months of 1999 was $329.8 million, an increase of $22.0 million, or 7.2% from the $307.8 million reported for the comparable period in 1998. All segments increased compared with 1998. The increases were primarily due to footwear and apparel and accessories unit sales. Gross profit as a percentage of revenue for the first six months of 1999 was 40.7%, compared with 40.4% for the comparable period in 1998. This improvement was primarily attributable to a shift in mix to a greater proportion of European and domestic retail revenue. Operating expense for the first six months of 1999 increased by $8.3 million to $116.2 million, from $107.9 million for the comparable period in 1998. The increase compared with the prior year period was primarily attributable to increased selling and distribution expenditures. Operating expense, as a percentage of revenue, was 35.2% for the first six months of 1999, compared with 35.1% for the same period in 1998. Income (loss) before income taxes for the first six months of 1999, compared with the same period in 1998, improved in the U.S. Retail segment primarily due to increased revenue and improved operating expense rate performance. In the U.S. Wholesale segment, the decline in income was primarily due to increased off-price apparel sales and increased expenditures for marketing, distribution and product development, partially offset by higher footwear revenue at improved gross margin rates. International segment income before income taxes was comparable to the same period in 1998 for the same reasons stated for the second quarter, as noted above. Interest expense for the first six months of 1999 was $4.5 million, a decrease of $0.1 million from the comparable period in 1998. The effective tax rate for the six months ended June 25, 1999 and June 26, 1998, was 32%. 12 Form 10-Q Page 10 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash used by operations during the first six months of 1999 was $37.3 million, compared with $67.8 million used during the same period in 1998. The use of cash in 1999 was primarily due to increases in inventory and accounts receivable and a decrease in taxes payable from year end 1998. These uses of cash are directionally consistent with prior year performance as a result of business requirements but reflect enhanced inventory and receivables management. Inventory turns improved to 2.4 times for the second quarter of 1999, compared with 2.1 times for the second quarter of 1998. Days sales outstanding decreased to 53 days at June 25, 1999 from 59 days at June 26, 1998. Wholesale days sales outstanding decreased to 61 days at June 25, 1999 from 69 days at June 26, 1998. During the first six months of 1999, $12.9 million of cash was used by investing activities, compared with $9.2 million used during the same period in 1998. Capital expenditures for the first six months of 1999 were $10.8 million, compared with $8.5 million for the same period in 1998. During the first six months of 1999, $38.4 million of cash was used by financing activities, reflecting second quarter common stock repurchases of $40.0 million. During the first six months of 1998, $3.0 million of cash was provided. The Company has available unsecured revolving and committed lines of credit as sources of financing for its seasonal and other working capital requirements. The Company's debt-to-capital ratio was 29.9% at June 25, 1999, compared with 27.3% at December 31, 1998 and 30.6% at June 26, 1998. Management believes that the Company's capital needs for 1999 will be met through its existing credit facilities and cash flows from operations without the need for additional permanent financing. However, as discussed in an exhibit to the Company's Form 10-K for the year ended December 31, 1998, entitled "Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995," several risks and uncertainties could cause the Company to need to raise additional capital through equity and/or debt financing. The availability and terms of any such financing would be subject to prevailing market conditions and other factors at that time. NEW ACCOUNTING PRONOUNCEMENTS - ----------------------------- During 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 was not required to be implemented by the Company until fiscal year 2000. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - An Amendment of FASB Statement No. 133." SFAS No. 137 delayed the original implementation date of SFAS No. 133 by one year. Since its requirements are complex and its scope far reaching, the Company has not completed its evaluation of the impact of this standard on its consolidated financial statements. 13 Form 10-Q Page 11 YEAR 2000 - --------- The Year 2000 issue is primarily the result of computer programs using two digits rather than four to refer to a year. These programs may not properly recognize a year that begins with "20" instead of "19." This could cause an inability of computer programs to process transactions or engage in normal business activities. STATE OF READINESS In the fourth quarter of 1996, the Company made a preliminary - ------------------ assessment of the capabilities of its systems to recognize and process dates properly in the year 2000 and beyond. Based on the findings of this assessment, the Company established a centralized project office and formed a multi-disciplinary project team responsible for the development, management and coordination of a global Year 2000 compliance strategy and for building awareness and understanding of Year 2000 issues throughout the Company. The Company's Year 2000 compliance strategy includes several overlapping phases: - - INVENTORY involves identifying all hardware, software and external business --------- partners (including customers, suppliers and service providers) that could have a date-related impact on the following functional systems and/or business operations: (i) enterprise business systems, which encompass order processing, inventory and financial systems; (ii) technical systems, including desktops, networks, voice and mid-range computers; (iii) department hardware and software applications used by individual business units; and (iv) facilities and other non-informational technology systems. - - ANALYSIS involves, for each of the above inventory categories, identifying -------- the relevant date on which the inventory would first encounter the requirement to use a year 2000 date, determining Year 2000 compliance and assessing the level and likelihood of potential risk and exposure to the Company of non-compliance. - - CONVERSION involves developing and executing a plan to bring inventory into ---------- compliance. - - TESTING involves executing test routines on each inventory item for ------- compliance, both by itself and on an integrated basis with every other system with which it shares information. - - IMPLEMENTATION involves putting compliant inventory back into the -------------- production environment. The Company has completed all phases for every one of its enterprise business systems, except its corporate supply chain planning and its European financial transactions systems. The vendors of these two systems have certified to the Company that they are Year 2000 compliant. The Company is currently testing these applications internally and anticipates completing testing and implementation during the third quarter of 1999. All the technical systems used by the Company have been successfully tested and implemented. The Company is continuing to address the departmental applications, facilities and non-informational technology systems it has identified as critical or high risk, with implementations of several systems completed and the remainder continuing throughout 1999. 14 Form 10-Q Page 12 In addition to requiring warranty compliance from its vendors and suppliers, the Company has requested information on its business partners' Year 2000 compliance and contingency plans to assess the potential risks of non-compliance and the resulting impact on the Company. The Company uses the information it receives in developing and updating its Year 2000 contingency plans, as discussed in more detail below. This process will continue throughout 1999. The Company also requests that new external business partners certify, in writing, that they are Year 2000 compliant. However, the Company will not be able to independently verify that such external business partners are, in fact, Year 2000 compliant. COSTS Total expenditures related to the Company's Year 2000 compliance efforts - ----- are currently estimated to be approximately $3.5 million from 1997 through 2000. This estimate does not include the compensation of Company employees and other similar internal costs, the time and costs that may be incurred by the Company as a result of the failure of any third parties to become Year 2000 compliant, or internal costs related to contingency plans. Year 2000 expenditures are being funded through operating cash flows and are expected to be immaterial to the Company's operating results. The estimate of total expenditures is based on the Company's current assessment of its Year 2000 compliance needs and is subject to change as the Company proceeds with its compliance efforts. As of June 25, 1999, the Company has incurred approximately $1.9 million relating to its Year 2000 initiatives. RISKS The Company does not now anticipate that a material business disruption - ----- will occur as a result of Year 2000 issues. However, to the extent the Company is unable to resolve Year 2000 issues, the Company's business, financial position and results of operations could be materially adversely affected. The Company believes that the greatest potential risk is the failure of its external business partners to achieve Year 2000 compliance in a timely manner. Among other things, the Company's principal leather suppliers, footwear and apparel manufacturers and transportation providers could be unable to manufacture or deliver materials and products in a timely manner. The Company's Year 2000 compliance efforts are subject to additional risks, including, among others: the Company's failure to identify fully all Year 2000 dependencies in its systems and in the systems of its external business partners; and the failure of parts of the global infrastructure, including national banking systems, power, transportation facilities, communications and governmental activities, to be fully functional after 1999. 15 Form 10-Q Page 13 CONTINGENCY PLAN The Company has completed and documented its Year 2000 - ---------------- contingency plans to address the risk and exposure relative to the Company's supply chain, from the purchase of raw materials through the delivery of finished products to the customer. The Company used the information and data received from its external business partners to assist in the development of its contingency plans. The Company has developed and is currently reviewing a Year 2000 contingency plan for its corporate headquarters facility. The plan is scheduled to be tested in both the third and fourth quarters of 1999. The Company is completing development of Year 2000 contingency plans for its distribution center facilities, retail stores and European subsidiary facilities, and is working with its corporate travel agency service provider on a travel contingency plan. These plans are expected to be completed by the beginning of the fourth quarter 1999. To the extent possible, and where appropriate, the Company's contingency plans will be coordinated with the plans of its business partners. However, the necessity, timing and cost of any contingency plans must be evaluated on a case-by-case basis and may vary considerably, and testing results and external business partners' responses may require changes in or additions to such plans. Furthermore, there may be no practical alternative course of action available to the Company for some issues, such as infrastructure failures. The Company's statements of its expectations regarding the current status, date of completion and costs of its Year 2000 compliance programs are forward-looking statements. These statements are management's best estimates based on information currently available. Therefore, they are inherently subject to risks and uncertainties, including those described above, which could cause actual results to differ and which may have a material adverse effect on the Company's business, financial position, results of operations or capital or liquidity needs. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ---------------------------------------------------------- The Company's current policies and business practices regarding derivative instruments are consistent with its fiscal year end 1998 Annual Report disclosure. As of June 25, 1999, the Company had no short-term financing outstanding and one long-term debt instrument outstanding at a fixed interest rate of 8.94% with a maturity in December, 2001. The Company's foreign currency exposure is generated primarily from its European operating subsidiaries. As of June 25, 1999, there were no material foreign currency transactions or cash exposures that were not hedged. Based upon sensitivity analysis, a 10% change in foreign exchange rates would cause the fair value of the Company's financial instruments to increase/decrease by approximately $6.0 million. Part II Other Information - ------------------------- Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- (a) The Company held its Annual Meeting of Stockholders on May 20, 1999 (the "Annual Meeting"). (b) At the Annual Meeting, proxies were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934 and all nominees for director were elected as indicated by the following schedule of votes cast for each director. The holders of Class A Common Stock elected the following directors: Total Votes for Each Total Votes Withheld Nominee Director from Each Director ------- -------- ------------------ Robert M. Agate 7,805,005 9,908 John F. Brennan 7,804,438 10,475 Abraham Zaleznik 7,803,855 11,058 16 Form 10-Q Page 14 The holders of Class A Common Stock and the holders of Class B Common Stock voting together as a single class elected the following directors: Total Votes for Each Total Votes Withheld Nominee Director from Each Director ------- -------- ------------------ Sidney W. Swartz 31,182,245 11,158 Jeffrey B. Swartz 31,182,896 10,507 Ian W. Diery 30,691,583 501,820 John A. Fitzsimmons 31,182,629 10,774 Virginia H. Kent 31,183,476 9,927 Indra K. Nooyi 31,179,333 14,070 There were no abstentions or broker non-votes with respect to the election of the director nominees. The stockholders also approved a proposal to increase the number of shares of the Company's Class A Common Stock reserved for issuance under the Company's 1991 Employee Stock Purchase Plan from 200,000 to 300,000. There were 31,156,123 votes cast in favor of this proposal, 32,339 votes cast against this proposal and 4,941 abstentions. There were no broker non-votes. Item 6. Exhibits and Reports on Form 8-K - ------- -------------------------------- (a) Exhibits Exhibit Description ------- ----------- 27 Financial Data Schedule (b) Reports on Form 8-K - There were no reports on Form 8-K filed during the period covered by this report. Signatures - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Timberland Company ------------------------------------- (Registrant) Date: August 6, 1999 /s/ Geoffrey J. Hibner ------------------------------------- Geoffrey J. Hibner Senior Vice President - Finance and Administration and Chief Financial Officer Date: August 6, 1999 /s/ Dennis W. Hagele ------------------------------------- Dennis W. Hagele Vice President-Finance and Corporate Controller (Chief Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 25, 1999 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 25, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-25-1999 62,199 0 94,036 4,262 165,634 343,799 137,780 78,515 426,869 84,820 100,000 0 0 115 234,288 426,869 329,834 329,834 195,688 195,688 842 263 4,526 15,064 4,820 10,244 0 0 0 10,244 0.93 0.91
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