<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1996
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 1-9548
------
THE TIMBERLAND COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 02-0312554
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
200 DOMAIN DRIVE, STRATHAM, NEW HAMPSHIRE 03885
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 772-9500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
On May 3, 1996, 8,339,871 shares of the registrant's Class A Common Stock were
outstanding and 2,735,381 shares of the registrant's Class B Common Stock were
outstanding.
<PAGE> 2
THE TIMBERLAND COMPANY
FORM 10-Q
TABLE OF CONTENTS
Page(s)
Independent Accountants' Report 1
Part I Financial Information (unaudited)
Condensed Consolidated Balance Sheets - 2-3
March 29, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations - 4
For the three months ended March 29, 1996
and March 31, 1995
Condensed Consolidated Statements of Cash Flows - 5
For the three months ended March 29, 1996 and
March 31, 1995
Notes to Condensed Consolidated Financial Statements 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Part II Other Information 11
<PAGE> 3
Form 10-Q
Page 1
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders and Board of Directors of
The Timberland Company:
We have reviewed the accompanying condensed consolidated balance sheet of The
Timberland Company and subsidiaries as of March 29, 1996, and the related
condensed consolidated statements of operations and cash flows for the
three-month periods ended March 29, 1996 and March 31, 1995. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Timberland Company and
subsidiaries as of December 31, 1995, and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for the year
then ended (not presented herein); and, in our report dated February 7, 1996,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1995, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
Deloitte & Touche LLP
Boston, Massachusetts
April 17, 1996
<PAGE> 4
Form 10-Q
Page 2
Part I Financial Information
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 29, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Current assets
Cash and equivalents $ 32,811 $ 38,389
Accounts receivable, net 96,429 95,786
Inventories 183,067 180,636
Prepaid expenses 12,654 12,752
Deferred and refundable income taxes 11,421 10,267
-------- --------
Total current assets 336,382 337,830
-------- --------
Property, plant and equipment 99,207 95,937
Less accumulated depreciation and amortization (47,181) (43,533)
-------- --------
Net property, plant and equipment 52,026 52,404
-------- --------
Excess of cost over fair value of net assets
acquired, net 23,851 24,271
-------- --------
Other assets, net 6,327 6,903
-------- --------
$418,586 $421,408
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
Form 10-Q
Page 3
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 29, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Current liabilities
Current maturities of long-term obligations $ 7,744 $ 7,733
Accounts payable 19,006 25,207
Accrued expenses
Payroll and related 8,689 7,882
Interest and other 31,567 28,001
Income taxes payable 1,202 892
-------- --------
Total current liabilities 68,208 69,715
-------- --------
Long-term obligations, less current maturities 199,264 199,454
-------- --------
Deferred income taxes 10,019 10,018
-------- --------
Stockholders' equity
Preferred stock, $.01 par value; 2,000,000 shares authorized;
none issued - -
Class A Common Stock, $.01 par value (1 vote per share);
30,000,000 shares authorized; 8,329,456 shares issued
at March 29, 1996 and 8,316,554 shares at
December 31, 1995 83 83
Class B Common Stock, $.01 par value (10 votes per share)
convertible into Class A shares on a one-for-one basis:
15,000,000 shares authorized; 2,735,381 shares issued
at March 29, 1996 and December 31, 1995 27 27
Additional paid-in capital 59,819 59,716
Retained earnings 79,206 80,181
Cumulative translation adjustment 2,080 2,334
Less treasury stock at cost, 18,369 shares at March 29,
1996 and December 31, 1995 (120) (120)
-------- --------
141,095 142,221
-------- --------
$418,586 $421,408
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
Form 10-Q
Page 4
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
------------------
March 29, March 31,
1996 1995
--------- ---------
<S> <C> <C>
Revenues $127,684 $141,583
Cost of goods sold 81,659 96,611
-------- --------
Gross profit 46,025 44,972
-------- --------
Operating expenses
Selling 32,464 33,491
General and administrative 10,058 11,671
Amortization of goodwill 421 421
-------- --------
Total operating expenses 42,943 45,583
-------- --------
Operating income (loss) 3,082 (611)
-------- --------
Other expense (income)
Interest expense 4,798 5,116
Other, net (143) (7,210)
-------- --------
Total other expense (income) 4,655 (2,094)
-------- --------
Income (loss) before income taxes (1,573) 1,483
-------- --------
Provision (benefit) for income taxes (598) 564
-------- --------
Net income (loss) $ (975) $ 919
======== ========
Earnings (loss) per share $ (.09) $ .08
======== ========
Weighted average shares outstanding
and share equivalents 11,163 11,139
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 7
Form 10-Q
Page 5
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
-----------------------
March 29, March 31,
1996 1995
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (975) $ 919
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Deferred income taxes 1 250
Depreciation and amortization 4,866 4,536
Gain on distributorship transaction - (7,358)
Increase (decrease) in cash from changes in working
capital items, net of effects of business
dispositions:
Accounts receivable (866) 3,830
Inventories (2,671) (15,921)
Prepaid expenses 84 1,844
Accounts payable (6,216) (13,002)
Accrued expenses 4,494 3,326
Income taxes (831) (7,268)
------- --------
Net cash used by operating activities (2,114) (28,844)
------- --------
Cash flows from investing activities:
Proceeds from distributorship transaction - 24,000
Additions to property, plant and equipment, net (3,491) (3,939)
Other, net (125) (574)
------- --------
Net cash provided (used) by investing activities (3,366) 19,487
------- --------
Cash flows from financing activities:
Net borrowings under short-term credit facilities - 4,371
Proceeds from long-term obligations - 525
Payments on long-term debt and capital lease obligations (179) (322)
Issuance of common stock 103 146
------- --------
Net cash provided (used) by financing activities (76) 4,720
------- --------
Effect of exchange rate changes on cash (22) 293
------- --------
Net decrease in cash and equivalents (5,578) (4,344)
Cash and equivalents at beginning of period 38,389 6,381
------- --------
Cash and equivalents at end of period $32,811 $ 2,037
======= ========
Supplemental disclosures of cash flow information:
Interest paid $ 304 $ 792
Income taxes paid 245 7,582
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 8
Form 10-Q
Page 6
THE TIMBERLAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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, 1995.
Certain prior period amounts have been reclassified for consistent
presentation with the current period presentation.
2. The results of operations for the three months ended March 29, 1996 are
not necessarily indicative of the results to be expected for the full
year. Historically, the Company's revenues have been more heavily
weighted to the second half of the year.
3. The 1995 first quarter results include a pre-tax gain of $7.4 million,
or $0.41 per share, from the Company's appointment in January 1995 of
Inchape plc as exclusive distributor of Timberland[Registered
trademark] products in the Asia/Pacific region, and the related sale
of Timberland's Australian and New Zealand subsidiaries.
4. Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 29, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Raw materials $ 10,564 $ 10,374
Work-in-process 4,433 5,494
Finished goods 168,070 164,768
-------- --------
$183,067 $180,636
======== ========
</TABLE>
5. New Accounting Pronouncements
The Company has adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-lived assets and for Long-lived Assets to Be Disposed Of",
effective January 1, 1996. SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Adopting SFAS No. 121 had no material effect on the Company's
consolidated financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation", which was adopted
by the Company effective January 1, 1996. SFAS No. 123 requires
expanded disclosures of stock-based compensation arrangements with
employees and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded.
Companies are permitted to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company will continue to apply APB
Opinion No. 25 to its stock-based compensation awards to employees and
will disclose the required pro forma effect on net income and earnings
per share in the 1996 annual consolidated financial statements.
<PAGE> 9
Form 10-Q
Page 7
THE TIMBERLAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Legal Proceedings
The Company is involved in various litigation and legal matters which
have arisen in the ordinary course of business. Management believes
that the ultimate resolution of any existing matter will not have a
material adverse effect on the Company's consolidated financial
statements.
The Company and two of its officers and directors have been named as
defendants in two actions filed in the United States District Court for
the District of New Hampshire, one filed by Jerrold Schaffer on
December 12, 1994, and the other filed by Gershon Kreuser on January 4,
1995. On April 24, 1995, the District Court granted plaintiffs' motion,
assented to by defendants, to consolidate the two actions. On June 23,
1995, plaintiffs filed a consolidated amended complaint (the "Amended
Complaint") with the District Court. The Amended Complaint alleges that
defendants violated federal securities laws by making material
misstatements and omissions in certain of the Company's public filings
and statements in 1994. Specifically, the Amended Complaint alleges
that such statements and omissions had the effect of artificially
inflating the market price for the Company's Class A Common Stock until
the disclosure by the Company on December 9, 1994 of its expectation
that results for the fourth quarter were not likely to meet analysts'
anticipated levels. Damages are unspecified. On March 18, 1996, the
Court denied defendants' motion to dismiss the Amended Complaint. On
March 19, 1996, the Court granted plaintiffs' motion for class
certification for all purchasers of the Company's Class A Common Stock
between May 12, 1994 and December 9, 1994. Management believes this
action is without merit and intends to defend it vigorously.
Accordingly, at this time, management does not expect the outcome of
such litigation to have a material adverse effect on the Company's
consolidated financial statements.
<PAGE> 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
The following table sets forth selected items in the Company's condensed
consolidated statements of operations as percentages of net sales for the
periods indicated.
<TABLE>
<CAPTION>
For the
Three Months Ended
March 29, March 31,
1996 1995
--------- ---------
<S> <C> <C>
Revenues 100.0 % 100.0 %
Cost of goods sold 64.0 68.2
----- -----
Gross profit 36.0 31.8
----- -----
Operating expenses
Selling 25.4 23.7
General and administrative 7.9 8.2
Amortization of goodwill .3 .3
----- -----
Total operating expenses 33.6 32.2
----- -----
Operating income (loss) 2.4 (.4)
----- -----
Other expense (income)
Interest expense 3.8 3.6
Other, net (.1) (5.1)
----- -----
Total other expense (income) 3.7 (1.5)
----- -----
Income (loss) before income taxes (1.3) 1.0
Provision (benefit) for income taxes (.5) .4
----- -----
Net income (loss) (.8)% .7 %
===== =====
</TABLE>
Note: Percentages may not add due to rounding.
<PAGE> 11
Form 10-Q
Page 9
First Quarter 1996 Compared with First Quarter 1995
Revenues for the first quarter of 1996 were $127.7 million, a decrease of 9.8%
compared to the $141.6 million reported in first quarter of 1995.
The revenue decrease reflected a decline of 24.7% in domestic revenue, primarily
as a result of fewer wholesale footwear unit sales, compared to the first
quarter of 1995. The revenue decline was primarily attributable to a continued
difficult retail environment and insufficient new product introductions for the
current season. A substantial portion of the footwear unit sales decline was in
performance sandal sales volume, in line with the rest of the industry, and in
women's footwear sales volume, as styles have become more femine compared to the
first quarter of 1995. The performance sandal decline and women's footwear
decline accounted for approximately 50% and 30% of the total unit sales decline,
respectively. The third factor behind the unit sales differential is that last
year the Company initiated programs to encourage accounts to take boots in the
first quarter rather than later in the year; no such programs were undertaken in
1996. The absence of these programs in the first quarter of 1996 accounted for
almost 20% of the decline in the domestic footwear unit sales over last year's
first quarter.
International revenues for the first quarter of 1996 were $56.4 million, an
increase of $9.5 million, or 20.2%, over the comparable prior year period,
and comprised 44.2% of total first quarter 1996 revenues, up from 33.2% in
the first quarter of 1995. The majority of the revenue increase was driven by
our operations in Italy and the U.K., and by sales to international
distributors.
Footwear revenues decreased $11.9 million, or 11.3%, in the first quarter of
1996, compared to the same period in 1995 primarily as a result of fewer unit
sales. Revenues attributable to apparel and accessories decreased $2.7 million,
or 10.4% in the first quarter of 1996 compared to the same period in 1995 due to
fewer unit sales. Retail revenues for the first quarter of 1996 were $23.3
million, representing 18.3% of total revenues in the current quarter, compared
to 12.0% in the first quarter of 1995.
Gross profit as a percentage of revenues for the first quarter of 1996 was
36.0%, compared to 31.8% for the first quarter of 1995. The improvement in gross
margin is due primarily to sales mix, with higher margin retail and
international revenues representing a larger portion of revenues, and to better
utilization of factory outlets in selling excess, out of season, and factory
defect products.
Operating expenses were $42.9 million in the first quarter of 1996, down 5.8%
from the $45.6 million reported in the first quarter of 1995. Operating
expenses as a percentage of revenues in the first quarter of 1996 were 33.6%,
compared with 32.2% in the first quarter of 1995. The dollar decrease compared
to the prior year period was primarily attributable to reductions in general
and administrative expense and in selling expense due to fewer unit sales.
Interest expense for the first quarter of 1996 decreased by $.3 million to $4.8
million from the comparable period in 1995, due to a reduction in long-term debt
and the absence of short-term borrowings during the first quarter of 1996.
For the first quarter of 1995, other expense (income) included a non-recurring
pre-tax gain of $7.4 million, or $0.41 per share, resulting from the Company's
appointment on January 26, 1995 of Inchcape plc as the exclusive distributor of
Timberland products throughout most of the Asia/Pacific region. The agreement
included Inchcape's acquisition of the Company's Australian and New Zealand
subsidiaries and future consideration provided to Inchcape for a total sum of
$24 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations during the first quarter of 1996 amounted to $2.1
million, compared to $28.8 million used during the same period in 1995. The
improvement in net cash used by operations was primarily due to managing
inventories to a lower level than last year. Although accounts receivable have
increased $.6 million from year end 1995, days sales outstanding decreased
to 68 days at March 29, 1996 days from 78 days at March 31, 1995. Inventories
increased $2.4 million from December 31, 1995 and decline $46.2 million, or
20.2% from March 31, 1995. Inventory turns were 1.7 times for the first
quarter of 1996, the same as in the first quarter of 1995.
<PAGE> 12
Form 10-Q
Page 10
During the first three months of 1996, $3.4 million of cash was used in
investing activities compared to $19.5 million being provided in the same
period in 1995, due primarily to $24 million of cash proceeds received from the
agreement with Inchcape plc. Capital expenditures for the first quarter of 1996
of $3.5 million, compared to $3.9 million for the same period in 1995. During
the first quarter of 1996, $.1 million of cash was used by financing activities
compared to $4.7 million of cash provided in the first quarter of 1995. Short
term borrowings accounted for $4.4 million of the cash provided by financing
activities in 1995.
The Company uses unsecured revolving and committed lines of credit as the
primary sources of financing for its seasonal and other working capital
requirements. The Company did not draw on its seasonal bank lines of credit
during the first quarter of 1996 and does not expect to utilize its available
bank lines of credit until well into the second quarter of 1996, when the
Company intends to build inventory for the fall season. The Company's debt to
capital ratio was 59.5% at March 29, 1996, compared to 59.3% at December 31,
1995 and 61.4% at March 31, 1995.
Management believes that the Company's capital needs for 1996 will be met
through its existing credit facilities and cash flows from operations without
the need for additional permanent financing. However, as discussed in an
exhibit to the Company's Form 10-K for the year ended December 31, 1995,
entitled "Cautionary Statements for Purposes of the Safe Harbor Provisions of
the Private Securities Litigation Reform Act of 1995", several risks and
uncertainties could cause the Company to need to raise additional capital
through equity and/or debt financing. The availibility and terms of any such
financing would be subject to prevailing market conditions and other factors
at that time.
<PAGE> 13
Form 10-Q
Page 11
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K -- There were no reports on Form 8-K filed
during the period covered by this report.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Timberland Company
(Registrant)
Date: May 13, 1996 Keith D. Monda
---------------------------
Keith D. Monda
Senior Vice President -
Finance and Administration
and Chief Financial Officer
Date: May 13, 1996 Dennis W. Hagele
---------------------------
Dennis W. Hagele
Vice President Finance
and Corporate Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 29, 1996 AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-29-1996
<CASH> 32,811
<SECURITIES> 0
<RECEIVABLES> 99,495
<ALLOWANCES> 3,066
<INVENTORY> 183,067
<CURRENT-ASSETS> 336,382
<PP&E> 99,207
<DEPRECIATION> 47,181
<TOTAL-ASSETS> 418,586
<CURRENT-LIABILITIES> 68,208
<BONDS> 199,264
0
0
<COMMON> 110
<OTHER-SE> 140,985
<TOTAL-LIABILITY-AND-EQUITY> 418,586
<SALES> 127,684
<TOTAL-REVENUES> 127,684
<CGS> 81,659
<TOTAL-COSTS> 81,659
<OTHER-EXPENSES> 421
<LOSS-PROVISION> 281
<INTEREST-EXPENSE> 4,798
<INCOME-PRETAX> (1,573)
<INCOME-TAX> (598)
<INCOME-CONTINUING> (975)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (975)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
