<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 27, 1998
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 1, 1998, 9,131,588 shares of the registrant's Class A Common Stock were
outstanding and 2,338,162 shares of the registrant's Class B Common Stock were
outstanding.
<PAGE> 2
THE TIMBERLAND COMPANY
FORM 10-Q
TABLE OF CONTENTS
Page(s)
-------
PART I FINANCIAL INFORMATION (unaudited)
Condensed Consolidated Balance Sheets - 1-2
March 27, 1998 and December 31, 1997
Condensed Consolidated Statements of Income - 3
For the three months ended March 27, 1998
and March 28, 1997
Condensed Consolidated Statements of Cash Flows - 4
For the three months ended March 27, 1998 and
March 28, 1997
Notes to Condensed Consolidated Financial Statements 5-6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II OTHER INFORMATION 9
<PAGE> 3
Form 10-Q
Page 1
PART I FINANCIAL INFORMATION
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 27, December 31,
1998 1997
--------- -------------
<S> <C> <C>
Current assets
Cash and equivalents $ 86,716 $ 98,771
Accounts receivable, net of allowance for doubtful
accounts of $3,800 at March 27, 1998 and $3,742 at
December 31, 1997 95,776 75,793
Inventory 140,137 142,613
Prepaid expense 12,785 12,856
Deferred and refundable income taxes 12,066 11,973
-------- --------
Total current assets 347,480 342,006
-------- --------
Property, plant and equipment 119,522 116,503
Less accumulated depreciation and amortization (66,307) (63,593)
-------- --------
Net property, plant and equipment 53,215 52,910
-------- --------
Excess of cost over fair value of net assets
acquired, net 20,481 20,902
Other assets, net 3,986 4,185
-------- --------
$425,162 $420,003
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 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)
<TABLE>
<CAPTION>
March 27, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Current liabilities
Accounts payable $ 24,891 $ 20,390
Accrued expense
Payroll and related 16,199 28,233
Interest and other 40,258 32,786
Income taxes payable 14,887 17,686
-------- --------
Total current liabilities 96,235 99,095
-------- --------
Long-term debt 100,000 100,000
Deferred income taxes 6,108 6,013
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; 9,062,860 shares issued at March 27,
1998 and 8,765,013 shares issued at December 31, 1997 91 88
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; 2,338,162 shares issued at March 27, 1998 and
2,605,432 shares issued at December 31, 1997 23 26
Additional paid-in capital 69,290 68,568
Retained earnings 155,286 147,921
Accumulated other comprehensive loss -
cumulative translation adjustment (1,758) (1,595)
Less treasury stock at cost, 17,369 shares at March 27,
1998 and December 31, 1997 (113) (113)
-------- --------
222,819 214,895
-------- --------
$425,162 $420,003
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
Form 10-Q
Page 3
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
------------------------
March 27, March 28,
1998 1997
-------- --------
<S> <C> <C>
Revenue $163,058 $150,684
Cost of goods sold 96,113 89,070
-------- --------
Gross profit 66,945 61,614
-------- --------
Operating expense
Selling 42,405 39,235
General and administrative 12,136 11,463
Amortization of goodwill 421 421
-------- --------
Total operating expense 54,962 51,119
-------- --------
Operating income 11,983 10,495
-------- --------
Other expense (income)
Interest expense 2,234 4,577
Other, net (1,082) (219)
-------- --------
Total other expense 1,152 4,358
-------- --------
Income before income taxes 10,831 6,137
-------- --------
Provision for income taxes 3,466 1,841
-------- --------
Net income $ 7,365 $ 4,296
======== ========
Basic earnings per share $ .65 $ .38
======== ========
Average shares outstanding 11,380 11,181
======== ========
Diluted earnings per share $ .62 $ .37
======== ========
Average shares outstanding 11,814 11,567
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
Form 10-Q
Page 4
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
-----------------------
March 27, March 28,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,365 $ 4,296
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Deferred income taxes 2 (332)
Depreciation and amortization 4,521 4,930
Increase (decrease) in cash from changes in working
capital items:
Accounts receivable (20,088) 9,037
Inventory 2,442 (1,570)
Prepaid expense 50 (151)
Accounts payable 4,826 4,206
Accrued expense (4,537) (1,813)
Income taxes (2,847) (2,081)
-------- -------
Net cash provided (used) by operating activities (8,266) 16,522
-------- -------
Cash flows from investing activities:
Additions to property, plant and equipment, net (4,076) (2,701)
Other, net (419) (1,770)
-------- -------
Net cash used by investing activities (4,495) (4,471)
-------- -------
Cash flows from financing activities:
Payments on long-term debt - (10,190)
Issuance of common stock 722 938
-------- -------
Net cash provided (used) by financing activities 722 (9,252)
-------- -------
Effect of exchange rate changes on cash (16) (241)
-------- -------
Net increase (decrease) in cash and equivalents (12,055) 2,558
Cash and equivalents at beginning of period 98,771 93,336
-------- -------
Cash and equivalents at end of period $ 86,716 $95,894
======== =======
Supplemental disclosures of cash flow information:
Interest paid $ 6 $ 452
Income taxes paid 6,263 4,398
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 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, 1997.
2. The results of operations for the three months ended March 27, 1998 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:
<TABLE>
<CAPTION>
March 27, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Raw materials $ 7,490 $ 8,010
Work-in-process 5,098 4,103
Finished goods 127,549 130,500
-------- --------
$140,137 $142,613
======== ========
</TABLE>
4. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130 "Reporting Comprehensive Income" in 1998. SFAS No. 130 requires the
reporting of comprehensive income, which in the case of the Company, is the
combination of reported net income and the change in the cumulative
translation adjustment which is a component of stockholders' equity. SFAS
No. 130 has no impact on the Company's reported net income. Comprehensive
income for the three months ended March 27, 1998 and March 28, 1997
follows:
<TABLE>
<CAPTION>
March 27, March 28,
1998 1997
--------- ---------
<S> <C> <C>
Net income $7,365 $ 4,296
Change in cumulative translation
adjustment (163) (3,358)
------ -------
Comprehensive income $7,202 $ 938
====== =======
</TABLE>
<PAGE> 8
Form 10-Q
Page 6
THE TIMBERLAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
5. Indebtedness
On April 30, 1998, the Company entered into a new unsecured committed
revolving credit agreement (the "Agreement") with a group of banks. The
Agreement, which replaced the Company's existing revolving credit facility,
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 based upon the
lenders' cost of funds. The Agreement provides for a facility fee of 0.20%
per annum on the full commitment, places limitations on the payment of
dividends and incurrence of additional debt and also contains certain
other financial and operating covenants.
<PAGE> 9
Form 10-Q
Page 7
THE TIMBERLAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
RESULTS OF OPERATIONS
FIRST QUARTER 1998 COMPARED WITH FIRST QUARTER 1997
Revenue for the first quarter of 1998 was $163.1 million, an increase of $12.4
million, or 8.2%, compared with the $150.7 million reported in the first quarter
of 1997.
Domestic revenue for the first quarter of 1998 was $100.1 million, an increase
of $6.9 million, or 7.5%, from the same period in 1997. The increase was
attributable to growth in footwear revenue offset by lower revenue in apparel
and, to a lesser extent, in retail, as discussed below.
International revenue for the first quarter of 1998 was $63.0 million, an
increase of $5.4 million, or 9.4%, compared with the first quarter of 1997.
International revenue comprised 38.6% of total revenue for the first quarter of
1998, comparable with the first quarter of 1997. Internationally, both the
footwear and apparel categories had increases over the same period last year.
Footwear revenue for the first quarter of 1998 was $123.7 million, an increase
of $15.7 million, or 14.5%, from the same period in 1997. The increase was
primarily attributable to growth in both the domestic and international
wholesale markets. In total, footwear unit sales increased 31.4% while the
average selling price decreased 12.9%. The decrease in the average selling price
was due to a shift in mix of Spring product to more kids' footwear and men's and
women's sandals.
Revenue attributable to apparel and accessories decreased $3.6 million, or 8.9%,
to $37.0 million in the first quarter of 1998, compared with the same period in
1997. A reduction in off-price sales domestically was the primary reason for
this decrease. The international apparel and accessories business posted
increased revenue, units and average selling price over the comparable period in
1997.
Worldwide revenue from Company-owned retail and factory stores for the first
quarter of 1998 was $27.9 million, representing 17.1% of total revenue, compared
with $29.7 million, or 19.7%, for the first quarter of 1997. Total domestic
retail and factory store sales decreased 8.3% compared with the same period in
1997. Comparable domestic retail and factory store sales declined 5.7%. The
majority of this reduction in domestic revenue was due to lower apparel sales.
Gross profit as a percentage of revenue for the first quarter of 1998 was 41.1%,
up 0.2 percentage points from 40.9% for the first quarter of 1997. The
improvement in gross margin was due primarily to fewer off-price sales and to
the continued introduction of higher margin products.
Operating expense was $55.0 million in the first quarter of 1998, up $3.8
million, or 7.5%, from the $51.1 million reported in the first quarter of 1997.
Operating expense as a percentage of revenue for the first quarter of 1998
decreased to 33.7% from 33.9% for the first quarter of 1997. The dollar increase
compared with the prior year period was primarily attributable to investments in
marketing and product development.
<PAGE> 10
Form 10-Q
Page 8
Interest expense for the first quarter of 1998 decreased by $2.3 million to $2.2
million from the comparable period in 1997 resulting from a $79.3 million
reduction in long-term debt during the last 12 months.
The effective tax rate for the first three months of 1998 was 32% compared with
a tax rate of 30% for the same period last year. The increase in the tax rate
was attributable to a relative decrease in Puerto Rican sourced income, which is
subject to a lower tax rate than the U.S. Federal rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations during the first quarter of 1998 was $8.3 million
compared with $16.5 million provided during the same period in 1997. The use of
cash in 1998 was primarily due to accounts receivable increasing $20.1 million,
partially offset by inventory decreasing $2.4 million from year end 1997. The
change in receivables was due to strong sales in the month of March whereas,
fourth quarter sales were spread more evenly through the quarter, allowing for
earlier collection. Days sales outstanding at March 27, 1998 were 53 days
compared with 55 days at March 28, 1997. Wholesale days sales outstanding
decreased to 57 days at March 27, 1998 from 62 days at March 28, 1997. Inventory
was $140.1 million at March 27, 1998, a $2.5 million, or 1.7%, decline from
December 31, 1997. Inventory turns were 2.7 times for the first quarter of 1998,
compared with 2.2 times for the first quarter of 1997.
During the first quarter of both 1998 and 1997, $4.5 million of cash was
used in investing activities. Capital expenditures for the first quarter of
1998 were $ 4.1 million, compared with $2.7 million for the same period in 1997.
During the first quarter of 1998, $0.7 million of cash was provided by
financing activities. In the first quarter of 1997, $9.3 million of cash
was used.
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 31.0% at March 27, 1998, compared with
31.8% at December 31, 1997 and 51.7% at March 28, 1997.
Management believes that the Company's capital needs for 1998 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, 1997, 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 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information". In February 1998, the FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and other Postretirement Benefits". SFAS
No. 130 has been adopted in this filing. SFAS No. 131 and No. 132 may require
additional disclosures in the filing for the year ending December 31, 1998.
<PAGE> 11
Form 10-Q
Page 9
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K - There were no reports on Form 8-K filed during
the period covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Timberland Company
(Registrant)
Date: May 7, 1998 /s/ Geoffrey J. Hibner
----------- --------------------------------------
Geoffrey J. Hibner
Senior Vice President -
Finance and Administration
and Chief Financial Officer
Date: May 7, 1998 /s/ 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 27, 1998 AND THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 27,
1998 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-31-1998
<PERIOD-END> MAR-27-1998
<CASH> 86,716
<SECURITIES> 0
<RECEIVABLES> 99,576
<ALLOWANCES> 3,800
<INVENTORY> 140,137
<CURRENT-ASSETS> 347,480
<PP&E> 119,522
<DEPRECIATION> 66,307
<TOTAL-ASSETS> 425,162
<CURRENT-LIABILITIES> 96,235
<BONDS> 100,000
0
0
<COMMON> 114
<OTHER-SE> 222,705
<TOTAL-LIABILITY-AND-EQUITY> 425,162
<SALES> 163,058
<TOTAL-REVENUES> 163,058
<CGS> 96,113
<TOTAL-COSTS> 96,113
<OTHER-EXPENSES> 421
<LOSS-PROVISION> 253
<INTEREST-EXPENSE> 2,234
<INCOME-PRETAX> 10,831
<INCOME-TAX> 3,466
<INCOME-CONTINUING> 7,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,365
<EPS-PRIMARY> .65
<EPS-DILUTED> .62
</TABLE>
