<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 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.
<PAGE> 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
- -------------------------
<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>
June 25, December 31,
1999 1998
-------- ------------
<S> <C> <C>
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
======== ========
</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>
June 25, December 31,
1999 1998
-------- ------------
<S> <C> <C>
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
======== ========
</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 For the
Three Months Ended Six Months Ended
------------------------- ----------------------
June 25, June 26, June 25, June 26,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</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
Six Months Ended
------------------------------
June 25, June 26,
1999 1998
-------- ---------
<S> <C> <C>
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
</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, 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
======= ====== ======= ======
<PAGE> 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
----------------------------------------------------------
<TABLE>
<CAPTION>
U.S. U.S. Unallocated
1999 Wholesale Retail International Corporate Consolidated
---- --------- ------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
For the Six Months Ended June 25, 1999 and June 26, 1998
--------------------------------------------------------
<TABLE>
<CAPTION>
U.S. U.S. Unallocated
1999 Wholesale Retail International Corporate Consolidated
---- --------- ------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE> 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.
<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
- ---------------------
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.
<PAGE> 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%.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-25-1999
<CASH> 62,199
<SECURITIES> 0
<RECEIVABLES> 94,036
<ALLOWANCES> 4,262
<INVENTORY> 165,634
<CURRENT-ASSETS> 343,799
<PP&E> 137,780
<DEPRECIATION> 78,515
<TOTAL-ASSETS> 426,869
<CURRENT-LIABILITIES> 84,820
<BONDS> 100,000
0
0
<COMMON> 115
<OTHER-SE> 234,288
<TOTAL-LIABILITY-AND-EQUITY> 426,869
<SALES> 329,834
<TOTAL-REVENUES> 329,834
<CGS> 195,688
<TOTAL-COSTS> 195,688
<OTHER-EXPENSES> 842
<LOSS-PROVISION> 263
<INTEREST-EXPENSE> 4,526
<INCOME-PRETAX> 15,064
<INCOME-TAX> 4,820
<INCOME-CONTINUING> 10,244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,244
<EPS-BASIC> 0.93
<EPS-DILUTED> 0.91
</TABLE>
