<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 September 24, 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 October 22, 1999, 16,233,132 shares of the registrant's Class A Common Stock
were outstanding and 4,675,698 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 -
September 24, 1999 and December 31, 1998 1-2
Condensed Consolidated Statements of Income -
For the three and nine months ended September 24, 1999 3
and September 25, 1998
Condensed Consolidated Statements of Cash Flows -
For the nine months ended September 24, 1999 and 4
September 25, 1998
Notes to Condensed Consolidated Financial Statements 5-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
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>
September 24, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Current assets
Cash and equivalents $ 67,498 $151,889
Accounts receivable, net of allowance for doubtful
accounts of $5,827 at September 24, 1999 and $4,769
at December 31, 1998 180,173 79,024
Inventory 153,099 131,218
Prepaid expense 10,348 11,897
Deferred income taxes 15,655 13,538
-------- --------
Total current assets 426,773 387,566
-------- --------
Property, plant and equipment 137,722 131,237
Less accumulated depreciation and amortization (80,424) (74,316)
-------- --------
Net property, plant and equipment 57,298 56,921
-------- --------
Excess of cost over fair value of net assets
acquired, net 17,954 19,217
Other assets, net 6,115 5,763
-------- --------
$508,140 $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>
September 24, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Current liabilities
Accounts payable $ 31,910 $ 25,890
Accrued expense
Payroll and related 27,432 22,090
Interest and other 58,643 29,528
Income taxes payable 23,453 18,223
-------- --------
Total current liabilities 141,438 95,731
-------- --------
Long-term debt 100,000 100,000
Deferred income taxes 6,695 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; 18,550,390 shares issued
at September 24, 1999 and 9,177,383 shares at December 31,
1998 186 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; 4,675,698 shares issued at
September 24, 1999 and 2,338,162 shares at December 31,
1998 47 23
Additional paid-in capital 77,402 74,711
Retained earnings 252,345 207,077
Accumulated other comprehensive income (loss) (2,769) 626
Less treasury stock at cost, 2,327,536 shares at September 24,
1999 and 417,368 shares at December 31, 1998 (67,204) (16,336)
-------- --------
260,007 266,193
-------- --------
$508,140 $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 Nine Months Ended
----------------------------- -----------------------------
Sept. 24, Sept. 25, Sept. 24, Sept. 25,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $310,939 $291,857 $640,773 $599,656
Cost of goods sold 176,582 175,548 372,269 358,971
-------- -------- -------- --------
Gross profit 134,357 116,309 268,504 240,685
-------- -------- -------- --------
Operating expense
Selling 65,494 56,513 156,133 139,981
General and administrative 14,550 14,205 39,267 37,804
Amortization of goodwill 422 422 1,264 1,264
-------- -------- -------- --------
Total operating expense 80,466 71,140 196,664 179,049
-------- -------- -------- --------
Operating income 53,891 45,169 71,840 61,636
-------- -------- -------- --------
Other expense (income)
Interest expense 2,323 2,490 6,850 7,061
Other, net (109) (108) (1,750) (1,838)
-------- -------- -------- --------
Total other expense 2,214 2,382 5,100 5,223
-------- -------- -------- --------
Income before income taxes 51,677 42,787 66,740 56,413
-------- -------- -------- --------
Provision for income taxes 16,537 13,692 21,357 18,052
-------- -------- -------- --------
Net income $ 35,140 $ 29,095 $ 45,383 $ 38,361
======== ======== ======== ========
Basic earnings per share $ 1.67 $ 1.27 $ 2.09 $ 1.68
======== ======== ======== ========
Weighted-average shares outstanding 21,053 22,977 21,685 22,885
======== ======== ======== ========
Diluted earnings per share $ 1.61 $ 1.24 $ 2.03 $ 1.62
======== ======== ======== ========
Weighted-average shares outstanding 21,793 23,521 22,338 23,663
======== ======== ======== ========
</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
Nine Months Ended
---------------------------
Sept. 24, Sept. 25,
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 45,383 $ 38,361
Adjustments to reconcile net income
to net cash used by operating activities:
Deferred income taxes (2,965) (1,004)
Depreciation and amortization 16,043 14,431
Loss on disposal of property, plant and equipment 371 --
Increase (decrease) in cash from changes in working
capital items:
Accounts receivable (104,166) (99,631)
Inventory (22,283) (46,623)
Prepaid expense 1,308 1,384
Accounts payable 8,193 9,460
Accrued expense 35,603 11,550
Income taxes 5,551 3,084
--------- --------
Net cash used by operating activities (16,962) (68,988)
--------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net (14,718) (12,689)
Other, net (3,294) (1,034)
--------- --------
Net cash used by investing activities (18,012) (13,723)
--------- --------
Cash flows from financing activities:
Common stock repurchases (50,868) --
Issuance of common stock 2,691 3,083
--------- --------
Net cash provided (used) by financing activities (48,177) 3,083
--------- --------
Effect of exchange rate changes on cash (1,240) 198
--------- --------
Net decrease in cash and equivalents (84,391) (79,430)
Cash and equivalents at beginning of period 151,889 98,771
--------- --------
Cash and equivalents at end of period $ 67,498 $ 19,341
========= ========
Supplemental disclosure of cash flow information:
Interest paid $ 4,593 $ 4,806
Income taxes paid 19,092 15,955
</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 nine months ended September
24, 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:
Sept. 24, 1999 Dec. 31, 1998
-------------- -------------
Raw materials $ 3,786 $ 6,253
Work-in-process 2,926 3,913
Finished goods 146,387 121,052
-------- --------
$153,099 $131,218
======== ========
4. Comprehensive income for the three and nine months ended September 24,
1999 and September 25, 1998 follows:
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
------------------------- -------------------------
Sept. 24, Sept. 25, Sept. 24, Sept. 25,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $35,140 $29,095 $45,383 $38,361
Change in cumulative translation
adjustment 241 2,719 (3,395) 2,476
------- ------- ------- -------
Comprehensive income $35,381 $31,814 $41,988 $40,837
======= ======= ======= =======
</TABLE>
<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 nine months ended September 24, 1999 and
September 25, 1998 follow:
For the Three Months Ended September 24, 1999 and September 25, 1998
--------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. U.S. Unallocated
1999 Wholesale Retail International Corporate Consolidated
---- --------- ------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $174,591 $ 47,530 $ 88,818 $ -- $310,939
Income (loss) before
income taxes 58,950 7,471 20,523 (35,267) 51,677
Total assets 218,591 33,916 134,861 120,772 508,140
1998
----
Revenue $154,663 $ 44,524 $ 92,670 $ -- $291,857
Income (loss) before
income taxes 48,572 6,707 18,551 (31,043) 42,787
Total assets 252,542 36,657 134,590 65,606 489,395
</TABLE>
For the Nine Months Ended September 24, 1999 and September 25, 1998
-------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. U.S. Unallocated
1999 Wholesale Retail International Corporate Consolidated
---- --------- ------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $335,499 $103,823 $201,451 $ -- $640,773
Income (loss) before
income taxes 93,721 7,968 33,310 (68,259) 66,740
1998
----
Revenue $308,236 $ 93,227 $198,193 $ -- $599,656
Income (loss) before
income taxes 84,595 6,098 31,404 (65,684) 56,413
</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 740,716 and 543,728 for the third quarter
of 1999 and 1998, respectively, and 653,082 and 778,126 for the first
nine months of 1999 and 1998, respectively.
<PAGE> 9
Form 10-Q
Page 7
7. Repurchase Authorization
During the second quarter of 1999, the Company 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 (two million
shares on a post split basis - see Note 8) of the Company's Class A
Common Stock. As with the completed program, 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. Stock Split
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 were distributed on September 15, 1999, to
shareholders of record on August 31, 1999. All earnings per share and
weighted-average share information is presented on a post split basis.
In connection with the stock split, the Board also increased the number
of shares authorized under its previously announced repurchase program
(See 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
- ---------------------
THIRD QUARTER 1999 COMPARED WITH THIRD QUARTER 1998
- ---------------------------------------------------
Revenue for the third quarter of 1999 was $310.9 million, an increase of $19.1
million, or 6.5%, compared with the $291.9 million reported for the third
quarter of 1998.
Footwear revenue for the third quarter of 1999 was $251.8 million, an increase
of $24.5 million, or 10.8%, compared with the same period in 1998. The revenue
increase was primarily attributable to growth in domestic wholesale sales and,
to a lesser degree, worldwide retail sales. By product, the increase was
primarily attributable to growth in two existing categories, Boots and Kids', as
well as the introduction of two new sub-brands, Mountain Athletics TM by
Timberland and the Timberland Pro TM series. This increased revenue was
partially offset by a decrease in the Performance category. In total, footwear
unit sales increased 10.9% compared with the same period last year while the
average selling price remained the same.
Apparel and accessories revenue for the third quarter of 1999 was $53.9 million,
a decrease of $6.4 million, or 10.6%, compared with the same period in 1998. The
decrease was primarily attributable to a reduction in domestic wholesale apparel
revenue as the Company continues to rationalize its distribution strategy and
better manage apparel inventory levels. This decrease was partially offset by an
increase in worldwide retail apparel and accessories revenue. In total, apparel
and accessories unit sales decreased 7.1% and average selling price decreased
3.7%, compared with the same period last year.
Worldwide revenue from Company-owned retail and factory stores for the third
quarter of 1999 was $56.1 million, an increase of $4.7 million, or 9.1%,
compared with the same period in 1998. This represented 18.0% of total revenue
for the third quarter of 1999, compared with 17.6% for the third quarter of
1998. The increase in revenue was due to increases in both footwear and, to a
lesser degree, apparel and accessories unit sales. In total, unit sales
increased 16.4% while average selling price decreased 6.2%. The decrease in
average selling price was primarily due to a shift in mix to lower average
retail apparel classifications.
Domestic revenue for the third quarter of 1999 was $222.1 million, an increase
of $23.0 million, or 11.5%, compared with the same period in 1998. Domestic
revenue represented 71.4% of total revenue for the third quarter of 1999,
compared with 68.2% for the third quarter of 1998. The U.S. Wholesale segment
revenue increased 12.9% in the third quarter of 1999, compared with the same
period in 1998, primarily due to a 15.7% increase in footwear unit sales. The
U.S. Retail segment revenue increased 6.8%, compared with the same period in
1998. An 11.3% increase in footwear unit sales and a 16.6% increase in apparel
and accessories unit sales drove this improvement, partially offset by average
selling price decreases of 1.7% in footwear and 11.8% in apparel and
accessories. Comparable U.S. Retail store sales increased 2.4%.
International revenue for the third quarter of 1999 was $88.8 million, a
decrease of $3.9 million, or 4.2%, compared with the third quarter of 1998.
International revenue comprised 28.6% of total revenue for the third quarter of
1999, compared with 31.8% for the third quarter of 1998. The International
segment revenue decrease was primarily due to lower revenue generated in Italy,
the impact of foreign exchange on the Company's European subsidiaries and, to a
lesser degree, Asia where the Company currently operates through an independent
distributor. These decreases were partially offset by double digit revenue
increases in three of the five European subsidiaries compared with the same
period in 1998. Internationally by product, the decrease was primarily due to
footwear unit sales and, to a lesser degree, footwear average selling price.
<PAGE> 11
Form 10-Q
Page 9
Gross profit as a percentage of revenue for the third quarter of 1999 was 43.2%,
up 3.4 percentage points from the 39.9% reported for the third quarter of 1998.
The improvement in gross profit was due primarily to higher gross margins on
footwear, resulting from product development efforts and reduced costs in the
Company's owned manufacturing facilities as well as in its sourcing operations.
Operating expense was $80.5 million for the third quarter of 1999, up $9.3
million, or 13.1%, from the $71.1 million reported for the third quarter of
1998. Operating expense as a percentage of revenue for the third quarter of 1999
increased to 25.9% from 24.4% for the third quarter of 1998. The dollar increase
was primarily due to increases in selling, marketing and, to a lesser degree,
product development expenditures.
Interest expense for the third quarter of 1999 and 1998 was $2.3 million and
$2.5 million, respectively.
Income (loss) before income taxes for the third quarter of 1999, compared with
the same period in 1998, increased in all segments. In the U.S. Wholesale
segment, the improvement was primarily due to increased footwear revenue and
gross margin rates, partially offset by reduced apparel revenue and gross margin
rates and higher operating expenses for selling, marketing and apparel product
development. The U.S. Retail segment improvement was due to increased revenue,
gross margin rates and reduced operating expense as a percentage of revenue. The
International segment increased primarily due to increased gross margin rates in
Europe, partially offset by increased marketing and selling expenditures.
The effective tax rate for the three months ended September 24, 1999 and
September 25, 1998 was 32%.
NINE MONTHS ENDED SEPTEMBER 24, 1999 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
- ------------------------------------------------------------------------------
25, 1998
- --------
Revenue for the first nine months of 1999 was $640.8 million, an increase of
$41.1 million, or 6.9%, from the $599.7 million reported for the comparable
period in 1998. All segments increased compared with 1998. The increase in the
U.S. Wholesale segment was primarily due to footwear unit sales, partially
offset by a decline in domestic wholesale apparel sales. In the U.S. Retail
segment, the increase was primarily due to footwear and apparel and accessories
unit sales, partially offset by a decline in average selling prices. In the
International segment, the increase was primarily due to increases in revenue in
three of the five European subsidiaries, partially offset by the impact of
foreign exchange and revenue declines in Asia. Internationally by product, the
increase was primarily due to apparel unit sales.
Gross profit as a percentage of revenue for the first nine months of 1999 was
41.9%, compared with 40.1% for the comparable period in 1998. This improvement
was primarily attributable to the same factors cited in the third quarter
discussion.
Operating expense was $196.7 million for the first nine months of 1999, up $17.6
million, or 9.8%, from the $179.0 million reported for the comparable period in
1998. The increase compared with the prior year period was primarily
attributable to increased selling and marketing expenditures. Operating expense,
as a percentage of revenue, was 30.7% for the first nine months of 1999,
compared with 29.9% for the same period in 1998.
Income (loss) before income taxes for the first nine months of 1999 increased in
all segments compared with the same period in 1998. In the U.S. Wholesale
segment, the increase was primarily due to the same reasons stated for the third
quarter, as noted above. In the U.S. Retail segment, increased revenue and
favorable operating expense rate performance were the primary reasons for the
improvement. Internationally, increased revenue and gross margin rates in Europe
drove the improvement, partially offset by higher European selling and marketing
expenditures, revenue declines in Asia and the impact of foreign exchange.
<PAGE> 12
Form 10-Q
Page 10
Interest expense for the first nine months of 1999 was $6.9 million, a decrease
of $0.2 million from the comparable period in 1998.
The effective tax rate for the nine months ended September 24, 1999 and
September 25, 1998 was 32%.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash used by operations during the first nine months of 1999 was $17.0 million,
compared with $69.0 million used during the same period in 1998. The use of cash
in 1999 was primarily due to increases in accounts receivable and inventory 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 4.2 times for the third
quarter of 1999, compared with 3.4 times for the third quarter of 1998. Days
sales outstanding decreased to 52 days at September 24, 1999 from 55 days at
September 25, 1998. Wholesale days sales outstanding decreased to 55 days at
September 24, 1999 from 61 days at September 25, 1998.
During the first nine months of 1999, $18.0 million of cash was used by
investing activities, compared with $13.7 million used during the same period in
1998. Capital expenditures for the first nine months of 1999 were $14.7 million,
compared with $12.7 million for the same period in 1998. During the first nine
months of 1999, $48.2 million of cash was used by financing activities,
reflecting common stock repurchases of $50.9 million. During the first nine
months of 1998, $3.1 million of cash was provided by financing activities.
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 27.8% at September 24, 1999, compared
with 27.3% at December 31, 1998 and 27.9% at September 25, 1998. The increase in
the ratio from December 31, 1998 is due to the impact of the stock repurchase
program.
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
- ---------
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 all of its enterprise business systems
and technical systems. The Company has completed the testing and implementation
phases for those departmental applications identified by the Company as critical
or high risk. The remaining facilities and non-informational technology systems
identified by the Company as critical or high risk are in the testing and
implementation phases, with all work scheduled for completion by the end of
November. The Company will be halting new installations and upgrades of all
operational systems as of the beginning of December 1999 and continuing through
February 2000 or until it determines that the risk for system failure has
passed.
In addition to requiring warranty compliance from its vendors and suppliers, the
Company has requested information from its external business partners on their
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
September 24, 1999, the Company has incurred approximately $2.1 million
relating to its Year 2000 initiatives.
<PAGE> 14
Form 10-Q
Page 12
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 parts of the
global infrastructure, including national banking systems, power, transportation
facilities, communications and governmental agencies, and to a lesser extent,
its external business partners to achieve Year 2000 compliance in a timely
manner. The worst-case scenario for the Company would be a failure of multiple
significant external business partners to supply raw materials, products or
services for a prolonged period of time that would materially impact the
Company's ability to ship product to customers in a timely and reliable manner.
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, corporate facility, domestic retail stores, product
transportation and distribution. The Company has sent questionnaires to and has
conducted direct meetings and site visits with its significant manufacturers,
suppliers and transportation providers. The Company has used the information and
data received from its external business partners to assist in its assessment of
risk of non-compliance and in the development of its contingency plans. The
Company is presently testing these Year 2000 contingency plans. The European
subsidiary facilities and corporate travel guideline contingency plans remain in
progress with completion scheduled for November.
The Company continually updates its assessments and revises its contingency
plans as it receives additional information from its external business partners
concerning their Year 2000 preparedness. However, judgments regarding
contingency plans are subject to many variables and uncertainties. There can be
no assurance that the Company will correctly anticipate the level, impact or
duration of non-compliance by its external business partners. As a result, there
is no certainty that the Company's contingency plans will be sufficient to
mitigate the impact of non-compliance by external business partners.
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 September 24, 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
September 24, 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 $8.0 million.
<PAGE> 15
Form 10-Q
Page 13
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
On July 30, 1999, the Company filed a Form 8-K in connection with
its announcement that the Company's Board of Directors approved a
2-for-1 stock split of the Company's Class A and Class B Common
Stock, payable on September 15, 1999 to stockholders of record on
August 31, 1999. The Company also announced an increase in the
number of shares of Class A Common Stock that the Company was
authorized to repurchase from one million to two million.
<PAGE> 16
Form 10-Q
Page 14
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: November 5, 1999 /s/ Geoffrey J. Hibner
---------------- -----------------------------------
Geoffrey J. Hibner
Senior Vice President -
Finance and Administration
and Chief Financial Officer
Date: November 5, 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 SEPTEMBER 24, 1999 AND THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
24, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-24-1999
<CASH> 67,498
<SECURITIES> 0
<RECEIVABLES> 186,000
<ALLOWANCES> 5,827
<INVENTORY> 153,099
<CURRENT-ASSETS> 426,773
<PP&E> 137,722
<DEPRECIATION> 80,424
<TOTAL-ASSETS> 508,140
<CURRENT-LIABILITIES> 141,438
<BONDS> 100,000
0
0
<COMMON> 233
<OTHER-SE> 259,774
<TOTAL-LIABILITY-AND-EQUITY> 508,140
<SALES> 640,773
<TOTAL-REVENUES> 640,773
<CGS> 372,269
<TOTAL-COSTS> 372,269
<OTHER-EXPENSES> 1,264
<LOSS-PROVISION> 2,074
<INTEREST-EXPENSE> 6,850
<INCOME-PRETAX> 66,740
<INCOME-TAX> 21,357
<INCOME-CONTINUING> 45,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,383
<EPS-BASIC> 2.09
<EPS-DILUTED> 2.03
</TABLE>
