<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 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
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
200 Domain Drive, Stratham, New Hampshire 03885
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (603) 772-9500
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
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<S> <C>
Title of each class Name of each exchange on which registered
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Class A Common Stock, par value $.01 per share New York Stock Exchange
- ---------------------------------------------- -----------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Class A Common Stock of the Company held by
non-affiliates of the Company was approximately $594,479,521 on February 25,
2000. For purposes of the foregoing sentence, the term "affiliate" includes each
director and executive officer of the Company. See Item 12 of this Form 10-K.
15,758,230 shares of Class A Common Stock and 4,675,200 shares of Class B Common
Stock of the Company were outstanding on February 25, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's Annual Report to security holders for the fiscal
year ended December 31, 1999 are incorporated by reference in Part I, Item 1,
and Part II, Items 5, 6, 7, 7A and 8, of this Form 10-K. Portions of the
Company's definitive Proxy Statement for the 2000 Annual Meeting of Stockholders
to be filed pursuant to Regulation 14A are incorporated by reference in Part
III, Items 10, 11, 12 and 13, of this Form 10-K.
The registrant amends Item 14 of its Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, filed by the registrant on March 28, 2000, as
provided in the attached pages.
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INTRODUCTORY NOTE
This Amendment No. 1 on Form 10-K/A amends the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999, as filed by the
registrant on March 28, 2000, and is being filed to reflect correctly the
portions of the Company's 1999 Annual Report and Independent Auditors' Report
which were inadvertently transmitted for filing as Exhibit 13 with minor
clerical errors.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. The following financial statements appearing
in the Company's 1999 Annual Report are incorporated by reference in this
report:
ANNUAL REPORT
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PAGE
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<S> <C>
Consolidated Balance Sheets as of December 31, 1999 and 1998 17
For the years ended December 31, 1999, 1998 and 1997:
Consolidated Statements of Income 18
Consolidated Statements of Changes in Stockholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21
Independent Auditors' Report 32
</TABLE>
(a)(2) FINANCIAL STATEMENT SCHEDULE. The following additional financial
data, which have been filed as pages F-1 and F-2 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 and are incorporated
herein by reference, should be read in conjunction with the consolidated
financial statements in the Company's 1999 Annual Report:
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FORM 10-K PAGE
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<S> <C>
Independent Auditors' Report F-1
</TABLE>
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<TABLE>
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<S> <C>
Schedule II - Valuation and Qualifying Accounts F-2
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are inapplicable and have, therefore, been omitted.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Company
during the fourth quarter of 1999.
(c) EXHIBITS. Listed below are all the Exhibits filed as part of this
report, some of which are incorporated by reference from documents previously
filed by the Company with the Commission in accordance with the provisions of
Rule 12b-32 of the Exchange Act.
<TABLE>
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EXHIBIT DESCRIPTION
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<S> <C>
(3) ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Restated Certificate of Incorporation(1)
3.2 By-Laws, as amended May 19, 1993(2)
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
(See also Exhibits 3.1 and 3.2)
4.1 Specimen stock certificate for shares of the Company's Class A Common
Stock(3)
(10) MATERIAL CONTRACTS
10.1 Agreement dated as of August 29, 1979 between The Timberland Company
and Sidney W. Swartz(1)
10.2 (a) The Company's 1987 Stock Option Plan, as amended(4)
(b) The Company's 1997 Stock Option Plan for Non-Executive
Employees(5)
(c) The Company's 1997 Incentive Plan(4)
10.3 The Company's 1991 Employee Stock Purchase Plan, as amended(6)
10.4 The Company's 1991 Stock Option Plan for Non-Employee Directors(7)
10.5 The Timberland Company Short Term Incentive Plan(2)
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<S> <C>
10.6 The Timberland Company Retirement Earnings 401(k) Plan and Trust
Agreements(8)
10.7 The Timberland Company Profit Sharing Plan and Trust Agreements(8)
10.8 Credit Agreement dated as of April 30, 1998 among The Timberland
Company, certain banks listed therein and Morgan Guaranty Trust
Company of New York, as Agent(9)
10.9 (a) Note Agreements dated as of December 15, 1994 regarding 8.94%
Senior Notes due December 15, 2001(10)
(b) Amendment No. 1 dated as of April 1, 1995 to Note Agreements(11)
(c) Amendment No. 2 dated as of June 28, 1995 to Note Agreements(11)
(d) Amendment No. 3 dated as of June 21, 1996 to Amended and Restated
Note Agreements(12)
(13) ANNUAL REPORT TO SECURITY HOLDERS
13. Portions of the 1999 Annual Report as incorporated herein by
reference, filed herewith
(21) SUBSIDIARIES
21. List of subsidiaries of the registrant(13)
(23) CONSENT OF EXPERTS AND COUNSEL
23. Consent of Deloitte & Touche LLP, filed herewith
(27) FINANCIAL DATA SCHEDULE
27. Financial Data Schedule for the year ended December 31, 1999(13)
(99) ADDITIONAL EXHIBIT
99. Cautionary Statements for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995(13)
</TABLE>
Pursuant to paragraph 4(iii) of Item 601(b), Regulation S-K, the Company
has filed as Exhibits only the instruments defining the rights of holders of
long-term debt of the Company and its consolidated subsidiaries with respect to
which the total amount of securities authorized thereunder exceeds 10% of the
total assets of the Company and its subsidiaries on a consolidated
<PAGE> 5
basis. The Company agrees to furnish to the Commission, upon its request, copies
of other instruments defining the rights of holders of long-term debt of the
Company and its subsidiaries, with respect to which the total amount does not
exceed 10% of such assets. The Company also agrees to furnish to the Commission,
upon its request, copies of any omitted schedule or exhibit to any Exhibit filed
herewith.
- ---------------------------
(1) Filed as an exhibit to Registration Statement on Form S-1, numbered
33-14319, and incorporated herein by reference.
(2) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, and incorporated herein by reference.
(3) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, and incorporated herein by reference.
(4) Filed on June 21, 1995, as an exhibit to Registration Statement on Form S-8,
numbered 33-60457, and incorporated herein by reference.
(5) Filed on September 9, 1997 as an exhibit to Registration Statement on Form
S-8, numbered 333-35223, and incorporated herein by reference.
(6) Filed on June 21, 1995, as an exhibit to Registration Statement on Form S-8,
numbered 33-60459, and incorporated herein by reference.
(7) Filed on August 18, 1992, as an exhibit to Registration Statement on Form
S-8, numbered 33-50998, and incorporated herein by reference.
(8) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, and incorporated herein by reference.
(9) Filed as an exhibit to the Quarterly Report on Form 10-Q for the fiscal
period ended June 26, 1998, and incorporated herein by reference.
(10) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, and incorporated herein by reference.
(11) Filed as an exhibit to the Quarterly Report on Form 10-Q for the fiscal
period ended June 30, 1995, and incorporated herein by reference.
(12) Filed as an exhibit to the Quarterly Report on Form 10-Q for the fiscal
period ended June 27, 1996, and incorporated herein by reference.
(13) Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, and incorporated herein by reference.
<PAGE> 6
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
April 25, 2000 By: /s/ Jeffrey B. Swartz
---------------------
Jeffrey B. Swartz, President
<PAGE> 1
Exhibit 13
FINANCIAL REVIEW
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
SELECTED STATEMENT OF INCOME DATA
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
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Years Ended December 31, 1999 1998 1997 1996 1995(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $917,216 $862,168 $796,458 $689,973 $655,138
Net income (loss) 75,247 59,156 47,321 20,419 (11,635)
Basic earnings (loss) per share(2) 3.51 2.59 2.10 .92 (.53)
Diluted earnings (loss) per share(2) 3.39 2.52 2.02 .91 (.53)
</TABLE>
SELECTED BALANCE SHEET DATA
(Dollars in Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
December 31, 1999 1998 1997 1996 1995(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and equivalents $196,085 $151,889 $ 98,771 $ 93,336 $ 38,389
Working capital 302,286 291,835 242,911 269,603 268,115
Total assets 493,311 469,467 420,003 449,586 421,408
Total long-term debt 100,000 100,000 100,000 189,454 207,187
Stockholders' equity 272,368 266,193 214,895 165,360 142,221
</TABLE>
(1) Includes a $16.0 million pre-tax restructuring charge which reduced earnings
and earnings per share by $9.9 million and $.44 diluted ($.45 basic),
respectively, and a $12.1 million non-recurring pre-tax gain which increased
earnings and earnings per share by $7.5 million and $.34 diluted ($.34 basic),
respectively.
(2) Prior years' earnings (loss) per share have been restated to reflect the
2-for-1 stock split in September 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discusses the Company's results of operations and liquidity and
capital resources. The discussion should be read in conjunction with "The Year
in Review" and the consolidated financial statements and related notes.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(Amounts in Thousands, Except Per Share Data)
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Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $917,216 100.0% $862,168 100.0% $796,458 100.0%
Gross profit 393,102 42.9 342,839 39.8 311,921 39.2
Operating expense 276,551 30.2 248,249 28.8 228,068 28.6
Operating income 116,551 12.7 94,590 11.0 83,853 10.5
Interest expense 9,342 1.0 9,538 1.1 14,833 1.9
Net income 75,247 8.2 59,156 6.9 47,321 5.9
Basic earnings per share $ 3.51 $ 2.59 $ 2.10
Weighted-average shares
outstanding 21,448 22,849 22,561
Diluted earnings per share $ 3.39 $ 2.52 $ 2.02
Weighted-average shares
outstanding 22,178 23,517 23,475
</TABLE>
Prior years' earnings per share and weighted-average shares have been restated
to reflect the 2-for-1 stock split in September 1999.
Revenue increased to $917.2 million in 1999 from $862.2 million in 1998 and
$796.5 million in 1997. This represents an increase of 6.4% in 1999 and 8.3% in
1998, each compared with the prior year.
Footwear revenue was $713.4 million in 1999, $651.8 million in 1998 and
$593.0 million in 1997. This represents an increase of 9.5% in 1999 and 9.9% in
1998, each compared with the prior year. The revenue increase in 1999, compared
with 1998, was primarily due to increases in domestic and, to a lesser degree,
European unit sales, partially offset by the impact of foreign exchange. By
product, the increase was primarily attributable to unit volume growth in Boots
and, to a lesser degree, the introduction of the new Mountain Athletics(TM) by
Timberland and Timberland PRO(TM) series sub-brands, Kids' and Men's Casual
footwear in Europe. These increases in revenue were partially offset by unit
volume decreases in the
11
<PAGE> 2
Performance and, to lesser degree, the Casual categories domestically. The
increase in 1998, compared with 1997, was primarily due to growth in domestic
wholesale, domestic retail and European wholesale unit sales, partially offset
by a decline in average selling prices. By product, the increases were primarily
in the Performance, Boots and Kids' categories. Worldwide footwear revenue
represented 79.1%, 76.9% and 75.4% of total product revenue in 1999, 1998 and
1997, respectively.
Revenue attributable to apparel and accessories was $189.0 million in 1999,
$195.8 million in 1998 and $193.8 million in 1997. The revenue decrease of 3.5%
in 1999, compared with 1998, was primarily due to a reduction in domestic
wholesale revenue, partially offset by increases in European average selling
price and unit sales, and domestic retail unit sales. The decrease in domestic
wholesale revenue was primarily due to the Company's focus on rationalizing its
domestic distribution strategy and better managing inventory levels. That also
resulted in a $6.9 million reduction in wholesale off-price sales. The 1.0%
revenue increase in 1998, compared with 1997, was primarily due to increases in
domestic retail unit sales and European wholesale average selling price and unit
sales. These increases were partially offset by a decline in domestic wholesale
average selling price. Worldwide apparel and accessories revenue represented
20.9%, 23.1% and 24.6% of total product revenue in 1999, 1998 and 1997,
respectively.
Worldwide revenue from Company-owned retail and factory stores was $210.5
million in 1999, $191.7 million in 1998 and $181.1 million in 1997. This
represents an increase of 9.8% in 1999 and 5.8% in 1998, each compared with the
prior year. These increases in revenue were primarily due to increases in
footwear and, to a lesser degree, apparel and accessories unit sales, resulting
from, in part, new retail locations worldwide. Worldwide retail revenue
represented 22.9%, 22.2% and 22.7% of total revenue in 1999, 1998 and 1997,
respectively.
The Company has three reportable business segments: U.S. Wholesale, U.S.
Retail and International (for a more detailed description and additional
financial information regarding segments, see the "Business Segments and
Geographic Information" note (Note 10) to the Company's consolidated financial
statements). Domestic revenue, comprised of the U.S. Wholesale and U.S. Retail
segments, amounted to $662.5 million in 1999, $610.3 million in 1998 and $578.4
million in 1997, or 72.2%, 70.8% and 72.6% of total revenue for each of the
three years, respectively. The U.S. Wholesale segment revenue increased by 8.4%
in 1999, compared with 1998, and by 5.3% in 1998, compared with 1997, both
primarily due to increases in footwear unit sales. The U.S. Retail segment
revenue increased by 8.9% in 1999, compared with 1998, and by 6.1% in 1998,
compared with 1997, both primarily due to increases in footwear unit sales and,
to a lesser degree, apparel and accessories unit sales. Comparable store sales
increased by 5.4% in 1999, compared with 1998, and by 4.3% in 1998, compared
with 1997. International segment revenue increased by 1.1% in 1999, compared
with 1998, and by 15.5% in 1998, compared with 1997. The increase in 1999,
compared with 1998, was primarily due to higher European unit sales and apparel
and accessories average selling prices. This increase was substantially offset
by the impact of foreign exchange and, to a lesser degree, lower revenue in Asia
where the Company operated through an independent distributor. The increase in
1998, compared with 1997, was primarily due to European footwear unit sales.
The gross profit margin was 42.9% in 1999, 39.8% in 1998 and 39.2% in 1997.
The increase in margin percentage in 1999, compared with 1998, was primarily due
to a reduction in sourcing costs, improvements in manufacturing efficiencies and
product mix in apparel, including fewer off-price apparel sales. The improvement
in gross profit margin from 1997 to 1998 was primarily due to a mix of higher
margin products, in addition to lower unit costs in footwear manufacturing and
sourcing.
Operating expense was $276.6 million, or 30.2% of revenue in 1999, $248.2
million, or 28.8% of revenue in 1998 and $228.1 million, or 28.6% of revenue in
1997. The increase in operating expense in 1999, compared with 1998, was
principally due to expenditures to support business growth, predominately
selling and marketing related. The increase in 1998, compared with 1997, was
primarily due to marketing expenditures and, to a lesser degree, sales volume
related expenditures.
Operating income, which is pre-tax earnings before interest and other
expense, was $116.6 million in 1999, $94.6 million in 1998 and $83.9 million in
1997. As a percentage of revenue, operating income was 12.7% in 1999, 11.0% in
1998 and 10.5% in 1997.
Segment operating income improved in all segments in 1999 and 1998, both in
dollars and as a percentage of revenue, compared with the respective prior
years. That improvement was due to a combination of increased revenue and higher
gross margin rates in each segment
12
<PAGE> 3
year over year, partially offset by the expense increases discussed previously
and, additionally, the impact of foreign exchange within the International
segment. The increase in Unallocated Corporate expenses in 1999, compared with
1998, was primarily due to finance, information systems, legal and
administrative expenses incurred in the support of company-wide activities, and
United States distribution expenses. The increase in 1998, compared with 1997,
was primarily due to expanded marketing efforts.
Interest expense was $9.3 million in 1999, compared with $9.5 million in 1998
and $14.8 million in 1997. The decrease from 1998 to 1999 was due to lower
levels of short-term borrowings, while the decrease from 1997 to 1998 was due to
lower levels of long-term borrowings.
The effective income tax rate was 32.0% in 1999, 32.0% in 1998 and 30.0% in
1997. For an analysis of the effective tax rate, see the "Income Taxes" note
(Note 6) to the Company's consolidated financial statements.
The Company believes that inflation has not had a significant impact on the
Company's operations over the past three years.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated by operations amounted to $135.3 million in 1999, $84.2 million
in 1998 and $113.8 million in 1997. The Company's earnings and continued
improvements in working capital management were the principal sources of cash
generation. The reduction in inventory levels experienced in 1999 and 1998,
compared with the respective prior years, was achieved by improved forecasting
accuracy and a reduction of excess and obsolete product in the business system.
Inventory turns were 3.7 times in 1999, compared with 3.2 times in 1998 and 2.9
times in 1997. Days sales outstanding at December 31, 1999 were 26 days,
compared with 27 days at December 31, 1998 and 29 days at December 31, 1997.
Domestic wholesale days sales outstanding were 29 days, 34 days and 36 days at
the end of 1999, 1998 and 1997, respectively.
Net cash used by investing activities amounted to $23.7 million in 1999,
$21.8 million in 1998 and $25.2 million in 1997. Of the net cash used by
investing activities, capital expenditures were $20.1 million in 1999, $20.7
million in 1998 and $25.7 million in 1997. A majority of capital expenditures
during the three years ended December 31, 1999, 1998 and 1997, were for
manufacturing machinery and equipment, distribution and transportation
equipment, retail store additions and improvements, and information systems
enhancements.
During 1999, 1998 and 1997, net cash used in financing activities amounted to
$64.3 million, $10.1 million and $82.7 million, respectively. In 1999 and 1998,
$71.7 million and $16.2 million, respectively, were used to repurchase
outstanding shares of the Company's Class A Common Stock. In 1997, $89.5 million
was used to repay long-term debt, including prepayments totaling $82.0 million.
The Company uses funds from operations and unsecured revolving and committed
lines of credit as the primary sources of financing for its seasonal and other
working capital requirements. On April 30, 1998, the Company entered into a
revolving credit agreement to provide up to $80.0 million in letters of credit
under an overall $100.0 million committed facility. This agreement expires on
June 19, 2001.
The Company's debt to capital ratio was 26.9% at December 31, 1999, 27.3% at
December 31, 1998 and 31.8% at December 31, 1997.
Management believes that the Company's capital requirements for 2000 will be
met through the use of its current cash balances, through its existing credit
facilities and through cash flow from operations, without the need for
additional permanent financing. However, if the need arises, the Company's
ability to obtain any additional credit facilities will depend upon prevailing
market conditions, the Company's financial condition and the terms and
conditions of such additional facilities.
NEW ACCOUNTING PRONOUNCEMENTS
A discussion of new accounting pronouncements is included in the "Summary of
Significant Accounting Policies" note (Note 1) to the Company's consolidated
financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the financial position and results of
operations of the Company are routinely subject to a variety of risks, including
market risk associated with
13
<PAGE> 4
interest rate movements on borrowings and investments and currency rate
movements on non-U.S. dollar denominated assets and liabilities. The Company
regularly assesses these risks and has established policies and business
practices to protect against the adverse effect of these and other potential
exposures.
The Company utilizes cash from operations and U.S. dollar denominated
borrowings to fund its working capital and investment needs. Short-term debt, if
required, is used to meet working capital requirements and long-term debt
generally is used to finance long-term investments. In addition, derivative
instruments are used by the Company in its hedging of foreign currency
transactions. These debt instruments and derivative instruments are viewed as
risk management tools and are not used for trading or speculative purposes. Cash
balances are normally invested in high-grade securities with terms under three
months.
The Company has available unsecured committed and uncommitted lines of credit
as sources of financing for its working capital requirements. Borrowings under
these credit agreements bear interest at variable rates based on the London
Interbank Offering Rate. At December 31, 1999 and 1998, 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. The Company seeks to minimize the impact of
these foreign currency fluctuations by hedging the related transactions with
foreign currency forward contracts. These contracts are short-term and expire in
twelve months or less. As of December 31, 1999, there were no material foreign
currency transactions that were not hedged. Based upon sensitivity analysis as
of December 31, 1999, a 10% change in foreign exchange rates would cause the
fair value of the Company's financial instruments to increase/decrease by
approximately $5.0 million.
YEAR 2000
- - STATE OF READINESS. The Company's Year 2000 compliance strategy included
several overlapping phases: inventory, analysis, conversion, testing and
implementation. In 1999, the Company completed all phases for all of its
enterprise business systems and technical systems worldwide and for all
departmental applications, facilities and non-informational technology
systems identified by the Company as critical or high risk. The Company took
steps to assess the Year 2000 compliance of its external business partners
and to reduce the risks to, and the resulting impact on, the Company of their
non-compliance. Those steps included requiring such external business
partners to provide compliance certification, periodic status reports and
contingency plans to the Company.
The Company monitored the rollover of 1999 into 2000, has not experienced
any material business disruptions as a result of Year 2000 issues and
believes that the risk for major system failure has passed. As a result, the
Company has removed its restriction on new installations and upgrades of all
operational systems.
- - RISKS. The Company does not now anticipate that any future material business
disruption will occur as a result of Year 2000 issues. The Company will
continue to monitor its business systems and processes and the Year 2000
compliance of its external business partners throughout the first quarter of
2000. However, the Company will not be able to independently verify that all
of its external business partners are, in fact, Year 2000 compliant.
Therefore, there is a risk that the Company's business, financial position
and results of operations could be materially adversely affected by any Year
2000 issues which did not become apparent in the rollover from 1999 to 2000,
or during the subsequent weeks.
- - CONTINGENCY PLAN. The Company completed and documented its Year 2000
contingency plans to address the risk and exposure to the Company. The
Company 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. Because the Company did not experience
any material business interruptions as a result of Year 2000 issues, it did
not put any of its contingency plans into place. The Company will continue to
update its assessments and revise its contingency plans as appropriate, based
on additional information received, and will maintain its contingency plans
during 2000 in the event that it should need to address the risks described
above.
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<PAGE> 5
- - COSTS. Total expenditures related to the Company's Year 2000 compliance
efforts are currently estimated not to exceed $3.0 million, most of which has
been incurred through December 31, 1999. 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. The estimate of total expenditures is based on the
Company's current assessment of additional Year 2000 compliance needs and is
subject to change as the Company proceeds with its Year 2000 efforts.
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 the information currently available.
EURO
Effective January 1, 1999, the European Monetary Union ("EMU") created a single
currency, the euro, for its member countries. A transition period, from January
1, 1999 through December 31, 2001, will allow the member countries to
methodically eliminate their local currencies and to convert to the euro. During
this transition period, either the euro or a member country's present currency
will be accepted as legal tender.
In 1998, the Company formed a task force to study the requirements of
conversion to the euro and the related impact to the Company (four of the five
European subsidiaries of the Company operate in countries that are members of
the EMU). The task force reviewed technology requirements, pricing and
competitive implications, banking, the impact on hedging programs and the timing
and costs related to each of these issues. From this review, a conversion
program was developed and implemented in 1998.
As of December 31, 1999, the accounting and ledger systems of the Company's
European subsidiaries were euro compliant. Additionally, the Company can invoice
and manage all wholesale orders in local currency and euros. At the
subsidiaries' retail locations, all credit card readers are euro compliant and
all price tags and displays are in both local currency and euros. The retail
store registers and merchandising/inventory management systems are currently
scheduled to be euro compliant by the end of 2000.
Throughout 2000, the Company will continue to review and potentially adjust
its European subsidiaries' wholesale and retail pricing for consistency among
markets. The Company will also be working on the euro compliance of its
financial reporting and consolidation system to support all euro process and
system changes.
The Company believes that the adoption of the euro will not have a material
impact on the Company's consolidated financial statements.
FORWARD-LOOKING INFORMATION
Management is unaware of any current trends or conditions that could have a
material adverse effect on the Company's consolidated financial position, future
results of operations or capital or liquidity needs. However, as discussed in an
exhibit to the Company's Form 10-K for the year ended December 31, 1999,
entitled "Cautionary Statements for Purposes of the Safe Harbor Provisions of
the Private Securities Litigation Reform Act of 1995," investors should be aware
of factors that could affect the Company's actual results and could cause such
results to differ materially from those contained in forward-looking statements
made by or on behalf of the Company. These factors include political, economic
or other factors such as currency exchange rates, conversion to the euro, Year
2000 conversions, inflation rates, recessionary or expansive trends, taxes and
regulations and laws affecting the business in each of the Company's markets;
competitive product, advertising, promotional and pricing activity; dependence
on the rate of development and degree of acceptance of new product introductions
in the marketplace; and the difficulty of forecasting sales at certain times in
certain markets.
SUBSEQUENT EVENT
A discussion of the Company's re-acquisition of distribution rights in the Asia
Pacific region and acquisition of the stock of four distribution subsidiaries is
included in the "Subsequent Event" note (Note 15) to the Company's consolidated
financial statements.
15
<PAGE> 6
QUARTERLY MARKET INFORMATION AND RELATED MATTERS
The Company's Class A Common Stock is traded on the New York Stock Exchange
under the symbol TBL. There is no market for shares of the Company's Class B
Common Stock; however, shares of Class B Common Stock may be converted into
shares of Class A Common Stock on a one-for-one basis and will automatically be
converted upon any transfer (except for estate planning transfers and transfers
approved by the Board of Directors).
The following table presents the high and low closing sales prices of the
Company's Class A Common Stock for the past two years, as reported by the New
York Stock Exchange.
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter $32 9/32 $21 9/32 $37 23/32 $26 5/8
Second Quarter 37 29 1/16 43 7/16 34 1/2
Third Quarter 42 5/16 31 7/16 36 1/32 18 5/8
Fourth Quarter 52 7/8 35 3/4 24 7/8 14 15/32
</TABLE>
Quarterly stock prices have been restated to reflect the 2-for-1 stock split in
September 1999.
As of February 25, 2000, the number of record holders of the Company's Class
A Common Stock was approximately 718 and the number of record holders of the
Company's Class B Common Stock was 8. The closing sales price of the Company's
Class A Common Stock on February 25, 2000 was $38 3/4 per share.
The Company has never declared a dividend on either the Company's Class A or
Class B Common Stock and does not contemplate doing so in the foreseeable
future. In addition, the Company's ability to pay cash dividends is limited
pursuant to various loan agreements (see notes to the Company's consolidated
financial statements).
16
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999 AND 1998
- ------------------------------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data) 1999 1998
- ------------------------------------------------------------------------------------------------------
ASSETS
Current assets
<S> <C> <C>
Cash and equivalents $ 196,085 $ 151,889
Accounts receivable, net of allowance for doubtful accounts
of $4,910 in 1999 and $4,769 in 1998 78,696 79,024
Inventory 114,673 131,218
Prepaid expense 9,890 11,897
Deferred income taxes 15,297 13,538
- ------------------------------------------------------------------------------------------------------
Total current assets 414,641 387,566
- ------------------------------------------------------------------------------------------------------
Property, plant and equipment 130,425 131,237
Less accumulated depreciation and amortization (75,019) (74,316)
- ------------------------------------------------------------------------------------------------------
Net property, plant and equipment 55,406 56,921
- ------------------------------------------------------------------------------------------------------
Excess of cost over fair value of net assets acquired, net 17,533 19,217
Other assets, net 5,731 5,763
- ------------------------------------------------------------------------------------------------------
Total assets $ 493,311 $ 469,467
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 33,247 $ 25,890
Accrued expense
Payroll and related 30,570 22,090
Interest and other 35,038 29,528
Income taxes payable 13,500 18,223
- ------------------------------------------------------------------------------------------------------
Total current liabilities 112,355 95,731
- ------------------------------------------------------------------------------------------------------
Long-term debt 100,000 100,000
Deferred income taxes 8,588 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; 18,638,355 shares issued at December 31, 1999
and 18,354,766 shares issued at December 31, 1998 187 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 December 31, 1999 and 4,676,324 shares
issued at December 31, 1998 47 23
Additional paid-in capital 82,755 74,711
Deferred compensation (3,658) --
Retained earnings 282,209 207,077
Accumulated other comprehensive income (loss) (4,151) 626
Less treasury stock at cost; 2,671,349 shares at December 31, 1999
and 834,736 shares at December 31, 1998 (85,021) (16,336)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 272,368 266,193
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 493,311 $ 469,467
- ------------------------------------------------------------------------------------------------------
</TABLE>
Prior years' shares have been restated to reflect the 2-for-1 stock split in
September 1999.
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31, 1999, 1998 AND 1997
(Amounts in Thousands, Except Per Share Data) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 917,216 $ 862,168 $ 796,458
Cost of goods sold 524,114 519,329 484,537
- ----------------------------------------------------------------------------------------------------
Gross profit 393,102 342,839 311,921
- ----------------------------------------------------------------------------------------------------
Operating expense
Selling 219,545 195,688 174,729
General and administrative 55,321 50,876 51,654
Amortization of goodwill 1,685 1,685 1,685
- ----------------------------------------------------------------------------------------------------
Total operating expense 276,551 248,249 228,068
- ----------------------------------------------------------------------------------------------------
Operating income 116,551 94,590 83,853
- ----------------------------------------------------------------------------------------------------
Other expense (income)
Interest expense 9,342 9,538 14,833
Other, net (3,449) (1,942) 1,419
- ----------------------------------------------------------------------------------------------------
Total other expense 5,893 7,596 16,252
- ----------------------------------------------------------------------------------------------------
Income before income taxes 110,658 86,994 67,601
Provision for income taxes 35,411 27,838 20,280
- ----------------------------------------------------------------------------------------------------
Net income $ 75,247 $ 59,156 $ 47,321
- ----------------------------------------------------------------------------------------------------
Basic earnings per share $ 3.51 $ 2.59 $ 2.10
Weighted-average shares outstanding 21,448 22,849 22,561
- ----------------------------------------------------------------------------------------------------
Diluted earnings per share $ 3.39 $ 2.52 $ 2.02
Weighted-average shares outstanding 22,178 23,517 23,475
- ----------------------------------------------------------------------------------------------------
</TABLE>
Prior years' earnings per share and weighted-average shares have been restated
to reflect the 2-for-1 stock split in September 1999.
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 9
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Class A Class B Additional Other
Common Common Paid-in Deferred Retained Comprehensive
(Dollars in Thousands) Stock Stock Capital Compensation Earnings Income(Loss)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 84 $ 27 $ 61,806 $ -- $ 100,600 $ 2,963
Issuance of shares under
employee stock plans 4 (1) 4,362 -- -- --
Tax benefit from stock
option plans -- -- 2,400 -- -- --
Comprehensive income:
Net income -- -- -- -- 47,321 --
Translation adjustment -- -- -- -- -- (4,558)
Comprehensive income -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 88 26 68,568 -- 147,921 (1,595)
Issuance of shares under
employee stock plans 4 (3) 3,843 -- -- --
Repurchase of common stock -- -- -- -- -- --
Tax benefit from stock
option plans -- -- 2,300 -- -- --
Comprehensive income:
Net income -- -- -- -- 59,156 --
Translation adjustment -- -- -- -- -- 2,221
Comprehensive income -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 92 23 74,711 -- 207,077 626
Issuance of shares under
employee stock plans 3 1 5,544 (3,705) -- --
Amortization of deferred
compensation -- -- -- 47 -- --
Repurchase of common stock -- -- -- -- -- --
Tax benefit from stock
option plans -- -- 2,500 -- -- --
2-for-1 stock split 92 23 -- -- (115) --
Comprehensive income:
Net income -- -- -- -- 75,247 --
Translation adjustment -- -- -- -- -- (4,777)
Comprehensive income -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 187 $ 47 $ 82,755 $ (3,658) $ 282,209 $ (4,151)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Consolidated
Treasury Comprehensive Stockholders'
Stock Income Equity
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1997 $ (120) $ 165,360
Issuance of shares under
employee stock plans 7 4,372
Tax benefit from stock
option plans -- 2,400
Comprehensive income:
Net income -- $ 47,321 47,321
Translation adjustment -- (4,558) (4,558)
----------
Comprehensive income -- $ 42,763 --
- ----------------------------------------------------------------------------
Balance, December 31, 1997 (113) 214,895
Issuance of shares under
employee stock plans -- 3,844
Repurchase of common stock (16,223) (16,223)
Tax benefit from stock
option plans -- 2,300
Comprehensive income:
Net income -- $ 59,156 59,156
Translation adjustment -- 2,221 2,221
---------
Comprehensive income -- $ 61,377 --
- ---------------------------------------------------------------------------
Balance, December 31, 1998 (16,336) 266,193
Issuance of shares under
employee stock plans 2,985 4,828
Amortization of deferred
compensation -- 47
Repurchase of common stock (71,670) (71,670)
Tax benefit from stock
option plans -- 2,500
2-for-1 stock split -- --
Comprehensive income:
Net income -- $ 75,247 75,247
Translation adjustment -- (4,777) (4,777)
---------
Comprehensive income -- $ 70,470 --
- ---------------------------------------------------------------------------
Balance, December 31, 1999 $ (85,021) $ 272,368
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 75,247 $ 59,156 $ 47,321
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes (714) (35) (7,478)
Depreciation and amortization 24,410 18,199 20,292
Loss on disposal of property, plant and equipment 396 1,303 1,564
Increase (decrease) in cash from changes in working capital:
Accounts receivable (2,687) (2,781) 24,799
Inventory 15,817 11,637 14,270
Prepaid expense 1,679 1,112 (3,707)
Accounts payable 10,144 5,083 (454)
Accrued expense 15,290 (9,975) 11,165
Income taxes (4,301) 459 6,001
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 135,281 84,158 113,773
- ---------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 81 97 3,772
Additions to property, plant and equipment (20,094) (20,683) (25,704)
Other, net (3,701) (1,245) (3,250)
- ---------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (23,714) (21,831) (25,182)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Common stock repurchases (71,670) (16,223) --
Payments on long-term debt -- -- (89,454)
Issuance of common stock 4,828 3,844 4,372
Tax benefit from stock option plans 2,500 2,300 2,400
- ---------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (64,342) (10,079) (82,682)
- ---------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (3,029) 870 (474)
- ---------------------------------------------------------------------------------------------------------------
Net increase in cash and equivalents 44,196 53,118 5,435
Cash and equivalents at beginning of year 151,889 98,771 93,336
- ---------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 196,085 $ 151,889 $ 98,771
- ---------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 9,165 $ 9,378 $ 15,650
Income taxes paid 40,848 27,336 21,885
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of The Timberland
Company and its subsidiaries (the "Company"). All material intercompany
transactions have been eliminated in consolidation.
RECOGNITION OF REVENUE
Revenue consists of sales to customers, license fees and royalties. Sales are
recognized upon shipment of product to customers. License fees and royalties are
recognized when earned.
TRANSLATION OF FOREIGN CURRENCIES
The Company translates financial statements denominated in foreign currencies by
translating balance sheet accounts at the end of period exchange rates and
statement of income accounts at the average exchange rates for the periods.
Translation gains and losses are recorded in stockholders' equity and reflected
in other comprehensive income, and transaction gains and losses are reflected in
net income.
DERIVATIVES
The Company is exposed to foreign exchange risk when it sells goods in local
currencies through its foreign subsidiaries. It is the Company's policy to hedge
a portion of this risk through forward sales of foreign currencies, thereby
locking in the future exchange rates. Gains and losses on the underlying
contracts are accounted for using hedge accounting. Accordingly, the change in
the fair value of the contracts that hedge firm commitments is deferred and
recognized as part of the related foreign currency transaction upon occurrence.
CASH AND EQUIVALENTS
Cash and equivalents consist of short-term, highly liquid investments that
normally have original maturities to the Company of three months or less.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets or over the
terms of the related leases, if such periods are shorter. The principal
estimated useful lives are: building and improvements, 4 to 20 years; machinery
and equipment, 3 to 12 years; lasts, patterns and dies, 3 years.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The excess of cost over the fair value of net assets acquired is being amortized
on a straight-line basis over periods of 10, 15 and 40 years. Accumulated
amortization amounted to $14,242 and $12,557 at December 31, 1999 and 1998,
respectively.
ACCRUED INSURANCE COSTS
The Company is self-insured for workers' compensation, healthcare, dental and
short-term disability up to certain specified limits. Expenses associated with
such self-insurance programs are accrued based upon estimates of the amounts
required to cover incurred incidents.
INCOME TAXES
Income tax expense is based on the income reported in the Company's financial
statements, regardless of when such taxes are payable. In addition, tax assets
and liabilities are adjusted to reflect the changes in U.S. and applicable
foreign income tax laws when enacted. Future tax benefits, such as net operating
loss carry-forwards, are recognized to the extent that realization of such
benefits is more likely to occur than not.
21
<PAGE> 12
ACCOUNTING FOR ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires the Company to make assumptions that affect the
estimates reported in these consolidated financial statements. Actual results
may differ from these estimates.
STOCK SPLIT
In 1999, the Company's Board of Directors approved a 2-for-1 stock split of
Timberland's Class A and Class B Common Stock, effective September 15, 1999. All
share and per share amounts in the accompanying consolidated financial
statements and related notes have been restated for all periods to reflect the
stock split.
EARNINGS PER SHARE
Basic Earnings Per Share ("EPS") excludes dilution and is computed by dividing
net income by the weighted-average number of common shares outstanding for the
periods presented. Diluted EPS reflects the potential dilution that would occur
if securities such as stock options were exercised. Dilutive securities (Note
12) included in the calculation of diluted weighted-average shares were 725,395
in 1999 and 668,646 in 1998.
LONG-LIVED ASSETS
The Company continually evaluates the carrying values and estimated useful lives
of its long-lived assets, primarily property, plant and equipment and intangible
assets. When factors indicate that such assets should be evaluated for possible
impairment, the Company uses estimates of future operating results and cash
flows to determine whether the assets are economically recoverable.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the method prescribed by
Accounting Principles Board ("APB") Opinion No. 25 and related interpretations.
COMPREHENSIVE INCOME
Comprehensive income, in the case of the Company, is the combination of reported
net income and other comprehensive income, which is comprised of foreign
currency translation adjustments. Comprehensive income has no impact on the
Company's reported net income. Comprehensive income is included in the
consolidated statements of changes in stockholders' equity.
NEW ACCOUNTING PRONOUNCEMENTS
In 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 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 the requirements of SFAS No. 133 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.
22
<PAGE> 13
2. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The following table illustrates the U.S. dollar equivalent of foreign exchange
contracts at December 31, 1999 and 1998 along with maturity dates, net
unrealized gain (loss) and net unrealized gain (loss) deferred. Unrealized gains
or losses are determined based on the difference between the settlement and
year-end foreign exchange rates. The contract amount represents the net amount
of all purchase and sale contracts of a foreign currency. A negative amount
represents a net purchase position of a foreign currency.
<TABLE>
<CAPTION>
Contract
Amount Unrealized Unrealized Net Unrealized
(U.S. $ Maturity Gross Gross Net Unrealized Gain (Loss)
Equivalent) Date Gain (Loss) Gain (Loss) Deferred
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999
Pounds Sterling $ 16,509 2000 $ 33 $ -- $ 33 $ 31
Euros 35,004 2000 2,585 -- 2,585 2,585
- -------------------------------------------------------------------------------------------------------------------------
Total $ 51,513 $ 2,618 $ -- $ 2,618 $ 2,616
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1998
Pounds Sterling $ 12,957 1999 $ -- $ (394) $ (394) $ (360)
Deutsche Marks 7,821 1999 -- (509) (509) (509)
French Francs (1,121) 1999 -- (398) (398) (373)
Italian Lire 8,461 1999 -- (452) (452) (452)
Spanish Pesetas 6,431 1999 4 (229) (225) (219)
Swedish Krone 6,121 1999 141 -- 141 141
- -------------------------------------------------------------------------------------------------------------------------
Total $ 40,670 $ 145 $ (1,982) $ (1,837) $ (1,772)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high credit
quality financial institutions, thereby minimizing exposure to concentrations of
credit risk. Credit risk with respect to trade receivables is limited, due to
the large number of customers included in the Company's customer base. The
Company had an allowance for doubtful accounts receivable of $4,910 and $4,769
at December 31, 1999 and 1998, respectively.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
------------------------ -------------------------
Carrying Carrying
or Contract Fair or Contract Fair
Amount Value Amount Value
----------------------------------------------------
<S> <C> <C> <C> <C>
Cash and equivalents (1) $196,085 $196,085 $151,889 $151,889
Long-term debt (2) 100,000 103,549 100,000 108,553
Foreign currency contracts (3) 51,513 48,895 40,670 42,507
</TABLE>
(1) The carrying amounts of cash and equivalents approximate their fair values.
(2) The fair value of the Company's long-term debt is estimated based on current
rates available to the Company as of December 31, 1999 and 1998 for debt of
the same remaining maturities.
(3) The fair value of foreign currency contracts is estimated by obtaining the
appropriate year-end rates as of December 31, 1999 and 1998, respectively.
23
<PAGE> 14
4. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 4,493 $ 6,253
Work-in-process 2,832 3,913
Finished goods 107,348 121,052
- -------------------------------------------------------------------
Total $114,673 $131,218
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 501 $ 501
Building and improvements 30,369 30,605
Machinery and equipment 89,327 87,991
Lasts, patterns and dies 10,228 12,140
- -------------------------------------------------------------------
Total $130,425 $131,237
</TABLE>
6. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
Current Deferred Current Deferred Current Deferred
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal $24,354 $(454) $18,588 $ 26 $21,368 $(5,956)
State 6,092 (260) 5,003 (78) 3,958 (2,078)
Puerto Rico 421 -- 317 17 828 556
Foreign 5,258 -- 3,965 -- 1,604 --
- ---------------------------------------------------------------------------------------------------------
Total $36,125 $(714) $27,873 $(35) $27,758 $(7,478)
</TABLE>
The provision for income taxes differs from the amount computed using the
statutory federal income tax rate of 35% due to the following:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at
statutory rate $38,730 35.0% $30,448 35.0% $23,660 35.0%
Federal tax exempt
operations in Puerto Rico (6,550) (5.9) (4,688) (5.4) (5,261) (7.8)
State taxes, net of
applicable federal benefit 4,274 3.9 3,324 3.8 2,294 3.4
Other, net (1,043) (1.0) (1,246) (1.4) (413) (0.6)
- ---------------------------------------------------------------------------------------------------------
Total $35,411 32.0% $27,838 32.0% $20,280 30.0%
</TABLE>
24
<PAGE> 15
The tax effects of temporary differences and carry-forwards that give rise to
significant portions of deferred tax assets and liabilities at December 31, 1999
and 1998 consist of the following:
<TABLE>
<CAPTION>
1999 1998
Assets Liabilities Assets Liabilities
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Inventory $ 5,701 $ -- $ 6,158 $ --
Receivable allowances 7,288 -- 6,441 --
Employee benefits accruals 2,569 -- 2,089 --
Other (261) -- (1,150) --
- ---------------------------------------------------------------------------------------------------------
Total current $ 15,297 $ -- $ 13,538 $ --
- ---------------------------------------------------------------------------------------------------------
Non-current:
Accelerated depreciation and amortization $ 3,808 $ -- $ 3,784 $ --
Puerto Rico tollgate taxes -- (2,470) -- (2,470)
Undistributed foreign earnings -- (9,372) -- (9,189)
Other -- (554) 332 --
Net operating loss carry-forwards 30 -- 330 --
Less-valuation allowance (30) -- (330) --
- ---------------------------------------------------------------------------------------------------------
Total non-current $ 3,808 $(12,396) $ 4,116 $(11,659)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Company's consolidated income before taxes included earnings from its
subsidiary in Puerto Rico, which are substantially exempt from Puerto Rico
income tax under an exemption which expires in 2012 and federal income taxes
under an exemption which becomes limited after 2001 and currently expires after
2005. Deferred tollgate taxes have been provided on all of the accumulated
earnings of the subsidiary in Puerto Rico which are subject to tollgate tax.
Deferred income taxes are also provided on the undistributed earnings of the
Company's foreign subsidiaries.
7. NOTES PAYABLE
The Company has an unsecured committed revolving credit agreement (the
"Agreement") with a group of banks. The Agreement 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 (6.4% at December 31, 1999) based upon the lenders'
cost of funds, plus an applicable spread. The Agreement provides for a facility
fee of 0.20% per annum on the full commitment, places limitations on incurring
additional debt, stock repurchases and on the amount of dividends the Company
may pay, and also contains certain other financial and operating covenants.
Additionally, the Company has uncommitted lines of credit available from
certain banks totaling $24,000 at December 31, 1999. Borrowings under these
lines are at prevailing money market rates (6.5% at December 31, 1999). These
arrangements may be terminated at any time at the option of the banks or the
Company.
8. LONG-TERM DEBT
As of December 31, 1999 and 1998, the Company's long-term debt consisted of
$100,000 of 8.94% notes which mature on December 15, 2001. The 8.94% notes place
limitations on the incurrence of additional debt, stock repurchases and on the
amount of dividends the Company may pay, and also require maintenance of certain
financial and operating covenants.
25
<PAGE> 16
9. LEASE COMMITMENTS
The Company leases its corporate headquarters facility, manufacturing
facilities, retail stores, showrooms, two distribution facilities and certain
equipment under non-cancelable operating leases expiring at various dates
through 2014. The approximate minimum rental commitments under all
non-cancelable leases as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 18,915
2001 18,985
2002 17,303
2003 14,962
2004 11,954
Thereafter 35,822
--------
Total $117,941
========
</TABLE>
Most of the leases for retail space provide for renewal options, contain normal
escalation clauses and require the Company to pay real estate taxes, maintenance
and other expenses. The aggregate base rent obligation for a lease is expensed
on a straight-line basis over the term of the lease. Rental expense for all
operating leases was $21,509, $18,483 and $18,487 for the years ended December
31, 1999, 1998 and 1997, respectively.
10. BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
The Company has five revenue generating business units with separate management
teams and financial reporting accountability. These units have been aggregated
into three reportable segments, each sharing similar product, distribution,
marketing and economic conditions. The reportable segments are U.S. Wholesale,
U.S. Retail and International. The U.S. Wholesale segment is comprised of the
worldwide product development and manufacturing/sourcing for footwear and
apparel and accessories and the sale of such products to wholesale customers in
the United States. This segment also includes royalties from licensed products
sold in the United States and the management costs and expenses associated with
the Company's worldwide licensing efforts. Beginning in 1999, a portion of
United States marketing expenses are included in the U.S. Wholesale segment
(prior years have been reclassified for comparative purposes). The U.S. Retail
segment includes the Company operated specialty and factory outlet stores in the
United States. The International segment consists of the marketing, selling and
distribution of footwear, apparel and accessories and licensed products outside
of the United States. Products are sold outside of the United States through the
Company's subsidiaries (which use wholesale and retail channels to sell footwear
and apparel and accessories), independent distributors and licensees.
The Unallocated Corporate component of segment reporting consists primarily
of the corporate finance, legal, information services and administrative
expenses incurred in support of company-wide activities, United States
distribution expenses and a majority of United States marketing expenses.
Unallocated Corporate also includes other expense (income) which is primarily
interest expense and interest income. Such expenses are not allocated among the
reported business segments.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates segment
performances based on operating contribution, which represents pre-tax income
before unallocated corporate expenses, interest and other expenses, net, and on
operating cash flow measurements. Total assets are disaggregated to the extent
that assets apply specifically to a single segment. Unallocated Corporate assets
primarily consist of cash and equivalents, manufacturing/sourcing assets,
computers and related equipment, and United States transportation and
distribution equipment.
26
<PAGE> 17
<TABLE>
<CAPTION>
U.S. U.S. Unallocated
Wholesale Retail International Corporate Consolidated
--------- -------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1999
- ----------------------------------
Revenue $488,597 $173,937 $254,682 $ -- $917,216
Depreciation and amortization 7,587 2,927 4,433 9,463 24,410
Operating income (loss) 150,306 22,167 38,594 (94,516) 116,551
Interest expense -- -- -- 9,342 9,342
Other, net -- -- -- (3,449) (3,449)
Income (loss) before income taxes 150,306 22,167 38,594 (100,409) 110,658
------- -------- -------- ----------- --------
Total assets 126,134 32,856 108,096 226,225 493,311
Expenditures for capital additions 7,965 2,457 6,685 2,987 20,094
1998
- ----------------------------------
Revenue $450,543 $159,732 $251,893 $ -- $862,168
Depreciation and amortization 4,026 3,243 4,399 6,531 18,199
Operating income (loss) 125,016 17,728 36,363 (84,517) 94,590
Interest expense -- -- -- 9,538 9,538
Other, net -- -- -- (1,942) (1,942)
Income (loss) before income taxes 125,016 17,728 36,363 (92,113) 86,994
-------- -------- -------- ----------- --------
Total assets 150,282 32,846 92,846 193,493 469,467
Expenditures for capital additions 5,120 1,660 3,578 10,325 20,683
1997
- ----------------------------------
Revenue $427,837 $150,551 $218,070 $ -- $796,458
Depreciation and amortization 4,282 3,532 4,800 7,678 20,292
Operating income (loss) 116,284 12,742 25,678 (70,851) 83,853
Interest expense -- -- -- 14,833 14,833
Other, net -- -- -- 1,419 1,419
Income (loss) before income taxes 116,284 12,742 25,678 (87,103) 67,601
-------- -------- -------- -------- --------
Total assets 151,020 34,647 91,615 142,721 420,003
Expenditures for capital additions 4,450 3,028 5,907 12,319 25,704
</TABLE>
The following summarizes the Company's operations in different geographic areas
for the years ended December 31, 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
United Other
States Europe Foreign Consolidated
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
1999
- ------------------
Revenue $662,534 $227,618 $27,064 $917,216
Long-lived assets 55,501 17,198 5,971 78,670
1998
- ------------------
Revenue $610,275 $216,587 $35,306 $862,168
Long-lived assets 58,414 16,911 6,576 81,901
1997
- ------------------
Revenue $578,388 $184,010 $34,060 $796,458
Long-lived assets 53,885 17,294 6,818 77,997
</TABLE>
The U.S. Wholesale and Retail segments and Unallocated Corporate comprise the
United States geographic area. The International segment is divided into two
geographic areas, Europe and Other Foreign. Other Foreign assets primarily
consist of the Company's owned manufacturing facilities in the Caribbean and
assets related to the Company's sourcing operations.
27
<PAGE> 18
11. STOCKHOLDERS' EQUITY
The Company's Class A Common Stock and Class B Common Stock are identical in all
respects, except that shares of Class A Common Stock carry one vote per share,
while shares of Class B Common Stock carry ten votes per share. In addition,
holders of Class A Common Stock have the right, voting separately as a class, to
elect 25% of the directors of the Company, and vote together with the holders of
Class B Common Stock for the remaining directors. In February 1999 and 1998, 626
and 534,540 shares of Class B Common Stock were converted to Class A Common
Stock, respectively.
On October 15, 1998, the Board of Directors authorized the repurchase of up
to 2,000,000 shares of the Company's Class A Common Stock, from time to time, at
the discretion of management, and as market and business conditions may warrant.
During 1998 and the first half of 1999, 800,000 and 1,200,000 shares were
repurchased, respectively. On July 15, 1999, the Board of Directors authorized
the repurchase of up to an additional 2,000,000 shares. As of December 31, 1999,
the Company had repurchased 731,300 shares under this authorization. The Company
may use repurchased shares to offset shares that may be issued under the
Company's stock-based employee incentive plans, or for other purposes.
12. STOCK AND EMPLOYEE BENEFIT PLANS
Under the Company's 1997 Incentive Plan (the "1997 Plan"), 2,000,000 shares of
Class A Common Stock have been reserved for issuance. In addition to stock
options, any of the following incentives may be awarded to participants under
the 1997 Plan: stock appreciation rights ("SARs"), restricted stock,
unrestricted stock, awards entitling the recipient to delivery in the future of
Class A Common Stock or other securities, securities which are convertible into
or exchangeable for shares of Class A Common Stock and cash bonuses. The option
price per share and vesting periods of stock options are determined by the
Compensation Committee of the Board of Directors.
All outstanding stock options granted under the 1997 Plan have been granted
at fair market value, become exercisable in equal installments over four years
beginning one year after the grant date, and expire ten years after the date of
grant. In addition to the 1997 Plan, the Company has, on occasion, granted
"non-qualified" stock options at fair market value to non-employees to purchase
Class A Common Stock.
Under its 1991 Stock Option Plan for Non-Employee Directors (the "1991
Plan"), the Company has reserved 200,000 shares of Class A Common Stock for the
granting of stock options to eligible non-employee directors of the Company.
Under the terms of the 1991 Plan, stock option grants are awarded on a
predetermined formula basis and no grant can be made after November 15, 2001.
The exercise price of options granted under the 1991 Plan is the fair market
value of the stock on the date of the grant. Stock options granted under the
1991 Plan become exercisable in equal installments over four years, beginning
one year after the grant date, and expire ten years after the grant date.
Options to purchase an aggregate of 711,341, 615,534 and 566,144 shares were
exercisable under all option arrangements at December 31, 1999, 1998 and 1997,
respectively. Under the existing stock option plans, there were 642,010 and
1,401,928 shares available for future grants at December 31, 1999 and 1998,
respectively.
28
<PAGE> 19
The following summarizes transactions under all stock option arrangements for
the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Number of Range of Weighted-Average
Shares Exercise Prices Exercise Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1, 1997 1,505,254 $ 3.19 - 41.63 $10.13
- ----------------------------------------------------------------------------------------------------------
Granted 629,000 20.31 - 38.81 25.13
Exercised (380,260) 3.19 - 20.31 9.70
Canceled (136,624) 7.50 - 25.06 15.46
- ----------------------------------------------------------------------------------------------------------
December 31, 1997 1,617,370 3.19 - 41.63 15.62
- ----------------------------------------------------------------------------------------------------------
Granted 576,700 17.50 - 41.47 33.54
Exercised (252,400) 3.19 - 25.06 11.35
Canceled (250,460) 8.69 - 41.63 18.03
- ----------------------------------------------------------------------------------------------------------
December 31, 1998 1,691,210 3.19 - 41.63 22.02
- ----------------------------------------------------------------------------------------------------------
Granted 767,900 30.38 - 49.25 33.32
Exercised (257,481) 3.19 - 41.63 14.23
Canceled (104,473) 8.75 - 41.03 28.33
- ----------------------------------------------------------------------------------------------------------
December 31, 1999 2,097,156 3.19 - 49.25 26.86
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The following summarizes information about all stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.19 - 10.25 319,186 4.14 Years $ 8.74 290,621 $ 8.73
10.50 - 18.53 223,952 6.52 14.27 144,827 12.97
18.75 - 25.06 335,868 7.37 22.68 136,743 23.02
25.19 - 29.94 16,000 8.19 28.41 3,750 26.73
30.38 536,450 9.15 30.38 1,250 30.38
32.00 - 35.63 110,150 8.46 35.36 27,250 35.49
36.06 260,750 8.15 36.06 60,500 36.06
36.69 - 46.63 190,400 8.39 40.49 46,400 40.51
47.50 101,900 9.94 47.50 0 0
49.25 2,500 9.96 49.25 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
3.19 - 49.25 2,097,156 7.63 26.86 711,341 17.90
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pursuant to the terms of its 1991 Employee Stock Purchase Plan, as amended (the
"ESPP Plan"), the Company is authorized to issue up to an aggregate of 600,000
shares of its Class A Common Stock to eligible employees electing to participate
in the ESPP Plan. Eligible employees may contribute, through payroll
withholdings, from 2% to 10% of their regular base compensation during six month
participation periods beginning January 1 and July 1 of each year. At the end of
each participation period, the accumulated deductions are applied toward the
purchase of Class A Common Stock at a price equal to 85% of the market price at
the beginning or end of the participation period, whichever is lower. Employee
purchases amounted to 42,169 shares in 1999, 37,800 shares in 1998 and 30,032
shares in 1997 at prices ranging from $16.05 to $27.26 per share. At December
31, 1999, a total of 213,291 shares were available for future purchases.
Compensation cost is recognized for the fair value of the employee's purchase
rights. The weighted-average fair values of those purchase rights granted in
1999, 1998 and 1997 were $7.07, $9.32 and $6.44, respectively.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock plans, and provides certain pro-forma disclosures
regarding the Company plans as required by SFAS No. 123, "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been recognized
for stock option grants issued under any of the Company's stock option plans.
Had compensation cost for stock option grants issued been determined under the
provisions of SFAS No. 123, the Company's net income and diluted earnings per
share in 1999, 1998 and 1997 would have been: $69,767 and $3.15, $55,901 and
$2.38 and $45,078 and $1.92, respectively. The pro-forma effect on net income
and earnings per share for 1999, 1998 and 1997 is not representative of the
pro-forma effect on net income in future years because the provisions of SFAS
No. 123 do not take into consideration pro-forma compensation expense related to
grants made prior to 1995.
29
<PAGE> 20
The fair value of each stock option granted in 1999, 1998 and 1997 under the
Company's plans was estimated on the date of grant using the Black-Scholes
option pricing model. The following weighted-average assumptions were used to
value grants issued under the plans in 1999, 1998 and 1997, respectively:
expected volatility of 54.4%, 39.9% and 43.9%; risk-free interest rates of 5.4%,
5.5% and 6.2%; expected lives of 5.2, 5.5 and 4.9 years; and no dividend
payments. The weighted-average fair values per share of stock options granted
during 1999, 1998 and 1997 were $17.31, $14.67 and $11.23, respectively.
In December 1999, the Company issued 78,000 restricted shares of Class A
Common Stock under the 1997 Plan. Those shares are subject to restrictions on
sale and transferability, a risk of forfeiture and certain other terms and
conditions. Those restrictions lapse over a five year period at 20% per year.
Upon issuance of this stock under the 1997 Plan, unearned compensation,
equivalent to the market value of the shares at the date of the grant, was
charged to stockholders' equity and is being amortized to expense over the five
year vesting period.
The Company maintains a contributory 401(k) Retirement Earnings Plan (the
"401(k) Plan") for eligible salaried and hourly employees who are at least 18
years of age with six or more months of service. Under the provisions of the
401(k) Plan, employees may contribute between 2% and 16% of their base salary up
to certain limits. The 401(k) Plan provides for Company matching contributions
not to exceed 3% of the employee's compensation or, if less, 50% of the
employee's contribution. Vesting of the Company contribution begins at 25% after
one year of service and increases by 25% each year until full vesting occurs.
The Company maintains two contributory 165(e) Retirement Earnings Plans (the
"165(e) Plans") for eligible salaried and hourly employees of its manufacturing
facilities and a non-contributory profit sharing plan for eligible hourly
employees not covered by the 401(k) or 165(e) Plans. The Company's contribution
expense under all retirement plans was $1,193 in 1999, $1,081 in 1998 and $773
in 1997.
13. LITIGATION
The Company is involved in various litigation and legal matters that 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.
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the quarterly results of operations for the
years ended December 31, 1999, 1998 and 1997, respectively:
<TABLE>
<S> <C> <C> <C> <C>
1999 Quarter Ended March 26 June 25 September 24 December 31
- -------------------------------------------------------------------------------------------------------------------
Revenue $176,897 $152,937 $310,939 $276,443
Gross profit 73,129 61,017 134,357 124,598
Net income 7,842 2,402 35,140 29,864
Basic earnings per share .35 .11 1.67 1.44
Diluted earnings per share .34 .11 1.61 1.38
1998 Quarter Ended March 27 June 26 September 25 December 31
- -------------------------------------------------------------------------------------------------------------------
Revenue $163,058 $144,741 $291,857 $262,513
Gross profit 66,945 57,431 116,309 102,153
Net income 7,365 1,901 29,095 20,795
Basic earnings per share .32 .08 1.27 .91
Diluted earnings per share .31 .08 1.24 .90
1997 Quarter Ended March 28 June 27 September 26 December 31
- -------------------------------------------------------------------------------------------------------------------
Revenue $150,684 $132,180 $274,699 $238,895
Gross profit 61,614 51,855 106,641 91,811
Net income 4,296 557 24,957 17,511
Basic earnings per share .19 .02 1.10 .77
Diluted earnings per share .19 .02 1.06 .74
</TABLE>
Earnings per share data has been restated to reflect the 2-for-1 stock split in
September 1999.
30
<PAGE> 21
15. SUBSEQUENT EVENT
On February 18, 2000, the Company signed an agreement under which it will
re-acquire from Inchcape plc the exclusive distribution rights for the sale of
Timberland(R) branded products throughout the Asia-Pacific region. In connection
with this transaction, the Company acquired the stock of the Inchcape plc
distribution subsidiaries in Japan, Hong Kong, Malaysia and Singapore. The
Company paid $1.7 million and is releasing Inchcape plc from its obligations
under the Distributorship, Supply and Retail Development Agreement dated January
26, 1995. With respect to businesses in other countries, the Company may
terminate them, identify new distributors, or directly distribute products in
those countries. Also, as part of the transaction, the Company will participate
with Inchcape plc in any net proceeds received from the disposition of the
assets in Australia, New Zealand, Thailand and Taiwan.
The transaction will be accounted for under the purchase method of accounting
and, accordingly, the results of operations of the acquired Asia-Pacific
businesses will be reflected in the Company's consolidated financial statements
beginning in February of 2000. This transaction will result in the recording of
negative goodwill which will be amortized on a straight-line basis over a period
not to exceed 10 years. Pro-forma data is not provided since this transaction
would not have a material impact on the Company's consolidated financial
statements.
31
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of The Timberland Company:
We have audited the accompanying consolidated balance sheets of The Timberland
Company and subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of income, changes in stockholders' equity and cash flow
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the companies at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 2, 2000
(February 18, 2000 as to Note 15)
32
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
The Timberland Company on Form S-8 Nos. 333-35223, 33-60459, 33-67128, 33-56913,
33-17552, 33-41660, 33-19183, 33-50998, 33-60457, and 333-84959 and on Form S-3
No. 33-56921 of our report dated February 2, 2000 (February 18, 2000 as to Note
15), appearing in and incorporated by reference in the Annual Report on Form
10-K/A (Amendment No. 1) of The Timberland Company for the year ended December
31, 1999.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
April 25, 2000
