<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 29, 2000
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 27, 2000, 31,567,116 shares of the registrant's Class A Common Stock
were outstanding and 8,130,400 shares of the registrant's Class B Common Stock
were outstanding.
<PAGE> 2
THE TIMBERLAND COMPANY
FORM 10-Q
TABLE OF CONTENTS
PAGE(s)
------
PART I FINANCIAL INFORMATION (unaudited)
Condensed Consolidated Balance Sheets - 1-2
September 29, 2000 and December 31, 1999
Condensed Consolidated Statements of Income - 3
For the three and nine months ended September 29, 2000
and September 24, 1999
Condensed Consolidated Statements of Cash Flows - 4
For the nine months ended September 29, 2000 and
September 24, 1999
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
<PAGE> 3
Form 10-Q
Page 1
PART I FINANCIAL INFORMATION
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in Thousands)
(Unaudited)
September 29, December 31,
2000 1999
------------- ------------
Current assets
Cash and equivalents $ 7,032 $196,085
Accounts receivable, net of allowance
for doubtful accounts of $6,253 at
September 29, 2000 and $4,910 at
December 31, 1999 203,339 78,696
Inventory 174,921 114,673
Prepaid expense 13,911 9,890
Deferred income taxes 15,641 15,297
-------- --------
Total current assets 414,844 414,641
Property, plant and equipment 151,934 130,425
Less accumulated depreciation and amortization (84,423) (75,019)
-------- --------
Net property, plant and equipment 67,511 55,406
Excess of cost over fair value of net assets
acquired, net 16,270 17,533
Other assets, net 4,164 5,731
-------- --------
$502,789 $493,311
======== ========
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 29, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Current liabilities
Notes payable $ 21,000 $ --
Accounts payable 47,782 33,247
Accrued expense
Payroll and related 30,941 30,570
Interest and other 58,081 35,038
Income taxes payable 35,583 13,500
-------- --------
Total current liabilities 193,387 112,355
-------- --------
Long-term debt -- 100,000
Deferred income taxes 8,680 8,588
Excess of fair value of acquired assets over cost, net 4,532 --
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);
60,000,000 shares authorized; 39,151,852 shares issued at
September 29, 2000 and 37,276,710 shares at December 31, 1999 392 187
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; 8,130,400 shares issued at
September 29, 2000 and 9,351,396 shares at December 31, 1999 81 47
Additional paid-in capital 91,807 82,755
Deferred compensation (4,582) (3,658)
Retained earnings 363,083 282,209
Accumulated other comprehensive loss (8,455) (4,151)
Less treasury stock at cost, 7,385,338 Class A shares at
September 29, 2000 and 5,342,698 Class A shares at
December 31, 1999 (146,136) (85,021)
-------- --------
296,190 272,368
-------- --------
$502,789 $493,311
======== ========
</TABLE>
Prior year shares have been restated to reflect the 2-for-1 stock split in July
2000.
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. 29, Sept. 24, Sept. 29, Sept. 24,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 375,246 $ 310,939 $ 760,914 $ 640,773
Cost of goods sold 197,094 176,582 404,941 372,269
--------- --------- --------- ---------
Gross profit 178,152 134,357 355,973 268,504
--------- --------- --------- ---------
Operating expense
Selling 75,197 65,494 184,797 156,133
General and administrative 15,999 14,550 46,391 39,267
Amortization of goodwill 321 422 964 1,264
--------- --------- --------- ---------
Total operating expense 91,517 80,466 232,152 196,664
--------- --------- --------- ---------
Operating income 86,635 53,891 123,821 71,840
--------- --------- --------- ---------
Other expense (income)
Interest expense 760 2,323 5,388 6,850
Other, net (786) (109) (6,734) (1,750)
--------- --------- --------- ---------
Total other expense (income) (26) 2,214 (1,346) 5,100
--------- --------- --------- ---------
Income before income taxes 86,661 51,677 125,167 66,740
--------- --------- --------- ---------
Provision for income taxes 29,208 16,537 41,931 21,357
--------- --------- --------- ---------
Net income before extraordinary item $ 57,453 $ 35,140 $ 83,236 $ 45,383
========= ========= ========= =========
Extraordinary item - loss on debt
extinguishment, net of tax benefit of $1,071 -- -- 2,126 --
--------- --------- --------- ---------
Net income $ 57,453 $ 35,140 $ 81,110 $ 45,383
========= ========= ========= =========
Earnings per share before extraordinary item
Basic $ 1.44 $ .83 $ 2.07 $ 1.05
========= ========= ========= =========
Diluted $ 1.35 $ .81 $ 1.95 $ 1.02
========= ========= ========= =========
Earnings per share after extraordinary item
Basic $ 1.44 $ .83 $ 2.01 $ 1.05
========= ========= ========= =========
Diluted $ 1.35 $ .81 $ 1.90 $ 1.02
========= ========= ========= =========
Weighted-average shares outstanding
Basic 39,879 42,105 40,284 43,371
========= ========= ========= =========
Diluted 42,571 43,587 42,690 44,677
========= ========= ========= =========
</TABLE>
Prior year earnings per share and weighted-average shares have been restated
to reflect the 2-for-1 stock split in July 2000.
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)
For the
Nine Months Ended
-----------------------------
September 29, September 24,
2000 1999
------------- -------------
Cash flows from operating activities:
Net income $ 81,110 $ 45,383
Adjustments to reconcile net income
to net cash used by operating activities:
Deferred income taxes (252) (2,965)
Depreciation and amortization 12,758 16,043
Extraordinary item (see Note 7) 2,126 --
Increase (decrease) in cash from changes in
working capital items:
Accounts receivable (124,533) (104,166)
Inventory (53,492) (22,283)
Prepaid expense (2,485) 1,308
Accounts payable 13,583 8,193
Accrued expense 21,054 35,603
Income taxes 15,800 5,551
--------- ---------
Net cash used by operating activities (34,331) (17,333)
--------- ---------
Cash flows from investing activities:
Acquisition of Asian Distributor business 5,237 --
Additions to property, plant and equipment, net (23,565) (14,718)
Other, net (1,908) (2,923)
--------- ---------
Net cash used by investing activities (20,236) (17,641)
--------- ---------
Cash flows from financing activities:
Net borrowing under short-term credit facilities 21,000 --
Extinguishment of debt (100,000) --
Extraordinary item (see Note 7) (2,126) --
Common stock repurchases (61,604) (50,868)
Issuance of common stock 9,552 2,691
--------- ---------
Net cash used by financing activities (133,178) (48,177)
--------- ---------
Effect of exchange rate changes on cash (1,308) (1,240)
--------- ---------
Net decrease in cash and equivalents (189,053) (84,391)
Cash and equivalents at beginning of period 196,085 151,889
--------- ---------
Cash and equivalents at end of period $ 7,032 $ 67,498
========= =========
------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid $ 5,622 $ 4,593
Income taxes paid 19,029 19,092
------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
<PAGE> 7
Form 10-Q
Page 5
THE TIMBERLAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Per Share Data)
(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, as amended by Amendment No. 1 on Form 10-K/A, for the
year ended December 31, 1999.
2. The results of operations for the three and nine months ended September 29,
2000 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:
September 29, 2000 December 31, 1999
------------------ -----------------
Raw materials $ 4,636 $ 4,493
Work-in-process 3,160 2,832
Finished goods 167,125 107,348
-------- --------
$174,921 $114,673
======== ========
4. On May 18, 2000, the Company announced that the Board of Directors approved
a 2-for-1 split of the Company's Class A and Class B Common Stock. The
additional shares were distributed on July 17, 2000, to shareholders of
record on June 30, 2000. In connection with the stock split, the Board of
Directors increased the number of shares authorized under its previously
announced repurchase program to up to four million shares.
The shares presented in the condensed consolidated balance sheets as of
September 29, 2000 and December 31, 1999, and the number of shares used in
the computation of earnings per share in the condensed consolidated
statements of income for the three and nine months ended September 29, 2000
and September 24, 1999, are based on the number of shares outstanding after
giving effect to the July 2000 stock split.
Additionally, during the second quarter of 2000, the Company's shareholders
approved an increase in the authorized number of shares of Class A Common
Stock from 30 million to 60 million shares, and, in October of 2000, the
Board of Directors authorized the repurchase of up to an additional four
million shares of the Company's Class A Common Stock.
5. In the second quarter of 2000, the Company made a loan of approximately
$1,100 related to the restricted stock issuance in December 1999. That
amount is included in deferred compensation in the condensed consolidated
balance sheets.
6. Dilutive securities included in the calculation of diluted weighted-average
shares were 2,692 and 1,481 for the third quarter of 2000 and 1999,
respectively, and 2,406 and 1,306 for the first nine months of 2000 and
1999, respectively.
<PAGE> 8
Form 10-Q
Page 6
THE TIMBERLAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
7. In the second quarter of 2000, the Company recorded an extraordinary loss
of $2,126 after taxes, or $0.05 per share diluted ($0.05 basic), as a
result of the June 30, 2000 prepayment of $100,000 in senior notes. The
loss primarily consisted of a prepayment penalty and costs associated with
the early redemption of the debt combined with accelerated amortization of
bond issuance costs, net of tax benefits of $1,071. The prepayment of the
senior notes was financed by cash from operations.
8. On February 18, 2000, the Company signed an agreement pursuant to which it
has re-acquired 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 Asian subsidiaries). The purchase price allocation is as
follows:
Acquisition of business:
Fair value of assets acquired $ 20,729
Fair value of liabilities assumed (14,082)
--------
Fair value of net assets acquired 6,647
Cash paid (1,223)
Acquisition costs (480)
--------
Excess of fair value of acquired net assets over cost $ 4,944
========
The fair value of net assets acquired includes $6,460 of cash, resulting in
net cash received of $5,237.
This transaction has been accounted for under the purchase method of
accounting and, accordingly, the results of operations for the Asian
subsidiaries, for the period from the acquisition date, are included in the
accompanying condensed consolidated financial statements. The purchase
price has been allocated to the assets purchased and liabilities assumed
based on preliminary fair values at the date of acquisition. This
transaction resulted in the recording of excess of fair value of acquired
net assets over cost, which is being amortized on a straight-line basis
over a 10 year period. Pro-forma data is not provided since this
transaction does not have a material impact on the Company's condensed
consolidated financial statements.
As part of this transaction, the Company released Inchcape plc from its
obligations under the Distributorship, Supply and Retail Development
Agreement dated January 26, 1995. As part of the transaction, the Company
received a portion of the proceeds from the disposition of the assets in
Australia, New Zealand and Thailand. In the second quarter of 2000, the
Company received $2,085 from Inchcape plc for the Company's share of
proceeds from the partial disposition of assets in Australia and New
Zealand and from the disposition of assets in Thailand. In the third
quarter of 2000, the Company received $589 from Inchcape plc for the
Company's share of proceeds from another partial disposition of assets in
Australia and New Zealand. Those proceeds were recognized in other income.
On July 31, 2000, the Company acquired Inchcape plc's Taiwan based net
assets for $662. Taiwan is included in the Company's condensed consolidated
financial statements and does not have a material impact on those
statements. Taiwan is included in all subsequent references to the Asian
subsidiaries.
<PAGE> 9
Form 10-Q
Page 7
THE TIMBERLAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
9. Business segment revenue, income (loss) before income taxes and total
assets for the three and nine months ended September 29, 2000 and September
24, 1999 follow:
<TABLE>
<CAPTION>
For the Three Months Ended September 29, 2000 and September 24, 1999
--------------------------------------------------------------------
U.S. U.S. Unallocated
2000 Wholesale Retail International Corporate Consolidated
---- --------- -------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $218,424 $ 53,575 $103,247 $ -- $375,246
Income (loss) before
income taxes 88,959 7,448 17,827 (27,573) 86,661
Total assets 251,608 36,443 149,191 65,547 502,789
1999
----
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
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 29, 2000 and September 24, 1999
-------------------------------------------------------------------
U.S. U.S. Unallocated
2000 Wholesale Retail International Corporate Consolidated
---- --------- -------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $405,559 $122,694 $232,661 $ -- $760,914
Income (loss) before
income taxes 142,439 9,213 32,225 (58,710) 125,167
1999
----
Revenue $335,499 $103,823 $201,451 $ -- $640,773
Income (loss) before
income taxes 93,721 7,968 33,310 (68,259) 66,740
</TABLE>
Included in the International segment are the results for the Asian
subsidiaries (see Note 8). A discussion of segment revenue and
profitability is contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
10. Comprehensive income for the three and nine months ended September 29, 2000
and September 24, 1999 follows:
For the For the
Three Months Ended Nine Months Ended
---------------------- ---------------------
Sept. 29, Sept. 24, Sept. 29, Sept. 24,
2000 1999 2000 1999
--------- --------- --------- ---------
Net income $57,453 $35,140 $81,110 $45,383
Change in cumulative
translation adjustment (2,495) 241 (4,304) (3,395)
------- ------- ------- -------
Comprehensive income $54,958 $35,381 $76,806 $41,988
======= ======= ======= =======
<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 2000 COMPARED WITH THIRD QUARTER 1999
Revenue for the third quarter of 2000 was $375.2 million, an increase of $64.3
million, or 20.7%, compared with the $310.9 million in revenue reported for the
third quarter of 1999. Revenue for the third quarter of 2000 includes the
results of the Asian subsidiaries (see Note 8). Excluding Asia, revenue for the
third quarter of 2000 grew 15.2%, compared with the prior year period.
Domestic revenue for the third quarter of 2000 was $272.0 million, an increase
of $49.9 million, or 22.4%, compared with the same period in 1999. Domestic
revenue represented 72.5% of total revenue for the third quarter of 2000,
compared with 71.4% for the third quarter of 1999. The U.S. Wholesale segment
revenue increased 25.1% in the third quarter of 2000, compared with the same
period in 1999, primarily due to unit sales increases in footwear. The U.S.
Retail segment revenue increased 12.7%, compared with the same period in 1999,
driven by a 24.5% unit sales increase, primarily in apparel and accessories and,
to a lesser degree, footwear. The increase was partially offset by a 9.4%
reduction in average selling prices, primarily due to increased volume in the
Company's factory stores, which sell product at lower average selling prices
than specialty stores. Comparable domestic retail and factory store sales
increased 1.5%.
International revenue for the third quarter of 2000 was $103.2 million, an
increase of $14.4 million, or 16.3%, compared with the third quarter of 1999.
International revenue comprised 27.5% of total revenue for the third quarter of
2000, compared with 28.6% for the third quarter of 1999. Excluding Asia,
international revenue decreased by 3.1%, compared with the same period in 1999.
The decrease was primarily due to the impact of foreign exchange on sales by the
Company's European subsidiaries, partially offset by unit sales increases in the
European wholesale and retail markets, in both footwear and apparel and
accessories. On a constant dollar basis, excluding Asia, international revenue
increased 10.5% compared with the prior year period, reflecting double digit
increases in three of the Company's five European subsidiaries.
Footwear revenue for the third quarter of 2000 was $297.4 million, an increase
of $45.7 million, or 18.2%, compared with the same period in 1999. The increase
was primarily attributable to growth in unit sales worldwide and, to a lesser
degree, the acquisition of the Asian subsidiaries, partially offset by the
impact of foreign exchange. By category, the increase was primarily attributable
to unit sales increases in Boots and, to a lesser degree, Kids' and to the
Company's new sub-brands. The increases were partially offset by unit sales and
average selling price declines in the Casual and Performance categories. In
total, footwear unit sales increased 19.7% over the same period last year.
Apparel and accessories revenue for the third quarter of 2000 was $73.6 million,
an increase of $19.7 million, or 36.5%, compared with the same period in 1999.
The increase was primarily due to increased unit sales worldwide and, to a
lesser degree, the acquisition of the Asian subsidiaries. The increases were
partially offset by the impact of foreign exchange. In total, apparel and
accessories unit sales improved 48.9% over the prior year period.
<PAGE> 11
Form 10-Q
Page 9
Worldwide revenue from Company-owned retail and factory stores for the third
quarter of 2000 was $74.0 million, an increase of $17.8 million, or 31.8%,
compared with the same period in 1999. The increase was primarily due to the
acquisition of the Asian subsidiaries and, to a lesser degree, an increase in
domestic and European apparel and accessories unit sales. The increases were
partially offset by a decline in average selling prices and the impact of
foreign exchange. Excluding Asia, worldwide retail revenue increased 13.4%,
compared with the same period last year. On a comparable store basis, excluding
Asia, worldwide retail revenue increased 1.8% over the prior year period.
Gross profit as a percentage of revenue for the third quarter of 2000 was 47.5%,
up 4.3 percentage points from the 43.2% reported for the third quarter of 1999.
The improvement in gross profit was primarily due to increased footwear gross
margin rates, resulting primarily from third party sourcing and internal
manufacturing efficiencies, decreased footwear offprice sales and, to a lesser
degree, the acquisition of the Asian subsidiaries, which include a high
percentage of higher margin retail sales. The Asian subsidiaries added 0.6
percentage points to the Company's gross profit rate for the third quarter of
2000.
Operating expense was $91.5 million for the third quarter of 2000, up $11.1
million, or 13.7%, from the $80.5 million reported for the third quarter of
1999. Operating expense as a percentage of revenue for the third quarter of 2000
decreased to 24.4%, from 25.9% for the third quarter of 1999. The dollar
increase was primarily due to the addition of the Asian business and, to a
lesser degree, increases in selling and product development expenses. Excluding
Asia, operating expense increased 2.4%, which resulted in a 2.9 percentage point
decrease in the expense rate for the third quarter of 2000, compared with the
prior year period.
Interest expense for the third quarter of 2000 was $0.8 million, compared to
$2.3 million in 1999. The reduction in interest expense was due to the second
quarter prepayment of $100.0 million in senior notes (see Note 7). Other income
of $0.8 million was $0.7 million better than the same period last year,
primarily due to the receipt of $0.6 million from Inchcape plc for the Company's
share of proceeds from the partial disposition of assets in Australia and New
Zealand (see Note 8).
Income (loss) before income taxes for the third quarter of 2000 improved in the
U.S. Wholesale segment, compared with the same period in 1999. That improvement
was primarily due to increased footwear unit sales, improved footwear gross
margin rates and, to a lesser degree, leveraging of operating expenses and
improved apparel gross margin rates. The U.S. Retail segment decrease was
primarily due to a reduction in factory outlet gross margin rates compared with
the prior year period. The International segment decrease was primarily due to
the impact of foreign exchange. The improvement in Unallocated Corporate
was primarily due to reduced costs in support of company-wide activities and, to
a lesser degree, lower interest expense and the aforementioned proceeds from
Inchcape plc.
The effective tax rate for the three months ended September 29, 2000 was 33.7%,
reflecting a year-to-date increase of the Company's effective tax rate from 33%
to 33.5%, due to Puerto Rican pre-tax earnings, which are substantially exempt
from tax, comprising a smaller percentage of consolidated pre-tax earnings. The
effective tax rate for the three months ended September 24, 1999 was 32%.
<PAGE> 12
Form 10-Q
Page 10
NINE MONTHS ENDED SEPTEMBER 29, 2000 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 24, 1999
Revenue for the first nine months of 2000 was $760.9 million, an increase of
$120.1 million, or 18.7%, from the $640.8 million reported for the comparable
period in 1999. Excluding Asia, revenue for the first nine months of 2000 grew
13.5%, compared with the prior year period. Revenue in all segments increased
compared with 1999. The U.S. Wholesale segment revenue increased 20.9%, compared
with the prior year period. The increase was primarily due to footwear unit
sales. In the U.S. Retail segment, increased apparel and accessories unit sales
and, to a lesser degree, footwear unit sales drove the 18.2% revenue
improvement. This was partially offset by a reduction in average selling prices.
Internationally, excluding Asia, revenue decreased 1.3%, compared with the prior
year period. Increases in Europe's footwear and apparel and accessories unit
sales were primarily offset by the impact of foreign exchange and, to a lesser
degree, a decline in average selling prices. On a constant dollar basis,
excluding Asia, international revenue increased 10.0%, compared with the prior
year period. All European subsidiaries improved over the comparable period in
1999.
Gross profit as a percentage of revenue for the first nine months of 2000 was
46.8%, compared with 41.9% for the comparable period in 1999. This improvement
in gross profit was primarily attributable to the same factors cited in the
third quarter discussion.
Operating expense for the first nine months of 2000 was $232.2 million, up $35.5
million, or 18.0%, from the $196.7 million reported for the comparable period in
1999. Operating expense, as a percentage of revenue, was 30.5% for the first
nine months of 2000, compared with 30.7% for the same period in 1999. The dollar
increase was primarily due to the impact of the acquisition of the Asian
subsidiaries and, to a lesser degree, increases in selling, marketing and
product development expenses. Excluding Asia, operating expense increased 8.5%,
which resulted in a 1.4 percentage point decrease in the expense rate
year-to-date third quarter, compared with the prior year period.
Income (loss) before income taxes for the first nine months of 2000 improved in
the U.S. Wholesale and Retail segments, compared with the same period in 1999.
The improvement in the U.S. Wholesale segment was primarily attributable to the
same factors cited in the third quarter discussion. The improvement in the U.S.
Retail segment was primarily due to increased apparel and accessories unit
sales, footwear unit sales and lower operating expenses as a percentage of
revenue. The decrease in the International segment's income before income taxes
was primarily due to the impact of foreign exchange, partially offset by
increased footwear and apparel unit sales. The improvement in Unallocated
Corporate was primarily due to reduced costs in support of company-wide
activities and, to a lesser degree, increased other income and lower interest
expense, both of which are discussed in the subsequent paragraph.
Interest expense for the first nine months of 2000 was $5.4 million, a decrease
of $1.5 million from the comparable period in 1999, due to the prepayment of the
senior notes. Other income, at $6.7 million, increased $5.0 million from the
comparable prior year period primarily due to the second and third quarter
Inchcape plc proceeds and interest income on higher average cash balances in the
first half of 2000.
In the second quarter of 2000, the Company recorded an extraordinary loss of
$2.1 million after taxes as a result of the June 30, 2000 prepayment of $100.0
million in senior notes (see Note 7).
The effective tax rate for the nine months ended September 29, 2000 was 33.5%
(see third quarter discussion) and 32%, respectively.
<PAGE> 13
Form 10-Q
Page 11
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations during the first nine months of 2000 was $34.3 million,
compared with $17.3 million used during the same period in 1999. The use of cash
in 2000 was primarily due to an increase in accounts receivable and inventory,
which is consistent with the uses in the prior year period and with the
Company's business cycle. Inventory turns improved to 4.4 times for the third
quarter of 2000, compared with 4.2 times for the third quarter of 1999. Days
sales outstanding decreased to 49 days at September 29, 2000, from 52 days at
September 24, 1999. Wholesale days sales outstanding decreased to 52 days at
September 29, 2000 from 55 days at September 24, 1999.
During the first nine months of 2000, $20.2 million of cash was used by
investing activities, compared with $17.6 million used during the same period in
1999. Capital expenditures for the first nine months of 2000 were $23.6 million,
compared with $14.7 million for the same period in 1999. The acquisition of the
Asian subsidiaries generated $5.2 million of cash (see Note 8). During the first
nine months of 2000, $133.2 million of cash was used by financing activities,
reflecting the prepayment of $100.0 million in senior notes (see Note 7) and
common stock repurchases of $61.6 million, partially offset by $21.0 million of
short term borrowings. The extraordinary item associated with the debt
prepayment is included in financing activities. During the first nine months of
1999, $48.2 million of cash was used, reflecting $50.9 million in common stock
repurchases.
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 6.6% at September 29, 2000, compared
with 26.9% at December 31, 1999 and 27.8% at September 24, 1999.
Management believes that the Company's capital needs for 2000 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, 1999, 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
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 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 to fiscal 2001. The FASB has also issued SFAS No. 138,
which further defines the scope of SFAS No. 133. 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.
The Securities and Exchange Commission has issued Staff Accounting Bulletin 101,
and related amendments, which address revenue recognition issues. This Bulletin
will be effective in the Company's fourth quarter of 2000. The Company does not
expect it to have a material impact on the Company's consolidated financial
statements.
<PAGE> 14
Form 10-Q
Page 12
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 1999 Annual Report
disclosure. As of September 29, 2000, the Company had no long-term financing
outstanding and had $21.0 million in short term financing outstanding. The
Company's foreign currency exposure is generated primarily from its European
operating subsidiaries. As of September 29, 2000, 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 $7.0 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
------- -----------
10.8(a) Amendment No. 1 to Credit Agreement dated as of
October 20, 2000 among the Timberland Company,
certain banks listed therein and Morgan Guaranty
Trust Company of New York, as agent.
27 Financial Data Schedule
(b) Reports on Form 8-K - There were no reports on Form 8-K filed during
the quarter covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TIMBERLAND COMPANY
(Registrant)
Date: November 13, 2000 /s/ Brian P. McKeon
------------------- ----------------------------
Brian P. McKeon
Senior Vice President
and Chief Financial Officer
Date: November 13, 2000 /s/ Dennis W. Hagele
------------------- ----------------------------
Dennis W. Hagele
Vice President-Finance
and Corporate Controller
(Chief Accounting Officer)
