<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 28, 2000, 32,044,630 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
June 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Income - 3
For the three and six months ended June 30, 2000
and June 25, 1999
Condensed Consolidated Statements of Cash Flows - 4
For the six months ended June 30, 2000 and
June 25, 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 13-14
<PAGE> 3
Form 10-Q
Page 1
PART I FINANCIAL INFORMATION
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Current assets
Cash and equivalents $ 23,447 $ 196,085
Accounts receivable, net of allowance for doubtful
accounts of $4,612 at June 30, 2000 and
$4,910 at December 31, 1999 87,564 78,696
Inventory 170,740 114,673
Prepaid expense 13,197 9,890
Deferred income taxes 14,873 15,297
--------- ---------
Total current assets 309,821 414,641
Property, plant and equipment 138,835 130,425
Less accumulated depreciation and amortization (84,367) (75,019)
--------- ---------
Net property, plant and equipment 54,468 55,406
Excess of cost over fair value of net assets
acquired, net 16,690 17,533
Other assets, net 4,581 5,731
--------- ---------
$ 385,560 $ 493,311
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
Form 10-Q
Page 2
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Current liabilities
Accounts payable $ 36,266 $ 33,247
Accrued expense
Payroll and related 22,902 30,570
Interest and other 41,676 35,038
Income taxes payable 9,680 13,500
--------- ---------
Total current liabilities 110,524 112,355
--------- ---------
Long-term debt -- 100,000
Deferred income taxes 8,314 8,588
Excess of fair value of acquired assets over cost, net 4,699 --
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; 38,871,016 shares issued at June 30, 2000 and 37,276,710
shares at December 31, 1999 389 187
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 June 30, 2000 and 9,351,396
shares at December 31, 1999 81 47
Additional paid-in capital 87,768 82,755
Deferred compensation (4,787) (3,658)
Retained earnings 305,630 282,209
Accumulated other comprehensive loss (5,960) (4,151)
Less treasury stock at cost, 6,718,138 Class A shares at June 30,
2000 and 5,342,698 Class A shares at December 31, 1999 (121,098) (85,021)
--------- ---------
262,023 272,368
--------- ---------
$ 385,560 $ 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 Six Months Ended
---------------------------- ---------------------------
June 30, June 25, June 30, June 25,
2000 1999 2000 1999
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 177,064 $ 152,937 $ 385,667 $ 329,834
Cost of goods sold 94,664 91,920 207,846 195,688
--------- --------- --------- ---------
Gross profit 82,400 61,017 177,821 134,146
--------- --------- --------- ---------
Operating expense
Selling 52,000 43,189 109,600 90,638
General and administrative 15,167 12,205 30,392 24,717
Amortization of goodwill 321 421 642 842
--------- --------- --------- ---------
Total operating expense 67,488 55,815 140,634 116,197
--------- --------- --------- ---------
Operating income 14,912 5,202 37,187 17,949
--------- --------- --------- ---------
Other expense (income)
Interest expense 2,313 2,323 4,629 4,526
Other, net (4,018) (653) (5,948) (1,641)
--------- --------- --------- ---------
Total other expense (income) (1,705) 1,670 (1,319) 2,885
--------- --------- --------- ---------
Income before income taxes 16,617 3,532 38,506 15,064
--------- --------- --------- ---------
Provision for income taxes 5,484 1,130 12,707 4,820
--------- --------- --------- ---------
Net income before extraordinary item $ 11,133 $ 2,402 $ 25,799 $ 10,244
========= ========= ========= =========
Extraordinary item - loss on debt
extinguishment, net of tax benefit of $1,055 2,142 -- 2,142 --
--------- --------- --------- ---------
Net income $ 8,991 $ 2,402 $ 23,657 $ 10,244
========= ========= ========= =========
Earnings per share before extraordinary item
Basic $ 0.28 $ 0.06 $ 0.64 $ 0.23
========= ========= ========= =========
Diluted $ 0.26 $ 0.05 $ 0.60 $ 0.23
========= ========= ========= =========
Earnings per share after extraordinary item
Basic $ 0.22 $ 0.06 $ 0.58 $ 0.23
========= ========= ========= =========
Diluted $ 0.21 $ 0.05 $ 0.55 $ 0.23
========= ========= ========= =========
Weighted-average shares outstanding
Basic 40,219 43,603 40,487 44,003
========= ========= ========= =========
Diluted 42,888 44,984 42,750 45,222
========= ========= ========= =========
</TABLE>
Prior years' earnings per share and weighted-average shares have been restated
to reflect the 2-for-1 stock splits in July 2000 and September 1999.
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
Form 10-Q
Page 4
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Six Months Ended
---------------------------
June 30, June 25,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,657 $ 10,244
Adjustments to reconcile net income
to net cash used by operating activities:
Deferred income taxes 150 178
Depreciation and amortization 8,728 9,721
Extraordinary item (see Note 7) 2,142 --
Increase (decrease) in cash from changes in working capital
items:
Accounts receivable (5,286) (13,732)
Inventory (48,854) (34,864)
Prepaid expense (1,629) (1,122)
Accounts payable 330 4,340
Accrued expense (4,409) 1,558
Income taxes (10,322) (13,642)
--------- ---------
Net cash used by operating activities (35,493) (37,319)
--------- ---------
Cash flows from investing activities:
Acquisition of Asian Distributor business 5,237 --
Additions to property, plant and equipment, net (7,180) (10,757)
Other, net (957) (2,093)
--------- ---------
Net cash used by investing activities (2,900) (12,850)
--------- ---------
Cash flows from financing activities:
Extinguishment of debt (100,000) --
Extraordinary item (see Note 7) (2,142) --
Common stock repurchases (36,693) (39,966)
Issuance of common stock 5,503 1,567
--------- ---------
Net cash used by financing activities (133,332) (38,399)
--------- ---------
Effect of exchange rate changes on cash (913) (1,122)
--------- ---------
Net decrease in cash and equivalents (172,638) (89,690)
Cash and equivalents at beginning of period 196,085 151,889
--------- ---------
Cash and equivalents at end of period $ 23,447 $ 62,199
========= =========
-------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid $ 4,947 $ 4,543
Income taxes paid 15,322 18,536
-------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 7
Form 10-Q
Page 5
THE TIMBERLAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 six months ended June 30, 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:
June 30, 2000 December 31, 1999
------------- -----------------
Raw materials $ 6,671 $ 4,493
Work-in-process 3,397 2,832
Finished goods 160,672 107,348
-------- --------
$170,740 $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.
The shares presented in the condensed consolidated balance sheets as of
June 30, 2000 and June 25, 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 six months ended June 30, 2000 and June 25,
1999, are based on the number of shares outstanding after giving effect to
the July 2000 stock split as well as the 2-for-1 September 1999 stock
split.
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 and increased the authorized number of
shares of Class A Common Stock from 30 million to 60 million shares.
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 2,669 and 1,381 for the second quarter of 2000 and 1999,
respectively, and 2,263 and 1,219 for the first six 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 $2,142 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 $1,055. The prepayment of the
senior notes was financed by cash from operations.
8. 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 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 reflects $6,460 of cash received
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 has released Inchcape plc from its
obligations under the Distributorship, Supply and Retail Development
Agreement dated January 26, 1995. Additionally, 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. 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. Those proceeds were
recognized in other income. On July 31, 2000, the Company entered into an
agreement with Inchcape plc to acquire Inchcape's Taiwan based net assets.
The purchase price and net assets will not have a material impact on the
Company's condensed consolidated financial statements.
<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 six months ended June 30, 2000 and June 25, 1999
follow:
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 25, 1999
<TABLE>
<CAPTION>
U.S. U.S. Unallocated
2000 Wholesale Retail International Corporate Consolidated
---- --------- ------ ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $ 94,409 $34,976 $ 47,679 $ -- $177,064
Income (loss) before
income taxes 28,887 2,023 1,158 (15,451) 16,617
Total assets 174,037 33,413 107,494 70,616 385,560
1999
----
Revenue $ 81,662 $30,295 $ 40,980 $ -- $152,937
Income (loss) before
income taxes 17,494 1,803 461 (16,226) 3,532
Total assets 179,704 32,641 97,838 116,686 426,869
</TABLE>
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 25, 1999
<TABLE>
<CAPTION>
U.S. U.S. Unallocated
2000 Wholesale Retail International Corporate Consolidated
---- --------- ------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $187,134 $69,119 $129,414 $ -- $385,667
Income (loss) before
income taxes 53,480 1,765 14,398 (31,137) 38,506
1999
----
Revenue $160,908 $56,293 $112,633 $ -- $329,834
Income (loss) before
income taxes 34,771 497 12,787 (32,991) 15,064
</TABLE>
Included in the International segment are the results for the Asian
subsidiaries which were acquired on February 18, 2000 (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 six months ended June 30, 2000 and
June 25, 1999 follows:
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
------------------------- -------------------------
June 30, June 25, June 30, June 25,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 8,991 $ 2,402 $ 23,657 $ 10,244
Change in cumulative translation adjustment (1,130) (1,364) (1,809) (3,636)
-------- -------- -------- --------
Comprehensive income $ 7,861 $ 1,038 $ 21,848 $ 6,608
======== ======== ======== ========
</TABLE>
<PAGE> 10
Form 10-Q
Page 8
THE TIMBERLAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
RESULTS OF OPERATIONS
SECOND QUARTER 2000 COMPARED WITH SECOND QUARTER 1999
Revenue for the second quarter of 2000 was $177.1 million, an increase of $24.1
million, or 15.8%, compared with the $152.9 million in revenue reported for the
second quarter of 1999. Revenue for the second quarter of 2000 reflects the
acquisition of the Asian subsidiaries in February 2000 (see Note 8). Excluding
Asia, revenue for the second quarter of 2000 grew 9.0%, compared with the prior
year period.
Domestic revenue for the second quarter of 2000 was $129.4 million, an increase
of $17.4 million, or 15.6%, compared with the same period in 1999. Domestic
revenue represented 73.1% of total revenue for the second quarter of 2000,
compared with 73.2% for the second quarter of 1999. The U.S. Wholesale segment
revenue increased 15.6% in the second quarter of 2000, compared with the same
period in 1999, primarily due to average selling price and unit volume increases
in footwear. These increases were partially offset by a decline in domestic
wholesale apparel unit volume and average selling price, primarily due to a
reduction in off-price sales. The U.S. Retail segment revenue increased 15.5%,
compared with the same period in 1999, driven by a 31.7% unit sales increase,
primarily in apparel and accessories and, to a lesser degree, footwear. This
increase was partially offset by a 13.3% reduction in average selling price in
factory stores, primarily due to increased volume in apparel and accessories
which is at a lower average selling price than footwear. Comparable domestic
retail and factory store sales increased 5.6%.
International revenue for the second quarter of 2000 was $47.7 million, an
increase of $6.7 million, or 16.3%, compared with the second quarter of 1999.
International revenue comprised 26.9% of total revenue for the second quarter of
2000, compared with 26.8% for the second quarter of 1999. Excluding Asia,
international revenue decreased by 9.4%, compared with the same period in 1999.
The decrease was primarily due to the impact of foreign exchange on sales of the
Company's European subsidiaries, and, to a lesser degree, a decline in footwear
average selling price, as unit sales increased in the European wholesale and
retail markets, in both footwear and apparel and accessories. On a constant
dollar basis, excluding Asia, international revenue was comparable with the
prior year period, reflecting double digit increases in three of the Company's
five European subsidiaries, primarily offset by declines in the European
distributor business, reflecting, in part, higher shipments in the first quarter
and, to a lesser degree, declines in the U.K. and German subsidiaries.
Footwear revenue for the second quarter of 2000 was $136.2 million, an increase
of $17.0 million, or 14.3%, 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 and, to a lesser degree, a decline in European
footwear average selling price. 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. These increases were partially offset by unit
sales and, to a lesser degree, average selling price declines in the Performance
and Casual categories. In total, footwear unit sales increased 13.3% over the
same period last year.
Apparel and accessories revenue for the second quarter of 2000 was $38.8
million, an increase of $7.9 million, or 25.8%, compared with the same period in
1999. The increase occurred primarily in worldwide retail unit sales and the
acquisition of the Asian subsidiaries. These increases were partially offset by
a 52.9% reduction in domestic apparel off-price sales and, to a lesser degree,
foreign exchange. In total, apparel and accessories unit sales improved 27.9%
over the prior year period.
<PAGE> 11
Form 10-Q
Page 9
Worldwide revenue from Company-owned retail and factory stores for the second
quarter of 2000 was $52.9 million, an increase of $14.1 million, or 36.5%,
compared with the same period in 1999. The increase was primarily due to the
acquisition of the Asian subsidiaries and to an increase in domestic and, to a
lesser degree, European apparel and accessories unit sales, partially offset by
a decline in domestic retail average selling price. Excluding Asia, worldwide
retail revenue increased 14.2%, compared with the same period last year. On a
comparable basis, excluding Asia, worldwide retail revenue increased 6.7% over
the prior year period.
Gross profit as a percentage of revenue for the second quarter of 2000 was
46.5%, up 6.6 percentage points from the 39.9% reported for the second quarter
of 1999. The improvement in gross profit was primarily due to increased footwear
gross margin rates, resulting primarily from third party sourcing and
manufacturing efficiencies, improved apparel gross margin rates and, to a lesser
degree, the impact of the Asian business, which includes a high percentage of
retail sales. The Asian business added 1.1 percentage points to the Company's
gross profit rate for the second quarter of 2000.
Operating expense was $67.5 million for the second quarter of 2000, up $11.7
million, or 20.9%, from the $55.8 million reported for the second quarter of
1999. Operating expense as a percentage of revenue for the second quarter of
2000 increased to 38.1%, from 36.5% for the second quarter of 1999. The dollar
increase was primarily due to the impact of the Asian business and, to a lesser
degree, continued investments in selling, marketing and product development.
Excluding Asia, operating expense grew at 8.3%, 0.7 percentage points lower than
revenue growth.
Interest expense for both the second quarter of 2000 and 1999 was $2.3 million,
resulting from the same debt structure for both periods. Other income of $4.0
million was $3.4 million higher than the same period last year due to the
receipt of $2.1 million from Inchcape plc for the Company's share of proceeds
from the disposition of assets in Australia, New Zealand and Thailand (see Note
8) and, to a lesser degree, from interest income resulting from higher average
cash equivalents balances.
Income (loss) before income taxes for the second quarter of 2000 improved in all
segments, compared with the same period in 1999. In the U.S. Wholesale segment,
the improvement was primarily due to footwear gross margin rates and increased
footwear average selling price and unit sales. The U.S. Retail segment
improvement was primarily due to increased apparel and accessories unit sales
and, to a lesser degree, lower operating expense as a percentage of revenue and
improved footwear unit sales and gross margin rates. The International segment
improvement was primarily due to contributions from both the Company's European
subsidiaries and the Americas' distributors. The improvement in Unallocated
Corporate was primarily due to the aforementioned proceeds from Inchcape plc and
the higher level of interest income, partially offset by increased marketing
expense and, to a lesser degree, other corporate expenses incurred in support of
company-wide activities.
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 three months ended June 30, 2000 and June 25,
1999, was 33% and 32%, respectively.
<PAGE> 12
Form 10-Q
Page 10
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 25, 1999
Revenue for the first six months of 2000 was $385.7 million, an increase of
$55.8 million, or 16.9%, from the $329.8 million reported for the comparable
period in 1999. Excluding Asia, revenue for the first six months of 2000 grew
12.0%, compared with the prior year period. All segments increased compared with
1999. The U.S. Wholesale segment revenue increased 16.3%, or $26.2 million,
compared with the prior year period. This increase was primarily due to footwear
unit sales and, to a lesser degree, an increase in average selling price. This
was partially offset by a decline in apparel unit sales and average selling
price. In the U.S. Retail segment, increased apparel and accessories unit sales
and, to a lesser degree, footwear unit sales drove the revenue improvement.
Internationally, 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, all
European subsidiaries improved over the comparable period in 1999. Asia
contributed $16.7 million to the increase over the prior year period.
Gross profit as a percentage of revenue for the first six months of 2000 was
46.1%, compared with 40.7% for the comparable period in 1999. This improvement
in gross profit was primarily attributable to the same factors cited in the
second quarter discussion.
Operating expense for the first six months of 2000 was $140.6 million, up $24.4
million, or 21.0%, from the $116.2 million reported for the comparable period in
1999. Operating expense, as a percentage of revenue, was 36.5% for the first six
months of 2000, compared with 35.2% for the same period in 1999. The dollar
increase was primarily due to the impact of the Asian business and to continued
investments in marketing and selling. Excluding Asia, operating expense grew at
11.6%, 0.5 percentage points below revenue growth.
Income (loss) before income taxes for the first six months of 2000 improved in
all segments, compared with the same period in 1999. The improvements in the
U.S. Wholesale segment and in Unallocated Corporate were primarily attributable
to the same factors cited in the second 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 expense as a percentage of
revenue. The improvement in the International segment's income before income
taxes was primarily due to increased footwear and, to a lesser degree, apparel
unit sales, partially offset by the impact of foreign exchange.
Interest expense for the first six months of 2000 was $4.6 million, an increase
of $0.1 million from the comparable period in 1999. Other income, at $5.9
million, increased $4.3 million from the comparable prior year period primarily
due to the same reasons cited in the second quarter discussion.
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 six months ended June 30, 2000 and June 25, 1999,
was 33% and 32%, respectively.
<PAGE> 13
Form 10-Q
Page 11
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations during the first six months of 2000 was $35.5 million,
compared with $37.3 million used during the same period in 1999. The use of cash
in 2000 was primarily due to an increase in inventory and payment of income
taxes, which is consistent with the uses in the prior year period. Inventory
turns improved to 2.6 times for the second quarter of 2000, compared with 2.4
times for the second quarter of 1999. Days sales outstanding decreased to 46
days at June 30, 2000 from 53 days at June 25, 1999. Wholesale days sales
outstanding decreased to 50 days at June 30, 2000 from 61 days at June 25, 1999.
During the first six months of 2000, $2.9 million of cash was used by investing
activities, compared with $12.9 million used during the same period in 1999. The
cash used in 2000 was impacted by the net cash received from the acquisition of
the Asian subsidiaries (see Note 8), offset by capital expenditures. Capital
expenditures for the first six months of 2000 were $7.2 million, compared with
$10.8 million for the same period in 1999. During the first six months of 2000,
$133.3 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 $36.7 million. The extraordinary item associated with the debt
prepayment is included in financing activities. During the first six months of
1999, $38.4 million of cash was used, reflecting $40.0 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 0.0% at June 30, 2000, compared with
26.9% at December 31, 1999 and 29.9% at June 25, 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. 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 issued Staff Accounting Bulletin 101
which addresses 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 June 30, 2000, the Company had no long-term or short-term
financing outstanding. The Company's foreign currency exposure is generated
primarily from its European operating subsidiaries. As of June 30, 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 $6.5 million.
<PAGE> 15
Form 10-Q
Page 13
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Stockholders on May 18,
2000 (the "Annual Meeting").
(c) At the Annual Meeting, proxies were solicited pursuant to
Regulation 14A of the Securities Exchange Act of 1934 and all
nominees for director were elected as indicated by the following
schedule of votes cast for each director. The holders of Class A
Common Stock elected the following directors:
Total Votes for Each Total Votes Withheld
Nominee Director from Each Director
------- -------- ------------------
Robert M. Agate 12,347,244 8,200
John F. Brennan 12,347,052 8,392
Abraham Zaleznik 12,341,692 13,752
The holders of Class A Common Stock and the holders of Class B
Common Stock voting together as a single class elected the
following directors:
Total Votes for Each Total Votes Withheld
Nominee Director from Each Director
------- -------- ------------------
Sidney W. Swartz 59,098,776 8,668
Jeffrey B. Swartz 59,099,244 8,200
Ian W. Diery 58,990,694 116,750
John A. Fitzsimmons 59,099,445 7,999
Virginia H. Kent 59,098,544 8,900
Indra K. Nooyi 59,091,662 15,782
There were no abstentions or broker non-votes with respect to the
election of the director nominees.
The stockholders also approved a proposal to amend the Company's
Restated Certificate of Incorporation, as amended, to increase
the authorized number of shares of the Company's Class A Common
Stock from 30 million to 60 million. There were 11,217,904 votes
cast in favor of this proposal, 1,120,641 votes cast against this
proposal and 16,899 abstentions. There were no broker non-votes.
<PAGE> 16
Form 10-Q
Page 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation, dated May 14, 1987
3.3 Amendment of Restated Certificate of Incorporation, dated
May 22, 1987
3.4 Certificate of Ownership, merging "The Nathan Company" with
and into "The Timberland Company," dated July 31, 1987
3.5 Amendment of Restated Certificate of Incorporation dated
June 14, 2000
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On May 18, 2000, the Company filed a Form 8-K (Item 5. Other
Information) in connection with its announcement that the Company's
Board of Directors approved a 2-for-1 stock split of the Company's
Class A and Class B Common Stock, distributed on July 17, 2000 to
stockholders of record on June 30, 2000. The Company also announced an
increase in the number of shares of Class A Common Stock that the
Company was authorized to repurchase to up to four million shares.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Timberland Company
--------------------------------
(Registrant)
Date: August 11, 2000 /s/ Brian P. McKeon
------------------- ------------------------------
Brian P. McKeon
Senior Vice President
and Chief Financial Officer
Date: August 11, 2000 /s/ Dennis W. Hagele
------------------- ------------------------------
Dennis W. Hagele
Vice President-Finance
and Corporate Controller
(Chief Accounting Officer)
