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Filed as Exhibit 99 to Form 10-K for the fiscal year ended December 31, 1999
CAUTIONARY STATEMENTS FOR PURPOSES
OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Timberland Company (the "Company")wishes to take advantage of The
Private Securities Litigation Reform Act of 1995, which provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information. Prospective information is based on management's then current
expectations or forecasts. Such information is subject to the risk that such
expectations or forecasts, or the assumptions used in making such expectations
or forecasts, may become inaccurate. The following discussion identifies
important 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:
DEPENDENCE ON SALES FORECASTS. The Company bases, in part, its investments
in infrastructure and product on sales forecasts that are necessarily made in
advance of actual sales. The Company does business in highly competitive
markets, and the Company's business is affected by a variety of factors,
including:
- - brand awareness
- - product innovations
- - retail market conditions
- - economic and other factors
- - changing consumer preferences
- - fashion trends
- - weather conditions
One of management's principal challenges is to improve its ability to
predict these factors, in order to enable the Company to better and more rapidly
match production of its products with demand. In addition, the Company's growth
over the years has created the need to increase these investments in
infrastructure and product and to enhance the Company's operational systems. To
the extent sales forecasts are not achieved, these investments would represent a
higher percentage of revenue, and the Company would experience higher inventory
levels and associated carrying costs, all of which would adversely affect the
Company's financial performance.
CONSUMER ACCEPTANCE OF PRODUCTS. The success of the Company's products and
marketing strategy will depend on a favorable reception by the Company's
wholesale customers and consumers at retail. This reception is conditioned, in
part, on the Company's ability to build its brand, including its new Timberland
PRO(TM) and Mountain Athletics(TM) by Timberland sub-brands, into a world class
lifestyle brand and on the Company's ability to respond to the demands of the
marketplace for greater speed and exceptional customer service.
CONSUMER TRENDS AND RETAIL MARKET CONDITIONS. Sales of the Company's
products are subject to consumer trends and economic and other factors affecting
the retail market. For example, decreased consumer spending, a shift towards
discount retailers, softness in the retail market and weakened financial
condition of wholesale
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customers could adversely affect the Company's sales. The Company believes that
its more fashion-focused women's footwear product line and men's collection
apparel products are more susceptible to changing fashion trends and consumer
preferences than are the Company's other products. In addition, warmer than
anticipated weather conditions have, in past fall/winter selling seasons,
reduced sales as a result of decreased consumer demand at retail for the
Company's higher margin boot products. Such conditions could adversely affect
the Company's financial performance in the future, especially if a greater
proportion of the Company's revenue were to be made up of "at once" orders.
RAW MATERIALS. The Company depends on a few key sources for leather, its
principal raw material, and other proprietary materials used in its products. In
1999, five suppliers provided, in the aggregate, approximately 70% of the
Company's leather purchases. One of these suppliers provided approximately 42%
of the Company's leather purchases in 1999. The Company believes that leather
will continue to be available from these or alternative sources. However, the
Company would be adversely affected by unanticipated price increases or
shortage of such materials.
DEPENDENCE UPON INDEPENDENT MANUFACTURERS. During 1999, the Company
manufactured approximately 18% of its footwear unit volume, compared to
approximately 20% during 1998 and 28% during 1997. Independent manufacturers and
licensees in Asia, Europe, South America and Mexico produced the remainder of
the Company's footwear products and all of its apparel and accessories products.
(See the "International" paragraph below for a discussion of the risks of doing
business abroad to which the Company may be subject.) Independent manufacturers
in China and Taiwan produced approximately 51% of the Company's 1999 footwear
unit volume; and three of these manufacturers produced approximately 10% to 18%
each of the Company's 1999 footwear volume. The Company believes that the shift
towards sourcing product from independent manufacturers will continue to reduce
manufacturing overhead and product costs, increase product quality and increase
the Company's flexibility to meet changing consumer demand for particular
product lines. However, the success of these measures depends on the ability of
the Company's independent manufacturers to provide high quality product at lower
cost and to do so with rapid turn-around times. There can be no assurance that
the Company will be able to maintain current relationships or locate additional
manufacturers that can meet the Company's requirements.
RETAIL ORGANIZATION. In 1986, the Company opened the first Timberland(R)
store dedicated exclusively to Timberland(R) products. At the end of 1999, the
Company operated 19 specialty stores and 45 factory outlet stores in the United
States and 19 specialty stores and seven factory outlet stores in Europe and
Chile. Revenue from retail stores operated by the Company in the U.S.
represented 19% of the Company's revenue for 1999. The Company has made
significant capital investments in opening these stores and incurs significant
expenditures in operating these stores. The higher level of fixed costs related
to the Company's retail organization adversely affects profitability,
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particularly in the first half of the year, as the Company's revenue
historically has been more heavily weighted to the second half of the year.
The same market conditions affecting the Company's wholesale customers
described above also affect the performance of the Company's retail
organization. The Company's ability to recover the investment in and
expenditures of its retail organization, particularly its specialty stores,
would be adversely affected if sales at its retail stores were lower than
anticipated,
Although the Company believes its factory outlet stores enable the Company
to preserve the integrity of the sale of excess, damaged or discontinued
products, and maximize the return associated with such sales, the Company's
gross margin could be adversely affected if off-price sales increase as a
percentage of revenue.
COMPETITION. The Company markets its products in highly competitive
environments. Many of the Company's competitors are larger and have
substantially greater resources than the Company for marketing, research and
development, and other purposes. These competitors include athletic footwear
companies, branded apparel companies and private labels established by
retailers. Furthermore, efforts by the Company's footwear competitors to dispose
of their excess inventory could put downward pressure on retail prices and could
cause the Company's wholesale customers to redirect some of their purchases away
from the Company's products.
INTERNATIONAL. The Company manufactures and sources a majority of its
products outside the United States. Timberland(R) products are sold in the U.S.
and internationally through its stores, operating divisions, wholesale
customers, distributors, commission agents, franchisees and licensees.
Accordingly, the Company is subject to the risks of doing business abroad,
including, among other risks, import restrictions, anti-dumping investigations,
political or labor disturbances, expropriation and acts of war. In addition,
although the Company pays for the purchase and manufacture of its products
primarily in U.S. dollars, it does sell its products in markets where the local
currency is not the U.S. dollar. Therefore, the Company is subject to
fluctuations in foreign currency exchange rates.
The Company recently announced that it signed an agreement under which it
will re-acquire the exclusive distribution rights for the Asia-Pacific region
from Inchcape plc. The Company will manage the sale of Timberland products in
Japan, Singapore, Malaysia and Hong Kong through subsidiaries. The Company plans
to pursue arrangements with appropriate distributors in other markets in the
Asia-Pacific region. The Company's revenue from its operations in this region
would be adversely affected if general economic difficulties in the region do
not improve or the Company's efforts to integrate its Asia-Pacific operations
require greater investment in infrastructure and/or more time than currently
expected. In addition, while the Company believes it has chosen third party
manufacturers with sufficient financial strength, a continued economic downturn
could cause the Company's suppliers to fail to make and ship orders placed by
the Company. The
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Company could utilize its own factories and sourced manufacturers in other
countries in such an event to cover any resulting shortfall; however, delivery
of these products would be delayed from the original production schedule.
MANUFACTURING. The Company currently plans to retain its internal
manufacturing capability in order to continue benefiting from reduced lead
times, favorable duty rates and tax benefits. The Company continues to evaluate
its manufacturing facilities and independent manufacturing alternatives in order
to determine the appropriate size and scope of its manufacturing facilities.
There can be no assurance that the costs of products that continue to be
manufactured by the Company can remain competitive with sourced products.
LICENSING. Since late 1994, the Company has entered into several licensing
agreements which enable the Company to expand the Timberland(R) brand to product
categories and geographic territories in which the Company has not had an
appreciable presence. The rights granted under these agreements are typically
exclusive, and the Company may not terminate these agreements at will, although
the Company has reserved its right to terminate these agreements for cause. The
success of the Timberland brand in these products or territories will,
therefore, largely depend on the efforts and financial condition of its
licensees. In addition, although the Company is pursuing additional licensing
opportunities, there can be no assurance that the Company will be able to
locate licensees and negotiate acceptable terms with licensees for additional
products and territories.
PRICING OF PRODUCTS. The prices the Company is able to obtain for its new
and expanded product offerings, and the Company's ability to increase prices of
its other products, will depend upon consumer acceptance of such prices, as well
as competitive and other market factors.
MANAGEMENT AND CONTROL. Sidney W. Swartz, the Company's Chairman, and
various trusts established for the benefit of his family or for charitable
purposes, hold approximately 85% of the combined voting power of the Company's
capital stock in the aggregate, enabling him to control the Company's affairs
and to influence the election of the three directors entitled to be elected by
the holders of Class A Common Stock voting separately as a class. Jeffrey B.
Swartz, the Company's President and Chief Executive Officer, is the son of
Sidney Swartz. The loss or retirement of these or other key executives could
adversely affect the Company.
LIQUIDITY AND CAPITAL RESOURCES. Management believes that the Company's
capital needs for 2000 can be met through its existing credit facilities and
cash flow from operations, without the need for additional long-term financing.
However, the Company may need to raise additional capital in the future in order
to finance its anticipated growth and capital requirements beyond 2000. The
terms and availability of any such additional or replacement financing will be
subject to prevailing market conditions and other factors at that time.
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In addition, the Company's revolving credit facility and senior notes place
limitations on the payment of cash dividends and contain other financial and
operational covenants with which the Company must comply. If the Company does
not comply with such covenants, the Company s ability to use such credit
facilities or to obtain other financing could be adversely affected.
INTELLECTUAL PROPERTY. The Company has spent, and may be required in the
future to spend, significant amounts to protect and defend its trade name,
trademarks, patents, designs and other proprietary rights. The Company is also
susceptible to injury from parallel trade and counterfeiting of its products.
LITIGATION. The Company is involved in various litigation and legal matters
that have arisen and will arise in the ordinary course of business. The costs of
prosecuting or defending these matters or an unfavorable outcome in these
matters could adversely affect the Company's operating results.
ACCOUNTING STANDARDS. Changes in the accounting standards promulgated by
the Financial Accounting Standards Board or other authoritative bodies could
have an adverse affect on the Company's future reported operating results.
ENVIRONMENTAL AND OTHER REGULATION. The Company is subject to various
environmental and other laws and regulations, which may change periodically.
Compliance with such laws or changes therein could have a negative impact on the
Company's future reported operating results.
YEAR 2000. The Company has not experienced, nor does it anticipate that it
will experience, any material business disruption as a result of Year 2000
issues. However, as described in greater detail in the "Management's Discussion
and Analysis" section of the Company's 1999 Annual Report, 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 have not become
apparent.
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