1
THE TIMBERLAND COMPANY Exhibit 13
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
SELECTED INCOME STATEMENT DATA
(Dollars in Thousands Except Per Share Data)
Year Ended December 31,
1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------
Net Sales $418,918 $291,368 $226,082 $196,319 $156,141
Net Income 22,521 12,919 8,085 7,854 6,380
Earnings per Share $ 2.01 $ 1.18 $ .75 $ .73 $ .60
- -----------------------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET DATA
(Dollars in Thousands)
December 31,
1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------
Working Capital $155,660 $ 94,427 $ 87,610 $ 88,196 $ 84,134
Total Assets 290,611 194,117 177,470 170,076 148,327
Long-Term Debt 90,809 41,533 44,199 46,924 46,675
Stockholders' Equity 128,363 104,600 93,412 85,664 74,915
- -----------------------------------------------------------------------------------------------------------------
2
THE TIMBERLAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
Year Ended December 31,
1993 % 1992 % 1991 %
- -----------------------------------------------------------------------------------------------------------------
Net sales $418,918 100.0% $291,368 100.0% $226,082 100.0%
Gross profit 152,707 36.5 107,858 37.0 79,792 35.3
Total operating expenses 112,315 26.8 82,016 28.1 62,390 27.6
Operating income 40,392 9.6 25,842 8.9 17,402 7.7
Interest expense 6,252 1.5 5,528 1.9 5,822 2.6
Net income 22,521 5.4% 12,919 4.4% 8,085 3.6%
Earnings per share $ 2.01 $ 1.18 $ .75
Weighted average shares outstanding 11,206 10,922 10,791
- -----------------------------------------------------------------------------------------------------------------
1993 COMPARED TO 1992
Net sales for 1993 were $418.9 million, which represents an increase of
44% over the $291.4 million reported in 1992. This increase in net sales was
attributable primarily to an overall increase in the number of footwear,
apparel and accessory units sold.
Gross profit as a percentage of net sales for 1993 was 36.5%, as compared
to 37.0% in 1992. This decrease resulted principally from the Company's
strategic decision to attempt to lead the market by pre-emptively reducing
prices on certain products to improve the price/value proposition for the
consumer. The Company anticipates further pressure on gross margins in the
first half of 1994, as a result of this pricing strategy not yet being fully
offset by expected product cost reductions. The Company also expects its
historical trend, in which revenues and earnings have been more heavily
weighted to the second half of the year, primarily the third quarter, to
continue in 1994.
Total operating expenses for 1993 increased to $112.3 million from $82.0
million in 1992, as the Company further invested in infrastructure and
increased marketing in support of overall worldwide sales growth. As a
percentage of net sales, total operating expenses decreased to 26.8% in 1993
from 28.1% in 1992.
Interest expense in 1993 increased $.7 million over 1992, primarily due
to higher average borrowings in 1993 in support of sales growth.
1992 COMPARED TO 1991
Net sales in 1992 were $291.4 million, a 29% increase over the $226.1
million reported in fiscal 1991. This increase was primarily attributable to an
overall increase in the volume of footwear, apparel and accessory units sold.
Gross profit as a percentage of net sales was 37.0% in 1992 as compared
to 35.3% in 1991. This increase resulted from a combination of significant
reductions in the level of markdowns in 1992 compared to 1991 which was
affected by an aggressive inventory reduction program, increased production
levels, increased efficiencies in manufacturing and sourcing, and a favorable
sales mix.
Total operating expenses increased by 31% to $82.0 million in 1992 from
$62.4 million in 1991. The increased spending was attributable to a higher
level of selling and general and administrative expenses, as the Company
invested further in infrastructure and increased marketing in support of
current and future sales growth.
Interest expense in 1992 decreased by $.3 million from 1991 due primarily
to lower interest rates.
For an analysis of the change in the effective tax rates from 1991 to
1993, see notes to the consolidated financial statements.
3
THE TIMBERLAND COMPANY
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations during 1993 totaled $26.7 million, due
primarily to increases in certain working capital items. At December 31, 1993,
the Company had working capital of $155.7 million versus $94.4 million at
December 31, 1992. Accounts receivable grew to $93.2 million at December 31,
1993 compared to $54.1 million at December 31, 1992. Days sales outstanding at
December 31, 1993 were 75 days compared to 61 days at December 31, 1992.
Inventories at year end 1993 increased by $40.8 million, to $111.4 million,
since year end 1992, primarily in response to increased customer demand.
Inventory turns improved to 2.7 times from 2.5 times a year ago.
Net cash used for investing activities was $23.9 million,
of which $21.6 million represented additions to property,
plant and equipment. These investments compare with $11.8 million in 1992 and
were primarily made for manufacturing machinery and equipment and corporate
information systems enhancements.
In December 1993, the Company entered into a Memorandum of Understanding
with its Italian distributor outlining the contemplated termination of its
distribution rights and acquisition of certain of its assets. Net sales to this
distributor represented 4% of the Company's consolidated revenues in 1993.
Timberland intends to assume the distribution of its own products in Italy
effective on the termination date.
Net cash required for operating and investing activities in 1993 was
provided by a combination of internally generated cash and increased
borrowings. The Company uses unsecured and committed lines of credit as the
primary sources of financing for its seasonal and other working capital
requirements. Under its existing short-term credit facilities, the Company can
borrow, subject to a borrowing base formula, up to an aggregate amount of $70
million, of which $10 million was outstanding at December 31, 1993.
Additionally, the Company had uncommitted lines of credit totaling $24 million
at December 31, 1993, none of which was outstanding at year end. (See notes to
the consolidated financial statements.) As a result of the increase in overall
borrowings, the Company's debt to capital ratio rose to 44% at December 31,
1993 compared to 33% at year end 1992.
The Company is currently exploring additional financing opportunities to
support anticipated near-term growth. Management believes that the Company's
existing credit facilities, and the ability to obtain additional financing,
together with cash flow from operations, will provide the funds necessary to
support the Company's business.
INFLATION
The Company believes that inflation has not had a significant overall
impact on its operations or liquidity over the past three years.
4
THE TIMBERLAND COMPANY
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 shall
automatically be converted upon any transfer (except for estate planning
transfers and any transfer 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.
1993 1992
HIGH LOW High Low
- -------------------------------------------------------
First Quarter 34 1/2 19 1/8 17 3/8 9
Second Quarter 38 1/4 29 5/8 16 7/8 13
Third Quarter 61 1/4 29 1/8 17 3/4 13
Fourth Quarter 85 47 3/8 19 7/8 14 1/4
- -------------------------------------------------------
As of March 1, 1994, the number of record holders of the Company's Class
A Common Stock was approximately 659, and the number of record holders of the
Company's Class B Common Stock was eight. The closing sales price of the
Company's Class A Common Stock on March 1, 1994 was 38 1/8.
No cash dividends have ever been declared on either the Company's Class A
or Class B Common Stock, and none are contemplated 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 consolidated financial statements.)
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, 1993 and 1992 and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years then ended. 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. The Company's
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year ended December 31, 1991, were audited by other auditors
whose report dated February 12, 1992, expressed an unqualified opinion on those
statements.
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, such 1993 and 1992 consolidated financial statements
present fairly, in all material respects, the financial position of the
companies at December 31, 1993 and 1992, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE
Boston, Massachusetts
February 15, 1994
5
THE TIMBERLAND COMPANY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
(Dollars in Thousands)
Assets 1993 1992
- -----------------------------------------------------------------------------------------------------------------
Current assets
Cash and equivalents $ 3,281 $ 1,220
Accounts receivable, net of allowance for doubtful accounts of
$1,014 in 1993 and $1,821 in 1992 93,226 54,141
Inventories 111,380 70,542
Prepaid expenses 7,571 4,501
Deferred and refundable income taxes 5,625 7,466
- -----------------------------------------------------------------------------------------------------------------
Total current assets 221,083 137,870
- -----------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost 79,145 57,820
Less - accumulated depreciation and amortization (33,530) (25,151)
- -----------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 45,615 32,669
Excess of cost over fair value of net assets acquired, net 18,157 18,931
Other assets, net 5,756 4,647
- -----------------------------------------------------------------------------------------------------------------
$290,611 $194,117
=================================================================================================================
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------------------------------------------------------
Current liabilities
Notes payable $ 10,061 $ 6,851
Current maturities of long-term obligations 682 2,643
Accounts payable 32,526 14,121
Accrued expenses
Payroll and related 8,873 5,933
Interest and other 9,609 8,096
Income taxes payable 3,672 5,799
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 65,423 43,443
- -----------------------------------------------------------------------------------------------------------------
Long-term obligations, less current maturities 90,809 41,533
- -----------------------------------------------------------------------------------------------------------------
Deferred income taxes 6,016 4,541
- -----------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued -- --
Class A Common Stock, $.01 par value; 30,000,000 shares authorized;
7,630,556 shares issued in 1993 and 7,549,015 shares in 1992 76 75
Class B Common Stock, $.01 par value; 15,000,000 shares authorized;
3,237,598 shares issued and outstanding in 1993 and 3,238,686 shares in 1992 32 32
Additional paid-in capital 55,805 53,758
Retained earnings 74,106 51,585
Cumulative translation adjustment (1,536) (850)
Less treasury stock at cost, 18,513 shares in 1993 and 16,993 shares in 1992 (120) --
- -----------------------------------------------------------------------------------------------------------------
128,363 104,600
- -----------------------------------------------------------------------------------------------------------------
$290,611 $194,117
=================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
6
THE TIMBERLAND COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Amounts in Thousands Except Per Share Data)
1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
Net sales $418,918 $291,368 $226,082
Cost of goods sold 266,211 183,510 146,290
- -----------------------------------------------------------------------------------------------------------------
Gross profit 152,707 107,858 79,792
- -----------------------------------------------------------------------------------------------------------------
Operating expenses
Selling 82,585 57,145 45,209
General and administrative 28,956 24,194 16,504
Amortization of goodwill 774 677 677
- -----------------------------------------------------------------------------------------------------------------
Total operating expenses 112,315 82,016 62,390
- -----------------------------------------------------------------------------------------------------------------
Operating income 40,392 25,842 17,402
- -----------------------------------------------------------------------------------------------------------------
Other expense (income)
Interest expense 6,252 5,528 5,822
Other, net 17 1,315 (137)
- -----------------------------------------------------------------------------------------------------------------
Total other expense 6,269 6,843 5,685
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 34,123 18,999 11,717
Provision for income taxes 11,602 6,080 3,632
- -----------------------------------------------------------------------------------------------------------------
Net income $ 22,521 $ 12,919 $ 8,085
=================================================================================================================
Earnings per share $ 2.01 $ 1.18 $ .75
=================================================================================================================
Weighted average shares and share equivalents outstanding 11,206 10,922 10,791
=================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
7
THE TIMBERLAND COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
Class A Class B Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings
- ----------------------------------------------------------------------------------------------
Balance, January 1, 1991 $74 $33 $53,062 $30,581
Issuance of shares under employee stock option
and stock purchase plans and other
transactions 1 (1) 231 -
Net income - - - 8,085
Translation adjustment - - - -
- ----------------------------------------------------------------------------------------------
Balance, December 31, 1991 75 32 53,293 38,666
Issuance of shares under employee stock option
and stock purchase plans and other
transactions - - 465 -
Net income - - - 12,919
Translation adjustment - - - -
- ----------------------------------------------------------------------------------------------
Balance, December 31, 1992 75 32 53,758 51,585
Issuance of shares under employee stock option
and stock purchase plans and other
transactions 1 - 980 -
Tax benefit from stock option plans - - 1,067 -
Net income - - - 22,521
Translation adjustment - - - -
- ----------------------------------------------------------------------------------------------
Balance, December 31, 1993 $76 $32 $55,805 $74,106
=============================================================================================
Cumulative Consolidated
Translation Treasury Stockholders'
Adjustment Stock Equity
- -----------------------------------------------------------------------------------------
Balance, January 1, 1991 $ 1,914 $ - $ 85,664
Issuance of shares under employee stock option
and stock purchase plans and other
transactions - - 231
Net income - - 8,085
Translation adjustment (568) - (568)
- -----------------------------------------------------------------------------------------
Balance, December 31, 1991 1,346 - 93,412
Issuance of shares under employee stock option
and stock purchase plans and other
transactions - - 465
Net income - - 12,919
Translation adjustment (2,196) - (2,196)
- -----------------------------------------------------------------------------------------
Balance, December 31, 1992 (850) - 104,600
Issuance of shares under employee stock option
and stock purchase plans and other
transactions - (120) 861
Tax benefit from stock option plans - - 1,067
Net income - - 22,521
Translation adjustment (686) - (686)
- -----------------------------------------------------------------------------------------
Balance, December 31, 1993 $(1,536) $(120) $128,363
=========================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
8
THE TIMBERLAND COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands)
1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $22,521 $12,919 $ 8,085
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Deferred income taxes 1,475 119 (3,748)
Depreciation and amortization 10,279 7,959 6,304
Increase (decrease) in cash from changes in working capital items:
Accounts receivable (39,484) (6,210) (6,499)
Inventories (41,560) (13,892) 10,607
Prepaid expenses (3,170) 202 (149)
Accounts payable 18,497 1,841 5,724
Accrued expenses 5,084 3,712 2,326
Income taxes (320) (6,642) 4,975
- -----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (26,678) 8 27,625
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment, net (21,645) (11,774) (7,540)
Other, net (2,234) 1,616 (747)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (23,879) (10,158) (8,287)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (payments) under short-term credit facilities 3,257 6,352 (11,188)
Proceeds from long-term obligations 50,000 - -
Payments on long-term debt and capital lease obligations (2,643) (2,711) (2,646)
Issuance of common stock 981 465 231
Tax benefit from stock option plans 1,067 - -
Purchase of treasury stock (120) - -
- -----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 52,542 4,106 (13,603)
- -----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 76 (245) 219
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 2,061 (6,289) 5,954
- -----------------------------------------------------------------------------------------------------------------
Cash and equivalents at beginning of year 1,220 7,509 1,555
- -----------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 3,281 $ 1,220 $ 7,509
=================================================================================================================
Supplemental disclosures of cash flow information:
Interest paid $ 6,020 $ 5,699 $ 5,877
Income taxes paid 9,346 12,356 2,899
=================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
9
THE TIMBERLAND COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany transactions have been eliminated in
consolidation.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
RECOGNITION OF REVENUE
Revenue is recognized upon shipment of product to customers.
TRANSLATION OF FOREIGN CURRENCIES
The Company translates financial statements denominated in foreign
currency by translating balance sheet accounts at the end of period exchange
rate and income statement accounts at the average exchange rate for the period.
Translation gains and losses are recorded in stockholders' equity, and
transaction gains and losses are reflected in income.
FOREIGN CURRENCY OPTIONS
The Company has entered into foreign currency forward contracts (6.1
million pounds sterling, 12.7 million Deutsche marks and 38.5 million French
francs) to hedge foreign currency commitments through the first half of 1994.
Gains and losses on these contracts will be recognized when the offsetting
gains and losses on the hedged transactions occur. The unrealized net gain
(loss) deferred on such contracts as of December 31, 1993, 1992 and 1991 was
approximately $(178), $495 and $(1,179), respectively. Unrealized gains or
losses are determined based on the difference between the settlement and year
end spot rates.
CASH AND EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments which
have original maturities to the Company of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are 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 30 years; machinery and equipment, 3
to 10 years; lasts, patterns and dies, 5 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 40 and 15 years. Accumulated
amortization amounted to $4,639 and $3,865 at December 31, 1993 and 1992,
respectively.
INCOME TAXES
In 1993, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which requires an asset and
liability approach for financial accounting and reporting for income taxes. In
addition, future tax benefits, such as net operating loss carryforwards, are
recognized to the extent realization of such benefits is more likely than not.
The implementation of SFAS No. 109 did not have a material impact on the
financial statements.
EARNINGS PER SHARE
Earnings per share are calculated by dividing net income for each period
by the weighted average number of common shares and equivalents outstanding
during each period.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
December 31,
1993 1992
- -----------------------------------------------------------------------------
Carrying Carrying
or Contract Fair or Contract Fair
Amount Value Amount Value
- -----------------------------------------------------------------------------
Cash and equivalents1 $ 3,281 $ 3,281 $ 1,220 $ 1,220
Notes payable1 10,061 10,061 6,851 6,851
Long-term obligations2 91,491 95,724 44,176 49,075
Foreign currency
contracts3 30,801 30,783 17,590 16,780
=============================================================================
<FN>
1 The carrying amounts of cash and equivalents and notes payable approximate
their fair values.
2 The fair value of the Company's long-term obligations are estimated based
on current rates available to the Company as of December 31, 1993 and 1992,
for debt of the same remaining maturities.
3 The fair value of foreign currency contracts are estimated by obtaining the
appropriate forward market rates as of December 31, 1993 and 1992, respectively.
3. INVENTORIES
Inventories consist of the following:
December 31,
1993 1992
- -------------------------------------------------------
Raw materials $ 11,108 $10,802
Work-in-process 13,060 6,761
Finished goods 87,212 52,979
- -------------------------------------------------------
$111,380 $70,542
=======================================================
10
THE TIMBERLAND COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31,
1993 1992
- -------------------------------------------------------
Land and improvements $ 649 $ 633
Building and improvements 17,500 14,640
Machinery and equipment 49,337 33,490
Lasts, patterns and dies 11,659 9,057
- -------------------------------------------------------
$79,145 $57,820
=======================================================
5. INCOME TAXES
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities at December 31,
1993, consist of the following:
Assets Liabilities Total
- ---------------------------------------------------------------------------------
Current
Inventories $1,554 $ - $ 1,554
Receivable allowances 1,229 - 1,229
Intercompany profit elimination 1,681 - 1,681
Other 762 - 762
- ---------------------------------------------------------------------------------
5,226 - 5,226
=================================================================================
Non-current
Accelerated depreciation
and amortization - (946) (946)
Puerto Rico tollgate taxes - (1,229) (1,229)
Undistributed foreign earnings - (3,841) (3,841)
Net operating loss carryforwards 2,499 - 2,499
Less valuation allowance (2,499) - (2,499)
- ----------------------------------------------------------------------------------
- (6,016) (6,016)
- ----------------------------------------------------------------------------------
$5,226 $(6,016) $ (790)
- ----------------------------------------------------------------------------------
The valuation allowance at December 31, 1993 of $2,499 includes $499
which arose during the current year. The valuation allowance relates primarily
to foreign net operating loss carryforwards that may not be realized.
Deferred and refundable income taxes includes $399 and $1,656 at December
31, 1993 and 1992, respectively, for refundable income taxes.
The components of the provision for income taxes are as follows:
Years Ended December 31,
1993 1992 1991
- --------------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
- --------------------------------------------------------------------------
Federal $6,687 $ 935 $6,356 $(2,887) $2,606 $(1,000)
State 2,131 1,233 2,514 (193) 843 184
Puerto Rico 416 171 454 281 276 577
Foreign 29 - (445) - 146 -
- --------------------------------------------------------------------------
$9,263 $2,339 $8,879 $(2,799) $3,871 $ (239)
==========================================================================
The deferred tax provision consists of the following:
Years Ended December 31,
1993 1992 1991
- --------------------------------------------------------------------------
Increase in reserves
not currently deductible $ 719 $(2,709) $(1,015)
Tax depreciation over (under)
book depreciation 177 (239) 357
Puerto Rico tollgate taxes 172 281 625
Undistributed foreign earnings 1,355 (47) (51)
Other, net (84) (85) (155)
- ----------------------------------------------------------------------
$2,339 $(2,799) $ (239)
=====================================================================
The provision for income taxes differs from the amount
computed using the statutory federal income tax rate of 35% in 1993 and 34% in
1992 and 1991 due to the following:
Years Ended December 31,
1993 1992 1991
- ---------------------------------------------------------------------------
Federal income tax at statutory rate $11,943 $6,460 $3,984
Net reduction in federal tax due to
tax exempt earnings in Puerto Rico (3,150) (3,341) (2,138)
Puerto Rico and state taxes, net of
applicable federal benefit 2,775 908 1,050
Purchase accounting adjustments 271 230 230
Losses of foreign subsidiaries 335 2,395 576
Foreign sales corporation (574) (508) -
Other, net 2 (64) (70)
- ----------------------------------------------------------------------------
Total provision for income taxes $11,602 $6,080 $3,632
============================================================================
The Company's consolidated income before taxes included earnings from its
subsidiary in Puerto Rico, which are substantially exempt from Puerto Rico and
federal income taxes under an exemption which expires in 2002. However, if the
earnings were remitted to Timberland, they would be subject to a Puerto Rico
tollgate tax not to exceed 10%. Deferred tollgate taxes have been provided on
all of the accumulated earnings of the subsidiary in Puerto Rico. Deferred
income taxes are also provided on the undistributed earnings of Timberland's
foreign subsidiaries.
Losses before income taxes from foreign operations were $(835),
$(5,563) and $(1,267) for the years ended December 31, 1993, 1992 and 1991,
respectively. At December 31, 1993, the Company had $7,140 of foreign operating
loss carryforwards available to offset future foreign taxable income. Of these
operating loss carryforwards, $1,772 will expire in 1996, $1,977 in 1997 and
$374 will expire in 1998.
11
THE TIMBERLAND COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
On August 10, 1993, the United States House and Senate Budget Conference
Committee enacted the Omnibus Budget Reconciliation Act of 1993 (the "Act"). As
required under SFAS No. 109, the Company has recorded the effect of the Act on
its deferred and currently payable tax liabilities as of December 31, 1993. The
effect of adopting the Act on the Company's financial statements was not
material either as to the cumulative effect upon adoption or as to the full
year 1993.
6. NOTES PAYABLE
In May 1993, the Company entered into a new unsecured committed revolving
credit agreement (the "Agreement") with a group of banks through March 29,
1996, that currently provides for revolving credit loans of up to $70,000,
subject to a borrowing base formula. At December 31, 1993, the amount available
under this formula was approximately $52,000, of which $10,000 was outstanding
at year end. Under the terms of the Agreement, the Company may borrow at
interest rates which are based upon the lender's cost of funds (4.25% at
December 31, 1993).
The Agreement provides for a facility fee of 3/8% per annum on the daily
average aggregate amount of the commitment. The Agreement places limitations on
the payment of dividends and the incurrence of additional debt, and also
contains certain other financial and operational covenants.
In addition to the above Agreement, the Company has the ability to borrow
approximately $9,300 for its European subsidiaries under demand line of credit
arrangements, which provide for interest based upon the lender's cost of funds
(6.5% to 7.6% at December 31, 1993).
Additionally, the Company had uncommitted lines of credit available from
certain banks totaling $15,000 at December 31, 1993, none of which was
outstanding at year end. Borrowings under these lines are at prevailing money
market rates (4% at December 31, 1993). These arrangements may be terminated at
any time at the option of the banks or the Company.
The balance outstanding under all short-term borrowing arrangements was
$10,061 and $6,851 at December 31, 1993 and December 31, 1992, respectively.
The maximum short-term borrowings at any month-end were $52,679, $33,874
and $19,285 during 1993, 1992 and 1991, respectively. Average borrowings under
all short-term credit arrangements were $37,596 in 1993, $16,997 in 1992 and
$11,391 in 1991. The weighted average interest rates were 4.16%, 5.88% and
8.66% in 1993, 1992 and 1991, respectively.
7. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
December 31,
1993 1992
- -------------------------------------------------------------
Credit agreement $50,000 $ -
Senior notes 35,000 35,000
Industrial revenue bonds 5,345 5,345
Note payable - 1,500
Capitalized lease obligations (Note 8) 1,146 2,331
- -------------------------------------------------------------
91,491 44,176
Less - current maturities (682) (2,643)
- --------------------------------------------------------------
$90,809 $41,533
==============================================================
In November 1993, the Company entered into a credit agreement (the
"Agreement") expiring on May 15, 1999 with a group of banks, which provides
commitments for loans of up to $50,000. Under the Agreement, the Company may
make unsecured borrowings in the form of Variable Rate or Eurocurrency Loans.
Variable Rate Loans bear interest based upon the lender's cost of funds (4.75%
at December 31, 1993). Eurocurrency Loans bear interest based on the rate as
quoted in the London interbank market of dollar deposits. On May 15, 1996,
outstanding credit loans will be converted to three year term loans, payable
in equal quarterly principal amounts beginning on August 31, 1996. The term
loans may be outstanding as either Variable Rate or Eurocurrency Loans. The
Agreement provides for a commitment fee of 3/8% per annum on the daily average
unused portion of the commitment. The Agreement places limitations on the
payment of dividends and the incurrence of additional debt, and also requires
maintenance of certain operational and financial covenants.
The unsecured senior notes bear interest at a rate of 9.7% and mature on
December 1, 1999. Commencing December 1, 1995, annual redemption payments of
$7,000 are required until maturity. The note agreement places limitations on
the payment of cash dividends and contains other financial and operational
covenants.
The industrial revenue bonds bear interest at 6.75% through November
30, 1994 at which time the rate will be readjusted for another five-year
period. The bonds mature in 2014. The bondholders have the right to require
the Company to repurchase the bonds at face value in December 1994 and at every
five-year anniversary date thereafter until maturity. Notwithstanding this
requirement, the Company intends to renew these obligations through maturity
under the remarketing provisions of the bond agreement. The bonds are
collateralized by a mortgage on the real estate and specified equipment at the
12
THE TIMBERLAND COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
Company's headquarters and distribution center. The bonds contain financial and
operational covenants and restrictions similar to the credit agreement
described in Note 6. Additionally, the Company has obtained an irrevocable
standby letter of credit which also secures the outstanding principal of the
bonds through 1994.
The Company's long-term obligations at December 31, 1993, excluding
capitalized lease obligations, are scheduled to become due as follows:
- -------------------------------------------------------
1994 $ -
1995 7,000
1996 15,333
1997 23,667
1998 23,667
Thereafter 20,678
- -------------------------------------------------------
$90,345
=======================================================
8. LEASE COMMITMENTS
The Company leases manufacturing facilities, retail stores, showrooms and
equipment under noncancellable operating and capital leases expiring at various
dates through 2015. The approximate minimum rental commitments under all
noncancellable leases as of December 31, 1993, are as follows:
Capital Operating
- -------------------------------------------------------------------
1994 $ 770 $ 7,647
1995 483 7,468
1996 -- 7,051
1997 -- 5,946
1998 -- 5,090
Thereafter -- 19,617
- -------------------------------------------------------------------
Total minimum lease payments 1,253 $52,819
=======
Less - amount representing interest (107)
- -----------------------------------------------------
Present value of net minimum lease payments 1,146
Less - current maturities (682)
- -----------------------------------------------------
$ 464
=====================================================
Property and accumulated depreciation on equipment held under capital
leases were $5,156 and $3,423, respectively, at December 31, 1993 and $6,419
and $3,368, respectively, at December 31, 1992.
Rental expense for all operating leases was $7,490, $6,635 and $5,444
for the years ended December 31, 1993, 1992 and 1991, respectively.
9. INDUSTRY SEGMENT AND GEOGRAPHICAL AREA INFORMATION
The Company operates in a single industry segment which includes the designing,
manufacturing and marketing of footwear, apparel and accessories. The following
summarizes the Company's operations in different geographical areas for the
years ended December 31, 1993, 1992 and 1991, respectively.
Adjustments
United Other and
1993 States Europe Foreign Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------
Sales to unaffiliated
customers $340,811 $71,927 $ 6,180 $ - $418,918
Transfers between
geographical
areas 42,388 - 20,872 (63,260) -
- -------------------------------------------------------------------------------------------------------
$383,199 $71,927 $27,052 $(63,260) $418,918
=======================================================================================================
Operating
income $ 35,282 $ 709 $ 1,953 $ 2,448 $ 40,392
=======================================================================================================
Identifiable assets
at December 31,
1993 $301,949 $53,888 $15,336 $(80,562) $290,611
=======================================================================================================
1992
- -------------------------------------------------------------------------------------------------------
Sales to unaffiliated
customers $232,748 $54,891 $ 3,729 $ - $291,368
Transfers between
geographical
areas 27,441 - 11,735 (39,176) -
- -------------------------------------------------------------------------------------------------------
$260,189 $54,891 $15,464 $(39,176) $291,368
=======================================================================================================
Operating
income (loss) $ 31,465 $(4,055) $ (788) $ (780) $ 25,842
=======================================================================================================
Identifiable assets
at December 31,
1992 $199,618 $37,612 $ 9,911 $(53,024) $194,117
=======================================================================================================
1991
- -------------------------------------------------------------------------------------------------------
Sales to unaffiliated
customers $181,429 $42,221 $ 2,432 $ - $226,082
Transfers between
geographical
areas 25,522 733 8,427 (34,682) -
- -------------------------------------------------------------------------------------------------------
$206,951 $42,954 $10,859 $(34,682) $226,082
=======================================================================================================
Operating
income (loss) $ 15,638 $ 1,371 $ (375) $ 768 $ 17,402
- -------------------------------------------------------------------------------------------------------
Identifiable assets
at December 31,
1991 $178,029 $43,566 $ 6,074 $(50,199) $177,470
=======================================================================================================
13
THE TIMBERLAND COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
Export sales from the United States to unaffiliated customers,
principally to European distributors, amounted to 10%, 17% and 21% of
consolidated net sales for the years ended December 31, 1993, 1992 and 1991,
respectively. The Company had net sales to a single distributor which
approximated 13% of consolidated net sales for the year ended December 31,
1991.
10. STOCKHOLDERS' EQUITY
The Company's Class A and Class B Common Stock are identical in all respects
except that shares of Class A Common Stock carry one vote per share while the
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.
11. STOCK AND EMPLOYEE BENEFIT PLANS
Under its 1987 Stock Option Plan (the "1987 Plan"), as amended in May 1993, the
Company has reserved 1,600,000 shares of Class A Common Stock for the granting
of stock options to key employees. Pursuant to the terms of the 1987 Plan,
grants may be made by the Board of Directors from time to time, but no grant
shall be made ten years after the adoption of the 1987 Plan. The option price
per share shall not be less than the fair market value of stock at the time
such option is granted in the case of options intended to qualify as
"incentive" stock options under the Internal Revenue Code of 1986, and shall
not be less than 50% of such fair market value in the case of "non-qualified"
stock options for employees who are subject to Section 16 of the Securities
Exchange Act of 1934. To date, all options have been granted at fair market
value. Options which have been granted under the 1987 Plan become exercisable
in equal installments over four years beginning one year after the grant date.
In addition to the 1987 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 is authorized to issue a maximum of 100,000 shares of Class
A Common Stock to eligible non-employee directors of the Company. Under the
terms of the 1991 Plan, option grants are awarded on a predetermined basis, and
no grant can be made after November 15, 2001. The exercise price of options
granted under the 1991 Plan shall be the fair market value of the stock on the
date of grant, and the options become exercisable in equal installments over
four years beginning one year after the grant date.
Options for 182,480 and 144,985 shares were exercisable under all option
arrangements at December 31, 1993 and 1992, respectively. Under the existing
plans there were 819,616 and 487,882 shares available for future grants at
December 31, 1993 and 1992, respectively.
The following summarizes transactions under all stock option
arrangements for the years ended December 31, 1993, 1992 and 1991:
Number Per Share
of Shares Option Price
- ------------------------------------------------------------------
January 1, 1991 449,937 $ 3.74 - 12.00
Granted 61,750 7.88 - 9.25
Exercised (31,500) 3.74
Cancelled (88,752) 3.74 - 10.63
- ------------------------------------------------------------------
December 31, 1991 391,435 6.38 - 12.00
Granted 185,680 13.38 - 18.88
Exercised (45,196) 6.38 - 9.25
Cancelled (89,386) 6.38 - 15.25
- ------------------------------------------------------------------
December 31, 1992 442,533 6.38 - 18.88
Granted 434,655 26.00 - 83.25
Exercised (56,113) 6.38 - 15.25
Cancelled (66,389) 6.38 - 56.00
- ------------------------------------------------------------------
December 31, 1993 754,686 $ 6.38 - 83.25
==================================================================
Pursuant to the terms of its 1991 Employee Stock Purchase Plan (the
"Plan"), the Company is authorized to issue up to an aggregate of 100,000
shares of its Class A Common Stock to eligible employees electing to
participate in the 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 24,340 shares in 1993, 17,592 shares in
1992 and 18,736 shares in 1991 (of which 10,182 shares were purchased under the
1987 Employee Stock Purchase Plan which expired in July 1991) at prices ranging
from $4.99 to $26.35. At December 31, 1993, 49,514 shares were available for
future purchases.
14
THE TIMBERLAND COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
The Company maintains a contributory 401(k) Retirement Earnings Plan (the
"401(k) Plan") for eligible salaried and hourly employees who are at least 21
years of age with one or more years of service. Under the provisions of the
401(k) Plan, employees may contribute between 2% and 10% of their base salary
up to certain limits. The 401(k) Plan provides for Company matching
contributions not to exceed 2% 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's contribution expense was $252 in 1993, $207 in 1992 and
$177 in 1991.
The Company maintains a non-contributory profit sharing plan for eligible
hourly employees not covered by the 401(k) Plan who are 21 years of age with
one or more years of service. Contributions are at the discretion of the
Company and fully vest to the employee upon completing three years of service.
The Company's contribution expense was $320 in 1993, $260 in 1992 and $231 in
1991.
12. LITIGATION The Company is involved in litigation and various legal
matters, including U.S. Customs claims, which have arisen in the ordinary
course of business. Management believes that the ultimate resolution of any
existing matter will not have a material effect on the Company's financial
position.
On February 15, 1994, a complaint was filed in which the Company
and one of its officers were named as defendants in a purported class action
lawsuit brought on behalf of purchasers of the Company's stock between November
15, 1993 and February 10, 1994. The suit alleges material misstatements and
omissions were made by the Company in the Company's public filings and
statements in 1993. The named plaintiff contends he suffered damages as a
result of his December 1993 purchase of fifty shares of the Company's Class A
Common Stock. To date, the court has not approved the formation of a class nor
has the plaintiff specified damages sought in this action. While the suit is in
its preliminary stages, based on an initial review, and after consultation with
counsel, management believes the allegations are without merit. Accordingly,
management does not expect the outcome of such litigation to have a material
adverse effect on the financial statements. The Company intends to defend this
proceeding vigorously.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the quarterly results of operations for the
years ended December 31, 1993 and 1992, respectively (Dollars in Thousands
Except Per Share Data):
Quarter Ended
1993 April 2 July 2 October 1 December 31
- ----------------------------------------------------------------------
Net sales $70,606 $84,849 $140,261 $123,202
Gross profit 27,467 30,586 49,846 44,808
Net income 2,332 1,912 11,241 7,036
Earnings per share $ .21 $ .17 $ 1.00 $ .62
======================================================================
1992 March 27 June 26 September 25 December 31
- ----------------------------------------------------------------------
Net sales $52,788 $57,674 $ 92,281 $ 88,625
Gross profit 18,546 20,635 34,899 33,778
Net income 851 364 6,887 4,817
Earnings per share $ .08 $ .03 $ .63 $ .44
======================================================================