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 July 1, 1994
--------------------------
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)
11 Merrill Industrial Drive, Hampton, New Hampshire 03843
- - ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 926-1600
----------------------
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 29, 1994, 7,653,042 shares of the registrant's Class A Common
Stock were outstanding and 3,237,121 shares of the registrant's Class
B Common Stock were outstanding.
2
THE TIMBERLAND COMPANY
FORM 10-Q
TABLE OF CONTENTS
Page(s)
------
Independent Accountants' Review Report 1
Part I Financial Information (Unaudited)
----------------------------------------
Condensed Consolidated Balance Sheets -
July 1, 1994 and December 31, 1993 2 - 3
Condensed Consolidated Statements of Operations -
For the three and six months ended July 1, 1994 and July 2, 1993 4
Condensed Consolidated Statements of Cash Flows -
For the six months ended July 1, 1994 and July 2, 1993 5
Notes to Condensed Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
Part II Other Information 11
-------------------------
3
Form 10-Q
Page 1
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
--------------------------------------
To the Stockholders and Board of Directors of
The Timberland Company:
We have reviewed the accompanying condensed consolidated balance sheet
of The Timberland Company and subsidiaries as of July 1, 1994, and the
related condensed consolidated statements of operations and cash flows
for the three-month and six-month periods ended July 1, 1994 and July 2,
1993. These condensed consolidated financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to such condensed consolidated financial
statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of The Timberland
Company and subsidiaries as of December 31, 1993, and the related
consolidated statements of income, changes in stockholders' equity,
and cash flows for the year then ended (not presented herein), and, in
our report dated February 15, 1994, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1993, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from
which it was derived.
Deloitte & Touche
Boston, Massachusetts
July 21, 1994
4
Form 10-Q
Page 2
Part I Financial Information
- - ----------------------------
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in Thousands)
(Unaudited)
July 1, December 31,
1994 1993
---------- -------------
Current assets
Cash and equivalents $ 3,064 $ 3,281
Accounts receivable, net 117,928 93,226
Inventories 194,662 111,380
Prepaid expenses 11,548 7,571
Deferred and refundable income taxes 5,641 5,625
---------- ----------
Total current assets 332,843 221,083
---------- ----------
Property, plant and equipment, at cost 89,596 79,145
Less accumulated depreciation and
amortization (39,532) (33,530)
---------- ----------
Net property, plant and
equipment 50,064 45,615
---------- ----------
Excess of cost over fair value of net
assets acquired, net 24,546 18,157
Other assets, net 4,864 5,756
---------- ----------
$ 412,317 $ 290,611
========= ==========
See accompanying notes to condensed consolidated financial statements.
5
Form 10-Q
Page 3
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
July 1, December 31,
1994 1993
--------- ------------
Current liabilities
Notes payable $ 53,741 $ 10,061
Current maturities of long-term obligations 719 682
Accounts payable 37,084 32,526
Accrued expenses
Payroll and related 9,738 8,873
Interest and other 18,942 9,609
Income taxes payable 1,710 3,672
--------- ---------
Total current liabilities 121,934 65,423
--------- ---------
Long-term obligations, less current maturities 155,440 90,809
--------- ---------
Deferred income taxes 6,700 6,016
--------- ---------
Stockholders' equity
Preferred stock, $.01 par value; 2,000,000 shares authorized;
none issued - -
Class A Common Stock, $.01 par value (1 vote per share);
30,000,000 shares authorized; 7,650,565 shares issued at
July 1, 1994 and 7,630,556 shares at December 31, 1993 77 76
Class B Common Stock, $.01 par value (10 votes per share);
15,000,000 shares authorized; 3,237,121 shares issued
and outstanding at July 1, 1994 and 3,237,598 shares at
December 31, 1993 32 32
Additional paid-in capital 56,281 55,805
Retained earnings 72,632 74,106
Cumulative translation adjustment (659) (1,536)
Less treasury stock at cost, 18,369 shares at July 1, 1994
and 18,513 shares at December 31, 1993 (120) (120)
--------- ---------
128,243 128,363
--------- ---------
$ 412,317 $ 290,611
========= =========
See accompanying notes to condensed consolidated financial statements.
6
Form 10-Q
Page 4
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
For the For the
Three Months Ended Six Months Ended
------------------ ----------------
July 1, July 2, July 1, July 2,
1994 1993 1994 1993
------- ------- ------- -------
Net sales $126,944 $84,849 $235,037 $155,455
Cost of goods sold 86,795 54,263 162,397 97,402
-------- ------- -------- --------
Gross profit 40,149 30,586 72,640 58,053
-------- ------- -------- --------
Operating expenses
Selling 27,038 17,980 49,890 33,273
General and administrative 9,667 7,560 19,624 14,351
Amortization of goodwill 250 193 444 387
-------- ------- -------- --------
Total operating expenses 36,955 25,733 69,958 48,011
-------- ------- -------- --------
Operating income 3,194 4,853 2,682 10,042
-------- ------- -------- --------
Other expense (income)
Interest 3,440 1,388 5,325 2,598
Other, net (481) 477 (266) 812
-------- ------- -------- --------
Total other expense 2,959 1,865 5,059 3,410
-------- ------- -------- --------
Income (loss) before income taxes 235 2,988 (2,377) 6,632
Provision (benefit) for income taxes 90 1,076 (903) 2,388
-------- ------- -------- --------
Net income (loss) $ 145 $ 1,912 $ (1,474) $ 4,244
======== ======= ======== ========
Earnings (loss) per share $ .01 $ .17 $ (.13) $ .38
======== ======= ======== ========
Weighted average shares outstanding 11,201 11,139 11,216 11,110
======== ======= ======== ========
See accompanying notes to condensed consolidated financial statements.
7
Form 10-Q
Page 5
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the
Six Months Ended
----------------
July 1, July 2,
1994 1993
--------- ---------
Cash flows from operating activities:
Net income (loss) $ (1,474) $ 4,244
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Deferred income taxes 684 10
Depreciation and amortization 7,017 4,770
Increase (decrease) in cash from
changes in working capital items,
net of effects of acquisition:
Accounts receivable (25,977) (16,279)
Inventories (76,471) (31,161)
Prepaid expenses (3,077) (1,575)
Accounts payable 4,459 15,072
Accrued expenses 9,835 3,036
Income taxes (1,944) (923)
-------- --------
Net cash used
in operating activities (86,948) (22,806)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net (9,170) (10,585)
Acquisition of Italian distributor (14,086) -
Other, net 1,061 (320)
-------- --------
Net cash used in investing activities (22,195) (10,905)
-------- --------
Cash flows from financing activities:
Net borrowings under short-term credit facilities 43,676 15,889
Proceeds from long-term obligations 65,000 20,000
Payments on long-term debt and
capital lease obligations (332) (2,154)
Issuance of common stock 477 288
-------- --------
Net cash provided by financing activities 108,821 34,023
-------- --------
Effect of exchange rate changes on cash 105 (32)
-------- --------
Net increase (decrease) in cash and equivalents (217) 280
Cash and equivalents at beginning of period 3,281 1,220
-------- --------
Cash and equivalents at end of period $ 3,064 $ 1,500
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 4,158 $ 2,464
Income taxes paid 391 3,299
See accompanying notes to condensed consolidated financial statements.
8
Form 10-Q
Page 6
THE TIMBERLAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 for the year ended December 31, 1993
and the current year's previously issued quarterly report on Form
10-Q for the quarter ended April 1, 1994.
Certain prior period amounts have been reclassified for consistent
presentation with the current period.
2. The results of operations for the six months ended July 1, 1994
are not necessarily indicative of the results to be expected for
the full year. Historically, the Company's revenues have been
more heavily weighted to the second half of the year.
3. Inventories consist of the following (in thousands):
July 1, 1994 December 31, 1993
------------ -----------------
Raw materials $ 16,865 $ 11,108
Work-in-process 14,563 13,060
Finished goods 163,234 87,212
--------- ---------
$ 194,662 $ 111,380
========= =========
4. Indebtedness
On April 15, 1994, the Company finalized a private placement with
a group of lenders for $65 million of senior unsecured notes (the
"Notes") dated April 1, 1994 and maturing on April 15, 2000. The
Notes bear interest at a fixed rate of 7.16% per annum. The proceeds
will be used to repay existing short-term debt and for general
corporate purposes.
On May 4, 1994, the Company entered into a new unsecured committed
revolving credit agreement (the "Agreement"), with a group of banks.
The Agreement, which replaced the Company's existing revolving credit
facility, matures on May 30, 1996 and provides for revolving credit
loans of up to $125 million, subject to a borrowing base formula.
Under the terms of the Agreement, the Company may borrow at interest
rates based upon the lender's cost of funds (4.73% at July 1, 1994).
The Agreement provides for a facility fee of 3/8% per annum on
the full commitment and places limitations on the payment of dividends
and the incurrence of additional debt, and also contains certain other
financial and operating covenants.
9
Form 10-Q
Page 7
THE TIMBERLAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Acquisition of Italian Distributor
In April 1994, the Company entered into a Distributorship Termination
Agreement (the "Agreement") with its Italian distributor, which terminated
all distribution rights of the distributor on May 31, 1994. In accordance
with the Agreement, the Company also acquired certain assets of the
distributor. Effective on the termination date, Timberland assumed the
distribution of its own products in Italy.
This transaction has been accounted for as a purchase and, accordingly,
the results of operations of the Company's Italian business has been
included in the consolidated statements of operations from the termination
date. The results of the Italian operations are not significant to the
consolidated results of operations, and accordingly, pro forma data has
been omitted. The excess of the purchase price ($6.8 million) over the
fair value of net assets acquired in this transaction ($7.3 million,
consisting primarily of inventory) is being amortized on a straight-line
basis over 10 years.
6. Commitment
Effective March 31, 1994, the Company entered into an operating lease for
a 246,000 square feet facility in Stratham, New Hampshire, which will
become its new corporate headquarters during the fourth quarter of 1994.
The lease expires in July 1999 and has a fixed annual rental rate of $.7
million. The Company is currently reviewing various alternatives for its
existing headquarters facility.
7. Litigation
On June 21, 1994, the plaintiff in the stockholder lawsuit filed on
February 15, 1994 against the Company and one of its officers agreed
voluntarily to withdraw the action, and the case was dismissed.
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
The following table sets forth selected items in the Company's condensed
consolidated statements of operations as percentages of net sales for the
periods indicated.
For the For the
Three Months Ended Six Months Ended
------------------ ----------------
July 1, July 2, July 1, July 2,
1994 1993 1994 1993
------- ------- ------- -------
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 68.4 64.0 69.1 62.7
----- ----- ----- -----
Gross profit 31.6 36.0 30.9 37.3
----- ----- ----- -----
Operating expenses
Selling 21.3 21.2 21.2 21.4
General and administrative 7.6 8.9 8.3 9.2
Amortization of goodwill .2 .2 .2 .3
----- ----- ----- -----
Total operating expenses 29.1 30.3 29.8 30.9
----- ----- ----- -----
Operating income 2.5 5.7 1.1 6.4
----- ----- ----- -----
Other expense (income)
Interest 2.7 1.6 2.3 1.7
Other, net (.4) .6 (.1) .5
----- ----- ----- -----
Total other expense 2.3 2.2 2.2 2.2
----- ----- ----- -----
Income (loss) before income taxes .2 3.5 (1.0) 4.2
Provision (benefit) for income taxes .1 1.2 (.4) 1.5
----- ----- ----- -----
Net income (loss) .1% 2.3% (.6)% 2.7%
===== ===== ===== =====
<FN>
Note: Percentages may not add due to rounding
Second Quarter 1994 Compared to Second Quarter 1993
---------------------------------------------------
Net sales for the second quarter of 1994 were $126.9 million, an increase
of 50% over the $84.8 million reported in the same quarter of 1993. This
increase was attributable to an overall increase in the number of
footwear, apparel and accessory units sold. Net sales in 1994 reflect a
price reduction on certain products designed to improve the price/value
proposition for the consumer.
Gross profit as a percentage of net sales was 31.6% as compared to
36.0% in 1993. This decline is primarily a result of a price reduction
for certain footwear and apparel lines, not fully offset by anticipated
product cost reductions. The margin performance for the second quarter
compares favorably to the 30.1% achieved in the first quarter of 1994.
11
Form 10-Q
Page 9
Second Quarter 1994 Compared to Second Quarter 1993 (continued)
---------------------------------------------------------------
While overall operating expenses increased to $37.0 million for the
second quarter of 1994 from $25.7 million for the comparable period in
1993, total operating expenses as a percentage of net sales in 1994
decreased to 29.1% from 30.3% in 1993. The comparative dollar
increase in spending was principally attributable to increased sales
and marketing expenditures and the Company's investment in worldwide
infrastructure to support sales growth.
Interest expense for the second quarter of 1994 increased by $2.1
million over the comparable period in 1993, primarily as a result of
increased borrowings, in support of sales growth.
First Six Months 1994 Compared To First Six Months 1993
-------------------------------------------------------
Net sales for the first six months of 1994 were $235.0 million, an
increase of 51% over the $155.5 million for the comparable
period in 1993. This increase was attributable to an overall increase
in the number of footwear, apparel and accessory units sold.
Gross profit as a percentage of net sales for the first six months of
1994 was 30.9% as compared to 37.3% for the comparable period in 1993.
This decline is primarily attributed to the effect of a price
reduction for certain footwear and apparel lines, not fully offset by
anticipated product cost reductions.
Total operating expenses for the first half of 1994 increased to $70.0
million from $48.0 million for the comparable period in 1993, principally
as a result of increased sales and marketing expenditures and the
Company's investment in worldwide infrastructure to support sales growth.
As a percentage of net sales, total operating expenses decreased to 29.8%
in 1994 from 30.9% in 1993.
Interest expense for the first six months of 1994 increased by $2.7 million
over the comparable period in 1993, primarily as a result of increased
borrowings, in support of sales growth.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company uses unsecured revolving and committed lines of credit as
the primary sources of financing for its seasonal and other working
capital requirements. In anticipation of increased financing
requirements to support planned near-term growth, the Company
completed a private placement in April 1994 for $65 million of senior
unsecured notes, and entered into a new revolving credit agreement on
May 4, 1994, which provides for revolving credit loans of up to $125
million. (See notes to condensed consolidated financial statements.)
Management believes that such 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.
At July 1, 1994, the Company had working capital of $210.9 million
versus $155.7 million at December 31, 1993 and $112.3 million at July
2, 1993. As a result of increased sales, accounts receivable have
grown to $117.9 million at July 1, 1994 compared to $70.2 million at
July 2, 1993. Days sales outstanding at July 1, 1994 were 88 days
compared to 79 days at July 2, 1993. Inventories at July 1, 1994 were
$194.7 million, an increase of $83.3 million since year end 1993 and of
$93.3 million since July 2, 1993, in support of anticipated sales.
Inventory turns were 2.0 times and 2.2 times for the six months ended
July 1, 1994 and July 2, 1993, respectively.
12
Form 10-Q
Page 10
The increase in the level of total borrowings since December 31, 1993,
is due primarily to the inventory build up. As a result of the increase
in overall borrowings, the Company's debt to capital ratio rose to 62% at
July 1, 1994 compared to 44% at December 31, 1993 and July 2, 1993. The
Company expects its short-term financing requirements to reach a peak
during the third quarter in response to its historical seasonal pattern
of demand.
In April 1994, the Company entered into a Distributorship Termination
Agreement (the "Agreement") with its Italian distributor, which
terminated all distribution rights of the distributor on May 31, 1994.
In accordance with the Agreement, the Company also acquired certain
assets of the distributor. Effective on the termination date, Timberland
assumed the distribution of its own products in Italy. (See notes to
condensed consolidated financial statements.)
13
Form 10-Q
Page 11
Part II Other Information
- - -------------------------
Item 1. Legal Proceedings.
In Germano v. The Timberland Company, et al, the plaintiff alleged
------- -----------------------------
material misstatements and omissions in public filings and statements
made by the Company in 1993. On June 21, 1994, the plaintiff agreed
voluntarily to withdraw the action, and the case was dismissed.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its Annual Meeting of Stockholders on May 19, 1994.
(b) At such 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
------- -------- ------------------
John F. Brennan 7,021,105 16,458
Thomas R. Schwarz 6,986,411 51,152
The holders of Class A Common Stock and 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
------- -------- ------------------
Robert M. Agate 39,392,815 15,958
Jeffrey B. Swartz 39,357,371 51,402
Sidney W. Swartz 39,389,115 19,658
Abraham Zaleznik 39,392,315 16,458
There were no abstentions or broker non-votes with respect to the
election of the director nominees.
Thomas R. Schwarz resigned from the Company effective July 14, 1994.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Description
------- -----------
(10) Material Contracts
10.1 Sublease dated March 31, 1994 between Hewlett-Packard
Company and The Timberland Company.
10.2 Note Agreements dated as of April 1, 1994 regarding
$65,000,000 7.16% Senior Notes due April 15, 2000.
10.3 Amended and restated Note Agreements dated as of
April 1, 1994 regarding $35,000,000 9.70% Senior
Notes due December 1, 1999.
10.4 Credit Agreement dated as of May 4, 1994 among The
Timberland Company, certain banks listed therein and
Morgan Guaranty Trust Company of New York, as Agent.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed during
the period covered by this report.
14
Form 10-Q
Page 12
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 12, 1994 Jeffrey B. Swartz
--------------- ---------------------------------
Jeffrey B. Swartz
Executive Vice President,
Chief Operating Officer
and Director
Date: August 12, 1994 Keith D. Monda
--------------- ---------------------------------
Keith D. Monda
Senior Vice President-Finance and
Administration and Chief Financial
Officer
(Principal Financial Officer)