1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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OR
- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-9548
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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 October 28, 1994, 7,669,121 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)
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Independent Accountants' Review Report 1
Part I Financial Information (unaudited)
- - ----------------------------
Condensed Consolidated Balance Sheets - 2-3
September 30, 1994 and December 31, 1993
Condensed Consolidated Statements of Income - 4
For the three and nine months ended September 30, 1994
and October 1, 1993
Condensed Consolidated Statements of Cash Flows - 5
For the nine months ended September 30, 1994 and
October 1, 1993
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
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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 September 30, 1994,
and the related condensed consolidated statements of income and cash
flows for the three-month and nine-month periods ended September 30,
1994 and October 1, 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, LLP
Boston, Massachusetts
October 25, 1994
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Form 10-Q
Page 2
Part I Financial Information
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THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
1994 1993
------------- -----------
Current assets
Cash and equivalents $ 1,183 $ 3,281
Accounts receivable, net 193,315 93,226
Inventories 221,394 111,380
Prepaid expenses 11,856 7,571
Deferred and refundable income taxes 9,075 5,625
-------- --------
Total current assets 436,823 221,083
-------- --------
Property, plant and equipment, at cost 97,278 79,145
Less accumulated depreciation and amortization (42,759) (33,530)
-------- --------
Net property, plant and equipment 54,519 45,615
-------- --------
Excess of cost over fair value of net assets
acquired, net 24,274 18,157
-------- --------
Other assets, net 5,152 5,756
-------- --------
$520,768 $290,611
======== ========
See accompanying notes to condensed consolidated financial statements.
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Form 10-Q
Page 3
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
1994 1993
------------- -----------
Current liabilities
Notes payable $109,125 $ 10,061
Current maturities of long-term obligations 603 682
Accounts payable 48,604 32,526
Accrued expenses
Payroll and related 10,240 8,873
Interest and other 30,207 9,609
Income taxes payable 13,616 3,672
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Total current liabilities 212,395 65,423
-------- --------
Long-term obligations, less current maturities 155,399 90,809
-------- --------
Deferred income taxes 7,304 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; 7,687,178 shares issued
at September 30, 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 September 30, 1994 and 3,237,598 shares at
December 31, 1993 32 32
Additional paid-in capital 56,819 55,805
Retained earnings 88,961 74,106
Cumulative translation adjustment (99) (1,536)
Less treasury stock at cost, 18,369 shares at September 30,
1994 and 18,513 shares at December 31, 1993 (120) (120)
-------- --------
145,670 128,363
-------- --------
$520,768 $290,611
======== ========
See accompanying notes to condensed consolidated financial statements.
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Form 10-Q
Page 4
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
For the For the
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
September 30, October 1, September 30, October 1,
1994 1993 1994 1993
------------ ---------- ------------- ----------
Net sales $222,148 $140,261 $457,185 $295,716
Cost of goods sold 145,668 90,415 308,065 187,817
-------- -------- -------- --------
Gross profit 76,480 49,846 149,120 107,899
-------- -------- -------- --------
Operating expenses
Selling 33,676 22,961 83,566 56,234
General and administrative 11,325 7,489 30,949 21,840
Amortization of goodwill 367 194 811 581
-------- -------- -------- --------
Total operating expenses 45,368 30,644 115,326 78,655
-------- -------- -------- --------
Operating income 31,112 19,202 33,794 29,244
-------- -------- -------- --------
Other expense (income)
Interest expense 4,504 1,771 9,829 4,369
Other, net 272 (133) 6 679
-------- -------- -------- --------
Total other expense 4,776 1,638 9,835 5,048
-------- -------- -------- --------
Income before income taxes 26,336 17,564 23,959 24,196
-------- -------- -------- --------
Provision for income taxes 10,007 6,323 9,104 8,711
-------- -------- -------- --------
Net income $ 16,329 $ 11,241 $ 14,855 $ 15,485
======== ======== ======== ========
Earnings per share $ 1.45 $ 1.00 $ 1.32 $ 1.39
======== ======== ======== ========
Weighted average shares outstanding 11,252 11,261 11,228 11,161
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
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Form 10-Q
Page 5
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the
Nine Months Ended
-----------------
September 30, October 1,
1994 1993
------------- ------------
Cash flows from operating activities:
Net income $ 14,855 $ 15,485
Adjustments to reconcile net income
to net cash used in operating activities:
Deferred income taxes 1,288 109
Depreciation and amortization 10,674 7,419
Increase (decrease) in cash from changes in working
capital items, net of effects of acquisition:
Accounts receivable (101,266) (61,399)
Inventories (102,060) (26,442)
Prepaid expenses (3,681) (5,098)
Accounts payable 15,856 12,851
Accrued expenses 21,158 8,066
Income taxes 6,539 4,349
-------- --------
Net cash used in operating activities (136,637) (44,660)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment, net (16,548) (17,010)
Acquisition of Italian distributor (14,086) -
Other, net 667 (666)
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Net cash used in investing activities (29,967) (17,676)
-------- --------
Cash flows from financing activities:
Net borrowings under short-term credit facilities 99,075 43,738
Proceeds from long-term obligations 65,000 20,000
Payments on long-term debt and capital lease obligations (505) (2,441)
Issuance of common stock 1,015 336
-------- --------
Net cash provided by financing activities 164,585 61,633
-------- --------
Effect of exchange rate changes on cash (79) 39
-------- --------
Net decrease in cash and equivalents (2,098) (664)
Cash and equivalents at beginning of period 3,281 1,220
-------- --------
Cash and equivalents at end of period $ 1,183 $ 556
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 6,195 $ 3,265
Income taxes paid 1,322 4,250
See accompanying notes to condensed consolidated financial statements.
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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.
Certain prior period amounts have been reclassified for
consistent presentation with the current period.
2. The results of operations for the nine months ended September 30,
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):
September 30, 1994 December 31, 1993
------------------ -----------------
Raw materials $ 19,859 $ 11,108
Work-in-process 18,129 13,060
Finished goods 183,406 87,212
-------- --------
$221,394 $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 were 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 (5.53% at September 30, 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.
The Company is finalizing a private placement with a group of
lenders for $106 million of senior unsecured notes. These notes
are expected to bear interest at a fixed rate of 8.94% per
annum and mature in seven years. The proceeds are expected
to be used to repay existing indebtedness. The transaction is
expected to close in the fourth quarter of 1994.
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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 have been included in the consolidated statements of
income 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 total purchase price of $14.1 million exceeds the fair
value of net assets acquired by $6.8 million. This excess 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's existing headquarters facility is also a major
distribution center which will continue to be operational.
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.
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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 income as percentages of net
sales for the periods indicated.
For the For the
Three Months Ended Nine Months Ended
--------------------------- --------------------------
September 30, October 1, September 30, October 1,
1994 1993 1994 1993
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Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 65.6 64.5 67.4 63.5
----- ----- ----- -----
Gross profit 34.4 35.5 32.6 36.5
----- ----- ----- -----
Operating expenses
Selling 15.2 16.4 18.3 19.0
General and administrative 5.1 5.3 6.8 7.4
Amortization of goodwill .1 .1 .1 .2
----- ----- ----- -----
Total operating expenses 20.4 21.8 25.2 26.6
----- ----- ----- -----
Operating income 14.0 13.7 7.4 9.9
----- ----- ----- -----
Other (income) expense
Interest 2.0 1.3 2.1 1.5
Other, net .1 (.1) .1 .2
----- ----- ----- -----
Total other expenses 2.1 1.2 2.2 1.7
----- ----- ----- -----
Income before income taxes 11.9 12.5 5.2 8.2
Provision for income taxes 4.5 4.5 1.9 3.0
----- ----- ----- -----
Net income 7.4% 8.0% 3.3% 5.2%
===== ===== ===== =====
Third Quarter 1994 Compared with Third Quarter 1993
- - ---------------------------------------------------
Net sales for the third quarter of 1994 were $222.1 million, an
increase of 58.4% over the $140.3 million reported in the same quarter
of 1993. This increase was primarily attributable to an overall
increase in the number of footwear, apparel and accessory units sold
offset by a price reduction, instituted subsequent to the third
quarter of 1993, on certain products designed to improve the price/
value proposition for the consumer.
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Form 10-Q
Page 9
Third Quarter 1994 Compared with Third Quarter 1993 (continued)
- - ---------------------------------------------------
Gross profit as a percentage of net sales for the quarter ended
September 30, 1994 was 34.4% as compared to 35.5% for the comparable
period in 1993. The change resulted principally from a price
reduction for certain footwear and apparel products offset in part by
product cost reductions.
While overall operating expenses increased to $45.4 million in the
third quarter of 1994 from $30.6 million in the third quarter of 1993,
total operating expenses as a percentage of net sales in 1994
decreased to 20.4% versus 21.8% 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 third quarter of 1994 increased by $2.7
million over the comparable period in 1993, primarily as a result of
increased borrowings and higher interest rates.
Nine Months 1994 Compared with Nine Months 1993
- - -----------------------------------------------
Net sales for the nine months of 1994 were $457.2 million, an increase
of 54.6% over the $295.7 million reported in the comparable period in
1993. 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 the nine months of 1994
was 32.6%, as compared to 36.5% for the comparable period in 1993.
The decrease is attributable primarily to price reductions instituted
subsequent to the third quarter of last year.
Total operating expenses for the nine months of 1994 increased to
$115.3 million from $78.7 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 25.2% in 1994 from 26.6% in 1993.
Interest expense for the first nine months of 1994 increased by $5.5
million over the comparable period in 1993, primarily as a result of
increased borrowings and higher interest rates.
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 on April 15, 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, subject to a borrowing base formula. (see notes
to condensed consolidated financial statements.) In addition, the
Company is finalizing a private placement with a group of lenders for
$106 million of senior unsecured notes (the "Notes"). The Notes
are expected to bear interest at a fixed rate of 8.94% per annum and
mature in seven years. The proceeds are expected to be used
to repay existing indebtedness. The transaction is expected to close
in the fourth quarter of 1994. Management believes that such
facilities, and the ability to obtain additional financing, together
with cash from operations, will provide the funds necessary to support
the Company's business in the foreseeable future.
12
Form 10-Q
Page 10
LIQUIDITY AND CAPITAL RESOURCES (continued)
- - -------------------------------
At September 30, 1994, the Company had working capital of $224.4
million versus $155.7 million at December 31, 1993 and $119.7 million
at October 1, 1993. As a result of increased sales, accounts
receivable have grown to $193.3 million at September 30, 1994 compared
to $115.3 million at October 1, 1993. Days sales outstanding at
September 30, 1994 were 78 days compared to 79 days at October 1,
1993. Inventories have increased by $110.0 million and $124.6 million
since year end 1993 and October 1, 1993, respectively, in support of
anticipated sales. Sales for the third quarter of 1994 grew at a
slower rate than the Company had anticipated causing inventory to be
higher than planned. A majority of this inventory consists of classic
Timberland models in oversupply that Management expects will be sold
in the normal course of business. The increase in the level of total
borrowings since December 31, 1993 is due primarily to the higher
inventory and receivables levels. The Company's short-term financing
requirements have historically reached a peak during the third quarter
in response to the seasonal pattern of demand. As a result of the
increase in overall borrowings, the Company's debt to capital ratio
rose to 65% at September 30, 1994 compared to 44% and 48% at December
31, 1993 and October 1, 1993, respectively.
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Form 10-Q
Page 11
Part II Other Information
- - -------------------------
Item 1. Legal Proceedings.
In GERMANO v. THE TIMBERLAND COMPANY et al, the plaitiff 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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Description
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27 Financial Data Schedule
(b) Reports on Form 8-K -- There were no reports on Form 8-K filed
during the period covered by this report.
Signatures
- - ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Timberland Company
--------------------------
(Registrant)
Date: November 14, 1994 Keith D. Monda
----------------- -------------------------
Keith D. Monda
Senior Vice President -
Finance and Administration
and Chief Financial Officer
Date: November 14, 1994 Dennis W. Hagele
----------------- -------------------------
Dennis W. Hagele
Vice President Finance
and Corporate Controller
(Chief Accounting Officer)