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 March 31, 1995
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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
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
200 Domain Drive, Stratham, New Hampshire 03885
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 772-9500
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
On April 28, 1995, 8,219,649 shares of the registrant's Class A Common Stock
were outstanding and 2,735,381 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 - 2-3
March 31, 1995 and December 31, 1994
Condensed Consolidated Statements of Operations - 4
For the three months ended March 31, 1995
and April 1, 1994
Condensed Consolidated Statements of Cash Flows - 5
For the three months ended March 31, 1995 and
April 1, 1994
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
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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 March 31, 1995, and the related
condensed consolidated statements of income and cash flows for the three-month
period ended March 31, 1995 and April 1, 1994. 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, 1994, 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 9, 1995, 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, 1994, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
was derived.
Deloitte & Touche LLP
Boston, Massachusetts
April 24, 1995
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Form 10-Q
Page 2
Part I Financial Information
- ----------------------------
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
1995 1994
--------- ----------
Current assets
Cash and equivalents $ 2,037 $ 6,381
Accounts receivable, net 122,473 128,435
Inventories 229,308 218,219
Prepaid expenses 11,686 13,504
Deferred and refundable income taxes 7,106 7,112
--------- ----------
Total current assets 372,610 373,651
--------- ----------
Property, plant and equipment, at cost 113,536 110,650
Less accumulated depreciation and amortization (46,227) (42,417)
--------- ----------
Net property, plant and equipment 67,309 68,233
--------- ----------
Excess of cost over fair value of net assets
acquired, net 25,535 25,956
--------- ----------
Other assets, net 5,748 5,424
--------- ----------
$ 471,202 $ 473,264
========= ==========
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)
March 31, December 31,
1995 1994
--------- ------------
Current liabilities
Notes payable $ 26,901 $ 22,513
Current maturities of long-term obligations 7,994 8,048
Accounts payable 24,007 37,035
Accrued expenses
Payroll and related 8,524 6,038
Interest and other 27,166 24,459
Income taxes payable 1,755 9,029
--------- ----------
Total current liabilities 96,347 107,122
--------- ----------
Long-term obligations, less current maturities 207,008 206,767
--------- ----------
Deferred income taxes 10,535 10,285
--------- ----------
Deferred income 4,946 -
--------- ----------
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; 8,237,519 shares issued
at March 31, 1995 and 8,221,615 shares at
December 31, 1994 82 82
Class B Common Stock, $.01 par value (10 votes per share);
15,000,000 shares authorized; 2,735,381 shares issued
at March 31, 1995 and 2,737,121 shares at
December 31, 1994 27 27
Additional paid-in capital 57,902 57,756
Retained earnings 92,735 91,816
Cumulative translation adjustment 1,740 (471)
Less treasury stock at cost, 18,369 shares at March 31,
1995 and December 31, 1994 (120) (120)
--------- ----------
152,366 149,090
--------- ----------
$471,202 $473,264
========= ==========
See accompanying notes to condensed consolidated financial statements.
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Form 10-Q
Page 4
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
For the
Three Months Ended
------------------
March 31, April 1,
1995 1994
-------- --------
Net sales $141,397 $108,093
Cost of goods sold 96,611 75,602
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Gross profit 44,786 32,491
-------- --------
Operating expenses
Selling 33,491 22,577
General and administrative 11,671 10,232
Amortization of goodwill 421 194
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Total operating expenses 45,583 33,003
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Operating loss (797) (512)
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Other expense (income)
Interest expense 5,116 1,885
Other, net (7,396) 215
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Total other expense (income) (2,280) 2,100
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Income (loss) before income taxes 1,483 (2,612)
-------- --------
Provision (benefit) for income taxes 564 (993)
-------- --------
Net income (loss) $ 919 $ (1,619)
======== ========
Earnings (loss) per share $ .08 $ (.14)
======== ========
Weighted average shares outstanding 11,139 11,232
======== ========
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
Three Months Ended
------------------
March 31, April 1,
1995 1994
---------- --------
Cash flows from operating activities:
Net income (loss) $ 919 $ (1,619)
Gain on distributorship transaction (7,358) -
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Deferred income taxes 250 160
Depreciation and amortization 4,536 3,339
Increase (decrease) in cash from changes in working
capital items, net of effects of distributorship transaction:
Accounts receivable 3,830 1,707
Inventories (15,921) (37,471)
Prepaid expenses 1,844 (1,028)
Bank overdraft, net - 4,236
Accounts payable (13,002) (10,805)
Accrued expenses 3,326 7,802
Income taxes (7,268) (1,327)
---------- --------
Net cash used in operating activities (28,844) (35,006)
---------- --------
Cash flows from investing activities:
Proceeds from distributorship transaction 24,000 -
Additions to property, plant and equipment, net (3,939) (4,747)
Other, net (574) (756)
---------- --------
Net cash provided in investing activities 19,487 (5,503)
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Cash flows from financing activities:
Net borrowings under short-term credit facilities 4,371 37,284
Proceeds from long-term debt 525 -
Payments on long-term debt and capital lease obligations (322) (164)
Issuance of common stock 146 92
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Net cash provided by financing activities 4,720 37,212
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Effect of exchange rate changes on cash 293 16
---------- --------
Net decrease in cash and equivalents (4,344) (3,281)
Cash and equivalents at beginning of period 6,381 3,281
---------- --------
Cash and equivalents at end of period $ 2,037 $ -
========== ========
Supplemental disclosures of cash flow information:
Interest paid $ 792 $ 720
Income taxes paid 7,582 191
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, 1994.
2. The results of operations for the three months ended March 31, 1995
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):
March 31, 1995 December 31, 1994
-------------- -----------------
Raw materials $ 17,069 $ 19,806
Work-in-process 10,765 13,137
Finished goods 201,474 185,276
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$ 229,308 $ 218,219
========= =========
4. Indebtedness
On March 14, 1995, the Company amended its revolving credit agreement
to increase the committed credit amount to $125 million from $91.6
million at December 31, 1994, and to extend the term to February 28,
1997 from May 30, 1996.
5. Other Income
On January 26, 1995, the Company appointed Inchcape plc
("Inchcape") as the exclusive distributor of Timberland(R) products
throughout most of the Asia/Pacific region. The agreement included
Inchcape's acquisition of the Company's Australian and New Zealand
subsidiaries and future consideration provided to Inchcape for the
total sum of $24 million. The transaction resulted in a non-recurring
gain of approximately $7.4 million. The future consideration of $6.0
million on the transaction date is reported in the condensed
consolidated balance sheet as deferred income and is being amortized to
income as products are shipped to the Company's former subsidiaries.
In 1994, net sales of the Company's Australian and New Zealand
subsidiaries combined accounted for less than 2% of total consolidated
net sales.
6. Legal Proceedings
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
consolidated financial statements.
The Company and two of its officers and directors have been named as
defendants in two actions filed in the United States District Court for
the District of New Hampshire, one filed by Jerrold Schaffer on
December 12, 1994, and the other filed by Gershon Kreuser on
January 4, 1995. The suits, which are each brought by purported
purchasers of the Company's Class A Common Stock ("Common Stock"),
allege that the defendants violated the federal securities laws by
making material misstatements and omissions in certain of the Company's
public filings and statements in 1994. Specifically, the complaints
allege that such statements and omissions had the effect of
artificially inflating the market price for the Company's Common Stock
until the disclosure by the Company on December 9, 1994, of its
expectation that results for the fourth quarter were not likely to meet
analysts' anticipated levels. The suits seek class action status, with
the Schaffer complaint embracing all purchasers of the Company's Common
Stock between October 25, 1994 and December 9, 1994, and the Krueser
complaint including such purchasers between February 15, 1994 and
December 9, 1994. Damages are unspecified. On April 24, 1995, the
District Court granted the plaintiffs' motion, assented to by the
defendants, to consolidate the two suits. The plaintiffs are required
to file a single consolidated amended complaint with the District Court
by June 23, 1995.
While this action is in its preliminary stages, and although plaintiffs
have yet to file their consolidated amended complaint, 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 these proceedings vigorously.
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Form 10-Q
Page 7
THE TIMBERLAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Subsequent Event
On April 24, 1995, the Company announced the closing of its
manufacturing facilities in Boone, North Carolina and Mountain City,
Tennessee effective June 28, 1995, and planned reductions in its
manufacturing operations in the Dominican Republic. These actions are
estimated to result in a one-time pre-tax charge of approximately $16
million against earnings for the second quarter of 1995. After these
plants are closed, the Company will have two manufacturing facilities:
one in Puerto Rico and one in the Dominican Republic. All other
product will be sourced by the Company from contract manufacturers.
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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 operations as percentages of net sales for the
periods indicated.
For the
Three Months Ended
----------------------------
March 31, April 1,
1995 1994
--------- -----------
Net sales 100.0% 100.0%
Cost of goods sold 68.3 69.9
----- -----
Gross profit 31.7 30.1
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Operating expenses
Selling 23.7 20.9
General and administrative 8.3 9.5
Amortization of goodwill .3 .2
----- -----
Total operating expenses 32.2 30.5
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Operating loss (.6) (.5)
----- -----
Other expense (income)
Interest expense 3.6 1.7
Other, net (5.2) .2
----- -----
Total other expense (income) (1.6) 1.9
----- -----
Income (loss) before income taxes 1.0 (2.4)
Provision (benefit) for income taxes .4 (.9)
----- -----
Net income (loss) .7% (1.5)%
===== =====
<FN>
Note: Percentages may not add due to rounding.
First Quarter 1995 Compared with First Quarter 1994
- ---------------------------------------------------
Net sales for the first quarter of 1995 were $141.4 million, an increase of
30.8% compared to the $108.1 million reported in the comparable prior year
period. The increase was attributable to an overall increase in the number of
footwear, apparel and accessory units sold. Although the sales increase was
substantial, unusually warm weather and a soft retail environment in the first
quarter negatively impacted sales.
11
Form 10-Q
Page 9
First Quarter 1995 Compared with First Quarter 1994 (continued)
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Net sales of footwear increased $14.5 million, or 15.9%, in the first quarter
of 1995, compared to the same period in 1994. Net sales attributable to
apparel and accessories increased $18.8 million, or 110.5% off a smaller base,
in the first quarter of 1995, compared to the same period in 1994.
International sales for the first quarter of 1995 were up 47.1%, compared to
the same period in the prior year.
Gross profit as a percentage of net sales for the first quarter of 1995 was
31.7%, compared to 30.1% for the first quarter of 1994. The improvement in
gross margin reflects cost efficiencies in product procurement offset in part
by pricing pressure in the retail environment.
Operating expenses were $45.6 million in the first quarter of 1995 compared to
$33.0 million in the first quarter of 1994. Operating expenses as a percentage
of net sales in the first quarter of 1995 were 32.2%, compared with 30.5% in the
first quarter of 1994. This was due primarily to the higher operating costs
associated with our retail organization.
Interest expense for the first quarter of 1995 increased by $3.2 million to
$5.1 million over the comparable period in 1994, primarily as a result of
increased borrowings to support higher inventory levels and higher interest
rates.
For the first quarter of 1995, other expense (income) includes a non-recurring
pre-tax gain of $7.4 million resulting from the Company's appointment on
January 26, 1995 of Inchcape plc as the exclusive distributor of Timberland(R)
products throughout most of the Asia/Pacific region. The agreement included
Inchcape's acquisition of the Company's Australian and New Zealand subsidiaries
and future consideration provided to Inchcape for a total sum of $24 million.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash used by operations during the first quarter of 1995 was $28.8 million,
compared to $35.0 million in the same period in 1994. Net cash used
by operations was adversely affected by increased levels of inventories and
reductions in accounts payable. Although accounts receivable have declined $6.0
million from year end 1994, accounts receivable have increased $31.0 million
since April 1, 1994 primarily as the result of the Company's continued growth
and increased wholesale days sales outstanding to 86 days at March 31, 1995
compared to 79 days at April 1, 1994. Inventories increased $11.1 million
since year end 1994 to support future anticipated sales increases. Inventory
turns were 1.7 times for the first quarter of 1995 compared to 2.2 times for
the same period in 1994.
During the first three months of 1995, $19.5 million of cash was provided from
financing activities, due to $24 million of cash proceeds received from the
agreement with Inchcape plc. These proceeds were partially offet by capital
expenditures for the first quarter of 1995 of $3.9 million, compared to $4.7
million for the same period in 1994. The increase in the level of total
borrowings since year-end 1994 is due primarily to the higher inventory
levels. The Company uses unsecured revolving and committed lines of
credit as the primary sources of financing for its seasonal and other working
capital requirements. On March 14, 1995, the Company amended its revolving
credit agreement to increase the committed credit amount to $125 million from
$91.6 million at December 31, 1994, and to extend the term to February 28, 1997
from May 30, 1996. The Company's debt to capital ratio was 61.4% at March 31,
1995 and at December 31, 1994.
Management believes that the Company's capital needs for 1995 will be met
through the credit facilities and cash flows from operation without the need
for additional permanent financing.
12
Form 10-Q
Page 10
OTHER
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On April 24, 1995, the Company announced the closing of its manufacturing
facilities in Boone, North Carolina and Mountain City, Tennessee effective June
28, 1995, and planned reductions in its manufacturing operations in the
Dominican Republic. These actions are estimated to result in a one-time
pre-tax charge of approximately $16 million against earnings for the second
quarter of 1995. After these plants are closed, the Company will have two
manufacturing facilities: one in Puerto Rico and one in the Dominican
Republic. All other product will be sourced by the Company from contract
manufacturers.
13
Form 10-Q
Page 11
Part II Other Information
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Description
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(10) Material Contracts
10.13 Amended and Restated Credit Agreement
dated as of March 14, 1995 among The
Timberland Company, certain banks
listed therein and Morgan Guaranty
Trust Company of New York, as Agent.
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
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(Registrant)
Date: May 12, 1995 /s/ Keith D. Monda
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Keith D. Monda
Senior Vice President -
Finance and Administration
and Chief Financial Officer
Date: May 12, 1995 /s/ Dennis W. Hagele
----------------------------
Dennis W. Hagele
Vice President Finance
and Corporate Controller
(Chief Accounting Officer)