TBL Timberland Co. (The)

The Timberland Company (NYSE: TBL) today reported third-quarter 2008 net income of $30.7 million and earnings per share of $0.52. These results compare to third-quarter 2007 net income of $25.9 million and earnings per share of $0.42. When adjusted to exclude restructuring and related costs, earnings per share were $0.52 and $0.49 in the third quarters of 2008 and 2007, respectively. Third-Quarter 2008 Results Summary: Revenue declined 2.2% to $423.6 million as declines in Timberland� brand apparel, which reflect the Company�s transition to a licensing model for its North American wholesale business, were partially offset by strong growth in Timberland PRO� series footwear and SmartWool� socks and apparel. Foreign exchange rate changes increased third-quarter 2008 revenue by approximately $10 million, or 2.2%, due to the strength of the Euro and the Yen, and increased operating income by approximately $3 million. North America revenue declined 8.8% to $184.5 million, reflecting soft consumer spending in the U.S. Europe revenue increased 4.4% to $199.9 million and increased slightly on a constant dollar basis, driven by strength in all footwear categories which offset declines in the apparel business. Asia revenue decreased slightly to $39.2 million, and decreased 5.4% on a constant dollar basis, driven by declines in the outdoor performance and casual footwear businesses. Apparel and accessories revenue decreased 11.7% to $102.7 million, driven by anticipated declines in Timberland� brand apparel as a result of the Company�s transition to a licensing model for its North American wholesale business. Global footwear revenue increased 1.0% to $313.5 million driven by strength in Timberland PRO� series footwear as well as strength in the boots business in the European and Asian markets, which offset declines in the men�s casual and outdoor performance categories. Global wholesale revenue decreased 1.0% to $340.6 million. Worldwide consumer direct revenue decreased 6.9% to $83.0 million, reflecting a difficult worldwide retail environment and revenue declines associated with our decision to close certain retail locations. Restructuring and related charges were $0.2 million in the third quarter of 2008, compared to $7.5 million for the third quarter of 2007. Operating income for the quarter was $53.2 million, a 19.2% improvement from the prior-year period. Operating income excluding restructuring and related costs was $53.4 million, a 2.3% improvement compared to the prior year level. In the third quarter of 2008, the effective tax rate was 40.0%, flat compared to the third quarter of 2007. In connection with its stock buyback program, Timberland repurchased approximately 1.2 million shares in the third quarter at a total cost of $20.1 million. Timberland ended the quarter with $62.7 million in cash and no debt. Inventory at quarter end was $218.9 million, down 15.6% versus 2007 third-quarter levels, reflecting the Company�s disciplined inventory management in the face of challenging market conditions. Accounts receivable decreased 6.8% to $267.2 million, compared to the prior year. For the full year, the Company is still targeting mid-single digit revenue declines, consistent with economic conditions and due in part to its closure of certain underperforming retail stores and the licensing of its North America wholesale apparel business. The Company expects that weaker consumer spending globally will result in additional margin pressure and now anticipates flat to modest declines in operating margins for the full year. It continues to expect an effective tax rate in the range of 40%. Jeffrey B. Swartz, Timberland�s President and Chief Executive Officer, stated, �The continued deepening of the global financial crisis, worsening economic conditions and the impact of these events on consumer confidence have reinforced the importance of financial strength and liquidity access for all companies. At Timberland, we have always been focused on maintaining a strong balance sheet, and we believe our demonstrated strength in this area � we finished the third quarter with $63 million in cash and no debt � positions us well for the uncertainty of the future. We remain committed to our strategic investments aimed at reinvigorating our brand and strengthening our position in the global market.� Note that comments made by the Company and Mr. Swartz are Timberland's performance targets, based on current expectations. These comments are forward-looking, and actual results may differ materially. As previously announced, Timberland will be hosting a conference call to discuss third-quarter results today at 8:25 AM Eastern Time. Interested parties may listen to this call through the investor relations section of the Company�s website, www.timberland.com, or by calling 706.643.2916 and providing access code number 55991126. Replays of this conference call will be available through the investor relations section of the Company�s website. Timberland (NYSE: TBL) is a global leader in the design, engineering and marketing of premium-quality footwear, apparel and accessories for consumers who value the outdoors and their time in it. Timberland markets products under the Timberland�, Timberland PRO�, SmartWool�, Timberland Boot Company� and IPATH� brands, all of which offer quality workmanship and detailing and are built to withstand the elements of nature. The Company�s products can be found in leading department and specialty stores as well as Timberland� retail stores throughout North America, Europe, Asia, Latin America, South Africa and the Middle East. More information about Timberland is available in the Company�s reports filed with the Securities and Exchange Commission (SEC). This press release contains certain forward-looking statements within the meaning of the �safe harbor� provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which include statements regarding The Timberland Company�s future financial results, are subject to risks, uncertainties and assumptions and are not guarantees of future financial performance or expected benefits. These risks, uncertainties and assumptions could cause the results of The Timberland Company to be materially different from any future results or expected benefits expressed or implied by such forward-looking statements. Such risks, uncertainties and assumptions include, but are not limited to: (i) the Company�s ability to successfully market and sell its products in a highly competitive industry and in view of changing consumer trends, consumer acceptance of products and other factors affecting retail market conditions; (ii) the Company�s ability to execute key strategic initiatives; (iii) Timberland�s ability to procure a majority of its products from independent manufacturers; (iv) changes in foreign exchange rates; (v) Timberland�s ability to obtain adequate materials at competitive prices; and (vi) other factors, including those detailed from time to time in The Timberland Company�s most recent Annual Report on form 10-K and other filings we make with the SEC. The Timberland Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. This press release also includes discussion of constant dollar revenue changes (which exclude the impact of changes in foreign currency exchange rates), diluted earnings per share excluding restructuring and related costs and operating income excluding restructuring and related costs, which are non-GAAP measures. As required by SEC rules, the Company has provided reconciliations of these measures on attached tables that follow its financial statements. Additional required information regarding these non-GAAP measures is located in the Form 8-K furnished to the SEC on October 30, 2008. THE TIMBERLAND COMPANY UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) � � � September 26, 2008 December 31, 2007 September 28, 2007 Assets Current assets Cash and equivalents $62,686 $143,274 $43,951 Accounts receivable, net 267,246 188,091 286,575 Inventory, net 218,884 201,932 259,207 Prepaid expense 41,465 41,572 42,081 Prepaid income taxes 21,190 17,361 21,309 Deferred income taxes 21,826 24,927 18,956 Derivative assets 4,365 - 57 Total current assets 637,662 617,157 672,136 � Property, plant and equipment, net 80,225 87,919 88,098 � Deferred income taxes 20,132 19,451 23,008 � Goodwill and intangible assets, net 95,828 99,222 99,088 � Other assets, net 11,670 12,596 12,810 � Total assets $845,517 $836,345 $895,140 � Liabilities and Stockholders� Equity Current liabilities Notes payable $0 $0 $46,600 Accounts payable 94,834 86,101 104,185 Accrued expense and other current liabilities 112,005 108,903 114,019 Income taxes payable 23,529 19,215 12,243 Derivative liabilities 1,724 3,816 4,810 Total current liabilities 232,092 218,035 281,857 � Other long-term liabilities 41,774 41,150 41,901 � Stockholders� equity 571,651 577,160 571,382 � Total liabilities and stockholders� equity $845,517 $836,345 $895,140 THE TIMBERLAND COMPANY UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in Thousands, Except Per Share Data) � � � � � � For the Quarter Ended For the Nine Months Ended September 26, 2008 September 28, 2007 September 26, 2008 September 28, 2007 Revenue $423,606 $433,294 $973,924 $993,749 Cost of goods sold 226,595 � 229,891 � 527,109 529,600 � � Gross profit 197,011 � 203,403 � 446,815 464,149 � � Operating expense Selling 114,100 122,260 315,539 331,890 General and administrative 29,486 28,943 83,713 90,385 Restructuring and related costs 185 � 7,545 � 1,054 15,059 � Total operating expense 143,771 � 158,748 � 400,306 437,334 � � Operating income 53,240 � 44,655 � 46,509 26,815 � � Other income Interest income/(expense), net 336 (420 ) 1,680 1,376 Other income/(expense), net (2,454 ) (1,128 ) 2,929 (310 ) Total other income/(expense), net (2,118 ) (1,548 ) 4,609 1,066 � � Income before provision for income taxes 51,122 43,107 51,118 27,881 � Provision for income taxes 20,464 � 17,242 � 21,350 11,989 � � Net income $30,658 � $25,865 � $29,768 $15,892 � � Earnings per share Basic $0.53 � $0.42 � $0.51 $0.26 � Diluted $0.52 � $0.42 � $0.50 $0.26 � Weighted-average shares outstanding Basic 58,078 � 61,352 � 58,868 61,310 � Diluted 58,471 � 61,860 � 59,271 61,974 � THE TIMBERLAND COMPANY UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) � � For the Nine Months Ended September 26, 2008 September 28, 2007 Cash flows from operating activities: Net income $29,768 $15,892 Adjustments to reconcile net income to net cash used by operating activities: Deferred income taxes 2,420 1,978 Share-based compensation 6,225 7,328 Depreciation and other amortization 24,239 23,598 Provision for losses on accounts receivable 4,517 6,705 Provision for asset impairment - 5,817 Tax (expense)/benefit from share-based compensation, net of excess benefit (1,161 ) (829 ) Unrealized (gain)/loss on derivatives (268 ) 26 Other non-cash charges/(credits), net 964 3,897 Increase/(decrease) in cash from changes in working capital: Accounts receivable (82,671 ) (79,458 ) Inventory (17,063 ) (69,202 ) Prepaid expense 401 1,202 Accounts payable 9,009 (8,087 ) Accrued expense 756 (11,015 ) Income taxes prepaid and payable, net 4,584 (30,537 ) Other liabilities (3,239 ) 1,176 � Net cash used by operating activities (21,519 ) (131,509 ) � Cash flows from investing activities: Acquisition of business, net of cash acquired - (12,811 ) Additions to property, plant and equipment (15,313 ) (20,264 ) Other 3,627 � (1,640 ) Net cash used by investing activities (11,686 ) (34,715 ) � Cash flows from financing activities: Common stock repurchases (45,081 ) (28,512 ) Net short-term borrowings - 46,600 Issuance of common stock 1,407 11,957 Excess tax benefit from stock option and employee stock purchase plans 179 � 1,097 � Net cash (used)/provided by financing activities (43,495 ) 31,142 � � Effect of exchange rate changes on cash and equivalents (3,888 ) (2,665 ) � Net decrease in cash and equivalents (80,588 ) (137,747 ) Cash and equivalents at beginning of period 143,274 � 181,698 � Cash and equivalents at end of period $62,686 � $43,951 � THE TIMBERLAND COMPANY REVENUE ANALYSIS (Amounts in Thousands, Unaudited) � � � � � � For the Quarter Ended For the Nine Months Ended September 26, 2008 September 28, 2007 � September 26, 2008 September 28, 2007 � � Revenue by Segment: North America $184,516 $202,436 -8.8 % $421,807 $461,936 -8.7 % Europe 199,933 191,555 4.4 % 443,406 425,513 4.2 % Asia 39,157 � 39,303 � -0.4 % 108,711 � 106,300 � 2.3 % Total Revenue $423,606 � $433,294 � -2.2 % $973,924 � $993,749 � -2.0 % � Revenue by Product: Footwear $313,544 $310,300 1.0 % $693,094 $700,448 -1.0 % Apparel and Accessories 102,678 116,237 -11.7 % 263,244 278,146 -5.4 % Royalty and Other 7,384 6,757 9.3 % 17,586 15,155 16.0 % � Revenue by Channel: Wholesale $340,608 $344,124 -1.0 % $732,206 $754,698 -3.0 % Consumer Direct 82,998 89,170 -6.9 % 241,718 239,051 1.1 % � Comparable Store Sales: Domestic Retail -13.8 % -4.8 % -7.4 % -1.2 % Global Retail -6.4 % -5.6 % -0.9 % -3.8 % THE TIMBERLAND COMPANY RECONCILIATION OF TOTAL AND INTERNATIONAL REVENUE CHANGES TO CONSTANT DOLLAR REVENUE CHANGES (Amounts in Thousands, Unaudited) � � � � Total Company Revenue Reconciliation: � For the Quarter Ended For the Nine Months Ended September 26, 2008 September 26, 2008 $ Change � % Change $ Change � % Change Revenue decrease (GAAP) ($9,688 ) -2.2 % ($19,825 ) -2.0 % Increase due to foreign exchange rate changes 9,632 � � 2.2 % 34,746 � � 3.5 % Revenue decrease in constant dollars ($19,320 ) -4.4 % ($54,571 ) -5.5 % � North America Revenue Reconciliation: � For the Quarter Ended For the Nine Months Ended September 26, 2008 September 26, 2008 $ Change � % Change $ Change � % Change Revenue decrease (GAAP) ($17,920 ) -8.8 % ($40,129 ) -8.7 % (Decease)/increase due to foreign exchange rate changes (38 ) � - � 833 � � 0.2 % Revenue decrease in constant dollars ($17,882 ) -8.8 % ($40,962 ) -8.9 % � Europe Revenue Reconciliation: � For the Quarter Ended For the Nine Months Ended September 26, 2008 September 26, 2008 $ Change � % Change $ Change � % Change Revenue increase (GAAP) $8,378 4.4 % $17,893 4.2 % Increase due to foreign exchange rate changes 7,689 � � 4.0 % 26,402 � � 6.2 % Revenue increase/(decrease) in constant dollars $689 0.4 % ($8,509 ) -2.0 % � Asia Revenue Reconciliation: � For the Quarter Ended For the Nine Months Ended September 26, 2008 September 26, 2008 $ Change � % Change $ Change � % Change Revenue (decrease)/increase (GAAP) ($146 ) -0.4 % $2,411 2.3 % Increase due to foreign exchange rate changes 1,981 � � 5.0 % 7,511 � � 7.1 % Revenue decrease in constant dollars ($2,127 ) -5.4 % ($5,100 ) -4.8 % Constant dollar revenue changes, which exclude the impact of changes in foreign exchange rates, are not Generally Accepted Accounting Principle (�GAAP�) performance measures. We provide constant dollar revenue changes for total Company, North America, Europe, and Asia revenues because we use the measures to understand the underlying growth rate of revenue excluding the impact of items that are not under management�s direct control, such as changes in foreign exchange rates. THE TIMBERLAND COMPANY RECONCILIATION OF OPERATING INCOME AND DILUTED EPS TO OPERATING INCOME AND DILUTED EPS EXCLUDING RESTRUCTURING AND RELATED COSTS (Unaudited) � � � RECONCILIATION OF OPERATING INCOME TO OPERATING INCOME EXCLUDING RESTRUCTURING AND RELATED COSTS (Dollars in Thousands, Unaudited) � For the Quarter Ended For the Quarter Ended September 26, 2008 September 28, 2007 Operating income (GAAP) $53,240 $44,655 Restructuring and related costs 185 7,545 Operating income excluding restructuring and related costs $53,425 $52,200 � � � Operating income excluding restructuring and related costs is not a Generally Accepted Accounting Principle (�GAAP�) performance measure. Management provides operating income excluding restructuring and related costs because it is used to analyze the operating income of the Company. Management believes this measure is a reasonable reflection of the underlying income levels and trends from core business activities. � � RECONCILIATION OF DILUTED EPS TO DILUTED EPS EXCLUDING RESTRUCTURING AND RELATED COSTS � For the Quarter Ended For the Quarter Ended September 26, 2008 September 28, 2007 Diluted EPS (GAAP) $0.52 $0.42 Per share impact of restructuring and related costs 0 0.07 Diluted EPS excluding restructuring and related costs $0.52 $0.49 � � Diluted EPS excluding restructuring and related costs is not a Generally Accepted Accounting Principle (�GAAP�) performance measure. We provide diluted EPS excluding restructuring and related costs because it is used to analyze the earnings of the Company. Management believes this measure is a reasonable reflection of the earnings levels and trends from core business activities.