UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the quarterly period ended
July 3, 2009
OR
|
|
|
o
|
|
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
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
02-0312554
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|
(State or other jurisdiction of
incorporation or organization)
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|
(I.R.S. Employer Identification No.)
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|
|
|
200 Domain Drive, Stratham, New Hampshire
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|
03885
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|
(Address of principal executive offices)
|
|
(Zip Code)
|
Registrants 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.
þ
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
þ
|
Accelerated Filer
o
|
Non-Accelerated Filer
o
(Do not check if a smaller reporting company)
|
Smaller Reporting Company
o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o
Yes
þ
No
On
July 31, 2009, 44,669,293 shares of the registrants Class A Common Stock were outstanding and
11,417,660 shares of the registrants Class B Common Stock were outstanding.
Form10-Q
Page 2
THE TIMBERLAND COMPANY
FORM 10-Q
TABLE OF CONTENTS
Form10-Q
Page 3
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. As discussed in the
sections entitled Cautionary Statements for Purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995 and Forward-looking Information on page 2 of
our Annual Report on Form 10-K for the year ended December 31, 2008 (our Annual Report on Form
10-K), investors should be aware of certain risks, uncertainties and assumptions that could affect
our actual results and could cause such results to differ materially from those contained in
forward-looking statements made by or on behalf of us in our periodic reports filed with the
Securities and Exchange Commission, in our annual report to shareholders, in our proxy statement,
in press releases and other written materials and statements made by our officers, directors or
employees to third parties. Such statements are based on current expectations only and actual
future results may differ materially from those expressed or implied by such forward-looking
statements due to certain risks, uncertainties and assumptions. We encourage you to refer to our
Annual Report on Form 10-K and Part II, Item 1A, Risk Factors, of this Quarterly Report on Form
10-Q to carefully consider these risks, uncertainties and assumptions. We undertake no obligation
to update publicly any forward-looking statements, whether as a result of new information, future
events or otherwise.
Form 10-Q
Page 4
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
|
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|
|
|
|
|
|
|
|
|
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July 3,
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December 31,
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June 27,
|
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|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Assets
|
|
|
|
|
|
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|
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|
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Current assets
|
|
|
|
|
|
|
|
|
|
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|
Cash and equivalents
|
|
$
|
183,919
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|
$
|
217,189
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|
|
$
|
152,764
|
|
Accounts receivable, net of allowance for doubtful accounts of $11,124
at July 3, 2009, $14,482 at December 31, 2008 and $16,810 at June 27,
2008
|
|
|
100,126
|
|
|
|
168,666
|
|
|
|
121,482
|
|
Inventory, net
|
|
|
180,392
|
|
|
|
179,688
|
|
|
|
195,015
|
|
Prepaid expense
|
|
|
35,121
|
|
|
|
37,139
|
|
|
|
44,011
|
|
Prepaid income taxes
|
|
|
24,720
|
|
|
|
16,687
|
|
|
|
20,776
|
|
Deferred income taxes
|
|
|
19,024
|
|
|
|
23,425
|
|
|
|
21,822
|
|
Derivative assets
|
|
|
2,284
|
|
|
|
7,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
545,586
|
|
|
|
649,903
|
|
|
|
555,870
|
|
|
|
|
|
|
|
|
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Property, plant and equipment, net
|
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|
74,185
|
|
|
|
78,526
|
|
|
|
84,553
|
|
Deferred income taxes
|
|
|
17,480
|
|
|
|
18,528
|
|
|
|
19,178
|
|
Goodwill
|
|
|
43,870
|
|
|
|
43,870
|
|
|
|
44,840
|
|
Intangible assets, net
|
|
|
46,572
|
|
|
|
47,996
|
|
|
|
52,815
|
|
Other assets, net
|
|
|
14,971
|
|
|
|
10,576
|
|
|
|
10,586
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
742,664
|
|
|
$
|
849,399
|
|
|
$
|
767,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
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|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
71,423
|
|
|
$
|
96,901
|
|
|
$
|
74,734
|
|
Accrued expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll and related
|
|
|
22,395
|
|
|
|
32,587
|
|
|
|
27,605
|
|
Other
|
|
|
54,264
|
|
|
|
79,503
|
|
|
|
53,702
|
|
Income taxes payable
|
|
|
533
|
|
|
|
20,697
|
|
|
|
2,528
|
|
Derivative liabilities
|
|
|
4,565
|
|
|
|
2,386
|
|
|
|
6,594
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
153,180
|
|
|
|
232,074
|
|
|
|
165,163
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
35,809
|
|
|
|
40,787
|
|
|
|
41,474
|
|
Commitments and contingencies
|
|
|
|
|
|
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|
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|
|
|
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Stockholders equity
|
|
|
|
|
|
|
|
|
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Preferred Stock, $.01 par value; 2,000,000 shares authorized; none issued
|
|
|
|
|
|
|
|
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|
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|
Class A Common Stock, $.01 par value (1 vote per share); 120,000,000
shares authorized; 74,182,602 shares issued at July 3, 2009, 73,806,026
shares issued at December 31, 2008 and 73,715,661 shares issued at June
27, 2008
|
|
|
742
|
|
|
|
738
|
|
|
|
737
|
|
Class B Common Stock, $.01 par value (10 votes per share); convertible
into Class A shares on a one-for-one basis; 20,000,000 shares
authorized; 11,417,660 shares issued and outstanding at July 3, 2009,
and 11,529,160 shares issued and outstanding at December 31, 2008 and
June 27, 2008
|
|
|
114
|
|
|
|
115
|
|
|
|
115
|
|
Additional paid-in capital
|
|
|
264,257
|
|
|
|
260,267
|
|
|
|
255,903
|
|
Retained earnings
|
|
|
914,672
|
|
|
|
918,039
|
|
|
|
874,243
|
|
Accumulated other comprehensive income
|
|
|
9,088
|
|
|
|
12,543
|
|
|
|
24,837
|
|
Treasury Stock at cost; 29,402,811 Class A shares at July 3, 2009,
27,766,651 Class A shares at December 31, 2008 and 26,542,340 Class A
shares at June 27, 2008
|
|
|
(635,198
|
)
|
|
|
(615,164
|
)
|
|
|
(594,630
|
)
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
553,675
|
|
|
|
576,538
|
|
|
|
561,205
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
742,664
|
|
|
$
|
849,399
|
|
|
$
|
767,842
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Form 10-Q
Page 5
THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
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|
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|
|
|
|
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|
|
|
For the Quarter Ended
|
|
|
For the Six Months Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
$
|
179,702
|
|
|
$
|
209,916
|
|
|
$
|
476,350
|
|
|
$
|
550,318
|
|
Cost of goods sold
|
|
|
104,194
|
|
|
|
117,716
|
|
|
|
264,153
|
|
|
|
300,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
75,508
|
|
|
|
92,200
|
|
|
|
212,197
|
|
|
|
249,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
85,027
|
|
|
|
95,317
|
|
|
|
177,295
|
|
|
|
201,439
|
|
General and administrative
|
|
|
26,896
|
|
|
|
26,539
|
|
|
|
52,313
|
|
|
|
54,227
|
|
Impairment of intangible asset
|
|
|
|
|
|
|
|
|
|
|
925
|
|
|
|
|
|
Restructuring and related (credits)/costs
|
|
|
(17
|
)
|
|
|
317
|
|
|
|
(121
|
)
|
|
|
869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
111,906
|
|
|
|
122,173
|
|
|
|
230,412
|
|
|
|
256,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(36,398
|
)
|
|
|
(29,973
|
)
|
|
|
(18,215
|
)
|
|
|
(6,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
299
|
|
|
|
722
|
|
|
|
739
|
|
|
|
1,576
|
|
Interest expense
|
|
|
(117
|
)
|
|
|
54
|
|
|
|
(238
|
)
|
|
|
(232
|
)
|
Other income/(expense), net
|
|
|
1,666
|
|
|
|
(379
|
)
|
|
|
1,003
|
|
|
|
5,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net
|
|
|
1,848
|
|
|
|
397
|
|
|
|
1,504
|
|
|
|
6,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(34,550
|
)
|
|
|
(29,576
|
)
|
|
|
(16,711
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit)/provision
|
|
|
(15,306
|
)
|
|
|
(10,647
|
)
|
|
|
(13,344
|
)
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(19,244
|
)
|
|
$
|
(18,929
|
)
|
|
$
|
(3,367
|
)
|
|
$
|
(890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(.34
|
)
|
|
$
|
(.32
|
)
|
|
$
|
(.06
|
)
|
|
$
|
(.02
|
)
|
Diluted
|
|
$
|
(.34
|
)
|
|
$
|
(.32
|
)
|
|
$
|
(.06
|
)
|
|
$
|
(.02
|
)
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
56,273
|
|
|
|
58,932
|
|
|
|
56,695
|
|
|
|
59,269
|
|
Diluted
|
|
|
56,273
|
|
|
|
58,932
|
|
|
|
56,695
|
|
|
|
59,269
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Form 10-Q
Page 6
THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
|
July 3,
|
|
|
June 27,
|
|
|
|
2009
|
|
|
2008
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,367
|
)
|
|
$
|
(890
|
)
|
Adjustments to reconcile net loss to net cash provided/(used) by
operating activities:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
5,224
|
|
|
|
3,377
|
|
Share-based compensation
|
|
|
2,580
|
|
|
|
4,218
|
|
Depreciation and other amortization
|
|
|
14,339
|
|
|
|
16,124
|
|
Provision for losses on accounts receivable
|
|
|
1,564
|
|
|
|
1,974
|
|
Provision for intangible assets impairment
|
|
|
925
|
|
|
|
|
|
Tax expense from share-based compensation, net of excess benefit
|
|
|
(444
|
)
|
|
|
(335
|
)
|
Unrealized loss on derivatives
|
|
|
289
|
|
|
|
16
|
|
Other non-cash charges/(credits), net
|
|
|
514
|
|
|
|
1,992
|
|
Increase/(decrease) in cash from changes in working capital:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
67,098
|
|
|
|
69,457
|
|
Inventory
|
|
|
1,089
|
|
|
|
8,420
|
|
Prepaid expense
|
|
|
(1,802
|
)
|
|
|
72
|
|
Accounts payable
|
|
|
(25,977
|
)
|
|
|
(12,007
|
)
|
Accrued expense
|
|
|
(35,674
|
)
|
|
|
(32,056
|
)
|
Prepaid income taxes
|
|
|
(8,032
|
)
|
|
|
(3,415
|
)
|
Income taxes payable
|
|
|
(24,678
|
)
|
|
|
(15,068
|
)
|
Other liabilities
|
|
|
(226
|
)
|
|
|
(1,973
|
)
|
|
|
|
|
|
|
|
Net cash provided/(used) by operating activities
|
|
|
(6,578
|
)
|
|
|
39,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of business, net of cash acquired
|
|
|
(1,554
|
)
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(7,757
|
)
|
|
|
(10,332
|
)
|
Other
|
|
|
(380
|
)
|
|
|
2,909
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(9,691
|
)
|
|
|
(7,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Common stock repurchases
|
|
|
(19,388
|
)
|
|
|
(24,983
|
)
|
Issuance of common stock
|
|
|
1,373
|
|
|
|
823
|
|
Excess tax benefit from share-based compensation
|
|
|
133
|
|
|
|
179
|
|
Other
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(18,059
|
)
|
|
|
(23,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and equivalents
|
|
|
1,058
|
|
|
|
988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and equivalents
|
|
|
(33,270
|
)
|
|
|
9,490
|
|
Cash and equivalents at beginning of period
|
|
|
217,189
|
|
|
|
143,274
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of period
|
|
$
|
183,919
|
|
|
$
|
152,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
232
|
|
|
$
|
153
|
|
Income taxes paid
|
|
$
|
13,935
|
|
|
$
|
12,412
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Form10-Q
Page 7
THE TIMBERLAND COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of The Timberland
Company and its subsidiaries (we, our, us, its, Timberland or the Company). These
unaudited condensed consolidated financial statements should be read in conjunction with our
consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for
the year ended December 31, 2008.
The financial statements included in this Quarterly Report on Form 10-Q are unaudited, but in the
opinion of management, such financial statements include the adjustments, consisting of normal
recurring adjustments, necessary to present fairly the Companys financial position, results of
operations and changes in cash flows for the interim periods presented. The Company has evaluated
subsequent events through August 6, 2009, the date on which the financial statements were issued.
The results reported in these financial statements are not necessarily indicative of the results
that may be expected for the full year due, in part, to seasonal factors. Historically, our
revenue has been more heavily weighted to the second half of the year.
The Companys fiscal quarters end on the Friday closest to the day on which the calendar quarter
ends, except that the fourth quarter and fiscal year end on December 31. The second quarter and
first six months of our fiscal year in 2009 and 2008 ended on July 3, 2009 and June 27, 2008,
respectively.
New Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS 141R (revised
2007), Business Combinations (SFAS 141R). SFAS 141R was revised to improve the relevance,
representational faithfulness and comparability of the information that a reporting entity provides
in its financial reports about a business combination and its effects. It establishes principles
and requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree;
recognizes and measures the goodwill acquired in the business combination or a gain from a bargain
purchase; and determines what information to disclose to enable users of the financial statements
to evaluate the nature and financial effects of the business combination. SFAS 141R is effective
for business combinations made by the Company on or after January 1, 2009.
In March 2008, the FASB issued SFAS 161, Disclosures About Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 changed the
disclosure requirements for derivative instruments and hedging activities to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments; (b) how derivative
instruments and related hedged items are accounted for under SFAS 133; and (c) how derivative
instruments and related hedged items affect an entitys financial position, financial performance
and cash flows. The Company adopted SFAS 161 effective with the interim financial statements for
the quarter ending April 3, 2009.
In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments (FSP No. FAS 107-1 and APB 28-1), which requires
disclosures about fair value of financial instruments in interim reporting periods as well as in
annual financial statements. The effective date for FSP No. FAS 107-1 and APB 28-1 is June 15,
2009 and accordingly the Company has adopted the provisions of this FSP as of July 3, 2009.
Although the adoption of FSP No. FAS 107-1 and APB 28-1 did not impact the Companys financial
condition, results of operations, or cash flow, the Company is now required to provide additional
disclosures, which are included in Note 2.
In May 2009, the FASB issued SFAS 165, Subsequent Events (SFAS 165). SFAS 165 defines the
period after the balance sheet date during which management shall evaluate events or transactions
that may occur for potential recognition or disclosure in the financial statements, the
circumstances under which such events or transactions should be recognized, and disclosures
regarding subsequent events or transactions. The Company adopted SFAS 165 effective with the
interim financial statements for the quarter ending July 3, 2009. Although the adoption of SFAS
165 did not materially impact its unaudited condensed consolidated financial statements, the
Company is now required to provide additional disclosures, which are included under
Basis of
Presentation
above.
Form10-Q
Page 8
Note 2. Fair Value Measurements
The implementation of SFAS 157, Fair Value Measurements (SFAS 157), relative to the Companys
nonfinancial assets and nonfinancial liabilities that are recognized and disclosed at fair value in
the financial statements on a non-recurring basis became effective on January 1, 2009. The
implementation of this standard to our nonfinancial assets and liabilities remeasured on a
non-recurring basis impacts the manner in which we measure fair value primarily in our goodwill,
indefinite-lived and long-lived asset impairment tests, as well as initial fair value measurements
for new asset retirement obligations. The implementation of this standard did not have a material
impact on the unaudited condensed consolidated financial statements of the Company.
SFAS 157 establishes a fair value hierarchy that ranks the quality and reliability of the
information used to determine fair value. In general, fair values determined by Level 1 inputs
utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the
Company has the ability to access. Fair values determined by Level 2 inputs utilize data points
that are observable such as quoted prices, interest rates and yield curves. Level 3 inputs are
unobservable data points for the asset or liability, and include situations where there is little,
if any, market activity for the asset or liability. The following table presents information about
our assets and liabilities measured at fair value on a recurring basis as of July 3, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Impact of Netting
|
|
July 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
138,623
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
138,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
|
|
|
$
|
2,333
|
|
|
$
|
|
|
|
$
|
(49
|
)
|
|
$
|
2,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash surrender value
of life insurance
|
|
$
|
|
|
|
$
|
6,815
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
4,614
|
|
|
$
|
|
|
|
$
|
(49
|
)
|
|
$
|
4,565
|
|
Cash equivalents include money market funds and time deposits, placed with a variety of high credit
quality financial institutions, for which cost approximates fair market value.
The fair value of the derivative contracts in the table above is reported on a gross basis by level
based on the fair value hierarchy with a corresponding adjustment for netting for financial
statement presentation purposes, where appropriate. The Company often enters into derivative
contracts with a single counterparty, and certain of these contracts are covered under a master
netting agreement. The fair values of our foreign currency forward contracts are based on quoted
market prices or pricing models using current market rates.
The cash surrender value of life insurance represents insurance contracts held as assets in a rabbi
trust to fund the Companys deferred compensation plan. These assets are included in other assets,
net on our unaudited condensed consolidated balance sheet. The cash surrender value of life
insurance is based on the net asset values of the underlying funds available to plan participants.
The carrying values of accounts receivable and accounts payable approximate their fair values due
to their short-term maturities.
On an on-going basis, the Company evaluates the carrying value of the GoLite trademark, which is
licensed to a third party, for events or changes in circumstances indicating that the carrying
value of the asset may not be recoverable. Factors considered include the ability of the licensee
to obtain necessary financing, the impact of changes in economic conditions and an assessment of
the Companys ability to recover all contractual payments when due under the licensing arrangement.
During the first quarter of 2009, using Level 3 input factors noted above, the Company determined
that the carrying value of the GoLite trademark was impaired and recorded a pre-tax non-cash charge
of approximately $925, which reduced the carrying value of the trademark to zero at April 3, 2009.
The charge is reflected in our Europe segment.
Form10-Q
Page 9
Note 3. Derivatives
In the normal course of business, the financial position and results of operations of the Company
are impacted by currency rate movements in foreign currency denominated assets, liabilities and
cash flows as we purchase and sell goods in local currencies. We have established policies and
business practices that are intended to mitigate a portion of the effect of these exposures. We
use derivative financial instruments, specifically forward contracts, to manage our currency
exposures. These derivative instruments are viewed as risk management tools and are not used for
trading or speculative purposes. Derivatives entered into by the Company are either designated as
cash flow hedges of forecasted foreign currency transactions or are undesignated economic hedges of
existing intercompany assets and liabilities, certain third party assets and liabilities and
non-U.S. dollar-denominated cash balances.
Derivative instruments expose us to credit and market risk. The market risk associated with these
instruments resulting from currency exchange movements is expected to offset the market risk of the
underlying transactions being hedged. We do not believe there is a significant risk of loss in the
event of non-performance by the counterparties associated with these instruments because these
transactions are executed with a group of major financial institutions and have varying maturities
through April 2010. As a matter of policy, we enter into these contracts only with counterparties
having a minimum investment-grade or better credit rating. Credit risk is managed through the
continuous monitoring of exposures to such counterparties.
Cash Flow Hedges
The Company principally uses foreign currency forward contracts as cash flow hedges to offset a
portion of the effects of exchange rate fluctuations on certain of its forecasted foreign currency
denominated sales transactions. The Companys cash flow exposures include anticipated foreign
currency transactions, such as foreign currency denominated sales, costs, expenses, inter-company
charges, as well as collections and payments. The risk in these exposures is the potential for
losses associated with the remeasurement of non-functional currency cash flows into the functional
currency. The Company has a hedging program to aid in mitigating its foreign currency exposures
and to decrease the volatility in earnings. Under this hedging program, the Company performs a
quarterly assessment of the effectiveness of the hedge relationship and measures and recognizes any
hedge ineffectiveness in earnings. A hedge is considered effective if the changes in the fair
value of the derivative provide offset of at least 80 percent and not more than 125 percent of the
changes in the fair value or cash flows of the hedged item attributable to the risk being hedged.
The Company uses regression analysis to assess the effectiveness of a hedge relationship.
The Companys hedging strategy uses forward contracts as cash flow hedging instruments, which are
recorded in our unaudited condensed consolidated balance sheet at fair value. The effective
portion of gains and losses resulting from changes in the fair value of these hedge instruments are
deferred in accumulated other comprehensive income (OCI) and reclassified to earnings, in cost of
goods sold, in the period that the hedged transaction is recognized in earnings. Hedge
ineffectiveness is evaluated using the hypothetical derivative method, and the ineffective portion
of the hedge is reported in our unaudited condensed consolidated statement of operations in other
income/(expense), net.
As of July 3, 2009, we had forward contracts maturing at various dates through April 2010 to sell
the equivalent of $129,155 in foreign currencies at contracted rates. The contract amount
represents the net amount of all purchase and sale contracts of a foreign currency.
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
(U.S.$
|
|
|
Maturity
|
|
Currency
|
|
Equivalent)
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
Pounds Sterling
|
|
$
|
15,267
|
|
|
|
2009
|
|
Pounds Sterling
|
|
|
5,946
|
|
|
|
2010
|
|
Euro
|
|
|
70,615
|
|
|
|
2009
|
|
Euro
|
|
|
15,370
|
|
|
|
2010
|
|
Japanese Yen
|
|
|
13,871
|
|
|
|
2009
|
|
Japanese Yen
|
|
|
8,086
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Form10-Q
Page 10
Other Derivative Contracts
We also enter into derivative contracts to manage foreign currency exchange risk on intercompany
accounts receivable and payable, third-party accounts receivable and payable, and non-U.S.
dollar-denominated cash balances using forward contracts. These forward contracts, which are
undesignated hedges of economic risk, are recorded at fair value in the balance sheet, with changes
in the fair value of these instruments recognized in earnings immediately. The gains or losses
related to the contracts largely offset the remeasurement of those assets and liabilities.
As of July 3, 2009, we had forward contracts maturing at various dates through October 2009 to sell
the equivalent of $39,219 in foreign currencies at contracted rates and to buy the equivalent of
$(56,631) in foreign currencies at contracted rates. The contract amount represents the net amount
of all purchase and sale contracts of a foreign currency.
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
(U.S.$
|
|
|
Maturity
|
|
Currency
|
|
Equivalent)
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
Pounds Sterling
|
|
$
|
(16,989
|
)
|
|
|
2009
|
|
Euro
|
|
|
(16,043
|
)
|
|
|
2009
|
|
Japanese Yen
|
|
|
6,782
|
|
|
|
2009
|
|
Canadian Dollar
|
|
|
5,995
|
|
|
|
2009
|
|
Norwegian Kroner
|
|
|
1,559
|
|
|
|
2009
|
|
Swedish Krona
|
|
|
1,284
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(17,412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
As of July 3, 2009
|
|
Location
|
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging
instruments under SFAS 133:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Derivative assets
|
|
$
|
2,099
|
|
|
Derivative liabilities
|
|
$
|
4,513
|
|
Foreign exchange forward contracts
|
|
Derivative liabilities
|
|
|
49
|
|
|
Derivative assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as
hedging instruments under SFAS 133
|
|
|
|
|
|
$
|
2,148
|
|
|
|
|
|
|
$
|
4,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments under SFAS 133:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Derivative assets
|
|
$
|
185
|
|
|
Derivative liabilities
|
|
$
|
101
|
|
Foreign exchange forward contracts
|
|
Derivative liabilities
|
|
|
|
|
|
Derivative assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as
hedging instruments under SFAS 133
|
|
|
|
|
|
$
|
185
|
|
|
|
|
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
2,333
|
|
|
|
|
|
|
$
|
4,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Form10-Q
Page 11
The Effect of Derivative Instruments on the Statement of Operations for the Quarters Ended July
3, 2009 and June 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss)
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
Reclassified from
|
|
|
Amount of Gain/(Loss)
|
|
Gain/(Loss)
|
|
Accumulated OCI
|
|
|
Recognized in OCI on
|
|
Reclassified from
|
|
Into
|
Derivatives in
|
|
Derivatives
|
|
Accumulated OCI into
|
|
Income
|
|
|
|
|
SFAS 133 Cash Flow
|
|
(Effective Portion)
|
|
Income
|
|
(Effective Portion)
|
Hedging Relationships
|
|
2009
|
|
2008
|
|
(Effective Portion)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
(2,247
|
)
|
|
$
|
(6,250
|
)
|
|
Cost of goods sold
|
|
$
|
343
|
|
|
$
|
(1,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain/(Loss)
|
|
Amount of Gain/(Loss)
|
Derivatives not Designated
|
|
Recognized in
|
|
Recognized in
|
as Hedging Instruments
|
|
Income on
|
|
Income on Derivative
|
Under SFAS 133
|
|
Derivative
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other income/(expense), net
|
|
$
|
223
|
|
|
$
|
1,788
|
|
During the quarter ended July 3, 2009, the Company de-designated certain cash flow hedges due to
settle in the quarter that related to its Japanese yen exposure. Included in other
income/(expense), net above is a net loss of approximately $14 related to these contracts.
The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended
July 3, 2009 and June 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss)
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
Reclassified from
|
|
|
Amount of Gain/(Loss)
|
|
Gain/(Loss)
|
|
Accumulated OCI
|
|
|
Recognized in OCI on
|
|
Reclassified from
|
|
Into
|
Derivatives in
|
|
Derivatives
|
|
Accumulated OCI into
|
|
Income
|
SFAS 133 Cash Flow
|
|
(Effective Portion)
|
|
Income
|
|
(Effective Portion)
|
Hedging Relationships
|
|
2009
|
|
2008
|
|
(Effective Portion)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
(2,247
|
)
|
|
$
|
(6,250
|
)
|
|
Cost of goods sold
|
|
$
|
7,659
|
|
|
$
|
(5,787
|
)
|
The Company expects to reclassify pre-tax losses of $2,365 to the income statement in cost of
goods sold within the next twelve months.
Form10-Q
Page 12
Hedge ineffectiveness is evaluated using the hypothetical derivative method, and the ineffective
portion of the hedge is reported in our unaudited condensed consolidated statement of income in
other income/(expense), net. The amount of hedge ineffectiveness reported in other
income/(expense), net for the quarters and six months ended July 3, 2009 and June 27, 2008,
respectively, was not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain/(Loss)
|
|
Amount of Gain/(Loss)
|
Derivatives not Designated
|
|
Recognized in
|
|
Recognized in
|
as Hedging Instruments
|
|
Income on
|
|
Income on Derivative
|
Under SFAS 133
|
|
Derivative
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other income/(expense), net
|
|
$
|
2,647
|
|
|
$
|
2,442
|
|
Note 4. Share-Based Compensation
Share-based compensation costs were as follows in the quarters and six months ended July 3, 2009
and June 27, 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
|
July 3, 2009
|
|
|
June 27, 2008
|
|
Cost of goods sold
|
|
$
|
270
|
|
|
$
|
424
|
|
Selling expense
|
|
|
956
|
|
|
|
1,434
|
|
General and administrative expense
|
|
|
543
|
|
|
|
821
|
|
|
|
|
|
|
|
|
Total share-based compensation
|
|
$
|
1,769
|
|
|
$
|
2,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
|
July 3, 2009
|
|
|
June 27, 2008
|
|
Cost of goods sold
|
|
$
|
358
|
|
|
$
|
626
|
|
Selling expense
|
|
|
1,424
|
|
|
|
2,293
|
|
General and administrative expense
|
|
|
798
|
|
|
|
1,299
|
|
|
|
|
|
|
|
|
Total share-based compensation
|
|
$
|
2,580
|
|
|
$
|
4,218
|
|
|
|
|
|
|
|
|
Performance-based Awards
On March 4, 2009, the Management Development and Compensation Committee of the Board of Directors
approved the terms of The Timberland Company 2009 Executive Long Term Incentive Program (2009
LTIP) with respect to equity awards to be made to certain of the Companys executives and
management team. On March 5, 2009, the Board of Directors also approved the 2009 LTIP with respect
to the Companys Chief Executive Officer. The 2009 LTIP was established under the Companys 2007
Incentive Plan. The awards are subject to future performance, and consist of performance stock
units (PSUs) equal in value to one share of the Companys Class A Common Stock, and performance
vested stock options (PVSOs) with an exercise price of $9.34 (the closing price of the Companys
Class A Common Stock as quoted on the New York Stock Exchange on March 5, 2009, the date of grant).
On May 21, 2009, additional awards were made under the 2009 LTIP consisting of PSUs equal in value
to one share of the Companys Class A Common Stock, and PVSOs with an exercise price of $12.93 (the
closing price of the Companys Class A Common Stock as quoted on the New York Stock Exchange on May
21, 2009, the date of grant). Shares with respect to the PSUs will be granted and will vest
Form10-Q
Page 13
following the end of the applicable performance period and approval by the Board of Directors, or a
committee thereof, of the achievement of the applicable performance metric. The PVSOs will vest in
three equal annual installments following the end of the applicable performance period and approval
by the Board of Directors, or a committee thereof, of the achievement of the applicable performance
metric. The payout of the performance awards will be based on the Companys achievement of certain
levels of earnings before interest, taxes, depreciation and amortization (EBITDA), with
threshold, budget, target and maximum award levels based upon actual EBITDA of the Company during
the applicable performance periods equaling or exceeding such levels. The performance period for
the PSUs is the three-year period from January 1, 2009 through December 31, 2011, and the
performance period for the PVSOs is the twelve-month period from January 1, 2009 through December
31, 2009. No awards shall be made or earned, as the case may be, unless the threshold goal is
attained, and the maximum payout may not exceed 200% of the target award.
The maximum number of shares to be awarded with respect to PSUs under the 2009 LTIP is 890,000,
which, if earned, will be settled in early 2012. Based on current estimates of the performance
metrics, unrecognized compensation expense with respect to PSUs was $1,585 as of July 3, 2009.
This expense is expected to be recognized over a weighted-average period of 2.7 years.
The maximum number of shares subject to exercise with respect to PVSOs under the 2009 LTIP is
1,186,668, which, if earned, will be settled, subject to the vesting schedule noted above, in early
2010. The Company estimates the fair value of its PVSOs on the date of grant using the
Black-Scholes option valuation model, which employs the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
For the Six Months
|
|
|
July 3, 2009
|
|
Ended July 3, 2009
|
Expected volatility
|
|
|
43.9
|
%
|
|
|
41.9
|
%
|
Risk-free interest rate
|
|
|
1.9
|
%
|
|
|
1.9
|
%
|
Expected life (in years)
|
|
|
5.0
|
|
|
|
6.4
|
|
Expected dividends
|
|
|
|
|
|
|
|
|
Based on current estimates of the performance metrics, unrecognized compensation expense related to
PVSOs was $1,147 as of July 3, 2009. This expense is expected to be recognized over a
weighted-average period of 3.7 years.
Stock Options
The Company estimates the fair value of its stock option awards on the date of grant using the
Black-Scholes option valuation model, which employs the assumptions noted in the following table,
for stock option awards excluding the performance-based awards noted above, for which performance
conditions have not been met:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
For the Six Months Ended
|
|
|
July 3, 2009
|
|
June 27, 2008
|
|
July 3, 2009
|
|
June 27, 2008
|
Expected volatility
|
|
|
43.9
|
%
|
|
|
33.1
|
%
|
|
|
43.2
|
%
|
|
|
32.3
|
%
|
Risk-free interest rate
|
|
|
1.9
|
%
|
|
|
3.9
|
%
|
|
|
2.0
|
%
|
|
|
3.0
|
%
|
Expected life (in years)
|
|
|
5.0
|
|
|
|
9.9
|
|
|
|
6.2
|
|
|
|
6.5
|
|
Expected dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes transactions for the six months ended July 3, 2009, under stock option
arrangements excluding the performance-based awards noted above, for which performance
conditions have not been met:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Average Remaining
|
|
|
Aggregate Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Value
|
|
Outstanding at January 1, 2009
|
|
|
4,163,628
|
|
|
$
|
26.03
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
380,779
|
|
|
|
11.17
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(102,800
|
)
|
|
|
8.41
|
|
|
|
|
|
|
|
|
|
Expired or forfeited
|
|
|
(231,661
|
)
|
|
|
27.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 3, 2009
|
|
|
4,209,946
|
|
|
$
|
25.05
|
|
|
|
5.8
|
|
|
$
|
796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at
July 3, 2009
|
|
|
4,031,459
|
|
|
$
|
25.53
|
|
|
|
5.7
|
|
|
$
|
616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at July 3, 2009
|
|
|
3,403,987
|
|
|
$
|
27.36
|
|
|
|
5.1
|
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation expense related to nonvested stock options was $3,023 as of July 3, 2009.
This expense is expected to be recognized over a weighted-average period of 1.8 years.
Form10-Q
Page 14
Nonvested Shares
Changes in the Companys nonvested shares that are not performance-based for the six months ended
July 3, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
Stock Awards
|
|
|
Value
|
|
|
Stock Units
|
|
|
Value
|
|
Nonvested at January 1, 2009
|
|
|
278,553
|
|
|
$
|
25.39
|
|
|
|
182,600
|
|
|
$
|
14.45
|
|
Awarded
|
|
|
62,399
|
|
|
|
9.34
|
|
|
|
165,171
|
|
|
|
12.93
|
|
Vested
|
|
|
(11,904
|
)
|
|
|
14.70
|
|
|
|
(48,730
|
)
|
|
|
14.76
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(10,098
|
)
|
|
|
13.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at July 3, 2009
|
|
|
329,048
|
|
|
$
|
22.73
|
|
|
|
288,943
|
|
|
$
|
13.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation expense related to nonvested restricted stock awards was $477 as of July
3, 2009. The expense is expected to be recognized over a weighted-average period of 0.4 years. As
of July 3, 2009, 329,048 nonvested stock awards, with a weighted-average grant date fair value of
$22.73, are expected to vest. Unrecognized compensation expense related to nonvested restricted
stock units was $3,065 as of July 3, 2009. The expense is expected to be recognized over a
weighted-average period of 1.9 years. As of July 3, 2009, 236,819 nonvested stock units, with a
weighted-average grant date fair value of $13.55 are expected to vest in the future.
Note 5. Loss Per Share
Basic loss per share excludes common stock equivalents and is computed by dividing net loss by the
weighted-average number of common shares outstanding for the periods presented. Net loss for the
quarters ended July 3, 2009 and June 27, 2008 were $(19,244) and $(18,929), respectively, and
weighted-average shares outstanding for the quarters ended July 3, 2009 and June 27, 2008 were
56,273 and 58,932, respectively, resulting in a basic and diluted loss per share of $(.34) and
$(.32) for the quarters ended July 3, 2009 and June 27, 2008, respectively. Net loss for the six
months ended July 3, 2009 and June 27, 2008 were $(3,367) and $(890), respectively, and
weighted-average shares outstanding for the six months ended July 3, 2009 and June 27, 2008 were
56,695 and 59,269, respectively, resulting in a basic and diluted loss per share of $(.06) and
$(.02) for the six months ended July 3, 2009 and June 27, 2008, respectively. Diluted
earnings/(loss) per share reflects the potential dilution that would occur if potentially dilutive
securities such as stock options were exercised and nonvested shares vested, to the extent such
securities would not be anti-dilutive. Due to net losses for all periods presented, the assumed
exercise of stock options and vesting of nonvested shares had an anti-dilutive effect and,
therefore, were excluded from the computation of diluted loss per share.
The following securities (in thousands) were outstanding as of July 3, 2009 and June 27, 2008, but
were not included in the computation of diluted loss per share as their inclusion would be
anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
For the Six Months Ended
|
|
|
July 3, 2009
|
|
June 27, 2008
|
|
July 3, 2009
|
|
June 27, 2008
|
Anti-dilutive securities
|
|
|
4,683
|
|
|
|
4,958
|
|
|
|
4,694
|
|
|
|
4,947
|
|
Form10-Q
Page 15
Note 6. Comprehensive Income/(Loss)
Comprehensive income/(loss) for the quarters and six months ended July 3, 2009 and June 27, 2008 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
For the Six Months Ended
|
|
|
|
July 3, 2009
|
|
|
June 27, 2008
|
|
|
July 3, 2009
|
|
|
June 27, 2008
|
|
Net loss
|
|
$
|
(19,244
|
)
|
|
$
|
(18,929
|
)
|
|
$
|
(3,367
|
)
|
|
$
|
(890
|
)
|
Change in cumulative translation adjustment
|
|
|
7,152
|
|
|
|
(2,536
|
)
|
|
|
3,382
|
|
|
|
7,356
|
|
Change in fair value of cash flow hedges,
net of taxes
|
|
|
(5,699
|
)
|
|
|
2,565
|
|
|
|
(6,837
|
)
|
|
|
(2,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss)
|
|
$
|
(17,791
|
)
|
|
$
|
(18,900
|
)
|
|
$
|
(6,822
|
)
|
|
$
|
3,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income/(loss) as of July 3, 2009, December
31, 2008 and June 27, 2008 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, 2009
|
|
|
December 31, 2008
|
|
|
June 27, 2008
|
|
Cumulative translation adjustment
|
|
$
|
11,158
|
|
|
$
|
7,776
|
|
|
$
|
31,087
|
|
Fair value of cash flow hedges, net of taxes of $(118)
at July 3, 2009, $244 at December 31, 2008 and $(344)
at June 27, 2008
|
|
|
(2,208
|
)
|
|
|
4,629
|
|
|
|
(6,250
|
)
|
Other adjustments, net of taxes of $7 at July 3, 2009 and
December 31, 2008
|
|
|
138
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,088
|
|
|
$
|
12,543
|
|
|
$
|
24,837
|
|
|
|
|
|
|
|
|
|
|
|
Note 7. Business Segments and Geographic Information
The Company has three reportable segments: North America, Europe and Asia. The composition of the
segments is consistent with that used by the Companys chief operating decision maker.
The North America segment is comprised of the sale of products to wholesale and retail customers in
North America. It includes Company-operated specialty and factory outlet stores in the United
States and our United States e-commerce business. This segment also includes royalties from
licensed products sold worldwide, the related management costs and expenses associated with our
worldwide licensing efforts, and certain marketing expenses and value-added services.
The Europe and Asia segments each consist of the marketing, selling and distribution of footwear,
apparel and accessories outside of the United States. Products are sold outside of the United
States through our subsidiaries (which use wholesale, retail and e-commerce channels to sell
footwear, apparel and accessories), franchisees and independent distributors.
Unallocated Corporate consists primarily of corporate finance, information services, legal and
administrative expenses, share-based compensation costs, distribution expenses, global marketing
support expenses, worldwide product development costs and other costs incurred in support of
Company-wide activities. Additionally, Unallocated Corporate includes total other
income/(expense), net, which is comprised of interest income, interest expense, and other
income/(expense), net, which includes foreign exchange gains and losses resulting from changes in
the fair value of financial derivatives not designated as hedges, currency gains and losses
incurred on the settlement of local currency denominated assets and liabilities, and other
miscellaneous non-operating income/(expense). Such income/(expense) is not allocated among the
reportable business segments.
The accounting policies of the segments are the same as those described in the summary of
significant accounting policies. We evaluate segment performance based on revenue and operating
income. Total assets are disaggregated to the extent that assets apply specifically to a single
segment. Unallocated Corporate assets primarily consist of cash and equivalents, tax assets,
manufacturing/sourcing assets, computers and related equipment, and transportation and distribution
equipment.
Form10-Q
Page 16
For the Quarter Ended July 3, 2009 and June 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
North America
|
|
Europe
|
|
Asia
|
|
Corporate
|
|
Consolidated
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
86,314
|
|
|
$
|
65,681
|
|
|
$
|
27,707
|
|
|
$
|
|
|
|
$
|
179,702
|
|
Operating income/(loss)
|
|
|
5,087
|
|
|
|
(9,916
|
)
|
|
|
(599
|
)
|
|
|
(30,970
|
)
|
|
|
(36,398
|
)
|
Income/(loss) before income taxes
|
|
|
5,087
|
|
|
|
(9,916
|
)
|
|
|
(599
|
)
|
|
|
(29,122
|
)
|
|
|
(34,550
|
)
|
Total assets
|
|
|
225,085
|
|
|
|
292,668
|
|
|
|
42,697
|
|
|
|
182,214
|
|
|
|
742,664
|
|
Goodwill
|
|
|
36,876
|
|
|
|
6,994
|
|
|
|
|
|
|
|
|
|
|
|
43,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
99,556
|
|
|
$
|
78,760
|
|
|
$
|
31,600
|
|
|
$
|
|
|
|
$
|
209,916
|
|
Operating income/(loss)
|
|
|
9,534
|
|
|
|
(8,205
|
)
|
|
|
(1,405
|
)
|
|
|
(29,897
|
)
|
|
|
(29,973
|
)
|
Income/(loss) before income taxes
|
|
|
9,534
|
|
|
|
(8,205
|
)
|
|
|
(1,405
|
)
|
|
|
(29,500
|
)
|
|
|
(29,576
|
)
|
Total assets
|
|
|
244,031
|
|
|
|
272,410
|
|
|
|
76,070
|
|
|
|
175,331
|
|
|
|
767,842
|
|
Goodwill
|
|
|
37,846
|
|
|
|
6,994
|
|
|
|
|
|
|
|
|
|
|
|
44,840
|
|
For the Six Months Ended July 3, 2009 and June 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Europe
|
|
Asia
|
|
Unallocated
Corporate
|
|
Consolidated
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
206,172
|
|
|
$
|
205,669
|
|
|
$
|
64,509
|
|
|
$
|
|
|
|
$
|
476,350
|
|
Operating income/(loss)
|
|
|
20,133
|
|
|
|
20,197
|
|
|
|
1,231
|
|
|
|
(59,776
|
)
|
|
|
(18,215
|
)
|
Income/(loss) before income taxes
|
|
|
20,133
|
|
|
|
20,197
|
|
|
|
1,231
|
|
|
|
(58,272
|
)
|
|
|
(16,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
237,286
|
|
|
$
|
243,511
|
|
|
$
|
69,521
|
|
|
$
|
|
|
|
$
|
550,318
|
|
Operating income/(loss)
|
|
|
30,886
|
|
|
|
24,916
|
|
|
|
(709
|
)
|
|
|
(61,824
|
)
|
|
|
(6,731
|
)
|
Income/(loss) before income taxes
|
|
|
30,886
|
|
|
|
24,916
|
|
|
|
(709
|
)
|
|
|
(55,097
|
)
|
|
|
(4
|
)
|
The following summarizes our revenue by product for the quarters and six months ended July 3, 2009
and June 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
For the Six Months Ended
|
|
|
|
July 3, 2009
|
|
|
June 27, 2008
|
|
|
July 3, 2009
|
|
|
June 27, 2008
|
|
Footwear
|
|
$
|
126,954
|
|
|
$
|
142,935
|
|
|
$
|
338,595
|
|
|
$
|
379,551
|
|
Apparel and accessories
|
|
|
47,241
|
|
|
|
62,635
|
|
|
|
125,905
|
|
|
|
160,558
|
|
Royalty and other
|
|
|
5,507
|
|
|
|
4,346
|
|
|
|
11,850
|
|
|
|
10,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
179,702
|
|
|
$
|
209,916
|
|
|
$
|
476,350
|
|
|
$
|
550,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Form10-Q
Page 17
Note 8. Inventory, net
Inventory, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, 2009
|
|
|
December 31, 2008
|
|
|
June 27, 2008
|
|
Materials
|
|
$
|
8,368
|
|
|
$
|
7,708
|
|
|
$
|
8,457
|
|
Work-in-process
|
|
|
920
|
|
|
|
825
|
|
|
|
989
|
|
Finished goods
|
|
|
171,104
|
|
|
|
171,155
|
|
|
|
185,569
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
180,392
|
|
|
$
|
179,688
|
|
|
$
|
195,015
|
|
|
|
|
|
|
|
|
|
|
|
Note 9. Acquisition
On March 16, 2009, we acquired 100% of the stock of Glaudio Fashion B.V. (Glaudio) for
approximately $1,500, net of cash acquired. Glaudio operates nine Timberland retail stores in the
Netherlands and Belgium which sell Timberland footwear, apparel and accessories for men, women and
kids. The acquisition was effective March 1, 2009, and its results have been included in our
Europe segment from the effective date of the acquisition. The acquisition of Glaudio was not
material to the results of operations, financial position or cash flows of the Company.
Note 10. Income Taxes
In February 2009, the Company received notification that our U.S. federal tax examinations for 2006
and 2007 had been completed. Accordingly, in the first quarter of 2009, we reversed approximately
$6,400 of accruals related to uncertain tax positions. During the second quarter of 2009, we
recorded a net benefit of approximately $140 in our tax provision related to the settlement of
certain foreign tax audits.
Note 11. Share Repurchase
On March 10, 2008, our Board of Directors approved the repurchase of up to 6,000,000 shares of our
Class A Common Stock. Shares repurchased under this authorization totaled 716,920 and 1,617,429
for the quarter and six months ended July 3, 2009, respectively. As of July 3, 2009, 2,951,473
shares remained available for repurchase under this authorization.
From time to time, we use plans adopted under Rule 10b5-1 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, to facilitate share
repurchases.
Note 12. Litigation
We are involved in various litigation and legal proceedings that have arisen in the ordinary course
of business. Management believes that the ultimate resolution of any such matters will not have a
material adverse effect on our consolidated financial statements.
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is managements discussion and analysis of the financial condition and results of
operations of The Timberland Company and its subsidiaries (we, our, us, its, Timberland
or the Company), as well as our liquidity and capital resources. The discussion, including known
trends and uncertainties identified by management, should be read in conjunction with the Companys
unaudited condensed consolidated financial statements and related notes included in this Quarterly
Report on Form 10-Q, as well as our audited consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2008.
Included herein are discussions and reconciliations of total Company, Europe and Asia revenue
changes to constant dollar revenue changes. Constant dollar revenue changes, which exclude the
impact of changes in foreign exchange rates, are not Generally Accepted Accounting Principle
(GAAP) performance measures. The difference between changes in reported
Form10-Q
Page 18
revenue (the most comparable GAAP measure) and constant dollar revenue changes is the impact of
foreign currency exchange rate fluctuations. We provide constant dollar revenue changes for total
Company, Europe and Asia results because we use the measure to understand the underlying growth
rate of revenue excluding the impact of items that are not under managements direct control, such
as changes in foreign exchange rates. The limitation of this measure is that it excludes items
that have an impact on the Companys revenue. This limitation is best addressed by using constant
dollar revenue changes in combination with the GAAP numbers.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our
unaudited condensed consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues, expenses and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those related to sales
returns and allowances, realization of outstanding accounts receivable, the carrying value of
inventories, derivatives, other contingencies, impairment of assets, incentive compensation
accruals, share-based compensation and income taxes. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Historically, actual
results have not been materially different from our estimates. Because of the uncertainty inherent
in these matters, actual results could differ from the estimates used in, or that result from,
applying our critical accounting policies. Our significant accounting policies are described in
Note 1 to the Companys consolidated financial statements included in Part II, Item 8 of our Annual
Report on Form 10-K for the year ended December 31, 2008. Our estimates, assumptions and judgments
involved in applying the critical accounting policies are described in Part II, Item 7:
Managements Discussion and Analysis of Financial Condition and Results of Operations, of our
Annual Report on Form 10-K for the year ended December 31, 2008.
Overview
Our principal strategic goal is to become the authentic outdoor brand of choice globally. We
continue to develop a diverse portfolio of footwear, apparel and accessories that reinforces the
functional performance, benefits and classic styling that consumers have come to expect from our
brand. We sell our products to consumers who embrace an outdoor-inspired lifestyle through
high-quality distribution channels, including our own retail stores, which reinforce the premium
positioning of the Timberland
â
brand.
To deliver against our long-term goals, we are focused on driving progress on key strategic fronts.
These include enhancing our leadership position in our core footwear business, capturing the
opportunity that we see for outdoor-inspired apparel, extending enterprise reach through
brand-building licensing arrangements, expanding geographically and driving operational and
financial excellence while setting the standard for commitment to the community and striving to be
a global employer of choice.
A summary of our second quarter of 2009 financial performance, compared to the second quarter of
2008, follows:
|
|
|
Second quarter revenue decreased 14.4%, or 9.1% on a constant dollar basis, to $179.7
million.
|
|
|
|
|
Gross margin decreased from 43.9% to 42.0%.
|
|
|
|
|
Operating expenses were $111.9 million, down 8.4% from $122.2 million in the prior year
period.
|
|
|
|
|
We recorded an operating loss of $36.4 million in the second quarter of 2009, compared
to an operating loss of $30.0 million in the prior year period.
|
|
|
|
|
Net loss was $19.2 million in the second quarter of 2009, compared to $18.9 million in
the second quarter of 2008.
|
|
|
|
|
Loss per share increased from $(.32) in the second quarter of 2008 to $(.34) in the
second quarter of 2009.
|
|
|
|
|
Cash at the end of the quarter was $183.9 million with no debt outstanding.
|
Form10-Q
Page 19
The Company anticipates that the back half of 2009 will continue to be challenging due to the low
levels of consumer confidence and the financial health of the global economy. Given the continued
volatile nature of current economic conditions, the Company continues to believe there is not
sufficient visibility to set expectations for the remainder of 2009.
Results of Operations for the Quarter Ended July 3, 2009 as Compared to the Quarter Ended June
27, 2008
Revenue
Consolidated revenue of $179.7 million decreased $30.2 million, or 14.4%, compared to the second
quarter of 2008, driven by declines in Timberland
®
apparel and casual footwear worldwide
and continued strengthening of the U.S. dollar against the British Pound and the Euro. On a
constant dollar basis, consolidated revenues were down 9.1%. North America revenue totaled $86.3
million, a 13.3% decline from 2008. Europe revenues were $65.7 million, a 16.6% decrease over
2008, and down 2.5% on a constant dollar basis. Asia revenues decreased 12.3%, to $27.7 million,
but declined 13.3% on a constant dollar basis.
Segments Review
We have three reportable business segments (see Note 7 to the unaudited condensed consolidated
financial statements contained in Part I, Item 1 of this report): North America, Europe and Asia.
North America revenues decreased 13.3% to $86.3 million, driven by declines in our wholesale mens
footwear business, where declines in casual footwear and boots were partially offset by increases
in performance footwear. Our North America retail business had revenue declines of 1.3%, driven by
an 8.2% decrease in comparable store sales partially offset by 2 additional stores in 2009 and
strong growth in our e-commerce businesses.
Europe recorded revenues of $65.7 million, a 16.6% decrease compared with the second quarter of
2008. The strengthening of the U.S. dollar against the British Pound and the Euro reduced Europes
revenues by 14.1%. Growth in France and the Benelux regions, partially due to 11 new stores, was
offset by weakness across the U.K. and Italy. Declines in wholesale sales of Timberland
®
apparel and performance and casual footwear were partially offset by continued improvement in
boots, as well as SmartWool apparel and accessories. Continued softness in the wholesale business
was partially offset by strong growth in retail, which combined growth from new stores with
comparable store revenue growth of 7.3%.
In Asia, revenue decreased 12.3%, or 13.3% in constant dollars, to $27.7 million, driven primarily
by softness in both our retail and wholesale businesses in Hong Kong and Japan. Retail sales in
Asia were down 13.9%, reflecting a 5.3% decline in comparable store sales and the closure of
underperforming stores.
Products
Worldwide footwear revenue was $127.0 million in the second quarter of 2009, down $16.0 million, or
11.2%, from the second quarter of 2008. Declines in mens casual footwear and mens boots in North
America were partially offset by continued growth in the boots business in Europe and Asia.
Worldwide apparel and accessories revenue fell 24.6% to $47.2 million, driven by a global decline
in Timberland
®
apparel. Royalty and other revenue was $5.5 million in the second
quarter of 2009, compared to $4.3 million in the prior year quarter, primarily as a result of our
wholesale apparel licensing arrangement in North America.
Channels
Wholesale revenue was $108.4 million, a 20.3% decrease compared to the prior year quarter. Retail
revenues decreased 3.5% to $71.3 million as a result of unfavorable movements in the British Pound
and the Euro relative to the U.S. dollar and a decline in comparable store sales. Overall,
comparable store sales were down 2.5% on a global basis, with declines in North America and Asia
partially offset by increases in Europe. We had 217 stores, shops and outlets worldwide at the end
of the second quarter of 2009, compared to 216 at the end of the second quarter of 2008.
Form10-Q
Page 20
Gross Profit
Gross profit as a percentage of sales, or gross margin, was 42.0% for the second quarter of 2009,
190 basis points lower than in the second quarter of 2008. The effects of higher product costs,
the strengthening of the U.S. dollar relative to the British Pound and Euro, lower margins in our
off-price business in certain regions and higher provisions for inventory were partially offset by
favorable changes in channel mix.
We include the costs of procuring inventory (inbound freight and duty, overhead and other similar
costs) in cost of goods sold. These costs amounted to $11.7 million and $16.5 million for the
second quarter of 2009 and 2008, respectively. The decrease was primarily driven by lower costs
associated with our wholesale apparel business as a result of our transition to a licensing
arrangement in North America, as well as lower footwear sourcing and logistics costs.
Operating Expense
Operating expense for the second quarter of 2009 was $111.9 million, a decrease of $10.3 million,
or 8.4%, over the second quarter of 2008. The decrease was driven by a $10.3 million decrease in
selling expense. Overall, changes in foreign exchange rates reduced operating expense by
approximately $7.7 million in the second quarter of 2009. We continue to execute cost containment
strategies throughout our businesses and make selective investments behind strategic priorities.
Selling expense was $85.0 million in the second quarter of 2009, a decrease of $10.3 million, or
10.8%, over the same period in 2008. The decrease in selling expense was a result of reduced
sales, marketing and distribution costs in our wholesale businesses as a result of lower volume due
to softness in the markets, lower compensation and occupancy costs in Asia due to the closure of
underperforming stores and a reduced cost base due to the exiting of certain specialty brands in
2008. The benefit from changes in foreign exchange rates was partially offset by increases in
European compensation and occupancy costs associated with 11 new stores compared to 2008, as well
as spring media spending and share-based and incentive compensation.
We include the costs of physically managing inventory (warehousing and handling costs) in selling
expense. These costs totaled $8.0 million and $8.7 million in the second quarter of 2009 and 2008,
respectively.
In the second quarters of 2009 and 2008, we recorded $0.3 million and $0.4 million, respectively,
of reimbursed shipping expenses within revenues and the related shipping costs within selling
expense. Shipping costs are included in selling expense and were $1.5 million and $3.3 million for
the quarters ended July 3, 2009 and June 27, 2008, respectively.
Advertising expense, which is included in selling expense, was $5.6 million and $6.0 million in the
second quarter of 2009 and 2008, respectively. Advertising expense includes co-op advertising
costs, consumer-facing advertising costs such as print, television and internet campaigns,
production costs including agency fees, and catalog costs. The decrease in advertising expense
reflects lower levels of co-op advertising partially offset by our continued investment in
consumer-facing marketing programs, primarily branding and media initiatives. These investments
demonstrate our commitment to strengthen our premium brand position despite adverse economic
conditions. Advertising costs are expensed at the time the advertising is used, predominantly in
the season that the advertising costs are incurred. Prepaid advertising recorded on our unaudited
condensed consolidated balance sheets as of July 3, 2009 and June 27, 2008 was $2.3 million and
$3.4 million, respectively.
General and administrative expense for the second quarter of 2009 was $26.9 million, relatively
flat compared to the second quarter of 2008. The slight increase was driven primarily by higher
compensation and related costs.
We recorded net restructuring charges of $0.3 million during the second quarter of 2008 to reflect
costs associated with our decision to close certain retail locations.
Operating Income/(Loss)
We recorded an operating loss of $36.4 million in the second quarter of 2009, compared to an
operating loss of $30.0 million in the prior year period. Operating loss in the second quarter of
2008 included restructuring charges of $0.3 million as described above.
Operating income for our North America segment was $5.1 million, a decline of 46.6% from the second
quarter of 2008. The decrease was driven by a revenue decline of 13.3%, combined with a 175 basis
point decline in gross margin, as higher product costs and inventory provisions offset favorable
changes in mix. Operating expenses declined 7.6% primarily as a result of lower selling, marketing
and distribution expenses on lower volume.
Form10-Q
Page 21
Timberlands European segment recorded an operating loss of $9.9 million in the second quarter of
2009, compared to an operating loss of $8.2 million in the second quarter of 2008. An 18.7%
decline in gross profit was driven by foreign exchange rate movements, cost increases and higher
markdowns, which offset favorable shifts in product and channel mix. The decline was partially
offset by an 11.6% decrease in operating expense, driven primarily by lower distribution costs and
the movement in foreign exchange rates.
We had an operating loss in our Asia segment of $0.6 million for the second quarter of 2009,
compared to an operating loss of $1.4 million for the second quarter of 2008. The improvement over
the prior year was driven by a 14.4% decrease in operating expenses, primarily related to lower
compensation and occupancy costs in our retail business resulting from store closures. Gross profit
was lower as a result of volume declines and mix, but benefited from foreign exchange rate
movements.
Our Unallocated Corporate expenses, which include central support and administrative costs not
allocated to our business segments, increased 3.6% to $31.0 million. Favorable purchase price and
other manufacturing variances in 2008 were not achieved in 2009, as a result of lower volume and
outsourcing. Such costs are not allocated to the Companys reportable segments.
Other Income/(Expense) and Taxes
Interest income was $0.3 million and $0.7 million in the second quarters of 2009 and 2008,
respectively, reflecting lower interest rates.
Other income/(expense), net, included foreign exchange gains of $0.7 million in the second quarter
of 2009 and $0.1 million in the second quarter of 2008, respectively, resulting from changes in the
fair value of financial derivatives, specifically forward contracts not designated as cash flow
hedges, and the timing of settlement of our local currency denominated receivables and payables.
These gains were driven by the volatility of exchange rates within the second quarters of 2009 and
2008 and should not be considered indicative of expected future results.
The effective income tax rate for the second quarter of 2009 was 44.3%. Based on our full year
estimate of global income and the geographical mix of our profits, as well as provisions for
certain tax reserves and discrete items related to the completion of audits, we currently expect
our full year tax rate to be in the range of 33.0%. This rate may vary if actual results differ
from our current estimates, or there are changes in our liability for uncertain tax positions. The
effective income tax rate for the second quarter of 2008 was 36.0%.
Results of Operations for the Six Months Ended July 3, 2009 as Compared to the Six Months Ended
June 27, 2008
Revenue
Consolidated revenue for the first six months of 2009 was $476.4 million, a decrease of $74.0
million, or 13.4%, compared to the first six months of 2008. These results were driven primarily
by declines in Timberland
®
apparel and casual footwear worldwide and the strengthening
of the U.S. dollar against the British Pound and the Euro. On a constant dollar basis,
consolidated revenues were down 7.5%. North America revenue totaled $206.2 million, a 13.1%
decline from 2008. Europe revenues were $205.7 million for the first six months of 2009, a
decrease of 15.5% from the same period in 2008, and a decline of 2.0% on a constant dollar basis.
Asia revenues were $64.5 million for the first six months of 2009, a decrease of 7.2% from the same
period in 2008, and a decline of 9.5% on a constant dollar basis.
Segments Review
The Companys North America revenues decreased 13.1% to $206.2 million, driven by declines in
boots, as well as Timberland
®
apparel, due in part to anticipated declines from the
decision in 2008 to transition our North America wholesale apparel business to a licensing
arrangement, and declines in casual footwear. The continued weakness in these areas was partially
offset by growth in performance footwear and SmartWool apparel. Within North America, our retail
business had revenue declines of 5.2%, driven by a 9.0% decrease in comparable store sales.
Our Europe revenues decreased to $205.7 million from the $243.5 million reported in the first six
months of 2008, largely due to foreign exchange rate impacts. Europe revenues declined 2.0% on a
constant dollar basis. Softness in wholesale sales
Form10-Q
Page 22
was partially offset by strong comparable store revenue growth in our retail business. A difficult
wholesale market across the U.K., Italy, and Spain was partially offset by growth in our
distributor business as well as in Central Europe.
Asia revenues for the first six months of 2009 were $64.5 million, compared to $69.5 million for
the first six months of 2008, a decline of 9.5% in constant dollars, due primarily to softness in
our retail apparel business. Lower revenues in Hong Kong and Singapore, as well as weakness in the
distributor businesses, were the primary drivers of this decline.
Products
Worldwide footwear revenue was $338.6 million for the first six months of 2009, down $41.0 million,
or 10.8%, from the same period in 2008, driven by global declines in casual footwear and our boot
business in North America. Outside North America, we continue to see encouraging signs that our
boot business is strengthening. Worldwide apparel and accessories revenue fell 21.6% to $125.9
million, as growth from SmartWool was offset by a decline in Timberland
®
brand apparel,
reflecting the strengthening of the U.S. dollar relative to the British Pound and the Euro,
softness in international markets, and the impact of transitioning our North America wholesale
apparel business to a licensing arrangement. The Company ceased sales of in-house
Timberland
®
brand apparel in North America through the wholesale channel during the
second quarter of 2008. Royalty and other revenue was $11.9 million in the first six months of
2009, compared to $10.2 million in the prior year period, reflecting increased sales of apparel in
North America under our licensing agreement established in 2008, partially offset by lower sales of
kids apparel in Europe.
Channels
Wholesale revenue was $327.0 million, a 16.5% decrease compared to the first six months of 2008.
Softness in certain of our key wholesale markets, such as the U.K., Italy, Japan and Hong Kong, was
the primary driver of sales declines, along with the strengthening of the U.S. dollar in Europe
and, to a lesser degree, the transition of the North America wholesale apparel business to a
licensing arrangement.
Retail revenues fell 5.9% to $149.3 million, driven by unfavorable foreign exchange rate impacts
and a worldwide retail market that continues to be difficult, especially with respect to apparel.
Overall, comparable store sales were down 2.1% on a global basis compared to the first half of
2008, with favorable comparable store results in Europe being offset by declines in our North
America stores.
Gross Profit
Gross profit as a percentage of sales, or gross margin, was 44.5% for the first half of 2009, or 90
basis points lower than the prior year period, as the impact of higher product costs, lower margins
in our off-price business in certain regions and higher provisions for inventory were partially
offset by favorable changes in channel mix.
We include the costs of procuring inventory (inbound freight and duty, overhead and other similar
costs) in cost of goods sold. These costs amounted to $25.6 million and $36.0 million in the first
half of 2009 and 2008, respectively. The decrease was driven by lower costs associated with our
wholesale apparel business as a result of our transition to a licensing arrangement in North
America, as well as lower footwear sourcing and logistics costs.
Operating Expense
Operating expense for the first six months of 2009 was $230.4 million, 10.2%, or $26.1 million
lower than the first six months of 2008. The change is attributable to a $26.1 million decrease in
selling, general and administrative expenses and a decrease in restructuring charges of
$1.0 million. These decreases were partially offset by an intangible asset impairment charge of
$0.9 million. Overall, changes in foreign exchange rates reduced operating expense in the first
six months of 2009 by approximately $16.3 million.
Selling expense for the first six months of 2009 was $177.3 million, a decrease of $24.1 million,
or 12.0%, over the same period in 2008. The strengthening of the U.S. dollar relative to the
British Pound and the Euro benefited operating expenses along with decreases due primarily to
reduced sales, marketing and distribution costs in our wholesale business on lower volume
reflecting continued softness in this market, lower compensation and occupancy costs in our retail
business due to store closures, and the exiting of certain specialty brands in 2008.
Form10-Q
Page 23
We include the costs of physically managing inventory (warehousing and handling costs) in selling
expense. These costs totaled $17.4 million and $18.6 million in the first half of 2009 and 2008,
respectively.
In the first six months of 2009 and 2008, we recorded $0.9 million and $1.2 million, respectively,
of reimbursed shipping expenses within revenues and the related shipping costs within selling
expense. Shipping costs are included in selling expense and were $6.3 million and $8.4 million for
the six months ended July 3, 2009 and June 27, 2008, respectively.
Advertising expense, which is included in selling expense, was $10.2 million and $11.1 million in
the first half of 2009 and 2008, respectively. We maintained our commitment to strengthening our
premium brand position despite adverse economic conditions during the first six months of 2009 and
increased our consumer-facing marketing spending, primarily media production. This increase was
offset by lower levels of co-op advertising.
General and administrative expense for the first six months of 2009 was $52.3 million, a decrease
of 3.5% as compared to the $54.2 million reported in the first six months of 2008. The benefit
from changes in foreign exchange rates offset increases in compensation and related costs.
Total operating expense in the first six months of 2009 also included a charge of $0.9 million to
reflect the impairment of a trademark, as discussed in Note 2 to the unaudited condensed
consolidated financial statements included in Part 1, Item 1 of this report, and restructuring
credits of $0.1 million. We recorded net restructuring charges of $0.9 million in the first six
months of 2008.
Operating Income/(Loss)
Operating loss for the first half of 2009 was $18.2 million, compared to an operating loss of $6.7
million in the prior year period. Operating loss included an impairment charge of $0.9 million and
restructuring (credits)/charges of $(0.1) million in the first six months of 2009, compared to
restructuring charges of $0.9 million in the first six months of 2008.
Operating income for our North America segment decreased 34.8% to $20.1 million in the first half
of 2009. The decrease was driven by a 265 basis point decline in gross margin, reflecting increased
product costs, higher provisions for inventory and higher than anticipated sales returns and
allowances, partially offset by a more favorable channel mix. The
deterioration in gross margin was
partially offset by an 11.2% decrease in operating expenses, principally selling, marketing and
distribution expenses. Savings associated with the exiting of certain specialty brands in 2008
were partially offset by fixed asset write-offs related to our retail business.
Europes operating income was $20.2 million for the first half of 2009, compared to $24.9 million
in the prior year period, reflecting a 15.8% decrease in gross profit, in line with a 15.5%
decrease in revenue. This decrease was partially offset by a 15.0% decrease in operating expenses,
driven by reduced agency, marketing and distribution costs in light of lower sales volume and the
impact of foreign exchange rate movements, partially offset by an intangible asset impairment
charge.
Asias operating income was $1.2 million in the first six months of 2009, compared to an operating
loss of $0.7 million in the first six months of 2008, largely driven by a 10.5% reduction in
operating expense, due principally to reduced compensation and occupancy costs in our retail
business.
Our Unallocated Corporate expenses, which include central support and administrative costs not
allocated to our business segments, decreased 3.3% to $59.8 million. The lower expenses were
driven by the benefit from the revaluation of the Companys existing inventory to new standard
prices that is not allocated to the Companys reportable segments.
Other Income/(Expense) and Taxes
Interest income was $0.7 million and $1.6 million in the first six months of 2009 and 2008,
respectively, reflecting lower interest rates. Interest expense, which is comprised of fees
related to the establishment and maintenance of our revolving credit facility and interest paid on
short-term borrowings, was $0.2 million in each of the first six months of 2009 and 2008,
respectively.
Other
income/(expense), net included foreign exchange gains of $0.4 million and $5.2 million in the
first six months of 2009 and 2008, respectively, resulting from changes in the fair value of
financial derivatives, specifically forward contracts not designated as cash flow hedges and the
timing of settlement of our local currency denominated receivables and payables.
Form10-Q
Page 24
These gains were driven by the volatility of exchange rates within the first half of 2009 and 2008
and should not be considered indicative of expected future results.
The effective income tax rate for the first half of 2009 was 79.9%. The rate was impacted by a
benefit of approximately $6.5 million due to the closure of certain audits in the first six months
of 2009. Based on our full year estimate of global income and the geographical mix of our profits
as well as provisions for certain tax reserves, we currently expect our full year tax rate to be in
the range of 33.0%. This rate may vary if actual results differ from our current estimates, or
there are changes in our liability for uncertain tax positions.
Reconciliation of Total Company, Europe and Asia Revenue Increases/(Decreases) To Constant
Dollar Revenue Increases/(Decreases)
Total Company Revenue Reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter
|
|
For the Six Months
|
|
|
Ended July 3, 2009
|
|
Ended July 3, 2009
|
|
|
$ Millions
|
|
|
|
|
|
$ Millions
|
|
|
|
|
Change
|
|
% Change
|
|
Change
|
|
% Change
|
|
|
|
|
|
Revenue decrease (GAAP)
|
|
$
|
(30.2
|
)
|
|
|
-14.4
|
%
|
|
$
|
(74.0
|
)
|
|
|
-13.4
|
%
|
Decrease due to foreign exchange rate changes
|
|
|
(11.2
|
)
|
|
|
-5.3
|
%
|
|
|
(32.8
|
)
|
|
|
-5.9
|
%
|
|
|
|
|
|
Revenue decrease in constant dollars
|
|
$
|
(19.0
|
)
|
|
|
-9.1
|
%
|
|
$
|
(41.2
|
)
|
|
|
-7.5
|
%
|
Europe Revenue Reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter
|
|
For the Six Months
|
|
|
Ended July 3, 2009
|
|
Ended July 3, 2009
|
|
|
$ Millions
|
|
|
|
|
|
$ Millions
|
|
|
|
|
Change
|
|
% Change
|
|
Change
|
|
% Change
|
|
|
|
|
|
Revenue decrease (GAAP)
|
|
$
|
(13.1
|
)
|
|
|
-16.6
|
%
|
|
$
|
(37.8
|
)
|
|
|
-15.5
|
%
|
Decrease due to foreign exchange rate changes
|
|
|
(11.1
|
)
|
|
|
-14.1
|
%
|
|
|
(33.0
|
)
|
|
|
-13.5
|
%
|
|
|
|
|
|
Revenue decrease in constant dollars
|
|
$
|
(2.0
|
)
|
|
|
-2.5
|
%
|
|
$
|
(4.8
|
)
|
|
|
-2.0
|
%
|
Asia Revenue Reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter
|
|
For the Six Months
|
|
|
Ended July 3, 2009
|
|
Ended July 3, 2009
|
|
|
$ Millions
|
|
|
|
|
|
$ Millions
|
|
|
|
|
Change
|
|
% Change
|
|
Change
|
|
% Change
|
|
|
|
|
|
Revenue decrease (GAAP)
|
|
$
|
(3.9
|
)
|
|
|
-12.3
|
%
|
|
$
|
(5.0
|
)
|
|
|
-7.2
|
%
|
Increase due to foreign exchange rate changes
|
|
|
0.3
|
|
|
|
1.0
|
%
|
|
|
1.6
|
|
|
|
2.3
|
%
|
|
|
|
|
|
Revenue decrease in constant dollars
|
|
$
|
(4.2
|
)
|
|
|
-13.3
|
%
|
|
$
|
(6.6
|
)
|
|
|
-9.5
|
%
|
The difference between changes in reported revenue (the most comparable GAAP measure) and constant
dollar revenue changes is the impact of foreign currency. We provide constant dollar revenue
changes for total Company, Europe and Asia results because we use the measure to understand the
underlying growth rate of revenue excluding the impact of items that are not under managements
direct control, such as changes in foreign exchange rates.
Form10-Q
Page 25
Accounts Receivable and Inventory
Accounts receivable were $100.1 million as of July 3, 2009, compared with $168.7 million as of
December 31, 2008 and $121.5 million at June 27, 2008. Days sales outstanding were 50 days as of
July 3, 2009, compared with 39 days as of December 31, 2008 and 52 days as of June 27, 2008.
Wholesale days sales outstanding were 66 days for the second quarters of 2009 and 2008,
respectively and 48 days at December 31, 2008. The decrease in accounts receivable was driven by
reduced revenue and a shift in the mix of our business towards retail as compared to the same
period in 2008. We continued to maintain our collection discipline despite a reduction in sales
and the macro-economic environment.
Inventory was $180.4 million as of July 3, 2009, compared with $179.7 million at December 31, 2008
and $195.0 million as of June 27, 2008. The decrease in inventory was driven by disciplined
inventory management as our revenues have declined. Our inventory remains clean as we have seen a
reduction in our excess and obsolete inventory as a percentage of our overall inventory.
Liquidity and Capital Resources
Net cash used by operations for the first half of 2009 was $6.6 million, compared with cash
provided of $39.9 million for the first half of 2008. The decrease in cash generation was due
primarily to increased usage of cash for accounts payable, associated with the timing of inventory
payments, the timing of tax payments, and to a lesser extent, the reduction in our profitability.
Net cash used for investing activities was $9.7 million in the first half of 2009, compared with
$7.4 million in the first half of 2008. The increase is due primarily to the acquisition of
Glaudio for approximately $1.5 million.
Net cash used by financing activities was $18.1 million in the first half of 2009, compared with
$24.0 million in the first half of 2008. Cash flows used for financing activities reflect share
repurchases of $19.4 million in the first six months of 2009, compared with $25.0 million in the
first six months of 2008. We received cash inflows of $1.4 million in the first half of 2009 from
the exercise of employee stock options, compared with $0.8 million from such exercises in the first
half of 2008.
We are exposed to the credit risk of those parties with which we do business, including
counterparties on our derivative contracts and our customers. Derivative instruments expose us to
credit and market risk. The market risk associated with these instruments resulting from currency
exchange movements is expected to offset the market risk of the underlying transactions being
hedged. We do not believe there is a significant risk of loss in the event of non-performance by
the counterparties associated with these instruments because these transactions are executed with a
group of major financial institutions and have varying maturities through April 2010. As a matter
of policy, we enter into these contracts only with counterparties having a minimum investment-grade
or better credit rating. Credit risk is managed through the continuous monitoring of exposures to
such counterparties.
Additionally, consumer spending is being affected by the current macro-economic environment,
particularly the disruption of the credit and stock markets and increased unemployment. Continued
deterioration in the markets and economic conditions generally could adversely impact our customers
and their ability to access credit.
We may utilize our committed and uncommitted lines of credit to fund our seasonal working capital
needs. We have not experienced any restrictions on the availability of these lines to date and the
adverse capital and credit market conditions are not expected to significantly affect our ability
to meet our liquidity needs.
We have an unsecured committed revolving credit agreement with a group of banks, which matures on
June 2, 2011 (Agreement). The Agreement provides for $200 million of committed borrowings, of
which up to $125 million may be used for letters of credit. Any letters of credit outstanding
under the Agreement ($1.9 million at July 3, 2009) reduce the amount available for borrowing under
the Agreement. Upon approval of the bank group, we may increase the committed borrowing limit by
$100 million for a total commitment of $300 million. Under the terms of the Agreement, we may
borrow at interest rates based on Eurodollar rates (approximately 0.7% at July 3, 2009), plus an
applicable margin based on a fixed-charge coverage grid of between 13.5 and 47.5 basis points that
is adjusted quarterly. As of July 3, 2009, the applicable margin under the facility was 47.5 basis
points. We pay a utilization fee of an additional 5 basis points if our outstanding borrowings
under the facility exceed $100 million. We also pay a commitment fee of 6.5 to 15 basis points per
annum on the total commitment, based on a fixed-charge coverage grid that is adjusted quarterly.
As of July 3, 2009, the commitment fee was 15 basis points. The Agreement places certain
limitations on additional debt, stock repurchases, acquisitions, and the amount of dividends we may
pay, and includes certain other financial and non-financial covenants. The primary financial
covenants relate to maintaining a minimum fixed-charge coverage ratio of 2.25:1 and a maximum
leverage ratio of 2:1. We measure compliance with the financial and non-financial covenants and
ratios as required by the terms of the Agreement on a fiscal quarter basis, and were in compliance
for the quarter ended July 3, 2009.
Form10-Q
Page 26
We have uncommitted lines of credit available from certain banks which totaled $30 million at July
3, 2009. Any borrowings under these lines would be at prevailing money market rates. Further, we
have an uncommitted letter of credit facility of $80 million to support inventory purchases. These
arrangements may be terminated at any time at the option of the banks or at our option.
As of July 3, 2009 and June 27, 2008, we had no borrowings outstanding under any of our credit
facilities. The amount of peak borrowing under our facilities in 2008 was approximately $20.0
million, and occurred during the fourth quarter of 2008 to fund our seasonal working capital
requirements. In 2009, we expect to utilize our facilities in a similar fashion to 2008, primarily
to fund seasonal working capital requirements in the latter half of the year.
Management believes that our operating costs, capital requirements and funding for our share
repurchase program for the balance of 2009 will be funded through our current cash balances, our
existing credit facilities (which place certain limitations on additional debt, stock repurchases,
acquisitions and on the amount of dividends we may pay, and also contain certain other financial
and operating covenants) and cash from operations, without the need for additional financing.
However, as discussed in the sections entitled Cautionary Statements for Purposes of the Safe
Harbor Provisions of the Private Securities Litigation Reform Act of 1995 on page 2 of our Annual
Report on Form 10-K for the year ended December 31, 2008 (our Annual Report on Form 10-K), and
Forward Looking Information in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K,
and in Part II, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q, several risks and
uncertainties could require that the Company raise additional capital through equity and/or debt
financing. From time to time, the Company considers acquisition opportunities which, if pursued,
could also result in the need for additional financing. However, if the need arises, our ability
to obtain any additional credit facilities will depend upon prevailing market conditions, our
financial condition and the terms and conditions of such additional facilities. The continued
volatility in the credit markets could result in significant increases in borrowing costs for any
new debt we may require.
Off-Balance Sheet Arrangements
Letters of Credit
As of July 3, 2009, December 31, 2008 and June 27, 2008, we had letters of credit and guarantees
outstanding of $17.2 million, $16.1 million and $27.8 million, respectively. These letters of
credit and guarantees were issued principally in support of retail commitments.
We use funds from operations and unsecured committed and uncommitted lines of credit as the primary
sources of financing for our seasonal and other working capital requirements. Our principal risks
related to these sources of financing are the impact on our financial condition from economic
downturns, a decrease in the demand for our products, increases in the prices of materials and a
variety of other factors.
New Accounting Pronouncements
A discussion of new accounting pronouncements is included in Note 1 to the unaudited condensed
consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, our financial position and results of operations are routinely
subject to a variety of risks, including market risk associated with interest rate movements on
borrowings and investments and currency rate movements on non-U.S. dollar denominated assets,
liabilities and cash flows. We regularly assess these risks and have established policies and
business practices that should mitigate a portion of the adverse effect of these and other
potential exposures.
We utilize cash from operations and U.S. dollar denominated borrowings to fund our working capital
and investment needs. Short-term debt, if required, is used to meet working capital requirements,
and long-term debt, if required, is generally used to finance long-term investments. In addition,
we use derivative instruments to manage the impact of foreign currency fluctuations on a portion of
our foreign currency transactions. These derivative instruments are viewed as risk management
tools and are not used for trading or speculative purposes. Cash balances are invested in
high-grade securities with terms of less than three months.
Form10-Q
Page 27
We have available unsecured committed and uncommitted lines of credit as sources of financing for
our working capital requirements. Borrowings under these credit agreements bear interest at
variable rates based on either lenders cost of funds, plus an applicable spread, or prevailing
money market rates. As of July 3, 2009 and June 27, 2008, we had no short-term or long-term debt
outstanding.
Our foreign currency exposure is generated primarily from our European operating subsidiaries and,
to a lesser degree, our Asian and Canadian operating subsidiaries. We seek to mitigate the impact
of these foreign currency fluctuations through a risk management program that includes the use of
derivative financial instruments, primarily foreign currency forward contracts. These derivative
instruments are carried at fair value on our balance sheet. The Company has implemented a program
that qualifies for hedge accounting treatment to aid in mitigating our foreign currency exposures
and decreasing the volatility of our earnings. The foreign currency forward contracts under this
program will expire in 10 months or less. Based upon a sensitivity analysis as of July 3, 2009, a
10% change in foreign exchange rates would cause the fair value of our derivative instruments to
increase/decrease by approximately $11.4 million, compared to an increase/decrease of $15.1 million
at December 31, 2008 and an increase/decrease of $11.8 million at June 27, 2008.
Item 4. CONTROLS AND PROCEDURES
We maintain a system of disclosure controls and procedures which are designed to ensure that
information required to be disclosed by us in reports we file or submit under the Securities
Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commissions rules and forms. These
disclosure controls and procedures include controls and procedures designed to ensure that
information required to be disclosed under the federal securities laws is accumulated and
communicated to our management on a timely basis to allow decisions regarding required disclosure.
Based on their evaluation, our principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act, were effective as of the end of the period covered by this report. There
were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act, that occurred during the quarter ended July 3, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Part II OTHER INFORMATION
Item 1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should
carefully consider the factors discussed in the sections entitled Cautionary Statements for
Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
and Forward-looking Information on page 2 of our Annual Report on Form 10-K for the year ended
December 31, 2008 (our Annual Report on Form 10-K) and in the section entitled Risk Factors, in
Part I, Item 1A of our Annual Report on Form 10-K, which could materially affect our business,
financial condition or future results. The risks described in this Quarterly Report on Form 10-Q
and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks
and uncertainties not currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial condition or future results.
The first paragraph of the risk factor entitled
We conduct business outside the United States,
which exposes us to foreign currency, import restrictions, taxes, duties and other risks
in Part
I, Item 1A of our Annual Report on Form 10-K is hereby amended by adding the following language at
the end thereof.
Recently, the Obama Administration has proposed legislation that would fundamentally change how
U.S. multinational corporations are taxed on their global income. Although the scope of the
proposed changes is unclear, it is possible that these or other changes in the U.S. tax laws could
increase our U.S. income tax liability and adversely affect our profitability.
Form10-Q
Page 28
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Fiscal Months Ended July 3, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
of Shares
|
|
|
|
|
|
|
|
|
|
|
|
Purchased as Part
|
|
|
that May Yet
|
|
|
|
Total Number
|
|
|
|
|
|
of Publicly
|
|
|
Be Purchased
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Announced
|
|
|
Under the Plans
|
|
Period*
|
|
Purchased **
|
|
|
Paid per Share
|
|
|
Plans or Programs
|
|
|
or Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 4 May 1
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
3,668,393
|
|
May 2 May 29
|
|
|
313,030
|
|
|
|
13.49
|
|
|
|
313,030
|
|
|
|
3,355,363
|
|
May 30 July 3
|
|
|
403,890
|
|
|
|
13.92
|
|
|
|
403,890
|
|
|
|
2,951,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
716,920
|
|
|
$
|
13.73
|
|
|
|
716,920
|
|
|
|
|
|
Footnote (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved
|
|
|
|
|
Announcement
|
|
Program
|
|
Expiration
|
|
|
Date
|
|
Size (Shares)
|
|
Date
|
Program 1
|
|
|
03/10/2008
|
|
|
|
6,000,000
|
|
|
None
|
|
|
|
*
|
|
Fiscal month
|
|
**
|
|
Based on trade date not settlement date
|
Form10-Q
Page 29
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a)
|
|
We held our Annual Meeting of Stockholders on May 21, 2009 (the Annual Meeting).
|
|
(b)
|
|
At the 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
|
|
Total Votes Withheld from Each
|
Nominee
|
|
Each Director
|
|
Director
|
Ian W. Diery
|
|
|
38,125,661
|
|
|
|
4,662,508
|
|
Irene M. Esteves (1)
|
|
|
36,512,749
|
|
|
|
6,275,420
|
|
John A. Fitzsimmons
|
|
|
36,502,723
|
|
|
|
6,285,446
|
|
|
|
|
(1)
|
|
Effective June 18, 2009, Ms. Esteves resigned from the Board of
Directors. The resignation was not due to any form of disagreement with the
Company.
|
The holders of Class A Common Stock and the holders of Class B Common Stock, voting together as a
single class, elected the following directors:
|
|
|
|
|
|
|
|
|
|
|
Total Votes for
|
|
Total Votes Withheld from Each
|
Nominee
|
|
Each Director
|
|
Director
|
Sidney W. Swartz
|
|
|
153,250,468
|
|
|
|
4,829,301
|
|
Jeffrey B. Swartz
|
|
|
153,436,750
|
|
|
|
4,643,019
|
|
Virginia H. Kent
|
|
|
153,397,189
|
|
|
|
4,682,580
|
|
Kenneth T. Lombard
|
|
|
151,083,516
|
|
|
|
6,996,253
|
|
Edward W. Moneypenny
|
|
|
151,804,400
|
|
|
|
6,275,369
|
|
Peter R. Moore
|
|
|
151,809,888
|
|
|
|
6,269,881
|
|
Bill Shore
|
|
|
153,345,413
|
|
|
|
4,734,356
|
|
Terdema L. Ussery, II
|
|
|
153,445,325
|
|
|
|
4,634,444
|
|
Carden N. Welsh
|
|
|
157,609,051
|
|
|
|
470,718
|
|
There were no abstentions or broker non-votes with respect to the election of the director
nominees.
The holders of Class A Common Stock and the holders of Class B Common Stock, voting together as a
single class, ratified the appointment of Deloitte & Touche LLP as the Companys independent
registered public accounting firm. A total of 157,895,745 votes were cast in favor, 162,573 votes
were cast against, 21,451 votes were abstentions, and there were no broker non-votes.
The holders of Class A Common Stock and the holders of Class B Common Stock, voting together as a
single class, voted to approve amendments to the Companys 1991 Employee Stock Purchase Plan, as
amended (the ESPP) to increase the number of shares reserved for issuance under the ESPP from
300,000 to 500,000 and to remove the requirements that employees complete six months of continuous
service and customarily work more than twenty hours per week in order to participate in the ESPP.
A total of 154,631,007 votes were cast in favor of these amendments, 196,011 votes were cast
against, 29,339 votes were abstentions, and 3,223,412 shares resulted in broker non-votes.
Form10-Q
Page 30
Item 6. EXHIBITS
|
|
|
Exhibits.
|
|
|
|
|
|
Exhibit 10.1
|
|
Form of Director Restricted Stock Unit Agreement under The Timberland
Company 2007 Incentive Plan, filed herewith.
|
|
|
|
Exhibit 31.1
|
|
Principal Executive Officer Certification Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
|
Exhibit 31.2
|
|
Principal Financial Officer Certification Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
|
Exhibit 32.1
|
|
Chief Executive Officer Certification Pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, furnished herewith.
|
|
|
|
Exhibit 32.2
|
|
Chief Financial Officer Certification Pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, furnished herewith.
|
Form10-Q
Page 31
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 6, 2009
|
By:
|
/s/ JEFFREY B. SWARTZ
|
|
|
|
Jeffrey B. Swartz
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
Date: August 6, 2009
|
By:
|
/s/ JOHN D. CRIMMINS, III
|
|
|
|
John D. Crimmins, III
|
|
|
|
Chief Financial Officer
|
|
Form10-Q
Page 32
EXHIBIT INDEX
|
|
|
Exhibit
|
|
Description
|
|
|
|
Exhibit 10.1
|
|
Form of Director Restricted Stock Unit Agreement under The
Timberland Company 2007 Incentive Plan, filed herewith.
|
|
|
|
Exhibit 31.1
|
|
Principal Executive Officer Certification Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
|
Exhibit 31.2
|
|
Principal Financial Officer Certification Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
|
Exhibit 32.1
|
|
Chief Executive Officer Certification Pursuant to Section
1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
furnished herewith.
|
|
|
|
Exhibit 32.2
|
|
Chief Financial Officer Certification Pursuant to Section
1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
furnished herewith.
|
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