UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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|
|
þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
October 2, 2009
OR
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|
o
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|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission File Number
1-9548
The Timberland Company
(Exact name of registrant as specified in its charter)
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Delaware
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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)
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(Zip Code)
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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
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Accelerated Filer
o
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Non-Accelerated Filer
o
(Do not check if a smaller reporting company)
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Smaller Reporting Company
o
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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 October 30, 2009, 44,007,671 shares of the registrants Class A Common Stock were outstanding
and 11,339,160 shares of the registrants Class B Common Stock were outstanding.
Form 10-Q
Page 2
THE TIMBERLAND COMPANY
FORM 10-Q
TABLE OF CONTENTS
Form 10-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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October 2,
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December 31,
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September 26,
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2009
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2008
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2008
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Assets
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Current assets
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Cash and equivalents
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$
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112,851
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$
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217,189
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$
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62,686
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Accounts receivable, net of allowance for doubtful accounts of $13,578
at October 2, 2009, $14,482 at December 31, 2008 and $14,585 at
September 26, 2008
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270,272
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168,666
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267,246
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Inventory, net
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201,733
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179,688
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218,884
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Prepaid expense
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32,919
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37,139
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41,465
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Prepaid income taxes
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18,287
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16,687
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21,190
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Deferred income taxes
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23,512
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23,425
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21,826
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Derivative assets
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839
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7,109
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4,365
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|
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Total current assets
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660,413
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649,903
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637,662
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Property, plant and equipment, net
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70,664
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78,526
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80,225
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Deferred income taxes
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13,825
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18,528
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20,132
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Goodwill
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44,353
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43,870
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43,870
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Intangible assets, net
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45,948
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47,996
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51,958
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Other assets, net
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15,161
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10,576
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11,670
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Total assets
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$
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850,364
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$
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849,399
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$
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845,517
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Liabilities and Stockholders Equity
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Current liabilities
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Accounts payable
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$
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89,681
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$
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96,901
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$
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94,834
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Accrued expense
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|
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|
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Payroll and related
|
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30,478
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32,587
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30,166
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Other
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88,256
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79,503
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81,839
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Income taxes payable
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18,224
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20,697
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23,529
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Derivative liabilities
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3,994
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2,386
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1,724
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|
|
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Total current liabilities
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230,633
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232,074
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232,092
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Other long-term liabilities
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36,146
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40,787
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41,774
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Commitments and contingencies
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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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Class A Common Stock, $.01 par value (1 vote per share); 120,000,000
shares authorized; 74,265,471 shares issued at October 2, 2009,
73,806,026 shares issued at December 31, 2008 and 73,757,691 shares
issued at September 26, 2008
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743
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|
738
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738
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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; 11,339,160 shares issued and outstanding at October 2, 2009,
and 11,529,160 shares issued and outstanding at December 31, 2008 and
September 26, 2008
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113
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|
|
|
115
|
|
|
|
115
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|
Additional paid-in capital
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|
264,484
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|
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|
260,267
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257,715
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Retained earnings
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952,429
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918,039
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904,901
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Accumulated other comprehensive income
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12,195
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12,543
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23,346
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Treasury Stock at cost; 30,257,800 Class A shares at October 2, 2009,
and 27,766,651 Class A shares at December 31, 2008 and September 26,
2008
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(646,379
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)
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|
(615,164
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)
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|
(615,164
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)
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|
|
|
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|
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Total stockholders equity
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583,585
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576,538
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571,651
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Total liabilities and stockholders equity
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$
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850,364
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$
|
849,399
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$
|
845,517
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|
|
|
|
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|
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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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For the Quarter Ended
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For the Nine Months Ended
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October 2,
|
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September 26,
|
|
|
October 2,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Revenue
|
|
$
|
421,766
|
|
|
$
|
423,606
|
|
|
$
|
898,116
|
|
|
$
|
973,924
|
|
Cost of goods sold
|
|
|
227,254
|
|
|
|
226,595
|
|
|
|
491,407
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|
|
|
527,109
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Gross profit
|
|
|
194,512
|
|
|
|
197,011
|
|
|
|
406,709
|
|
|
|
446,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
107,314
|
|
|
|
114,100
|
|
|
|
284,609
|
|
|
|
315,539
|
|
General and administrative
|
|
|
28,805
|
|
|
|
29,486
|
|
|
|
81,118
|
|
|
|
83,713
|
|
Impairment of intangible asset
|
|
|
|
|
|
|
|
|
|
|
925
|
|
|
|
|
|
Restructuring and related (credits)/costs
|
|
|
(88
|
)
|
|
|
185
|
|
|
|
(209
|
)
|
|
|
1,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
136,031
|
|
|
|
143,771
|
|
|
|
366,443
|
|
|
|
400,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
58,481
|
|
|
|
53,240
|
|
|
|
40,266
|
|
|
|
46,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
106
|
|
|
|
457
|
|
|
|
845
|
|
|
|
2,034
|
|
Interest expense
|
|
|
(117
|
)
|
|
|
(121
|
)
|
|
|
(355
|
)
|
|
|
(354
|
)
|
Other income/(expense), net
|
|
|
2,626
|
|
|
|
(2,454
|
)
|
|
|
3,629
|
|
|
|
2,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income/(expense), net
|
|
|
2,615
|
|
|
|
(2,118
|
)
|
|
|
4,119
|
|
|
|
4,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
61,096
|
|
|
|
51,122
|
|
|
|
44,385
|
|
|
|
51,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
23,339
|
|
|
|
20,464
|
|
|
|
9,995
|
|
|
|
21,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37,757
|
|
|
$
|
30,658
|
|
|
$
|
34,390
|
|
|
$
|
29,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.68
|
|
|
$
|
.53
|
|
|
$
|
.61
|
|
|
$
|
.51
|
|
Diluted
|
|
$
|
.68
|
|
|
$
|
.52
|
|
|
$
|
.61
|
|
|
$
|
.50
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
55,744
|
|
|
|
58,078
|
|
|
|
56,385
|
|
|
|
58,868
|
|
Diluted
|
|
|
55,908
|
|
|
|
58,471
|
|
|
|
56,692
|
|
|
|
59,271
|
|
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 Nine Months Ended
|
|
|
|
October 2,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
34,390
|
|
|
$
|
29,768
|
|
Adjustments to reconcile net income to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
5,041
|
|
|
|
2,420
|
|
Share-based compensation
|
|
|
4,163
|
|
|
|
6,225
|
|
Depreciation and other amortization
|
|
|
21,582
|
|
|
|
24,239
|
|
Provision for losses on accounts receivable
|
|
|
4,180
|
|
|
|
4,517
|
|
Provision for intangible assets impairment
|
|
|
925
|
|
|
|
|
|
Tax expense from share-based compensation, net of excess benefit
|
|
|
(1,804
|
)
|
|
|
(1,161
|
)
|
Unrealized (gain)/loss on derivatives
|
|
|
554
|
|
|
|
(268
|
)
|
Other non-cash charges, net
|
|
|
930
|
|
|
|
964
|
|
Increase/(decrease) in cash from changes in working capital:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(103,264
|
)
|
|
|
(82,671
|
)
|
Inventory
|
|
|
(18,891
|
)
|
|
|
(17,063
|
)
|
Prepaid expense and other assets
|
|
|
1,265
|
|
|
|
401
|
|
Accounts payable
|
|
|
(8,099
|
)
|
|
|
9,009
|
|
Accrued expense
|
|
|
5,263
|
|
|
|
756
|
|
Prepaid income taxes
|
|
|
(1,600
|
)
|
|
|
(3,829
|
)
|
Income taxes payable
|
|
|
(7,208
|
)
|
|
|
8,413
|
|
Other liabilities
|
|
|
(175
|
)
|
|
|
(3,239
|
)
|
|
|
|
|
|
|
|
Net cash used by operating activities
|
|
|
(62,748
|
)
|
|
|
(21,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of business, net of cash acquired
|
|
|
(1,554
|
)
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(11,078
|
)
|
|
|
(15,313
|
)
|
Other
|
|
|
(601
|
)
|
|
|
3,627
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(13,233
|
)
|
|
|
(11,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Common stock repurchases
|
|
|
(29,285
|
)
|
|
|
(45,081
|
)
|
Issuance of common stock
|
|
|
1,373
|
|
|
|
1,407
|
|
Excess tax benefit from share-based compensation
|
|
|
136
|
|
|
|
179
|
|
Other
|
|
|
(1,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(29,024
|
)
|
|
|
(43,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and equivalents
|
|
|
667
|
|
|
|
(3,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and equivalents
|
|
|
(104,338
|
)
|
|
|
(80,588
|
)
|
Cash and equivalents at beginning of period
|
|
|
217,189
|
|
|
|
143,274
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of period
|
|
$
|
112,851
|
|
|
$
|
62,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
309
|
|
|
$
|
260
|
|
Income taxes paid
|
|
$
|
15,460
|
|
|
$
|
15,697
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Form 10-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 November 5, 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 third quarter and
first nine months of our fiscal year in 2009 and 2008 ended on October 2, 2009 and September 26,
2008, respectively.
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic (ASC)
105, Generally Accepted Accounting Principles (ASC 105), establishes the FASB Standards
Accounting Codification (Codification) as the source of authoritative U.S. generally accepted
accounting principles (GAAP) recognized by the FASB to be applied to nongovernmental entities,
and rules and interpretive releases of the SEC as authoritative GAAP for SEC registrants. The
Codification will supersede all the existing non-SEC accounting and reporting standards effective
for financial statements issued for annual and interim periods ending after September 15, 2009, and
subsequently, the FASB will not issue new standards in the form of Statements, FASB Staff Positions
or Emerging Issues Task Force Abstracts. ASC 105 is not intended to change or alter existing US
GAAP. The Codification changes the references of financial standards in effect for the Company.
Beginning with the third quarter of 2009, all references made to U.S. GAAP use the new Codification
numbering system prescribed by the FASB. ASC 105 did not have any impact on the Companys
financial position, results of operations and cash flows.
ASC 805, Business Combinations (ASC 805), 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. ASC 805 is effective for business
combinations made by the Company on or after January 1, 2009.
ASC 815, Derivatives and Hedging (ASC 815), sets forth 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 ASC 815; and (c) how derivative instruments and related hedged items affect an entitys
financial position, financial performance and cash flows. The Company adopted the disclosures
required by ASC 815-10-50 effective with the interim financial statements for the quarter ending
April 3, 2009.
ASC 820, Fair Value Measurements and Disclosures (ASC 820), requires disclosures about fair value
of financial instruments in interim reporting periods as well as in annual financial statements.
The Company adopted the interim disclosure provisions of ASC 820-10-50 as of July 3, 2009.
Although the adoption 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.
Form 10-Q
Page 8
ASC 855, Subsequent Events (ASC 855), 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 the disclosure provisions of ASC 855 effective with the interim financial
statements for the quarter ending July 3, 2009. Although the adoption 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.
The FASB recently issued Accounting Standards Update No. 2009-05 (ASU No. 2009-05), Fair Value
Measurement and Disclosures: Measuring Liabilities at Fair Value, (ASC 820-10). The guidance in
ASU No. 2009-05 provides clarification on measuring liabilities at fair value when a quoted price
in an active market is not available. In such circumstances, ASU No. 2009-05 specifies that a
valuation technique should be applied that uses either the quote of the liability when traded as an
asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or
another valuation technique consistent with existing fair value measurement guidance. The guidance
also states that when estimating the fair value of a liability, a reporting entity is not required
to include a separate input or adjustments to other inputs relating to the existence of a
restriction that prevents the transfer of the liability. ASU No. 2009-05 is effective for the
Company beginning with the quarter ending December 31, 2009, and its adoption is not expected to
have a material impact on the Companys unaudited condensed consolidated financial statements.
Note 2. Fair Value Measurements
The provisions of ASC 820 relating 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.
ASC 820 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 October 2, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Impact of Netting
|
|
October 2, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
63,116
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
63,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
|
|
|
$
|
1,126
|
|
|
$
|
|
|
|
$
|
(178
|
)
|
|
$
|
948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash surrender value
of life insurance
|
|
$
|
|
|
|
$
|
7,740
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
|
|
|
$
|
4,402
|
|
|
$
|
|
|
|
$
|
(178
|
)
|
|
$
|
4,224
|
|
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
Form 10-Q
Page 9
derivative contracts above include $109 of
assets included in other assets, net on our unaudited condensed consolidated balance sheet and $230
of liabilities included in other long-term liabilities on our unaudited condensed consolidated
balance sheet. 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.
During the first quarter of 2009, the Company evaluated 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. Considering such factors as 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, 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. The charge is reflected in our Europe segment.
During the third quarter of 2009, the Company evaluated the carrying value of certain long-lived
fixed assets, specifically certain footwear molds used in our production process. Based on an
evaluation that included Level 3 input factors such as actual and planned production levels and
style changes, the Company determined that the carrying value of the molds was impaired and we
recorded a pre-tax non-cash charge of approximately $740, which reduced the carrying value of the
molds to zero. The charge is reflected in Unallocated Corporate in our segment reporting.
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 January 2011. 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
monthly 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
Form 10-Q
Page 10
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 October 2, 2009, we had forward contracts maturing at various dates through January 2011 to
sell the equivalent of $109,044 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
|
|
|
Maturity
|
|
Currency
|
|
(U.S. $ Equivalent)
|
|
|
Date
|
|
Pounds Sterling
|
|
$
|
5,804
|
|
|
|
2009
|
|
Pounds Sterling
|
|
|
14,131
|
|
|
|
2010
|
|
Pounds Sterling
|
|
|
811
|
|
|
|
2011
|
|
Euro
|
|
|
13,701
|
|
|
|
2009
|
|
Euro
|
|
|
50,552
|
|
|
|
2010
|
|
Euro
|
|
|
733
|
|
|
|
2011
|
|
Japanese Yen
|
|
|
7,426
|
|
|
|
2009
|
|
Japanese Yen
|
|
|
14,803
|
|
|
|
2010
|
|
Japanese Yen
|
|
|
1,083
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
$
|
109,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 October 2, 2009, we had forward contracts maturing at various dates through January 2010 to
sell the equivalent of $59,312 in foreign currencies at contracted rates and to buy the equivalent
of $(15,901) 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
|
|
|
Maturity
|
|
Currency
|
|
(U.S. $ Equivalent)
|
|
|
Date
|
|
Pounds Sterling
|
|
$
|
(15,901
|
)
|
|
|
2010
|
|
Euro
|
|
|
25,577
|
|
|
|
2010
|
|
Japanese Yen
|
|
|
14,493
|
|
|
|
2010
|
|
Canadian Dollar
|
|
|
10,403
|
|
|
|
2010
|
|
Norwegian Kroner
|
|
|
5,145
|
|
|
|
2010
|
|
Swedish Krona
|
|
|
3,694
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Form 10-Q
Page 11
Fair Values of Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
As of October 2, 2009
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Derivative assets
|
|
$
|
831
|
|
|
Derivative liabilities
|
|
$
|
3,998
|
|
Foreign exchange forward contracts
|
|
Derivative liabilities
|
|
|
154
|
|
|
Derivative assets
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other assets
|
|
|
127
|
|
|
Other long-term liabilities
|
|
|
236
|
|
Foreign exchange forward contracts
|
|
Other long-term liabilities
|
|
|
6
|
|
|
Other assets
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as
hedging instruments
|
|
|
|
$
|
1,118
|
|
|
|
|
$
|
4,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Derivative assets
|
|
$
|
8
|
|
|
Derivative liabilities
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as
hedging instruments
|
|
|
|
$
|
8
|
|
|
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
1,126
|
|
|
|
|
$
|
4,402
|
|
|
|
|
|
|
|
|
|
|
|
|
The Effect of Derivative Instruments on the Statement of Operations for the Quarters Ended
October 2, 2009 and September 26, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss)
|
|
|
Amount of Gain/(Loss)
|
|
Location of Gain/(Loss)
|
|
Reclassified from
|
|
|
Recognized in OCI on
|
|
Reclassified from
|
|
Accumulated OCI into
|
|
|
Derivatives
|
|
Accumulated OCI into
|
|
Income
|
Derivatives in Cash Flow
|
|
(Effective Portion)
|
|
Income
|
|
(Effective Portion)
|
Hedging Relationships
|
|
2009
|
|
2008
|
|
(Effective Portion)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
(2,939
|
)
|
|
$
|
2,563
|
|
|
Cost of goods sold
|
|
$
|
(3,794
|
)
|
|
$
|
(1,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain/(Loss)
|
|
Amount of Gain/(Loss)
|
|
|
Recognized in
|
|
Recognized in
|
Derivatives not Designated
|
|
Income on
|
|
Income on Derivatives
|
as Hedging Instruments
|
|
Derivatives
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other income/(expense), net
|
|
$
|
(1,651
|
)
|
|
$
|
(1,642
|
)
|
Form 10-Q
Page 12
The Effect of Derivative Instruments on the Statement of Operations for the Nine Months Ended
October 2, 2009 and September 26, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss)
|
|
|
Amount of Gain/(Loss)
|
|
Location of Gain/(Loss)
|
|
Reclassified from
|
|
|
Recognized in OCI on
|
|
Reclassified from
|
|
Accumulated OCI into
|
|
|
Derivatives
|
|
Accumulated OCI into
|
|
Income
|
Derivatives in Cash Flow
|
|
(Effective Portion)
|
|
Income
|
|
(Effective Portion)
|
Hedging Relationships
|
|
2009
|
|
2008
|
|
(Effective Portion)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
(2,939
|
)
|
|
$
|
2,563
|
|
|
Cost of goods sold
|
|
$
|
3,865
|
|
|
$
|
(7,107
|
)
|
The Company expects to reclassify pre-tax losses of $3,050 to the statement of operations in cost
of goods sold within the next twelve months.
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain/(Loss)
|
|
Amount of Gain/(Loss)
|
|
|
Recognized in
|
|
Recognized in
|
Derivatives not Designated
|
|
Income on
|
|
Income on Derivatives
|
as Hedging Instruments
|
|
Derivatives
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Other income/(expense), net
|
|
$
|
996
|
|
|
$
|
799
|
|
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. The amount of hedge ineffectiveness reported in other
income/(expense), net for the quarters and nine months ended October 2, 2009 and September 26,
2008, respectively, was not material.
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 for the nine months ended October 2, 2009 is a net loss of
approximately $14 related to these contracts.
Note 4. Share-Based Compensation
Share-based compensation costs were as follows in the quarters and nine months ended October 2,
2009 and September 26, 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
|
October 2, 2009
|
|
|
September 26, 2008
|
|
Cost of goods sold
|
|
$
|
252
|
|
|
$
|
361
|
|
Selling expense
|
|
|
846
|
|
|
|
1,038
|
|
General and administrative expense
|
|
|
485
|
|
|
|
608
|
|
|
|
|
|
|
|
|
Total share-based compensation
|
|
$
|
1,583
|
|
|
$
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
October 2, 2009
|
|
|
September 26, 2008
|
|
Cost of goods sold
|
|
$
|
611
|
|
|
$
|
987
|
|
Selling expense
|
|
|
2,270
|
|
|
|
3,331
|
|
General and administrative expense
|
|
|
1,282
|
|
|
|
1,907
|
|
|
|
|
|
|
|
|
Total share-based compensation
|
|
$
|
4,163
|
|
|
$
|
6,225
|
|
|
|
|
|
|
|
|
Form 10-Q
Page 13
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
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 will 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 815,000,
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 $1,960 as of October 2, 2009.
This expense is expected to be recognized over a weighted-average period of 2.4 years.
The maximum number of shares subject to exercise with respect to PVSOs under the 2009 LTIP is
1,086,668, 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 assumptions in the table below for the nine
months ended October 2, 2009. No awards were made under the 2009 LTIP for the quarter ended
October 2, 2009.
|
|
|
|
|
|
|
For the Nine
|
|
|
Months Ended
|
|
|
October 2, 2009
|
Expected volatility
|
|
|
41.9
|
%
|
Risk-free interest rate
|
|
|
1.9
|
%
|
Expected life (in years)
|
|
|
6.4
|
|
Expected dividends
|
|
|
|
|
Based on current estimates of the performance metrics, unrecognized compensation expense related to
PVSOs was $1,508 as of October 2, 2009. This expense is expected to be recognized over a
weighted-average period of 3.4 years.
Form 10-Q
Page 14
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 Nine Months Ended
|
|
|
October 2,
|
|
September 26,
|
|
October 2,
|
|
September 26,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Expected volatility
|
|
|
45.9
|
%
|
|
|
33.7
|
%
|
|
|
43.3
|
%
|
|
|
32.3
|
%
|
Risk-free interest rate
|
|
|
2.5
|
%
|
|
|
3.1
|
%
|
|
|
2.0
|
%
|
|
|
3.1
|
%
|
Expected life (in years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
6.2
|
|
|
|
6.4
|
|
Expected dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes transactions for the nine months ended October 2, 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
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
Outstanding at January 1, 2009
|
|
|
4,163,628
|
|
|
$
|
26.03
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
395,179
|
|
|
|
11.27
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(102,800
|
)
|
|
|
8.41
|
|
|
|
|
|
|
|
|
|
Expired or forfeited
|
|
|
(385,059
|
)
|
|
|
24.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 2, 2009
|
|
|
4,070,948
|
|
|
$
|
25.22
|
|
|
|
5.6
|
|
|
$
|
799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at
October 2, 2009
|
|
|
4,014,165
|
|
|
$
|
25.39
|
|
|
|
5.5
|
|
|
$
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at October 2, 2009
|
|
|
3,379,496
|
|
|
$
|
27.27
|
|
|
|
4.9
|
|
|
$
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation expense related to nonvested stock options was $2,279 as of October 2,
2009. This expense is expected to be recognized over a weighted-average period of 1.4 years.
Nonvested Shares
Changes in the Companys nonvested shares that are not performance-based for the nine months ended
October 2, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
Stock
|
|
|
Grant Date
|
|
|
Stock
|
|
|
Grant Date
|
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Units
|
|
|
Fair Value
|
|
Nonvested at January 1, 2009
|
|
|
278,553
|
|
|
$
|
25.39
|
|
|
|
182,600
|
|
|
$
|
14.45
|
|
Awarded
|
|
|
62,399
|
|
|
|
9.34
|
|
|
|
179,671
|
|
|
|
13.01
|
|
Vested
|
|
|
(239,644
|
)
|
|
|
25.52
|
|
|
|
(53,099
|
)
|
|
|
14.83
|
|
Forfeited
|
|
|
(15,206
|
)
|
|
|
10.99
|
|
|
|
(12,085
|
)
|
|
|
13.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at October 2, 2009
|
|
|
86,102
|
|
|
$
|
15.59
|
|
|
|
297,087
|
|
|
$
|
13.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation expense related to nonvested restricted stock awards was $303 as of
October 2, 2009. The expense is expected to be recognized over a weighted-average period of 1.0
years. As of October 2, 2009, 86,102 nonvested stock awards, with a weighted-average grant date
fair value of $15.59, are expected to vest. Unrecognized compensation expense related to nonvested
restricted stock units was $2,757 as of October 2, 2009. The expense is expected to be recognized
over a weighted-average period of 1.3 years. As of October 2, 2009, 269,740 nonvested stock units,
with a weighted-average grant date fair value of $13.57, are expected to vest in the future.
Note 5. Earnings Per Share (EPS)
Basic EPS excludes common stock equivalents and is computed by dividing net income by the
weighted-average number of common shares outstanding for the periods presented. Diluted EPS
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.
Form 10-Q
Page 15
In June 2008, the FASB issued ASC 260-10-45-60 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (ASC 260-10-45-60) which became
effective for the Company beginning January 1, 2009. ASC 260-10-45-60 clarifies that share-based
payment awards that entitle their holders to receive nonforfeitable dividends before vesting,
regardless of whether paid or unpaid, should be considered participating securities and included in
the computation of earnings per share pursuant to the two-class method. The adoption of ASC
260-10-45-60 did not have a material impact on the Companys consolidated financial statements.
The following is a reconciliation of the number of shares (in thousands) for the basic and diluted
EPS computations for the quarter and nine months ended October 2, 2009 and September 26, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
|
October 2, 2009
|
|
|
September 26, 2008
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Per-
|
|
|
|
|
|
|
Weighted-
|
|
|
Per-
|
|
|
|
Net
|
|
|
Average
|
|
|
Share
|
|
|
Net
|
|
|
Average
|
|
|
Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
Basic EPS
|
|
$
|
37,757
|
|
|
|
55,744
|
|
|
$
|
.68
|
|
|
$
|
30,658
|
|
|
|
58,078
|
|
|
$
|
.53
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and
employee stock
purchase plan
shares
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
Nonvested shares
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
348
|
|
|
|
(.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
37,757
|
|
|
|
55,908
|
|
|
$
|
.68
|
|
|
$
|
30,658
|
|
|
|
58,471
|
|
|
$
|
.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
October 2, 2009
|
|
|
September 26, 2008
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Per-
|
|
|
|
|
|
|
Weighted-
|
|
|
Per-
|
|
|
|
Net
|
|
|
Average
|
|
|
Share
|
|
|
Net
|
|
|
Average
|
|
|
Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
Basic EPS
|
|
$
|
34,390
|
|
|
|
56,385
|
|
|
$
|
.61
|
|
|
$
|
29,768
|
|
|
|
58,868
|
|
|
$
|
.51
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and
employee stock
purchase plan
shares
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
Nonvested shares
|
|
|
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
353
|
|
|
|
(.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
34,390
|
|
|
|
56,692
|
|
|
$
|
.61
|
|
|
$
|
29,768
|
|
|
|
59,271
|
|
|
$
|
.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following stock options and nonvested shares (in thousands) were outstanding as of October 2,
2009 and September 26, 2008, but were not included in the computation of diluted EPS as their
inclusion would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
For the Nine Months Ended
|
|
|
October 2, 2009
|
|
September 26, 2008
|
|
October 2, 2009
|
|
September 26, 2008
|
Anti-dilutive securities
|
|
|
3,994
|
|
|
|
4,235
|
|
|
|
4,056
|
|
|
|
4,324
|
|
Form 10-Q
Page 16
Note 6. Comprehensive Income
Comprehensive income for the quarters and nine months ended October 2, 2009 and September 26, 2008
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
For the Nine Months Ended
|
|
|
|
October 2, 2009
|
|
|
September 26, 2008
|
|
|
October 2, 2009
|
|
|
September 26, 2008
|
|
Net income
|
|
$
|
37,757
|
|
|
$
|
30,658
|
|
|
$
|
34,390
|
|
|
$
|
29,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cumulative translation adjustment
|
|
|
3,838
|
|
|
|
(10,304
|
)
|
|
|
7,220
|
|
|
|
(2,948
|
)
|
Change in fair value of cash flow hedges,
net of taxes
|
|
|
(731
|
)
|
|
|
8,813
|
|
|
|
(7,568
|
)
|
|
|
6,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
40,864
|
|
|
$
|
29,167
|
|
|
$
|
34,042
|
|
|
$
|
33,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income as of October 2, 2009, December 31,
2008 and September 26, 2008 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2009
|
|
|
December 31, 2008
|
|
|
September 26, 2008
|
|
Cumulative translation adjustment
|
|
$
|
14,996
|
|
|
$
|
7,776
|
|
|
$
|
20,783
|
|
Fair value of cash flow hedges, net of taxes of $(155)
at October 2, 2009, $244 at December 31, 2008 and $132
at September 26, 2008
|
|
|
(2,939
|
)
|
|
|
4,629
|
|
|
|
2,563
|
|
Other adjustments, net of taxes of $7 at October 2, 2009 and December 31, 2008
|
|
|
138
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,195
|
|
|
$
|
12,543
|
|
|
$
|
23,346
|
|
|
|
|
|
|
|
|
|
|
|
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, U.S. 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.
Form 10-Q
Page 17
For the Quarter Ended October 2, 2009 and September 26, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
North America
|
|
Europe
|
|
Asia
|
|
Corporate
|
|
Consolidated
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
188,247
|
|
|
$
|
195,244
|
|
|
$
|
38,275
|
|
|
$
|
|
|
|
$
|
421,766
|
|
Operating income/(loss)
|
|
|
47,286
|
|
|
|
42,013
|
|
|
|
4,119
|
|
|
|
(34,937
|
)
|
|
|
58,481
|
|
Income/(loss) before income taxes
|
|
|
47,286
|
|
|
|
42,013
|
|
|
|
4,119
|
|
|
|
(32,322
|
)
|
|
|
61,096
|
|
Total assets
|
|
|
320,014
|
|
|
|
341,065
|
|
|
|
60,675
|
|
|
|
128,610
|
|
|
|
850,364
|
|
Goodwill
|
|
|
36,876
|
|
|
|
7,477
|
|
|
|
|
|
|
|
|
|
|
|
44,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
184,516
|
|
|
$
|
199,933
|
|
|
$
|
39,157
|
|
|
$
|
|
|
|
$
|
423,606
|
|
Operating income/(loss)
|
|
|
44,073
|
|
|
|
51,467
|
|
|
|
(760
|
)
|
|
|
(41,540
|
)
|
|
|
53,240
|
|
Income/(loss) before income taxes
|
|
|
44,073
|
|
|
|
51,467
|
|
|
|
(760
|
)
|
|
|
(43,658
|
)
|
|
|
51,122
|
|
Total assets
|
|
|
330,260
|
|
|
|
308,751
|
|
|
|
79,616
|
|
|
|
126,890
|
|
|
|
845,517
|
|
Goodwill
|
|
|
36,876
|
|
|
|
6,994
|
|
|
|
|
|
|
|
|
|
|
|
43,870
|
|
For the Nine Months Ended October 2, 2009 and September 26, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
North America
|
|
Europe
|
|
Asia
|
|
Corporate
|
|
Consolidated
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
394,419
|
|
|
$
|
400,913
|
|
|
$
|
102,784
|
|
|
$
|
|
|
|
$
|
898,116
|
|
Operating income/(loss)
|
|
|
67,404
|
|
|
|
62,210
|
|
|
|
5,351
|
|
|
|
(94,699
|
)
|
|
|
40,266
|
|
Income/(loss) before income taxes
|
|
|
67,404
|
|
|
|
62,210
|
|
|
|
5,351
|
|
|
|
(90,580
|
)
|
|
|
44,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
421,807
|
|
|
$
|
443,406
|
|
|
$
|
108,711
|
|
|
$
|
|
|
|
$
|
973,924
|
|
Operating income/(loss)
|
|
|
74,935
|
|
|
|
76,364
|
|
|
|
(1,399
|
)
|
|
|
(103,391
|
)
|
|
|
46,509
|
|
Income/(loss) before income taxes
|
|
|
74,935
|
|
|
|
76,364
|
|
|
|
(1,399
|
)
|
|
|
(98,782
|
)
|
|
|
51,118
|
|
The following summarizes our revenue by product for the quarters and nine months ended October 2,
2009 and September 26, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
For the Nine Months Ended
|
|
|
|
October 2, 2009
|
|
|
September 26, 2008
|
|
|
October 2, 2009
|
|
|
September 26, 2008
|
|
Footwear
|
|
$
|
319,145
|
|
|
$
|
313,544
|
|
|
$
|
657,739
|
|
|
$
|
693,094
|
|
Apparel and accessories
|
|
|
95,824
|
|
|
|
102,678
|
|
|
|
221,729
|
|
|
|
263,244
|
|
Royalty and other
|
|
|
6,797
|
|
|
|
7,384
|
|
|
|
18,648
|
|
|
|
17,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
421,766
|
|
|
$
|
423,606
|
|
|
$
|
898,116
|
|
|
$
|
973,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Form 10-Q
Page 18
Note 8. Inventory, net
Inventory, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2009
|
|
|
December 31, 2008
|
|
|
September 26, 2008
|
|
Materials
|
|
$
|
8,824
|
|
|
$
|
7,708
|
|
|
$
|
9,137
|
|
Work-in-process
|
|
|
935
|
|
|
|
825
|
|
|
|
1,138
|
|
Finished goods
|
|
|
191,974
|
|
|
|
171,155
|
|
|
|
208,609
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
201,733
|
|
|
$
|
179,688
|
|
|
$
|
218,884
|
|
|
|
|
|
|
|
|
|
|
|
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. During the third quarter of 2009, we recorded a net benefit of
approximately $800 in our tax provision related to the lapse of certain statutes of limitation.
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 755,410 and 2,372,839
for the quarter and nine months ended October 2, 2009, respectively. As of October 2, 2009,
2,196,063 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 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 third quarter of 2009 financial performance, compared to the third quarter of
2008, follows:
|
|
|
Revenue decreased slightly to $421.8 million, but rose 1.7% on a constant dollar basis.
|
|
|
|
|
Gross margin decreased 40 basis points to 46.1%.
|
|
|
|
|
Operating expenses were down 5.4% to $136.0 million.
|
|
|
|
|
Operating income increased 9.8% to $58.5 million.
|
|
|
|
|
Net income increased from $30.7 million to $37.8 million.
|
|
|
|
|
Diluted earnings per share increased from $.52 to $.68.
|
|
|
|
|
Cash at the end of the quarter was $112.9 million with no debt outstanding.
|
Form 10-Q
Page 20
Results of Operations for the Quarter Ended October 2, 2009 as Compared to the Quarter Ended
September 26, 2008
Revenue
Consolidated revenue was $421.8 million, relatively flat compared to the third quarter of 2008 and
up 1.7% on a constant
dollar basis. Strong growth in boots, SmartWool
®
products, and performance footwear
were offset by declines in Timberland
®
apparel, casual footwear and the strengthening of
the U.S. dollar relative to the British Pound and the Euro versus the prior year period. North
America revenue totaled $188.3 million, a 2.0% increase from 2008. Europe revenues were $195.2
million, a 2.3% decrease over 2008, but rose 3.3% on a constant dollar basis. Asia revenues
decreased 2.3%, to $38.3 million, and declined 9.1% on a constant dollar basis.
Products
Worldwide footwear revenue grew $5.6 million, or 1.8%, to $319.2 million in the third quarter of
2009, compared to $313.5 million in the third quarter of 2008. Growth in boots and performance
footwear offset continued declines in casual footwear. The launch of Timberland
®
Mountain
Athletics
®
collection favorably impacted global performance footwear revenues for the
quarter. Worldwide apparel and accessories revenue fell 6.7% to $95.8 million, driven by a
global decline in Timberland
®
apparel which was partially offset by strong growth in
SmartWool
®
products. Royalty and other revenue was $6.8 million in the third quarter of
2009, compared to $7.4 million in the prior year quarter, reflecting a decrease in sales of
licensed childrens apparel internationally.
Channels
Wholesale revenue was $342.3 million, relatively flat compared to the prior year quarter. Growth
in North America, driven by demand for kids boots and SmartWool
®
products, was offset
by lower revenues in Europe due to unfavorable foreign currency impacts, and declines in Asia,
where growth in Japan was offset by declines in Hong Kong and the Asian distributor business.
Retail revenues decreased 4.2% to $79.5 million as a result of unfavorable foreign exchange rate
movements and challenges in the North America outlet and Asia specialty markets. Overall,
comparable store sales were down 6.6% on a global basis, with declines in North America and Asia
partially offset by growth in Europe. We had 213 Company-owned stores, shops and outlets worldwide
at the end of the third quarter of 2009 compared to 210 at the end of the third quarter of 2008.
We continued investment in our retail infrastructure in North America and Europe, but closed
underperforming stores in Asia.
Gross Profit
Gross profit as a percentage of sales, or gross margin, was 46.1% for the third quarter of 2009, 40
basis points lower than in the third quarter of 2008. The effects of higher product costs, the
strengthening of the U.S. dollar relative to the British Pound and Euro and lower margins in our
off-price business in certain regions were partially offset by faster relative growth in high
margin regions and products, sourcing cost initiatives, and lower provisions for inventory and
returns.
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 $18.0 million and $20.5 million for the third
quarter of 2009 and 2008, respectively. The decrease was primarily driven by lower costs
associated with our transition to an outsourcing arrangement for our international apparel sourcing
and, to a lesser extent, our transition to a licensing arrangement in our North America wholesale
apparel business.
Operating Expense
Operating expense for the third quarter of 2009 was $136.0 million, a decrease of $7.7 million, or
5.4%, over the third quarter of 2008. The decrease was driven by a $6.8 million decrease in
selling expense and a $0.7 million decrease in general and administrative expenses. Overall,
changes in foreign exchange rates reduced operating expense by approximately $3.5 million in the
third quarter of 2009. We continue to execute cost containment strategies throughout our
businesses and make selective investments behind strategic priorities.
Form 10-Q
Page 21
Selling expense was $107.3 million in the third quarter of 2009, a decrease of $6.8 million, or
5.9%, over the same period in 2008. The year over year improvement reflects the benefit from a
strong U.S. dollar, a decline in advertising expenses and other discretionary spending from our
cost containment initiatives and lower volume-driven costs in our wholesale business. These
benefits were partially offset by increases in incentive compensation and provisions for doubtful
accounts receivable related to certain franchisees.
We include the costs of physically managing inventory (warehousing and handling costs) in selling
expense. These costs totaled $10.2 million and $11.3 million in the third quarter of 2009 and
2008, respectively.
In the third quarters of 2009 and 2008, we recorded $0.7 million and $0.9 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 $5.2 million and $5.8 million for the
quarters ended October 2, 2009 and September 26, 2008, respectively.
Advertising expense, which is included in selling expense, was $8.8 million and $11.1 million in
the third quarter of 2009 and 2008, respectively. Advertising expense includes co-op advertising
costs, consumer-facing advertising such as print, television and internet campaigns, production
costs including agency fees, and catalogs. Increased investment in consumer-facing marketing
programs such as radio and internet initiatives was offset by lower levels of television and co-op
advertising. Television advertising in the third quarter of 2008 included a global campaign which
coincided with the Olympics. Our commitment to strengthen our premium brand position through
consumer-facing advertising initiatives remains key to driving our strategy forward. 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 October 2, 2009 and September 26, 2008 was $2.4 million and $4.7
million, respectively.
General and administrative expense for the third quarter of 2009 was $28.8 million, a decrease of
2.3% compared to the third quarter of 2008. The decrease was driven primarily by favorable foreign
exchange rate movements and a reduction in discretionary spending, partially offset by increases in
incentive compensation.
We recorded net restructuring charges of $0.2 million during the third quarter of 2008 to reflect
costs associated with our decision to close certain retail locations, compared to a credit of $0.1
million in the third quarter of 2009.
Operating Income/(Loss)
We recorded operating income of $58.5 million in the third quarter of 2009, compared to operating
income of $53.2 million in the prior year period. Operating income as a percentage of revenue
improved 130 basis points to 13.9% compared to the same period in 2008. The year over year
improvement was driven by reduced operating expenses.
Other Income/(Expense) and Taxes
Interest income was $0.1 million and $0.4 million in the third quarters of 2009 and 2008,
respectively, reflecting lower interest rates.
Other income/(expense), net, included foreign exchange gains/(losses) of $1.5 million in the third
quarter of 2009 and $(1.9) million in the third 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 third quarters of
2009 and 2008 and should not be considered indicative of expected future results.
The effective income tax rate for the third quarter of 2009 was 38.2%. The rate was impacted by
the release of approximately $0.8 million in tax accruals as a result of the lapse of certain
statutes of limitation in the third quarter of 2009. The effective income tax rate for the third
quarter of 2008 was 40.0%. 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 certain tax audits, we currently expect our full year tax rate to be in the range
of 28.5%. This rate may vary if actual results differ from our current estimates, or there are
changes in our liability for uncertain tax positions.
Form 10-Q
Page 22
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.
Revenue by segment for the quarter ended October 2, 2009 compared to the quarter ended September
26, 2008 is as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
October 2,
|
|
September 26,
|
|
%
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
North America
|
|
$
|
188.3
|
|
|
$
|
184.5
|
|
|
|
2.0
|
%
|
Europe
|
|
|
195.2
|
|
|
|
199.9
|
|
|
|
(2.3
|
)
|
Asia
|
|
|
38.3
|
|
|
|
39.2
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
421.8
|
|
|
$
|
423.6
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
Operating income/(loss) by segment and as a percentage of segment revenue for the quarter ended
October 2, 2009 and the
quarter ended September 26, 2008 are included in the table below (dollars in millions). Segment
operating income is presented as a percentage of its respective segment revenue. Unallocated
corporate expenses are presented as a percentage of total revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
|
October 2,
|
|
|
|
|
|
September 26,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
North America
|
|
$
|
47.3
|
|
|
25.1
|
%
|
|
$
|
44.1
|
|
|
23.9
|
%
|
Europe
|
|
|
42.0
|
|
|
21.5
|
|
|
|
51.5
|
|
|
25.7
|
|
Asia
|
|
|
4.1
|
|
|
10.8
|
|
|
|
(0.8
|
)
|
|
(1.9
|
)
|
Unallocated corporate
|
|
|
(34.9
|
)
|
|
(8.3
|
)
|
|
|
(41.6
|
)
|
|
(9.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58.5
|
|
|
13.9
|
|
|
$
|
53.2
|
|
|
12.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
North America revenues increased 2.0% to $188.3 million, driven by strong growth in our wholesale
business from increased sales of kids and mens boots, SmartWool
®
accessories and mens
performance footwear which offset declines in casual footwear and Timberland
®
apparel.
Our North America retail business had revenue declines of 8.1%, driven by a 14.6% decrease in
comparable store sales partially offset by strong growth from 2 additional store openings and our
e-commerce businesses.
Operating income for our North America segment was $47.3 million, an increase of 7.3% from the
third quarter of 2008. The increase was driven by a decline in operating expenses of 12.2%,
primarily as a result of a decrease in sales and distribution expenses, lower marketing expenses
due, in part, to the timing of advertising campaigns, and a reduction in discretionary spending.
This was partially offset by a 160 basis point decline in gross margin, as higher product costs
offset favorable changes in mix, strategic price increases in certain product lines and a reduction
in provisions for inventory and returns.
Europe
Europe revenues decreased 2.3% to $195.2 million compared with the third quarter of 2008, but
increased 3.3% on a constant dollar basis. Growth in Italy, the Benelux region and France was
partially offset by declines in our distributor businesses, primarily in Eastern Europe, the Middle
East and the Mediterranean. Both wholesale and retail channels showed strong growth in boots
offset by declines in casual footwear and Timberland
®
apparel. Retail growth was driven
by the net addition of 9 new stores and comparable store sales growth of 2.9%.
Timberlands European segment recorded operating income of $42.0 million in the third quarter of
2009, compared to operating income of $51.5 million in the third quarter of 2008. Gross profit
decreased 470 basis points as foreign exchange rate movements, cost increases and higher markdowns
were partially offset by favorable shifts in product mix. The decline
Form 10-Q
Page 23
was partially offset by a
4.1% decrease in operating expense, as the benefit from a stronger U.S. dollar offset government
taxes on certain foreign investments, higher rent and occupancy costs associated with additional
stores, and increases in the provision for doubtful accounts for certain franchisees.
Asia
In Asia, revenue decreased 2.3%, or 9.1% in constant dollars, to $38.3 million, as growth in Japan
was offset by declines across the rest of Asia, including our distributor business. Retail sales
in Asia were down 4.1%, driven by a 2.3% decline in comparable store sales, primarily related to
the specialty retail market, and the closure of certain underperforming stores. We have opened 9
stores and closed 17 stores in Asia since the end of the third quarter of 2008, leaving us with 85
stores at the end of the third quarter of 2009 compared to 93 stores at the end of the prior year
period.
We had
operating income in our Asia segment of $4.1 million for the third quarter of 2009, compared
to an operating loss of $0.8 million for the third quarter of 2008. The year over year improvement
was driven by a 17.0% decrease in operating expenses, reflecting a reduction in employee
compensation and related costs, lower occupancy costs resulting from store closures, and decreased
marketing expenses. Gross profit benefited from foreign exchange rate movements and mix impacts,
which offset volume declines.
Corporate Unallocated
Our Unallocated Corporate expenses, which include central support and administrative costs not
allocated to our business segments, decreased 15.9% to $34.9 million. The main driver of the
decrease was a positive impact from certain costs/credits that are not allocated to the Companys
reportable segments, such as provisions for sourced inventory and manufacturing variances.
Corporate operating expenses increased 7.9% due to increased incentive compensation costs.
Results of Operations for the Nine Months Ended October 2, 2009 as Compared to the Nine Months
Ended September 26, 2008
Revenue
Consolidated revenue for the first nine months of 2009 was $898.1 million, a decrease of $75.8
million, or 7.8%, compared to the first nine months of 2008. These results were driven primarily
by the strengthening of the U.S. dollar against the British Pound and the Euro versus the prior
year period and declines in casual footwear and Timberland
®
apparel, partially offset by
strong growth in boots internationally as well as SmartWool
®
products. On a constant
dollar basis, consolidated revenues were down 3.5%. North America revenue totaled $394.4 million,
a 6.5% decline from 2008. Europe revenues were $400.9 million for the first nine months of 2009, a
decrease of 9.6% from the same period in 2008, but essentially flat on a constant dollar basis.
Asia revenues were $102.8 million for the first nine months of 2009, a decrease of 5.5% from the
same period in 2008, and a decline of 9.4% on a constant dollar basis.
Products
Worldwide footwear revenue was $657.7 million for the first nine months of 2009, down $35.4
million, or 5.1%, from the same period in 2008, driven by global declines in casual footwear and
our mens boot business in North America. Outside North America, we continue to see signs that our
boot business is strengthening. Worldwide apparel and accessories revenue fell 15.8% to $221.7
million, as growth from SmartWool was offset by a decline in Timberland
®
brand apparel,
reflecting softness in international markets, the strengthening of the U.S. dollar relative to the
British Pound and the Euro, 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 $18.7 million in the first nine months of 2009, compared to $17.6
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 kids apparel sales in Europe.
Channels
Wholesale revenue was $669.3 million, an 8.6% decrease compared to the first nine months of 2008.
Softness in certain of our key wholesale markets, such as the U.K. and Hong Kong, 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 drove the year over year wholesale
decline.
Form 10-Q
Page 24
Retail revenues fell 5.3% to $228.8 million, driven by unfavorable foreign exchange rate impacts
and a retail market that continues to be difficult, especially with respect to apparel. Overall,
comparable store sales were down 3.6% on a global basis compared to the first nine months 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 45.3% for the first nine months of
2009, or 60 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 $43.7 million and $56.3 million in the first
nine months 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 an outsourcing arrangement for our
international apparel sourcing and 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 nine months of 2009 was $366.4 million, 8.5%, or $33.9 million
lower than operating expense for the first nine months of 2008. The change is primarily
attributable to a $33.5 million decrease in selling and general and administrative expenses, and a
$1.3 million decrease in restructuring charges. 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 nine months of 2009 by approximately $20.0 million.
Selling expense for the first nine months of 2009 was $284.6 million, a decrease of $30.9 million,
or 9.8%, 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 and the exiting of certain specialty brands in 2008. These benefits were partially offset by
increases in incentive compensation costs.
We include the costs of physically managing inventory (warehousing and handling costs) in selling
expense. These costs totaled $27.4 million and $30.8 million in the first nine months of 2009 and
2008, respectively.
In the first nine months of 2009 and 2008, we recorded $1.6 million and $2.1 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 $11.5 million and $14.1 million
for the nine months ended October 2, 2009 and September 26, 2008, respectively.
Advertising expense, which is included in selling expense, was $19.0 million and $22.2 million in
the first nine months of 2009 and 2008, respectively. We maintained our commitment to
strengthening our premium brand position despite adverse economic conditions during the first nine
months of 2009, and the decrease was primarily the result of lower levels of co-op advertising, as
well as a shift in the timing of print and television advertising campaigns.
General and administrative expense for the first nine months of 2009 was $81.1 million, a decrease
of 3.1% as compared to the $83.7 million reported in the first nine months of 2008. The benefit
from changes in foreign exchange rates offset increases in compensation and related costs.
Total operating expense in the first nine months of 2009 also included a charge of $0.9 million to
reflect the impairment of a trademark and restructuring credits of $0.2 million. We recorded net
restructuring charges of $1.1 million in the first nine months of 2008.
Operating Income/(Loss)
Operating income for the first nine months of 2009 was $40.3 million, compared to operating income
of $46.5 million in the
Form 10-Q
Page 25
prior year period. The decrease in operating income was driven by lower
gross profit, primarily due to lower sales volume, partially offset by an 8.5% decline in operating
expenses. Operating income included an impairment charge of $0.9 million and restructuring credits
of $0.2 million in the first nine months of 2009, compared to restructuring charges of $1.1 million
in the first nine months of 2008.
Other Income/(Expense) and Taxes
Interest income was $0.8 million and $2.0 million in the first nine 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 $0.4 million in each of the first nine months of 2009 and 2008,
respectively.
Other income/(expense), net included foreign exchange gains of $1.9 million and $3.3 million in the
first nine 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. These gains were
driven by the volatility of exchange rates within the first nine months of 2009 and 2008 and should
not be considered indicative of expected future results.
The effective income tax rate for the first nine months of 2009 was 22.5%, compared to an effective
rate of 41.8% for the comparable period in 2008. The 2009 rate was impacted by a benefit of
approximately $7.3 million due to the closure or lapsing of certain audits in the first nine 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 and discrete items related to the completion of
audits, we currently expect our full year tax rate to be in the range of 28.5%. This rate may vary
if actual results differ from our current estimates, or there are changes in our liability for
uncertain tax positions.
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.
Revenue by segment for the nine months ended October 2, 2009 compared to the nine months ended
September 26, 2008 is as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
October 2,
|
|
September 26,
|
|
%
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
394.4
|
|
|
$
|
421.8
|
|
|
|
(6.5
|
)%
|
Europe
|
|
|
400.9
|
|
|
|
443.4
|
|
|
|
(9.6
|
)
|
Asia
|
|
|
102.8
|
|
|
|
108.7
|
|
|
|
(5.5
|
)
|
|
|
|
|
|
|
|
|
|
$
|
898.1
|
|
|
$
|
973.9
|
|
|
|
(7.8
|
)
|
|
|
|
|
|
|
|
Operating income/(loss) by segment and as a percentage of segment revenue for the nine months ended
October 2, 2009 and the nine months ended September 26, 2008 are included in the table below
(dollars in millions). Segment operating income is presented as a percentage of its respective
segment revenue. Unallocated corporate expenses are presented as a percentage of total revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
October 2,
|
|
|
|
|
|
September 26,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
North America
|
|
$
|
67.4
|
|
|
17.1
|
%
|
|
$
|
74.9
|
|
|
17.8
|
%
|
Europe
|
|
|
62.2
|
|
|
15.5
|
|
|
|
76.4
|
|
|
17.2
|
|
Asia
|
|
|
5.4
|
|
|
5.2
|
|
|
|
(1.4
|
)
|
|
(1.3
|
)
|
Unallocated corporate
|
|
|
(94.7
|
)
|
|
(10.5
|
)
|
|
|
(103.4
|
)
|
|
(10.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40.3
|
|
|
4.5
|
|
|
$
|
46.5
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
The Companys North America revenues decreased 6.5% to $394.4 million, driven by declines in mens
boots and casual
Form 10-Q
Page 26
footwear, 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. The decline in these areas was partially offset by growth in performance
footwear and SmartWool
®
accessories. Within North America, our retail business had
revenue declines of 6.3%, driven by an 11.1% decrease in comparable store sales, principally
related to our outlet stores.
Operating income for our North America segment decreased 10.0% to $67.4 million in the first nine
months of 2009. The decrease was driven by a 200 basis point decline in gross margin, reflecting
increased product costs and higher provisions for inventory, partially offset by a more favorable
channel mix. The deterioration in gross margin was partially offset by an 11.6% decrease in
operating expenses, principally selling, marketing and distribution expenses driven by lower volume
related costs in our wholesale business. Savings associated with the exiting of certain specialty
brands in 2008 were partially offset by fixed asset write-offs related to our retail business.
Europe
Our Europe revenues decreased to $400.9 million from the $443.4 million reported in the first nine
months of 2008 due to foreign exchange rate impacts. Europe revenues increased slightly on a
constant dollar basis. Softness in wholesale sales, primarily in the UK, Spain and our distributor
markets was offset by strong growth in our retail business, where we experienced comparable store
sales growth of 4.7%, as well as the net addition of 9 stores.
Europes operating income was $62.2 million for the first nine months of 2009, compared to $76.4
million in the prior year period, reflecting a 230 basis point decline in gross margin, which was
driven by higher product costs, the impact of foreign exchange rate fluctuations and reduced margin
on close-outs, partially offset by channel mix. This decrease was partially offset by an 11.1%
decrease in operating expenses, driven by the impact of foreign exchange rate movements, which were
partially offset by increased rent, occupancy and compensation costs associated with additional
stores, government taxes on certain foreign investments and an intangible asset impairment charge.
Asia
Asia revenues for the first nine months of 2009 were $102.8 million, compared to $108.7 million for
the first nine months of 2008, a decline of 5.5%, or 9.4% in constant dollars, due to both softness
in our retail apparel business and a decline in wholesale revenue in Hong Kong and the distributor
businesses.
Asias operating income was $5.4 million in the first nine months of 2009, compared to an operating
loss of $1.4 million in the first nine months of 2008, largely driven by a 12.8% reduction in
operating expense, due principally to reduced employee and compensation related costs and lower
occupancy costs in our retail business resulting from the closure of underperforming stores.
Corporate Unallocated
Our Unallocated Corporate expenses, which include central support and administrative costs not
allocated to our business segments, decreased 8.4% to $94.7 million. The lower expenses were
driven by the benefit from the revaluation of the
Companys existing inventory to new standard prices and a reduced level of certain costs, such as
provisions for sourced inventory and purchase price and other manufacturing variances. These items
are not allocated to the Companys reportable segments. Corporate operating expenses increased
2.5% due to higher incentive compensation costs and an increase in global marketing expenses.
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 Nine Months
|
|
|
Ended October 2, 2009
|
|
Ended October 2, 2009
|
|
|
$ Millions
|
|
|
|
|
|
$ Millions
|
|
|
|
|
Change
|
|
% Change
|
|
Change
|
|
% Change
|
|
|
|
|
|
Revenue decrease (GAAP)
|
|
$
|
(1.8
|
)
|
|
|
-0.4
|
%
|
|
$
|
(75.8
|
)
|
|
|
-7.8
|
%
|
Decrease due to foreign exchange rate changes
|
|
|
(9.0
|
)
|
|
|
-2.1
|
%
|
|
|
(41.8
|
)
|
|
|
-4.3
|
%
|
|
|
|
|
|
Revenue increase/(decrease) in constant dollars
|
|
$
|
7.2
|
|
|
|
1.7
|
%
|
|
$
|
(34.0
|
)
|
|
|
-3.5
|
%
|
Form 10-Q
Page 27
Europe Revenue Reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter
|
|
For the Nine Months
|
|
|
Ended October 2, 2009
|
|
Ended October 2, 2009
|
|
|
$ Millions
|
|
|
|
|
|
$ Millions
|
|
|
|
|
Change
|
|
% Change
|
|
Change
|
|
% Change
|
|
|
|
|
|
Revenue decrease (GAAP)
|
|
$
|
(4.7
|
)
|
|
|
-2.3
|
%
|
|
$
|
(42.5
|
)
|
|
|
-9.6
|
%
|
Decrease due to foreign exchange rate changes
|
|
|
(11.3
|
)
|
|
|
-5.6
|
%
|
|
|
(44.3
|
)
|
|
|
-10.0
|
%
|
|
|
|
|
|
Revenue increase in constant dollars
|
|
$
|
6.6
|
|
|
|
3.3
|
%
|
|
$
|
1.8
|
|
|
|
0.4
|
%
|
Asia Revenue Reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter
|
|
For the Nine Months
|
|
|
Ended October 2, 2009
|
|
Ended October 2, 2009
|
|
|
$ Millions
|
|
|
|
|
|
$ Millions
|
|
|
|
|
Change
|
|
% Change
|
|
Change
|
|
% Change
|
|
|
|
|
|
Revenue decrease (GAAP)
|
|
$
|
(0.9
|
)
|
|
|
-2.3
|
%
|
|
$
|
(5.9
|
)
|
|
|
-5.5
|
%
|
Increase due to foreign exchange rate changes
|
|
|
2.6
|
|
|
|
6.8
|
%
|
|
|
4.3
|
|
|
|
3.9
|
%
|
|
|
|
|
|
Revenue decrease in constant dollars
|
|
$
|
(3.5
|
)
|
|
|
-9.1
|
%
|
|
$
|
(10.2
|
)
|
|
|
-9.4
|
%
|
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.
Accounts Receivable and Inventory
Accounts receivable were $270.3 on October 2, 2009 compared with $168.7 million as of December 31,
2008 and $267.2 million at September 26, 2008. Days sales outstanding were 58 days as of October
2, 2009, compared with 39 days as of December 31, 2008 and 57 days as of September 26, 2008.
Wholesale days sales outstanding were 63 days for the third quarter of 2009, 48 days at December
31, 2008 and 62 days for the third quarter of 2008. The increase in accounts receivable and days
sales outstanding are principally due to a shift in the timing of revenue generation to later in
the quarter.
Inventory was $201.7 million as of October 2, 2009, compared with $179.7 million at December 31,
2008 and $218.9 million as of September 26, 2008. The year over year 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 nine months of 2009 was $62.7 million, compared with net
cash used of $21.5 million for the first nine months of 2008. The decrease in cash generation was
due primarily to reduced working capital investment as of December 31, 2008 compared with December
31, 2007.
Net cash used by investing activities was $13.2 million in the first nine months of 2009, compared
with $11.7 million in the first nine months of 2008. The increase is due primarily to the
acquisition of Glaudio for approximately $1.5 million.
Net cash used by financing activities was $29.0 million in the first nine months of 2009, compared
with $43.5 million in the first nine months of 2008. Cash flows used for financing activities
reflect share repurchases of $29.3 million in the first nine months of 2009, compared with $45.1
million in the first nine months of 2008. We received cash inflows of $1.4 million from the
issuance of common stock related to the exercise of employee stock options and employee stock
purchases in each of the first nine months of 2009 and 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
Form 10-Q
Page 28
institutions and have varying maturities through January 2011. 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, or lack of improvement, 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 October 2, 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 0.4% at October 2, 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 October 2, 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 October 2, 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 October 2, 2009.
We have uncommitted lines of credit available from certain banks which totaled $30 million at
October 2, 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 October 2, 2009, December 31, 2008 and September 26, 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 may 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 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 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.
Form 10-Q
Page 29
Off-Balance Sheet Arrangements
Letters of Credit
As of October 2, 2009, December 31, 2008 and September 26, 2008, we had letters of credit and
guarantees outstanding of $16.9 million, $16.1 million and $19.3 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.
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 October 2, 2009, December 31, 2008 and September 26, 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 15 months or less. Based upon a sensitivity analysis as of
October 2, 2009, a 10% change in foreign exchange rates would cause the fair value of our
derivative instruments to increase/decrease by approximately $15.6 million, compared to an
increase/decrease of $15.1 million at December 31, 2008 and an increase/decrease of $19.4 million
at September 26, 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. During
the third quarter of 2009, the Company successfully implemented SAP at certain North American
operations as part of its ongoing effort to migrate multiple legacy systems and users to a common
global information platform. SAP is expected to enable the Company to integrate and manage its
worldwide business and reporting processes more efficiently. In connection with the SAP
implementation and resulting business process changes,
Form 10-Q
Page 30
management reviewed the controls affected and made the necessary internal control changes. There
were no other 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 October 2,
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), in the section entitled Risk Factors, in
Part I, Item 1A of our Annual Report on Form 10-K, and in the section entitled Risk Factors, in
Part II, Item 1A of any Quarterly Report on Form 10-Q filed subsequent to 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, in our Annual Report on Form 10-K, and in any
Quarterly Report on Form 10-Q filed subsequent to 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.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES(1)
For the Three Fiscal Months Ended October 2, 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
|
|
July 4 July 31
|
|
|
16,500
|
|
|
$
|
13.61
|
|
|
|
16,500
|
|
|
|
2,934,973
|
|
August 1 August 28
|
|
|
337,630
|
|
|
|
13.29
|
|
|
|
337,630
|
|
|
|
2,597,343
|
|
August 29 October 2
|
|
|
401,280
|
|
|
|
13.43
|
|
|
|
401,280
|
|
|
|
2,196,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
755,410
|
|
|
$
|
13.37
|
|
|
|
755,410
|
|
|
|
|
|
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
|
Form 10-Q
Page 31
Item 6. EXHIBITS
Exhibits.
|
|
|
Exhibit 10.1
|
|
The Timberland Company 1991 Employee Stock Purchase Plan, as amended,
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.
|
Form 10-Q
Page 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
THE TIMBERLAND COMPANY
(Registrant)
|
|
Date: November 5, 2009
|
By:
|
/s/ JEFFREY B. SWARTZ
|
|
|
|
Jeffrey B. Swartz
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
Date: November 5, 2009
|
By:
|
/s/ CARRIE W. TEFFNER
|
|
|
|
Carrie W. Teffner
|
|
|
|
Chief Financial Officer
|
|
Form 10-Q
Page 33
EXHIBIT INDEX
|
|
|
Exhibit
|
|
Description
|
Exhibit 10.1
|
|
The Timberland Company 1991 Employee Stock Purchase Plan, as amended, 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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